10-K

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended September 30, 2006.
or
o	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 001-31788

NBTY, Inc.
(Exact name of registrant as specified in charter)

DELAWARE (State or other jurisdiction of incorporation or organization)	11-2228617 (I.R.S. Employer Identification No.)
90 Orville Drive Bohemia, New York (Address of principal executive offices)	11716 (Zip Code)
(631) 567-9500 (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on which Registered
Common Stock, par value $0.008 per share	New York Stock Exchange, Inc.

        Securities registered pursuant to Section 12(g) of the Act: None

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ý    No o

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    o

        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 ý    No o

        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    o

        Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ý    Accelerated Filer o    Non-Accelerated Filer o

        Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act rule 12b-2).

Yes o    No ý

        The aggregate market value of the voting stock held by non-affiliates of the Registrant on March 31, 2006, was approximately $1,188,396,000. 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 31, 2006 was approximately 67,204,000. The number of shares of Common Stock of the Registrant outstanding at December 4, 2006 was approximately 67,214,000.

DOCUMENTS INCORPORATED BY REFERENCE.

        Portions of the Registrant's definitive proxy statement for the Annual Meeting of Stockholders, which is expected to be filed within 120 days after the Registrant's fiscal year ended September 30, 2006, are incorporated by reference into Part III hereof.

NBTY, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2006
TABLE OF CONTENTS

	Caption	Page
PART I
	Forward Looking Statements	1
ITEM 1	BUSINESS	2
	General	2
	Business Strategy	2
	Operating Segments	4
	Employees and Advertising	6
	Manufacturing, Distribution and Quality Control	7
	Research and Development	8
	Competition; Customers	8
	Government Regulation	8
	International Operations	14
	Trademarks	15
	Raw Materials	15
	Seasonality	15
ITEM 1A	RISK FACTORS	16
ITEM 1B	UNRESOLVED STAFF COMMENTS	23
ITEM 2	PROPERTIES	23
ITEM 3	LEGAL PROCEEDINGS	26
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	28
PART II
ITEM 5	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	29
	Dividend Policy	29
	Price Range of Common Stock	30
	Securities Authorized for Issuance under Equity Compensation Plans	31
	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	31
ITEM 6	SELECTED FINANCIAL DATA	32
ITEM 7	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33
	Background	33
	Critical Accounting Estimates and Policies	34
	General	41
	Results of Operations	41
	Seasonality	54
	Off-Balance Sheet Arrangements	55
	Indemnification of Officers and Directors	55

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	Liquidity and Capital Resources	55
	Related Party Transactions	62
	Inflation	63
	Financial Covenants and Credit Rating	63
	New Accounting Developments	63
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	66
ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	67
ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	67
ITEM 9A	CONTROLS AND PROCEDURES	68
	Management's Report on Internal Control Over Financial Reporting	68
ITEM 9B	OTHER INFORMATION	70
PART III
ITEM 10	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	70
ITEM 11	EXECUTIVE COMPENSATION	70
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	70
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	70
ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES	70
PART IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES	71
	Index to Consolidated Financial Statements and Schedules	73
	Report of Independent Registered Public Accounting Firm	F-1
	Report of Independent Registered Public Accounting Firm	F-3
	Financial Statements	F-4
	Financial Statement Schedule	S-1
	Signatures
	Certifications
	Exhibits

ii

PART I

Forward Looking Statements

This Annual Report on Form 10-K (this "Report") contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of NBTY, Inc. and its subsidiaries (collectively, the "Company"). Discussions containing such forward-looking statements may be found in Items 1, 1A, 2, 3, 7, 7A and 9A, as well as within this Report generally. In addition, when used in this Report, the words "subject to," "believe," "expect," "plan," "project," "estimate," "intend," "may," "should," "can," or "anticipate," or the negative thereof, or variations thereon, or similar expressions, and discussions of strategy, are intended to identify forward-looking statements, which 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 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 God, acts of war, terrorism, bio-terrorism, civil unrest or disruption of mail service; (iii) adverse publicity regarding nutritional supplements; (iv) our 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 our management; (viii) increases in our cost of borrowings or unavailability of additional debt or equity capital, or both; (ix) unavailability of, or inability to consummate, advantageous acquisitions in the future, or our inability to integrate the acquisitions into the mainstream of our business; (x) changes in general worldwide economic and political conditions in the markets in which we may compete from time to time; (xi) our inability to gain or hold market share of our wholesale or retail customers anywhere in the world; (xii) unavailability of electricity in certain geographical areas; (xiii) our inability to obtain or renew insurance or the costs of same; (xiv) exposure to and expense of defending and resolving product liability claims, intellectual property claims and other litigation; (xv) our ability to implement our business strategy successfully; (xvi) our inability to manage our retail, wholesale, manufacturing and other operations efficiently; (xvii) consumer acceptance of our products; (xviii) our inability to renew leases for our retail locations; (xix) inability of our retail stores to attain or maintain profitability; (xx) the absence of clinical trials for many of our products; (xxi) sales and earnings volatility or trends for us and our market segments; (xxii) the efficacy of our internet and on-line sales and marketing strategies; (xxiii) fluctuations in foreign currencies, including the British Pound, the Euro and the Canadian Dollar; (xxiv) import-export controls on sales to foreign countries; (xxv) our inability to secure favorable new sites for, and delays in opening, new retail locations; (xxvi) introduction of, and compliance with, new federal, state, local or foreign legislation or regulation, or adverse determinations by regulators anywhere in the world (including the banning of products) and, more particularly, proposed Good Manufacturing Practices and Section 404 requirements of the Sarbanes-Oxley Act of 2002 in the United States, and the Food Supplements Directive and Traditional Herbal Medicinal Products Directive in Europe; (xxvii) the mix of our products and the profit margins thereon; (xxviii) the availability and pricing of raw materials; (xxix) risk factors discussed elsewhere in this Report; (xxx) adverse effects on us of increased gasoline prices and potentially reduced traffic flow to our retail locations; (xxxi) adverse tax determinations; (xxxii) the loss of a significant customer; and (xxxiii) other factors beyond our control.

Readers are cautioned not to place undue reliance on forward-looking statements. We cannot guarantee future results, trends, events, levels of activity, performance or achievements. We do not undertake, and specifically decline, 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 we believe this information is reliable, its accuracy has not been independently verified and cannot be guaranteed.

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Item 1.    BUSINESS

General

        NBTY, Inc. (together with its subsidiaries, 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 ("US") and throughout the world. Under a number of the Company's and third-party brands, we offer over 22,000 products, including vitamins, minerals, herbs, sports nutrition products, diet aids and other nutritional supplements. We are vertically integrated because we purchase raw materials, formulate and manufacture our products, and then market these products through our four channels of distribution:

•

Wholesale distribution to mass merchandisers, drug store chains, supermarkets, independent pharmacies and health food stores under various brand names, including Nature's Bounty®, Solgar®, Ester-C®, SISU® and Sundown® brands;



•

Direct Response/Puritan's Pride, a leading US nutritional supplement e-commerce/direct response business segment, under the Puritan's Pride® brand in catalogs and through the internet;



•

North American retail operations, including 476 Vitamin World and Nutrition Warehouse retail stores as of September 30, 2006, operating throughout the United States in 44 states, Guam, Puerto Rico and the Virgin Islands, and 96 Le Naturiste retail stores in Quebec, Canada; and



•

European retail operations, consisting of 549 Holland & Barrett, GNC (UK) and Nature's Way retail stores as of September 30, 2006, operating throughout the United Kingdom, or UK, and Ireland, and 68 De Tuinen retail stores operating in the Netherlands.

        At September 30, 2006, we manufactured about 90% of the nutritional supplements we sold.

        The Company was incorporated in Delaware in 1979 under the name Nature's Bounty, Inc. On March 26, 1995, we changed our name to NBTY, Inc. Our principal executive offices are at 90 Orville Drive, Bohemia, New York 11716, our telephone number is (631) 567-9500, and our website is www.nbty.com. Our UK subsidiary, Holland & Barrett Holdings Limited, has its principal executive offices in Nuneaton, UK, and our Dutch subsidiary, De Tuinen, B.V., has its principal executive offices in Beverwijk, Netherlands.

        Our 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 under Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are available at no cost on our website. We make these reports available as soon as reasonably practicable after we file them electronically with the Securities and Exchange Commission (the "SEC").

Business Strategy

        The Company targets the growing value-conscious consumer segment by offering high-quality products at a value price. Our objectives are to increase sales, improve manufacturing efficiencies, increase profitability and strengthen our market position through the following key strategies.

        Expand Existing Channels of Distribution.    We plan to continue expanding and improving our existing channels of distribution through aggressive marketing and synergistic acquisitions, to the extent available on terms acceptable to us, to increase our sales and profitability and enhance our overall market share. Specific plans to expand channels of distribution include the following.

•

Increase Wholesale Sales in the US and in Foreign Markets.    We expect to strengthen our wholesale business by continuing to increase our sales in food, drug and mass merchandising channels by (i) increasing revenues from existing customers through strong promotional activities and aggressive introduction of new and innovative products, (ii) increasing shelf space in major

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retailers, (iii) leveraging the advertising and promotion of our major specialty brands, such as Osteo-Bi-Flex®, MET-Rx®, Flex-a-min®, Knox®, and, most recently, Ester-C®, and (iv) continuing to increase our private label revenue with new customers and timely product introductions. In addition, we continue to seek to form new distribution alliances throughout the world for our products, while strengthening existing relationships.

•

Increase Direct Response/Puritan's Pride® Sales.    We expect to continue to strengthen our leading position in the e-commerce/direct response business by (i) continuing to build brand and customer loyalty across catalog and internet channels, (ii) increasing e-commerce activity from a variety of online media channels, including search, e-mail marketing, affiliate marketing and shopping portals, (iii) focusing on enhanced retention and re-activation programs on-line and off-line, while testing new promotions to further improve response rates, (iv) improving the shopping experience available to our customers with website enhancements and call center system upgrades, (v) improving automated picking and packing to fulfill sales order requests with greater speed and accuracy, and (vi) increasing manufacturing capability to quickly introduce and deliver new products in response to customer demand. We also intend to continue our strategy of acquiring customer lists, brand names and inventory of other mail order companies that have similar or complementary products that we believe we can integrate into our operations efficiently, without adding substantial overhead.



•

Increase Retail Sales in North America.    We intend to continue focusing on the development of a nationwide chain of profitable retail stores in the United States and Canada. To that end, at September 30, 2006, we operated 476 Vitamin World and Nutrition Warehouse retail stores in regional and outlet malls throughout the United States, and 96 Le Naturiste retail stores throughout Quebec, Canada. We opened nine Vitamin World stores in the United States since October 1, 2005, or approximately 1.9% of the total number of stores in operation in the United States at September 30, 2006, and closed 75 underperforming stores during the same period. As a result, as of September 30, 2006, we operated 66 fewer Vitamin World stores than in the fiscal year ended September 30, 2005. Although we plan to open ten new stores during the 2007 fiscal year, we may close up to 25 existing Vitamin World stores during that time. Fifty Vitamin World retail store leases expire during the 2007 fiscal year, and, in an effort to improve Vitamin World's profitability, any store whose lease cannot be renegotiated on favorable terms may be closed when its lease lapses. We maintain our Savings Passport Card, a customer loyalty program that we believe increases customer traffic and provides incentives to purchase at Vitamin World stores. The Savings Passport Card also helps us track customer preferences and purchasing trends. At the end of fiscal 2006, we had approximately seven million Savings Passport Card members.



•

Increase Retail Sales in the UK, Ireland and Europe.    We continue selectively expanding the number of our Holland & Barrett stores throughout the UK. At September 30, 2006, we had 498 Holland & Barrett and 19 Nature's Way stores operating in the UK and Ireland. In fiscal 2006, Nature's Way opened three new stores, and Holland & Barrett opened seven new stores, converted one GNC (UK) retail store to a Holland & Barrett store and bought back one franchise. We project that, during the next fiscal year, we will open additional new retail stores in the UK and Ireland.

        At September 30, 2006, there were 32 GNC (UK) retail stores in operation in the UK and 68 De Tuinen retail stores in the Netherlands, including 21 franchise De Tuinen locations. We will continue to evaluate opportunities to open additional GNC (UK) stores in the UK and De Tuinen stores in Europe.

        Introduce Innovative New Products.    We consistently have 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 demand for new products and the continued publicity about the

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importance of vitamins, minerals and nutritional supplements in the promotion of general health, we believe that we will continue to maintain our core customer base and attract new customers based upon our ability to respond rapidly to consumer demand with high quality, value-oriented products.

        Enhance Vertical Integration.    We believe our vertical integration gives us a significant competitive advantage by allowing us to (i) maintain higher quality standards while lowering product costs, which we pass on to our customers as lower prices, (ii) respond to scientific and popular reports and consumer buying trends more quickly, (iii) meet customer delivery schedules more effectively, (iv) reduce dependence on outside suppliers, and (v) improve overall operating margins. We continually evaluate ways to enhance our vertical integration by leveraging manufacturing, distribution, purchasing and marketing capabilities, and otherwise improving the efficiency of our operations.

        Build Infrastructure to Support Growth.    We have technologically advanced, state-of-the-art manufacturing and production facilities, with total production capacity of approximately 45 billion tablets, capsules and softgels per year. In February 2006, we completed a 21 million square foot expansion of our softgel facility in Bayport, New York. As a result of this expansion, the Bayport facility's manufacturing capacity increased by approximately 53% to approximately 8.3 billion softgels per year. We regularly evaluate our manufacturing operations and make investments in infrastructure, as necessary, to support our continuing growth.

        Implement Strategic Acquisitions.    In the normal course of our business, we seek acquisition opportunities, both in the United States and internationally, of companies that complement or extend our existing product lines, increase our market presence, expand our distribution channels, and are compatible with our business philosophy. We have successfully acquired more than 30 companies or businesses since 1986, enabling us to expand our product lines and scope of distribution significantly. On October 2, 2006, we acquired Zila Nutraceutical, Inc., and renamed it The Ester C Company. For more information about our acquisitions, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Notes to our Financial Statements in this Report. We will continue to evaluate acquisition opportunities across the industry and around the world.

        Utilize Management Team Experience.    Our management team has extensive experience in the nutritional supplement industry and has developed long-standing relationships with our suppliers and customers. Our executive officers have an average of over 20 years in the industry. We will continue to employ the talent, experience and expertise of our management team to realize our goals.

Operating Segments

        We operate in the nutritional supplement industry, focusing our products and services on four segments of this industry: Wholesale/US Nutrition, North American Retail, European Retail and Direct Response/Puritan's Pride.

        The following table sets forth the percentage of net sales for each of our operating segments:

	Fiscal Year Ended September 30,
	2006		2005		2004
Wholesale/US Nutrition	47	%	43	%	44	%
North American Retail	13	%	13	%	13	%
European Retail/Holland & Barrett/GNC (UK)	30	%	33	%	30	%
Direct Response/Puritan's Pride	10	%	11	%	13	%
	100	%	100	%	100	%

        You can find more information about the financial results of each segment in Note 18 to the Consolidated Financial Statements in this Report.

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        Wholesale/US Nutrition.    We market our products under various brand names to many channels of distribution. We sell our products to leading mass merchandisers, drug store chains and supermarkets, independent pharmacies, health food stores, health food store wholesalers, and other retailers. We sell Nature's Bounty®, Rexall® and Sundown® brands to mass merchandisers, drug store chains, drug wholesalers, supermarket chains and wholesalers. We also sell directly to health food stores under the Solgar®, SISU® and Good 'N Natural® brands, and sell products, including a specialty line of vitamins, to health food wholesalers under our American Health® brand. Over the past several years, we have expanded product sales to many countries throughout Europe, Asia and Latin America.

        North American Retail.    At the end of fiscal 2006, we operated 476 Vitamin World and Nutrition Warehouse retail stores in regional and outlet malls throughout the United States, and 96 Le Naturiste retail stores throughout Quebec, Canada. Each store carries a full line of products, both our brands and products manufactured by others. Nutritional supplement products that we manufactured accounted for approximately 70% of North American Retail's total sales in fiscal 2006. Our direct interaction with our retail customers helps us identify regional buying trends, customer preferences, product acceptances and price trends. We use this information in initiating sales programs and new product introductions for all our divisions. In addition to www.puritan.com and www.vitamins.com, which focus on our direct response segment, we also maintain www.vitaminworld.com. We designed the www.vitaminworld.com site to permit our customers to purchase nutritional supplements on the internet and to locate our retail stores. This website also provides information about the products we offer in our retail stores, and an easy and effective way to purchase Vitamin World® products through our e-commerce portal.

        European Retail.    Our Holland & Barrett, GNC (UK) and DeTuinen subsidiaries generate our European Retail sales from 498 Holland & Barrett stores in the UK, 19 Nature's Way stores in Ireland, 32 GNC (UK) stores in the UK, and 68 DeTuinen stores in the Netherlands. Holland & Barrett, one of the UK's leading nutritional supplement retailers, markets a broad line of nutritional supplement products, including vitamins, minerals and other nutritional supplements. Holland & Barrett stores also sell food products, such as fruits and nuts, and confectionery. Our Nature's Way® product offerings are similar to those of Holland & Barrett. GNC (UK) stores specialize in vitamins, minerals and sports nutrition products. De Tuinen is a leading retailer of health food products, selected confectionery, and lifestyle giftware. Nutritional supplement products that we manufactured accounted for approximately 43% of European Retail's total sales in fiscal 2006.

        Direct Response.    We offer, through mail order and internet e-commerce, a full line of vitamins and other nutritional supplement products as well as selected personal care items, under our Puritan's Pride® brand names at prices that are generally at a discount from those of similar products sold in retail stores. Through our Puritan's Pride® brand, we are a leader in the US direct response nutritional supplement industry with more than four million customers on our customer list, with response rates that we believe are above the industry average. We intend to attract new customers in our direct response operation through aggressive marketing techniques in the United States and around the world, and through selective acquisitions. We regularly update our mail order lists by adding new customers and deleting those who have not placed orders within a designated period of time. We believe this maximizes catalog sales while reducing mailing and printing costs. We also advertise in newspaper supplements and conduct insert programs with other mail order companies to add new customers to our mailing lists and websites, and to increase the average order size. Our use of state-of-the-art equipment, such as computerized mailing, bar-coded addresses and automated picking and packing systems enables us to process orders quickly, economically and efficiently. Typically, we fill orders within 24 hours of receipt. Our equipment and expertise also lowers our per customer distribution costs, thereby enhancing margins and enabling us to lower our prices. Our www.puritan.com and www.vitamins.com websites provide a practical and convenient method for consumers wishing to

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purchase products that promote healthy living. Through these websites, consumers have access to more than 1,500 products offered through our Puritan's Pride® mail order catalog.

        See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Notes to our Consolidated Financial Statements in this Report, for more information regarding financial information about the geographic areas where we conduct our business.

Employees and Advertising

        As of September 30, 2006, we employed approximately 10,900 persons, including:

(i)

2,247 sales associates located throughout the United States in our Vitamin World and Nutrition Warehouse retail stores;



(ii)

2,840 manufacturing, shipping and packaging associates throughout the United States;



(iii)

615 associates in administration throughout the United States;



(iv)

183 associates who sell to wholesale distributors and customers;



(v)

60 in-house advertising associates;



(vi)

3,539 associates in our Holland & Barrett operations, including:



(A)

3,106 retail associates,



(B)

248 associates in distribution, and



(C)

185 associates in administration;



(vii)

352 associates in our De Tuinen operations, including:



(A)

312 retail associates, and



(B)

40 associates in administration and warehousing;



(viii)

189 associates in GNC (UK) retail stores;



(ix)

112 associates in Nature's Way retail stores; and



(x)

364 associates in Le Naturiste operations, including



(A)

304 retail associates,



(B)

36 associates in distribution, and



(C)

24 associates in administration;



(xi)

255 associates in Direct Response operations;



(xii)

83 associates in SISU operations (including 28 manufacturing associates); and



(xiii)

90 associates in Solgar international operations.

In addition, we sell products through commissioned sales representative organizations. We believe we have satisfactory employee and labor relations.

        For the fiscal years ended September 30, 2006, 2005 and 2004, we spent approximately $104 million, $108 million and $85 million, respectively, on advertising and promotions, including print, media and cooperative advertising. We create our own advertising materials through our in-house staff of associates. In the UK and Ireland, both Holland & Barrett and Nature's Way advertise on television and in national newspapers, and conduct sales promotions. GNC (UK) and De Tuinen also advertise in newspapers and conduct sales promotions. In addition, Holland & Barrett and De Tuinen each publish their own magazines with articles and promotional materials. SISU advertises in trade journals and magazines and conducts sales promotions.

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Manufacturing, Distribution and Quality Control

        At September 30, 2006, we employed approximately 2,840 manufacturing, shipping and packaging associates throughout the United States and 28 such associates in Burnaby, British Columbia. We manufacture in New York, California, Illinois, Florida, Georgia, New Jersey and Canada. We have technologically advanced, state-of-the-art manufacturing and production facilities, with total production capacity of approximately 45 billion tablets, capsules and softgels per year. In February 2006, we completed a $21 million expansion of our softgel facility in Bayport, New York. As a result of this expansion, the Bayport facility can produce approximately 8.3 billion softgels per year, or a 53% increase in capacity.

        All our manufacturing operations are subject to good manufacturing practice regulations, or GMPs, promulgated by the United States Food and Drug Administration, or FDA, and other applicable regulatory standards. We are subject to similar regulations and standards in Canada. We believe our manufacturing processes are compliant with current GMPs. We manufacture products for our four operating segments and for third parties. We believe our manufacturing and distribution facilities generally are adequate to meet our current business requirements and our currently anticipated increases in sales.

        We place special emphasis on quality control. We assign a lot number to all raw materials and initially hold them in quarantine, while our laboratory chemists assay them for compliance with established specifications. Once released, samples are retained, and we process the material according to approved formulae by mixing, granulating, compressing, encapsulating and, sometimes, coating operations. After a tablet or capsule is manufactured, laboratory chemists and technicians test its weight, purity, potency, disintegration and dissolution, if applicable. We hold the product in quarantine until we complete this evaluation, and determine that the product meets all applicable specifications. Generally, when products such as vitamin tablets are ready for bottling, our automated equipment counts the tablets, inserts them into bottles, adds a tamper-resistant cap with an inner safety seal and affixes a label with lot number and expiration date. We use computer-generated documentation for picking and packing for order fulfillment.

        Our 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 us to respond quickly to changes in manufacturing schedules.

        Inventory Control.    We have installed inventory control systems at our facilities that track each product as we receive it from our supply sources through manufacturing and shipment of each product to customers. To facilitate this tracking, most products we sell are bar coded. Our inventory control systems report shipping, sales and individual SKU level inventory information. We manage the retail sales process by monitoring customer sales and inventory levels by product category. We believe our distribution capabilities increase our flexibility in responding to our customers' delivery requirements.

        Our purchasing staff regularly reviews and analyzes information from our point-of-sale computer system and makes merchandise allocation and markdown decisions based on this information. We use an automated reorder system to maintain in-stock positions on key items. These systems give us the information we need to determine the proper timing and quantity of reorders.

        Financial Reporting.    Our financial reporting systems provide us with detailed financial reporting to support our 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.

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Research and Development

        We did not expend material amounts for research and development of new products during the last three years.

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. We believe we compete favorably in all these areas.

        Our direct competition consists primarily of publicly and privately owned companies, which tend to be highly fragmented in terms of both geographical market coverage and product categories. We also compete with companies that may have broader product lines, larger sales volumes, or both. Our products also compete with nationally advertised brand name products. Most of the national brand companies have resources greater than we do.

        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, we cannot assess precisely the size of all our competitors, or where we rank in comparison to such privately held competitors with respect to sales to retailers.

        During fiscal 2006, two individual customers accounted for the following percentages of the Wholesale/US Nutrition division's net sales:

Customer A	12	%
Customer B	16	%

        Customer A is primarily a supplier to Customer B. Therefore, the loss of Customer B would likely result in the loss of most of the net sales to Customer A.

        As of September 30, 2006, only one individual customer accounted for more than 10% of the Wholesale/US Nutrition division's total gross accounts receivable. Customer B above accounted for 12% of the division's total gross accounts receivable as of September 30, 2006.

        While no one customer represented, individually, more than 10% of our total gross accounts receivable, or our consolidated net sales, for fiscal 2006, the loss of either Customer A or Customer B would have a material adverse effect on the Wholesale/US Nutrition division if we were unable to replace it.

Government Regulation

        United States.    The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by federal agencies, including the FDA, the Federal Trade Commission, or FTC, the United States Postal Service, the Consumer Product Safety Commission, the Department of Agriculture, and the Environmental Protection Agency or EPA. These activities also are subject to regulation by various agencies of the states, localities and foreign countries in which our products are sold. In particular, the FDA, under the Federal Food, Drug, and Cosmetic Act, or FDCA, regulates the formulation, manufacturing, packaging, labeling, distribution and sale of dietary supplements, including vitamins, minerals and herbs, and of over-the-counter, or OTC, drugs. The FTC regulates the advertising of these products, and the Postal Service regulates advertising claims with respect to such products sold by mail order. The National Advertising Division, or NAD, of the Council of Better Business Bureaus oversees an industry-sponsored self-regulatory system that permits competitors to resolve disputes over advertising claims. The NAD has no enforcement authority of its

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own, but may refer matters that the NAD views as violating FTC guides or rules to the FTC for further action.

        The FDCA has been amended several times with respect to dietary supplements, in particular by the Dietary Supplement Health and Education Act of 1994, known as DSHEA. DSHEA established a new framework governing the composition and labeling of dietary supplements. With respect to composition, DSHEA defines "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, constituents, extracts or combinations of such dietary ingredients. Generally, under DSHEA, dietary ingredients that were marketed in the United States before October 15, 1994 may be used in dietary supplements without notifying the FDA. However, a "new" dietary ingredient (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 we may want to market, and the FDA's refusal to accept such evidence could prevent the marketing of such dietary ingredients. The FDA is in the process of developing guidance for the industry to clarify the FDA's interpretation of the new dietary ingredient notification requirements, and this guidance may raise new and significant regulatory barriers for new dietary ingredients. In addition, increased FDA enforcement could lead the FDA to challenge dietary ingredients already on the market as "illegal" under the FDCA because of the failure to submit a new dietary ingredient notification.

        DSHEA permits "statements of nutritional support" to be included in labeling for dietary supplements without 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. In some circumstances, it is necessary to disclose on the label that the FDA has not "evaluated" the statement, to disclose that the product is not intended for use for a disease, and to notify the FDA about our use of the statement within 30 days of marketing the product. However, there can be no assurance that the FDA will not determine that a particular statement of nutritional support that we want to use is an unacceptable disease claim or an unauthorized version of a "health claim." Such a determination might prevent us from using the claim.

        In addition, DSHEA provides that certain so-called "third-party literature," such as 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 consumers" without the literature being subject to regulation as labeling. Such literature must not be, among other things, false or misleading, among other things; 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 we would like to disseminate in connection with our products will satisfy all the requirements, and failure to satisfy all requirements could prevent use of the literature or subject the product involved to regulation as an unapproved drug.

        As authorized by DSHEA, the FDA recently has proposed GMPs specifically for dietary supplements. These new GMP regulations, if finalized (as predicted to occur in the near future), would be more detailed than the GMPs that currently apply to dietary supplements and may require, among

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other things, 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, we will be able to comply with the new rules without incurring substantial expense.

        The FDA generally prohibits the use in labeling for a dietary supplement of any "health claim" unless the claim is pre-approved by the FDA. There can be no assurance that some of the labeling statements that we would like to use will not be deemed by the FDA to be "unauthorized health or disease claims" that are not permitted to be used.

        Although the regulation of dietary supplements in some respects is less restrictive than the regulation of drugs, there can be no assurance that dietary supplements will continue to be subject to less restrictive regulation. Legislation has been periodically introduced in Congress, including in 2006, 2005 and 2004, to amend the FDCA to place more restrictions on the marketing of dietary supplements. In addition, Congress has been asked to consider various systems for pre-market and post-market review of dietary supplements to make the regulation of these products more like the regulation of drugs under the FDCA. The FDA regulates the formulation, manufacturing, packaging, labeling and distribution of OTC drug products under 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 the applicable FDA monograph, the product generally cannot be sold without first obtaining the FDA approval of a new drug application, a long and expensive procedure. There can be no assurance that, if more stringent statutes are enacted for dietary supplements, or if more stringent regulations are promulgated, we will be able to comply with such statutes or regulations without incurring substantial expense.

        The FDA has broad authority to enforce the provisions of the FDCA applicable to dietary supplements and OTC drugs, including powers to issue a public "warning letter" to a company, to publicize information about illegal products, to request a voluntary 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 US courts.

        The FTC exercises jurisdiction over the advertising of dietary supplements. In recent years, the FTC has instituted numerous enforcement actions against dietary supplement companies for failure to adequately substantiate 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, restitution, or both, by the companies involved. We currently are subject to FTC consent decrees resulting from past advertising claims for certain of our products. Our subsidiary, Rexall Sundown, also is currently subject to FTC consent decrees resulting from past advertising claims for certain of its products. As a result, we are required to maintain compliance with these decrees and are subject to an injunction and 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 us, and we are required to maintain compliance with the orders applicable to us, subject to civil monetary penalties for any noncompliance. Violations of these orders could result in substantial monetary penalties. Civil penalty actions could have a material adverse effect on our consolidated financial position or results of operations.

        In June 2003, we received a letter of inquiry from the FTC concerning our marketing of a certain weight loss program, as well as the marketing of the Royal Tongan Limu dietary supplement by our subsidiary, Dynamic Essentials, Inc. ("DEI"). Subsequent to the receipt of this letter, we voluntarily stopped all sales and promotions of the weight loss product in question and of Royal Tongan Limu. We also ceased all DEI operations and terminated all DEI employees. In October 2005, the United States District Court for the Eastern District of New York entered a Consent Decree that required us to pay a $2 million civil penalty, and imposed an injunction that requires us to comply with the terms of a

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1995 consent order between the FTC and us. We have paid the civil penalty and are complying with the consent order.

        In March 2003, we ceased selling products that contain ephedra. Though we continue to believe that the ephedra products we sold are safe to use as directed, the adverse publicity surrounding ephedra products and the regulatory environment in the United States led us to the decision to cease selling ephedra products, in our best interests and that of our shareholders. Overall, sales of ephedra products represented an insignificant portion of our business. Subsequent to the decision to cease selling ephedra products, we were named as a defendant or a third-party defendant in several actions, alleging liability (under various theories, including negligence, false advertising, strict liability in tort and failure to warn) as well as personal injury with respect to our sales, manufacturing and distribution of products containing ephedra. We have notified our insurance carriers and third-party vendors with regard to each suit and vigorously contest the allegations in these actions. We did not acquire any ephedra assets, liabilities or operations in connection with our 2003 purchase of Rexall Sundown. All such operations were retained by Royal Numico N.V., the prior owner of Rexall Sundown. The FDA issued a final regulation on February 11, 2004 prohibiting the sale of ephedra based on the FDA's safety concerns. This final regulation has been challenged in at least three third-party lawsuits. In one of the lawsuits, a 2005 Utah District Court declared the FDA's rule banning ephedra invalid. The Court of Appeals for the 10^th Circuit overturned that case. A petition has been filed with the Supreme Court seeking review of the 10th Circuit's decision. Legislation also has been introduced in Congress to impose a risk/benefit standard on dietary supplement safety reviews.

        We also are 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 our products. Compliance with such foreign governmental regulations is generally the responsibility of our distributors in those countries. These distributors are independent contractors whom we do not control.

        In addition, from time to time in the future, we 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 we consider favorable, such as DSHEA, or to more stringent interpretations of current laws or regulations. We are not able to predict the nature of such future laws, regulations, repeals or interpretations, and we cannot predict what effect additional governmental regulation, when and if it occurs, would have on our business in the future. Such developments, however, could 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, additional personnel, or other new requirements. Any such development could have a material adverse effect on us.

        Europe.    In Europe, the European Union Commission is responsible for developing legislation to regulate foodstuffs and medicines. Although the government of each Member State may implement legislation governing these products, national legislation must be compatible with, and cannot be more restrictive than, European requirements. Each Member State is responsible for its enforcement of the provisions of European and national legislation.

        United Kingdom.    In the United Kingdom, the two main pieces of legislation that affect the operations of Holland & Barrett and GNC (UK) 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 detail to the main provisions of the above Acts, governing composition, packaging, labeling and advertising of products.

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        In the UK regulatory system, a product intended to be taken orally will fall within either the category of food or the category of medicine. There is currently no special category of dietary supplement as provided for in the United States 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 and Healthcare products Regulatory Agency, or MHRA, now has responsibility for the implementation and enforcement of the Medicines Act, and is the licensing authority for medicinal products. The MHRA directly employs enforcement officers from a wide range of backgrounds, including the police, and with a wide range of skills, including information technology. However, the MHRA still relies heavily on competitor complaints to identify non-compliant products. The MHRA is an Executive Agency of the Department of Health. The MHRA 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 virtue of these two criteria.

        The Food Standards Agency, or 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 large number of local authorities in the UK can lead to an inconsistent approach to enforcement. Unlike the MHRA, local authorities regularly purchase products and analyze them to identify issues of non-compliance. 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. Despite the differences in approaches in identifying non-compliant products, both the MHRA and local authorities can, and do, prosecute where issues of non-compliance are identified.

        In July 2002, the European Union, or EU, published in its Official Journal the final text of a Food Supplements Directive which became effective in the EU at that time, and which sets out a process and timetable by which the Member States of Europe must bring their domestic legislation in line with its provisions. The Directive seeks to harmonize 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 nutrient sources may be used (and by interpretation the rest which may not), and the labeling and other information which must be provided on packaging. In addition, this Directive is intended to regulate the levels at which these nutrients may be present in a supplement. These maximum permitted levels are due to be announced shortly.

        By harmonizing the legislation, the Food Supplements Directive should provide opportunities for businesses to market one product or a range of products to a larger number of potential customers without having to reformulate or repackage it. This development may lead to some liberalizing of the more restrictive regimes in France and Germany, providing new business opportunities. Conversely, however, it may limit the range of nutrients and nutrient sources substantially, and eventually the potencies at which some nutrients may be marketed by us in the more liberal countries, such as the UK, which may lead to some reformulation costs and loss of some specialty products.

        Following the publication of the Food Supplements Directive, two challenges were brought in the UK Courts attacking its validity. Subsequently, the matters were referred to the European Court of Justice, or ECJ, for resolution. The ECJ upheld the validity of the Directive, ruling that its contents were legal under European Law. However, due to the ECJ's comments on procedure, the EU Commission has undertaken to look at ways to ensure the Directive is implemented in a transparent and timely manner.

        The provisions of the Food Supplements Directive have been incorporated into UK domestic law (which includes England & Wales, Scotland and Northern Ireland) by Statutory Instrument and apply from August 2005.

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        On April 30, 2004, the EU published the Traditional Herbal Medicinal Products Directive, or THMPD, which requires traditional herbal medicines to be registered in each Member State in which they are intended to be marketed. A registration requires a product be manufactured to pharmaceutical GMP standards; however, generally, there is no need to demonstrate efficacy, provided that the product is safe, is manufactured to high standards, and has a history of supply on the market for 30 years, 15 years of which must be in the EU. The THMPD 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. However, it does not provide a mechanism for new product development, and would entail some compliance costs in registering the many herbal products already on the market. Member States had to put into place the provisions for national compliance by October 2005, the date on which Traditional Herbal Medicinal products could begin to be registered. A transitional period of seven years has been granted in the UK to allow all relevant products to be registered. Full compliance is required by April 2011. While we currently believe that we will comply with this Directive, it has become apparent that we cannot do so without incurring substantial expense.

        Additional European legislation is being developed to regulate sports nutrition products, including the composition of such products. In particular, such legislation could restrict the type of nutrients we may use in our products. Legislation introducing maximum permitted levels for nutrients in fortified foods is also under discussion together with legislation introducing a positive list for enzymes. These proposals, if implemented, could require us to reformulate our existing products. Also, proposals to amend medicine legislation will impact traditional herbal medicines and introduce new requirements, such as Braille labeling, which may lead to higher associated costs.

        The EU has established a European Food Safety Authority, which will have an important role to play in focusing attention on food standards in Europe. Its Executive Director is Mr. Geoffrey Podger, who until 2003 was the Chief Executive of the UK's Food Standards Agency.

        Ireland.    The legislative and regulatory situation in the Republic of Ireland is similar, but not identical to that in the UK. The Irish Medicines Board has a similar role to that of the UK's MHRA and the Food Safety Authority of Ireland is analogous to the UK's FSA. Like the UK, Ireland will be required to bring its domestic legislation into line with the provisions of the Food Supplements Directive and the THMPD when the latter is finalized, and, indeed, with the other forthcoming EU legislation mentioned above. Thus the market prospects for Ireland, in general, are similar to those outlined in the UK.

        Netherlands.    The regulatory environment in the Netherlands is similar to the UK in terms of availability of products. The Netherlands currently has the same liberal market, with no restrictions on potency of nutrients. Licensed herbal medicines are available. However, there are some herbal medicines which are sold freely as in the UK without the need to be licensed, depending on the claims made for them. The Netherlands also is more liberal regarding certain substances, for which unlicensed sales are allowed. The government department dealing with this sector is the Ministry for Health, Welfare and Sport.

        Responsibility for food safety falls to the Keuringsdienst van Waren (Inspectorate for Health Protection and Veterinary Public Health). This authority deals with all nutritional products. The Medicines Evaluation Board, which is the equivalent of the UK's MHRA, is charged with responsibility for the safety of medicines which are regulated under the Supply of Medicines Act.

        The overall market prospects for the Netherlands, in general, are similar to those outlined for the UK above, with the exception of only a four-year transitional period granted for the registration of Traditional Herbal Medicinal products which are currently on sale in the Netherlands and which fall within the scope of the THMPD.

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        Canada.    The legislative and regulatory situation in Canada is similar, but not identical, to that in the United States. The manufacturing, packaging, labeling, storage, importation, advertising, distribution, sale and clinical trials of natural health products, called NHP's, and hybrid NHPs, are subject to regulation by Health Canada, the public health agency of Canada, including, specifically, the Therapeutic Products Directorate, the Natural Health Products Directorate and the Health Protection and Food Branch Inspectorate. Health Canada regulates NHPs (which include vitamins and minerals, herbal remedies, homeopathic medicines, traditional medicines (such as traditional Chinese medicines), probiotics and products like amino acids and essential fatty acids) and hybrid NHPs under the Canadian Food and Drugs Act, the Canadian Food and Drug Regulations, the Natural Health Product Regulations and various Guidance Documents and Policies related thereto. With the exception of homeopathic medicines, products with ingredients required to be sold under prescription are not natural health products and are regulated as drugs though the regular drug approval process. Similarly, hybrid products comprising drugs are regulated as such under the Canadian Food and Drugs Act and the Canadian Food and Drug Regulations.

        Before January 1, 2004, NHPs for which therapeutic claims were made were regulated as drugs requiring a Drug Identification Number, or DIN. Effective January 1, 2004, NHPs in Canada became subject to new requirements under the Natural Health Product Regulations. Under these regulations, manufacturers are required to make application for a product license, and the application must provide specific information including quality of medicinal ingredients, use and purpose of the NHPs, and the supporting safety and efficacy data. These regulations also set out a regime for site licensing of buildings in which NHPs are imported, distributed, manufactured, packaged, labeled or stored. The primary prerequisite of a site license is that GMP's be employed. Further, the regulations set out requirements for adverse reaction reporting.

        As of January 1, 2004, all new products that are NHPs must comply with the NHP Regulations. For products already marketed in Canada as of that date, transition periods from January 1, 2004 for compliance with the requirements are provided for. GMP and site license requirements must be implemented in two years and the product license requirement for NHPs with a DIN (to December 31, 2009) is six years. For NHP's without a prior DIN, products can continue to be marketed and sold in Canada if a product license application was filed on or before June 30, 2004. However, if the product license eventually is refused, the product might need to be removed from the market in Canada.

        Health Canada has adopted a phased-in approach to comply with the NHP Regulations, based on perceived level of risk of the product. All NHP's must comply will all the regulations by January 1, 2010. We have adopted a phased-in compliance strategy in accordance with the prescribed transition periods. The overall risk factors and market prospects for Canada, in general, are similar to those outlined in the US. Health Canada can revoke licenses for lack of compliance or if they perceive the product to present an unacceptable level of risk.

International Operations

        In addition to Canada, the UK, Ireland and the Netherlands, we market nutritional supplement products through distributors, retailers and direct mail in more than 75 countries throughout Europe, Central America, South America, Asia, the Pacific Rim countries, Africa and the Caribbean Islands.

        We conduct our international operations to conform to local variations, economic realities, market customs, consumer habits and regulatory environments. Our products (including labeling of such products) and our distribution and marketing programs are modified in response to local and foreign legal requirements and customer preferences.

        Our international operations are subject to many of the same risks our domestic operations face. 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

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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 our international operations grow and expand. Virtually all our international operations are affected by foreign currency fluctuations, and, more particularly, changes in the value of the British Pound, the Euro and the Canadian Dollar as compared to the US Dollar.

        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 for additional information regarding financial information about the geographic areas in which we conduct our business.

Trademarks

        US.    We have applied for or registered more than 2,200 trademarks with the United States Patent and Trademark Office, or the PTO, for our Nature's Bounty®, Vitamin World®, Puritan's Pride®, Holland & Barrett®, Rexall®, Sundown®, Solgar®, MET-Rx®, WORLDWIDE Sport Nutrition®, American Health®, SISU® and Ester-C® trademarks, among others. We also have rights to use other names essential to our 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. We regard our trademarks and other proprietary rights as valuable assets and believe they have significant value in marketing our products. We vigorously protect our trademarks against infringement.

        Canada.    Each of our Solgar, Le Naturiste and SISU subsidiaries owns the trademarks registered in Canada for its respective names.

        UK/Ireland.    Our Holland & Barrett subsidiary owns trademarks registered in the UK and throughout the EU for its Holland & Barrett®, and Nature's Way® trademarks and has rights to use other names essential to its business. Holland & Barrett is the exclusive licensee of the trademarks essential to the GNC (UK) business in the UK. Our Solgar subsidiary also owns trademarks in the UK and throughout the EU.

        Netherlands.    Our De Tuinen subsidiary owns trademarks registered in the Netherlands or throughout the EU for its DeTuinen® trademarks and has rights to use other names essential to its business.

Raw Materials

        In fiscal 2006, we spent approximately $312 million on raw materials. The principal raw materials required in our operations are vitamins, minerals, herbs, gelatin and packaging components. We purchased the majority of our vitamins, minerals and herbs from raw material manufacturers and distributors in the United States, Japan, China, Europe, India, Canada, Australia and South America. We believe that there are adequate sources of supply for all our principal raw materials. We also believe that our strong relationships with our suppliers yield improved quality, pricing and overall service to our customers. Although we cannot be sure that our sources of supply for our principal raw materials will be adequate in all circumstances, we believe that we can develop alternate sources in a timely and cost effective manner if our current sources become inadequate. During fiscal 2006, no one supplier accounted for more than 10% of our raw material purchases. Due to the availability of numerous alternative suppliers, we do not believe that the loss of any single supplier would have a material adverse effect on our consolidated financial condition or results of operations.

Seasonality

        Although we believe that our business is not seasonal in nature, we have experienced, and expect to continue to experience, a variation in net sales and operating results from quarter to quarter. We

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believe that the factors which influence this variability of quarterly results include general economic and industry conditions that affect consumer spending, changing consumer demands and current news on nutritional supplements, the timing of our introduction of new products, the level of consumer acceptance of each new product, the seasonality of some of the markets in which we participate, and actions of competitors. Accordingly, a comparison of our results of operations from consecutive periods is not necessarily meaningful, and our results of operations for any period are not necessarily indicative of future performance. Additionally, we may experience higher net sales in a quarter depending upon when we engage in significant promotional activities.

Item 1A. RISK FACTORS

Unfavorable publicity or consumer perception of our products and any similar products distributed by other companies could have a material adverse effect on our business.

        We believe the nutritional supplement market is highly dependent upon consumer perception regarding the safety, efficacy and quality of nutritional supplements generally, as well as products distributed specifically by us. Consumer perception of our products can be significantly influenced by scientific research or findings, national media attention and other publicity regarding the consumption of nutritional supplements. There can be no assurance that future scientific research, findings or publicity will be favorable to the nutritional supplement market or any particular product, or consistent with earlier favorable research, findings or publicity. Future research reports, findings or publicity that are perceived as less favorable than, or that question, such earlier research reports, findings or publicity could have a material adverse effect on the demand for our products and our business, results of operations, financial condition and cash flows. Because of our dependence upon consumer perceptions, adverse scientific research reports, findings or publicity, whether or not accurate, could have a material adverse effect on us, the demand for our products, and our business, results of operations, financial condition and cash flows. Further, adverse publicity regarding the safety, efficacy and quality of nutritional supplements in general, or our products specifically, or associating the consumption of nutritional supplements with illness, could have such a material adverse effect. Such adverse publicity could arise even if the adverse effects associated with such products resulted from consumers' failure to consume such products appropriately or as directed.

Complying with new and existing government regulation, both in the US and abroad, could increase our costs significantly and adversely affect our financial results.

        The processing, formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by several US federal agencies, including the FDA, the FTC, the Consumer Product Safety Commission, the Department of Agriculture and the EPA, as well as various state, local and international laws and agencies of the localities in which our products are sold, including Health Canada in Canada, the Food Standards Agency and the Department of Health in the UK and similar regulators in Ireland and the Netherlands. Government regulations may prevent or delay the introduction or require the reformulation of our products. Some agencies, such as the FDA, could require us to remove a particular product from the market, delay or prevent the import of raw materials for the manufacture of our products, or otherwise disrupt the marketing of our products. Any such government actions would result in additional costs to us, including lost revenues from any additional products that we are required to remove from the market, which could be material. Any such government actions could also lead to liability, substantial costs and reduced growth prospects. Moreover, there can be no assurance that new laws or regulations imposing more stringent regulatory requirements on the dietary supplement industry will not be enacted or issued.

        We currently are subject to FTC consent decrees and a US Postal Service consent order, prohibiting certain advertising claims for certain of our products. A determination that we have violated

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of these orders could result in substantial monetary penalties, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

        Additional or more stringent regulations of dietary supplements and other products have been considered from time to time. These developments could 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, adverse event reporting or other new requirements. These developments also could increase our costs significantly. For example, legislation was pending in Congress in 2004 to impose substantial new regulatory requirements for dietary supplements, including adverse event reporting, post market surveillance requirements, FDA reviews of dietary supplement ingredients, safety testing and records inspection. Key members of Congress and the dietary supplement industry indicated that they reached an agreement to support legislation requiring adverse event reporting. Legislation was introduced in 2005 to impose a risk/benefit standard for assessing the safety of dietary supplements and to require manufacturers who sell dietary supplements containing stimulants on military installations to report serious adverse events for the products to the FDA. If enacted, such legislation could raise our costs and negatively impact our business. In addition, we expect that the FDA soon will issue final rules on Good Manufacturing Practice creating new requirements for manufacturing, packaging, or holding dietary ingredients and dietary supplements, which will apply to the products we manufacture. We may not be able to comply with the new rules without incurring additional expenses, which could be significant. See Item 1, "Business—Government Regulation" for additional information.

        In Europe, the enactment of legislation that could significantly impact the formulation and marketing of our products is anticipated. For example, in accordance with the Nutritional Supplements Directive, maximum permitted levels for vitamin and mineral supplements are likely to be introduced shortly. European legislation regulating food supplements other than vitamins and minerals is also expected to be introduced by 2007. The introduction of these anticipated legislations could require us to reformulate our existing products to meet the new standards and, in some cases, may lead to some products being discontinued.

        It also is anticipated that the Nutrition and Health Claims Regulation will be implemented in January 2007. Once enacted, this legislation will harmonize the types of claims that can be made for foodstuffs (including supplements) in Europe. Although this Regulation may make the European market more accessible, it also will introduce a number of prohibitions which will impact the claims that can be made for our products. In particular, certain claims will be prohibited unless certain conditions are met and, in certain circumstances, prior approval of the claims will be required. It also is anticipated that the legislation will prohibit certain claims for general well-being, behavioral functions, weight-loss and professional product endorsement.

        In addition, an EU Directive governing product safety came into force at the beginning of 2004. This legislation requires manufacturers to notify regulators as soon as they know that a product is unsafe and gives regulators in each European Member State the power to order a product recall and, if necessary, instigate the product recall themselves. As a result, the number of product recalls in Europe has increased substantially and the likelihood that we will be subject to a product recall in Europe has increased. A product recall of any of our products in Europe could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We may be exposed to legal proceedings instigated by regulators abroad which could increase our costs and adversely affect our reputation, revenues and operating income.

        In Europe, non-compliance with relevant legislation can result in regulators bringing administrative or, in some cases, criminal proceedings. In the UK, it is common for regulators to prosecute retailers and manufacturers for non-compliance with legislation governing foodstuffs and medicines. Failures by

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us or our subsidiaries to comply with applicable legislation could occur from time to time and prosecution for any such violations could have a material adverse effect on our business, results of operations, financial condition and cash flows. See Item 1, "Business—Government Regulation" for additional information.

We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income.

        As a retailer, marketer and manufacturer of products designed for human consumption, we are subject to product liability claims if the use of our products is alleged to have resulted in injury. Our products consist of vitamins, minerals, herbs and other ingredients that are classified as foods or dietary supplements and, in most cases, are not necessarily subject to pre-market regulatory approval in the United States. Our products could contain contaminated substances, and some of our products contain innovative ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. In addition, some of the products we sell are produced by third-party manufacturers. As a marketer of products manufactured by third parties, we also may be liable for various product liability claims for products we do not manufacture. We have been in the past, and in the future, may be, subject to various product liability claims, including, among others, that our products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with other substances. For example, we have been named in certain pending cases involving the sale of certain nutrition bars, products that contain certain prohormone ingredients and our sales of products containing ephedra. See Item 3, "Legal Proceedings." A product liability claim against us could result in increased costs and could adversely affect our reputation with our customers, which in turn could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Insurance coverage, even where available, may not be sufficient to cover losses we may incur.

        Our business exposes us to the risk of liabilities arising out of our operations. For example, we may be liable for claims brought by users of our products or by employees, customers or other third parties for personal injury or property damage occurring in the course of our operations. We seek to minimize these risks through various insurance contracts from third-party insurance carriers. However, our insurance coverage is subject to large individual claim deductibles, individual claim and aggregate policy limits, and other terms and conditions. We retain an insurance risk for the deductible portion of each claim and for any gaps in insurance coverage. We do not view insurance, by itself, as a material mitigant to these business risks.

        Our estimate of retained-insurance liabilities is subject to change as new events or circumstances develop that might materially impact the ultimate cost to settle these losses. We cannot assure you that our insurance will be sufficient to cover our losses. Any losses that are not completely covered by our insurance could have a material adverse effect on our business, results of operations, financial condition and cash flows.

The insurance industry has become more selective in offering some types of coverage and we may not be able to obtain insurance coverage in the future.

        The insurance industry has become more selective in offering some types of insurance, such as product liability, product recall, property and directors' and officers' liability insurance ("D&O"). We were able to obtain these insurance coverages through July 1, 2007 (except D&O, which expires July 15, 2007), and our current insurance program is consistent with both our past level of coverage and our risk management policies. However, we cannot assure you that we will be able to obtain comparable insurance coverage at favorable terms, or at all, in the future.

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If we experience product recalls, we may incur significant and unexpected costs, and our business reputation could be adversely affected.

        We may be exposed to product recalls and adverse public relations if our products are alleged to cause injury or illness, or if we are alleged to have violated governmental regulations. A product recall could result in substantial and unexpected expenditures, which would reduce operating profit and cash flow. In addition, a product recall may require significant management attention. Product recalls may hurt the value of our brands and lead to decreased demand for our products. Product recalls also may lead to increased scrutiny by federal, state or international regulatory agencies of our operations and increased litigation and could have a material adverse effect on our business, results of operations, financial condition and cash flows. See "Complying with new and existing government regulation, both in the US and abroad, could increase our costs significantly and adversely affect our financial results" above.

Our operations in international markets expose us to certain risks.

        We may experience difficulty entering new international markets due to greater regulatory barriers, the necessity of adapting to new regulatory systems and problems related to entering new markets with different cultural bases and political systems. As of September 30, 2006, we operated 713 retail stores outside of the United States. In addition, we had significant wholesale sales outside of the United States. For fiscal 2006, approximately 39% of our net sales were generated in international markets. These international operations expose us to certain risks, including, among other things:

•

changes in or interpretations of foreign regulations that may limit our ability to sell certain products or repatriate profits to the United States;



•

exposure to currency fluctuations;



•

potential imposition of trade or foreign exchange restrictions or increased tariffs;



•

difficulty in collecting international accounts receivable;



•

potentially longer payment cycles;



•

difficulties in enforcement of contractual obligations and intellectual property rights;



•

national and regional labor strikes;



•

increased costs in maintaining international manufacturing and marketing efforts;



•

geographic time zone, language and cultural differences between personnel in different areas of the world; and



•

political instability.

        As we continue to expand our international operations, these and other risks associated with international operations are likely to increase. See Item 1, "Business—Business Strategy" and "Business—Government Regulation."

We may not be successful in our future acquisition endeavors, if any, which may have an adverse effect on our business and results of operations.

        Historically, we have engaged in substantial acquisition activity. We may be unable to identify suitable targets, opportunistic or otherwise, for acquisition in the future. If we identify a suitable acquisition candidate, our ability to successfully implement the acquisition would depend on a variety of factors, including our ability to obtain financing on acceptable terms and to comply with the restrictions contained in our debt agreements. If we need to obtain our lenders' consent to an acquisition, they may

19

condition their consent on our compliance with additional restrictive covenants that may limit our operating flexibility. Acquisitions involve risks, including:

•

risks associated with integrating the operations, financial reporting, disparate technologies and personnel of acquired companies;



•

managing geographically dispersed operations;



•

diversion of management's attention from other business concerns;



•

the inherent risks in entering markets or lines of business in which we have either limited or no direct experience;



•

unknown risks; and



•

the potential loss of key employees, customers and strategic partners of acquired companies.

        We may not integrate successfully any businesses or technologies we acquire in the future and may not achieve anticipated operating efficiencies and effective coordination of sales and marketing and financial reporting benefits as well as revenue and cost benefits. Acquisitions may be expensive, time consuming and may strain our resources. Acquisitions may impact our results of operations negatively as a result of, among other things, the incurrence of debt.

We are dependent on our executive officers and other key personnel, and we may not be able to pursue our current business strategy effectively if we lose them.

        Our continued success will depend largely on the efforts and abilities of our executive officers and certain other key employees. Our ability to manage our operations and meet our business objectives could be affected adversely if, for any reason, these officers or employees do not remain with us.

Two of our customers account for a substantial portion of our revenue, and the loss of one or both of these customers would have a material adverse effect on our results of operations.

        Two of the customers of our Wholesale/US Nutrition segment accounted for, individually, more than 10% of that segment's sales in fiscal 2006. One of those customers accounted for 12% of our Wholesale/US Nutrition segment's total gross accounts receivable as of September 30, 2006. We do not have long-term contracts with either customer. One of these customers is primarily a supplier to the other customer; therefore, changes in our business relationship with either customer would likely result in the loss of most of the net sales to both customers. While no one customer represented individually more than 10% of our consolidated net sales or total gross accounts receivable, the loss of either one of these customers would have a material adverse effect on our Wholesale/US Nutrition segment if we were unable to replace that customer. In addition, our results of operations and ability to service our debt obligations would be impacted negatively to the extent that one or both of the customers are unable to make payments or do not make timely payments on outstanding accounts receivables.

We are dependent on certain third-party suppliers.

        We purchase from third-party suppliers certain important ingredients and raw materials. The principal raw materials required in our operations are vitamins, minerals, herbs, gelatin and packaging components. We purchase the majority of our vitamins, minerals and herbs from bulk manufacturers and distributors in the US, Japan, China, Europe, India, Canada, Australia and South America. Although raw materials are available from numerous sources, an unexpected interruption of supply or material increases in the price of raw materials, for any reason, such as regulatory requirements, import restrictions, loss of certifications, power interruptions, fires, hurricanes, war or other events could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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We rely on our manufacturing operations to produce the vast majority of the nutritional supplements that we sell, and disruptions in our manufacturing system or losses of manufacturing certifications could affect our results of operations adversely.

        We manufacture the vast majority of the nutritional supplements that we sell. We currently have manufacturing facilities in New York, California, Florida, Georgia, New Jersey, Arizona, Illinois and Canada. All our domestic manufacturing operations are subject to GMPs promulgated by the FDA and other applicable regulatory standards. We are subject to similar regulations and standards in Canada. Any significant disruption in our operations at any of these facilities, including any disruption due to any regulatory requirement, could affect our ability to respond quickly to changes in consumer demand and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We operate in a highly competitive industry, and our failure to compete effectively could adversely affect our market share, financial condition and growth prospects.

        The vitamin and nutritional supplements industry is a large and growing industry, which is highly fragmented in terms of both geographical market coverage and product categories. The market for vitamins and other nutritional supplements is highly competitive in all our channels of distribution. We compete with companies which may have broader product lines or larger sales volumes, or both, than we do, and our products also compete with nationally advertised brand name products. Most of the national brand companies have resources greater than ours. Numerous companies compete with us in the development, manufacture and marketing of vitamins and nutritional supplements worldwide. In addition, our North America and European retail stores compete with specialty vitamin stores, health food stores and other retail stores worldwide. With respect to mail order sales, we compete with a large number of smaller, usually less geographically diverse, mail order and internet companies, some of which manufacture their own products and some of which sell products manufactured by others. The market is highly sensitive to the introduction of new products which may rapidly capture a significant share of the market. Increased competition from companies that distribute through the wholesale channel could have a material adverse effect on our business, results of operations, financial condition and cash flows as these competitors may have greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing capabilities far greater than ours. See Item 1, "Business—Competition; Customers."

        We may not be able to compete effectively in one of, or all, our markets, and our attempt to do so may require us to reduce our prices, which may result in lower margins. Failure to compete effectively could have a material adverse effect on our market share, business, results of operations, financial condition, cash flows and growth prospects.

Our failure to appropriately respond to changing consumer preferences and demand for new products and services could harm our customer relationships and product sales significantly.

        The nutritional supplement industry is characterized by rapid and frequent changes in demand for products and new product introductions. Our failure to accurately predict these trends could impact negatively consumer opinion of us as a source for the latest products, which in turn could harm our customer relationship and cause decreases in our net sales. The success of our new product offerings depends upon a number of factors, including our ability to:

•

accurately anticipate customer needs;



•

innovate and develop new products;



•

successfully commercialize new products in a timely manner;



•

price our products competitively;

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•

manufacture and deliver our products in sufficient volumes and in a timely manner; and



•

differentiate our product offerings from those of our competitors.

        If we do not introduce new products or make enhancements to meet the changing need of our customers in a timely manner, some of our products could be rendered obsolete, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We are subject to acts of God, war, sabotage and terrorism risk.

        Acts of God, war, sabotage and terrorist attacks or any similar risk may affect our operations in unpredictable ways, including disruptions of the shopping and commercial behavior of our customers, changes in the insurance markets and disruptions of fuel supplies and markets, particularly oil. Acts of God, war and risk of war also have an adverse effect on the economy. Instability in the financial markets as a result of war, sabotage or terrorism could adversely affect our ability to raise capital, as well as adversely affect the retail and vitamin and dietary supplement industries and restrict their future growth.

We may be affected adversely by increased utility and fuel costs.

        Increasing fuel costs may affect our results of operations adversely in that consumer traffic to our retail locations may be reduced and the costs of our sales may increase as we incur fuel costs in connection with our manufacturing operations and the transportation of goods from our warehouse and distribution facilities to stores. Also, high oil costs can affect the cost of our raw materials and components and the competitive environment in which we operate may limit our ability to recover higher costs resulting from rising fuel prices.

Our profits may be affected negatively by currency exchange rate fluctuations.

        Our assets, earnings and cash flows are influenced by currency fluctuations due to the geographic diversity of our sales and the countries in which we operate, which may have a significant impact on our financial results. For the fiscal year ended September 30, 2006, 35% of our sales were denominated in a currency other than the US Dollar, and as of September 30, 2006, 28% of our assets and 19% of our total liabilities were denominated in a currency other than the US Dollar. As of September 30, 2006, we had not entered into any hedging arrangements to mitigate our exposure to foreign currency exchange rate risk.

Our inability to protect our intellectual property rights could adversely affect our business.

        We own trademarks registered with the US Patent and Trademark Office and many foreign jurisdictions for our Nature's Bounty®, Vitamin World®, Puritan's Pride®, Rexall®, Sundown®, Ester-C®, Solgar®, MET-Rx®, WORLDWIDE Sport Nutrition®, American Health® trademarks, among others, and with the appropriate UK, Dutch and Canadian authorities for our Holland & Barrett®, Nature's Way®, De Tuinen®, Le Naturiste® and SISU® trademarks, among others, and have rights to use other names essential to our business. Our policy is to pursue registrations for all trademarks associated with our key products. US registered trademarks have a perpetual life, as long as they are renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the trademarks if they claim priority or confusion of usage. We regard our trademarks and other proprietary rights as valuable assets and believe they have significant value in marketing our products. We vigorously protect our trademarks against infringement. Our products generally are not subject to patent protection. There can be no assurance that, to the extent we do not have patents or trademarks on our products, another company will not replicate one or more of our products. Further, there can be no assurance that in those foreign jurisdictions in which we conduct business the protection available to the us will be as extensive as the protection available to us in the United States. See Item 1, "Business—Trademarks."

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Intellectual property litigation and infringement claims against us could cause us to incur significant expenses or prevent us from manufacturing, selling or using our products, which could adversely affect our revenues and market share.

        We may be subject to intellectual property litigation and infringement claims, which could cause us to incur significant expenses or prevent us from manufacturing, selling or using our products. Claims of intellectual property infringement also may require us to enter into costly royalty or license agreements. However, we may be unable to obtain royalty or license agreements on terms acceptable to us or at all. Claims that our technology or products infringe on intellectual property rights could be costly, could cause reputational injury and would divert the attention of management and key personnel, which in turn could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Item 1B.    UNRESOLVED STAFF COMMENTS

        Not applicable.

Item 2.    PROPERTIES

        US.    At September 30, 2006, we owned a total of approximately 2.5 million square feet of manufacturing, warehouse, distribution and administrative facilities. We also leased approximately 1.275 million square feet of administrative, manufacturing, warehouse and distribution space in various locations at the end of fiscal 2006. At September 30, 2006, we leased and operated 476 retail locations under the names Vitamin World and Nutrition Warehouse in 44 states in the United States, Guam, Puerto Rico and the Virgin Islands. Generally, we lease retail properties for three to ten years at varying annual base rents and percentage rents if sales exceed a specified amount. The Vitamin World and Nutrition Warehouse retail stores have an average selling area of approximately 945 square feet.

        UK/Ireland.    Holland & Barrett owns a 281,000 square foot administrative, manufacturing and distribution facility (which includes a 68,300 square foot mezzanine) in Burton, UK. Holland & Barrett leases all but three of its 549 Holland & Barrett, GNC (UK), and Nature's Way retail stores for terms varying between five and 35 years at varying annual base rents. Fourteen Holland & Barrett and four GNC (UK) stores are subject to percentage rents if sales exceed a specified amount. Holland & Barrett stores each have an average selling area of approximately 946 square feet; Nature's Way stores each have an average selling area of approximately 675 square feet; and the GNC (UK) stores have an average selling area of approximately 974 square feet.

        Netherlands.    De Tuinen leases a 71,400 square foot administrative and distribution facility in Beverwijk. De Tuinen leases locations for 68 retail stores on renewable five-year terms at varying annual base rents. Of these, 46 are operated as company stores, 20 are sub-leased to, and operated by, franchisees, and two are operated by franchisees who lease directly from a third party landlord. None of De Tuinen's stores are subject to percentage rents.

        Canada.    SISU Inc. leases a 30,200 square foot facility in Burnaby, British Columbia. This facility is used for packaging, storing, manufacturing and distributing vitamins, and also contains various administrative offices. The lease currently expires in 2009. At September 30, 2006, Le Naturiste leased a 9,900 square foot administrative facility, a 26,000 square foot warehouse facility and 96 retail locations throughout Quebec, Canada. Le Naturiste stores each have an average selling area of approximately 775 square feet. At September 30, 2006, one Le Naturiste store was operated by a franchisee. Generally, the Le Naturiste stores are leased for three to ten years at varying annual base rents and percentage rents if sales exceed a specified amount.

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        The following is a listing, as of September 30, 2006, of all material properties (excluding retail locations and de minimis administrative or sales office locations) owned or leased by the Company, which are used in all four of the Company's business segments. The Company is required to pay real estate and maintenance costs relating to most of its leased properties:

Location	Type of Facility	Approx. Sq. Feet	Leased or Owned
UNITED STATES:
Bohemia, NY	Administration, Manufacturing & Packaging	169,000	Owned
Bohemia, NY	Manufacturing	80,000	Owned
Bohemia, NY	Manufacturing	75,000	Owned
Bohemia, NY	Manufacturing & IT	62,000	Owned
Bohemia, NY	Administration & Warehousing (term–2009)	110,000	Leased
Ronkonkoma, NY	Administration & Distribution (term–2009)	130,000	Leased
Holbrook, NY	Administration & Distribution	230,000	Owned
Holbrook, NY	Distribution	108,000	Owned
Ronkonkoma, NY	Administration	110,000	Owned
Ronkonkoma, NY	Warehousing (term–2014)	75,000	Leased
Bayport, NY	Administration	12,000	Owned
Bayport, NY	Manufacturing	131,000	Owned
Murphysboro, IL	Warehousing & Manufacturing	62,000	Owned
Murphysboro, IL	Warehousing (term–2008)	30,000	Leased
Carbondale, IL	Administration, Packaging & Distribution	77,000	Owned
Carbondale, IL	Administration	15,000	Owned
Leonia, NJ	Administration & Manufacturing (term–2008)	59,000	Leased
Lyndhurst, NJ(1)	Administration, & Packaging (term December 2006)	130,000	Leased
South Plainfield, NJ	Administration & Manufacturing	68,000	Owned
South Plainfield, NJ(2)	Manufacturing, Packaging & Distribution (term–May 2006)	40,000	Leased
Anaheim, CA	Administration, Manufacturing & Distribution (term–2008)	286,000	Leased
Anaheim, CA	Manufacturing (term–2008)	64,000	Leased
Carson/Gardenia, CA	Distribution (term–May 2007)	10,600	Leased
Lake Mary, FL	Administration (term–2008)	12,250	Leased
Boca Raton, FL	Administration	58,000	Owned
Boca Raton, FL	Manufacturing	84,000	Owned
Deerfield Beach, FL	Packaging	157,000	Owned
Boca Raton, FL	Distribution	100,000	Owned
Boca Raton, FL	Warehousing (term–2010)	60,000	Leased
Piscataway, NJ	Warehousing (term–2009)	15,000	Leased
Sparks, NV	Distribution (term–2009)	202,000	Leased
Bentonville, AR	Sales Office (term–2011)	4,200	Leased
Duluth, GA	Distribution (term–2008)	32,000	Leased
Augusta, GA	Manufacturing & Warehousing	400,000	Owned
Hazleton, PA	Distribution	420,000	Owned
CANADA:
Burnaby, British     Columbia	Administration, Manufacturing, Warehousing &     Distribution (term–2009)	30,200	Leased
Lougueuil, Quebec	Administration (term–2008)	9,900	Leased
Boucherville, Quebec	Warehousing (term–2008)	26,000	Leased

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UNITED KINGDOM:
Nuneaton	Administration (term–2012)	8,300	Leased
Nuneaton	Administration & Distribution (term–2010)	8,000	Leased
Burton	Administration, Manufacturing & Distribution	281,000	Owned
Tring	Administration & Warehousing (term–2011)	27,800	Leased
NETHERLANDS:
Beverwijk	Administration & Distribution (term–2008)	71,400	Leased
SPAIN:
Madrid(1)	Administration & Distribution (term–December 2006)	6,500	Leased

(1)

We currently are negotiating a renewal of this lease.

(2)

The 40,000 square foot leased facility in South Plainfield, New Jersey currently is the subject of litigation between the landlord and us concerning the landlord(1)s refusal to extend the lease. The lease contains renewal options which would extend the lease through 2010.

        We acquired a facility in Arizona as part of our acquisition of Zila Nutraceutical, Inc. on October 2, 2006. This includes a 65,000 square foot manufacturing and administration facility we own and a 5,455 square foot warehouse facility we lease.

Warehousing and Distribution

        Including recent acquisitions in Hazleton, Pennsylvania and Augusta, Georgia, we have dedicated approximately 3.6 million square feet to warehousing and distribution. This figure also includes our facilities in Long Island, New York; Carbondale and Murphysboro, Illinois; Anaheim and Gardenia, California; Augusta and Duluth, Georgia; South Plainfield, Piscataway, Lyndhurst and Leonia, New Jersey; Boca Raton and Deerfield Beach, Florida; Sparks, Nevada; Hazleton, Pennsylvania; Boucherville, Canada; Burton and Tring, UK; Burnaby, British Columbia, Ontario, Canada; Madrid, Spain; Ranburg, South Africa; Auckland, New Zealand; and Beverwijk, Netherlands.

        Our warehouse and distribution centers are integrated with our order entry systems so typically we ship out mail orders within 24 hours of their receipt. Once a customer's telephone, mail or internet order is completed, our computer system forwards the order to our 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 business day. We operate a proprietary, state-of-the-art, automated picking and packing system for frequently shipped items. We are capable of fulfilling 15,000 Direct Response/Puritan's Pride orders daily. A system of conveyors automatically routes boxes carrying merchandise throughout our primary Long Island 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 before being shipped. We currently ship our US orders primarily through the United Parcel Service, Inc. (UPS), serving domestic and international markets. Holland & Barrett and GNC (UK) use Parcelforce and ANC for deliveries in the UK, and Nature's Way uses the Irish postal service for deliveries in Ireland.

        We currently distribute our products from our distribution centers through Company-owned trucks, as well as contract and common carriers in the US and the Netherlands, and by Company-owned trucks in the UK. Deliveries are made directly to the Vitamin World, Nutrition Warehouse and Le Naturiste stores once per week. In addition, we ship products overseas by container loads. We also operate

25

additional distribution centers in Burton, UK and Beverwijk, Netherlands. Deliveries are made directly to Company-owned and operated Holland & Barrett, GNC (UK), Nature's Way, and De Tuinen stores once or twice per week, depending on each store's inventory requirements.

        All our properties are covered by all-risk and liability insurance, in amounts and on terms that we believe are customary for the industry.

        We believe that these properties, taken as a whole, are generally well-maintained, and are adequate for current and reasonably foreseeable business needs. We also believe that substantially all our properties are being utilized to a significant degree.

Item 3.    LEGAL PROCEEDINGS

Prohormone products

        New York Action.    On July 25, 2002, a putative class-action lawsuit was filed against Vitamin World, Inc., alleging that Vitamin World engaged in deceptive trade practices and false advertising with respect to the sale of certain prohormone supplements and that the plaintiffs were therefore entitled to equitable and monetary relief under the New York General Business Law. Similar complaints were filed against other companies in the vitamin and nutritional supplement industry. By Decision and Order filed July 18, 2006, the Court granted Vitamin World's motion for summary judgment and dismissed all claims. The Plaintiffs have appealed.

        California Action.    On July 25, 2002, a putative consumer class-action lawsuit was filed in California state court against MET-Rx USA, Inc. ("MET-Rx"), an indirect subsidiary of Rexall Sundown, Inc. ("Rexall"), claiming that the advertising and marketing of certain prohormone supplements were false and misleading, or alternatively, that the prohormone products contained ingredients that were controlled substances under California law. Plaintiffs seek equitable and monetary relief. On June 18, 2004, this case was coordinated with several other class-action cases brought against other companies relating to the sale of products containing androstenediol, one of the prohormones contained in MET-Rx products. The coordinated proceedings have been assigned to a coordination judge for further pretrial proceedings. No trial date has been set, the court has not yet certified a class, and the matter is currently in discovery. We have defended vigorously against the claims asserted. Because this action is still in the early stages, no determination can be made at this time as to its final outcome, nor can its materiality be accurately ascertained.

        New Jersey Action.    In March 2004, a putative class-action lawsuit was filed in New Jersey against MET-Rx, claiming that the advertising and marketing of certain prohormone supplements were false and misleading, and that plaintiff and the putative class of New Jersey purchasers of these products were entitled to damages and injunctive relief. Because these allegations are virtually identical to allegations made in a putative nationwide class-action previously filed in California, we moved to dismiss or stay the New Jersey action pending the outcome of the California action. The motion was granted, and the New Jersey action is stayed at this time.

        Florida Action.    In July 2002, a putative class-action lawsuit was filed in Florida against MET-Rx, claiming that the advertising and marketing of certain prohormone supplements were false and misleading, that the products were ineffective, and alternatively, that the products were anabolic steroids whose sale violated Florida law. Plaintiff seeks equitable and monetary relief. This case has been largely inactive since its filing. No determination can be made at this time as to its final outcome, nor can its materiality be accurately ascertained.

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Nutrition Bars

        Rexall and certain of its subsidiaries are defendants in a class-action lawsuit brought in 2002 on behalf of all California consumers who bought various nutrition bars. Plaintiffs allege misbranding of nutrition bars and violations of California unfair competition statutes, misleading advertising and other similar causes of action. Plaintiffs seek restitution, legal fees and injunctive relief. The Company has defended this action vigorously. Until recently, the case was stayed for all purposes, pending rulings on relevant cases before the California Supreme Court. The Court has now lifted the stay and has permitted Rexall and the other defendants to re-raise a motion for judgment on the pleadings. The Court has scheduled a conference on that motion for January 10, 2007. Based upon the information available at this time, we believe that our accrual is adequate for the exposure in the nutrition bar litigation. However, no determination can be made at this time as to the final outcome of this case, nor can its materiality be accurately ascertained.

Shareholder Litigation

        From June 24, 2004 through September 3, 2004, six separate shareholder class-actions were filed against the Company and certain of our officers and directors in the U.S. District Court for the Eastern District of New York, on behalf of shareholders who purchased shares of our common stock between February 9, 2004 and July 22, 2004 (the potential "Class Period"). The actions allege that we failed to disclose material facts during the Class Period that resulted in a decline in the price of our stock after June 16, 2004 and July 22, 2004, respectively. The Court consolidated the six class-actions in March 2005 and appointed lead plaintiff and counsel. The lead plaintiffs filed a consolidated amended complaint alleging an amended class period from November 10, 2003 to July 22, 2004. Along with the officers and directors, we have filed a motion to dismiss the action. The motion was denied on May 1, 2006, and the matter is now in discovery.

        In addition to the shareholder class-actions, two shareholder derivative actions were filed in the Eastern District of New York, on July 9, 2004 and August 26, 2004, respectively, against certain of our officers and directors. The Company is named as a nominal defendant. The two derivative actions which were consolidated were predicated upon the allegations set forth in the shareholder class-actions and alleged improper sales of our shares by certain officers and directors. On December 27, 2004, the Court granted our motion to dismiss this complaint. The plaintiffs filed an appeal. The Second Circuit Court of Appeals affirmed the dismissal on December 20, 2005. By letter dated February 27, 2006, one of the derivative plaintiffs whose claim was dismissed demanded that our board of directors file a civil action against certain officers and directors in connection with the allegations set forth in that derivative plaintiff's original complaint. The board rejected this shareholder demand based upon its prior investigation of a similar demand by another alleged shareholder, as described below.

        An additional shareholder derivative action was filed on October 7, 2004 in the Supreme Court of the State of New York, Suffolk County, alleging breaches of fiduciary duties by our individual directors and officers. The Company is named as a nominal defendant. The derivative claims are predicated upon the same allegations as in the dismissed Eastern District consolidated derivative action and upon claims arising from our 2003 acquisition of Rexall. The shareholder who filed this derivative action agreed to voluntarily discontinue it in light of the dismissal of the Eastern District consolidated derivative action. A stipulation of dismissal was filed.

        Also, a purported shareholder of the Company delivered a demand in July 2004 that our board of directors commence a civil action against certain of our officers and directors based on certain of the allegations described above. Our board of directors, based on the investigation and recommendation of a special committee of the Board, determined not to commence any such lawsuit. On or about April 28, 2005, a second state court derivative action was filed in the Supreme Court of the State of New York, Suffolk County, by this purported shareholder alleging wrongful rejection of his demand and

27

breaches of fiduciary duties by some of our individual directors and officers. The Company is named as a nominal defendant. This derivative complaint is predicated upon the same allegations as the dismissed Eastern District consolidated derivative action. Along with the named officers and directors, the Company has filed a motion to dismiss.

        The Company and its named officers and directors believe these suits are without merit and vigorously have defended these actions. Given the early stages of the proceedings, however, no determination can be made at this time as to the final outcome of these actions, nor can their materiality be accurately ascertained. We maintain policies of directors' and officers' personal liability insurance.

General

        In addition to the foregoing, other regulatory inquiries, claims, suits and complaints (including product liability and intellectual property claims) arise in the ordinary course of our business. See Item 1, "Business—Government Regulation" for a discussion of these matters. We believe that such other inquiries, claims, suits and complaints would not have a material adverse effect on our consolidated financial condition or results of operations, if determined against us.

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

        None.

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PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

DIVIDEND POLICY

        Since our incorporation in 1979, we have not paid any cash dividends on our Common Stock. Future determination as to the payment of cash or stock dividends will depend upon our results of operations, financial condition, capital requirements, restrictions contained in our Credit Agreement dated November 3, 2006, limitations contained in the indenture governing our 7¹/8% Senior Subordinated Notes due 2015 (the "Indenture"), and such other factors as our Board of Directors consider appropriate.

        The CGA prohibits our paying dividends or making any other distributions (other than dividends payable solely in shares of our common stock) to our stockholders. The Indenture similarly prohibits our paying dividends or making any other distributions to our stockholders, subject to some exceptions. Furthermore, except as expressly permitted in the Indenture, our subsidiaries are not permitted to invest in the Company. However, the CGA and the Indenture do permit our subsidiaries to pay us dividends.

        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.

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PRICE RANGE OF COMMON STOCK

        The Common Stock trades on the New York Stock Exchange (the "NYSE") under the trading symbol "NTY." The following table sets forth, for the periods indicated, the high and low sale prices for the Common Stock, as reported on the NYSE.

	Fiscal Year Ended September 30, 2006
	High		Low
First Quarter ended December 31, 2005	$	23.92	$	16.20
Second Quarter ended March 31, 2006	$	24.10	$	15.54
Third Quarter ended June 30, 2006	$	26.75	$	21.30
Fourth Quarter ended September 30, 2006	$	32.19	$	22.85

	Fiscal Year Ended September 30, 2005
	High		Low
First Quarter ended December 31, 2004	$	29.15	$	21.75
Second Quarter ended March 31, 2005	$	27.70	$	22.11
Third Quarter ended June 30, 2005	$	26.65	$	19.95
Fourth Quarter ended September 30, 2005	$	26.00	$	19.45

        On November 30, 2006, there were approximately 520 record holders of Common Stock. The Company believes that there were approximately 26,540 beneficial holders of Common Stock as of November 30, 2006.

        As required by applicable NYSE listing rules, on February 15, 2006, following our 2006 Annual Meeting of Stockholders, our Chairman and Chief Executive Officer submitted to the NYSE a certification that he was not aware of any violation by the Company of NYSE corporate governance listing standards.

        For additional information regarding the Company's securities authorized for issuance under our equity compensation plans, see Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in this Report.

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SECURITIES AUTHORIZED FOR ISSUANCE
UNDER EQUITY COMPENSATION PLANS

        The following table summarizes the Company's equity compensation plans as of September 30, 2006 (shares in thousands).

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		3,802	$	5.79	2,458
Equity compensation plans not approved by security holders		—		—	—
	Total:	3,802	$	5.79	2,458

PURCHASES OF EQUITY SECURITIES BY THE ISSUER
AND AFFILIATED PURCHASERS

        The Company sponsored Employee Stock Ownership Plan purchased 118,603 shares of our common stock at $16.86 per share in the open market during December 2005.

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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 also should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Report.

		Fiscal Years Ended September 30,
		2006			2005			2004			2003			2002
		(Dollars and shares in thousands, except per share amounts)
Selected Income Statement Data:
Net sales		$	1,880,222		$	1,737,187		$	1,652,031		$	1,192,548		$	964,083
Costs and expenses:
	Cost of sales		992,197			895,644			822,412			554,804			433,611
	Discontinued product charge		—			—			—			4,500			—
	Advertising, promotion and catalog		103,614			108,005			85,238			66,455			47,846
	Selling, general and administrative		598,742			588,166			554,838			435,748			348,334
	Trademark/goodwill impairment		10,450			7,686			—			—			—
	Litigation recovery of raw material costs		—			—			—			—			(21,354	)
Income from operations			175,219			137,686			189,543			131,041			155,646
Interest expense			(25,924	)		(26,475	)		(24,663	)		(17,384	)		(18,499	)
Bond investment write-down			—			—			—			(4,084	)		—
Miscellaneous, net			3,532			8,051			4,125			5,424			1,560
Income before provision for income taxes			152,827			119,262			169,005			114,997			138,707
Provision for income taxes			41,042			41,125			57,156			33,412			42,916
Net income		$	111,785		$	78,137		$	111,849		$	81,585		$	95,791
Per Share Data:
Net income per share:
	Basic	$	1.66		$	1.16		$	1.67		$	1.23		$	1.45
	Diluted	$	1.62		$	1.13		$	1.62		$	1.19		$	1.41
Weighted average common shares outstanding:
	Basic		67,199			67,162			66,793			66,452			65,952
	Diluted		69,130			69,137			69,069			68,538			67,829
Selected Balance Sheet Data:
	Working Capital	$	391,713		$	475,728		$	359,847		$	311,865		$	185,710
	Total assets		1,304,310			1,482,302			1,232,653			1,195,782			730,140
	Long-term debt, net of current portion		191,045			428,204			306,531			413,989			163,874
	Total stockholders' equity		839,432			716,055			639,798			514,799			419,257

        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. (See Note 2 of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report.)

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        Readers are cautioned that certain statements contained herein are forward-looking statements and should be read in conjunction with the Company's disclosures under the heading "Forward Looking Statements" on page 1. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. This discussion should also be read in conjunction with the Notes to the Company's Consolidated Financial Statements contained in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report. Dollar amounts are in thousands, unless otherwise noted.

Background

        NBTY is a leading vertically integrated manufacturer, marketer, distributor and retailer of a broad line of high-quality, value-priced nutritional supplements in the United States and throughout the world. The Company markets approximately 22,000 products under several brands, including Nature's Bounty®, Vitamin World®, Puritan's Pride®, Holland & Barrett®, Rexall®, Sundown®, MET-Rx®, WORLDWIDE Sport Nutrition®, American Health®, DeTuinen®, Le Naturiste™, SISU®, Solgar® and Ester-C®. The Company has continued to grow through its marketing practices and through a series of strategic acquisitions. Since 1986, the Company has acquired and successfully integrated over 30 companies and/or businesses engaged in the manufacturing, retail and direct response sale of nutritional supplements, including:

•

Fiscal 1997: Holland & Barrett;



•

Fiscal 1998: Nutrition Headquarters Group;



•

Fiscal 2000: Nutrition Warehouse Group;



•

Fiscal 2001: Global Health Sciences (the "Global Group"), NatureSmart and Nature's Way;



•

Fiscal 2002: Healthcentral.com, Knox NutraJoint®, and Synergy Plus® product lines/operations;



•

Fiscal 2003: Rexall Sundown Inc., Health and Diet Group Ltd. ("GNC (UK)"), FSC Wholesale, and the DeTuinen chain of retail stores;



•

Fiscal 2005: Le Naturiste Jean-Marc Brunet ("Le Naturiste"), SISU, Inc. ("SISU") and Solgar Vitamin and Herb, a division of Wyeth Consumer Healthcare ("Solgar"); and



•

Fiscal 2007 to date: Zila Nutraceuticals, Inc. ("ZNI"), Ester-C®.

        NBTY markets its products through four distribution channels:

•

Wholesale/US Nutrition: wholesale distribution to drug store chains, supermarkets, discounters, independent pharmacies, and health food stores,



•

North American Retail: Vitamin World and Nutrition Warehouse retail stores in the U.S. and Le Naturiste retail stores in Canada,



•

European Retail: Holland & Barrett and GNC (UK), Nature's Way and DeTuinen retail stores in the U.K., Ireland, and the Netherlands, respectively and



•

Direct Response: Puritan's Pride sales via catalogs and Internet.

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        Retail store activity, including both Company-operated and independent franchised stores, during the fiscal years ended September 30, 2006, 2005 and 2004 is as follows:

		2006		2005		2004
North American Retail stores:
	Open at beginning of the period	643		557		533
	Acquired during the period(a)	—		103		—
	Opened during the period	9		21		34
	Closed during the period	(80	)	(38	)	(10	)
	Open at end of the period	572		643		557
European Retail stores:
	Open at beginning of the period	612		602		589
	Opened during the period	11		16		19
	Closed during the period	(6	)	(6	)	(6	)
	Open at end of the period	617		612		602

(a)

On February 25, 2005, the Company acquired the Canadian Le Naturiste chain of retail stores. At the time of the acquisition, the Le Naturiste chain operated 99 company-owned stores and 4 franchised stores located throughout Quebec.

        The Company's net sales from Wholesale/US Nutrition, North American Retail, European Retail, and Direct Response, as a percentage of consolidated net sales, were approximately 47%, 13%, 30% and 10%, respectively, for the fiscal year ended September 30, 2006. 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, the level of promotional programs offered, and the impact of acquired entities' operations. 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 Estimates and Policies

        Complete descriptions of the Company's significant accounting policies are outlined in Note 1 of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report.

        The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") in the United States of America 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. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company's critical accounting estimates and policies include:

•

revenue recognition;



•

sales returns and allowances;



•

allowance for doubtful accounts;



•

inventory valuation and obsolescence;

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•

valuation and recoverability of long-lived and indefinite-lived intangible assets including the values assigned to acquired intangible assets, goodwill, assets held for sale and property, plant and equipment;



•

income taxes;



•

foreign currency; and



•

accruals for the outcome of current litigation.

        In general, estimates are based on historical experience, on information from third party professionals and on various other sources and assumptions that are believed to be reasonable under the facts and circumstances at the time such estimates are made. On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results may vary from these estimates and assumptions under different and/or future circumstances. Management considers an accounting estimate to be critical if:

•

it requires assumptions to be made that were uncertain at the time the estimate was made; and



•

changes in the estimate, or the use of different estimating methods that could have been selected, could have a material impact on the Company's consolidated results of operations or financial condition.

        The following critical accounting policies have been identified that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. The following critical accounting policies are not intended to be a comprehensive list of all of the Company's accounting policies or estimates.

Revenue Recognition:

        The Company recognizes revenue in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin 104. The Company recognizes product sales revenue when title and risk of loss have transferred to the customer, there is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable and collectibility is reasonably assured. Since the terms for most sales within the wholesale and direct response segments are F.O.B. destination, generally title and risk of loss transfer to the customer at the time the product is received by the customer. With respect to its own retail store operations, the Company recognizes revenue upon the sale of its products to retail customers. The Company's net sales represent gross sales invoiced to customers, less certain related charges for discounts, returns, and other promotional program incentive allowances. Accruals provided for these items are presented in the consolidated financial statements as reductions to sales.

Sales Returns and Other Allowances:

        The Company simultaneously records estimates for various items, which reduce product sales. These items include estimates for product returns and for promotional program incentive activities for various types of incentives offered to customers as well as other sales allowances.

        Allowance for sales returns:    The Company analyzes sales returns in accordance with Statement of Financial Accounting Standard ("SFAS") No. 48 "Revenue Recognition When Right of Return Exists" ("SFAS 48"). The Company is able to make reasonable and reliable estimates of product returns based on the Company's past 27 year history in the business. The Company also monitors the buying patterns of the end-users of its products based on sales data received by its approximately 1,200 retail outlets in North America and Europe. Estimates for sales returns are based on a variety of factors including actual return experience of any specific product or similar product. The Company reviews its estimates

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for product returns based on expected return data communicated to it by customers. The Company also monitors the levels of inventory at its largest customers to avoid excessive customer stocking of merchandise. Accruals for returns for new products are estimated by reviewing data of any prior relevant new product return information. Accordingly, the Company believes that its historical returns analysis is an accurate basis for its sales return accrual. While the Company does not have the ability to track returns by fiscal period, the Company believes it is able to make reasonable estimates of expected sales returns, as contemplated by the requirements of SFAS 48, based upon historical data and the available monitoring processes. The Company believes it has sufficient information and knowledge of its customers and of industry trends and conditions to adjust the accrual for returns when necessary. Actual results could differ from those estimates.

        Promotional program incentive allowance:    The Company uses objective procedures for estimating its allowance for promotional program incentives. The allowance for sales incentives offered to customers is based on contractual terms or other arrangements agreed to in advance with certain customers. Customers earn such incentives as specified sales volumes are achieved.

        The activity in the allowance for sales returns and the promotional program incentive allowance is as follows:

			Additions
	Balance at beginning of period		Charged to sales and expenses		Charged to other accounts			Deductions			Balance at end of period
Allowance for sales returns:
Fiscal year ended September 30, 2006	$	15,616	$	28,113	$	—		$	(32,951	)	$	10,778
Fiscal year ended September 30, 2005	$	9,108	$	45,444	$	143	(a)	$	(39,079	)	$	15,616
Fiscal year ended September 30, 2004	$	7,313	$	42,041	$	—		$	(40,246	)	$	9,108
Promotional program incentive allowance:
Fiscal year ended September 30, 2006	$	43,837	$	137,138	$	—		$	(150,536	)	$	30,439
Fiscal year ended September 30, 2005	$	37,495	$	142,999	$	383	(a)	$	(137,040	)	$	43,837
Fiscal year ended September 30, 2004	$	23,185	$	72,666	$	—		$	(58,356	)	$	37,495

(a)

Represents the opening balance sheet reserves from the Solgar acquisition.

        As with any set of assumptions and estimates, there is a range of reasonably likely amounts that may be calculated for each accrual above. However, the Company believes that there would be no significant difference in the amounts reported using any other reasonable assumptions than what was used to arrive at each accrual. The Company regularly reviews the factors that influence its estimates and, if necessary, makes adjustments when it believes that actual product returns, credits and other allowances may differ from established reserves. Actual experience associated with any of these items may be significantly different than the Company's estimates.

Accounts Receivable:

        Accounts receivable are presented net of certain allowances which include the above mentioned sales returns and allowance items, as well as an allowance for doubtful accounts. In order to estimate the allowance for doubtful accounts, 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. The Company maintains an allowance for doubtful accounts, which is based upon historical experience as well as 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

36

credit loss rates that it has in the past. If the financial condition of customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories:

        Inventories are stated at the lower of cost or market. The cost elements of inventories include materials, labor and overhead. The Company uses standard costs for labor and overhead and periodically adjusts those standards. The Company establishes reserves for its inventories to reflect situations in which the cost of the inventory is not expected to be recovered. The Company regularly reviews its inventories, including when product is close to expiration and is not expected to be sold, when product has reached its expiration date, or when product is not expected to be saleable based on the Company's quality assurance and quality control standards. The reserve for these products is equal to all or a portion of the cost of the related inventory based on specific facts and circumstances. In evaluating whether inventories are stated at the lower of cost or market, management considers such factors as the amount of inventory on hand, estimated time required to sell such inventory, remaining shelf life and current and expected market conditions, including levels of competition. The Company has evaluated the current level of inventories considering historical sales and other factors and, based on this evaluation, has recorded adjustments to cost of goods sold to adjust inventories to net realizable value. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer demand or competition differ from expectations.

Long-Lived Assets:

        The Company periodically reviews the values assigned to long-lived assets, such as property, plant and equipment, intangibles, assets held for sale and goodwill. The associated depreciation and amortization periods are reviewed on an annual basis.

        The Company follows the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement requires evaluation of the need for an impairment charge relating to long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. During fiscal 2006, 2005 and 2004, the Company recognized impairment charges of $3,141, $3,518 and $2,603, respectively, on assets to be held and used. The impairment charges in each of these years related primarily to leasehold improvements and furniture and fixtures for the North American Retail operations and were recorded in selling, general and administrative expense. For a discussion of impairment charges as of and for the fiscal year ended September 30, 2006, see Note 7 of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report.

        Goodwill and other indefinite-lived intangibles are tested for impairment annually, or more frequently if impairment indicators arise, in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). The SFAS No. 142 goodwill impairment model is a two-step process. The first step compares the fair value of a reporting unit that has goodwill assigned to its carrying value. The Company estimates the fair value of a reporting unit by using a discounted cash flow model. If the fair value of a reporting unit is determined to be less than its carrying value, a second step is performed to compute the amount of goodwill impairment, if any. Step two allocates the fair value of a reporting unit to the reporting unit's net assets other than goodwill. The excess of the fair value of the reporting unit over the amounts assigned to its net assets other than goodwill is considered the implied fair value of the reporting unit's goodwill. The implied fair value of the reporting unit's goodwill is then compared to the carrying value of its goodwill. Any shortfall represents the amount of goodwill impairment. SFAS 142 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not

37

reduce the fair value of a reporting unit below it carrying value. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. These evaluations require the use of judgment as to the effects of external factors and market conditions on the Company's conduct of its operations, and they require the use of estimates in projecting future operating results. If actual external conditions or future operating results differ from the Company's judgments, impairment charges may be necessary to reduce the carrying value of the subject assets. The fair value of an asset could vary, depending upon the different estimating methods employed, as well as assumptions made. This may result in a possible impairment of the intangible assets and/or goodwill. An impairment charge would reduce operating income in the period it was determined that the charge was needed. The Company tests goodwill annually as of September 30, the last day of its fourth fiscal quarter, unless an event occurs that would cause the Company to believe the value is impaired at an interim date. The Company recognized a $7,686 impairment charge of goodwill for the North American Retail reporting unit for the fiscal year ended September 30, 2005 which fully impaired this segment's goodwill. For a discussion of impairment charges see Note 7 of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report. As a result of the September 30, 2006 and 2004 goodwill and indefinite-lived intangible assets impairment testing, no impairment adjustments were deemed necessary.

        During fiscal 2006, due to continued difficult market conditions experienced in its low carb product line, the Company decided to discontinue its Carb Solutions trademarked brands (which was acquired as part of the acquisition of Rexall Sundown in 2003) since the brand related to this trademark had virtually no future undiscounted cash flow to support its carrying value. Accordingly, the Company wrote off the net carrying value of the Carb Solutions trademarked brands of $10,450 during the fiscal year ended September 30, 2006. For a discussion of impairment charges see Note 7 of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report.

        The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or loss of key contracts acquired in an acquisition relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of the acquired assets or in the Company's overall strategy with respect to the manner or use of the acquired assets or changes in the Company's overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company's stock price for a sustained period of time; and (vi) regulatory changes.

        The Company periodically evaluates acquired businesses for potential impairment indicators. Judgment regarding the existence of impairment indicators is based on market conditions and operational performance of the acquired businesses. Future events could cause the Company to conclude that impairment indicators exist, and therefore that goodwill and other intangible assets associated with its acquired businesses are impaired. Generally, in evaluating impairment, the Company estimates the sum of the expected future cash flows derived from such goodwill. Such evaluations for impairment are significantly impacted by estimates of future revenues, costs and expenses and other factors. A significant change in cash flows in the future could result in an additional impairment of goodwill.

Purchase Price Allocation:

        On June 8, 2005, the Company acquired SISU, Inc. ("SISU"), a Canadian-based manufacturer and distributor of premium quality vitamins and supplements sold to independent health food stores. The purchase price for this business was approximately $8,224 in cash. The Company accounted for this

38

acquisition under the purchase method of accounting in accordance with SFAS No. 141, "Business Combinations." Under the purchase method of accounting, the total purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair value was recorded as goodwill. The fair value assigned to the tangible and intangible assets acquired and liabilities assumed was based upon estimates and assumptions developed by the Company and other information compiled by the Company, including a valuation, prepared by an independent valuation specialist that utilized established valuation techniques appropriate for the industry.

        The Company has not yet finalized the working capital adjustment (as defined in the purchase agreement) relating to the SISU acquisition. The purchase agreement stipulates an adjustment to the purchase price between buyer and seller for the excess or shortfall of the final working capital threshold as stated in such agreement. The Company and SISU's seller are in a dispute with respect to the calculation of the final working capital. Also, the preliminary allocation of the SISU purchase price noted above is subject to contingency payments based upon financial loss claims as specified in the purchase agreement. The purchase agreement stipulates the indemnification from the seller of any financial losses of SISU for the period from June 1, 2005 to May 31, 2006 up to the maximum amount of $500. The completion of this process may result in an adjustment to the purchase price. Upon completion of these events, final allocations to the acquired assets and liabilities could result in future adjustments to goodwill and actual results may differ from those presented herein. Although management believes that the current allocation of the estimated purchase price is reasonable, the final allocation may differ significantly from the amounts reflected in the accompanying consolidated financial statements.

Income Taxes:

        The Company records the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as tax credit carrybacks and carryforwards. The Company periodically reviews the recoverability of deferred tax assets recorded on the balance sheet and provides valuation allowances as management deems necessary. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management's opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

Foreign Currency:

        Approximately 35% and 34% of the Company's net sales for the fiscal years ended September 30, 2006 and 2005, respectively, were denominated in currencies other than U.S. dollars, principally British Pounds, Euros and Canadian Dollars. Approximately 31% of the Company's net sales for the fiscal year ended September 30, 2004 was denominated in currencies other than U.S. dollars, principally British Pounds and Euros. A significant weakening of such currencies versus the U.S. dollar could have a material adverse effect on the Company, as this would result in a decrease in the Company's consolidated operating results.

        Foreign subsidiaries accounted for the following percentages of assets and total liabilities as of September 30, 2006 and 2005:

	2006		2005
Assets	28	%	26	%
Total liabilities	19	%	10	%

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        In preparing the consolidated financial statements, the financial statements of the foreign subsidiaries are translated from the functional currency, generally the local currency, into U.S. Dollars. This process results in exchange rate gains and losses, which, under the relevant accounting guidance, are included as a separate component of stockholders' equity under the caption "Accumulated other comprehensive income."

        Under the relevant accounting guidance, the functional currency of each foreign subsidiary 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 a 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. However, if the functional currency is deemed to be the U.S. Dollar, then any gain or loss associated with the remeasurement of these financial statements from the local currency to the functional currency would be included within the statement of operations. If the Company disposes of 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 U.S. 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. During the fiscal years of 2006, 2005 and 2004, translation gains (losses) of $11,431, ($5,121) and $7,547, respectively, were included in determining other comprehensive income. Accordingly, cumulative translation gains of approximately $29,027 and $17,596 were included as part of accumulated other comprehensive income within the consolidated balance sheet at September 30, 2006 and 2005, respectively.

        The magnitude of these gains or losses is dependent upon movements in the exchange rates of the foreign currencies against the U.S. Dollar. These currencies mainly include the British Pound Sterling, the Euro and the Canadian Dollar. Any future translation gains or losses could be significantly different than those noted in each of these years.

Contingencies:

        NBTY is subject to proceedings, lawsuits and other claims related to various matters. The Company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. Management determines the amount of reserves needed, if any, for each individual issue based on its knowledge and experience and discussions with legal counsel. The required reserves may change in the future due to new developments in each matter, the ultimate resolution of each matter or changes in approach, such as a change in settlement strategy, in dealing with these matters. As discussed in Note 17 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report, NBTY is unable to make a reasonable estimate of the liabilities that may result from the final resolution of certain contingencies disclosed. Assessments of each potential liability will be made as additional information becomes available. NBTY currently does not believe that these matters will have a material adverse affect on its consolidated financial position, results of operations or cash flows.

40

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. See Note 2 of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report for detailed information on recent acquisitions.

Results of Operations

        The following table sets forth for the periods indicated, the Consolidated Statements of Income of the Company expressed as a percentage of total net sales. Percentages may not add due to rounding.

			Fiscal year ended September 30,
			2006		2005		2004
Net sales			100	%	100	%	100	%
Costs and expenses:
	Cost of sales		52.8	%	51.6	%	49.7	%
	Advertising, promotion and catalog		5.5	%	6.2	%	5.2	%
	Selling, general and administrative		31.8	%	33.9	%	33.6	%
	Trademark/goodwill impairment		0.6	%	0.4	%	—
			90.7	%	92.1	%	88.5	%
Income from operations			9.3	%	7.9	%	11.5	%
Other income (expense):
	Interest		-1.4	%	-1.5	%	-1.5	%
	Miscellaneous, net		0.2	%	0.5	%	0.2	%
			-1.2	%	-1.1	%	-1.3	%
Income before provision for income taxes			8.1	%	6.9	%	10.2	%
Provision for income taxes			2.2	%	2.4	%	3.5	%
		Net income	5.9	%	4.5	%	6.7	%

Fiscal Year Ended September 30, 2006 ("fiscal 2006") Compared to Fiscal Year Ended September 30, 2005 ("fiscal 2005")

        Net Sales.    Net sales by segment for fiscal 2006 as compared to fiscal 2005 are as follows:

		Fiscal year ended September 30,
									% Change
		2006		2005		$ Change
Wholesale/US Nutrition		$	885,146	$	747,234	$	137,912		18.5	%
North American Retail/Vitamin World			234,215		224,008		10,207		4.6	%
European Retail/ Holland & Barrett/GNC (UK)			564,933		566,140		(1,207	)	-0.2	%
Direct Response/ Puritan's Pride			195,928		199,805		(3,877	)	-1.9	%
	Total	$	1,880,222	$	1,737,187	$	143,035		8.2	%

41

Wholesale/US Nutrition

        Net sales for the Wholesale/US Nutrition segment, which markets certain brands including Nature's Bounty, Met-Rx, Sundown and Solgar, increased primarily due to the following:

Increase in sales from Solgar, acquired August 1, 2005	$	82,764
Increase in sales from SISU, acquired June 8, 2005	$	9,192

        The balance of the increase is attributed to sales generated from strategic promotional advertising of the Company's brands. The Company continues to adjust shelf space allocation among the several US Nutrition brands to provide the best overall product mix and to respond to changing market conditions. These efforts have helped to strengthen US Nutrition's position in the mass market. US Nutrition continues to leverage valuable consumer sales information obtained from the Company's Vitamin World retail stores and Puritan's Pride direct-response/e-commerce operations in order to provide its mass-market customers with data and analyses to drive mass market sales.

        Product returns were $28,113 in fiscal 2006 as compared to $45,444 in fiscal 2005. The returns for fiscal 2006 are comprised of returns in the ordinary course of business. The returns for fiscal 2005 were comprised of low carb products (as a result of the decline in the market for these products), reallocations of the US Nutrition brands (certain slow selling Rexall brands were replaced with faster selling Nature's Bounty brand products), and returns arising from the ordinary course of business.

        For the years ended September 30, 2006 and 2005, two customers of the Wholesale/US Nutrition segment represented, individually, more than 10% of the Wholesale/US Nutrition segment's net sales. One of these customers is primarily a supplier to the other customer; therefore, changes in the Company's business relationship with either customer would likely result in the loss of most of the net sales to both customers. While no one customer represented individually more than 10% of the Company's consolidated net sales in fiscal 2006 or fiscal 2005, the loss of either one of these customers would have a material adverse effect on the Wholesale/US Nutrition segment if the Company is unable to replace such customer(s).

North American Retail

        The increase in net sales for the North American Retail segment is primarily due to increased sales from Le Naturiste ($8,568), which was acquired on February 25, 2005 (in fiscal 2005). Additionally, although 75 U.S. Retail stores were closed during fiscal 2006, the U.S. Retail same store sales for stores open more than one year increased $10,532 or 5.7% which also contributed to this increase. This increase was offset by the decline in the number of Vitamin World stores in operation during fiscal 2006 as compared to fiscal 2005 (66 less U.S. Retail stores) for a total net $1,639 annual net sales increase in U.S. Retail stores. The number of customers in the Savings Passport Program, a customer loyalty program, increased approximately 1.1 million to 7.0 million customers at September 30, 2006, as compared to 5.9 million customers at September 30, 2005. The Savings Passport Card is used to increase customer traffic and provide incentives for customers to purchase at Vitamin World. It is also an additional tool the Company utilizes to track customer preferences and purchasing trends.

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        The following is a summary of North American Retail store activity for fiscal 2006 and fiscal 2005:

North American Retail stores:		Fiscal 2006		Fiscal 2005
Vitamin World
	Open at beginning of the period	542		557
	Opened during the period	9		21
	Closed during the period	(75	)	(36	)
	Open at end of the period	476		542
Le Naturiste
	Open at beginning of the period: company-owned stores	97		—
	Open at beginning of the period: franchised stores	4		—
	Acquired during the period: company-owned stores	—		99
	Acquired during the period: franchised stores	—		4
	Opened during the period: company-owned stores	3	*	—
	Opened during the period: franchised stores	—		—
	Closed during the period: company-owned stores	(5	)	(2	)
	Closed during the period: franchised stores	(3	*)	(—	)
	Open at end of the period: company-owned stores	95		97
	Open at end of the period: franchised stores	1		4

*

3 franchised stores were converted to company-owned stores during the period

European Retail/Holland & Barrett/GNC (UK)

        The decrease in the European Retail segment's net sales is primarily the result of the unfavorable effect of the decrease in the exchange rate for the British Pound, resulting in a decrease of $18,605 or 3.3% in fiscal 2006 as compared to fiscal 2005. The European Retail same store sales for stores open more than one year increased $7,019 or 1.3% in fiscal 2006 as compared to fiscal 2005. However, in local currency same store sales for stores open more than one year increased 4.1% in fiscal 2006 as compared to fiscal 2005. The European Retail division continues to leverage its premier status, high street locations and brand awareness to achieve these results.

        The following is a summary of European Retail store activity for fiscal 2006 and fiscal 2005:

European Retail stores:	Fiscal 2006		Fiscal 2005
Open at beginning of the period	612		602
Opened during the period	11		16
Closed during the period	(6	)	(6	)
Open at end of the period	617		612

Direct Response/Puritan's Pride

        Direct Response/Puritan's Pride net sales decreased primarily due to the timing of promotional catalogues and the negative impact of lower sales in the first fiscal quarter of the year. The average order size increased 6.5% in fiscal 2006 as compared to fiscal 2005. On-line net sales comprised 33.6% of this segment's net sales for fiscal 2006 and increased 21.6% for fiscal 2006 as compared to fiscal 2005. The Company remains the leader in the direct response and e-commerce sectors and continues to increase the number of products available via its catalog and websites.

43

        Cost of Sales.    Cost of sales for fiscal 2006 as compared to fiscal 2005 is as follows:

	Fiscal year ended September 30, 2006				Fiscal year ended September 30, 2005
	$		% of net sales		$		% of net sales
Net sales	$	1,880,222	100.0	%	$	1,737,187	100.0	%
Cost of sales		992,197	52.8	%		895,644	51.6	%
Gross profit	$	888,025	47.2	%	$	841,543	48.4	%

        Gross profit as a percentage of net sales by segment for fiscal 2006 as compared to fiscal 2005 is as follows:

		Fiscal year ended September 30,
						% Change
		2006		2005
Wholesale/US Nutrition		32	%	34	%	-2	%
North American Retail/Vitamin World		58	%	55	%	3	%
European Retail/ Holland & Barrett/GNC (UK)		62	%	62	%	0	%
Direct Response/ Puritan's Pride		59	%	57	%	2	%
	Total	47	%	48	%	-1	%

        The Wholesale/US Nutrition segment's gross profit percentage for fiscal 2006 decreased as compared to fiscal 2005. The gross profit for this segment was negatively affected by changes in product mix, increases in promotional incentives, competitive pricing in the joint care category and higher prices paid for certain raw materials. Product returns for fiscal 2006 were $28,113, compared to $45,444 for the prior comparable period. A majority of the returns in fiscal 2005 were unsaleable as these returns were for low carb products, resulting from the contraction in the low carb market. The North American Retail gross profit increased primarily due to a change in the promotional strategy at store level. The retail promotional strategy is regularly revised to maximize specialty sales and gross profit. The European Retail gross profit remained unchanged as compared to the prior comparable period. Direct Response/Puritan's Pride gross profit increased primarily due to varied price promotions offered to customers.

        Advertising, promotion and catalog.    Total advertising, promotion and catalog expenses for fiscal 2006 as compared to fiscal 2005 are as follows:

		Fiscal year ended September 30,
											% Change
		2006			2005			$ Change
Advertising, promotions, catalogs		$	93,367		$	96,645		$	(3,278	)	-3.4	%
Catalog printing and mailing			10,247			11,360			(1,113	)	-9.8	%
	Total	$	103,614		$	108,005		$	(4,391	)	-4.1	%
Percentage of net sales			5.5	%		6.2	%

        The decrease in advertising expense in fiscal 2006 as compared to fiscal 2005 is mainly due to the discontinuance of aggressive promotions for some of the Company's leading brands. NBTY creates its own advertising materials through its in-house staff of associates. In the U.K. and Ireland, both Holland & Barrett and Nature's Way advertise on television and in national newspapers and conduct

44

sales promotions. GNC (UK) and De Tuinen also advertise in newspapers and conduct sales promotions. SISU advertises in trade journals and magazines and conducts sales promotions.

        Total advertising, promotion and catalog expenses by segment for fiscal 2006 as compared to fiscal 2005 are as follows:

		Fiscal year ended September 30,
									% Change
		2006		2005		$ Change
Wholesale/US Nutrition		$	63,407	$	76,086	$	(12,679	)	-16.7	%
North American Retail/Vitamin World			8,241		7,920		321		4.1	%
European Retail/ Holland & Barrett/GNC (UK)			13,214		7,148		6,066		84.9	%
Direct Response/ Puritan's Pride			18,466		16,526		1,940		11.7	%
Corporate			286		325		(39	)	-12.0	%
	Total	$	103,614	$	108,005	$	(4,391	)	-4.1	%

        The Wholesale/US Nutrition segment's advertising expenses decreased due to less emphasis by the Company on advertising through providing marketing incentives to customers. European Retail increased its advertising for specific television campaigns in order to maintain sales during the fiscal year.

        Selling, General and Administrative.    Selling, general and administrative expenses by segment for fiscal 2006 as compared to fiscal 2005 are as follows:

		Fiscal year ended September 30,
											% Change
		2006			2005			$ Change
Wholesale/US Nutrition		$	132,560		$	108,987		$	23,573		21.6	%
North American Retail/Vitamin World			128,310			133,526			(5,216	)	-3.9	%
European Retail/ Holland & Barrett/GNC (UK)			195,689			194,242			1,447		0.7	%
Direct Response/ Puritan's Pride			45,328			44,052			1,276		2.9	%
Corporate			96,855			107,359			(10,504	)	-9.8	%
	Total	$	598,742		$	588,166		$	10,576		1.8	%
Percentage of net sales			31.8	%		33.9	%

        The Wholesale / US Nutrition segment's selling, general and administrative expenses increased primarily due to such expenses of Solgar and SISU, acquired on August 1, 2005 and June 8, 2005, respectively. Selling, general and administrative expense increases for Solgar and SISU for the fiscal year ended September 30, 2006 were $24,305 and $3,357, respectively. These increases were offset by decreases in insurance due to lower premiums and decreased freight costs, which declined mainly due to the Company changing certain of its freight carriers and obtaining more favorable rates. The European Retail's selling, general and administrative expense increased due to increases in building and real estate tax expense, which is primarily the result of an increase in the number of stores in operation as compared to the prior like period. The European Retail's selling, general and administrative expense increase was offset by $6,383 attributable to foreign exchange. The decline in the North American Retail's selling, general and administrative expense is primarily due to less salaries, building and depreciation expenses as a result of the reduction in the number of stores in operation as compared to the prior like period.

45

        Selling, general and administrative expenses by type for fiscal 2006 as compared to fiscal 2005 are as follows:

	Fiscal year ended September 30,
									% Change
	2006		2005			$ Change
Payroll and fringes	$	252,466	$	244,232		$	8,234		3.4	%
Rent		114,206		115,442			(1,236	)	-1.1	%
Real estate taxes		22,048		21,209			839		4.0	%
Insurance		24,240		26,156			(1,916	)	-7.3	%
Freight		46,933		47,696			(763	)	-1.6	%
Impairments of long-lived assets		3,141		3,518			(377	)	-10.7	%
Depreciation		26,454		31,042			(4,588	)	-14.8	%
Professional fees		21,183		16,279			4,904		30.1	%
Impairment charge on building held for sale		—		1,908			(1,908	)	100.0	%
Gain on sale of business assets		—		(1,999	)		1,999		100.0	%
Other		88,071		82,683			5,388		6.5	%
Total	$	598,742	$	588,166		$	10,576		1.8	%

        The net increase in selling, general and administrative expense is attributable to the following: Payroll costs increased mainly due to recent business acquisitions and general salary increases, professional fees increased due to our compliance efforts with the Sarbanes-Oxley Act of 2002, offset by lower insurance costs due to decreased premiums and lower freight costs due to changes in carriers. Additionally, rent and depreciation expense in U.S. retail stores declined mainly as a result of fewer stores open in the current period as compared to the prior period (66 fewer stores). Other selling, general and administrative expenses are primarily comprised of amortization, travel and credit card processing fees.

        Trademark / goodwill impairments.    Due to continued difficult market conditions, the Company decided to discontinue its Carb Solutions low carb product line, acquired as part of the acquisition of Rexall Sundown in 2003. Accordingly, the Company wrote off the carrying value of the Carb Solutions trademarked brands of $10,450 in fiscal 2006. During fiscal 2005, the Company recorded a goodwill impairment charge of $7,686 for the North American Retail operations (Vitamin World operations). Impairment indicators are discussed in Note 7 of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report.

        Interest expense.    The two major components of interest expense are interest on the outstanding Senior Subordinated Notes and interest on amounts outstanding under the Credit and Guarantee Agreement ("CGA") used for acquisitions, capital expenditures and other working capital needs. At September 30, 2006, the CGA consisted of a $125,000 Revolving Credit Facility, which had no borrowings outstanding, and a Term Loan A and Term Loan C, which were fully repaid as of September 30, 2006. Interest rates charged on borrowings can vary depending on the interest rate option utilized. Options for the interest rate can either be the Alternate Base Rate or LIBOR, plus applicable margin.

        Interest expense for fiscal 2006 compared to fiscal 2005 is as follows:

	Fiscal year ended September 30,
	2006			2005			$ Change
Interest expense	$	25,924		$	26,475		$	(551	)
Percentage of net sales		1.4	%		1.5	%

46

        Interest expense by debt category for fiscal 2006 as compared to fiscal 2005 is as follows:

			Fiscal year ended September 30,
Debt Category:
			2006			2005			$ Change
	8-5/8% Senior subordinated notes		$	902		$	14,455		$	(13,553	)
	7-1/8% Senior subordinated notes due 2015			14,818			325			14,493
	Term loan C; fully repaid in April 2006			2,972			6,998			(4,026	)
	Term loan A; fully repaid in September 2006			3,573			1,004			2,569
	First mortgage; fully repaid May 2006			487			56			431
	Deferred financing fees			2,915			1,692			1,223
	Capitalized interest			(985	)		(494	)		(491	)
	Other			1,242			2,439			(1,197	)
		Total interest expense	$	25,924		$	26,475		$	(551	)

        Interest expense decreased primarily due to the Company paying down Term Loan C in April 2006 and an increase in capitalized interest in the current fiscal year compared to the prior comparable period. These decreases were partially offset by an increase in interest expense for fiscal 2006 on Term Loan A which was issued on August 1, 2005, in connection with the Company's acquisition of Solgar. As Term Loan A was not outstanding during most of fiscal 2005, there was no such interest expense in that period.

        Miscellaneous, net.    Miscellaneous, net for fiscal 2006 compared to fiscal 2005 is as follows:

	Fiscal year ended September 30,
	2006			2005			$ Change
Miscellaneous, net	$	3,532		$	8,051		$	(4,519	)
Percentage of net sales		0.2	%		0.5	%

        Miscellaneous, net decreased for fiscal 2006 as compared to fiscal 2005 as follows:

	Fiscal year ended September 30,
	2006			2005		$ Change
Foreign exchange transaction (loss) gain	$	(1,723	)	$	4,286	$	(6,009	)
Investment income		3,229			1,935		1,294
Rental income		738			991		(253	)
Other		1,288			839		449
Total	$	3,532		$	8,051	$	(4,519	)

        The decrease in miscellaneous, net is primarily due to the foreign exchange transaction (loss) / gain associated with the strengthening of the U.S. Dollar against the British Pound as compared to the prior comparable period.

47

        Income Taxes.    Income tax expense for fiscal 2006 compared to fiscal 2005, and the respective effective income tax rates, are as follows:

	Fiscal year ended September 30,
	2006			2005			$ Change
Provision for income taxes	$	41,042		$	41,125		$	(83	)
Effective income tax rate		26.9	%		34.5	%

        The Company's income tax expense is impacted by a number of factors, including federal taxes, its international tax structure, state tax rates in the jurisdictions where the Company conducts business, and the Company's ability to utilize state tax credits that will begin to expire in 2013. Therefore, the Company's overall effective income tax rate could vary as a result of these factors. The effective income tax rate for fiscal 2006 was 26.9%, as compared to 34.5% for fiscal 2005. The decline in the effective rate is mainly attributable to the impact of the Foreign Earnings Repatriation ("FER") provision in the American Jobs Creation Act of 2004, which impacted fiscal 2006 by $11,289 (7.4% impact to the rate, see discussion below). As the Company has principally repatriated foreign earnings in prior years, it is essentially repatriating current year foreign earnings at a more beneficial rate under the American Jobs Creations Act of 2004. The effective income tax rates are generally less than the U.S. federal statutory tax rate primarily due to the enhanced structure of foreign subsidiaries, which could also continue to impact future fiscal years, as well as the impact of the FER provision of the American Jobs Creation Act of 2004 noted above.

        Net Income.    After income taxes, the Company's net income for fiscal 2006 as compared to fiscal 2005, and the respective basic and diluted earnings per share, are as follows:

			September 30,
			2006			2005			$ Change
	Net income		$	111,785		$	78,137		$	33,648
	Percentage of net sales			5.9	%		4.5	%
Net income per share:
		Basic	$	1.66		$	1.16
		Diluted	$	1.62		$	1.13

Fiscal Year Ended September 30, 2005 ("fiscal 2005") Compared to Fiscal Year Ended September 30, 2004 ("fiscal 2004")

        Net Sales.    Net sales by segment for fiscal 2005 as compared to fiscal 2004 are as follows:

	Fiscal year ended September 30,
								% Change
	2005		2004		$ Change
Wholesale / US Nutrition	$	747,234	$	734,293	$	12,941		1.8	%
North American Retail / Vitamin World		224,008		216,431		7,577		3.5	%
European Retail / Holland & Barrett / GNC (UK)		566,140		495,808		70,332		14.2	%
Direct Response / Puritan's Pride		199,805		205,499		(5,694	)	-2.8	%
Total	$	1,737,187	$	1,652,031	$	85,156		5.2	%

48

Wholesale / US Nutrition

        Net sales for the Wholesale / US Nutrition segment, which markets certain brands including Nature's Bounty, Met-Rx, Sundown and Solgar, increased primarily due to sales from Solgar, which was acquired on August 1, 2005. Net sales for Solgar from the date of acquisition through September 30, 2005 were $17,464. The remaining US Nutrition brands maintained their market share in a declining market through aggressive advertising and promotions. The Company adjusted shelf space allocation between the US Nutrition brands to provide the best overall product mix and to respond to changing market conditions. These efforts helped to maintain US Nutrition's position in the mass market. Product returns resulted in a reduction to net sales of $45,444 in fiscal 2005 as compared to $42,041 in fiscal 2004, a portion of which was associated with the decline for low carb related products, with the remaining due to reallocations of the US Nutrition brands, as well as other normal business operations. US Nutrition continues to leverage valuable consumer sales information obtained from the Company's Vitamin World retail stores and Puritan's Pride direct-response/e-commerce operations in order to provide its mass-market customers with data and analyses to drive mass market sales. In fiscal 2005, two customers of the Wholesale / US Nutrition segment represented, individually, more than 10% of the Wholesale / US Nutrition segment's net sales. One of these customers is primarily a supplier to the other customer; therefore, changes in the Company's business relationship with either customer would likely result in the loss of most of the net sales to both customers. In fiscal 2004, one customer of the Wholesale / US Nutrition segment represented, individually, more than 10% of the Wholesale / US Nutrition segment's net sales. While no one customer represented individually more than 10% of the Company's consolidated net sales in fiscal 2005 or fiscal 2004, the loss of either one of these customers would have a material adverse effect on the Wholesale / US Nutrition segment if the Company is unable to replace such customer(s).

North American Retail

        North American Retail net sales increased primarily due to sales from Le Naturiste ($9,089), which was acquired on February 25, 2005 (fiscal 2005), and 21 new Vitamin World retail store openings ($2,694). The number of customers in the Savings Passport Program, a customer loyalty program, increased approximately 1.0 million to 5.9 million customers at eth end of fiscal 2005, as compared to 4.9 million customers at the end of fiscal 2004. U.S. Retail same store sales for stores open more than one year decreased 2.7% (or $5,341) reflecting the continued difficult specialty retail environment. As US Nutrition introduces more new products directly to the mass market, the specialty retail channel's ability to capitalize on market trends and new products is restricted which has affected Vitamin World. The Company expects this trend to continue in the near future. During fiscal 2005, Vitamin World opened 21 new stores, closed 36 stores and at the end of the period operated 542 stores. The Company operated 557 Vitamin World stores in the U.S. as of September 30, 2004. On February 25, 2005, the Company acquired Le Naturiste, a chain of 103 retail stores located throughout Quebec. Le Naturiste is an Eastern Canadian-based company in the business of developing, packaging, marketing and retailing an in-house range of privately-labeled health and natural products. At September 30, 2005, the Le Naturiste chain operated 97 company-owned stores and 4 franchised stores.

European Retail / Holland & Barrett / GNC (UK)

        European Retail net sales increases were directly attributable to an increase in same store sales for stores open more than one year of 10.9% (or $53,136). These European Retail net sales results include the positive effect of the exchange rate for the British Pound ($15,332 or 3.1%). In local currency, the increase in same store sales for stores open more than one year was 7.8%. The European Retail division continues to leverage its premier status, high street locations and brand awareness to achieve these results. During fiscal 2005, the Company's European Retail division opened 16 new stores and closed 6 stores and at the end of the period 612 stores in the U.K., Ireland and the Netherlands were

49

in operation. At September 30, 2004, 602 stores in the U.K., Ireland and the Netherlands were in operation.

Direct Response / Puritan's Pride

        Direct Response / Puritan's Pride net sales decreased as a result of the stagnant market for nutritional supplements, negative publicity surrounding Vitamin E and Puritan's Pride's substantial reduction in pricing. The Company adopted this aggressive pricing strategy to maintain its customer base and to put pressure on competition. Internet orders increased as compared to the prior like period. On-line net sales comprised 28% of this segment's net sales and increased 19.4% in the fiscal year ended September 30, 2005 as compared to the prior comparable period. The Company remains the leader in the direct response and e-commerce sector and continues to increase the number of products available via its catalog and websites.

        Cost of Sales.    Cost of sales for fiscal 2005 as compared to fiscal 2004 is as follows:

	Fiscal year ended September 30, 2005				Fiscal year ended September 30, 2004
	$		% of net sales		$		% of net sales
Net sales	$	1,737,187	100.0	%	$	1,652,031	100.0	%
Cost of sales		895,644	51.6	%		822,412	49.7	%
Gross profit	$	841,543	48.4	%	$	829,619	50.3	%

        Gross profit as a percentage of net sales by segment for fiscal 2005 as compared to fiscal 2004 is as follows:

	September 30,
					% Change
	2005		2004
Wholesale / US Nutrition	34	%	36	%	-2	%
North American Retail / Vitamin World	55	%	59	%	-4	%
European Retail / Holland & Barrett / GNC (UK)	62	%	62	%	0	%
Direct Response / Puritan's Pride	57	%	62	%	-5	%
Total	48	%	50	%	-2	%

        The Wholesale / US Nutrition segment's gross profit as a percentage of net sales for fiscal 2005 decreased as compared to fiscal 2004. During fiscal 2005, there were $45,444 in product returns as compared to $42,041 in product returns during fiscal 2004. A portion of product returns were associated with the contraction in the low carb product market, with the remaining due to reallocations of the US Nutrition brands (certain non-performing Rexall brands were replaced with faster selling Nature's Bounty brand products), as well as returns in the normal course of business. The gross profit was also affected by changes in product mix and an increase in sales incentives and promotion costs, which are recorded as reductions to gross sales. The North American Retail gross profit decreased primarily due to heavy discounts offered in order to maintain market share. The European Retail gross profit remained consistent with the prior comparable period. Direct Response / Puritan's Pride gross profit decreased primarily due to aggressive pricing strategy and promotions.

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        Advertising, Promotion and Catalog.    Total advertising, promotion and catalog expenses for fiscal 2005 and fiscal 2004 are as follows:

		Fiscal year ended September 30,
											% Change
		2005			2004			$ Change
Advertising, promotions, catalogs		$	96,645		$	71,318		$	25,327		35.5	%
Catalog printing and mailing			11,360			13,920			(2,560	)	-18.4	%
	Total	$	108,005		$	85,238		$	22,767		26.7	%
Percentage of net sales			6.2	%		5.2	%

        Of the total $22,767 increase, $25,327 was attributable to the increase in promotions for products, mainly via television, magazines, newspapers and mailing programs, partially offset by a decrease of $2,560 in catalog printing costs.

        Total advertising, promotion and catalog expenses by segment for fiscal 2005 as compared to fiscal 2004 are as follows:

		Fiscal year ended September 30,
											% Change
		2005			2004			$ Change
Wholesale / US Nutrition		$	76,086		$	48,343		$	27,743		57.4	%
North American Retail / Vitamin World			7,920			8,580			(660	)	-7.7	%
European Retail / Holland & Barrett / GNC (UK)			7,148			8,806			(1,658	)	-18.8	%
Direct Response / Puritan's Pride			16,526			19,240			(2,714	)	-14.1	%
Corporate			325			269			56		20.8	%
Total		$	108,005		$	85,238		$	22,767		26.7	%
	Percentage of net sales		6.2	%		5.2	%

        The Wholesale / US Nutrition segment's advertising expenses increased primarily due to advertising expenses incurred related to the following brands: Osteo-Bi-Flex®, WORLDWIDE Sport Nutrition®, Sundown® and Flex-a-min®. The Company undertook this initiative to build brand awareness and to retain market share in a difficult environment. The Wholesale / US Nutrition segment's increase was partially offset by decreases in advertising expenses attributable to the Company's other segments. Investments in advertising and sales promotions are part of the Company's strategic effort to increase market share and long-term growth.

        Selling, General and Administrative.    Selling, general and administrative expenses for fiscal 2005 as compared to fiscal 2004 are as follows:

	Fiscal year ended September 30,
										% Change
	2005			2004			$ Change
Wholesale / US Nutrition	$	108,987		$	105,266		$	3,721		3.5	%
North American Retail / Vitamin World		133,526			119,790			13,736		11.5	%
European Retail / Holland & Barrett / GNC (UK)		194,242			179,065			15,177		8.5	%
Direct Response / Puritan's Pride		44,052			42,836			1,216		2.8	%
Corporate		107,359			107,881			(522	)	-0.5	%
Total	$	588,166		$	554,838		$	33,328		6.0	%
Percentage of net sales		33.9	%		33.6	%

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        The European Retail's selling, general and administrative expenses increase of $15,177 includes $5,640 attributable to foreign exchange.

        Selling, general and administrative expenses by type for fiscal 2005 as compared to fiscal 2004 are as follows:

	Fiscal year ended September 30,
									% Change
	2005			2004		$ Change
Payroll and fringes	$	244,232		$	225,146	$	19,086		8.5	%
Rent		115,442			105,531		9,911		9.4	%
Real estate taxes		21,209			18,189		3,020		16.6	%
Insurance		26,156			24,199		1,957		8.1	%
Freight		47,696			45,199		2,497		5.5	%
Impairments of long-lived assets		3,518			2,603		915		35.2	%
Impairment charge on building held for sale		1,908			—		1,908		100.0	%
Gain on sale of business assets		(1,999	)		—		(1,999	)	100.0	%
Other		130,004			133,971		(3,967	)	-3.0	%
Total	$	588,166		$	554,838	$	33,328		6.0	%

        The total increase of $33,328 in selling, general and administrative expenses is attributable to the following: Payroll costs increased mainly due to recent business acquisitions and general salary increases; rent and real estate taxes expense increased mainly associated with additional North American Retail and European Retail stores, as well as newly leased facilities; insurance costs increased mainly associated with an increase in general insurance rates; freight costs increased mainly resulting from the increased wholesale sales; and impairment charges (i) for the write-down of long lived assets held and used in the Company's North American Retail locations (Vitamin World operations), and (ii) on the building held for sale resulting from the sale of the Rexall corporate building. These increases were partially offset by a gain on the sale of business assets as a result of the Company selling certain business assets of FSC, a Manchester, U.K. based wholesale operation which sold products to health food stores and pharmacies.

        Goodwill impairment.    During fiscal 2005, the Company recorded a goodwill impairment charge of $7,686 for the North American Retail operations (Vitamin World operations). Impairment indicators are discussed in Note 7 of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report.

        Interest Expense.    The major components of interest expense are interest on the outstanding Senior Subordinated Notes, and interest on amounts outstanding under the CGA used for acquisitions, capital expenditures and other working capital needs. Interest expense for fiscal 2005 as compared to fiscal 2004 is as follows:

	Fiscal year ended September 30,
	2005			2004			$ Change
Interest expense	$	26,475		$	24,663		$	1,812
Percentage of net sales		1.5	%		1.5	%

        Interest expense increased due to an increase in the annual borrowing rate for the Term Loan C (5.875% at September 30, 2005 as compared to 3.75% at September 30, 2004), offset by principal repayments of borrowings under the CGA ($17,368 reduction to principal). Included in the interest expense for the fiscal year ended September 30, 2005 is a charge of $790 in connection with the early

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extinguishment of the 2007 Notes. The charge included a write-off of approximately $620 representing the unamortized portion of debt issuance costs and $170 representing the unamortized bond discount associated with the original issuance. In addition, interest expense for the current fiscal year increased due to an interest payment ($1,341) made as a result of the Company settling its working capital dispute in connection with the Rexall acquisition. On December 19, 2003, the Company refinanced $224,000 of Term B loans outstanding under its July 2003 credit agreement with a new class of Term C loans on more favorable terms of LIBOR plus 2%. Costs of approximately $500 were paid on December 19, 2003, in connection with this debt refinancing, which will be amortized until Term C's maturity of approximately six years. On August 1, 2005, in connection with the Company's acquisition of Solgar®, the Company amended and restated its existing CGA by adding a new Term Loan A of $120,000 and increasing its existing Revolving Credit Facility from $100,000 to $125,000. Costs of $1,147 were paid in connection with this amendment and restatement of the Company's CGA. At September 30, 2005, the CGA consisted of a $125,000 Revolving Credit Facility, which had borrowings outstanding of $6,000, a Term Loan C, which had borrowings outstanding of $138,163 and a Term Loan A, which had borrowings outstanding of $75,419. Interest rates charged on borrowings can vary depending on the interest rate option utilized. Options for the rate can either be the Alternate Base Rate or LIBOR, plus applicable margin. At September 30, 2005 the annual borrowing rate for Term Loan C approximated 5.875%, the annual borrowing rate for Term Loan A approximated 5.25% and the annual borrowing rate for the Revolving Credit Facility approximated 7.75%.

        Miscellaneous, net.    Miscellaneous, net for fiscal 2005 as compared to fiscal 2004 is as follows:

	Fiscal year ended September 30,
	2005			2004			$ Change
Miscellaneous, net	$	8,051		$	4,125		$	3,926
Percentage of net sales		0.5	%		0.2	%

        Miscellaneous, net increased in fiscal 2005 as compared to fiscal 2004 as follows::

	Fiscal year ended September 30,
	2005		2004		$ Change
Foreign exchange transaction gain	$	4,286	$	1,253	$	3,033
Investment income		1,935		1,298		637
Rental income		991		1,248		(257	)
Other		839		326		513
Total	$	8,051	$	4,125	$	3,926

        Income Taxes.    Income tax expense for fiscal 2005 as compared to fiscal 2004, and the respective effective income tax rates, is as follows:

	Fiscal year ended September 30,
	2005			2004			$ Change
Provision for income taxes	$	41,125		$	57,156		$	(16,031	)
Effective income tax rate		34.5	%		33.8	%

        The Company's income tax expense is impacted by a number of factors, including federal taxes, its international tax structure, state tax rates in the jurisdictions where the Company conducts business, and the Company's ability to utilize state tax credits that expire primarily between 2013 and 2016.

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Therefore, the Company's overall effective income tax rate could vary as a result of these factors. No income tax benefit was attributed to the goodwill impairment charge of $7,686. This charge impacted the effective income tax rate for fiscal 2005 by 2.1%. Excluding the effect of the goodwill impairment charge for fiscal 2005, the effective income tax rates are generally less than the U.S. federal statutory tax rate primarily due to the enhanced tax structure of foreign subsidiaries which could also continue to impact future fiscal years.

        In October 2004, the American Jobs Creation Act of 2004 (Act) became effective in the U.S. Two provisions of the Act may impact the Company's provision for income taxes in future periods, namely those related to the Qualified Production Activities Deduction (QPA) and Foreign Earnings Repatriation (FER). The QPA will be effective for the Company's U.S. federal tax return year beginning after September 30, 2005. Due to the interaction of the law's provisions as well as the particulars of the Company's tax position, the ultimate effect of the QPA on the Company's future provision for income taxes is not deemed to be significant. The FER provision of the Act provides generally for a one-time 85 percent dividends received deduction for qualifying repatriations of foreign earnings to the U.S. The Company has completed its evaluation of the application of the FER provision and determined that it will realize a benefit by repatriating funds in accordance with the FER provision. As such, the Company developed a Domestic Reinvestment Plan to reinvest the repatriated funds in the U.S. in qualifying activities, pursuant to the terms of the FER provision and subsequent guidance issued by the IRS. This plan calls for the repatriation of up to $100 million during the fiscal year ending September 30, 2006. A portion of the repatriation includes foreign earnings related to the fiscal year ended September 30, 2005 and to earlier fiscal years. The Company recorded a net benefit of $884 on the unremitted earnings from the fiscal year ended September 30, 2005 and earlier fiscal years as a result of the FER provision. The majority of the repatriation is expected to come from projected foreign earnings for the fiscal year ending September 30, 2006. It is impractical to calculate the exact amount of earnings and exact tax impact that the Company may realize from the repatriation of 2006 earnings. As such, no incremental tax impact has been recorded in fiscal 2005 with respect to these earnings.

        Net Income.    After income taxes, the Company's net income for fiscal 2005 as compared to fiscal 2004, and the respective basic and diluted earnings per share, is as follows:

		September 30,
		2005			2004			$ Change
	Net income	$	78,137		$	111,849		$	(33,712	)
	Percentage of net sales		4.5	%		6.8	%
Net income per share:
	Basic	$	1.16		$	1.67
	Diluted	$	1.13		$	1.62

Seasonality

        Although the Company believes that its business is not seasonal in nature, historically, the Company has experienced, and expects to continue to experience, a substantial variation in its net sales and operating results from quarter to quarter. The Company believes that the factors which influence this variability of quarterly results include general economic and industry conditions that affect consumer spending, changing consumer demands and current news on nutritional supplements, the timing of the Company's introduction of new products, promotional program incentives offered to customers, the timing of catalog promotions, the level of consumer acceptance of each new product, the seasonality of the markets in which the Company participates, and actions of competitors. Accordingly, a comparison of the Company's results of operations from consecutive periods is not necessarily meaningful, and the Company's results of operations for any period are not necessarily indicative of future performance. Additionally, the Company may experience higher net sales in a quarter depending upon when it has engaged in significant promotional activities.

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Off-Balance Sheet Arrangements

        The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors, except for the financing commitments previously discussed.

Indemnification of Officers and Directors

        The Company is incorporated under the laws of Delaware. Section 145(a) of the Delaware General Corporation Law (the "DGCL") provides that a corporation may indemnify officers and directors of the corporation against expenses incurred by them if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, if they had no reasonable cause to believe that their conduct was unlawful.

        As permitted by the DGCL, the Company has provided in its certificate of incorporation for the indemnification to the full extent permitted by Section 145 of the DGCL of the persons whom may be indemnified pursuant thereto. Further, the Company has provided in its certificate of incorporation that 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 DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.

Liquidity and Capital Resources

        At September 30, 2006 the Company's primary sources of liquidity and capital resources are cash generated from operations and a $125,000 Revolving Credit Facility maintained by the Company under its Credit & Guarantee Agreement ("CGA"). On November 3, 2006, the Company entered into a Revolving Credit Agreement (the "Credit Agreement") which provides for revolving credit loans in the aggregate principal amount of up to $325,000 to be used for (a) the repayment of all obligations outstanding under the Company's prior credit agreement (which consisted solely of commitment fees since the Company had previously repaid all amounts borrowed under the prior credit agreement), (b) working capital and other general corporate purposes, and (c) acquisitions. In connection with the Credit Agreement, the Company's prior CGA was terminated. See below for further discussion regarding the Company's CGA during fiscal 2006. The Company's principal uses of cash have been for working capital purposes, facility expansions, acquisitions, capital expenditures and debt service requirements. The Company anticipates these uses will continue to be its principal uses of cash in the future.

        The following table sets forth, for the years indicated, the Company's period-end cash and cash equivalents, cash and cash equivalents held by its foreign subsidiaries, working capital and other operating measures:

	Fiscal year ended September 30,
	2006			2005		2004
Cash and cash equivalents at year end	$	89,805		$	67,282	$	21,751
Cash and cash equivalents held by foreign subsidiaries	$	20,454		$	36,369	$	15,491
Working capital	$	391,713		$	475,728	$	359,847
Working capital (decrease) increase	$	(84,015	)	$	115,881	$	47,982
Inventory turnover		2.54			2.22		2.39
Days sales outstanding in accounts receivable		38			43		45

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        The Company monitors current and anticipated future levels of cash and cash equivalents in relation to anticipated operating, financing and investing requirements. Cash and cash equivalents held by the Company's foreign subsidiaries are subject to U.S. income taxation on repatriation to the U.S. The Company currently repatriates all earnings from its foreign subsidiaries where permitted under local law.

        The decrease in working capital for fiscal 2006 was primarily due to decreases in current assets including investments, inventories, and prepaid and other current assets offset partially by an increase in accounts receivable, and a decrease in the current portion of long-term debt. The decline in investments is attributable to the Company liquidating and utilizing all of its investment in auction rate securities of $39,900 to fund a portion of the remaining amounts due under the 8⁵/8% Notes redemption. On October 24, 2005, the Company redeemed the remaining $75,542 aggregate principal amount of the 8⁵/8% Notes outstanding. The significant decline in inventory reflects the Company's ongoing efforts to lower inventories while assuring its customers uninterrupted supply of product. The annualized inventory turnover rate was approximately 2.54 times during the fiscal year ended September 30, 2006, compared with 2.22 times during the prior comparable period. This increase is primarily due to the decreased inventory levels as compared to the prior comparable period. Prepaid and other current assets decreased primarily due to the normal amortization of prepaid insurance costs (annual policies renew each year in July). Accounts receivable increased due to increased sales in the turnover period as well as a decrease in sales related allowances. The annualized number of average days sales outstanding (on wholesale net sales and net accounts receivable plus allowance for doubtful accounts) at September 30, 2006, was 38 days, compared with 43 days at September 30, 2005. This decrease in days sales outstanding related to improved collection efforts and integration of acquisitions. The decline in the current portion of long-term debt primarily reflects the payment on October 24, 2005 whereby the Company redeemed the remaining $75,542 aggregate principal amount of the 8⁵/8% Notes outstanding, as well as accelerated term loan debt repayments on Term Loan A and C in full during fiscal 2006.

        The following table sets forth, for the years indicated, the Company's net cash flows provided by (used in) operating, investing and financing activities:

	Fiscal year ended September 30,
	2006			2005			2004
Cash flow provided by operating activities	$	312,963		$	85,848		$	119,936
Cash flow provided by (used in) investing activities	$	7,385		$	(250,541	)	$	(37,477	)
Cash flow (used in) provided by financing activities	$	(299,430	)	$	210,333		$	(115,719	)

        The overall increase in cash provided by operating activities during fiscal 2006 was mainly attributable to increased net income, changes in operating assets and liabilities discussed above and non-cash charges.

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        The following table sets forth, for the years indicated, cash provided by (used in) investing activities:

		Fiscal year ended September 30,
		2006			2005			2004
Purchase of property, plant and equipment		$	(35,308	)	$	(71,516	)	$	(42,700	)
Proceeds from sale of property, plant and equipment			1,426			298			1,065
Proceeds from sale of property, plant and equipment held for sale			—			9,950			—
Proceeds from sale of business assets			—			5,766			—
Proceeds from sale / (purchase) of available-for-sale marketable securities			39,900			(39,900	)		—
Cash paid for acquisitions, net of cash acquired			—			(131,397	)		—
Purchase price adjustments and settlements, net			1,845			(8,236	)		—
Purchase of intangible assets			(478	)		(533	)		—
Purchase of industrial revenue bonds			—			(14,973	)		—
Proceeds from sale of bond investment			—			—			4,158
	Net cash provided by (used in) investing activities	$	7,385		$	(250,541	)	$	(37,477	)

        Fiscal 2006 cash flows provided by investing activities consisted primarily of proceeds from the sale of auction rate securities, cash received from the seller in connection with the Solgar acquisition final net asset calculation and proceeds from the sale of property, plant and equipment, offset by the purchase of property, plant and equipment (of which approximately $8,801 was attributable to the expansion of the soft-gel facility and $7,692 was attributable to a new manufacturing facility currently being constructed in Augusta, Georgia). During fiscal 2004, the Company began a $21,000 expansion of its soft-gel facility in Bayport, New York, which was completed in February 2006. As a result of this expansion, the Bayport facility is now able to produce approximately 8.3 billion tablets, capsules and soft-gels per year.

        Fiscal 2005 cash used in investing activities consisted primarily of the purchase of property, plant and equipment (of which $19,624 was attributable to a new distribution facility in Hazleton, PA and $14,973 was attributable to a new manufacturing facility under construction in Augusta, Georgia), cash paid for acquisitions (Le Naturiste, SISU and Solgar), net of cash acquired, the purchase of auction rate securities, the purchase of industrial revenue bonds, cash paid in connection with the Rexall acquisition dispute settlement, offset by proceeds from the sale of property, plant and equipment held for sale (mainly due to the sale of the Rexall building), proceeds from the sale of certain business assets of FSC, a Manchester, U.K. based wholesale operation which sold products to health food stores and pharmacies and the cash settlement received from the GNC (UK) purchase price dispute.

        Fiscal 2004 cash used in investing activities consisted primarily of purchases of property, plant and equipment, partially offset by proceeds from the sale of property, plant and equipment and proceeds from the sale of investment in bonds.

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        The following table sets forth, for the years indicated, cash (used in) provided by financing activities:

		Fiscal year ended September 30,
		2006			2005			2004
Long-term debt agreements and capital leases:
	Principal payments	$	(312,107	)	$	(138,544	)	$	(117,100	)
	Proceeds from borrowings		—			132,950			—
Proceeds from short-term borrowings			18,204			—			—
Proceeds from sale-leaseback			—			14,973			—
Revolving Credit Facility:
	Principal payments		(11,000	)		(20,000	)		—
	Proceeds from borrowings		5,000			26,000			—
Proceeds from settlement of interest rate swap			353			—			—
Payments for financing fees			—			—			(500	)
Bond issuance costs			—			(3,329	)		—
Excess income tax benefit from exercise of stock options			15			—			—
Proceeds from stock options exercised			105			225			1,881
Proceeds from bond offering, net of discount			—			198,234			—
Purchase of treasury stock			—			(176	)		—
	Net cash (used in) provided by financing activities	$	(299,430	)	$	210,333		$	(115,719	)

        Fiscal 2006 cash flows used in financing activities related to principal payments under long-term debt agreements (payments primarily related to the final redemption of the 8⁵/8% notes of $75,542, the partial early extinguishment of the 7¹/8% Notes of $9,575, principal payments of $75,419 and $138,163 against Term Loan A and Term Loan C, respectively, and the pay down of the Company's variable rate mortgage of $12,878) and net payments under the Revolving Credit Facility, offset by proceeds from short-term borrowings under its multi-currency loan agreement, proceeds from borrowings under the Revolving Credit Facility, proceeds from settlement of an interest rate swap, and the proceeds and related tax benefit from the exercise of stock options.

        Fiscal 2005 net cash flows provided by financing activities included proceeds from the Company's bond offering, net of discount, proceeds from sale-leaseback, proceeds from borrowings under long-term debt agreements, net proceeds from borrowing under the Revolving Credit Facility and the exercise of stock options, offset by principal payments under long-term debt agreements, payments related to bond issuance costs and the purchase of treasury stock.

        Fiscal 2004 net cash flows used in financing activities included principal payments under long-term debt agreements and payments related to financing fees, partially offset by proceeds from the exercise of stock options.

        On August 13, 2006, the Company entered into a purchase agreement to acquire 100% of the stock of Zila Nutraceuticals, Inc. ("ZNI"), a division of Zila, Inc. ("Zila"), for $37,500 in cash and up to a $3,000 contingent cash payment which is based upon the EBITDA performance of ZNI during the one-year period following the closing. The $37,500 purchase price includes an estimated $6,800 of working capital and is subject to a post-closing adjustment based on the final ZNI working capital at closing. ZNI manufactures and markets Ester-C®, which is known throughout multiple markets including health food stores and mass market retailers. This acquisition represents an opportunity for the Company to enhance its presence in key markets. ZNI had $18,000 in net revenue for the nine months ended April 30, 2006. On September 27, 2006, Zila shareholders approved this transaction and on October 2, 2006, the Company completed this acquisition. The $37,500 purchase price was paid by the Company out of cash on hand.

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        The Company believes its sources of cash will be sufficient to fund its operations and meet its cash requirements to satisfy its working capital needs, capital expenditure needs, outstanding commitments, and other liquidity requirements associated with its existing operations over the next 18 to 24 months. The Company's ability to fund these requirements and comply with financial covenants under its debt agreements will depend on its future operations, performance and cash flow and is subject to prevailing economic conditions and financial, business and other factors, some of which are beyond the Company's control. In addition, as part of the Company's strategy, it may pursue acquisitions and investments that are complementary to its business. Any material future acquisitions or investments will likely require additional capital and therefore, the Company cannot predict or assure that additional funds from existing sources will be sufficient for such future events.

Debt Agreements:

        At September 30, 2006, the Company maintained Senior Secured Credit Facilities under its Credit and Guarantee Agreement ("CGA") consisting of a $125,000 Revolving Credit Facility, which had no borrowings outstanding, and a Term Loan A and Term Loan C, which were fully repaid as of September 30, 2006. The Revolving Credit Facility was scheduled to mature in July 2008, however, on November 3, 2006, the Company entered into a Revolving Credit Agreement (the "Credit Agreement") which provides for revolving credit loans in the aggregate principal amount of up to $325,000 to be used for (a) the repayment of all obligations outstanding under the Company's prior credit agreement (which consisted solely of commitment fees since the Company had previously repaid all amounts borrowed under the prior credit agreement), (b) working capital and other general corporate purposes, and (c) acquisitions. In connection with the Credit Agreement, the Company's prior CGA was terminated.

        Interest rates charged on borrowings under the CGA can vary depending on the interest rate option utilized. Options for the rate can either be the Alternate Base Rate or LIBOR plus applicable margin. At September 30, 2006 there were no borrowings outstanding under the CGA.

        In September 2005, the Company issued 10-year 7¹/8% Senior Subordinated Notes due 2015 in the aggregate principal amount of $200,000 (the "7¹/8% Notes"). The 7¹/8% Notes are uncollaterized and subordinated in right of payment for all existing and future indebtedness of the Company. The 7¹/8% Notes are subject to redemption, at the option of the Company, in whole or in part, at any time on or after October 1, 2010, and prior to maturity at certain fixed redemption prices plus accrued interest. In addition, on or prior to October 1, 2008, the Company may redeem in the aggregate up to 35% of the 7¹/8% Notes with the net cash proceeds received by the Company from certain types of equity offerings, at a redemption value equal to 107.125% of the principal amount plus accrued interest, provided that at least 65% of the aggregate principal amount of notes remain outstanding immediately after any such redemption. The notes do not have any sinking fund requirements. Interest is paid semi-annually on every April 1^st and October 1^st at the rate of 7¹/8% per annum.

        In March 2006, the Company purchased, on the open market, $10,000 face value of the 7¹/8% Notes for $9,575. The Company recorded a gain on extinguishment of debt of $425 and wrote-off $264 of the related unamortized deferred financing fees for the fiscal year ended September 30, 2006 as a result of this transaction. Interest payments relating to such debt approximates $13,538 per annum, after the recent extinguishment of $10,000 face value of these notes.

        On August 25, 2005, the Company initiated a cash tender offer (the "Offer") for any and all of its $150,000 aggregate principal amount of the 8⁵/8% Senior Subordinated Notes due 2007. The redemption price was equal to $1,000 per $1,000 principal amount of the 8⁵/8% Notes validly tendered, plus accrued and unpaid interest to the redemption date. On September 23, 2005, the Company announced the expiration of the Offer with a total of $74,458 aggregate principal amount of the 8⁵/8% Notes tendered, representing approximately 49.6% of the outstanding 8⁵/8% Notes. On September 23, 2005, the

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Company accepted and paid for the $74,458 aggregate principal amount of 8⁵/8% Notes tendered. On October 24, 2005, the Company redeemed the remaining $75,542 aggregate principal amount of the 8⁵/8% Notes outstanding. On such date, the Company paid $706 representing the remaining accrued interest due to the 8⁵/8% Note holders and recorded a charge of $802 to interest expense in the Consolidated Statements of Income representing the unamortized portion of debt issuance costs and bond discount associated with the original issuance. Also, on October 24, 2005, the Company liquidated and utilized all of its investment in auction rate securities of $39,900 to pay a portion of the remaining redemption value.

        On August 31, 2005, the Company entered into a variable rate mortgage with JP Morgan Chase Bank ("variable rate mortgage") for a loan in the amount of $12,950 which was payable in monthly principal installments of $72 plus interest at LIBOR plus 1.5%. The mortgage was scheduled to mature on August 31, 2015, however, the entire outstanding balance was repaid in full during the fiscal quarter ended June 30, 2006. On August 31, 2005, the Company entered into an interest rate swap agreement ("SWAP") to receive-variable (LIBOR), pay-fixed (4.71%) interest which effectively converted the $12,950 mortgage to fixed rate debt. The Company recorded the fair value change in the value of the SWAP through Other Comprehensive Income ("OCI"), net of tax. In fiscal 2006, the SWAP was extinguished and the Company realized a gain of $353.

        Virtually all of the Company's assets are collateralized under the CGA. Under the CGA, the Company is obligated to maintain various financial ratios and covenants must be met, including, but not limited to, a minimum consolidated interest coverage ratio and a maximum leverage ratio. The specific covenants and related definitions can be found in the CGA, which has been previously filed with the Securities and Exchange Commission. Adjusted EBITDA, which is a factor utilized in calculating covenant ratios, is defined as net income, excluding the aggregate amount of all non-cash losses reducing net income (excluding any non-cash losses that results in an accrual of a reserve for cash charges in any future period and the reversal thereof), plus interest, taxes, depreciation and amortization. The Company is required to pay a commitment fee on the unused portion of the Revolving Credit Facility, which varies between .25% and .50% per annum, depending on the Company's ratio of consolidated indebtedness to consolidated Adjusted EBITDA, on any unused portion of the revolving credit facility.

        On November 3, 2006, the Company entered into a Revolving Credit Agreement (the "Credit Agreement") with JP Morgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and Bank of America, N.A., BNP Paribas, Citibank, N.A., and HSBC Bank USA, National Association, as Co-Syndication Agents. The Credit Agreement provides for revolving credit loans in the aggregate principal amount of up to $325,000 to be used for (a) the repayment of all obligations outstanding under the Company's prior credit agreement (which consisted solely of commitment fees since the Company had previously repaid all amounts borrowed under the prior credit agreement), (b) working capital and other general corporate purposes, and (c) acquisitions. In connection with the Credit Agreement, the Company's prior credit agreement was terminated. The terms and requirements of the Credit Agreement are substantially the same as the CGA. The Company's obligations under the Credit Agreement are secured by substantially all of its assets and are guaranteed by certain subsidiaries of NBTY, in each case to the extent set forth in the Guarantee and Collateral Agreement (the "Guarantee") that was entered into on November 3, 2006. The Company is required to pay a commitment fee, which varies between .20% and .375% per annum, depending on the Company's ratio of consolidated indebtedness to consolidated Adjusted EBITDA, on any unused portion of the revolving credit facility.

        The Company's credit arrangements, generally the indenture governing the 7¹/8% Notes ("Indenture") and the CGA, impose certain restrictions on the Company regarding capital expenditures and limit the Company's ability to do any of the following: incur additional indebtedness, dispose of assets, make repayments of indebtedness or amendments of debt instruments, pay dividends or distributions, create liens on assets and enter into sale and leaseback transactions, investments, loans or advances and acquisitions. Such restrictions are subject to certain limitations and exclusions.

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        In addition, a default under certain covenants in the Indenture and the CGA, respectively, could result in the acceleration of the Company's payment obligations under the CGA and the Indenture, as the case may be, and, under certain circumstances, in cross-defaults under other debt obligations. These defaults may have a negative effect on the Company's liquidity.

        SINCE ADJUSTED EBITDA IS NOT A MEASURE OF PERFORMANCE CALCULATED IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP"), IT SHOULD NOT BE CONSIDERED IN ISOLATION OF, OR AS A SUBSTITUTE FOR OR SUPERIOR TO, OTHER MEASURES OF FINANCIAL PERFORMANCE PREPARED IN ACCORDANCE WITH GAAP, SUCH AS OPERATING INCOME, NET INCOME AND CASH FLOWS FROM OPERATING ACTIVITIES. IN ADDITION, THE COMPANY'S DEFINITION OF ADJUSTED EBITDA IS NOT NECESSARILY COMPARABLE TO SIMILARLY TITLED MEASURES REPORTED BY OTHER COMPANIES.

A summary of contractual cash obligations as of September 30, 2006 is as follows:

	Payments Due By Period
	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Long-term debt, excluding interest	$	209,705	$	18,660	$	1,567	$	1,035	$	188,443
Interest		122,603		13,997		27,313		27,143		54,150
Operating leases		565,671		90,891		157,740		112,126		204,914
Purchase commitments		78,932		78,932
Capital commitments		1,487		1,487
Employment and consulting agreements		3,355		3,242		113
Total contractual cash obligations	$	981,753	$	207,209	$	186,733	$	140,304	$	447,507

        The Company conducts retail operations under operating leases, which expire at various dates through the year 2031. Some of the leases contain escalation clauses, as well as 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, 2006 are noted in the above table.

        In August 2005, the Company entered into a sale-leaseback transaction pursuant to which it sold certain manufacturing assets and its manufacturing facility located in Augusta, Georgia for a total purchase price of $14,973. The purchase price consisted of $14,973 in cash which was simultaneously invested and is subject to an Industrial Revenue Bonds (IRB's) financing agreement. This agreement is intended to permit counties to attract business investment by offering property tax incentives. In accordance with Georgia law, the Company entered into this sale-leaseback agreement with Richmond County (the "County") and acquired an Industrial Development Revenue Bond. The arrangement is structured so that the Company's lease payments to the County equal and offset the County's bond payments to the Company. The Bond is non-recourse to the County, the Company's lease payments are pledged to secure repayment of the Bond, and the lease and bond provide for the legal right of offset. Consequently, in accordance with Financial Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," the investment and lease obligation related to this arrangement have been offset in the Company's Consolidated Balance Sheets. The agreement has a maximum expiration date of 2025. Under the terms of the agreement, the Company must annually submit information regarding the value of the machinery and equipment in service in the County. If the Company had not entered into this transaction, property tax payments would have been higher. The Company can reacquire such property and terminate the agreement at a nominal price of $1 and, accordingly, the subject property is included

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in property, plant, and equipment in the consolidated balance sheet. If the Company elects to reacquire the subject property prior to the expiration of the arrangement, it may also be required to make certain adjusting property tax payments.

        The Company was committed to make future purchases primarily for inventory related items, such as raw materials and finished goods, under various purchase arrangements with fixed price provisions aggregating approximately $78,932 at September 30, 2006. During fiscal 2006, no one supplier individually represented greater than 10% of the Company's raw material purchases. The Company does not believe that the loss of any single supplier would have a material adverse effect on the Company's consolidated financial condition or results of operations.

        The Company had approximately $1,487 in open capital commitments at September 30, 2006, primarily related to manufacturing equipment as well as to computer hardware and software.

        The Company has employment agreements with two of its executive officers. The agreements, initially entered into in October 2002, each 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, 2006 was approximately $1,300. In addition, five 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, 2006 was approximately $1,497.

        The Company maintains a consulting agreement with Rudolph Management Associates, Inc. for the services of Arthur Rudolph, a director 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 $450 per year. In addition, Mr. Arthur Rudolph receives certain fringe benefits accorded to executives of the Company.

        The Company 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, the Company may from time to time determine to sell or otherwise dispose of certain of its existing assets or businesses. The Company 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 and officers. Each such transaction has been in the ordinary course of the Company's business.

        During the fiscal 2006, the following transactions occurred:

A.

Gail Radvin, Inc., a corporation wholly-owned by Gail Radvin, received sales commissions from the Company totaling $677. 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 $450 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 and father of Scott Rudolph (Chairman and Chief Executive Officer), is the President of Rudolph Management Associates, Inc. In addition, Mr. Arthur Rudolph received certain fringe benefits accorded to executives of the Company.

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C.

In addition to matters set forth in A. above, 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 2006, these immediate family members received aggregate compensation and fringes from the Company totaling approximately $1,119 for services rendered by them as employees of the Company.

Inflation

        Inflation affects the cost of raw materials, goods and services used by the Company. In recent years, inflation has been modest. However, high oil costs can affect the cost of all raw materials and components. The competitive environment somewhat limits the ability of the Company to recover higher costs resulting from inflation by raising prices. Although the Company cannot precisely determine the effects of inflation on its business, it is management's belief that the effects on revenues and operating results have not been significant. The Company seeks to mitigate the adverse effects of inflation primarily through improved productivity and strategic buying initiatives. The Company does not believe that inflation has had a material impact on its results of operations for the periods presented, except with respect to payroll-related costs and other costs arising from or related to government imposed regulations.

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. The Company is in compliance with all covenants under its credit arrangements at September 30, 2006.

        At September 30, 2006, credit ratings were as follows:

Credit Rating Agency	71/8 Notes	CGA	Overall
Standard and Poors	B+	BB	BB
Moody's	B1	Ba2	—

New Accounting Developments

Accounting pronouncements—newly issued:

        In September 2006, the Securities Exchange Commission ("SEC") staff issued Staff Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB 108"). In SAB 108, the SEC staff established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company's financial statements and the related financial statement disclosures. SAB 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements or (ii) recording the cumulative effect as adjustments to the carrying values of assets and liabilities with an offsetting adjustment recorded to the opening balance of retained earnings. The Company is required to adopt this statement starting in its fiscal 2007 reporting period and does not anticipate that the adoption will have a significant impact on its consolidated financial position or results of operations.

        In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting

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principles, and enhances disclosures about fair value measurements. This statement applies when other accounting pronouncements require fair value measurements; it does not require new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The Company will adopt SFAS 157 on October 1, 2008. The Company is currently evaluating the impact of adopting this standard in its consolidated financial statements and related disclosures.

        The FASB ratified the consensuses reached in Emerging Issues Task Force ("EITF" or, the "Task Force") Issue No. 06-3, "How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)" ("EITF 06-3"). The Task Force reached a consensus that the scope of the Issue includes any tax assessed by a governmental authority that is both imposed on and current with a specific revenue-producing transaction between a seller and a customer, and may include, but is not limited to, sales, use, value added, and some excise taxes. The scope of this Issue excludes tax schemes that are based on gross receipts and taxes that are imposed during the inventory procurement process. The presentation of taxes within the scope of this Issue on either a gross or a net basis is an accounting policy decision that should be disclosed under Accounting Principles Board ("APB") Opinion No. 22, "Disclosure of Accounting Policies." Furthermore, for taxes reported on a gross basis, a company should disclose the aggregate amount of those taxes in interim and annual financial statements for each period for which an income statement is presented if that amount is significant. The disclosures required under this consensus should be applied retrospectively to interim and annual financial statements for all periods presented, if those amounts are significant. The consensus in EITF 06-3 should be applied to interim and annual reporting periods beginning after December 15, 2006. The Company will adopt EITF 06-3 on January 1, 2007, the second fiscal quarter of the fiscal year ended September 30, 2007. The Company does not anticipate that the adoption will have a significant impact on its consolidated financial position or results of operations.

        In June 2006, the FASB issued Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109." ("FIN 48"). This Interpretation clarifies the accounting for uncertainty in tax positions and requires that the Company recognize in its financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company will adopt the provisions of FIN 48 on October 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 in its consolidated financial statements.

        On November 10, 2005, the FASB issued FASB Staff Position ("FSP") No. FAS 123(R)-3, "Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards" ("FSP 123(R)-3"). See "Stock-Based Compensation" discussion within Note 1 of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report for further detail regarding FSP 123(R)-3.

        In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"), which replaces APB Opinion No. 20, "Accounting Changes," and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements." APB Opinion No. 20 had required that changes in accounting principles be recognized by including the cumulative effect of the change in the period in which the new accounting principle was adopted. SFAS 154 requires retrospective application of the change to prior periods' financial statements, unless it is impracticable to determine the period-specific effects of the change. The FASB identified the reason for the issuance of SFAS 154 to be part of a broader attempt to eliminate differences with the International Accounting Standards Board ("IASB"). The Statement is effective for fiscal years beginning after December 15, 2005. The

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Company is required to adopt this statement starting in its fiscal 2007 reporting period. The Company does not anticipate that the adoption of SFAS 154 will have a significant impact on the Company's consolidated financial position or results of operations.

Accounting pronouncements—adopted:

        In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140" ("SFAS 155"). SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The Company adopted SFAS 155 beginning October 1, 2006. The adoption did not have a material impact on the Company's consolidated financial position or results of operations.

        Effective October 1, 2005, the Company adopted SFAS No. 123(R), "Share-Based Payment" ("SFAS 123(R)"). See Note 16 of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Report for further detail regarding the adoption of this standard.

        In October 2005, the FASB issued Staff Position FAS 13-1, "Accounting for Rental Costs Incurred during a Construction Period" ("FSP 13-1"), which requires rental costs associated with ground or building operating leases that are incurred during a construction period to be recognized as rental expense. The Company adopted FSP 13-1 beginning the second quarter of fiscal year 2006. The adoption did not have a significant effect on the Company's consolidated financial position or results of operations since the Company always expensed such costs.

        In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 provides guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity. The Interpretation requires recognition of a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The Company adopted FIN 47 beginning the first quarter of fiscal year 2006. The adoption did not have a material impact on the Company's consolidated financial position or results of operations.

        In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" an amendment of Accounting Research Bulletin ("ARB") No. 43, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Company adopted SFAS 151 beginning the first quarter of fiscal year 2006. The adoption did not have a material impact on the Company's consolidated financial position or results of operations.

        In October 2004, the American Jobs Creation Act of 2004 (the "Act") became effective in the United States. Two provisions of the Act have impacted the Company's effective tax rate. The Act

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contains a new provision that permits a Qualified Production Activities Deduction ("QPA") related to the Company's qualified manufacturing activity. The QPA deduction is available to the Company beginning with the current tax year. However, the interaction of the law's provisions as well as the particulars of the Company's tax position, resulted in the QPA deduction not having a significant impact for the fiscal year ending September 30, 2006.

        The Act also contains a provision related to Foreign Earnings Repatriation ("FER"). The FER provision of the Act provides generally for a one-time 85 percent dividends received deduction for qualifying repatriations of foreign earnings to the United States. The Company has completed its evaluation of the application of the FER provision, which resulted in a significantly lower tax cost by repatriating foreign earnings in accordance with the FER provision. As such, the Company has developed a Domestic Reinvestment Plan to reinvest the repatriated foreign earnings in the U.S. in qualifying activities, pursuant to the terms of the FER provision and subsequent guidance issued by the IRS. During fiscal 2006, the Company repatriated $116,603 of foreign earnings pursuant to a domestic reinvestment plan authorized by the Company's Board of Directors. A portion of the repatriation includes foreign earnings related to the fiscal year ended September 30, 2005 and to earlier fiscal years. The Company estimated and recorded a net benefit of $884 on unremitted earnings from the fiscal year ended September 30, 2005 and earlier fiscal years. This benefit was recorded in the provision for income taxes for the fiscal year ended September 30, 2005.

        The majority of the repatriation comes from foreign earnings for the fiscal year ending September 30, 2006. As the Company has principally repatriated foreign earnings in prior years, it is essentially repatriating current year foreign earnings at a more beneficial rate under the American Jobs Creations Act of 2004. The Company recorded a benefit of $11,289 through its tax provision for the fiscal year ended September 30, 2006 relating to the FER provision.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company is subject to currency fluctuations, primarily with respect to the British Pound, the Euro and the Canadian dollar, and interest rate risks that arise from normal business operations. The Company regularly assesses these risks. As of September 30, 2006, the Company had not entered into any significant hedging transactions.

        The Company has subsidiaries whose operations are denominated in foreign currencies (primarily the British Pound, the Euro and the Canadian dollar). The Company consolidates the earnings of its international subsidiaries by translating them into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52"). The statements of income of the Company's international operations are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar weakens against foreign currencies, the translation of the financial statements of foreign subsidiaries results in increased net sales, operating expenses and net income. Similarly, the Company's net sales, operating expenses and net income will decrease when the U.S. dollar strengthens against foreign currencies.

        The U.S. dollar volume of net sales denominated in foreign currencies was approximately $651,105, or 34.6% of total net sales, for fiscal 2006. During fiscal 2006, the U.S. dollar weakened approximately 3.3% against the foreign currencies, mainly the British Pound, as compared to the prior comparable period, resulting in a decrease in net sales of approximately $18,918 and a decrease in operating income of approximately $4,807 for fiscal 2006. The related impact on basic and diluted earnings per share was a decrease of $0.04 for the same period. The Company estimates that a 10% change in the average foreign currencies exchange rates would have impacted the Company's operating income by approximately $14,626.

        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

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variable rate financial instruments. Since the Company had no significant variable rate debt outstanding at September 30, 2006, management believes that a significant fluctuation in interest rates in the near future will not have a material impact on the Company's consolidated financial statements. With the exception of long-term debt (see Note 9—Long-Term Debt), the carrying value of the Company's financial instruments approximates fair value due to their short maturities and variable interest rates. The fair value of the 7¹/8% Senior Subordinated Notes at September 30, 2006, based on then quoted market prices, was $182,400.

        The Company is exposed to changes in interest rates on its floating rate Credit Agreement and fixed rate Notes. At September 30, 2006, based on a hypothetical 10% decrease in interest rates related to the Company's fixed rate Notes, the Company estimates that the fair value of its fixed rate debt would have increased by approximately $6,326. Conversely, based on a hypothetical 10% increase in interest rates related to the Company's fixed rate Notes at September 30, 2006, the Company estimates that the fair value of its fixed rate debt would have decreased by approximately $5,927. At September 30, 2006 the Company had no borrowings outstanding under its CGA. A hypothetical 10% change in interest rates would not have a material effect on the Company's consolidated pretax income or cash flow.

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The following consolidated financial statements, notes thereto, supplementary schedule, and the related independent auditors' reports contained on pages F-1 through F-3 to NBTY's consolidated financial statements, are herein incorporated:

Reports of Independent Registered Accounting Firms.

Consolidated Balance Sheets—As of September 30, 2006 and 2005.

Consolidated Statements of Income—Fiscal years ended September 30, 2006, 2005 and 2004.

Consolidated Statements of Stockholders' Equity and Comprehensive Income—Fiscal years ended September 30, 2006, 2005 and 2004.

Consolidated Statements of Cash Flows—Fiscal years ended September 30, 2006, 2005 and 2004.

Notes to Consolidated Financial Statements.

Schedules II, Valuation and Qualifying Accounts.

        All other schedules have been omitted as not required or not applicable or because the information required to be presented are 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.

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Item 9A.    CONTROLS AND PROCEDURES

        Our Chief Executive Officer and Chief Financial Officer have concluded, based on their respective evaluations as of the end of the period covered by this Report, that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) 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 we file under the Exchange Act.

        Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

(i)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;



(ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and Board of Directors; and



(iii)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-

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Integrated Framework. Based on this assessment and those criteria, management concluded that our internal control over financial reporting was effective as of September 30, 2006.

        Our management's assessment of the effectiveness of the Company's internal control over financial reporting as of September 30, 2006 has been audited by PricewaterhouseCoopers, LLP, an independent accounting firm, as stated in their report which appears herein.

NBTY, Inc.
December 11, 2006

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Item 9B.    OTHER INFORMATION

        None

PART III

Item 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Information about our directors may be found under the caption "Proposal 1. Election of Directors" of our Proxy Statement for the Annual Meeting of Stockholders, expected to be held February 9, 2007 (the "Proxy Statement"). That information is incorporated herein by reference.

        The information in the Proxy Statement under the captions "Section 16(a) Beneficial Ownership Reporting Compliance," "Executive Officers," "Audit Committee Financial Expert" and "Code of Ethics for Senior Financial Officers" is incorporated herein by reference.

Item 11.    EXECUTIVE COMPENSATION

        The information in the Proxy Statement set forth under the captions "Executive Compensation," "Compensation Committee Interlocks and Insider Participation" and "Compensation of Directors" is incorporated herein by reference.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        The information in the Proxy Statement set forth under the caption "Principal Stockholders and Security Ownership of Management" is incorporated herein by reference.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information set forth under the captions "Certain Relationships and Related Transactions" of the Proxy Statement is incorporated herein by reference.

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

        Information concerning principal accountant fees and services appears in the Proxy Statement under the heading "Report of the Audit Committee—Audit Fees" and is incorporated herein by reference.

70

PART IV

Item 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(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 Schedule.    Reference is made to the financial statement schedule 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 NBTY, Inc., 90 Orville Drive, Bohemia, New York, 11716; Attention: General Counsel.

Exhibit No.	Description
3.1	Restated Certificate of Incorporation of NBTY, Inc.(1)
3.2	Amended and Restated By-Laws of NBTY, Inc.*
4.1	Indenture, dated as of September 23, 2005, among NBTY, Inc., the Guarantors (as defined therein), and The Bank of New York, as Trustee(2)
4.2	Registration Rights Agreement, dated as of September 23, 2005, among NBTY, Inc., the Guarantors (as defined therein) and J.P. Morgan Securities, Inc., Adams Harness, Inc., BNP Paribas Securities Corp., HSBC Securities (USA), Inc., and RBC Capital Markets Corporation(2)
10.1	Employment Agreement, effective October 1, 2002, by and between NBTY, Inc. and Scott Rudolph(3)
10.2	Employment Agreement, effective October 1, 2002, by and between NBTY, Inc. and Harvey Kamil(3)
10.3	Executive Consulting Agreement, effective January 1, 2002, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(3)
10.4	First Amendment to Executive Consulting Agreement, effective January 1, 2003, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(4)
10.5	Second Amendment to Executive Consulting Agreement, effective January 1, 2004, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(5)
10.6	Third Amendment to Executive Consulting Agreement, effective January 1, 2005, by and between NBTY, Inc. and Rudolph Management Associates, Inc.(9)
10.7	Fourth Amendment to Executive Consulting Agreement, effective January 1, 2006, by and between NBTY, Inc., and Rudolph Management Associates, Inc.(10)
10.8	Fifth Amendment to Executive Consulting Agreement, effective January 1, 2007, by and between NBTY, Inc., and Rudolph Management Associates, Inc.*
10.9	NBTY, Inc. Retirement Savings and Employees' Stock Ownership Plan(1)
10.10	NBTY, Inc. Year 2000 Incentive Stock Option Plan(6)
10.11	NBTY, Inc. Year 2002 Stock Option Plan(7)
10.12	Revolving Credit Agreement, dated as of November 3, 2006, among NBTY, Inc., as Borrower, The Several Lenders from Time to Time Parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, Bank of America, N.A., BNP Paribas, Citibank, N.A., and HSBC Bank USA, National Association, as Co-Syndication Agents.(8)
10.13	Guarantee and Collateral Agreement, by NBTY, Inc., the Guarantors party thereto in favor of JPMorgan Chase Bank, N.A., as Administrative Agent, dated as of November 3, 2006(9)

71

10.14	Facility Agreement, dated September 20, 2006 for Good 'N' Natural Limited with JPMorgan Chase Bank, N.A., London Branch*
10.15	Stock Purchase Agreement by and between NBTY, Inc. and ZILA Inc., dated as of August 13, 2006 (the "Zila Purchase Agreement")*
10.16	Amendment to Zila Purchase Agreement, dated as of September 28, 2006*
12.1	Statement regarding Computation of Ratio of Earnings to Fixed Charges*
14.1	Code of Business Conduct and Ethics(1)
21.1	Subsidiaries of NBTY, Inc.*
23.1	Consent of PricewaterhouseCoopers LLP Independent Registered Public Accounting Firm*
23.2	Consent of Deloitte & Touche LLP Independent Registered Public Accounting Firm*
31.1	Rule 13a-14(a) Certification of Chief Executive Officer*
31.2	Rule 13a-14(a) Certification of Chief Financial Officer*
32.1	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*
32.2	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

(1)

Incorporated by reference to NBTY, Inc.'s Form 10-K for the fiscal year ended September 30, 2005 filed on December 22, 2005 (File #001-31788).

(2)

Incorporated by reference to NBTY, Inc.'s Form 8-K filed on September 27, 2005 (File #001-31788).

(3)

Incorporated by reference to NBTY, Inc.'s Form 10-K for the fiscal year ended September 30, 2002 filed on December 20, 2002 (File #0-10666).

(4)

Incorporated by reference to NBTY, Inc.'s Form 10-K for the fiscal year ended September 30, 2003 filed on December 16, 2003 (File #001-31788).

(5)

Incorporated by reference to NBTY, Inc.'s Form 10-K for the fiscal year ended September 30, 2004 filed on December 14, 2004 (File #001-31788).

(6)

Incorporated by reference to NBTY, Inc.'s Form S-8, filed on September 20, 2000 (File #333-46188).

(7)

Incorporated by reference to NBTY, Inc.'s Proxy Statement, dated March 25, 2002 (File #0-10666).

(8)

Incorporated by reference to NBTY, Inc.'s Form 8-K, filed on November 8, 2006 (File #001-31788).

(9)

Incorporated by reference to NBTY, Inc.'s Form 10-Q, filed on May 9, 2005 (File #001-31788).

(10)

Incorporated by reference to NBTY, Inc.'s Form 10-Q, filed on February 2, 2006 (File #001-31788).

(b)

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.

(c)

See Item 15(a)(2) of this Report.

72

NBTY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

		Page Number
1. Financial Statements
	Report of Independent Registered Public Accounting Firm	F-1
	Report of Independent Registered Public Accounting Firm	F-3
Consolidated Financial Statements
	Balance Sheets	F-4
	Statements of Income	F-5
	Statements of Stockholders' Equity and Comprehensive Income	F-6
	Statements of Cash Flows	F-7
	Notes to Financial Statements	F-9
2. Financial Statement Schedule
	Schedule II	S-1

73

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of NBTY, Inc.:

        We have completed an integrated audit of NBTY, Inc.'s 2006 consolidated financial statements and of its internal control over financial reporting as of September 30, 2006 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audit, are presented below.

Consolidated financial statements and financial statement schedule

        In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of NBTY, Inc. and its subsidiaries at September 30, 2006, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended September 30, 2006 listed in the accompanying index 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 audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements 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 audit provides a reasonable basis for our opinion.

Internal control over financial reporting

        Also, in our opinion, management's assessment, included in the Management's Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of September 30, 2006 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal

F-1

control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Stamford, Connecticut
December 11, 2006

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
NBTY, Inc.
Bohemia, New York

        We have audited the accompanying consolidated balance sheet of NBTY, Inc. and subsidiaries (the "Company") as of September 30, 2005, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the two years in the period ended September 30, 2005. Our audits also included the financial statement schedule listed in the Index to the 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 the financial statements and financial statement schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of NBTY, Inc. and subsidiaries as of September 30, 2005, and the results of their operations and their cash flows for each of the two years in the period ended September 30, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of September 30, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 22, 2005, not included herein, expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Jericho, New York
December 22, 2005
(March 15, 2006 as to Note 20)

F-3

NBTY, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, 2006 and 2005
(dollars and shares in thousands, except per share amounts)

			2006		2005
Assets
Current assets:
	Cash and cash equivalents		$	89,805	$	67,282
	Investments			—		39,900
	Accounts receivable, less allowance for doubtful accounts of $10,361 and $9,155 at September 30, 2006 and 2005, respectively			89,154		73,226
	Inventories			354,496		491,335
	Deferred income taxes			26,636		23,645
	Prepaid expenses and other current assets			42,261		54,469
		Total current assets		602,352		749,857
Property, plant and equipment, net of accumulated depreciation of $296,069 and $279,883 at September 30, 2006 and 2005, respectively				309,437		320,528
Goodwill				235,959		228,747
Other intangible assets, net				146,169		166,325
Other assets				10,393		16,845
		Total assets	$	1,304,310	$	1,482,302
Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term debt		$	18,660	$	80,922
	Accounts payable			64,211		72,720
	Accrued expenses and other current liabilities			127,768		120,487
		Total current liabilities		210,639		274,129
Long-term debt, net of current portion				191,045		428,204
Deferred income taxes				55,276		57,092
Other liabilities				7,918		6,822
		Total liabilities		464,878		766,247
Commitments and contingencies
	Stockholders' equity:
	Common stock, $.008 par; authorized 175,000 shares; issued and outstanding 67,212 and 67,191 shares at at September 30, 2006 and 2005, respectively			538		537
	Capital in excess of par			138,777		138,657
	Retained earnings			671,060		559,275
	Accumulated other comprehensive income			29,057		17,586
		Total stockholders' equity		839,432		716,055
		Total liabilities and stockholders' equity	$	1,304,310	$	1,482,302

The accompanying notes are an integral part of these consolidated financial statements.

F-4

NBTY, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended September 30, 2006, 2005 and 2004
(dollars and shares in thousands, except per share amounts)

			2006			2005			2004
Net sales			$	1,880,222		$	1,737,187		$	1,652,031
Costs and expenses:
	Cost of sales			992,197			895,644			822,412
	Advertising, promotion and catalog			103,614			108,005			85,238
	Selling, general and administrative			598,742			588,166			554,838
	Trademark/goodwill impairment			10,450			7,686			—
				1,705,003			1,599,501			1,462,488
Income from operations				175,219			137,686			189,543
Other income (expense):
	Interest			(25,924	)		(26,475	)		(24,663	)
	Miscellaneous, net			3,532			8,051			4,125
				(22,392	)		(18,424	)		(20,538	)
Income before provision for income taxes				152,827			119,262			169,005
Provision for income taxes				41,042			41,125			57,156
		Net income	$	111,785		$	78,137		$	111,849
Net income per share:
	Basic		$	1.66		$	1.16		$	1.67
	Diluted		$	1.62		$	1.13		$	1.62
Weighted average common shares outstanding:
	Basic			67,199			67,162			66,793
	Diluted			69,130			69,137			69,069

The accompanying notes are an integral part of these consolidated financial statements.

F-5

NBTY, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years Ended September 30, 2006, 2005 and 2004
(dollars and shares in thousands)

		Common Stock										Treasury Stock
																	Accumulated Other Comprehensive Income (Loss)
		Number of Shares		Amount		Capital in Excess of Par			Retained Earnings			Number of Shares		Amount						Total Stockholders' Equity			Total Comprehensive Income
Balance, September 30, 2003		66,620		$	533	$	130,208		$	369,453		—		$	—		$	14,605		$	514,799
Components of comprehensive income:
	Net income									111,849											111,849		$	111,849
	Foreign currency translation adjustment and other, net of taxes																	7,568			7,568			7,568
																							$	119,417
Shares issued and contributed to ESOP		100			1		2,472														2,473
Exercise of stock options		340			2		1,879														1,881
Tax benefit from exercise of stock options							1,228														1,228
Balance, September 30, 2004		67,060			536		135,787			481,302		—			—			22,173			639,798
Components of comprehensive income:
	Net income									78,137											78,137		$	78,137
	Foreign currency translation adjustment and other, net of taxes																	(4,587	)		(4,587	)		(4,587	)
																							$	73,550
Purchase of treasury shares, at cost												8			(176	)					(176	)
Treasury stock retired		(8	)		—		(12	)		(164	)	(8	)		176						—
Shares issued and contributed to ESOP		100			1		2,437														2,438
Exercise of stock options		39					225														225
Tax benefit from exercise of stock options							220														220
Balance, September 30, 2005		67,191			537		138,657			559,275		—			—			17,586			716,055
Components of comprehensive income:
	Net income									111,785											111,785		$	111,785
	Foreign currency translation adjustment and other, net of taxes																	11,471			11,471			11,471
																							$	123,256
Exercise of stock options		21			1		105														106
Tax benefit from exercise of stock options							15														15
Balance, September 30, 2006		67,212		$	538	$	138,777		$	671,060		—		$	—		$	29,057		$	839,432

The accompanying notes are an integral part of these consolidated financial statements.

F-6

NBTY, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended September 30, 2006, 2005 and 2004
(dollars in thousands)

					2006			2005			2004
Cash flows from operating activities:
	Net income				$	111,785		$	78,137		$	111,849
	Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
		Provision relating to impairments and disposals of property, plant and equipment				4,420			5,471			1,556
		Depreciation and amortization				56,048			58,283			61,680
		Foreign currency transaction loss (gain)				1,851			(4,286	)		(1,253	)
		Amortization and write-off of deferred financing costs				3,975			2,398			3,955
		Amortization and write-off of bond discount				379			152			7
		Gain on extinguishment of debt				(425	)		—			—
		Gain on settlement of interest rate swap				(353	)		—			—
		Loss on bond redemption				—			790			—
		Compensation expense for ESOP				—			2,583			4,090
		Impairment on asset held for sale				—			1,908			—
		Gain on sale of business assets				—			(1,999	)		—
		Trademark/goodwill impairments				10,450			7,686			—
		Provision for doubtful accounts				1,427			182			3,074
		Inventory reserves				8,908			9,500			16,070
		Deferred income taxes				(12,019	)		4,527			8,767
		Excess income tax benefit from exercise of stock options				(15	)		220			1,228
		Changes in operating assets and liabilities, net of acquisitions:
			Accounts receivable			(16,056	)		29,354			(8,151	)
			Inventories			131,469			(87,434	)		(72,888	)
			Prepaid expenses and other current assets			11,105			(1,613	)		(4,095	)
			Other assets			1,954			(139	)		(1,937	)
			Accounts payable			(4,852	)		(28,519	)		7,193
			Accrued expenses and other liabilities			2,912			8,647			(11,209	)
				Net cash provided by operating activities		312,963			85,848			119,936
Cash flows from investing activities:
	Purchase of property, plant and equipment					(35,308	)		(71,516	)		(42,700	)
	Proceeds from sale of property, plant and equipment					1,426			298			1,065
	Proceeds from sale of property, plant and equipment held for sale					—			9,950			—
	Proceeds from sale of business assets					—			5,766			—
	Proceeds from sale/(purchase) of available-for-sale marketable securities					39,900			(39,900	)		—
	Cash paid for acquisitions, net of cash acquired					—			(131,397	)		—
	Purchase price adjustments and settlements, net					1,845			(8,236	)		—
	Purchase of intangible assets					(478	)		(533	)		—
	Purchase of industrial revenue bonds					—			(14,973	)		—
	Proceeds from sale of bond investment					—			—			4,158
				Net cash provided by (used in) investing activities		7,385			(250,541	)		(37,477	)
Continued

The accompanying notes are an integral part of these consolidated financial statements.

F-7

NBTY, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended September 30, 2006, 2005 and 2004
(dollars in thousands)

			2006			2005			2004
Cash flows from financing activities:
	Principal payments under long-term debt agreements and capital leases		$	(312,107	)	$	(138,544	)	$	(117,100	)
	Proceeds from borrowings under long-term debt agreements			—			132,950			—
	Proceeds from short-term borrowings			18,204			—			—
	Proceeds from sale-leaseback			—			14,973			—
	Principal payments under the Revolving Credit Facility			(11,000	)		(20,000	)		—
	Proceeds from borrowings under the Revolving Credit Facility			5,000			26,000			—
	Proceeds from settlement of interest rate swap			353			—			—
	Payments for financing fees			—			—			(500	)
	Bond issuance costs			—			(3,329	)		—
	Excess income tax benefit from exercise of stock options			15			—			—
	Proceeds from stock options exercised			105			225			1,881
	Proceeds from bond offering, net of discount			—			198,234			—
	Purchase of treasury stock			—			(176	)		—
		Net cash (used in) provided by financing activities		(299,430	)		210,333			(115,719	)
Effect of exchange rate changes on cash and cash equivalents				1,605			(109	)		5,662
Net increase (decrease) in cash and cash equivalents				22,523			45,531			(27,598	)
Cash and cash equivalents at beginning of year				67,282			21,751			49,349
Cash and cash equivalents at end of year			$	89,805		$	67,282		$	21,751

        See Note 1 for disclosure of non-cash investing and financing activities.

The accompanying notes are an integral part of these consolidated financial statements.

F-8

NBTY, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Years Ended September 30, 2006, 2005 and 2004
(dollars and shares 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 throughout the world, but primarily in the United States ("U.S."), the United Kingdom ("U.K."), Ireland, Holland and Canada. In each of these countries, there are agencies that regulate the processing, formulation, packaging, labeling and advertising of the Company's products.

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 in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin 104. The Company recognizes product sales revenue when title and risk of loss have transferred to the customer, there is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable and collectibility is reasonably assured. Since the terms for most sales within the wholesale and direct response segments are F.O.B. destination, generally title and risk of loss transfer to the customer at the time the product is received by the customer. With respect to its own retail store operations, the Company recognizes revenue upon the sale of its products to retail customers. The Company's net sales represent gross sales invoiced to customers, less certain related charges for discounts, returns, and other promotional program incentive allowances. Allowances provided for these items are presented in the consolidated financial statements primarily as reductions to sales (see "Sales Returns and Other Allowances" discussed below for further information).

Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The most significant estimates include:

•

sales returns and other allowances;



•

allowance for doubtful accounts;



•

inventory valuation and obsolescence;

F-9

•

valuation and recoverability of long-lived and indefinite-lived intangible assets including the values assigned to acquired intangible assets, goodwill, assets held for sale and property, plant and equipment;



•

income taxes; and



•

accruals for the outcome of current litigation.

        On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Fair Value of Financial Instruments

        The carrying value of the Company's financial instruments approximates fair value due to their short maturities and variable interest rates, with the exception of its 7¹/8% Senior Subordinated Notes (see Note 9—Long-Term Debt). The face value and the fair value of the 7¹/8% Senior Subordinated Notes at September 30, 2006, based on then quoted market prices, was $190,000 and $182,400, respectively.

Significant Customers and Concentration of Credit Risk

        Financial instruments which potentially subject the Company to credit risk consist primarily of cash and cash equivalents (the amounts of which may, at times, exceed Federal Deposit Insurance Corporation limits on insurable amounts), investments and trade accounts receivable. The Company mitigates its risk by investing in or through major financial institutions. At September 30, 2005, the Company's investments consisted of auction rate securities ("ARS"), which were classified as available-for-sale marketable securities and reported at fair value (which approximated cost). The Company believed that no significant concentration of credit risk existed with respect to these securities.

        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. The Company maintains an allowance for doubtful accounts, which is based upon historical experience as well as 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. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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        The following individual customers accounted for the following percentages of the Wholesale/US Nutrition division's net sales for the fiscal years ended September 30:

	2006	2005	2004
Customer A	12%	14%	8%
Customer B	16%	16%	22%

        Customer A is primarily a supplier to Customer B. Therefore, the loss of Customer B would likely result in the loss of most of the net sales to Customer A. While no one customer represented, individually, more than 10 percent of the Company's consolidated net sales for the fiscal years ended September 30, 2006, 2005 and 2004, the loss of either one of these customers would have a material adverse effect on the Wholesale/US Nutrition division if the Company was unable to replace such customer(s).

        The following individual customers accounted for 10% or more of the Wholesale/US Nutrition division's total gross accounts receivable at fiscal years ended:

	2006	2005
Customer A	7%	10%
Customer B	12%	8%
Customer C	9%	10%

Sales Returns and Other Allowances

        The Company simultaneously records estimates for various items, which reduce product sales. These items include estimates for product returns and for promotional program incentive activities for various types of incentives offered to customers as well as other sales allowances.

        Allowance for sales returns:    The Company analyzes sales returns in accordance with Statement of Financial Accounting Standard ("SFAS") No. 48 "Revenue Recognition When Right of Return Exists" ("SFAS 48"). The Company is able to make reasonable and reliable estimates of product returns based on the Company's past 27 year history in the business. The Company also monitors the buying patterns of the end-users of its products based on sales data received by its over 1,200 retail outlets in North America and Europe. Estimates for sales returns are based on a variety of factors including actual return experience of any specific product or similar product. The Company also reviews its estimates for product returns based on expected return data communicated to it by customers. The Company also monitors the levels of inventory at its largest customers to avoid excessive customer stocking of merchandise. Allowances for returns of new products are estimated by reviewing data of any prior relevant new product introduction return information. Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns. While the Company does not have the ability to track returns by fiscal period, the Company believes it is able to make reasonable estimates of expected sales returns, required by SFAS 48, based upon historical data and the available monitoring processes. The Company believes it has sufficient information and knowledge of its customers and of industry trends and conditions to adjust the allowance for returns when necessary. Actual results could differ from those estimates.

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        Promotional program incentive allowance:    The Company uses objective procedures for estimating its allowance for promotional program incentives. The allowance for sales incentives offered to customers is based on contractual terms or other arrangements agreed to in advance with certain customers. Customers earn such incentives as specified sales volumes are achieved.

        As with any set of assumptions and estimates, there is a range of reasonably likely amounts that may be calculated for each allowance above. However, the Company believes that there would be no significant difference in the amounts reported using other reasonable assumptions than what was used to arrive at each allowance. The Company regularly reviews the factors that influence its estimates and, if necessary, makes adjustments when it believes that actual product returns, credits and other allowances may differ from established reserves. Actual experience associated with any of these items may be significantly different than the Company's estimates.

        Accounts receivable are presented net of the following reserves at September 30:

	2006		2005
Allowance for sales returns	$	10,778	$	15,616
Promotional programs incentive allowance		30,439		43,837
	$	41,217	$	59,453

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 inventories include materials, labor and overhead. In fiscal 2006 and 2004, no one supplier provided more than 10% of the Company's raw material purchases. During fiscal 2005, one supplier individually represented greater than 10% of the Company's raw material purchases. Due to numerous alternative suppliers available, 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 condition or results of operations. No one supplier provided more than 10% of the Company's overall consolidated total purchases in any of the fiscal years presented.

        The Company establishes reserves on inventories when the cost of the inventory is not expected to be recovered. The Company regularly reviews inventories, including when product is close to expiration and is not expected to be sold, when product has reached its expiration date, or when product is not expected to be saleable based on the Company's quality assurance and quality control standards. The reserve for these products is equal to all or a portion of the cost of the related inventories based on the specific facts and circumstances. In evaluating whether inventories are stated at the lower of cost or market, management considers such factors as the amount of inventory on hand, estimated time required to sell such inventory, remaining shelf life and current and expected market conditions, including levels of competition. The Company records changes in inventory reserves as part of cost of sales. Reserves for excess and slow moving inventories were $11,019 and $13,956 at September 30, 2006 and 2005, respectively.

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Advertising, Promotion and Catalog

        The Company expenses the production costs of advertising the first time the advertising takes place, except for direct-response advertising, which is capitalized and amortized over its expected period of future benefit, which typically approximates two months. The Company had capitalized advertising for direct-response at September 30, as follows:

	2006		2005
Direct-response advertising capitalized	$	646	$	964

        The Company had direct-response advertising expenses for the fiscal years ended September 30 as follows:

	2006		2005		2004
Total direct-response advertising expenses	$	10,096	$	11,281	$	13,682

        Total advertising expenses for the fiscal years ended September 30 were comprised of the following:

		2006		2005		2004
Advertising, promotions, catalogs		$	93,367	$	96,645	$	71,318
Catalog printing and mailing			10,247		11,360		13,920
	Total	$	103,614	$	108,005	$	85,238

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. The costs of normal maintenance and repairs are charged to expense in the year incurred. Expenditures which significantly improve or extend the life of an asset are capitalized and depreciated over the asset's remaining useful life. 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. Upon sale or disposition, the related cost and accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is reflected in earnings.

Goodwill and Other Intangible Assets

        Goodwill represents the excess of purchase price over the fair value of identifiable net assets of companies acquired. Goodwill and other intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). The SFAS 142 goodwill impairment model is a two-step process. The first step compares the fair value of a reporting unit that has goodwill assigned to its carrying value. The Company estimates the fair value of a reporting unit by using a discounted cash flow model. If the fair value of the reporting unit is determined to be less than its carrying value, a second step is performed

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to compute the amount of goodwill impairment, if any. Step two allocates the fair value of the reporting unit to the reporting unit's net assets other than goodwill. The excess of the fair value of the reporting unit over the amounts assigned to its net assets other than goodwill is considered the implied fair value of the reporting unit's goodwill. The implied fair value of the reporting unit's goodwill is then compared to the carrying value of its goodwill. Any shortfall represents the amount of goodwill impairment. SFAS 142 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The Company tests goodwill annually as of September 30, the last day of its fourth fiscal quarter, of each year unless an event occurs that would cause the Company to believe the value is impaired at an interim date.

        Using the SFAS 142 approach described in the previous paragraph, the Company recorded a goodwill impairment charge during the third quarter of fiscal 2005 of $7,686 for its North American Retail reporting unit, which fully impaired this segment's goodwill. No impairment of goodwill was noted for the fiscal years ended September 30, 2006 and 2004. (See Note 7 for discussion of goodwill impairment charges recorded during the third quarter of fiscal 2005 for the North American Retail reporting unit and interim triggering events which required the Company to test its goodwill in the third quarter of fiscal 2005).

        Generally, in evaluating impairment, the Company estimates the sum of the expected future cash flows derived from such goodwill. Such evaluations for impairment are significantly impacted by estimates of future revenues, costs and expenses and other factors. A significant change in cash flows in the future could result in an additional impairment of goodwill in the Company's other three segments.

        Other definite lived intangibles are amortized on a straight-line basis over periods not exceeding 20 years. (See Note 7 for discussion of trademark impairments recorded during fiscal 2006)

Impairment of Long-Lived Assets

        The Company follows the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 requires evaluation of the need for an impairment charge relating to long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write down to a new depreciable basis is required. If required, an impairment charge is recorded based on an estimate of future discounted cash flows. During fiscal 2006, 2005 and 2004, the Company recognized impairment charges of $3,141, $3,518 and $2,603, respectively, on assets to be held and used. The impairment charges related primarily to leasehold improvements and furniture and fixtures for U.S. retail operations and were included in the Consolidated Statements of Income under the caption "Selling, general and administrative" expenses in fiscal 2006, 2005 and 2004 (see Note 7).

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Stock-Based Compensation

        Effective October 1, 2005 the Company adopted SFAS 123(R), "Share-Based Payment" ("SFAS 123(R)"), using the "modified prospective" method. SFAS l23(R) revises SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), and supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). SFAS 123(R) sets accounting requirements for "share-based" compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued and disallows the use of the intrinsic value method of accounting for stock-based compensation. Prior to October 1, 2005 the Company accounted for its stock-based compensation using the intrinsic value method prescribed in APB 25 and related interpretations, as permitted by SFAS 123, and accordingly did not recognize compensation expense for stock options with an exercise price equal to or greater than the market value of the underlying stock at the date of grant. The Company provided additional disclosures with respect to the proforma amounts of net income and EPS had the Company recorded compensation expense in accordance with SFAS 123.

        Stock options granted under the Company's plans generally became exercisable on grant date and had a maximum term of ten years. There were no stock option grants during the fiscal years ended September 30, 2006, 2005 and 2004, and all previously issued options were fully vested in fiscal year 2001. Accordingly, the Company did not recognize compensation expense for outstanding stock options during the fiscal years ended September 30, 2006, 2005 and 2004. Additionally, the proforma and actual net income and related earnings per share for fiscal years ended September 30, 2006, 2005 and 2004 were the same. Since all previously granted stock options were fully vested as of the date of adoption of SFAS 123(R), and the Company has not issued any other share-based payments in fiscal 2006, the adoption of SFAS 123(R) did not have any impact on the Company's consolidated financial position or results of operations.

        On November 10, 2005, the FASB issued FASB Staff Position ("FSP") No. FAS 123(R)-3, "Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards" ("FSP 123(R)-3"), which gives companies the option to adopt the alternative transition method provided in this FSP for calculating the tax effects of stock-based compensation pursuant to SFAS 123(R). This alternative transition method provides simplified methods to calculate the beginning balance of the additional paid-in capital pool ("APIC pool") related to the tax effects of employee stock-based compensation, and to determine the subsequent impact of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123(R) on the APIC pool and statement of cash flows. The guidance in this FSP is effective on November 11, 2005, however, an entity may take up to one year from the later of its initial adoption of SFAS 123(R) or the effective date of this FSP to evaluate its available transition alternatives and make its one-time election. In the third fiscal quarter ended June 30, 2006, the Company elected to adopt the alternative transition method provided in FSP 123(R)-3 to calculate the beginning balance of the APIC pool available to absorb any future write-offs of deferred tax benefits associated with stock-based compensation. The Company's policy for calculating the potential windfall tax benefit or shortfall for the purpose of calculating assumed proceeds under the treasury stock method of calculating diluted EPS excludes the impact of proforma deferred tax assets related to fully vested awards on the date of adoption.

F-15

        In accordance with FSP 123(R)-3, the Company classifies the tax benefits related to employee stock awards that are fully vested prior to the adoption of SFAS 123(R) as a cash inflow from financing activities and a cash outflow from operating activities within the statement of cash flows. As such, the income tax benefit of $15 recognized from the exercise of stock options during the fiscal year ended September 30, 2006 is classified as a financing cash inflow and an operating cash outflow in the Company's Consolidated Statement of Cash Flows. The income tax benefit of $220 recognized from the exercise of stock options during the fiscal year ended September 30, 2005 is classified as an operating cash outflow in the Company's Consolidated Statement of Cash Flows.

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. Foreign currency transaction gains and losses are charged or credited to income as incurred. Where the local currency is the functional currency (which is determined based on management's judgement and involves consideration of all relevant economic facts and circumstances affecting the subsidiary) translation adjustments are recorded as a separate component of stockholders' equity. During fiscal 2006, 2005 and 2004, the Company recognized foreign currency transaction (losses) gains of ($1,851), $4,286 and $1,253, respectively, which are included in "Miscellaneous, net" in the Consolidated Statements of Income.

Derivatives

        In accordance with SFAS No. 133, "Accounting for Derivative Instruments and Certain Hedging Activities" ("SFAS 133"), as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS 133" ("SFAS 138") and SFAS No. 149, "Amendment on Statement 133 on Derivative Instruments and Hedging Activities ("SFAS 149"), the Company recognizes derivatives as either an asset or liability measured at its fair value. For derivatives that have been formally designated as a cash flow hedge (interest rate swap agreements), the effective portion of changes in the fair value of the derivatives are recorded in "accumulated other comprehensive income". Amounts in "accumulated other comprehensive income" are reclassified into earnings in the "interest expense" caption when interest expense on the underlying borrowings are recognized. The Company has not entered into derivatives for speculative purposes. (See Note 9 for derivatives entered into during fiscal year 2005).

Comprehensive Income

        In accordance with SFAS No. 130, "Reporting Comprehensive Income", the Company is required to display comprehensive income and its components as part of its complete set of financial statements. Comprehensive income represents the change in stockholders' equity resulting from transactions other than stockholder investments and distributions. Included in accumulated other comprehensive income are changes in equity that are excluded from the Company's net income, specifically, unrealized gains and losses on foreign currency translation adjustments, unrealized holding gains (losses) on investments and changes in the fair value of the interest rate swap agreement treated as a cash flow hedging instrument.

F-16

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. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined that such assets will more likely than not go unused. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reversed. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management's opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

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.

Supplemental Disclosure of Cash Flow Information

		2006		2005			2004
Cash interest paid (net of capitalized interest of $985 in 2006 and $494 in 2005)		$	17,590	$	20,616		$	21,156
Cash income taxes paid (net of refunds of $10,172 in 2006)		$	39,867	$	39,381		$	39,490
Non-cash investing and financing information:
Acquisitions accounted for under the purchase method:
	Fair value of assets acquired	$	—	$	140,174		$	—
	Liabilities assumed		—		(8,493	)		—
	Less: Cash acquired		—		(284	)		—
	Net cash paid	$	—	$	131,397		$	—
Capital lease obligations		$	811	$	—		$	—
Working capital dispute accrual / settlement (including interest of $1,341 in 2005)			1,981		14,135			—
ESOP contribution (100 shares of NBTY stock in fiscal 2005 and 2004)			—		2,438			2,473
Property, plant and equipment additions included in accounts payable			1,803		4,093			2,002

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Investments

        The Company's investments at September 30, 2005 consisted of auction rate securities ("ARS"), which were classified as available-for-sale marketable securities and reported at fair value (which approximated cost) in the accompanying Consolidated Balance Sheets. As of September 30, 2005, there were no unrealized holding gains or losses related to these investments.

        On October 24, 2005, the Company liquidated and utilized all of its investment in ARS of $39,900 to pay a portion of the remaining redemption price on its 8⁵/8% Notes outstanding. Purchases and sales of auction rate securities are presented as investing activities in the Consolidated Statements of Cash Flows. (See Note 9 for further discussion of the Company's redemption of its 8⁵/8% Notes).

Shipping and Handling Costs

        The Company incurs shipping and handling costs in all divisions of its operations. These costs, included in "Selling, general and administrative expenses" in the Consolidated Statements of Income, are $46,933, $47,696 and $45,199 for the fiscal years ended September 30, 2006, 2005 and 2004, respectively. Of these amounts, $11,199, $10,790 and $9,267 have been billed to customers and are included in net sales for the fiscal years ended September 30, 2006, 2005, and 2004, respectively.

New Accounting Developments

Accounting pronouncements—newly issued:

        In September 2006, the Securities Exchange Commission ("SEC") staff issued Staff Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB 108"). In SAB 108, the SEC staff established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company's financial statements and the related financial statement disclosures. SAB 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements or (ii) recording the cumulative effect as adjustments to the carrying values of assets and liabilities with an offsetting adjustment recorded to the opening balance of retained earnings. The Company will adopt this statement on October 1, 2006 and does not anticipate that the adoption will have a significant impact on its consolidated financial position or results of operations.

        In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and enhances disclosures about fair value measurements. This statement applies when other accounting pronouncements require fair value measurements; it does not require new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The Company will adopt SFAS 157 on October 1, 2008. The Company is currently evaluating the impact of adopting this standard in its consolidated financial statements and related disclosures.

F-18

        The FASB ratified the consensuses reached in Emerging Issues Task Force ("EITF" or, the "Task Force") Issue No. 06-3, "How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)" ("EITF 06-3"). The Task Force reached a consensus that the scope of the Issue includes any tax assessed by a governmental authority that is both imposed on and current with a specific revenue-producing transaction between a seller and a customer, and may include, but is not limited to, sales, use, value added, and some excise taxes. The scope of this Issue excludes tax schemes that are based on gross receipts and taxes that are imposed during the inventory procurement process. The presentation of taxes within the scope of this Issue on either a gross or a net basis is an accounting policy decision that should be disclosed under Accounting Principles Board ("APB") Opinion No. 22, "Disclosure of Accounting Policies." Furthermore, for taxes reported on a gross basis, a company should disclose the aggregate amount of those taxes in interim and annual financial statements for each period for which an income statement is presented if that amount is significant. The disclosures required under this consensus should be applied retrospectively to interim and annual financial statements for all periods presented, if those amounts are significant. The consensus in EITF 06-3 should be applied to interim and annual reporting periods beginning after December 15, 2006. The Company will adopt EITF 06-3 on January 1, 2007, the second fiscal quarter of the fiscal year ending September 30, 2007. The Company does not anticipate that the adoption will have a significant impact on its consolidated financial position or results of operations.

        In June 2006, the FASB issued Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109." ("FIN 48"). This Interpretation clarifies the accounting for uncertainty in tax positions and requires that the Company recognize in its financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company will adopt the provisions of FIN 48 on October 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 in its consolidated financial statements.

        On November 10, 2005, the FASB issued FASB Staff Position ("FSP") No. FAS 123(R)-3, "Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards" ("FSP 123(R)-3"). See "Stock-Based Compensation" discussion within this Note for further detail regarding FSP 123(R)-3.

        In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"), which replaces APB Opinion No. 20, "Accounting Changes," and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements." APB Opinion No. 20 had required that changes in accounting principles be recognized by including the cumulative effect of the change in the period in which the new accounting principle was adopted. SFAS 154 requires retrospective application of the change to prior periods' financial statements, unless it is impracticable to determine the period-specific effects of the change. The FASB identified the reason for the issuance of SFAS 154 to be part of a broader attempt to eliminate differences with the International Accounting Standards Board ("IASB"). The Statement is effective for fiscal years beginning after December 15, 2005. The

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Company is required to adopt this statement at the beginning of its fiscal 2007 reporting period. The Company does not anticipate that the adoption of SFAS 154 will have a significant impact on the Company's consolidated financial position or results of operations.

Accounting pronouncements—adopted:

        In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140" ("SFAS 155"). SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The Company adopted SFAS 155 beginning October 1, 2006. The adoption did not have a material impact on the Company's consolidated financial position or results of operations.

        Effective October 1, 2005, the Company adopted SFAS No. 123(R), "Share-Based Payment" ("SFAS 123(R)"). See Note 16 for further detail regarding the adoption of this standard.

        In October 2005, the FASB issued Staff Position FAS 13-1, "Accounting for Rental Costs Incurred during a Construction Period" ("FSP 13-1"), which requires rental costs associated with ground or building operating leases that are incurred during a construction period to be recognized as rental expense. The Company adopted FSP 13-1 at the beginning of the second quarter of fiscal year 2006. The adoption did not have a significant effect on the Company's consolidated financial position or results of operations since the Company always expensed such costs.

        In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 provides guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity. The Interpretation requires recognition of a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The Company adopted FIN 47 beginning the first quarter of fiscal year 2006. The adoption did not have a material impact on the Company's consolidated financial position or results of operations.

        In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" an amendment of Accounting Research Bulletin ("ARB") No. 43, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the

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costs of conversion be based on the normal capacity of the production facilities. The Company adopted SFAS 151 at the beginning of the first quarter of fiscal year 2006. The adoption did not have a material impact on the Company's consolidated financial position or results of operations.

        In October 2004, the American Jobs Creation Act of 2004 (the "Act") became effective in the U.S. Two provisions of the Act have impacted the Company's effective tax rate. The Act contains a new provision that permits a Qualified Production Activities Deduction ("QPA") related to the Company's qualified manufacturing activity. The QPA deduction is available to the Company beginning with the current tax year. However, the interaction of the law's provisions, as well as the particulars of the Company's tax position, resulted in the QPA deduction not having a significant impact for the fiscal year ending September 30, 2006.

        The Act also contains a provision related to Foreign Earnings Repatriation ("FER"). The FER provision of the Act provides generally for a one-time 85 percent dividends received deduction for qualifying repatriations of foreign earnings to the U.S. The Company has completed its evaluation of the application of the FER provision, which resulted in a significantly lower tax cost by repatriating foreign earnings in accordance with the FER provision. As such, the Company has developed a Domestic Reinvestment Plan to reinvest the repatriated foreign earnings in the U.S. in qualifying activities, pursuant to the terms of the FER provision and subsequent guidance issued by the IRS. During fiscal 2006, the Company repatriated $116,603 of foreign earnings pursuant to a domestic reinvestment plan authorized by the Company's Board of Directors. A portion of the repatriation includes foreign earnings related to the fiscal year ended September 30, 2005 and to earlier fiscal years. The Company estimated and recorded a net benefit of $884 on unremitted earnings from the fiscal year ended September 30, 2005 and earlier fiscal years. This benefit was recorded in the provision for income taxes for the fiscal year ended September 30, 2005.

        The majority of the repatriation comes from foreign earnings for the fiscal year ending September 30, 2006. As the Company has principally repatriated foreign earnings in prior years, it is essentially repatriating current year foreign earnings at a more beneficial rate under the American Jobs Creations Act of 2004. The Company recorded a benefit of $11,289 through its tax provision for the fiscal year ended September 30, 2006 relating to the FER provision.

2.    Acquisitions

        The Company accounts for acquisitions under the purchase method of accounting in accordance with SFAS No. 141, "Business Combinations." Under the purchase method of accounting, the total purchase price has been allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The excess of the purchase price over those fair values was recorded as goodwill (see Note 6). The fair value assigned to the tangible and intangible assets acquired and liabilities assumed was based upon estimates and assumptions developed by management and other information compiled by management, including a valuation. The purchase price allocation for the SISU acquisition has not yet been finalized as of September 30, 2006 due to outstanding working capital issues with the seller.

        Certain acquisitions also gave rise to the consolidation and elimination of certain personnel at the acquired entities. The Company has provided for liabilities resulting from this in accordance with EITF

F-21

No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." At the closing of the respective acquisitions, the Company anticipated workforce reductions and, as such, included an estimated accrual for this comprised of severance and employee benefits in the purchase price allocation for each respective acquisition. The activity in the workforce reduction accrual in connection with the respective acquisitions is provided in the discussions below.

Fiscal 2006 Acquisitions

        In fiscal 2006, the Company did not acquire any businesses.

Fiscal 2005 Acquisitions

Solgar (Final)

        On August 1, 2005, the Company acquired substantially all the assets of Solgar Vitamin and Herb, a division of Wyeth Consumer Healthcare ("Wyeth"). The purchase price for this business was approximately $115,000 in cash. The Company finalized the net asset value calculation in fiscal 2006 and received $1,964 from the seller as a result of this calculation. The goodwill associated with this acquisition will be deductible for tax purposes. The cash used for this acquisition was financed by an amendment and restatement of the Company's existing Credit and Guarantee Agreement ("CGA"), which included a new Term Loan A for $120,000 which was scheduled to mature August 2010 but was fully paid in fiscal 2006. The Company also incurred approximately $3,528 of direct transaction costs for a total purchase price of approximately $116,564. Additionally, related financing costs of approximately $1,147 were paid to secure the financing for this acquisition and recorded as deferred financing costs (see Note 9).

        Solgar, a prominent supplement company established in 1947, manufactures and distributes premium-branded nutritional supplements including multivitamins, minerals, botanicals and specialty formulas designed to meet the specific needs of men, women, children and seniors. Solgar's headquarters and major manufacturing facility are located in Bergen County, New Jersey. Solgar's products are sold at nearly 10,000 health food stores, natural product stores, natural pharmacies and specialty stores across the United States and internationally. The Solgar acquisition strengthened NBTY's presence in the health food store market, as the Solgar brand focused on serving the needs of the independent health food store across the United States and internationally. This acquisition contributed $100,228 in net sales and pre-tax operating income of $11,074 to NBTY's wholesale segment for the fiscal year ended September 30, 2006. This acquisition contributed $17,464 in net sales and a pre-tax operating loss of $1,879, since its acquisition date, to NBTY's wholesale segment for the fiscal year ended September 30, 2005.

F-22

        At the closing of the Solgar acquisition, the Company anticipated workforce reductions and, as such, included an estimated accrual for such reductions of approximately $1,008, comprised of severance and employee benefits, in the preliminary purchase price allocation (included herein). The rollforward of the workforce reduction accrual is as follows:

Accrual at acquisition date August 1, 2005	$	1,008
Payments		(891	)
Accrual at September 30, 2005		117
Payments		(74	)
Adjustment to goodwill		(43	)
Accrual at September 30, 2006	$	—

SISU (Preliminary; see discussion below)

        On June 8, 2005, the Company acquired SISU, Inc. ("SISU"), a Canadian-based manufacturer and distributor of premium quality vitamins and supplements sold to independent health food stores. The purchase price for this business was approximately $8,224 in cash. None of the goodwill associated with this acquisition will be deductible for tax purposes. This acquisition contributed $12,547 and $3,355 in net sales and a marginal pre-tax operating loss to NBTY's wholesale segment for the fiscal years ended September 30, 2006 and 2005, respectively.

Le Naturiste (Final)

        On February 25, 2005, the Company acquired Le Naturiste Jean-Marc Brunet ("Le Naturiste"), a chain of retail stores located throughout Quebec. Le Naturiste is an Eastern Canadian-based company in the business of developing, packaging, marketing and retailing an in-house range of privately-labeled health and natural products. At the time of the acquisition, the Le Naturiste chain operated 99 company-owned stores and 4 franchised stores. The purchase price for this business was approximately $5,048 in cash. None of the goodwill associated with this acquisition will be deductible for tax purposes. This acquisition contributed $17,657 and $9,089 in net sales and pre-tax operating losses of $2,801 and $1,556 to NBTY's North American retail segment for the fiscal years ended September 30, 2006 and 2005, respectively. As of September 30, 2006 the Le Naturiste chain operated 96 company-owned stores and 2 franchised stores.

F-23

        The following provides an allocation of the purchase price in relation to the Le Naturiste, SISU and Solgar acquisitions. The SISU purchase price allocation is preliminary as discussed below:

		Le Naturiste		SISU		Solgar
Assets acquired
Cash		$	284	$	—	$	—
Accounts receivable, net			105		1,055		15,084
Inventories			2,392		1,915		37,405
Other current assets			599		272		336
Property, plant and equipment			2,466		890		19,239
Goodwill			98		1,541		14,747
Intangibles (principally brands and relationships)			960		3,791		35,010
Other assets			—		—		30
	Total assets acquired		6,904		9,464		121,851
Liabilities assumed
Accounts payable and accrued liabilities			1,230		1,021		5,287
Other liabilities			626		219		—
	Total liabilities assumed		1,856		1,240		5,287
Net assets acquired		$	5,048	$	8,224	$	116,564

        The fair value of property, plant and equipment acquired (as of the date of acquisition) is as follows:

								Depreciation and Amortization period (years)
		Fair Values
		Le Naturiste		SISU		Solgar
Buildings and leasehold improvements		$	338	$	77	$	5,098	5–40
Machinery and equipment			201		504		12,225	3–10
Furniture and fixtures			1,685		102		669	5–10
Computer equipment			236		207		786	5
Transportation equipment			6		—		461	4
	Total property, plant and equipment	$	2,466	$	890	$	19,239

F-24

        The fair value of identifiable intangible assets acquired (as of the date of acquisition) is as follows:

		Fair Values
								Amortization period (years)
		Le Naturiste		SISU		Solgar
Brands		$	—	$	1,371	$	15,010	20
Customer lists			61		—		—	3
Private label and customer relationships			—		2,258		20,000	20
Trademarks			899		—		—	20
Covenants not to compete			—		162		—	3
	Total intangible assets	$	960	$	3,791	$	35,010

        The Company has not yet finalized the working capital adjustment (as defined in the purchase agreement) relating to the SISU acquisition. The purchase agreement stipulates an adjustment to the purchase price between buyer and seller for the excess or shortfall of the final working capital threshold as stated in such agreement. The Company and SISU's seller are in a dispute with respect to the calculation of the final working capital. Also, the preliminary allocation of the SISU purchase price noted above is subject to contingency payments based upon financial loss claims as specified in the purchase agreement. The purchase agreement stipulates the indemnification from the seller of any financial losses of SISU for the period from June 1, 2005 to May 31, 2006 up to the maximum amount of $500. The completion of this process may result in an adjustment to the purchase price. Upon completion of these events, final allocations to the acquired assets and liabilities could result in future adjustments to goodwill and actual results may differ from those presented herein. Although management believes that the current allocation of the estimated purchase price is reasonable, the final allocation may differ significantly from the amounts reflected in the accompanying consolidated financial statements.

        Proforma financial information related to Solgar, SISU and Le Naturiste are not provided as their impact was not material individually or in the aggregate to the Company's consolidated financial statements.

Fiscal 2004 Acquisitions

        In fiscal 2004, the Company did not acquire any businesses.

3.    Investments

        At September 30, 2005, investments consisted of auction rate securities ("ARS") which are long-term variable rate bonds tied to short-term interest rates that are reset through a "dutch auction" process which occurs every 7 to 35 days. These investments were recorded at fair value; any unrealized gains/losses were included in other comprehensive income, unless a loss was determined to be other than temporary. As of September 30, 2005, there were no unrealized holding gains or losses. The Company classified such securities as current assets in the accompanying balance sheet because the Company had the ability and intent to sell these securities as necessary to meet its then current liquidity requirements.

F-25

        On October 24, 2005, the Company liquidated and utilized all of its investment in ARS of $39,900 to pay a portion of the remaining redemption price on its 8⁵/8% Notes outstanding. See Note 9 for further discussion of the Company's redemption of its 8⁵/8% Notes.

        Interest income included in "Miscellaneous, net" in the Consolidated Statements of Income was $3,229, $1,935 and $1,298 during the fiscal years ended September 30, 2006, 2005 and 2004, respectively.

4.    Inventories

        The components of inventories are as follows at September 30:

		2006		2005
Raw materials		$	89,186	$	146,134
Work-in-process			11,409		8,194
Finished goods			253,901		337,007
	Total	$	354,496	$	491,335

5.    Property, Plant and Equipment, net

        Property, plant and equipment is as follows at September 30:

		2006		2005		Depreciation and amortization period (years)
Land		$	21,607	$	21,374
Buildings and leasehold improvements			243,580		231,219	5–40
Machinery and equipment			145,246		143,185	3–10
Furniture and fixtures			102,447		116,015	5–10
Computer equipment			67,626		59,176	5
Transportation equipment			11,370		11,379	4
Construction in progress			13,630		18,063	—
			605,506		600,411
	Less accumulated depreciation and amortization		296,069		279,883
		$	309,437	$	320,528

        Depreciation and amortization of property, plant and equipment for the fiscal years ended September 30, 2006, 2005 and 2004 was approximately $43,739, $47,297 and $50,180, respectively.

F-26

6.    Goodwill and Other Intangible Assets, net

Goodwill

        The changes in the carrying amount of goodwill by segment for the fiscal years ended September 30, 2006 and 2005 are as follows:

	Wholesale/ US Nutrition			North American Retail			European Retail			Direct Response/ Puritan's Pride		Consolidated
Balance at September 30, 2004	$	45,953		$	7,588		$	152,691		$	15,197	$	221,429
Sale of business assets		(353	)		—			—			—		(353	)
Acquisition of Le Naturiste		—			98			—			—		98
Acquisition of SISU		1,541			—			—			—		1,541
Acquisition of Solgar		16,481			—			—			—		16,481
Tax effect of purchase price allocation		(1,221	)		—			—			—		(1,221	)
Purchase price settlements/adjustments, net		11,078			—			(9,850	)		—		1,228
Impairment charge		—			(7,686	)		—			—		(7,686	)
Foreign currency translation		111			—			(2,881	)		—		(2,770	)
Balance at September 30, 2005		73,590			—			139,960			15,197		228,747
Purchase price settlements/adjustments, net		247			—			—			—		247
Closure of business entities		(645	)		—			—			—		(645	)
Foreign currency translation		61			—			7,549			—		7,610
Balance at September 30, 2006	$	73,253		$	—		$	147,509		$	15,197	$	235,959

        The goodwill associated with the SISU acquisition is subject to revision as described in Note 2. Although management believes that the current allocation of the estimated purchase price is reasonable, the final allocation may differ from the amounts reflected in the accompanying consolidated financial statements.

Fiscal 2006:

        The decrease in the Wholesale/US Nutrition segment's goodwill for fiscal 2006 primarily related to the closure of the Solgar operations in Australia, Canada and Mexico, which occurred during the fiscal year ended September 30, 2006, and included the write-off of goodwill ($645) associated with these businesses. Goodwill was also impacted by the receipt of cash from Wyeth ($1,964) in connection with the determination by the Company and Wyeth of the final net asset calculation with respect to the Solgar acquisition offset by other non cash adjustments.

Fiscal 2005:

        The increase in the Wholesale/US Nutrition segment's goodwill for fiscal 2005 primarily related to the acquisition of Solgar ($16,481) and SISU ($1,541) (see Note 2) and the effect of the Company's settlement of the working capital dispute in connection with the Rexall acquisition ($11,078) partially offset by a tax adjustment relating to the purchase price allocation of the Rexall acquisition ($1,221) and a reduction in the goodwill associated with the December 2004 sale of certain Food Supplement Corporation ("FSC") business assets ($353) (see Note 7).

F-27

        The decrease in the North American Retail segment's goodwill during fiscal 2005 is directly due to the Company recording an impairment charge of $7,686 (see Note 7).

        The decrease in the European Retail segment's goodwill during fiscal 2005 is related to the Company settling its dispute with the former owners of GNC (UK) and FSC during fiscal 2005 by receiving cash ($4,558) and settling the dispute over the net assets acquired ($5,292) reflected as an adjustment to the purchase price.

Other Intangible Assets

        The carrying amounts of acquired other intangible assets are as follows at September 30:

		2006				2005
		Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization		Amortization period (years)
Definite lived intangible assets
Brands		$	82,675	$	11,449	$	94,565	$	8,608	20
Customer lists			62,025		32,278		61,963		28,299	2–15
Private label and customer relationships			34,211		3,167		34,047		1,454	20
Trademarks and licenses			17,146		5,123		15,996		3,897	2–20
Covenants not to compete			3,034		2,705		2,777		2,565	3–5
			199,091		54,722		209,348		44,823
Indefinite lived intangible asset
Trademark			1,800		—		1,800		—
	Total intangible assets	$	200,891	$	54,722	$	211,148	$	44,823

        The Company decided during the second quarter of fiscal 2006 to discontinue its Carb Solutions low-carb product line due to continued difficult market conditions. The Carb Solutions product line was acquired as part of the acquisition of Rexall Sundown in 2003. As a result, the brands associated with this trademark had virtually no future undiscounted cash flow to support the carrying value. The Company wrote off the net carrying value of the Carb Solutions trademarked brands of $10,450 and included this impairment charge in "Trademark/goodwill impairment" in the Company's Condensed Consolidated Statements of Income for the fiscal year ended September 30, 2006. This asset is reported in the Company's Wholesale segment. See also Note 7, Impairments, Assets Held for Sale and Gain on Sale of Business Assets.

        Aggregate amortization expense of other definite lived intangible assets included in the Consolidated Statements of Income under the caption "Selling, general and administrative" expenses in fiscal 2006, 2005 and 2004 was approximately $12,309, $10,986 and $11,500, respectively.

F-28

Estimated amortization expense

        Assuming no changes in the Company's other intangible assets, estimated amortization expense for each of the five succeeding fiscal years ending September 30 is as follows:

2007	$	11,641
2008	$	11,491
2009	$	10,267
2010	$	10,166
2011	$	10,124

        The above estimated amortization expense is subject to change once the purchase price allocation in connection with the Company's acquisition of Zila is finalized (see Note 22).

7.    Impairments, Assets Held for Sale and Gain on Sale of Business Assets

Impairment Indicators:

        During fiscal 2005, the Company monitored trends in its North American Retail segment, which included the review of earnings before interest, taxes, depreciation and amortization ("EBITDA") due to negative changes in the specialty retail market's business climate. This directly influenced the Company's decision to participate in a significant level of promotional activity at its retail locations in the prior fiscal year. These sales incentives negatively impacted gross margins. The North American Retail segment had positive annual EBITDA for the five years preceding the 2005 fiscal year. The fiscal first quarter ended December 31, 2004 was the first time in those five years that this reporting unit generated negative EBITDA. The Company continued to monitor this trend during the quarter ended March 31, 2005, in which the reporting unit generated a negative EBITDA for a second consecutive quarter. In addition to the negative EBITDA generated by the North American Retail segment during the first two quarters of FY 2005, the Company was monitoring its same-store sales trend. In May 2005, same-store sales turned positive; however, 8 out of the previous 12 months reflected negative same store sales trends. As a result of the two consecutive quarters of negative EBITDA and the continued adverse business climate of the specialty retail market during the April and May 2005 periods, the Company concluded that there were indicators of impairment of its North American Retail segment's goodwill and certain property, plant and equipment in the 2005 fiscal year. These factors were determined to be interim triggering events that required an impairment review during fiscal 2005 under the provisions of SFAS 144 and SFAS 142 as described below.

Impairment of Long-Lived Assets:

        Under SFAS 144 management considers a history of cash flow losses on a store by store basis to be its primary indicator of potential impairment. Carrying values are reviewed for impairment when events or changes in circumstances indicate that the assets' carrying values may not be recoverable from the estimated future cash flows. The estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write down to a new depreciable basis is required. If required, an impairment charge is recorded based on an estimate of future discounted cash flows.

F-29

        As part of its ongoing operations, the Company continually evaluates certain retail stores that reach a certain level of maturity and have also been sustaining operating losses for an impairment review under the provisions of SFAS 144. The estimated future undiscounted cash flows associated with the leasehold improvements and furniture and fixtures in certain North American retail stores that were incurring losses were compared to the respective carrying amounts of such assets. Based on an impairment analysis performed in accordance with SFAS 144, it was determined that a write down to a new basis was required since the carrying amount of the long-lived asset group for each store incurring losses exceeded its fair value, calculated based on the present value of estimated future cash flows. Accordingly, the Company recognized impairment charges of $3,141, $3,518 and $2,603 for the fiscal years ended September 30, 2006, 2005 and 2004, respectively, on assets to be held and used. The impairment charges related primarily to leasehold improvements and furniture and fixtures for North American Retail operations and were included in the Consolidated Statements of Income under the caption "Selling, general and administrative" expenses.

        Due to continued difficult market conditions experienced in its low carb product line, the Company decided to discontinue its Carb Solutions trademarked brands during the fiscal year ended September 30, 2006 (which was acquired as part of the acquisition of Rexall Sundown in 2003) since the brand related to this trademark had virtually no future undiscounted cash flow to support its carrying value. Accordingly, the Company wrote off the net carrying value of the Carb Solutions trademarked brands of $10,450 during the fiscal year ended September 30, 2006 (see Note 6).

Goodwill impairment charge:

        The Company recognized a $7,686 goodwill impairment charge for the North American Retail reporting unit for the fiscal year ended September 30, 2005 which fully impaired this segment's goodwill. This charge was the result of an impairment test performed in accordance with SFAS No. 142, whereby it was determined that the carrying value of the goodwill exceeded its fair value.

Other Impairments:

        During the fiscal year ended September 30, 2006, the company closed certain Solgar international operations in Australia, Canada and Mexico, which included the write-off of goodwill and other assets associated with these businesses ($920).

Assets Held for Sale:

        In December 2004, the Company entered into a contract with a real estate broker to facilitate the sale of the corporate building acquired in the 2003 Rexall acquisition at less than its carrying value of $10,508. In accordance with SFAS 144, the Company recorded an impairment charge to reduce the carrying value of the asset by $1,908. Such amount was charged to operations and is included in the Consolidated Statements of Income under the caption "Selling, general and administrative" expenses for the fiscal year ended September 30, 2005. In May 2005, the Company sold this building at no further gain or loss, and received cash proceeds of $8,600.

        In May 2005, the Company sold a corporate building for $1,350 which approximated the building's carrying value. As such, no gain or loss was recorded as a result of this sale.

F-30

Gain on Sale of Business Assets:

        In December 2004, the Company sold certain business assets of Food Supplement Corporation ("FSC"), a Manchester, U.K.-based wholesale operation which included products sold to health food stores and pharmacies. In connection with the sale, proceeds of $5,766 were received and a $1,999 gain was realized and included in the Consolidated Statements of Income under the caption "Selling, general and administrative" expenses for the fiscal year ended September 30, 2005.

8.    Accrued Expenses and Other Current Liabilities

        The components of accrued expenses and other current liabilities are as follows at September 30:

	2006		2005
Accrued compensation and related taxes	$	26,247	$	28,153
Accrued purchases		13,379		13,683
Litigation		12,294		11,337
Income taxes payable		22,268		9,110
Other (individually less than 5% of current liabilities)		53,580		58,204
	$	127,768	$	120,487

F-31

9.    Long-Term Debt

        Long-term debt consisted of the following at September 30:

			2006		2005
Senior debt:
	85/8% Senior subordinated notes ("85/8% Notes"), net of unamortized discount of $173 at September 30, 2005(a)		$	—	$	75,369
	71/8% Senior subordinated notes due 2015 ("71/8% Notes"), net of unamortized discount of $1,557 and $1,763 at September 30, 2006 and 2005, respectively(b)			188,443		198,237
Mortgages:
	First mortgage payable in monthly principal and interest (7.375%) installments of $55, maturing May 2011			2,608		3,060
	First mortgage; interest at LIBOR plus 1.5%; payable in monthly principal and interest installments of $137; fully repaid in 2006(c)			—		12,878
Capital Leases:
	Capital lease obligations payable in monthly principal and interest (weighted-average imputed interest rate of 2.5%) installments of $23, maturing June 2009			733		—
Credit and Guarantee Agreement ("CGA")(d):
	Revolving Credit Facility, maturing July 2008			—		6,000
	Term loan C; interest at LIBOR plus applicable margin; fully repaid in 2006			—		138,163
	Term loan A; interest at LIBOR plus applicable margin; fully repaid in 2006			—		75,419
	Multicurrency Term Loan Facility; interest at LIBOR plus margin; maturing December 2006(e)			17,921		—
				209,705		509,126
		Less: current portion		18,660		80,922
		Total	$	191,045	$	428,204

(a)

At September 30, 2005, the 8⁵/8% Notes were uncollateralized and subordinated in right of payment for all existing and future indebtedness of the Company. On August 25, 2005, NBTY initiated a cash tender offer (the "Offer") for any and all of the 8⁵/8% Notes. On September 23, 2005, NBTY announced the expiration of the Offer with a total of $74,458 aggregate principal amount of 8⁵/8% Notes tendered, representing approximately 49.6% of the outstanding 8⁵/8% Notes. On September 23, 2005, NBTY issued a Call for Redemption of these 8⁵/8% Notes and accepted and paid for the $74,458 aggregate principal amount of 8⁵/8% Notes tendered. The redemption price was equal to $1,000 per $1,000 principal amount of the 8⁵/8% Notes validly tendered, plus accrued and unpaid interest to the redemption date. On October 24, 2005, the Company redeemed the remaining $75,542 aggregate principal amount of the 8⁵/8% Notes outstanding. On such date, the Company paid $706 representing the remaining accrued interest due to the 8⁵/8% Note holders and recorded an additional charge of $802 to interest expense in the Consolidated Statements of Income for the fiscal year ended September 30, 2006 representing the unamortized portion of debt

F-32

issuance costs of $629 and the unamortized bond discount of $173 associated with the original issuance.

(b)

In September 2005, the Company issued 10-year 7¹/8% Senior Subordinated Notes due 2015 in the aggregate principal amount of $200,000 (the "7¹/8% Notes"). The 7¹/8% Notes are guaranteed by all of the Company's domestic subsidiaries and are full, unconditional and joint and several and uncollaterized and subordinated in right of payment for all existing and future indebtedness of the Company. See Note 20 for the Consolidated Financial Statements of the Guarantors of the 7¹/8% Notes. The 7¹/8% Notes are subject to redemption, at the option of the Company, in whole or in part, at any time on or after October 1, 2010, and prior to maturity at certain fixed redemption prices plus accrued interest. In addition, on or prior to October 1, 2008, the Company may redeem in the aggregate up to 35% of the 7¹/8% Notes with the net cash proceeds received by the Company from certain types of equity offerings (as defined), at a redemption value equal to 107.125% of the principal amount plus accrued interest, provided that at least 65% of the aggregate principal amount of notes remains outstanding immediately after any such redemption. The notes do not have any sinking fund requirements. Interest is paid semi-annually on April 1^st and October 1^st.

In March 2006 the Company purchased, on the open market, $10,000 face value of the 7¹/8% Notes for $9,575. The Company recorded a gain on extinguishment of debt of $425 and wrote-off $264 of the related unamortized deferred financing fees during the fiscal year ended September 30, 2006 as a result of this transaction.

(c)

The Company entered into a variable rate mortgage with JP Morgan Chase Bank on August 31, 2005 for a loan in the amount of $12,950, payable in monthly principal installments of $72 plus interest at LIBOR plus 1.5%. The mortgage was scheduled to mature on August 31, 2015, with the final payment of the then unpaid principal balance of approximately $4,317. On August 31, 2005, the Company also entered into an interest rate swap agreement ("SWAP") to receive variable rate interest (LIBOR), and pay fixed rate interest (4.71%) which effectively converted the $12,950 mortgage to fixed rate debt. The Company entered into this SWAP as a cash flow hedge in order to fix its interest payments on the mortgage. The SWAP, which was scheduled to expire in August 2015, was amortizing so that the notional amount of the SWAP decreased in tandem, dollar for dollar, with the scheduled principal payments on the mortgage. During the fiscal third quarter 2006 the Company repaid this mortgage in full and extinguished its SWAP contract. See below for further discussion of the SWAP settlement.

(d)

On August 1, 2005, in connection with the Company's acquisition of Solgar, the Company amended and restated its existing credit agreement by adding a new Term Loan A of $120,000 and increasing its existing Revolving Credit Facility from $100,000 to $125,000. During the fiscal year ended September 30, 2005, the Company accelerated payments on such debt. During the fiscal year ended September 30, 2006, the Company paid the balance of Term Loan A and Term Loan C in full.

Interest rates charged on borrowings can vary depending on the interest rate option utilized. Options for the rate can either be the Alternate Base Rate or LIBOR plus applicable margin. At September 30, 2005, the borrowing rates for Term Loan A, Term Loan C and the Revolving Credit

F-33

Facility were approximately 5.25%, 5.875% and 7.75%, respectively. The Company is required to pay a commitment fee, which varies between .25% and .50% per annum, depending on the Company's ratio of consolidated indebtedness to consolidated Adjusted EBITDA, on any unused portion of the revolving credit facility. The CGA defines Adjusted EBITDA as net income, excluding the aggregate amount of all non-cash losses reducing net income (excluding any non-cash losses that result in an accrual of a reserve for cash charges in any future period and the reversal thereof), plus interest, taxes, depreciation and amortization. The Revolving Credit Facility matures July 24, 2008. Virtually all of the Company's assets are collateralized under the amended and restated CGA. Under the CGA, the Company is obligated to maintain various financial ratios and covenants that are typical for such facilities. On November 3, 2006, the Company terminated its CGA and entered into a new Revolving Credit Facility (see Note 22 for further discussion).

(e)

In September 2006, the Company entered into a multicurrency term facility agreement with JP Morgan Chase Bank. At September 30, 2006, the amount outstanding under this facility was a loan denominated in the British Pound Sterling in the amount of £9,575, which approximated $17,921 in US Dollars based upon the exchange rate as of September 30, 2006. The loan is to be paid in full at its maturity date of December 29, 2006. Interest is payable at the maturity date at LIBOR plus applicable margin. At September 30, 2006, the interest rate was approximately 6.30%. The Company is in the process of amending the terms of the facility agreement, see Note 22 for further discussion.

SWAP Agreement:

        The interest rate swap agreement was extinguished during the Company's fiscal third quarter 2006. This agreement was a contract to exchange floating rate debt for fixed rate interest payments over the life of the agreement without the exchange of the underlying notional amount. The differential paid or received on the interest rate swap agreement was recognized as an adjustment to interest. The Company does not use derivative financial instruments for trading purposes. The Company recorded changes in the fair value of the SWAP through Other Comprehensive Income ("OCI"), net of tax. During the third fiscal quarter of 2006, the SWAP was extinguished and the Company realized a gain of $353. At September 30, 2005, the SWAP was in a liability position valued at $65.

Capital Lease Obligations:

        During the fiscal year ended September 30, 2006, the Company entered into various capital leases for computer equipment which provide the Company with bargain purchase options at the end of such lease terms.

        The Company's credit arrangements, generally the indenture governing the 7¹/8% Notes ("Indenture") and the CGA, impose certain restrictions on the Company regarding capital expenditures and limit the Company's ability to do any of the following: incur additional indebtedness, dispose of assets, make repayments of indebtedness or amendments of debt instruments, pay dividends or distributions, create liens on assets and enter into sale and leaseback transactions, investments, loans or advances and acquisitions. Such restrictions are subject to certain limitations and exclusions (see Note 14 and Note 22).

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        In addition, a default under certain covenants in the Indenture and the CGA, respectively, could result in the acceleration of the Company's payment obligations under the CGA and the Indenture, as the case may be, and, under certain circumstances, in cross-defaults under other debt obligations. These defaults may have a negative effect on the Company's liquidity.

        Required principal payments of long-term debt are as follows:

Fiscal year ending September 30,
2007	$	18,660
2008		795
2009		772
2010		606
2011		429
Thereafter		188,443
	$	209,705

10.    Comprehensive Income

        Total comprehensive income for the Company includes net income, the effects of foreign currency translation, unrealized gains and losses on available-for-sale securities and changes in the fair value of the interest rate swap agreement treated as a cash flow hedging instrument, which are charged or credited to the accumulated other comprehensive income account within stockholders' equity. Total comprehensive income for the fiscal years ended September 30, 2006, 2005 and 2004 is as follows:

			2006		2005			2004
Net income, as reported			$	111,785	$	78,137		$	111,849
Changes in:
	Unrealized holding gains (losses), net			—		8			21
	Interest rate swap valuation adjustments, net			40		(40	)		—
	Write-off of accumulated other comprehensive income, net(a)			—		566			—
	Foreign currency translation adjustments, net			11,431		(5,121	)		7,547
		Total comprehensive income, net of taxes	$	123,256	$	73,550		$	119,417

(a)

As a result of the sale of assets in a foreign country in the prior period, the Company wrote off the related accumulated comprehensive income.

        Accumulated other comprehensive income as of September 30, 2006 and 2005, net of taxes, was $29,057 and $17,586, respectively. The balance, consisting primarily of net gains on foreign currency translation adjustments of $29,027 and $17,596, at September 30, 2006 and 2005, respectively, has been recorded in the stockholders' equity section of the consolidated balance sheets.

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        The change in the cumulative foreign currency translation adjustment primarily relates to the Company's investment in its European subsidiaries and fluctuations in exchange rates between their local functional currencies and the U.S. Dollar.

        During the fiscal year ended September 30, 2006, the Company recorded an increase in its deferred tax liability of $7,212 relating to other comprehensive income earned during the year. During the fiscal year ended September 30, 2005, the Company recorded a decrease in its deferred tax liability of $2,884 relating to other comprehensive losses incurred during the year. During the fiscal year ended September 30, 2004, the Company recorded a deferred income tax liability of $13,939, including $5,302 for prior periods, relating to accumulated other comprehensive income at September 30, 2004. Prior to October 1, 2003, the Company had not recorded a deferred income tax liability relating to accumulated other comprehensive income. Amounts relating to prior periods were not considered material.

11.    Income Taxes

        Income (loss) before income taxes consists of the following components:

	2006		2005			2004
United States	$	41,192	$	(2,105	)	$	84,789
Foreign		111,635		121,367			84,216
	$	152,827	$	119,262		$	169,005

        Provision for income taxes consists of the following:

		2006			2005			2004
Federal
	Current	$	12,022		$	(5,089	)	$	19,610
	Deferred		(9,569	)		2,882			8,202
State
	Current		1,232			273			2,258
	Deferred		(792	)		473			470
Foreign
	Current		39,807			41,414			26,521
	Deferred		(1,658	)		1,172			95
Total provision		$	41,042		$	41,125		$	57,156

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        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 the effective income tax rate.

	2006					2005					2004
	Amount			Percent of pretax income		Amount			Percent of pretax income		Amount			Percent of pretax income
Income tax expense at statutory rate	$	53,489		35.0	%	$	41,742		35.0	%	$	59,152		35.0	%
State income taxes, net of federal income tax benefit		286		0.2	%		484		0.4	%		1,770		1.0	%
Change in valuation allowance		(1,892	)	(1.2	)%		1,498		1.3	%		1,162		0.7	%
Goodwill impairment		—		0.0	%		2,656		2.2	%		—		0.0	%
Effect of international operations, including foreign export benefit and earnings indefinitely reinvested under APB23		(675	)	(0.4	)%		(4,565	)	(3.9	)%		(4,298	)	(2.5	)%
Effect of FER provision		(11,289	)	(7.4	)%		(884	)	(0.7	)%		—		—
Other, individually less than 5%		1,123		0.7	%		194		0.2	%		(630	)	(0.4	)%
	$	41,042		26.9	%	$	41,125		34.5	%	$	57,156		33.8	%

        The decline in the effective rate in fiscal 2006 is mainly attributable to the impact of the Foreign Earnings Repatriation ("FER") provision in the American Jobs Creation Act of 2004, which impacted fiscal 2006 by $11,289 (7.4% impact to the rate).

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        The components of deferred tax assets and liabilities are as follows as of September 30:

			2006			2005
Deferred tax assets:
	Inventory reserves		$	8,305		$	7,544
	Accrued expenses and reserves not currently deductible			15,366			18,151
	Tax credits			9,637			4,196
	Capital loss carryforward			—			1,575
	Foreign net operating losses			3,321			3,474
	Valuation allowance			(7,353	)		(9,245	)
		Total deferred income tax assets, net of valuation allowance		29,276			25,695
Deferred tax liabilities:
	Property, plant and equipment			(16,293	)		(22,572	)
	Intangibles			(21,721	)		(24,680	)
	Undistributed foreign earnings			(1,635	)		(835	)
	Other comprehensive income			(18,267	)		(11,055	)
		Total deferred income tax liabilities		(57,916	)		(59,142	)
Total net deferred income tax liabilities				(28,640	)		(33,447	)
Less current deferred income tax assets				(26,636	)		(23,645	)
Long-term deferred income taxes			$	(55,276	)	$	(57,092	)

        Deferred tax assets have been recognized to the extent that it is more likely than not that they will be realized. At September 30, 2006, the Company has foreign net operating losses, foreign tax credit and New York State ("NYS") investment tax credit carryforwards of $9,626, $5,605 and $4,032, respectively.

        At September 30, 2006, the Company maintained a valuation allowance of $4,032 against the NYS investment tax credits that expire primarily between 2013 and 2016 and $3,321 against foreign loss carryforwards which expire in accordance with applicable tax law. The Company provides a valuation allowance for these credit and loss carryforwards because it does not consider realization of such assets to be more likely than not.

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        The change in the valuation allowance for the fiscal years ended September 30, 2006 and 2005 is as follows:

	2006			2005
Beginning balance	$	(9,245	)	$	(6,614	)
Utilization of NYS investment tax credit carryforwards		164			149
Capital loss carryforward		1,575			1
Foreign net operating losses utilized / (generated)		153			(1,648	)
Foreign net operating losses acquired		—			(1,133	)
Balance at September 30	$	(7,353	)	$	(9,245	)

12.    Commitments

Operating Leases

        The Company conducts retail operations under operating leases, which expire at various dates through 2031. Some of the leases contain escalation clauses, as well as 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, 2006 are as follows for the fiscal year ending September 30:

2007	$	90,891
2008		83,209
2009		74,531
2010		61,325
2011		50,801
Thereafter		204,914
	$	565,671

        Operating lease rent expense (including real estate taxes and maintenance costs) and leases on a month to month basis were approximately $112,534, $112,550 and $104,104 during fiscal 2006, 2005 and 2004, respectively.

Purchase Commitments

        The Company was committed to make future purchases primarily for inventory related items, such as raw materials and finished goods, under various purchase arrangements with fixed price provisions aggregating approximately $91,966 at September 30, 2006.

Capital Commitments

        The Company had approximately $1,487 in open capital commitments at September 30, 2006, primarily related to manufacturing equipment, as well as computer hardware and software.

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Real Estate Tax Incentive Transaction

        In August 2005, the Company entered into a sale-leaseback transaction pursuant to which it sold certain manufacturing assets and its manufacturing facility located in Augusta, Georgia for a total purchase price of $14,973. The purchase price consisted of $14,973 in cash which was simultaneously invested and is subject to an Industrial Revenue Bonds (IRB's) financing agreement. This agreement is intended to permit counties to attract business investment by offering property tax incentives. In accordance with Georgia law, the Company entered into this sale-leaseback agreement with Richmond County ("the County") and acquired an Industrial Development Revenue Bond. The arrangement is structured so that the Company's lease payments to the County equal and offset the County's bond payments to the Company. The Bond is non-recourse to the County, the Company's lease payments are pledged to secure repayment of the Bond, and the lease and bond provide for the legal right of offset. Consequently, in accordance with Financial Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," the investment and lease obligation related to this arrangement have been offset in the Company's Consolidated Balance Sheets. The agreement has a maximum expiration date of 2025. Under the terms of the agreement, the Company must annually submit information regarding the value of the machinery and equipment in service in the county. If the Company had not entered into this transaction, property tax payments would have been higher. The Company can reacquire such property and terminate the agreement at a nominal price of $1 and, accordingly, the subject property is included in property, plant, and equipment in the Company's Consolidated Balance Sheets. If the Company elects to reacquire the subject property prior to the expiration of the arrangement, it may also be required to make certain adjusting property tax payments.

Off-Balance Sheet Arrangements

        The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors, except for the financing commitments previously discussed.

Employment and Consulting Agreements

        The Company has employment agreements with two of its executive officers. The agreements, effective October 1, 2002, each have a term of five 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, 2006 was approximately $1,300.

        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, 2007, in exchange for a consulting fee of $450 per year, payable monthly. In addition, Mr. Rudolph receives certain fringe benefits accorded to executives of the Company.

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        Five members of the Company's European senior executive staff have service contracts terminable by the Company upon twelve months notice. The annual aggregate commitment for such executive staff as of September 30, 2006 was approximately $1,497.

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 includes the dilutive effect of outstanding stock options, as if exercised. The following is a reconciliation between basic and diluted EPS:

		2006		2005		2004
Numerator:
	Numerator for basic and diluted EPS—Net income	$	111,785	$	78,137	$	111,849
Denominator:
	Denominator for basic EPS—weighted-average shares		67,199		67,162		66,793
	Effect of dilutive securities—stock options		1,931		1,975		2,276
	Denominator for diluted EPS—weighted-average shares		69,130		69,137		69,069
Basic EPS		$	1.66	$	1.16	$	1.67
Diluted EPS		$	1.62	$	1.13	$	1.62

14.    Dividend Restrictions

        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 7¹/8% Notes due 2015 similarly prohibits the Company from paying dividends or making any other distributions (other than dividends payable solely in shares of the Company's stock). 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. On November 3, 2006, the Company terminated its CGA and entered into a new Revolving Credit Facility (see Note 22 for further discussion).

15.    Stock Option Plans

        As described in Note 1, effective October 1, 2005 the Company adopted SFAS 123(R). Stock options granted under the Company's 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 2006, 2005 and 2004. See Note 1 for the Company's share-based compensation accounting policy.

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        A summary of stock option activity is as follows:

	Fiscal Year Ended September 30,
	2006				2005				2004
	Number of shares		Weighted average exercise price		Number of shares		Weighted average exercise price		Number of shares		Weighted average exercise price
Outstanding at beginning of period	3,825		$	5.78	3,864		$	5.78	4,204		$	5.77
Exercised	(21	)	$	5.11	(39	)	$	5.88	(340	)	$	5.52
Cancelled	(2	)	$	5.88	—		$	—	—		$	—
Outstanding at end of period	3,802		$	5.79	3,825		$	5.78	3,864		$	5.78
Exercisable at end of period	3,802		$	5.79	3,825		$	5.78	3,864		$	5.78
Number of shares available for future grant	2,458

        A summary of stock option exercises and related activity is as follows:

	2006		2005		2004
Stock options exercised		21		39		340
Aggregate proceeds	$	106	$	225	$	1,881
Compensation deduction for tax purposes	$	41	$	594	$	3,321
Tax benefit credited to Capital in excess of par	$	15	$	220	$	1,228

        The following table summarizes information about stock options outstanding at September 30, 2006:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Shares Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Shares Exercisable	Weighted Average Exercise Price
$4.75–$6.19	3,802	3.3	$	5.79	3,802	$	5.79

16.    Employee Benefit Plans

        The Company sponsors a Retirement Savings Plan consisting of a 401(k) plan covering substantially all employees with more than six 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 one percent to 50 percent of their annual compensation to the Plan, limited to a maximum annual amount as set, and periodically updated, by the Internal Revenue Service. Company match contributions are 100% of employee contributions, up to two percent of the employee's gross earnings to an annual maximum match contribution of $4 per employee. Employees become fully vested in employer match contributions after three years of service.

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        The Company also sponsors an Employee Stock Ownership Plan (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 the minimum number of hours as required by the terms of the plan during such plan year). As of September 30, 2006, all shares of the plan have been allocated to participants' accounts. The ESOP's assets consist of the Company common stock and a small amount of cash. Total ESOP shares are considered to be shares outstanding for earnings per share calculations.

        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 Security Act of 1974 (ERISA). Contributions to the ESOP are made on a voluntary basis by the Company in the form of the Company's stock or cash, which is invested by the plan's trustee in the Company's stock. 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 by the plan. Employees become vested in their respective accounts after five years of service, as defined in plan document, provided the ESOP is not considered top-heavy. If the ESOP is considered top-heavy, employees will become vested in the plan beginning in year 2 in increments of 20% per year over the subsequent four years of service.

        The ESOP held approximately 3.5% and 4.0% of the outstanding common stock of the Company for the benefit of all participants as of September 30, 2006 and 2005, respectively.

        The accompanying financial statements reflect contributions to these plans of approximately $5,032, $4,386 and $6,142 during fiscal 2006, 2005 and 2004, respectively.

        Certain international subsidiaries of the Company, mainly in the U.K., have company-sponsored defined contribution plans to comply with local statutes and practices. The accompanying financial statements reflect contributions to these plans by such subsidiaries in the approximate amount of $2,009, $1,146 and $922 during fiscal 2006, 2005 and 2004, respectively.

17.    Litigation Summary and Indemnification of Officers and Directors

Prohormone products

New York Action

        On July 25, 2002, a putative class-action lawsuit was filed against Vitamin World, Inc., alleging that Vitamin World engaged in deceptive trade practices and false advertising with respect to the sale of certain prohormone supplements and that the plaintiffs were therefore entitled to equitable and monetary relief under the New York General Business Law. Similar complaints were filed against other companies in the vitamin and nutritional supplement industry. By Decision and Order filed July 18, 2006, the Court granted Vitamin World's motion for summary judgment and dismissed all claims. The plaintiffs have appealed.

California Action

        On July 25, 2002, a putative consumer class-action lawsuit was filed in California state court against MET-Rx USA, Inc. ("MET-Rx"), an indirect subsidiary of Rexall Sundown, Inc. ("Rexall"),

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claiming that the advertising and marketing of certain prohormone supplements were false and misleading, or alternatively, that the prohormone products contained ingredients that were controlled substances under California law. Plaintiffs seek equitable and monetary relief. On June 18, 2004, this case was coordinated with several other class-action cases brought against other companies relating to the sale of products containing androstenediol, one of the prohormones contained in MET-Rx products. The coordinated proceedings have been assigned to a coordination judge for further pretrial proceedings. No trial date has been set, the court has not yet certified a class, and the matter is currently in discovery. The Company has defended vigorously against the claims asserted. Because this action is still in the early stages, no determination can be made at this time as to its final outcome, nor can its materiality be accurately ascertained.

New Jersey Action

        In March 2004, a putative class-action lawsuit was filed in New Jersey against MET-Rx, claiming that the advertising and marketing of certain prohormone supplements were false and misleading and that plaintiff and the putative class of New Jersey purchasers of these products were entitled to damages and injunctive relief. Because these allegations are virtually identical to allegations made in a putative nationwide class-action previously filed in California, the Company moved to dismiss or stay the New Jersey action pending the outcome of the California action. The motion was granted, and the New Jersey action is stayed at this time.

Florida Action

        In July 2002, a putative class-action lawsuit was filed in Florida against MET-Rx, claiming that the advertising and marketing of certain prohormone supplements were false and misleading, that the products were ineffective, and alternatively, that the products were anabolic steroids whose sale violated Florida law. Plaintiff seeks equitable and monetary relief. This case has been largely inactive since its filing. No determination can be made at this time as to its final outcome, nor can its materiality be accurately ascertained.

Nutrition Bars

        Rexall and certain of its subsidiaries are defendants in a class-action lawsuit brought in 2002 on behalf of all California consumers who bought various nutrition bars. Plaintiffs allege misbranding of nutrition bars and violations of California unfair competition statutes, misleading advertising and other similar causes of action. Plaintiffs seek restitution, legal fees and injunctive relief. The Company has defended this action vigorously. Until recently, the case was stayed for all purposes, pending rulings on relevant cases before the California Supreme Court. The Court has now lifted the stay and has permitted Rexall and the other defendants to re-raise a motion for judgment on the pleadings. The court has scheduled a conference on that motion for January 10, 2007. Based upon the information available at this time, the Company believes that its accrual is adequate for the exposure in the nutrition bar litigation. However, no determination can be made at this time as to the final outcome of this case, nor can its materiality be accurately ascertained.

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Shareholder Litigation

        From June 24, 2004 through September 3, 2004, six separate shareholder class-actions were filed against the Company and certain of its officers and directors in the U.S. District Court for the Eastern District of New York, on behalf of shareholders who purchased shares of the Company's common stock between February 9, 2004 and July 22, 2004 (the potential "Class Period"). The actions allege that the Company failed to disclose material facts during the Class Period that resulted in a decline in the price of its stock after June 16, 2004 and July 22, 2004, respectively. The Court consolidated the six class-actions in March 2005 and appointed lead plaintiff and counsel. The lead plaintiffs filed a consolidated amended complaint alleging an amended class period from November 10, 2003 to July 22, 2004. Along with the officers and directors, the Company filed a motion to dismiss the action. The motion was denied on May 1, 2006, and the matter is now in discovery.

        In addition to the shareholder class-actions, two shareholder derivative actions were filed in the Eastern District of New York, on July 9, 2004 and August 26, 2004, respectively, against certain of the Company's officers and directors. The Company is named as a nominal defendant. The two derivative actions which were consolidated were predicated upon the allegations set forth in the shareholder class-actions and alleged improper sales of the Company's shares by certain officers and directors. On December 27, 2004, the District Court granted the Company's motion to dismiss this complaint. The plaintiffs filed an appeal. The Second Circuit Court of Appeals affirmed the dismissal on December 20, 2005. By letter dated February 27, 2006, one of the derivative plaintiffs whose claim was dismissed demanded that the Company's board of directors file a civil action against certain officers and directors in connection with the allegations set forth in that derivative plaintiff's original complaint. The board rejected this shareholder demand based upon its prior investigation of a similar demand by another alleged shareholder, as described below.

        An additional shareholder derivative action was filed on October 7, 2004 in the Supreme Court of the State of New York, Suffolk County, alleging breaches of fiduciary duties by the Company's individual directors and officers. The Company is named as a nominal defendant. The derivative claims are predicated upon the same allegations as in the dismissed Eastern District consolidated derivative action and upon claims arising from the Company's 2003 acquisition of Rexall. The shareholder who filed this derivative action agreed to voluntarily discontinue it in light of the dismissal of the Eastern District consolidated derivative action. A stipulation of dismissal was filed.

        Also, a purported shareholder of the Company delivered a demand in July 2004 that the Company's board of directors commence a civil action against certain of the Company's officers and directors based on certain of the allegations described above. The Company's board of directors, based on the investigation and recommendation of a special committee of the Board, determined not to commence any such lawsuit. On or about April 28, 2005, a second state court derivative action was filed in the Supreme Court of the State of New York, Suffolk County, by this purported shareholder alleging wrongful rejection of his demand and breaches of fiduciary duties by some of the Company's individual directors and officers. The Company is named as a nominal defendant. This derivative complaint is predicated upon the same allegations as the dismissed Eastern District consolidated derivative action. Along with the named officers and directors, the Company has filed a motion to dismiss.

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        The Company and its named officers and directors believe these suits are without merit and vigorously have defended these actions. Given the early stages of the proceedings, however, no determination can be made at this time as to the final outcome of these actions, nor can their materiality be accurately ascertained. The Company maintains policies of directors' and officers' personal liability insurance.

        In addition to the foregoing, other regulatory inquiries, claims, suits and complaints (including product liability and intellectual property claims) arise in the ordinary course of the Company's business. The Company believes that such other inquiries, claims, suits and complaints would not have a material adverse effect on the Company's consolidated financial condition or results of operations, if determined against the Company.

Indemnification of Officers and Directors

        The Company is incorporated under the laws of Delaware. Section 145(a) of the Delaware General Corporation Law (the "DGCL") provides that a corporation may indemnify officers and directors of the corporation against expenses incurred by them if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, if they had no reasonable cause to believe that their conduct was unlawful.

        As permitted by the DGCL, the Company has provided in its certificate of incorporation for the indemnification to the full extent permitted by Section 145 of the DGCL of the persons who may be indemnified pursuant thereto. Further, the Company has provided in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.

        Finally, the directors and officers of the Company are covered by directors' and officers' insurance policies maintained by the Company.

18.    Segment Information

        The Company is organized by sales segments on a worldwide basis. The Company's management reporting system evaluates performance based on a number of factors; however, the primary measures of performance are the net sales, gross profit and income or loss from operations (prior to corporate allocations) of each segment, as this is the key performance indicator(s) reviewed by management. Operating income or loss for each segment does not include corporate general and administrative expenses, interest expense and other miscellaneous income/expense items. Corporate general and administrative expenses include, but are not limited to: human resources, legal, finance, IT, and various other corporate level activity related expenses. Such unallocated expenses remain within corporate. Corporate also includes the manufacturing assets of the Company and, accordingly, certain items associated with these activities, remain unallocated in the corporate segment. The European Retail

F-46

operation does not include the impact of any intercompany transfer pricing. The accounting policies of all operating segments are the same as those described in the summary of significant accounting policies in Note 1.

        The Company reports four segments: Wholesale / US Nutrition; North American Retail; European Retail; and Direct Response/Puritan's Pride. All of the Company's products fall into one or more of these four segments. The Wholesale / US Nutrition segment is comprised of several divisions, each targeting specific market groups which include wholesalers, distributors, chains, pharmacies, health food stores, bulk and international customers. The North American Retail segment generates revenue through its 476 owned and operated Vitamin World stores selling proprietary brand and third-party products and through its Canadian operation of 95 Company-owned Le Naturiste stores and 1 franchised Le Naturiste store. The European Retail segment generates revenue through its 596 Company-owned stores and 21 franchised stores. Such revenue consists of sales of proprietary brand and third-party products as well as franchise fees. The Direct Response/Puritan's Pride segment generates revenue through the sale of proprietary brand and third-party products primarily through mail order catalog and the Internet. Catalogs are strategically mailed to customers who order by mail, internet, or by phoning customer service representatives in New York, Illinois or the United Kingdom.

F-47

        The following table represents key financial information of the Company's business segments:

		2006			2005			2004
Wholesale/US Nutrition:
	Net sales	$	885,146		$	747,234		$	734,293
	Income from operations(a)	$	75,823		$	67,873		$	112,224
	Depreciation and amortization	$	10,159		$	9,923		$	10,474
	Capital expenditures	$	2,211		$	1,090		$	1,929
North American Retail:
	Net sales	$	234,215		$	224,008		$	216,431
	Income (loss) from operations(b)	$	332		$	(26,216	)	$	(120	)
	Depreciation and amortization	$	4,884		$	6,756		$	10,848
	Capital expenditures	$	2,116		$	4,082		$	7,682
	Stores open at end of period		572			643			557
European Retail:
	Net sales	$	564,933		$	566,140		$	495,808
	Income from operations	$	143,456		$	151,459		$	120,323
	Depreciation and amortization	$	11,174		$	13,175		$	12,370
	Capital expenditures	$	5,416		$	11,455		$	15,794
	Stores open at end of period		617			612			602
Direct Response/Puritan's Pride:
	Net sales	$	195,928		$	199,805		$	205,499
	Income from operations	$	52,748		$	52,254		$	65,265
	Depreciation and amortization	$	5,051		$	5,079		$	5,403
	Capital expenditures	$	1,231		$	385		$	260
Corporate/Manufacturing:
	Corporate expenses	$	(97,140	)	$	(107,684	)	$	(108,149	)
	Interest	$	(25,924	)	$	(26,475	)	$	(24,663	)
	Miscellaneous, net	$	3,532		$	8,051		$	4,125
	Depreciation and amortization—manufacturing	$	17,285		$	16,216		$	16,005
	Depreciation and amortization—other	$	7,495		$	7,134		$	6,580
	Capital expenditures—manufacturing	$	20,745		$	34,675		$	6,288
	Capital expenditures—other	$	3,589		$	19,829		$	10,747

F-48

18.    Segment Information

		2006			2005			2004
Consolidated totals:
	Net sales	$	1,880,222		$	1,737,187		$	1,652,031
	Income before provision for income taxes	$	152,827		$	119,262		$	169,005
	Depreciation and amortization	$	56,048		$	58,283		$	61,680
	Capital expenditures	$	35,308		$	71,516		$	42,700
Reconciliation to Income before provision for income taxes:
	Wholesale/US Nutrition—Income from operations(a)	$	75,823		$	67,873		$	112,224
	North American Retail—Income from operations(b)		332			(26,216	)		(120	)
	European Retail—Income from operations		143,456			151,459			120,323
	Direct Response/Puritan's Pride—Income from operations		52,748			52,254			65,265
	Corporate/Manufacturing—Corporate expenses		(97,140	)		(107,684	)		(108,149	)
	Corporate/Manufacturing—Interest		(25,924	)		(26,475	)		(24,663	)
	Corporate/Manufacturing—Miscellaneous, net		3,532			8,051			4,125
Income before provision for income taxes		$	152,827		$	119,262		$	169,005

(a)

Includes trademarked brand impairment charge of $10,450 and other impairments of $920 for the fiscal year ended September 30, 2006 (see Note 7).

(b)

Includes goodwill and property, plant and equipment impairment charges of $3,141, $11,204 and $2,603 for the fiscal years ended September 30, 2006, 2005 and 2004, respectively (see Note 7).

			2006		2005		2004
Net sales by location of customer
	United States		$	1,153,536	$	1,086,126	$	1,091,192
	United Kingdom			547,890		525,093		457,564
	Holland			43,717		42,168		39,007
	Ireland			17,385		15,950		12,816
	Canada			32,290		14,419		1,948
	Other foreign countries			85,404		53,431		49,504
		Consolidated net sales	$	1,880,222	$	1,737,187	$	1,652,031

F-49

			2006		2005
Long-lived assets—Property, plant and equipment, goodwill and other intangible assets
	United States		$	455,663	$	484,100
	United Kingdom			202,332		196,471
	Holland			12,868		13,412
	Ireland			8,190		7,155
	Canada			9,422		10,094
	Other foreign countries			3,090		4,368
		Consolidated long-lived assets	$	691,565	$	715,600

        The Company's identifiable assets by segment as of September 30, 2006 and 2005 are as follows:

	2006		2005
Wholesale/US Nutrition	$	469,875	$	549,631
North American Retail/Vitamin World		47,298		55,304
European Retail/Holland & Barrett/GNC (UK)		312,973		335,640
Direct Response/Puritan's Pride		64,784		69,269
Corporate/Manufacturing		409,380		472,458
Consolidated assets	$	1,304,310	$	1,482,302

        Approximately 35% and 34% of the Company's net sales for the fiscal years ended September 30, 2006 and 2005, respectively, were denominated in currencies other than U.S. dollars, principally British Pounds, Euros and Canadian Dollars. Approximately 31% of the Company's net sales for the fiscal year ended September 30, 2004 was denominated in currencies other than U.S. dollars, principally British Pounds and Euros. A significant weakening of such currencies versus the U.S. dollar could have a material adverse effect on the Company, as this would result in a decrease in the Company's consolidated operating results.

        Foreign subsidiaries accounted for the following percentages of assets and total liabilities as of September 30, 2006 and 2005:

	2006		2005
Total Assets	28	%	26	%
Total Liabilities	19	%	10	%

19.    Related Party Transactions

        An entity owned by a relative of a director and the Chief Executive Officer received sales commissions from the Company of $677, $693 and $732 in fiscal 2006, 2005 and 2004, respectively.

F-50

20.    Condensed Consolidating Financial Statements of Guarantors of Senior Subordinated Notes

        The 7¹/8% Notes are guaranteed by all of the Company's domestic subsidiaries. The Solgar domestic subsidiary became a guarantor of the 7¹/8% Notes effective July 1, 2006. See Note 9—Long-Term Debt, for additional information regarding the 7¹/8% Notes. The Company's domestic subsidiaries are wholly-owned by the Company. These guarantees are full, unconditional and joint and several. The following condensed consolidating financial information presents:

(1)

Condensed consolidating balance sheets as of September 30, 2006 and 2005, and statements of income and statements of cash flows for the fiscal years ended September 30, 2006, 2005 and 2004 of (a) NBTY Inc., the parent and issuer, (b) the guarantor subsidiaries, (c) the non-guarantor subsidiaries, and (d) the Company on a consolidated basis, and



(2)

Elimination entries necessary to consolidate NBTY Inc., the parent, with guarantor and non-guarantor subsidiaries.

        The condensed consolidating financial statements are presented using the equity method of accounting for investments in wholly-owned subsidiaries. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the Company's share of the subsidiaries' cumulative results of operations, capital contributions, distributions and other equity changes. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. This financial information should be read in conjunction with the consolidated financial statements and other notes related thereto.

F-51

NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2006

				Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
	Cash and cash equivalents			$	59,966		$	9,385	$	20,454		$	—		$	89,805
	Accounts receivable, net				—			72,932		16,222			—			89,154
	Intercompany				(808,655	)		165,124		643,531			—			—
	Inventories				—			284,717		76,729			(6,950	)		354,496
	Deferred income taxes				—			25,923		713			—			26,636
	Prepaid expenses and other
		current assets			—			25,221		17,040			—			42,261
			Total current assets		(748,689	)		583,302		774,689			(6,950	)		602,352
Property, plant and equipment, net					37,613			208,065		63,759			—			309,437
Goodwill					—			93,844		142,115			—			235,959
Other intangible assets, net					—			116,141		30,028			—			146,169
Other assets					—			10,354		39			—			10,393
Note Receivable—Intercompany					374,320			—		—			(374,320	)		—
Investments in subsidiaries					1,393,822			—		—			(1,393,822	)		—
	Total assets			$	1,057,066		$	1,011,706	$	1,010,630		$	(1,775,092	)	$	1,304,310
Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term debt			$	608		$	131	$	17,921		$	—		$	18,660
	Accounts payable				—			40,943		23,268			—			64,211
	Accrued expenses and other current liabilities				4,819			84,807		38,142			—			127,768
			Total current liabilities		5,427			125,881		79,331			—			210,639
Long-term debt, net of current portion					190,805			240		374,320			(374,320	)		191,045
Deferred income taxes					19,883			31,013		4,380			—			55,276
Other liabilities					1,519			3,179		3,220			—			7,918
			Total liabilities		217,634			160,313		461,251			(374,320	)		464,878
Commitments and contingencies
Stockholders' Equity:
	Common stock				538			—		—			—			538
	Capital in excess of par				138,777			352,019		301,272			(653,291	)		138,777
	Retained earnings				671,060			499,374		261,508			(760,882	)		671,060
	Accumulated other comprehensive income				29,057			—		(13,401	)		13,401			29,057
			Total stockholders' equity		839,432			851,393		549,379			(1,400,772	)		839,432
			Total liabilities and stockholders' equity	$	1,057,066		$	1,011,706	$	1,010,630		$	(1,775,092	)	$	1,304,310

F-52

NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2005

			Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
	Cash and cash equivalents		$	28,028		$	(2,085	)	$	41,339		$	—		$	67,282
	Investments			39,900			—			—			—			39,900
	Accounts receivable, net			—			54,241			18,985			—			73,226
	Intercompany			(477,810	)		40,242			437,568			—			—
	Inventories			—			386,503			107,771			(2,939	)		491,335
	Deferred income taxes			—			23,630			15			—			23,645
	Prepaid expenses and other current assets			—			28,694			25,775			—			54,469
		Total current assets		(409,882	)		531,225			631,453			(2,939	)		749,857
Property, plant and equipment, net				41,053			195,582			83,893			—			320,528
Goodwill				—			77,879			150,868			—			228,747
Other intangible assets, net				—			115,254			51,071			—			166,325
Other assets				—			16,816			29			—			16,845
Note Receivable—Intercompany				353,920			—			—			(353,920	)		—
Investments in subsidiaries				1,244,402			—			—			(1,244,402	)		—
	Total assets		$	1,229,493		$	936,756		$	917,314		$	(1,601,261	)	$	1,482,302
Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term debt		$	80,922		$	—		$	—		$	—		$	80,922
	Accounts payable			—			36,522			36,198			—			72,720
	Accrued expenses and other current liabilities			(8,790	)		83,680			45,597			—			120,487
		Total current liabilities		72,132			120,202			81,795			—			274,129
Long-term debt, net of current portion				428,204			—			353,920			(353,920	)		428,204
Deferred income taxes				11,890			43,384			1,818			—			57,092
Other liabilities				1,212			3,505			2,105			—			6,822
		Total liabilities		513,438			167,091			439,638			(353,920	)		766,247
Commitments and contingencies
Stockholders' equity:
	Common stock			537			—			—			—			537
	Capital in excess of par			138,657			352,019			301,272			(653,291	)		138,657
	Retained earnings			559,275			417,646			188,021			(605,667	)		559,275
	Accumulated other comprehensive income			17,586			—			(11,617	)		11,617			17,586
		Total stockholders' equity		716,055			769,665			477,676			(1,247,341	)		716,055
		Total liabilities and stockholders' equity	$	1,229,493		$	936,756		$	917,314		$	(1,601,261	)	$	1,482,302

F-53

NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 2006

		Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales		$	—		$	1,297,931		$	651,105		$	(68,814	)	$	1,880,222
Costs and expenses:
	Cost of sales		—			790,446			270,565			(68,814	)		992,197
	Advertising, promotion and catalog		—			85,051			18,563			—			103,614
	Selling, general and administrative		83,164			284,936			230,642			—			598,742
	Trademark impairment		—			10,450			—			—			10,450
			83,164			1,170,883			519,770			(68,814	)		1,705,003
Income from operations			(83,164	)		127,048			131,335			—			175,219
Other income (expense):
	Equity in income of subsidiaries		155,215			—			—			(155,215	)		—
	Intercompany interest		22,829			—			(22,829	)		—			—
	Interest		(25,658	)		(2	)		(264	)		—			(25,924	)
	Miscellaneous, net		1,451			(1,311	)		3,392			—			3,532
			153,837			(1,313	)		(19,701	)		(155,215	)		(22,392	)
Income before provision for income taxes			70,673			125,735			111,634			(155,215	)		152,827
(Benefit)/provision for income taxes			(41,112	)		44,007			38,147			—			41,042
Net income		$	111,785		$	81,728		$	73,487		$	(155,215	)	$	111,785

F-54

NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 2005

		Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales		$	—		$	1,182,266		$	606,715		$	(51,794	)	$	1,737,187
Costs and expenses:
	Cost of sales		—			702,560			244,878			(51,794	)		895,644
	Advertising, promotion and catalog		—			98,201			9,804			—			108,005
	Selling, general and administrative		92,217			285,241			210,708			—			588,166
	Goodwill impairment		—			7,589			97			—			7,686
			92,217			1,093,591			465,487			(51,794	)		1,599,501
Income from operations			(92,217	)		88,675			141,228			—			137,686
Other income (expense):
	Equity in income of subsidiaries		134,238			—			—			(134,238	)		—
	Intercompany interest		24,797			—			(24,797	)		—			—
	Interest		(25,129	)		(1,341	)		(5	)		—			(26,475	)
	Miscellaneous, net		(34	)		5,040			3,045			—			8,051
			133,872			3,699			(21,757	)		(134,238	)		(18,424	)
Income before provision for income taxes			41,655			92,374			119,471			(134,238	)		119,262
(Benefit)/provision for income taxes			(36,482	)		35,021			42,586			—			41,125
Net income		$	78,137		$	57,353		$	76,885		$	(134,238	)	$	78,137

F-55

NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 2004

		Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales		$	—		$	1,197,960	$	508,042		$	(53,971	)	$	1,652,031
Costs and expenses:
	Cost of sales		—			667,795		208,588			(53,971	)		822,412
	Advertising, promotion and catalog		—			75,203		10,035			—			85,238
	Selling, general and administrative		81,936			287,483		185,419			—			554,838
			81,936			1,030,481		404,042			(53,971	)		1,462,488
Income from operations			(81,936	)		167,479		104,000			—			189,543
Other income (expense):
	Equity in income of subsidiaries		166,746			—		—			(166,746	)		—
	Intercompany interest		21,680			—		(21,680	)		—			—
	Interest		(24,665	)		—		2			—			(24,663	)
	Miscellaneous, net		1,793			437		1,895			—			4,125
			165,554			437		(19,783	)		(166,746	)		(20,538	)
Income before provision for income taxes			83,618			167,916		84,217			(166,746	)		169,005
(Benefit)/provision for income taxes			(28,231	)		58,771		26,616			—			57,156
Net income		$	111,849		$	109,145	$	57,601		$	(166,746	)	$	111,849

F-56

NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED SEPTEMBER 30, 2006

					Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
	Net income				$	111,785		$	81,728		$	73,487		$	(155,215	)	$	111,785
	Adjustments to reconcile net income to net cash & cash equivalents provided by operating activities:
		Equity in earnings of subsidiaries				(155,215	)		—			—			155,215			—
		Provision relating to impairments and disposals of property, plant and equipment				97			3,032			1,291			—			4,420
		Depreciation and amortization				7,495			35,075			13,478			—			56,048
		Foreign currency transaction (gain)/ loss				(169	)		2,066			(46	)		—			1,851
		Amortization and write-off of deferred financing costs				3,975			—			—			—			3,975
		Amortization and write-off of bond discount				379			—			—			—			379
		Gain on extinguishment of debt				(425	)		—			—			—			(425	)
		Gain on settlement of interest rate SWAP				(353	)		—			—			—			(353	)
		Trademark impairment				—			10,450			—			—			10,450
		Provision for doubtful accounts				—			1,135			292			—			1,427
		Inventory reserves				—			8,453			455			—			8,908
		Excess income tax benefit from exercise of stock options				(15	)		—			—			—			(15	)
		Deferred income taxes				—			(10,361	)		(1,658	)		—			(12,019	)
		Changes in operating assets and liabilities:
			Accounts receivable			—			(13,398	)		(2,658	)		—			(16,056	)
			Inventories			—			128,476			2,993			—			131,469
			Prepaid expenses and other current assets			—			1,557			9,548			—			11,105
			Other assets			—			1,954			—			—			1,954
			Accounts payable			—			2,875			(7,727	)		—			(4,852	)
			Accrued expenses and other liabilities			13,610			(841	)		(9,857	)		—			2,912
				Net cash (used in) provided by operating activities		(18,836	)		252,201			79,598			—			312,963
Cash flows from investing activities:
	Intercompany accounts					327,737			(211,373	)		(116,364	)		—			—
	Purchase of property, plant and equipment					3,274			(32,164	)		(6,418	)		—			(35,308	)
	Proceeds from sale of property, plant and equipment					—			1,081			345			—			1,426
	Proceeds from sale of available-for-sale marketable securities					39,900			—			—			—			39,900
	Purchase price adjustment and settlements, net					—			1,845			—			—			1,845
	Purchase/ sale of intangible assets					—			(150	)		(328	)		—			(478	)
			Net cash provided by (used in) investing activities			370,911			(240,761	)		(122,765	)		—			7,385
Cash flows from financing activities:
	Principal payments under long-term debt agreements and capital leases					(312,074	)		(33	)		—			—			(312,107	)
	Proceeds from short-term borrowings					—			—			18,204			—			18,204
	Principal payments under the Revolving Credit Facility					(11,000	)		—			—			—			(11,000	)
	Proceeds from borrowings under the Revolving Credit Facility					5,000			—			—			—			5,000
	Proceeds from settlement of interest rate SWAP					353			—			—			—			353
	Excess income tax benefit from exercise of stock options					15			—			—			—			15
	Proceeds from stock options exercised					105			—			—			—			105
			Net cash (used in) provided by financing activities			(317,601	)		(33	)		18,204			—			(299,430	)
Effect of exchange rate changes on cash and cash equivalents						(2,536	)		63			4,078			—			1,605
Net increase (decrease) in cash and cash equivalents						31,938			11,470			(20,885	)		—			22,523
Cash and cash equivalents at beginning of year						28,028			(2,085	)		41,339			—			67,282
Cash and cash equivalents at end of year					$	59,966		$	9,385		$	20,454		$	—		$	89,805

F-57

NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED SEPTEMBER 30, 2005

					Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
	Net income				$	78,137		$	57,353		$	76,885		$	(134,238	)	$	78,137
	Adjustments to reconcile net income to cash and cash equivalents provided by operating activities:
		Equity in earnings of subsidiaries				(134,238	)		—			—			134,238			—
		Provision for impairments and disposals of property, plant and equipment				46			5,425			—			—			5,471
		Depreciation and amortization				7,095			36,866			14,322			—			58,283
		Foreign currency transaction (gain) / loss				264			(4,377	)		(173	)		—			(4,286	)
		Amortization of deferred financing costs				2,398			—			—			—			2,398
		Amortization of bond discount				152			—			—			—			152
		Loss on bond redemption				790			—			—			—			790
		Compensation expense for ESOP				2,583			—			—			—			2,583
		Impairment on asset held for sale				—			1,908			—			—			1,908
		Gain on sale of business assets				—			565			(2,564	)		—			(1,999	)
		Goodwill impairment				—			7,589			97			—			7,686
		(Recovery of) provision for doubtful accounts				—			(184	)		366			—			182
		Inventory reserves				—			9,479			21			—			9,500
		Excess income tax benefit from exercise of stock options				220			—			—			—			220
		Deferred income taxes				77			3,278			1,172			—			4,527
		Changes in operating assets and liabilities, net of acquisitions:
			Accounts receivable			—			27,577			1,777			—			29,354
			Inventories			—			(86,623	)		(811	)		—			(87,434	)
			Prepaid expenses and other current assets			—			669			(2,282	)		—			(1,613	)
			Other assets			—			(139	)		—			—			(139	)
			Accounts payable			—			(21,363	)		(7,156	)		—			(28,519	)
			Accrued expenses and other liabilities			(3	)		7,341			1,309			—			8,647
				Net cash (used in) provided by operating activities		(42,479	)		45,364			82,963			—			85,848
Cash flows from investing activities:
	Intercompany accounts					50,526			2,788			(53,314	)		—			—
	Purchase of property, plant and equipment					(5,880	)		(53,529	)		(12,107	)		—			(71,516	)
	Proceeds from sale of property, plant and equipment					11			265			22			—			298
	Proceeds from sale of property, plant and equipment held for sale					—			9,950			—			—			9,950
	Proceeds from sale of business assets					—			—			5,766			—			5,766
	Purchase of available-for-sale marketable securities					(39,900	)		—			—			—			(39,900	)
	Cash paid for acquisitions, net of cash acquired					(131,397	)		—			—			—			(131,397	)
	Purchase price dispute settlements, net					(12,794	)		—			4,558			—			(8,236	)
	Purchase / sale of intangible assets					—			30			(563	)		—			(533	)
	Purchase of industrial revenue bonds					(14,973	)		—			—			—			(14,973	)
				Net cash used in investing activities		(154,407	)		(40,496	)		(55,638	)		—			(250,541	)
Cash flows from financing activities:
	Principal payments under long-term debt agreements					(138,117	)		—			(427	)		—			(138,544	)
	Proceeds from borrowings under long-term debt agreements					132,950			—			—			—			132,950
	Proceeds from sale-leaseback					14,973			—			—			—			14,973
	Principal payments under the Revolving Credit Facility					(20,000	)		—			—			—			(20,000	)
	Proceeds from borrowings under the Revolving Credit Facility					26,000			—			—			—			26,000
	Bond issuance costs					(3,329	)		—			—			—			(3,329	)
	Proceeds from stock options exercised					225			—			—			—			225
	Proceeds from bond offering, net of discount					198,234			—			—			—			198,234
	Purchase of treasury stock					(176	)		—			—			—			(176	)
				Net cash provided by (used in) financing activities		210,760			—			(427	)		—			210,333
Effect of exchange rate changes on cash and cash equivalents						941			—			(1,050	)		—			(109	)
Net increase in cash and cash equivalents						14,815			4,868			25,848			—			45,531
Cash and cash equivalents at beginning of year						13,213			(6,953	)		15,491			—			21,751
Cash and cash equivalents at end of year					$	28,028		$	(2,085	)	$	41,339		$	—		$	67,282

F-58

NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED SEPTEMBER 30, 2004

					Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
	Net income				$	111,849		$	109,145		$	57,601		$	(166,746	)	$	111,849
	Adjustments to reconcile net income to cash and cash equivalents provided by operating activities:
		Equity in earnings of subsidiaries				(166,746	)		—			—			166,746			—
		Provision for impairments and disposals of property, plant and equipment				—			739			817			—			1,556
		Depreciation and amortization				6,605			42,476			12,599			—			61,680
		Foreign currency transaction (gain) / loss				(1,643	)		268			122			—			(1,253	)
		Amortization of deferred financing costs				3,955			—			—			—			3,955
		Amortization of bond discount				7			—			—			—			7
		Compensation expense for ESOP				4,090			—			—			—			4,090
		Provision for doubtful accounts				—			3,074			—			—			3,074
		Inventory reserves				—			16,070			—			—			16,070
		Excess income tax benefit from exercise of stock options				1,228			—			—			—			1,228
		Deferred income taxes				(1,158	)		9,830			95			—			8,767
		Changes in operating assets and liabilities:
			Accounts receivable			—			8,882			(470	)		(16,563	)		(8,151	)
			Inventories			—			(66,902	)		(5,986	)		—			(72,888	)
			Prepaid expenses and other current assets			—			(2,474	)		(1,621	)		—			(4,095	)
			Other assets			—			(1,937	)		—			—			(1,937	)
			Accounts payable			—			9,571			(2,378	)		—			7,193
			Accrued expenses and other liabilities			(678	)		(19,876	)		(7,218	)		16,563			(11,209	)
				Net cash (used in) provided by operating activities		(42,491	)		108,866			53,561			—			119,936
Cash flows from investing activities:
	Intercompany accounts					173,145			(99,577	)		(73,568	)		—			—
	Purchase of property, plant and equipment					(9,761	)		(16,968	)		(15,971	)		—			(42,700	)
	Proceeds from sale of property, plant and equipment					—			1,065			—			—			1,065
	Proceeds from sale of bond investment					4,158			—			—			—			4,158
				Net cash provided by (used in) investing activities		167,542			(115,480	)		(89,539	)		—			(37,477	)
Cash flows from financing activities:
	Principal payments under long-term debt agreements					(117,100	)		—			—			—			(117,100	)
	Payments for financing fees					(500	)		—			—			—			(500	)
	Proceeds from stock options exercised					1,881			—			—			—			1,881
				Net cash used in financing activities		(115,719	)		—			—			—			(115,719	)
Effect of exchange rate changes on cash and cash equivalents						1,375			—			4,287			—			5,662
Net increase (decrease) in cash and cash equivalents						10,707			(6,614	)		(31,691	)		—			(27,598	)
Cash and cash equivalents at beginning of year						2,506			(339	)		47,182			—			49,349
Cash and cash equivalents at end of year					$	13,213		$	(6,953	)	$	15,491		$	—		$	21,751

F-59

21.    Quarterly Results of Operations (Unaudited)

        The following is a summary of the unaudited quarterly results of operations for fiscal 2006 and 2005 (amounts may not equal fiscal year totals due to rounding):

	Quarter ended
Fiscal 2006:	December 31, 2005		March 31, 2006		June 30, 2006		September 30, 2006
Net sales	$	455,270	$	481,743	$	475,297	$	467,912
Gross profit		209,321		230,612		218,703		229,389
Income before income taxes		30,663		29,913		40,960		51,290
Net income		22,920		21,300		29,901		37,663
Net income per basic share	$	.34	$	.32	$	.44	$	.56
Net income per diluted share	$	.33	$	.31	$	.43	$	.54

	Quarter ended
Fiscal 2005:	December 31, 2004		March 31, 2005		June 30, 2005		September 30, 2005
Net sales	$	420,269	$	442,714	$	438,986	$	435,218
Gross profit		208,315		216,633		218,026		198,568
Income before income taxes		45,429		31,713		27,443		14,677
Net income		29,893		20,867		15,966		11,412
Net income per basic share	$	.45	$	.31	$	.24	$	.17
Net income per diluted share	$	.43	$	.30	$	.23	$	.17

        Income before income taxes and Net income amounts above include an inventory valuation adjustment ($1,983) for the fourth quarter of fiscal 2006 and impairment charges recorded in each respective quarter as follows (see Note 7):

	Quarter ended
Fiscal 2006:	December 31, 2005		March 31, 2006		June 30, 2006		September 30, 2006
Impairment charges	$	3,560	$	10,209	$	6	$	736

	Quarter ended
Fiscal 2005:	December 31, 2004		March 31, 2005		June 30, 2005		September 30, 2005
Impairment charges	$	—	$	—	$	10,989	$	215

22.    Subsequent Events

        On August 13, 2006, the Company entered into a purchase agreement to acquire 100% of the stock of Zila Nutraceuticals, Inc. ("ZNI"), a division of Zila, Inc. ("Zila"), for $37,500 in cash and up to a $3,000 contingent cash payment which is based upon the EBITDA performance of ZNI during the one-year period following the closing. The $37,500 purchase price includes an estimated $6,800 of working capital and is subject to a post-closing adjustment based on the final ZNI working capital at closing. ZNI manufactures and markets Ester-C®, which is known throughout multiple markets

F-60

including health food stores and mass market retailers. This acquisition represents an opportunity for the Company to enhance its presence in key markets. ZNI had approximately $21,000 in net revenue for the twelve months ended July 31, 2006. On September 27, 2006, Zila shareholders approved this transaction and on October 2, 2006, the Company completed this acquisition. The $37,500 purchase price was paid by the Company out of cash on hand.

        On November 3, 2006, the Company entered into a Revolving Credit Agreement (the "Credit Agreement") with JP Morgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and Bank of America, N.A., BNP Paribas, Citibank, N.A., and HSBC Bank USA, National Association, as Co-Syndication Agents. The Credit Agreement provides for revolving credit loans in the aggregate principal amount of up to $325,000 to be used for (a) the repayment of all obligations outstanding under the Company's prior credit agreement (which consisted solely of commitment fees since the Company had previously repaid all amounts borrowed under the prior credit agreement), (b) working capital and other general corporate purposes, and (c) acquisitions. In connection with the Credit Agreement, the Company's prior credit agreement was terminated. The terms and requirements of the Credit Agreement are substantially the same as the prior credit agreement. The Company's obligations under the Credit Agreement are secured by substantially all of its assets and are guaranteed by certain subsidiaries of the Company, in each case to the extent set forth in the Guarantee and Collateral Agreement (the "Guarantee") that was entered into on November 3, 2006.

        In September 2006, the Company entered into a multicurrency term facility agreement with JP Morgan Chase Bank. The facility matures on December 29, 2006. The Company is currently in the process of amending the terms of the facility agreement to extend such maturity from 90 days to two years.

F-61

SCHEDULE II
NBTY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the years ended September 30, 2006, 2005 and 2004

Column A		Column B		Column C					Column D			Column E
				Additions
Description		Balance at beginning of period		Charged to costs and expenses		Charged to other accounts			Deductions			Balance at end of period
		(Dollars in thousands)
Fiscal year ended September 30, 2006:
	Inventory reserves	$	13,956	$	8,908	$	—		$	(11,845	)	$	11,019
	Allowance for doubtful accounts	$	9,155	$	1,427	$	—		$	(221	)(a)	$	10,361
	Promotional program incentive allowance	$	43,837	$	137,138	$	—		$	(150,536	)	$	30,439
	Allowance for sales returns	$	15,616	$	28,113	$	—		$	(32,951	)(b)	$	10,778
	Valuation allowance for deferred tax assets	$	9,245	$	1,315	$	—		$	(3,207	)	$	7,353
Fiscal year ended September 30, 2005:
	Inventory reserves	$	17,562	$	9,500	$	—		$	(13,106	)	$	13,956
	Allowance for doubtful accounts	$	9,389	$	182	$	—		$	(416	)(a)	$	9,155
	Promotional program incentive allowance	$	37,495	$	142,999	$	383	(c)	$	(137,040	)	$	43,837
	Allowance for sales returns	$	9,108	$	45,444	$	143	(c)	$	(39,079	)(b)	$	15,616
	Valuation allowance for deferred tax assets	$	6,614	$	1,648	$	1,133	(c)	$	(150	)	$	9,245
Fiscal year ended September 30, 2004:
	Inventory reserves	$	4,648	$	16,070	$	—		$	(3,156	)	$	17,562
	Allowance for doubtful accounts	$	7,100	$	3,074	$	—		$	(785	)(a)	$	9,389
	Promotional program incentive allowance	$	23,185	$	72,666	$	—		$	(58,356	)	$	37,495
	Allowance for sales returns	$	7,313	$	42,041	$	—		$	(40,246	)(b)	$	9,108
	Valuation allowance for deferred tax assets	$	5,452	$	2,269	$	—		$	(1,107	)	$	6,614

(a)

Uncollectibe accounts written off.

(b)

Represents actual product returns.

(c)

Represents the opening balance sheet allowances from the Le Naturiste, SISU and Solgar acquisitions.

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 11, 2006

        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 Scott Rudolph	Chairman and Chief Executive Officer (Principal Executive Officer)	December 11, 2006
/s/  HARVEY KAMIL Harvey Kamil	President and Chief Financial Officer (Principal Operating Officer, Principal Financial and Accounting Officer)	December 11, 2006
/s/  ARTHUR RUDOLPH Arthur Rudolph	Director	December 11, 2006
/s/  ARAM G. GARABEDIAN Aram G. Garabedian	Director	December 11, 2006
/s/  MURRAY DALY Murray Daly	Director	December 11, 2006
/s/  GLENN COHEN Glenn Cohen	Director	December 11, 2006

/s/  MICHAEL L. ASHNER Michael L. Ashner	Director	December 11, 2006
/s/  MICHAEL C. SLADE Michael C. Slade	Director	December 11, 2006
/s/  PETER WHITE Peter White	Director	December 11, 2006
/s/  NEIL KOENIG Neil Koenig	Director	December 11, 2006

QuickLinks

DOCUMENTS INCORPORATED BY REFERENCE.
NBTY, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2006 TABLE OF CONTENTS
PART I
PART II
DIVIDEND POLICY
PRICE RANGE OF COMMON STOCK
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
PART III
PART IV
NBTY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
NBTY, Inc. and Subsidiaries Consolidated Balance Sheets September 30, 2006 and 2005 (dollars and shares in thousands, except per share amounts)
NBTY, Inc. and Subsidiaries Consolidated Statements of Income Years Ended September 30, 2006, 2005 and 2004 (dollars and shares in thousands, except per share amounts)
NBTY, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years Ended September 30, 2006, 2005 and 2004 (dollars in thousands)
NBTY, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Continued) Years Ended September 30, 2006, 2005 and 2004 (dollars in thousands)
NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements Years Ended September 30, 2006, 2005 and 2004 (dollars and shares in thousands, except per share amounts)
NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF SEPTEMBER 30, 2006
NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF SEPTEMBER 30, 2005
NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF INCOME YEAR ENDED SEPTEMBER 30, 2006
NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF INCOME YEAR ENDED SEPTEMBER 30, 2005
NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF INCOME YEAR ENDED SEPTEMBER 30, 2004
NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FISCAL YEAR ENDED SEPTEMBER 30, 2006
NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FISCAL YEAR ENDED SEPTEMBER 30, 2005
NBTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FISCAL YEAR ENDED SEPTEMBER 30, 2004
SCHEDULE II NBTY, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts For the years ended September 30, 2006, 2005 and 2004
SIGNATURES

EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BY-LAWS

OF

NBTY, INC.

ARTICLE I - OFFICES

SECTION 1. REGISTERED OFFICE. - The registered office shall be established and maintained at 2711 Centerville Road, Suite 400, Wilmington, County of New Castle in the State of Delaware.

SECTION 2. OTHER OFFICES. - The corporation may have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the corporation may require.

ARTICLE II - MEETING OF STOCKHOLDERS

SECTION 1. ANNUAL MEETINGS. - Annual meetings of stockholders for the election of directors, and for such other business as may be stated in the notice of the meetin g, shall be held at such place, either within or without the State of Delaware, and at such times and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting.

At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting (a) by, or at the direction of, the presiding officer of the annual meeting or (b) by any stockholder of the corporation who complies with the notice procedures set forth in this Section. For a proposal to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof, in writing to the Secretary of the corporation. To be timely, stockholder’s notice must be delivered to, or mailed by registered or certified mail, return receipt requested, and received at, the principal executive offices of the corporation not less than 60 days nor more than 90 days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that, if less than 70 days’ notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder, to be timely, must be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A stockholder’s notice to the Secretary shall set forth, as to each matter the stockholder proposes to bring before the annual meeting, (a) a brief description of the proposal desired to be brought before the an nual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the corporation’s books, of the stockholder proposing

such business and any other stockholders known by such stockholder to be supporting such proposal, (c) the class and number of shares of the corporation’s stock that are beneficially owned by the stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (d) any financial interest of the stockholder in such proposal.

The presiding officer of the annual meeting shall determine and declare at the annual meeting whether a stockholder proposal was made in accordance with the terms of this Section. If the presiding officer determines th at a stockholder proposal was not made in accordance with the terms of this Section, he or she shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting.

No business shall be conducted at an annual meeting, except in accordance with the procedures set forth in this Section. Nothing contained in this Section shall preclude the corporation from excluding from any proxy materials, to the extent permitted by the laws of the State of Delaware, any stockholder proposal of a type described in Rule 14a-8(c) under the Securities Exchange Act of 1934, as amended, or any successor or similar provision.

SECTION 2. SPECIAL MEETINGS. - Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by law or by the Certificate of Incorporation, may be called at any time by a majority of the entire Board of Directors, the Chairman of the Board of Directors or the President of the corporation. Special meetings of the stockholders of the corporation may not be called by any other person or persons. Special meetings may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting. No business may be transacted at such meeting except that referred to in the notice thereof.

SECTION 3. CONDUCT OF MEETINGS. - The Board of Directors may adopt by resolution such rules and regulations for the conduct of meetings of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the presiding officer of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding officer, are appropriate for the proper conduct of the meeting. Such rules, regulations and procedures, whether adopted by the Board of Directors or prescribed by the presiding officer of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to st ockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the presiding officer of the meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (e) limitations on the time allotted to questions and/or comments by participants. Unless and to the extent determined by the Board of Directors or the presiding officer of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

SECTION 4. VOTING. - Each stockholder entitled to vote in accordance with the terms and provisions of the Certificate of Incorporation and these By-Laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder. The vote for directors and upon any question before the meeting shall be by ballot. All elections for directors shall be deiced by plurality vote; all other questions shall be decided by majority affirmative vote, except as otherwise provided by the Certificate of Incorporation or required by the laws of the State of Delaware.

SECTION 5. PROXIES. - Any stockholder entitle d to vote at a meeting of stockholders may authorize another person or persons to act for him, her or it by proxy, but no such proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for him, her or it as proxy, the foregoing shall constitute a valid means by which a stockholder may grant such authority; (a) a stockholder may execute a writing authorizing another person or persons to act for him, her or it as proxy; execution may be accomplished by the stockholder or his, her or its authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature; and (b) a stockholder may authorize another person or persons to act for him, her or it as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other me ans of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission,  provided that such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. It if is determined that such telegrams,  cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission required by the above may be submitted or used in lieu of the original writing or transmission for any and all purposes for which the original w riting or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction is a complete reproduction of the entire original writing or transmission.

A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally.

SECTION 6. STOCKHOLDER LIST. - The officer who has charge of the stock ledger of the corporation shall at least 10 days before each meeting of the stockholders prepare a complete alphabetical addressed list of the stockholders entitled to vote at the ensuing election, with the number of shares held by each. Said list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at

the place where the meeting is to be held. The list shall be available for inspection at the meeting.

SECTION 7. QUORUM; ADJOURNMENT. - Except as otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, the presiding officer of the meeting or a majority in interest of the stockholders entitled to vote thereat present in person or by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote shall be present. At any such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof. In addition, the Board of Directors may adjourn a meeting of the stockholders if the Board of Directors determines that adjournment is necessary or appropriate in order to enable the stockholders (a) to consider fully information that the Board of Directors determine has not been made sufficiently or timely available to stockholders or (b) to otherwise effectively exercise their voting rights.

SECTION 8. NOTICE OF MEETINGS. - Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his, her or its address as it appears on the records of the corporation, not less than 10 nor more than 60 days before the date of the meeting.

SECTION 9. ACTION WITHOUT MEETING. - Except as otherwise provided by the Certificate of Incorporation, whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or the Certi ficate of Incorporation or of these By-Laws, the meeting and vote of stockholders may be dispensed with if all the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken.

ARTICLE III - DIRECTORS

SECTION 1. NUMBER AND TERM. - The number of directors shall be at least three and not more than eleven, unless otherwise set by a resolution passed by a vote of Directors comprising seventy-five (75%) percent of the Board of Directors. The Board of Directors of the Company shall be divided into three classes of directors, in such manner as the Board of Directors in its sole discretion may determine, each class to be elected in annual sequences for terms of three years each after the implementation of the classes (or until their successors are duly elected and qualified). Until fully implemented, the term of the office of the first class shall expire at the annual meeting next ensuing; of the second class one year thereafter; of the third class two years thereafter; and at each annual election held after such classification and election, directors shall be chosen for a full term of three years. Vacancies which occur during the year may be filled by a majority of the Board of Directors in accordance with Section 6 of this Article III.

SECTION 2. NOMINATIONS. - Nominations of persons for election to the Board of Directors may be made at an annual meeting of stockholders (a) by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board of Directors or (b) by any stockholder of the Corporation entitled to vote for the election of directors at the annual meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to, or mailed, by registered or certified mail, return receipt requested, and received at, the principal executive offices of the corporation not less than 60 days nor more than 90 days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of the annual meeting to a later date; provided, however, that, if less than 70 days’ notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder, to be timely, must be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A stockholder’s notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation that are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for the election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or any successor or similar provision, and (b) as to the stockholder giving notice, (i) the name and address, as they appear on the corporation’s books, of the stockholder, and (ii) the class and number of shares of the corporation’s stock that are beneficially owned by the stockholder on the date of such stockholder notice. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section.

The presiding officer of the annual meeting shall determine, in his sole discretion, and declare at the annual meeting whether the nomination was made in accordance with the terms of this Section. If the presiding officer determines that a nomination was not made in accordance with the terms of this Section, he or she shall so declare at the annual meeting and any such defective nomination shall be disregarded.

SECTION 3. RESIGNATIONS. - Any director, member of a committee or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the ti me of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective.

SECTION 4. REMOVAL. - Any director or directors may be removed for cause at any time by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote, at a special meeting of the stockholders called for the purpose.

SECTION 5. INCREASE OF NUMBER. - The number of directors may be increased by amendment of these By-Laws by the affirmative vote of seventy-five (75%) percent of the entire Board of Directors.

SECTION 6. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. - Newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification or removal from office for cause shall be filled only by the affirmative vote of seventy-five (75%) percent of the directors then in office, and directors so chosen shall hold office for a term expir ing at the annual meeting of stockholders at which time the term of office of the class to which they have been elected expires and until such director’s successor shall have been duly elected and qualified. If the office of any member of a committee becomes vacant, the remaining directors in office, though less than a quorum, by the affirmative vote of at least a majority of such directors, may appoint any qualified person to fill such vacancy.

SECTION 7. COMPENSATION. - Unless otherwise restricted by the Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors any may be paid a fixed s um for attendance at each meeting of the Board of Directors and/or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

SECTION 8. ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if, prior to such action, a written consent thereto is signed by all members of the Board of Directors, or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or s uch committee.

ARTICLE IV — OFFICERS

SECTION 1. OFFICERS — The officers of the Corporation shall consist of a Chief Executive Officer and a Secretary, to be appointed by the Board of Directors. In addition, the Board of Directors, in its sole discretion, may elect a Chairman, appoint a President, a Chief Financial Officer, one or more Vice Presidents and such Treasurers, Assistant Secretaries and/or other officers. None of the officers of the Corporation need be directors. The officers shall be appointed at the first meeting of the Board of Directors after each annual meeting of stockholders of the Corporation and shall hold office until their respective successors are appointed and qualified, or until their earlier death, resignation, retirement, disqualification or removal. More than one office may be held by the same person at the same time.

SECTION 2. OTHER OFFICERS AND AGENTS — The Board of Directors may appoint such officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such power and perform such duties as shall be determined from time to

time by the Board of Directors.

SECTION 3. CHAIRMAN — The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors. The Chairman shall have and perform such other duties as from time to time may be assigned to him by the Board of Directors.

SECTION 4. CHIEF EXECUTIVE OFFICER — The Chief Executive Officer shall have general supervision, direction and control of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall preside at all meetings of the stockholders if present thereat, and in the absence or non-election of the Chairman of the Board of Directors, at all meetings of the Board of Directors. Except as the Board of Directors shall authorize the execution thereof in some other manner, the Chief Executive Officer shall execute bonds, mortgages, and other contracts on behalf of the Corporation, and shall cause the seal to be affixed to any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary, a Treasurer or an Assistant Secretary, if so required.

SECTION 5. PRESIDENT — The President shall have the general powers and duties of supervision and management usually vested in the office of President of a Corporation. In the absence of the Chief Executive Officer, he shall preside at all meetings of the stockholders if present thereat. He shall possess the same authority as the Chief Executive Officer to execute bonds, mortgages, and other contracts on behalf of the Corporation, and shall cause the seal to be affixed to any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary, a Treasurer or an Assistant Secretary, if so required.

SECTION 6. CHIEF FINANCIAL OFFICER — The Chief Financial Officer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the Corporation. He shall deposit all moneys and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors.

The Chief Financial Officer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, the Chief Executive Officer or the President, taking proper vouchers for such disbursements. He shall render to the Chief Executive Officer, the President and the Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his transactions as Chief Financial Officer and of the financial condition of the Corporation. If required by the Board of Directors, he shall give the Corporation a bond for the faithful discharge of his duties in such amount and with such surety as the Board of Directors shall prescribe.

SECTION 7. VICE-PRESIDENT — Each Vice-President shall have such power and shall perform such duties as shall be assigned to him by the Board of Directors.

SECTION 8. SECRETARY — The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these

By-Laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, or by the Board of Directors, or stockholders, upon whose requisition the meeting is called as provided in these By-Laws. He shall record all the proceedings of the meeting of the Corporation and of directors in a book to be kept for that purpose. He shall keep in safe custody the seal of the Corporation, and when authorized by the Board of Directors, affix the same to any instrument requiring it, and when so affixed, it shall be attested by his signature or by the signature of any Assistant Secretary, if so required.

SECTION 9. TREASURERS, ASSISTANT TREASURERS & ASSISTANT SECRETARIES. – Treasurers, Assistant Treasurers and Assistant Secretaries shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the Board of Directors.

ARTICLE V - MISCELLANEOUS

SECTION 1. CERTIFICATES OF STOCK. - Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice-President and the Treasurer or an Assistant Treasurer, or the Secretary of the corporation, certifying the number of shares owned by him, her or it in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special r ights of each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class of series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Where a certificate is countersigned (a) by a transfer agent other than the corporation or its employee or (b) by a registra r other than the corporation or its employee, the signature of such officers may be facsimiles.

SECTION 2. LOST CERTIFICATES. - New certificates of stock may be issued in the place of any certificate previously issued by the corporation, alleged to have been lost or destroyed, and the directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the corporation a bond, in such sum as they may direct, not exceeding double the value of the stock, to indemnify the corporation against it on account of the alleged loss of any such new certificate.

SECTION 3. TRANSFER OF SHARES. - The shares of stock of the corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the corporation by the delivery thereof to the person in charge of the stock and transfer books

and ledgers, or to such other persons as the directors may designate, by who they shall be canceled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer.

SECTION 4. STOCKHOLDERS RECORD DATE. - In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or al lotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 days nor less than 10 days before the day of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

SECTION 5. DIVIDENDS. - Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available there for at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Before declaring any dividends there may be set apart out of any funds of the corporation available for dividends, such sum or sums as directors from time to time in their discretion deem proper working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interest of the corporation.

SECTION 6. SEAL. - The corporate seal shall be circular in form and shall contain the name of the corporation, the year of its creation and the words “CORPORATE SEAL DELAWARE.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.

SECTION 7. FISCAL YEAR. - The fiscal year of the corporation shall be determined by resolution of the Board of Directors.

SECTION 8. CHECKS. - All checks, drafts, or other orders for the payment of money, notes or other evidence of indebtedness issued in the name of the corporation shall be signed by the officer or officers, agent or agents of the corporation, and in such manner as shall be determined from time to time by resolution of the Board of Dir ectors.

SECTION 9. NOTICE AND WAIVER OF NOTICE. - Whenever, under applicable law or the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder, such notice may be given by person, in writing, or by mail, telegram, facsimile, telecommunication or other electronic transmission, addressed to such director or stockholder, at his, her or its address as it appears on the records of the corporation. Notice shall be deemed to be given at the time when the same shall be (a) personally delivered, (b) guaranteed to be delivered, if transmitted timely to a third party company or governmental entity

providing delivery services in the ordinary course of business, (c) deposited in the United States mail, postage prepaid, or (d) when electronically telecommunicated, each as the case may be. Notice to directors also may be given by telegram, telephone or mailgram.

Whenever any notice is required to be given under applicable law or the Certificate of Incorporation or these By-Laws, a waiver thereof, in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwis e provided by statute.

SECTION 10. INVALID PROVISIONS. - If any part of these By-Laws shall be held invalid or inoperative for any reason, the remaining parts, so far as it is possible and reasonable, shall remain valid and operative.

SECTION 11. INDEMNIFICATION. - In addition to any other available rights, the Corporation shall, to the fullest extent permitted by Delaware law, advance the reasonable expenses incurred by any person prior to the fin al disposition of any action for which indemnification is available under Article SIXTH of the Restated Certificate of Incorporation of the Corporation. As a condition precedent to such advancement, such person shall provide the Corporation with a written undertaking to repay the amounts advanced if it is ultimately determined that such person is not entitled to indemnification under Article SIXTH of the Restated Certificate of Incorporation of the Corporation.

ARTICLE VI - AMENDMENTS

These By-La ws may be altered and repealed and By-Laws may be made at any annual meeting of the stockholders, or at any special meeting thereof if notice thereof is contained in the notice of such special meeting, by the affirmative vote of seventy-five (75%) percent of the stock issued and outstanding or entitled to vote thereat. These By-Laws may be altered and repealed and By-Laws may be made at any regular meeting of the Board of Directors, or at any special meeting thereof of notice thereof is contained in the notice of such special meeting, by the affirmative vote of seventy-five (75%) percent of the entire Board of Directors.

EX-10.8

Exhibit 10.8

FIFTH AMENDMENT TO EXECUTIVE CONSULTING AGREEMENT

This Fifth Amendment to Executive Consulting Agreement is made as of the 1^st day of January, 2007, by and between NBTY, Inc. (the “Company”) and RUDOLPH MANAGEMENT ASSOCIATES, INC., a Florida corporation (“RMA”).

W I T N E S S E T H:

WHEREAS, the Company and RMA entered into that certain Executive Consulting Agreement, dated as of January 1, 2002 (as amended by the First Amendment, the Second Amendment, the Third Amendment, and the Fourth Amendment, the “Agreement”);

WHEREAS, the term of the Agreement expires on December 31, 2006 (the “Term”);

WHEREAS, the Compensation Committee of the Company (the “Committee”) met on October 10, 2006, with all members of the Committee present to consider whether to extend the Term of the Agreement;

WHEREAS, the Committee decided to extend the Term of the Agreement; and

WHEREAS, RMA and ARTHUR RUDOLPH desire to continue to make their respective services as an Executive Consultant available to the Company.

NOW, THEREFORE, in consideration of the mutual promises hereafter contained and for other good and valuable consideration, the parties agree as follows:

1.             Term. Section 1 of the Agreement is hereby amended and restated to read in its entirety 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, 2007 through December 31, 2007 (the “Term”).”

2.             Continuity. Except as otherwise expressly amended by this Fifth Amendment, the Agreement shall continue in full force and effect.

3.             Governing Law; Counterparts. This Amendment shall be construed and enforced according to the laws of the State of New York. This Amendment may be executed in any number of counterparts, each of which shall be considered an original for all purposes, and all of which when taken together constitute a single counterpart instrument.

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

RUDOLPH MANAGEMENT	NBTY, INC.
ASSOCIATES, INC.

By:	/s/ Arthur Rudolph	By:	/s/ Harvey Kamil
	Arthur Rudolph		Harvey Kamil
	President		President

Agreed and Consented:

/s/ Arthur Rudolph

ARTHUR RUDOLPH, individually

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EX-10.14

Exhibit 10.14

$18,000,000

FACILITY AGREEMENT

dated 20 September 2006

for

GOOD ‘N’ NATURAL LIMITED

as Borrower

with

JPMORGAN CHASE BANK, N.A., LONDON BRANCH

as Lender

MULTICURRENCY TERM FACILITY AGREEMENT

JPMorgan Chase Bank, N.A.
125 London Wall
London EC2Y 5AJ

CONTENTS

Clause		Page
1.	Definitions And Interpretation	1
2.	The Facility	7
3.	Purpose	7
4.	Conditions Of Utilisation	7
5.	Utilisation	7
6.	Repayment	8
7.	Prepayment And Cancellation	8
8.	Interest	10
9.	Interest Periods	11
10.	Changes To The Calculation Of Interest	12
11.	Tax Gross Up And Indemnities	12
12.	Increased Costs	14
13.	Other Indemnities	15
14.	Mitigation By The Lender	16
15.	Costs And Expenses	17
16.	Representations	17
17.	Information Undertakings	19
18.	General Undertakings	20
19.	Events Of Default	22
20.	Changes To The Lender	24
21.	Changes To The Borrower	26
22.	Conduct Of Business By The Lender	26
23.	Payment Mechanics	26
24.	Set-Off	29
25.	Notices	29
26.	Calculations And Certificates	30
27.	Partial Invalidity	31
28.	Remedies And Waivers	31
29.	Amendments And Waivers	31
30.	Counterparts	31
31.	Governing Law	31

32.	Enforcement			32
Schedule 1			CONDITIONS PRECEDENT	33
Schedule 2			REQUESTS	34
		Part A Utilisation Request		34
		Part B Selection Notice		36
Schedule 3			MANDATORY COST FORMULAE	38
Schedule 4			TIMETABLES	40

THIS AGREEMENT is dated [                                    ] September 2006 and made between:

(1)GOOD ‘N’ NATURAL LIMITED,  a limited liability company registered at Companies House with registered number 5907954 and with its registered address at Samuel Ryder House, Townsend Drive, Attleborough Fields, Nuneaton, Warwickshire, CV11 6XW as borrower (the “Borrower”); and

(2)JPMORGAN CHASE BANK, N.A., LONDON BRANCH as lender (the “Lender”).

IT IS AGREED as follows:

1.DEFINITIONS AND INTERPRETATION

1.1Definitions

In this Agreement:

“Additional Cost Rate” has the meaning given to it in Schedule 3 (Mandatory Cost formulae).

“Affiliate” means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company.

“Authorisation” means an authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration.

“Availability Period” means the period from and including the date of this Agreement to and including 6 October 2006.

“Available Facility” means the amount of the Facility, minus:

(a)the Base Currency Amount of any outstanding Loans; and

(b)in relation to any proposed Utilisation, the Base Currency Amount of any Loans that are due to be made on or before the proposed Utilisation Date.

“Base Currency” means dollars.

“Base Currency Amount” means, in relation to a Loan, the amount specified in the Utilisation Request for that Loan (or, if the amount requested is not denominated in the Base Currency, that amount converted into the Base Currency at the Lender’s Spot Rate of Exchange on the date which is three Business Days before the Utilisation Date or, if later, on the date the Lender receives the Utilisation Request) adjusted to reflect any repayment (other than a repayment arising from a change of currency), prepayment, consolidation or division of the Loan.

“Break Costs” means the amount (if any) by which:

(a)the interest which the Lender should have received for the period from the date of receipt of all or any part of a Loan or Unpaid Sum to the last day of

1

the current Interest Period in respect of that Loan or Unpaid Sum, had the principal amount or Unpaid Sum received been paid on the last day of that Interest Period;

exceeds:

(b)the amount which the Lender would be able to obtain by placing an amount equal to the principal amount or Unpaid Sum received by it on deposit with a leading bank in the Relevant Interbank Market for a period starting on the Business Day following receipt or recovery and ending on the last day of the current Interest Period.

“Business Day” means a day (other than a Saturday or Sunday) on which banks are open for general business in London and in relation to any date for payment or purchase of any amount denominated in dollars, New York.

“Default” means an Event of Default or any event or circumstance specified in Clause 19 (Events of Default) which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an Event of Default.

“Event of Default” means any event or circumstance specified as such in Clause 19 (Events of Default).

“Facility” means the term loan facility in an aggregate amount of $18,000,000 made available under this Agreement as described in Clause 2 (The Facility) to the extent not cancelled, reduced or transferred under this Agreement.

“Facility Office” means the office or offices identified with the Lender’s signature below or such other office as it may from time to time select by notice to the Borrower as the office or offices through which it will perform its obligations under this Agreement.

“Finance Document” means this Agreement and any other document designated as such by the Lender and the Borrower.

“Financial Indebtedness” means any indebtedness for or in respect of:

(a)moneys borrowed;

(b)any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent;

(c)any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

(d)the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP, be treated as a finance or capital lease;

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(e)receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);

(f)any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing;

(g)any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account);

(h)any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution;

(i)any amount raised by the issue of redeemable shares;

(j)any amount of any liability under an advance or deferred purchase agreement if one of the primary reasons behind the entry into this agreement is to raise finance; and

(k)(without double counting) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (j) above.

“GAAP” means generally accepted accounting principles in England and Wales.

“Guarantee” means the guarantee dated on or about the date of this Agreement, provided by the Guarantor in favour of the Lender in relation to all of the obligations of the Borrower under the Finance Documents.

“Guarantor” means NBTY, Inc. a corporation incorporated in the state of New York, with its address at 90 Orville Drive, Bohemia, NY 11716, United States.

“Guarantor Credit Agreement” means the US$125,000,000 second amended and restated credit agreement dated as of 24 July 2003 (as amended and restated on 19 December 2003 and further amended and restated as of 1 August 2005 and further amended or restated from time to time (which shall be deemed to include any documentation executed to refinance the credit facilities made available to the Guarantor pursuant to such agreement)) between, inter alia, the Guarantor as borrower, the Lender as Administrative Agent and Collateral Agent and Bank of America, N.A. as syndication agent.

“Holding Company” means, in relation to a company or corporation, any other company or corporation in respect of which it is a Subsidiary.

“Interest Period” means, in relation to a Loan, each period determined in accordance with Clause 9 (Interest Periods) and, in relation to an Unpaid Sum, each period determined in accordance with Clause 8.3 (Default interest).

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“Lender’s Spot Rate of Exchange” means the Lender’s spot rate of exchange for the purchase of the relevant currency with the Base Currency in the London foreign exchange market at or about 11:00 a.m. on a particular day.

“LIBOR” means in relation to any Loan and any Interest Period, the rate per annum at which the Lender was offering to prime banks in the London Interbank Market deposits in dollars for such period at or about 11.00 a.m. (London time) on the Quotation Date for such Interest Period.

“Loan” means a loan made or to be made under the Facility or the principal amount outstanding for the time being of that loan.

“Mandatory Cost” means the percentage rate per annum calculated by the Lender in accordance with Schedule 3 (Mandatory Cost formulae).

“Margin” means 1.25 per cent. per annum.

“Material Adverse Effect” means a material adverse effect on:

(a)the business, operations, property, condition (financial or otherwise) or prospects of the Borrower;

(b)the ability of the Borrower to perform its obligations under the Finance Documents; or

(c)the validity or enforceability of the Finance Documents or the rights or remedies of the Lender under the Finance Documents.

“Month” means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that:

(a)(subject to paragraph (c) below) if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that calendar month in which that period is to end if there is one, or if there is not, on the immediately preceding Business Day;

(b)if there is no numerically corresponding day in the calendar month in which that period is to end, that period shall end on the last Business Day in that calendar month; and

(c)if an Interest Period begins on the last Business Day of a calendar month, that Interest Period shall end on the last Business Day in the calendar month in which that Interest Period is to end.

The above rules will only apply to the last Month of any period.

“Optional Currency” means sterling.

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“Party” means a party to this Agreement.

“Quotation Day” means, in relation to any period for which an interest rate is to be determined:

(a)if the currency is domestic sterling the first day of that period;

(b)for dollars two Business Days before the first day of that period.

“Repeating Representations” means each of the representations set out in Clauses 16.1 (Status) to 16.6 (Governing law and enforcement), Clause 16.9 (No default), sub-clause 16.10.4 of Clause 16.10 (No misleading information), Clause 16.11 (Pari passu ranking) and Clause 16.12 (No proceedings pending or threatened).

“Security” means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.

“Selection Notice” means a notice substantially in the form set out in Part II of Schedule 2 (Requests) given in accordance with Clause 9 (Interest Periods).

“Specified Time” means a time determined in accordance with Schedule 4 (Timetables).

“Subsidiary” means a subsidiary within the meaning of section 736 of the Companies Act 1985.

“Tax” means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same).

“Taxes Act” means the Income and Corporation Taxes Act 1988.

“Termination Date” means 29 December 2006.

“Unpaid Sum” means any sum due and payable but unpaid by the Borrower under the Finance Documents.

“Utilisation” means a utilisation of the Facility.

“Utilisation Date” means the date of a Utilisation, being the date on which the relevant Loan is to be made.

“Utilisation Request” means a notice substantially in the form set out in Part I of Schedule 2 (Requests).

“VAT” means value added tax as provided for in the Value Added Tax Act 1994 and any other tax of a similar nature.

1.2Construction

1.2.1Unless a contrary indication appears any reference in this Agreement to:

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(a)the “Borrower”, the “Lender” or any “Party” shall be construed so as to include its successors in title, permitted assigns and permitted transferees;

(b)“assets” includes present and future properties, revenues and rights of every description;

(c)a “Finance Document” or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended or novated;

(d)“indebtedness” includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;

(e)a “person” includes any person, firm, company, corporation, government, state or agency of a state or any association, trust or partnership (whether or not having separate legal personality) of two or more of the foregoing;

(f)a “regulation” includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation;

(g)a provision of law is a reference to that provision as amended or re-enacted; and

(h)a time of day is a reference to London time.

1.2.2Section, Clause and Schedule headings are for ease of reference only.

1.2.3Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement.

1.2.4A Default (other than an Event of Default) is “continuing” if it has not been remedied or waived and an Event of Default is “continuing” if it has not been waived.

1.3Currency Symbols and Definitions

“$” and “dollars” denote lawful currency of the United States of America. “£” and “sterling” denotes lawful currency of the United Kingdom.

1.4Third party rights

A person who is not a Party has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or enjoy the benefit of any term of this Agreement.

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2.THE FACILITY

Subject to the terms of this Agreement, the Lender makes available to the Borrower a multicurrency term loan facility in an aggregate amount of $18,000,000 to be fully drawn down by the Borrower in a single Utilisation during the Availability Period.

3.PURPOSE

3.1Purpose

The Borrower shall apply all amounts borrowed by it under the Facility towards its general corporate purposes.

3.2Monitoring

The Lender is not bound to monitor or verify the application of any amount borrowed pursuant to this Agreement.

4.CONDITIONS OF UTILISATION

4.1Initial conditions precedent

The Borrower may not deliver a Utilisation Request unless the Lender has received all of the documents and other evidence listed in Schedule 1 (Conditions precedent) in form and substance satisfactory to the Lender. The Lender shall notify the Borrower promptly upon being so satisfied.

4.2Further conditions precedent

4.2.1The Lender will only be obliged to make a Loan available to the Borrower if on the date of the Utilisation Request and on the proposed Utilisation Date:

(a)no Default is continuing or would result from the proposed Loan; and

(b)the Repeating Representations to be made by the Borrower are true in all material respects.

4.3Maximum number of Loans

4.3.1The Borrower may not deliver a Utilisation Request if, as a result of the proposed Utilisation, more than one (1) Loan would be outstanding.

4.3.2The Borrower may not request that a Loan be divided if, as a result of the proposed division, more than five (5) Loans would be outstanding.

5.UTILISATION

5.1Delivery of a Utilisation Request

The Borrower may utilise the Facility by delivery to the Lender of a duly completed Utilisation Request not later than the Specified Time.

5.2Completion of a Utilisation Request

5.2.1Each Utilisation Request is irrevocable and will not be regarded as having been duly completed unless:

(a)the proposed Utilisation Date is a Business Day within the Availability Period;

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(b)the currency and amount of the Utilisation comply with Clause 5.3 (Currency and amount); and

(c)the proposed Interest Period complies with Clause 9 (Interest Periods).

5.2.2Only one Loan may be requested in each Utilisation Request.

5.3Currency and amount

5.3.1The currency specified in a Utilisation Request must be the Base Currency or the Optional Currency.

5.3.2The amount of the proposed Loan must be a minimum of $1,000,000 (or its equivalent in the Optional Currency) or if less, the Available Facility, in any event such that its Base Currency Amount is less than or equal to the Available Facility.

6.REPAYMENT

6.1Repayment of Loans

The Borrower shall repay the Loans made to it in full on the Termination Date.

7.PREPAYMENT AND CANCELLATION

7.1Illegality

If it becomes unlawful in any applicable jurisdiction for the Lender to perform any of its obligations as contemplated by this Agreement or to fund or maintain any Loan:

7.1.1the Lender shall promptly notify the Borrower upon becoming aware of that event whereupon the Facility will be immediately cancelled; and

7.1.2the Borrower shall repay the Loans made to the Borrower on the last day of the Interest Period for each Loan occurring after the Lender has notified the Borrower or, if earlier, the date specified by the Lender in the notice delivered to the Borrower.

7.2Change of control

7.2.1If the Guarantor ceases to control the Borrower directly or indirectly:

(a)the Borrower shall promptly notify the Lender upon becoming aware of that event;

(b)the Lender shall not be obliged to fund a Utilisation; and

(c)the Lender may, by not less than 3 days notice to the Borrower, cancel the Facility and declare all outstanding Loans, together with accrued interest, and all other amounts accrued under the Finance Documents immediately due and payable, whereupon the Facility will be cancelled and all such outstanding amounts will become immediately due and payable.

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7.2.2For the purpose of sub-clause 7.2.1 above “control” means:

(a)the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to:

(i)cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the Borrower; or

(ii)appoint or remove all, or the majority, of the directors or other equivalent officers of the Borrower; or

(iii)give directions with respect to the operating and financial policies of the Borrower which the directors or other equivalent officers of the Borrower are obliged to comply with; or

(b)the holding of more than one-half of the issued share capital of the Borrower (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital).

7.3Voluntary cancellation

The Borrower may, if it gives the Lender not less than 2 Business Days’ (or such shorter period as the Lender may agree) prior notice prior to the expiry of the Availability Period, cancel the whole or any part (being a minimum amount of $1,000,000) of the Available Facility.

7.4Voluntary prepayment of Loans

7.4.1The Borrower may, if it gives the Lender not less than 2 Business Days’ (or such shorter period as the Lender may agree) prior notice, prepay the whole or any part of any Loan (but, if in part, being an amount that reduces the Base Currency Amount of the Loan by a minimum amount of $1,000,000).

7.4.2A Loan may only be prepaid after the last day of the Availability Period (or, if earlier, the day on which the Available Facility is zero).

7.5Restrictions

7.5.1Any notice of cancellation or prepayment given by any Party under this Clause 7 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant cancellation or prepayment is to be made and the amount of that cancellation or prepayment.

7.5.2Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs, without premium or penalty.

7.5.3The Borrower may not reborrow any part of the Facility which is prepaid.

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7.5.4The Borrower shall not repay or prepay all or any part of the Loans or cancel all or any part of the Available Facility except at the times and in the manner expressly provided for in this Agreement.

7.5.5No amount of the Facility cancelled under this Agreement may be subsequently reinstated.

8.INTEREST

8.1Calculation of interest

The rate of interest on each Loan for each Interest Period is the percentage rate per annum which is the aggregate of the applicable:

8.1.1Margin;

8.1.2LIBOR; and

8.1.3Mandatory Cost, if any.

8.2Payment of interest

On the last day of each Interest Period the Borrower shall pay accrued interest on the Loan to which that Interest Period relates (and, if the Interest Period is longer than six Months, on the dates falling at six Monthly intervals after the first day of the Interest Period).

8.3Default interest

8.3.1If the Borrower fails to pay any amount payable by it under a Finance Document on its due date, interest shall accrue on the overdue amount from the due date up to the date of actual payment (both before and after judgment) at a rate which, subject to sub-clause 8.3.2 below, is one per cent higher than the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted a Loan in the currency of the overdue amount for successive Interest Periods, each of a duration selected by the Lender (acting reasonably). Any interest accruing under this Clause 8.3 shall be immediately payable by the Borrower on demand by the Lender.

8.3.2If any overdue amount consists of all or part of a Loan which became due on a day which was not the last day of an Interest Period relating to that Loan:

(a)the first Interest Period for that overdue amount shall have a duration equal to the unexpired portion of the current Interest Period relating to that Loan; and

(b)the rate of interest applying to the overdue amount during that first Interest Period shall be one per cent. higher than the rate which would have applied if the overdue amount had not become due.

8.3.3Default interest (if unpaid) arising on an overdue amount will be compounded with the overdue amount at the end of each Interest Period applicable to that overdue amount but will remain immediately due and payable.

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8.4Notification of rates of interest

The Lender shall promptly notify the Borrower of the determination of a rate of interest under this Agreement.

9.INTEREST PERIODS

9.1Selection of Interest Periods

9.1.1The Borrower may select an Interest Period for a Loan in the Utilisation Request for that Loan or (if the Loan has already been borrowed) in a Selection Notice.

9.1.2Each Selection Notice for a Loan is irrevocable and must be delivered to the Lender by the Borrower not later than the Specified Time.

9.1.3If the Borrower fails to deliver a Selection Notice to the Lender in accordance with sub-clause 9.1.2 above, the relevant Interest Period will, subject to Clause 9.2 (Changes to Interest Periods), be one Month.

9.1.4Subject to this Clause 9, the Borrower may select an Interest Period of one, three or six Months or any other period agreed between the Borrower and the Lender.

9.1.5An Interest Period for a Loan shall not extend beyond the Termination Date.

9.1.6Each Interest Period for a Loan shall start on the Utilisation Date or (if already made) on the last day of its preceding Interest Period.

9.2Non-Business Days

If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not).

9.3Consolidation and division of Loans

9.3.1Subject to sub-clause 9.3.2 below, if two or more Interest Periods:

(a)relate to Loans in the same currency; and

(b)end on the same date;

those Loans will, unless the Borrower specifies to the contrary in the Selection Notice for the next Interest Period, be consolidated into, and treated as, a single Loan on the last day of the Interest Period.

9.3.2Subject to Clause 4.3 (Maximum number of Loans), if the Borrower requests in a Selection Notice that a Loan be divided into two or more Loans of the same currency, that Loan will, on the last day of its Interest Period, be so divided.

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10.CHANGES TO THE CALCULATION OF INTEREST

10.1Market disruption

10.1.1If a Market Disruption Event occurs in relation to a Loan for any Interest Period, then the rate of interest on that Loan for the Interest Period shall be the percentage rate per annum which is the sum of:

(a)the Margin;

(b)the rate notified to the Borrower by the Lender as soon as practicable and in any event before interest is due to be paid in respect of that Interest Period, to be that which expresses as a percentage rate per annum the cost to the Lender of funding that Loan from whatever source it may reasonably select; and

(c)the Mandatory Cost, if any.

10.1.2In this Agreement “Market Disruption Event” means before close of business in London on the Quotation Day for the relevant Interest Period, the Lender determines that the cost to it of obtaining matching deposits in the Relevant Interbank Market would be in excess of LIBOR.

10.2Alternative basis of interest or funding

10.2.1If a Market Disruption Event occurs and the Lender or the Borrower so requires, the Lender and the Borrower shall enter into negotiations (for a period of not more than thirty days) with a view to agreeing a substitute basis for determining the rate of interest.

10.2.2Any alternative basis agreed pursuant to sub-clause 10.2.1 above shall be binding on all Parties.

10.3Break Costs

The Borrower shall, within three Business Days of demand by the Lender, pay to the Lender its Break Costs attributable to all or any part of a Loan or Unpaid Sum being paid by the Borrower on a day other than the last day of an Interest Period for that Loan or Unpaid Sum.

11.TAX GROSS UP AND INDEMNITIES

11.1Definitions

11.1.1In this Agreement:

“Tax Deduction” means a deduction or withholding for or on account of Tax from a payment under a Finance Document.

11.1.2Unless a contrary indication appears, in this Clause 11 a reference to “determines” or “determined” means a determination made in the absolute discretion of the person making the determination.

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11.2Tax gross-up

11.2.1The Borrower shall make all payments to be made by it without any Tax Deduction, unless a Tax Deduction is required by law.

11.2.2The Borrower shall promptly upon becoming aware that it must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction) notify the Lender accordingly.

11.2.3If a Tax Deduction is required by law to be made by the Borrower, the amount of the payment due from the Borrower shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required.

11.2.4If the Borrower is required to make a Tax Deduction, the Borrower shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by law.

11.2.5Within thirty days of making either a Tax Deduction or any payment required in connection with that Tax Deduction, the Borrower shall deliver to the Lender evidence reasonably satisfactory to the Lender that the Tax Deduction has been made or (as applicable) any appropriate payment paid to the relevant taxing authority.

11.3Tax indemnity

11.3.1The Borrower shall (within three Business Days of demand by the Lender) pay to the Lender an amount equal to the loss, liability or cost which the Lender determines will be or has been (directly or indirectly) suffered for or on account of Tax by the Lender in respect of a Finance Document.

11.3.2Sub-clause 11.3.1 above shall not apply:

(a)with respect to any Tax assessed on the Lender:

(i)under the law of the jurisdiction in which the Lender is incorporated or, if different, the jurisdiction (or jurisdictions) in which the Lender is treated as resident for tax purposes; or

(ii)under the law of the jurisdiction in which the Lender’s Facility Office is located in respect of amounts received or receivable in that jurisdiction,

if that Tax is imposed on or calculated by reference to the net income received or receivable (but not any sum deemed to be received or receivable) by the Lender; or

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(b)to the extent a loss, liability or cost is compensated for by an increased payment under Clause 11.2 (Tax
gross-up).

11.3.3If the Lender makes or intends to make a claim under sub-clause 11.3.1 above, the Lender shall promptly notify the Borrower of the event which will give, or has given, rise to the claim.

11.4Stamp taxes

The Borrower shall pay and, within three Business Days of demand, indemnify the Lender against any cost, loss or liability that the Lender incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document.

11.5Value added tax

11.5.1All amounts set out, or expressed to be payable under a Finance Document by the Borrower to the Lender which (in whole or in part) constitute the consideration for VAT purposes shall be deemed to be exclusive of any VAT which is chargeable on such supply, and accordingly, subject to sub-clause 11.5.2 below, if VAT is chargeable on any supply made by the Lender to the Borrower under a Finance Document, the Borrower shall pay to the Lender (in addition to and at the same time as paying the consideration) an amount equal to the amount of the VAT (and the Lender shall promptly provide an appropriate VAT invoice to the Borrower).

11.5.2Where a Finance Document requires the Borrower to reimburse the Lender for any costs or expenses, the Borrower shall also at the same time pay and indemnify the Lender against all VAT incurred by the Lender in respect of the costs or expenses to the extent that the Lender reasonably determines that neither it nor any other member of any group of which it is a member for VAT purposes is entitled to credit or repayment from the relevant tax authority in respect of the VAT.

12.INCREASED COSTS

12.1Increased costs

12.1.1Subject to Clause 12.3 (Exceptions) the Borrower shall, within three Business Days of a demand by the Lender, pay for the account of the Lender the amount of any Increased Costs incurred by the Lender or any of its Affiliates as a result of (a) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation or (b) compliance with any law or regulation made after the date of this Agreement.

12.1.2In this Agreement “Increased Costs” means:

(a)a reduction in the rate of return from the Facility or on the Lender’s (or its Affiliate’s) overall capital;

(b)an additional or increased cost; or

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(c)a reduction of any amount due and payable under any Finance Document,

which is incurred or suffered by the Lender or any of its Affiliates to the extent that it is attributable to the Lender having entered into a commitment or funding or performing its obligations under any Finance Document.

12.2Increased cost claims

If the Lender intends to make a claim pursuant to Clause 12.1 (Increased costs), the Lender shall promptly notify the Borrower.

12.3Exceptions

12.3.1Clause 12.1 (Increased costs) does not apply to the extent any Increased Cost is:

(a)attributable to a Tax Deduction required by law to be made by the Borrower;

(b)compensated for by Clause 11.3 (Tax indemnity) (or would have been compensated for under Clause 11.3 (Tax indemnity) but was not so compensated solely because any of the exclusions in sub-clause 11.3.2 of Clause 11.3 (Tax indemnity) applied);

(c)compensated for by the payment of the Mandatory Cost; or

(d)attributable to the wilful breach by the Lender or its Affiliates of any law or regulation.

12.3.2In this Clause 12.3, a reference to a “Tax Deduction” has the same meaning given to the term in Clause 11.1 (Definitions).

13.OTHER INDEMNITIES

13.1Currency indemnity

13.1.1If any sum due from the Borrower under the Finance Documents (a “Sum”), or any order, judgment or award given or made in relation to a Sum, has to be converted from the currency (the “First Currency”) in which that Sum is payable into another currency (the “Second Currency”) for the purpose of:

(a)making or filing a claim or proof against the Borrower;

(b)obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings,

the Borrower shall as an independent obligation, within three Business Days of demand, indemnify the Lender against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (i) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and (ii) the rate or rates of exchange available to that person at the time of its receipt of that Sum.

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13.1.2The Borrower waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency unit other than that in which it is expressed to be payable.

13.2Other indemnities

13.2.1The Borrower shall, within three Business Days of demand, indemnify the Lender against any cost, loss or liability incurred by the Lender as a result of:

(a)the occurrence of any Event of Default;

(b)a failure by the Borrower to pay any amount due under a Finance Document on its due date;

(c)funding, or making arrangements to fund, a Loan requested by the Borrower in a Utilisation Request but not made by reason of the operation of any one or more of the provisions of this Agreement (other than by reason of default or negligence by the Lender); or

(d)a Loan (or part of a Loan) not being prepaid in accordance with a notice of prepayment given by the Borrower.

13.2.2The Borrower shall promptly indemnify the Lender against any cost, loss or liability incurred by the Lender (acting reasonably) as a result of:

(a)investigating any event which it reasonably believes is a Default; or

(b)acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised.

14.MITIGATION BY THE LENDER

14.1Mitigation

14.1.1The Lender shall, in consultation with the Borrower, take all reasonable steps to mitigate any circumstances which arise and which would result in any amount becoming payable under or pursuant to, or cancelled pursuant to, any of Clause 7.1 (Illegality), Clause 11 (Tax gross-up and indemnities), Clause 12 (Increased costs) or paragraph 3 of Schedule 3 (Mandatory Cost formulae) including (but not limited to) transferring its rights and obligations under the Finance Documents to another Affiliate or Facility Office.

14.1.2Sub-clause 14.1.1 above does not in any way limit the obligations of the Borrower under the Finance Documents.

14.2Limitation of liability

14.2.1The Borrower shall indemnify the Lender for all costs and expenses reasonably incurred by the Lender as a result of steps taken by it under Clause 14.1 (Mitigation).

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14.2.2The Lender is not obliged to take any steps under Clause 14.1 (Mitigation) if, in the opinion of the Lender (acting reasonably), to do so might be prejudicial to it.

15.COSTS AND EXPENSES

15.1Transaction expenses

The Borrower shall promptly on demand pay the Lender the amount of all costs and expenses (including legal fees) reasonably incurred by it in connection with the negotiation, preparation, printing and execution of:

15.1.1this Agreement and any other documents referred to in this Agreement; and

15.1.2any other Finance Documents executed after the date of this Agreement.

15.2Amendment costs

If:

15.2.1the Borrower requests an amendment, waiver or consent; or

15.2.2an amendment is required pursuant to Clause 23.8 (Change of currency),

the Borrower shall, within three Business Days of demand, reimburse the Lender for the amount of all costs and expenses (including legal fees) reasonably incurred by the Lender in responding to, evaluating, negotiating or complying with that request or requirement.

15.3Enforcement costs

The Borrower shall, within three Business Days of demand, pay to the Lender the amount of all costs and expenses (including legal fees) incurred by the Lender in connection with the enforcement of, or the preservation of any rights under, any Finance Document.

16.REPRESENTATIONS

The Borrower makes the representations and warranties set out in this Clause 16 to the Lender on the date of this Agreement.

16.1Status

16.1.1It is a limited liability company, duly incorporated and validly existing under the laws of England and Wales.

16.1.2It has the power to own its assets and carry on its business as it is being conducted.

16.2Binding obligations

The obligations expressed to be assumed by it in each Finance Document are legal, valid, binding and enforceable obligations.

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16.3Non-conflict with other obligations

The entry into and performance by it of, and the transactions contemplated by, the Finance Documents do not and will not conflict with:

16.3.1any law or regulation applicable to it;

16.3.2its constitutional documents; or

16.3.3any agreement or instrument binding upon it or any of its assets.

16.4Power and authority

It has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents.

16.5Validity and admissibility in evidence

All Authorisations required or desirable:

16.5.1to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party; and

16.5.2to make the Finance Documents to which it is a party admissible in evidence in England and Wales,

have been obtained or effected and are in full force and effect.

16.6Governing law and enforcement

16.6.1The choice of English law as the governing law of the Finance Documents will be recognised and enforced in England and Wales.

16.6.2Any judgment obtained in England in relation to a Finance Document will be recognised and enforced in England and Wales.

16.7Deduction of Tax

It is not required to make any deduction for or on account of Tax from any payment it may make under any Finance Document.

16.8No filing or stamp taxes

Under the laws of England and Wales it is not necessary that the Finance Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions contemplated by the Finance Documents.

16.9No default

16.9.1No Event of Default is continuing or might reasonably be expected to result from the making of any Utilisation.

16.9.2No other event or circumstance is outstanding which constitutes a default under any other agreement or instrument which is binding on it or to which its assets are subject which might have a Material Adverse Effect.

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16.10No misleading information

16.10.1Any factual information provided to the Lender prior to the date of this Agreement by the Borrower was true and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is stated.

16.10.2All financial projections provided to the Lender prior to the date of this Agreement by the Borrower have been prepared on the basis of recent historical information and on the basis of reasonable assumptions.

16.10.3Nothing has occurred or been omitted from any factual information and no information has been given or withheld that results in the information provided to the Lender prior to the date of this Agreement being untrue or misleading in any material respect.

16.10.4All written information (other than the information provided pursuant to sub-clauses 16.10.1 to 16.10.3 above) supplied by it is true, complete and accurate in all material respects as at the date it was given and is not misleading in any respect.

16.11Pari passu ranking

Its payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.

16.12No proceedings pending or threatened

No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, if adversely determined, might reasonably be expected to have a Material Adverse Effect have (to the best of its knowledge and belief) been started or threatened against it.

16.13Repetition

The Repeating Representations are deemed to be made by the Borrower (by reference to the facts and circumstances then existing) on the date of each Utilisation Request and the first day of each Interest Period.

17.INFORMATION UNDERTAKINGS

The undertakings in this Clause 17 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any commitment is in force.

17.1Information: miscellaneous

The Borrower shall supply to the Lender:

17.1.1all documents dispatched by the Borrower to its shareholders (or any class of them) or its creditors generally at the same time as they are dispatched;

17.1.2promptly upon becoming aware of them, the details of any litigation, arbitration or administrative proceedings which are current, threatened or

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pending against it, and which might, if adversely determined, have a Material Adverse Effect; and

17.1.3promptly, such further information regarding the financial condition, business and operations of the Borrower as the Lender may reasonably request.

17.2Notification of default

17.2.1The Borrower shall notify the Lender of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence.

17.2.2Promptly upon a request by the Lender, the Borrower shall supply to the Lender a certificate signed by two of its directors or senior officers on its behalf certifying that no Default is continuing (or if a Default is continuing, specifying the Default and the steps, if any, being taken to remedy it).

17.3“Know your customer” checks

If:

17.3.1the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;

17.3.2any change in the status of the Borrower or the composition of the shareholders of the Borrower after the date of this Agreement; or

17.3.3a proposed assignment by the Lender of any of its rights under this Agreement,

obliges the Lender (or, in the case of sub-clause 17.3.3 above, any prospective new Lender) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Borrower shall promptly upon the request of the Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Lender (for itself or, in the case of the event described in sub-clause 17.3.3 above, on behalf of any prospective new Lender) in order for the Lender or, in the case of the event described in sub-clause 17.3.3 above, any prospective new Lender to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.

18.GENERAL UNDERTAKINGS

The undertakings in this Clause 18 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any commitment is in force.

18.1Authorisations

The Borrower shall promptly:

18.1.1obtain, comply with and do all that is necessary to maintain in full force and effect; and

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18.1.2supply certified copies to the Lender of,

any Authorisation required under any law or regulation of England and Wales to enable it to perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Finance Document.

18.2Compliance with laws

The Borrower shall comply in all respects with all laws to which it may be subject, if failure so to comply would materially impair its ability to perform its obligations under the Finance Documents.

18.3Negative pledge

18.3.1The Borrower shall not create or permit to subsist any Security over any of its assets.

18.3.2The Borrower shall not:

(a)sell, transfer or otherwise dispose of any of its assets on terms whereby they are or may be leased to or re-acquired by the Borrower;

(b)sell, transfer or otherwise dispose of any of its receivables on recourse terms;

(c)enter into any arrangement under which money or the benefit of a bank or other account may be applied, set-off or made subject to a combination of accounts; or

(d)enter into any other preferential arrangement having a similar effect,

in circumstances where the arrangement or transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset.

18.4Merger

The Borrower shall not enter into any amalgamation, demerger, merger or corporate reconstruction.

18.5Change of business

The Borrower shall procure that no substantial change is made to the general nature of the business of the Borrower from that carried on at the date of this Agreement.

18.6Insurance

The Borrower shall maintain insurances on and in relation to its business and assets with reputable underwriters or insurance companies against those risks and to the extent as is usual for companies carrying on the same or substantially similar business.

18.7Taxation

The Borrower shall duly and punctually pay and discharge all Taxes imposed upon it or its assets within the time period allowed without incurring penalties (except to the

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extent that (a) such payment is being contested in good faith, (b) adequate reserves are being maintained for those Taxes and (c) such payment can be lawfully withheld).

19.EVENTS OF DEFAULT

Each of the events or circumstances set out in Clause 19 is an Event of Default.

19.1Non-payment

The Borrower does not pay on the due date any amount payable pursuant to a Finance Document at the place at and in the currency in which it is expressed to be payable unless its failure to pay is caused by administrative or technical error and payment is made within 2 Business Days of its due date.

19.2Other obligations

19.2.1The Borrower does not comply with any provision of the Finance Documents (other than those referred to in Clause 19.1 (Non-payment).

19.2.2No Event of Default under sub-clause 19.2.1 above will occur if the failure to comply is capable of remedy and is remedied within 10 Business Days of the Lender giving notice to the Borrower or the Borrower becoming aware of the failure to comply.

19.3Misrepresentation

Any representation or statement made or deemed to be made by the Borrower in the Finance Documents or any other document delivered by or on behalf of the Borrower under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.

19.4Cross default

19.4.1Any Financial Indebtedness of the Borrower is not paid when due nor within any originally applicable grace period.

19.4.2Any Financial Indebtedness of the Borrower is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described).

19.4.3Any commitment for any Financial Indebtedness of the Borrower is cancelled or suspended by a creditor of the Borrower as a result of an event of default (however described).

19.4.4Any creditor of the Borrower becomes entitled to declare any Financial Indebtedness of the Borrower due and payable prior to its specified maturity as a result of an event of default (however described).

19.4.5No Event of Default will occur under this Clause 19.4 if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within sub-clauses 19.4.1 to 19.4.4 above is less than $1,000,000 (or its equivalent in another currency or currencies).

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19.5Insolvency

19.5.1The Borrower is unable or admits inability to pay its debts as they fall due, suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to rescheduling any of its indebtedness.

19.5.2The value of the assets of the Borrower is less than its liabilities (taking into account contingent and prospective liabilities).

19.5.3A moratorium is declared in respect of any indebtedness of the Borrower.

19.6Insolvency proceedings

Any corporate action, legal proceedings or other procedure or step is taken in relation to:

19.6.1the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of the Borrower other than a solvent liquidation or reorganisation of the Borrower;

19.6.2a composition, compromise, assignment or arrangement with any creditor of the Borrower;

19.6.3the appointment of a liquidator (other than in respect of a solvent liquidation of the Borrower), receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of the Borrower or any of its assets; or

19.6.4enforcement of any Security over any assets of the Borrower,

or any analogous procedure or step is taken in any jurisdiction.

19.7Creditors’ process

Any expropriation, attachment, sequestration, distress or execution affects any asset or assets of the Borrower.

19.8Unlawfulness

It is or becomes unlawful for the Borrower to perform any of its obligations under the Finance Documents.

19.9Repudiation

The Borrower repudiates a Finance Document or evidences an intention to repudiate a Finance Document.

19.10Guarantee Default

19.10.1It is or becomes unlawful for the Guarantor to perform any of its obligations under the Guarantee.

19.10.2The Guarantor repudiates the Guarantee or evidences an intention to repudiate the Guarantee.

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19.10.3The Guarantor breaches any term of the Guarantee or fails to perform any of its obligations under the Guarantee.

19.11Guarantor Cross Default

Any event of default (howsoever described) occurs under the Guarantor Credit Agreement.

19.12Material adverse change

Any event or circumstance occurs which the Lender reasonably believes might have a Material Adverse Effect.

19.13Acceleration

On and at any time after the occurrence of an Event of Default the Lender may, by notice to the Borrower:

19.13.1cancel the Facility whereupon the Facility shall immediately be cancelled;

19.13.2declare that all or part of the Loans, together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable, whereupon they shall become immediately due and payable; and/or

19.13.3declare that all or part of the Loans be payable on demand, whereupon they shall immediately become payable on demand by the Lender.

20.CHANGES TO THE LENDER

20.1Assignments by the Lender

The Lender may assign any of its rights to another bank or financial institution or to a trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (the “New Lender”).

20.2Conditions of assignment

20.2.1An assignment will only be effective on:

(a)receipt by the Borrower of written confirmation from the New Lender (in form and substance satisfactory to the Borrower (acting reasonably)) that the New Lender will assume the same obligations to the other Parties as it would have been under if it was the Lender; and

(b)performance by the Lender of all “know your customer” or other similar checks under all applicable laws and regulations in relation to such assignment to a New Lender, the completion of which the Lender shall promptly notify to the New Lender.

20.2.2If:

(a)the Lender assigns any of its rights under the Finance Documents or changes its Facility Office; and

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(b)as a result of circumstances existing at the date the assignment or change occurs, the Borrower would be obliged to make a payment to the New Lender (or the Lender acting through its new Facility Office) under Clause 11 (Tax gross-up and indemnities) or Clause 12 (Increased costs),

then the New Lender (or the Lender acting through its new Facility Office) is only entitled to receive payment under those Clauses to the same extent as the Lender (or the Lender acting through its previous Facility Office) would have been if the assignment or change had not occurred.

20.3Limitation of responsibility of the Lender

20.3.1Unless expressly agreed to the contrary, the Lender makes no representation or warranty and assumes no responsibility to a New Lender for:

(a)the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other documents;

(b)the financial condition of the Borrower;

(c)the performance and observance by the Borrower of its obligations under the Finance Documents or any other documents; or

(d)the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document or any other document,

and any representations or warranties implied by law are excluded.

20.3.2Each New Lender confirms to the Lender that it:

(a)has made (and shall continue to make) its own independent investigation and assessment of the financial condition and affairs of the Borrower and its related entities in connection with this Agreement and has not relied exclusively on any information provided to it by the Lender in connection with any Finance Document; and

(b)will continue to make its own independent appraisal of the creditworthiness of the Borrower and its related entities whilst any amount is or may be outstanding under the Finance Documents or any commitment is in force.

20.3.3Nothing in any Finance Document obliges the Lender to:

(a)accept a re-assignment from a New Lender of any of the rights assigned under this Clause 20; or

(b)support any losses directly or indirectly incurred by the New Lender by reason of the non-performance by the Borrower of its obligations under the Finance Documents or otherwise.

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20.4Disclosure of information

The Lender may disclose to any of its Affiliates and any other person:

20.4.1to (or through) whom the Lender assigns (or may potentially assign) all or any of its rights under this Agreement;

20.4.2with (or through) whom the Lender enters into (or may potentially enter into) any sub-participation in relation to, or any other transaction under which payments are to be made by reference to, this Agreement or the Borrower; or

20.4.3to whom, and to the extent that, information is required to be disclosed by any applicable law or regulation,

any information about the Borrower and the Finance Documents as the Lender shall consider appropriate.

21.CHANGES TO THE BORROWER

The Borrower may not assign any of its rights or transfer any of its rights or obligations under the Finance Documents.

22.CONDUCT OF BUSINESS BY THE LENDER

22.1No provision of this Agreement will:

22.1.1interfere with the right of the Lender to arrange its affairs (tax or otherwise) in whatever manner it thinks fit;

22.1.2oblige the Lender to investigate or claim any credit, relief, remission or repayment available to it or the extent, order and manner of any claim; or

22.1.3oblige the Lender to disclose any information relating to its affairs (tax or otherwise) or any computations in respect of Tax.

23.PAYMENT MECHANICS

23.1Payments to the Lender

23.1.1On each date on which the Borrower is required to make a payment under a Finance Document, the Borrower shall make the same available to the Lender (unless a contrary indication appears in a Finance Document) for value on the due date at the time and in such funds specified by the Lender as being customary at the time for settlement of transactions in the relevant currency in the place of payment.

23.1.2Payment shall be made to the relevant accounts below (or such other account as the Lender may specify for such purposes):

Payments in Dollars

Pay to (Name of Bank):  J P Morgan Chase New York

SWIFT Address:  CHASUS33XXX

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Account No:  0010962009

Account Name: J P Morgan Chase Bank, London

SWIFT:  CHASGB2L

Ref:  European Loans “Good ‘N’ Natural Limited”

Payments in Sterling

Pay to (Name of Bank): J P Morgan Chase Bank, London (CHASGB2L)

Address:Direct Sort Code 60-92-42

Reference:Attn LDNLOANS/ Good ‘N’ Natural Limited

23.2Payments to the Borrower

23.2.1On each date on which this Agreement requires an amount to be paid by the Lender, the Lender shall make the same available to the Borrower in such funds and to such account with such bank as the Borrower shall specify from time to time.

23.2.2A payment will be deemed to have been made by the Lender on the date on which it was required to be made under this Agreement if the Lender has, on or before that date, taken steps to make that payment in accordance with the regulations or operating procedures of the clearing system used by the Lender in order to make the payment.

23.3Distributions to the Borrower

The Lender may (with the consent of the Borrower or in accordance with Clause 24 (Set-off)) apply any amount received by it for the Borrower in or towards payment (on the date and in the currency and funds of receipt) of any amount due from the Borrower under the Finance Documents or in or towards purchase of any amount of any currency to be so applied.

23.4Partial payments

23.4.1If the Lender receives a payment that is insufficient to discharge all the amounts then due and payable by the Borrower under the Finance Documents, the Lender shall apply that payment towards the obligations of the Borrower under the Finance Documents in the following order:

(a)first, in or towards payment pro rata of any unpaid fees, costs and expenses of the Lender under the Finance Documents;

(b)secondly, in or towards payment pro rata of any accrued interest or commission due but unpaid under this Agreement;

(c)thirdly, in or towards payment pro rata of any principal due but unpaid under this Agreement; and

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(d)fourthly, in or towards payment pro rata of any other sum due but unpaid under the Finance Documents.

23.4.2The Lender may vary the order set out in paragraphs (b) to (d) of sub-clause 23.4.1 above.

23.4.3Sub-clauses 23.4.1 and 23.4.2 above will override any appropriation made by the Borrower.

23.5No set-off by the Borrower

All payments to be made by the Borrower under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim.

23.6Business Days

23.6.1Any payment which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not).

23.6.2During any extension of the due date for payment of any principal or Unpaid Sum under this Agreement interest is payable on the principal or Unpaid Sum at the rate payable on the original due date.

23.7Currency of account

23.7.1Subject to sub-clauses 23.7.2 to 23.7.5 below, the Base Currency is the currency of account and payment for any sum due from the Borrower under any Finance Document.

23.7.2A repayment of a Loan or Unpaid Sum or a part of a Loan or Unpaid Sum shall be made in the currency in which that Loan or Unpaid Sum is denominated on its due date.

23.7.3Each payment of interest shall be made in the currency in which the sum in respect of which the interest is payable was denominated when that interest accrued.

23.7.4Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred.

23.7.5Any amount expressed to be payable in a currency other than the Base Currency shall be paid in that other currency.

23.8Change of currency

23.8.1Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then:

(a)any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be

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translated into, or paid in, the currency or currency unit of that country designated by the Lender (after consultation with the Borrower); and

(b)any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Lender (acting reasonably).

23.8.2If a change in any currency of a country occurs, this Agreement will, to the extent the Lender (acting reasonably and after consultation with the Borrower) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the London Interbank Market and otherwise to reflect the change in currency.

24.SET-OFF

The Lender may set off any matured obligation due from the Borrower under the Finance Documents (to the extent beneficially owned by the Lender) against any matured obligation owed by the Lender to the Borrower, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Lender may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.

25.NOTICES

25.1Communications in writing

Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax or letter.

25.2Addresses

The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with the Finance Documents is:

25.2.1in the case of the Borrower, that identified with its name below; and

25.2.2in the case of the Lender, that identified with its name below other than in relation to operational matters (such as Utilisation Requests) which should be sent to:

European Loan Operations
4^th Floor Prestige Knowledge Park
Near Marathalli Junction, Outer Ring Road
Kadabeesanahalli
Vathur Hobli
Bangalore
560087

For the attention of:

Bipin Tiwari/Sharath S Shetty/Karthikesh Ema/Veena B Gowda

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Fax:

+ 44 (0)20 7492 3297

+ 44 (0)20 7492 3298

or any substitute address, fax number or department or officer as the Party may notify to the Lender (or the Lender may notify to the other Parties, if a change is made by the Lender) by not less than five Business Days’ notice.

25.3Delivery

25.3.1Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:

(a)if by way of fax, when received in legible form; or

(b)if by way of letter, when it has been left at the relevant address or five Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address,

and, if a particular department or officer is specified as part of its address details provided under Clause 25.2 (Addresses), if addressed to that department or officer.

25.3.2Any communication or document to be made or delivered to the Lender will be effective only when actually received by the Lender and then only if it is expressly marked for the attention of the department or officer identified with the Lender’s signature below (or any substitute department or officer as the Lender shall specify for this purpose).

25.4English language

25.4.1Any notice given under or in connection with any Finance Document must be in English.

25.4.2All other documents provided under or in connection with any Finance Document must be:

(a)in English; or

(b)if not in English, and if so required by the Lender, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document.

26.CALCULATIONS AND CERTIFICATES

26.1Accounts

In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by the Lender are prima facie evidence of the matters to which they relate.

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26.2Certificates and Determinations

Any certification or determination by the Lender of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates.

26.3Day count convention

Any interest, commission or fee accruing under a Finance Document will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days for any amounts in dollars and 365 days for any amounts in sterling.

27.PARTIAL INVALIDITY

If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.

28.REMEDIES AND WAIVERS

No failure to exercise, nor any delay in exercising, on the part of the Lender, any right or remedy under the Finance Documents shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.

29.AMENDMENTS AND WAIVERS

Any term of the Finance Documents may be amended or waived only with the consent of the Lender and the Borrower and any such amendment or waiver will be binding on all Parties.

30.COUNTERPARTS

Each Finance Document may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document.

31.GOVERNING LAW

This Agreement is governed by English law.

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32.ENFORCEMENT

32.1Jurisdiction

32.1.1The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a “Dispute”).

32.1.2The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

32.1.3This Clause 32.1 is for the benefit of the Lender only. As a result, the Lender shall not be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Lender may take concurrent proceedings in any number of jurisdictions.

This Agreement has been entered into on the date stated at the beginning of this Agreement.

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SCHEDULE 1

CONDITIONS PRECEDENT

(a)A copy of the constitutional documents of the Borrower.

(b)A copy of a resolution of the board of directors of the Borrower:

(i)approving the terms of, and the transactions contemplated by, the Finance Documents and resolving that it execute the Finance Documents;

(ii)authorising a specified person or persons to execute the Finance Documents on its behalf; and

(iii)authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices (including, if relevant, any Utilisation Request and Selection Notice) to be signed and/or despatched by it under or in connection with the Finance Documents.

(c)A specimen of the signature of each person authorised by the resolution referred to in paragraph (b) above.

(d)A certificate of the Borrower (signed by a director or the company secretary) confirming that borrowing the Facility would not cause any borrowing or similar limit binding on the Borrower to be exceeded.

(e)A certificate of the Borrower (signed by a director or the company secretary) certifying that each copy document relating to it specified in paragraphs (a) to (c) (inclusive)in this Schedule 1 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement.

(f)Evidence that the costs and expenses (if any) then due from the Borrower pursuant to Clause 15 (Costs and expenses) have been paid or will be paid by the first Utilisation Date.

(g)The Guarantee duly executed by the Guarantor and in form and substance satisfactory to the Lender.

(h)A copy of a resolution of the board of directors of the Guarantor approving the terms of, and the transactions contemplated by, the Guarantee Documents and resolving that it execute the Guarantee.

(i)An up to date incumbency certificate of the Guarantor setting out the names and specimen signatures of each person authorised to execute the Guarantee on its behalf.

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SCHEDULE 2

REQUESTS

Part A

Utilisation Request

From:Good ‘N’ Natural Limited

To:JPMorgan Chase Bank, N.A., London Branch

European Loan Operations
4^th Floor Prestige Knowledge Park
Near Marathalli Junction, Outer Ring Road
Kadabeesanahalli
Vathur Hobli
Bangalore
560087

Contact names, Telephone, Email:

Bipin Tiwari
Tel:  91-80-41760739
Email: bipin.s.tiwari@jpmchase.com

Sharath S Shetty
Tel:  91-80-41760744
Emai:  sharath.s.shetty@jpmchase.com

Karthikesh Ema
Tel:  91-80-41760743
Email:  karthikesh.b.ema@jpmchase.com

Veena B Gowda
Tel:  91-80-41760745
Email:  veena.b.gowda@jpmchase.com

Fax Numbers:

44 (0)20 7492 3297

44 (0)20 7492 3298

Dated:

Dear Sirs

Good ‘N’ Natural Limited – $18,000,000 Facility Agreement

dated [     ] 2006 (the “Agreement”)

1.We refer to the Agreement. This is a Utilisation Request. Terms defined in the Agreement have the same meaning in this Utilisation Request unless given a different meaning in this Utilisation Request.

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2.We wish to borrow a Loan on the following terms:

Proposed Utilisation Date:	[     ] (or, if that is not a Business Day, the next Business Day)
Currency of Loan:	Dollars/Sterling
Amount:	[           ] or, if less, the Available Facility
Interest Period:	[                 ]

3.We confirm that each condition specified in Clause 4.2 (Further conditions precedent) is satisfied on the date of this Utilisation Request.

4.The proceeds of this Loan should be credited to [account].

5.This Utilisation Request is irrevocable.

Yours faithfully

authorised signatory for

Good ‘N’ Natural Limited

35

Part B
Selection Notice

From:Good ‘N’ Natural Limited

To:JPMorgan Chase Bank, N.A., London Branch

European Loan Operations
4^th Floor Prestige Knowledge Park
Near Marathalli Junction, Outer Ring Road
Kadabeesanahalli
Vathur Hobli
Bangalore
560087

Contact names, Telephone, Email:

Bipin Tiwari
Tel:  91-80-41760739
Email: bipin.s.tiwari@jpmchase.com

Sharath S Shetty
Tel:  91-80-41760744
Emai:  sharath.s.shetty@jpmchase.com

Karthikesh Ema
Tel:  91-80-41760743
Email:  karthikesh.b.ema@jpmchase.com

Veena B Gowda
Tel:  91-80-41760745
Email:  veena.b.gowda@jpmchase.com

Fax Numbers:

44 (0)20 7492 3297

44 (0)20 7492 3298

Dated:[           ]

Dear Sirs

Good ‘N’ Natural Limited – US$18,000,000 Facility Agreement
dated [           ] 2006 (the “Agreement”)

1.We refer to the Agreement. This is a Selection Notice. Terms defined in the Agreement have the same meaning in this Selection Notice unless given a different meaning in this Selection Notice.

2.We refer to the following Loan in [Dollars/Sterling] with an Interest Period ending on [date].

36

3.[We request that the above Loan be divided into [             ] Loans in the same currency and with the following Interest Periods:     [         ]]

or

[We request that the next Interest Period for the above Loan[s] is [      ]].

4.This Selection Notice is irrevocable.

Yours faithfully

authorised signatory for

Good ‘N’ Natural Limited

37

SCHEDULE 3
MANDATORY COST FORMULAE

1.The Mandatory Cost is an addition to the interest rate in relation to the cost of compliance with (a) the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank.

2.On the first day of each Interest Period (or as soon as possible thereafter) the Lender shall calculate a rate (the “Additional Cost Rate”) in accordance with the paragraphs set out below (expressed as a percentage rate per annum).

3.The Additional Cost Rate for the Lender if lending from a Facility Office in a Participating Member State will be the percentage determined by the Lender as the cost of complying with the minimum reserve requirements of the European Central Bank.

4.The Additional Cost Rate for the Lender if lending from a Facility Office in the United Kingdom will be calculated by the Lender as follows:

(a)in relation to a domestic sterling Loan:

AB + C(B – D) + E x 0.01	per cent. per annum
100 – (A + C)

(b)in relation to a Loan in dollars:

E x 0.01	per cent. per annum.
300

Where:

Ais the percentage of Eligible Liabilities (assuming these to be in excess of any stated minimum) which the Lender is from time to time required to maintain as an interest free cash ratio deposit with the Bank of England to comply with cash ratio requirements.

Bis the percentage rate of interest (excluding the Margin and the Mandatory Cost) payable for the relevant Interest Period on the Loan.

Cis the percentage (if any) of Eligible Liabilities which the Lender is required from time to time to maintain as interest bearing Special Deposits with the Bank of England.

Dis the percentage rate per annum payable by the Bank of England to the Lender on interest bearing Special Deposits.

Eis the rate of charge payable by the Lender to the Financial Services Authority pursuant to the Fees Rules (calculated for this purpose by the Lender as being

38

the average of the Fee Tariffs applicable to the Lender) and expressed in pounds per £1,000,000 of the Tariff Base of the Lender.

5.For the purposes of this Schedule:

(a)“Eligible Liabilities” and “Special Deposits” have the meanings given to them from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England;

(b)“Fees Rules” means the rules on periodic fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits;

(c)“Fee Tariffs” means the fee tariffs specified in the Fees Rules under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Rules but taking into account any applicable discount rate); and

(d)“Tariff Base” has the meaning given to it in, and will be calculated in accordance with, the Fees Rules.

6.In application of the above formulae, A, B, C and D will be included in the formulae as percentages (i.e. 5 per cent. will be included in the formula as 5 and not as 0.05). A negative result obtained by subtracting D from B shall be taken as zero. The resulting figures shall be rounded to four decimal places.

7.The Lender shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates the Lender.

8.Any determination by the Lender pursuant to this Schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to the Lender shall, in the absence of manifest error, be conclusive and binding on all Parties.

9.The Lender may from time to time, after consultation with the Borrower determine and notify to all Parties any amendments which are required to be made to this Schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all Parties.

39

SCHEDULE 4
TIMETABLES

	Loans in dollars	Loans in domestic sterling
Delivery of a duly completed Utilisation Request (Clause 5.1 (Delivery of a Utilisation Request) or a Selection Notice (Clause 9.1 (Selection of Interest Periods))	U-3 9.30am	U-1 9.30am
Lender determines the Base Currency equivalent (for commitment utilization purposes) where an amount of a Loan in the Optional Currency has been requested i.e. on delivery of a Utilisation request)	—	U-1 9.30am
Lender determines amount of the Loan in Optional Currency converted into from the Base Currency (i.e. on delivery of a Utilisation request)	—	U-1 9.30am
LIBOR is fixed	Quotation Day as of 11:00 a.m. London time	Quotation Day as of 11:00 a.m.

“U” = date of utilisation

“U - X” = X Business Days prior to date of utilisation

40

SIGNATURES

THE BORROWER

GOOD ‘N’ NATURAL LIMITED

By:	/s/ Barry Vickers
Name:	Barry Vickers
Title:	Chief Executive Officer
Address:	Samuel Ryder House
	Townsend Drive
	Attleborough Fields
	Nuneaton
	Warwickshire
	CV11 6XW
Fax:	02476-320034
Attention:	Mr. R. Craddock
THE LENDER
JPMORGAN CHASE BANK, N.A., LONDON BRANCH
By:	/s/ Alastair Stevenson
Name:	Alastair Stevenson
Title:	Managing Director
Address:	125 London Wall
	London EC2Y 5AJ
Fax:	+44 20 7777 4781
Attention:	Alastair Stevenson

41

EX-10.15

Exhibit 10.15

EXECUTION VERSION

STOCK PURCHASE AGREEMENT

by and between

NBTY, INC.

and

ZILA, INC.

with respects to all of the outstanding capital stock

of

ZILA NUTRACEUTICALS, INC.

August 13, 2006

TABLE OF CONTENTS

		Page
ARTICLE 1	THE TRANSACTION	1
1.1	Purchase and Sale of Shares	1
1.2	Purchase Price Closing Adjustment	2
1.3	Contingent Purchase Price	3
1.4	Transfer Fees; Recording Fees; Taxes	4
ARTICLE 2	THE PARTIES’ OBLIGATIONS AT THE CLOSING	4
2.1	The Closing	4
2.2	Seller’s Obligations	5
2.3	Buyer’s Obligations	6
ARTICLE 3	REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION	6
3.1	Representations of Seller Relating to the Company and the Company Business	6
3.2	Representations of Buyer	6
3.3	Survival	6
3.4	Indemnification by Seller	7
3.5	Indemnification by Buyer	9
3.6	Time Limitations	9
ARTICLE 4	COVENANTS OF SELLER PRIOR TO CLOSING DATE	10
4.1	Access And Investigation	10
4.2	Regulatory and Other Approvals	10
4.3	Stockholder Meeting; Proxy	10
4.4	No Solicitations	11
4.5	Conduct of Business	11
4.6	Employee Matters	12
4.7	Certain Restrictions	13
4.8	Affiliate Transactions	14
4.9	Books and Records	14
4.10	Notice and Cure	15
4.11	Fulfillment of Conditions	15
4.12	Best Efforts	15
ARTICLE 5	COVENANTS OF BUYER PRIOR TO CLOSING DATE	16
5.1	Approvals of Governmental Bodies	16
5.2	Best Efforts	16
ARTICLE 6	TAX MATTERS	16
6.1	Straddle Period	16
6.2	Responsibility for Filing Tax Returns	16
6.3	Refunds and Tax Benefits	17
6.4	Contests	17
6.5	Cooperation on Tax Matters	18
6.6	Tax Sharing Agreements	19
6.7	Tax Treatment of Indemnification Payments	19
6.8	Section 338(h)(10) Election	19
ARTICLE 7	TERMINATION; ADDITIONAL AGREEMENTS	19
7.1	Termination	19
7.2	Effect of Termination	20

7.3	Fiduciary Duties	20
7.4	Books and Records; Post Closing	21
7.5	Use of Business Name	21
7.6	Transaction Expenses	21
7.7	Notices	21
7.8	Governing Law	22
7.9	Assignment	22
7.10	Intent to be Binding; Entire Agreement	22
7.11	Waiver of Provisions	23
7.12	Jurisdiction	23
7.13	Confidentiality	23
7.14	Public Announcements	23
7.15	Third Party Beneficiaries	24

EXHIBIT A	DEFINITIONS
EXHIBIT B	REPRESENTATIONS AND WARRANTIES OF SELLER
EXHIBIT C	REPRESENTATIONS AND WARRANTIES OF BUYER
EXHIBIT D	PROCEDURE FOR INDEMNIFICATION
EXHIBIT E	FORM OF SELLER OPINION LETTER
EXHIBIT F	FORM OF BUYER OPINION LETTER
EXHIBIT G	FORM OF NON-COMPETITION AGREEMENT

ii

STOCK PURCHASE AGREEMENT (this “Agreement”) dated as of August 13, 2006 (the “Effective Date”), by and between the following parties:

•      NBTY, Inc., a Delaware corporation (“Buyer”); and

•      Zila, Inc., a Delaware corporation (“Seller”).

For purposes of this Agreement, certain capitalized terms have the meanings ascribed to them in Exhibit A. Other terms are defined in the body of this Agreement.

OVERVIEW

WHEREAS, Seller owns all the issued and outstanding shares of common stock (the “Shares”) of Zila Nutraceuticals, Inc., an Arizona corporation (the “Company”), constituting all issued and outstanding shares of capital stock of the Company; and

WHEREAS, the Company engages in the business of manufacturing and marketing nutritional supplements and cosmetics (collectively, the “Products”), including, without limitation, Ester-C and Ester-E forms of Products (the “Company Business”); and

WHEREAS, Ester-C and Ester-E are trademarks owned by the Company in certain jurisdictions and such Ester-C and Ester-E forms of Products are subject to patents owned or exclusively licensed by the Company in certain jurisdictions and are manufactured by the Company in accordance with applicable patents and/or trade secrets and distributed and sold pursuant to trademarks owned or exclusively licensed by the Company; and

WHEREAS, Seller conducted an extensive auction process for the Company Business, and Buyer was the highest bidder in such process; and

WHEREAS, by this Agreement Seller desires to sell to the Buyer, and Buyer desires to purchase from Seller, the Shares in return for cash, in each case upon all the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the promises and mutual agreements and covenants hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, Seller and Buyer hereby agree as follows:

ARTICLE 1
THE TRANSACTION

1.1           Purchase and Sale of Shares. At the Closing, upon the terms and subject to the conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, all of the right, title and interest of Seller in and to the Shares.

1.2           Purchase Price Closing Adjustment.

(a)           The aggregate purchase price for the Shares and agreement of the Seller not to compete with Buyer shall consist of (i) Thirty Seven Million Five Hundred Thousand Dollars ($37,500,000), subject to a working capital adjustment as described in Section 1.2(e) below (the “Closing Date Purchase Price”) and (ii) up to Three Million Dollars ($3,000,000) payable in accordance with Section 1.3 (the “Contingent Purchase Price,” and together with the Closing Date Purchase Price, the “Purchase Price”).

(b)           Within ninety (90) days after the Closing Date, the Company under the direction of the Buyer shall prepare a balance sheet of the Company as at the close of business on the Closing Date (the “Closing Date Balance Sheet”). The Closing Date Balance Sheet shall be prepared in accordance with GAAP applied on a basis consistent with the Financial Statements.

(c)           Within ninety (90) days after the Closing Date, Buyer shall deliver to the Seller the Closing Date Balance Sheet, as well as a statement (the “Closing Date Working Capital Statement”), setting forth the Closing Working Capital and including a detailed computation thereof. The Closing Date Working Capital Statement shall be prepared in accordance with GAAP applied on a basis consistent with the Financial Statements. At the request of Seller, Buyer shall deliver to Seller with its delivery of the Closing Date Working Capital Statement copies of all working papers in Buyer’s possession relevant to Buyer’s determination of Closing Working Capital.

(d)           Unless the Seller, within thirty (30) days after receipt of the Closing Date Balance Sheet and Closing Date Working Capital Statement, gives the Buyer a written notice objecting thereto and specifying, in detail, the basis for such objection and the amount in dispute (“Notice of Objection”), such Closing Date Balance Sheet and Closing Date Working Capital Statement shall be considered accepted and binding upon the Buyer and the Seller. If, within thirty (30) days after the receipt of the Closing Date Balance Sheet and Closing Date Working Capital Statement, the Seller gives a Notice of Objection to the Buyer and all matters set forth therein are not resolved within twenty-one (21) days after the Buyer’s actual receipt of such notice, the disputed items shall be submitted to arbitration under the Commercial Arbitration Rules of the American Arbitration Association (the “AAA Rules”). The arbitration shall be held in Dallas, Texas before a single arbitrator, who shall be a certified public accountant, selected in accordance with the AAA Rules (the arbitrator being hereinafter referred to as the “Arbitrating Accountant”). The Arbitrating Accountant shall afford each of the Buyer and its representatives and the Seller and its representatives up to 30 days in the aggregate to present their positions as to the disputed items. The Arbitrating Accountant shall resolve all disputed items in a written determination to be delivered within 15 days following the end of the submission period. Such resolution shall be final and binding upon the parties and shall be reflected in any necessary revisions to the Closing Date Balance Sheet. The fees, costs and expenses of the Arbitrating Accountant shall be paid by the Buyer and the Seller in inverse proportion to the results of the prevailing party on the disputed items resolved by the Arbitrating Accountant. Such proportional allocations

2

shall be determined by the Arbitrating Accountant at the time its determination is rendered on the disputed items.

(e)           If the Closing Working Capital, as agreed upon by the parties or as finally determined by the Arbitrating Accountant is greater or less than the Target Working Capital, then the Purchase Price shall be increased by the amount of the excess or decreased by the amount of the shortfall, as the case may be. Any excess shall be paid by the Buyer to the Seller within seven (7) days of the final determination of the Closing Working Capital by wire transfer of immediately available funds. Any shortfall shall be paid by the Seller to the Buyer within seven (7) days of the final determination of the Closing Working Capital by wire transfer of immediately available funds.

1.3           Contingent Purchase Price.

(a)           In addition to the Closing Date Purchase Price and subject to the terms, conditions, and limitations set forth in this Section 1.3, Seller shall be entitled to the Contingent Purchase Price, provided that during the one-year period following the Closing Date (the “Measurement Period”), the Company generates the EBITDA Target (as defined below) during the Measurement Period. Within 90 days of the first anniversary of the Closing Date, Buyer shall prepare and deliver to Seller a statement (the “Earn Out Closing Statement”) showing the EBITDA calculation during the Measurement Period with respect to Buyer’s operation of the Company Business (without regard to any revenue generated or losses incurred as a result of subsequent acquisitions or dispositions by Buyer relating to or in connection with the on-going operations of the Company Business following the Closing Date) as determined by Buyer in accordance with GAAP. At the request of Seller, Buyer shall deliver to Seller with its delivery of the Earn Out Closing Statement copies of all working papers in Buyer’s possession relevant to Buyer’s determination of the Company Business’ EBITDA for the Measurement Period.

(b)           If EBITDA during the Measurement Period as reflected on the Earn Out Closing Statement is less than or equal to Fourteen Million Dollars $14,000,000 (the “EBITDA Target”), Seller shall not be entitled to any of the Contingent Purchase Price. If EBITDA during the Measurement Period as reflected on the Earn Out Closing Statement exceeds the EBITDA Target, Seller shall be entitled to Contingent Purchase Price in the amount based on the calculation set forth in the table below, subject to a maximum of $3,000,000 in Contingent Purchase Price; it being understood and agreed that the Contingent Purchase Price shall not exceed $3,000,000 in the aggregate regardless of EBITDA level:

EBITDA	Contingent Purchase Price
$14,000,001 to $15,000,000	10% of the difference between EBITDA and $14,000,000
$15,000,001 to $16,000,000	20% of the difference between EBITDA and $15,000,000

3

$16,000,001 to $17,000,000	30% of the difference between EBITDA and $16,000,000
$17,000,001 to $18,000,000	40% of the difference between EBITDA and $17,000,000
$18,000,001 to $20,000,000	100% of the difference between EBITDA and $18,000,000.

In the event Buyer does not receive written notice from Seller disputing its calculation of the amount set forth on the Earn Out Closing Statement within thirty (30) days following Buyer’s delivery of the same to Seller, Seller shall be deemed to have agreed to such calculation and to the resulting Contingent Purchase Price payment (if any).

(c)           Buyer shall pay Seller the Contingent Purchase Price by wire transfer in immediately available funds within seven (7) days following the final determination of the Contingent Purchase Price, to an account specified in writing by Seller.

(d)           During the Measurement Period, unless otherwise agreed to by Buyer and Seller, Buyer agrees (i) to use reasonable commercial efforts to cause the Company to operate consistent with Buyer’s other subsidiaries; (ii) not impose any “home office,” overhead or other similar charge on the Company that is not generally imposed on Buyer’s other subsidiaries and (iii) that if the Company is combined, consolidated, merged or liquidated, that Buyer will create and maintain books and records sufficient to enable Buyer and Seller to determine the Contingent Purchase Price.

(e)           Any disputes arising with respect to the application of this Section 1.3 shall be resolved in the same manner as set forth in Section 1.2(d).

1.4           Transfer Fees; Recording Fees; Taxes. Seller will pay all transfer and assumption fees and expenses and all sales, use, value added or similar taxes, if any, arising out of the transfer of the Shares. Seller will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such taxes and fees with respect to such transfer of Shares and, if required by Applicable Law, Buyer will and will cause its Affiliates or any Related Party to, join in the execution of any such Tax Returns and other documentation. Seller shall cause to be recorded, and shall pay for all fees and expenses necessary to record, all recordable Intellectual Property Assets currently in the name of any predecessor of the Company to be recorded in the name of Zila Nutraceuticals, Inc. All fees and expenses necessary to record any further changes in title or name of the Intellectual Property Assets shall be borne by Buyer.

ARTICLE 2
THE PARTIES’ OBLIGATIONS AT THE CLOSING

2.1           The Closing. Subject to the terms and conditions of this Agreement, the sale and purchase of the Shares contemplated by this Agreement shall take place at a closing (“Closing”) at the offices of the Seller at 9:00 a.m., Arizona time, on the third business day after Stockholder Approval is received and all other conditions to Closing are met or waived (the “Closing Date”),

4

or at such other place or at such other time or date as the Seller and Buyer may mutually agree upon in writing.

2.2           Seller’s Obligations. At the Closing, Seller will deliver to Buyer or accomplish the following:

•Seller will assign and transfer to Buyer good and valid title in and to the Shares, free and clear of all Encumbrances, by delivery to Buyer stock certificates evidencing the Shares, in genuine and unaltered form, duly endorsed in blank, or accompanied by stock powers duly executed in blank;

•all required third-party and governmental consents that if not obtained would result in a Material Adverse Effect;

•a true and complete copy, certified by the Secretary of Seller, of the resolutions duly and validly adopted by the Board of Directors and stockholders of Seller evidencing their authorization of the execution and delivery of this Agreement, the Transaction Documents and the consummation of the transactions contemplated hereby and thereby;

•a certificate of a duly authorized officer of Seller certifying as to the accuracy in all respects of the matters set forth in Exhibit B, as if made on the Closing Date (such certificate shall be deemed to become a part of this Agreement);

•the Transaction Documents (as applicable), duly executed by an authorized officer of Seller and/or the Company, as applicable;

•evidence of payment in full of all third party indebtedness (other than Capital Leases) of the Company and all intercompany indebtedness of the Company;

•resignation letters for those officers and directors of the Company that are set forth on Schedule 1 of the Disclosure Letter;

•opinion of counsel to the Seller, substantially in the form attached hereto as Exhibit E;

•either (i) a properly executed statement satisfying the requirements of Treas. Reg. Sees. 1.897-2(h) and 1.1445-2(c)(3) in a form reasonably acceptable to Buyer or (ii) a certificate of non-foreign status satisfying the requirements of Treas. Reg. Sec. 1.1445-2(b) in a form reasonably acceptable to Buyer; and

•a properly executed IRS Form 8023.

5

2.3           Buyer’s Obligations. At the Closing, Buyer will deliver to Seller the following:

•Thirty Seven Million Five Hundred Thousand Dollars ($37,500,000) by wire transfer in immediately available funds. Seller shall designate the bank account or accounts for such payment at least two (2) business days prior to the Closing;

•all required third-party and governmental consents;

•a true and complete copy, certified by the Secretary of the Buyer, of the resolutions duly and validly adopted by the Board of Directors of the Buyer evidencing its authorization of the execution and delivery of this Agreement, the Transaction Documents and the consummation of the transactions contemplated hereby and thereby;

•a certificate of a duly authorized officer of the Buyer certifying as to the accuracy in all respects of the matters set forth in Exhibit C, as if made as of the Closing Date (such certificate shall be deemed to become a part of this Agreement);

•the Transaction Documents (as applicable), duly executed by an authorized officer of Buyer; and

•opinion of counsel to Buyer, substantially in the form attached hereto as Exhibit F.

ARTICLE 3
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION

3.1           Representations of Seller Relating to the Company and the Company Business. Concurrently with the signing of this Agreement, Seller has prepared a Disclosure Letter that discloses certain information to Buyer (the “Disclosure Letter”). Seller acknowledges that Buyer is relying on the accuracy of the representations and warranties contained in Exhibit B. Accordingly, Seller warrants to Buyer that each of the representations and warranties contained in Exhibit B, as modified by the Disclosure Letter, are true and correct as of the date hereof and the Closing Date.

3.2           Representations of Buyer. Buyer acknowledges that Seller is relying on the accuracy of the representations and warranties contained in Exhibit C. Accordingly, Buyer warrants to Seller that each of the representations and warranties contained in Exhibit C are true and correct as of the date hereof and the Closing Date.

3.3           Survival. All representations, warranties, covenants, and obligations in this Agreement, the certificates delivered pursuant to Sections 2.2 and 2.3, and any other certificate or document delivered pursuant to this Agreement will survive the Closing, subject to Section 3.6 hereof. The right of either party hereto to indemnification, payment for Losses or other remedy based on such representations, warranties, covenants, and obligations will not be

6

affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or before or after the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, payment for Losses, or other remedy based on such representations, warranties, covenants, and obligations.

3.4           Indemnification by Seller.

(a)             Seller agrees to indemnify and hold Buyer and its representatives, stockholders, officers, directors and Affiliates (the “Buyer Parties”) harmless from and against any Loss (excluding any Loss Buyer may suffer after the end of any applicable survival period) arising directly or indirectly from or in connection with:

(i)            a breach by Seller of any representation or warranty made by Seller in this Agreement, the Disclosure Letter or other document or certificate delivered pursuant to this Agreement or the Transaction Documents; or

(ii)           a breach by Seller of any of its other obligations or covenants contained in this Agreement, any Transaction Document or other document delivered in connection herewith or therewith; or

(iii)          any claim by any Person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with Seller or the Company (or any Person acting on their behalf) in connection with any of the transactions contemplated herein.

(b)           In addition to the provisions of Section 3.4(a), Seller will indemnify and hold harmless the Buyer Parties for, and will pay to the Buyer Parties the amount of, any Losses (including costs of cleanup, containment, or other remediation) arising, directly or indirectly, from or in connection with:

(i)            any Environmental, Health, and Safety Liabilities arising out of or relating to: (i) (A) the ownership, operation, or condition at any time on or prior to the Closing Date of the Facility or any of the Environmental Properties, or (B) any Hazardous Materials or other contaminants that were present at the Facility or any of the Environmental Properties at any time on or prior to the Closing Date; or (ii) (A) any Hazardous Materials or other contaminants, wherever located, that were, or were allegedly, generated, transported, stored, treated, Released, or otherwise handled by the Seller on behalf of the Company or in connection with Company Business, the Company or by any other Person for whose conduct they are responsible or are alleged to be responsible at any time on or prior to the Closing Date, or (B) any Hazardous Activities that were, or were allegedly, conducted by the Seller on behalf of the Company or in connection with

7

Company Business, the Company or by any other Person for whose conduct they are or may be held responsible; or

(ii)           any bodily injury (including illness, disability, and death, and regardless of when any such bodily injury occurred, was incurred, or manifested itself), personal injury, property damage (including trespass, nuisance, wrongful eviction, and deprivation of the use of real property), or other damage of or to any Person, including any employee or former employee of the Company or any other Person for whose conduct the Seller or the Company is responsible, in any way arising from or allegedly arising from any Hazardous Activity conducted or allegedly conducted with respect to the Facility or the operation of the Company Business prior to the Closing Date, or from Hazardous Material that was (i) present or suspected to be present on or before the Closing Date on or at the Facility (or present or suspected to be present on any other property, if such Hazardous Material emanated or allegedly emanated from the Facility and was present or suspected to be present on the Facility on or prior to the Closing Date) or (ii) Released or allegedly Released by Seller or the Company or any other Person for whose conduct they are or may be held responsible, at any time on or prior to the Closing Date.

Buyer will be entitled to control any Cleanup, any related Proceeding, and, except as provided in Section 3.4(c), any other Proceeding with respect to which indemnity may be sought under this Section 3.4(b); provided, however, that Buyer shall obtain the prior written consent of Seller prior to expending any amount in excess of $25,000 on such Cleanup, with such consent not to be unreasonably withheld.

(c)           Notwithstanding the foregoing, but subject to the last sentence of this Section 3.4(c), Seller shall not have any obligation to indemnify Buyer Parties until Buyer Parties have suffered Losses (in the aggregate) in excess of Five Hundred Thousand Dollars ($500,000) (the “Threshold Amount”) and then Seller shall indemnify Buyer Parties for all amounts by which the Losses exceed the Threshold Amount. The aggregate amount of payments made by Seller in satisfaction of Losses shall not exceed 50% of the Purchase Price (the “Cap”). Notwithstanding the foregoing, Losses resulting from a breach of any of paragraph 6 of Exhibit B (relating to Title to the Company Business; Encumbrances; Sufficiency of Assets), paragraph 8 of Exhibit B (relating to Tax Matters), paragraph 11 of Exhibit B (relating to Capitalization; Ownership of Shares; Subsidiaries), paragraph 19 of Exhibit B (relating to Employee Benefits), paragraph 22 of Exhibit B (relating to Environmental Matters) or paragraph 25 of Exhibit B (relating to Intellectual Property; Licenses) shall not be subject to the Cap or Threshold Amount, and Seller shall indemnify Buyer Parties for any such Losses from the first dollar of such Loss up to the amount of the Purchase Price.

(d)           Notwithstanding anything to the contrary in this Agreement, Seller will indemnify and hold harmless the Buyer Parties for any Loss relating to or arising out of the Landes matter described on Schedule 9 of the Disclosure Letter and such matter shall not be subject to the Threshold Amount or the Cap; provided, however, that Seller shall

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be entitled to retain control of any suits, claims, actions, arbitrations, investigations, or proceedings entered against the Company or Seller relating to such matter.

(e)           The procedures for bringing an indemnity claim are set forth in Exhibit D.

3.5           Indemnification by Buyer.

(a)           Buyer agrees to indemnify and hold Seller and its representatives harmless from and against any Loss incurred by Seller in connection with or alleged to result from the following:

(i)            a breach by Buyer of any representation or warranty made pursuant to Section 3.2 above or otherwise in this Agreement or other document or certificate delivered pursuant to this Agreement or the Transaction Documents; or

(ii)           a breach by Buyer of any of its obligations or covenants contained in this Agreement, any Transaction Document or other document delivered in connection herewith or therewith; or

(iii)          any claim by any Person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with Buyer (or any Person acting on their behalf) in connection with any of the transactions contemplated herein.

(b)           Buyer shall not have any obligation to indemnify Seller until Seller has suffered Losses (in the aggregate) in excess of the Threshold Amount.

3.6           Time Limitations.

(a)           If the Closing occurs, Seller will have liability (for indemnification and otherwise) with respect to any breach of (i) a covenant or obligation to be performed or complied with prior to the Closing Date, for which a claim may be made at any time prior to the date of expiration of the statue of limitations applicable to such claim; or (ii) a representation or warranty (other than those in Exhibit B paragraphs 6, 8, 11, 19, 22 and 25, as to which a claim may be made at any time prior to the date of expiration of the statue of limitations applicable to the statute, regulation or other authority which gave rise to such Loss), only if, with regards to subsection (ii) of this Section 3.6, on or before the second anniversary of the Closing Date, Buyer notifies Seller in writing of a claim specifying the factual basis of the claim in reasonable detail to the extent then known by Buyer.

(b)           If the Closing occurs, Buyer will have liability (for indemnification and otherwise) with respect to any breach of (i) a covenant or obligation to be performed or complied with prior to the Closing Date, for which a claim may be made at any time prior to the date of expiration of the statue of limitations applicable to such claim; or (ii) a representation or warranty only if on or before the second anniversary of the Closing Date, Seller notifies Buyer in writing of a claim specifying the factual basis of the claim in reasonable detail to the extent then known by Seller.

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(c)           Absent fraud or malicious intent, the sole and exclusive remedies for breach of this Agreement are specified in Section 3.4, Section 3.5, and Section 3.6.

ARTICLE 4
COVENANTS OF SELLER PRIOR TO CLOSING DATE

4.1           Access and Investigation. Between the Effective Date and the Closing Date, Seller will, and will cause the Company and its representatives to, (a) afford Buyer and its officers, directors, employees, agents, counsel, accountants, financial advisors, consultants and other representatives (collectively, “Buyer’s Advisors”) full and free access to the Company’s personnel, properties, contracts, books and records, and other documents and data pertaining to the Company Business, provided, however, that any such access cannot unreasonably interfere with Company Business, (b) furnish Buyer and Buyer’s Advisors with copies of all such contracts, books and records, and other existing documents and data pertaining to the Company Business as Buyer may reasonably request, and (c) furnish Buyer and Buyer’s Advisors with such additional financial, operating, and other data and information as Buyer may reasonably request.

4.2           Regulatory and Other Approvals. Seller will, and will cause the Company to, (a) take all commercially reasonable steps necessary and proceed diligently and in good faith and use all commercially reasonable efforts, as promptly as practicable to obtain all consents, approvals or actions of, to make all filings with and to give all notices to any Governmental Body or any other Person required of Seller or the Company to consummate the transactions contemplated hereby and by the Transaction Documents, including, without limitation, those described in the Disclosure Letter, (b) provide such other information and communications to such Governmental Body or other Person as Buyer or such Governmental Body or other Person may reasonably request in connection therewith and (c) cooperate with Buyer as promptly as practicable in obtaining all consents, approvals or actions of, making all filings with and giving all notices to the appropriate Governmental Body or other Person required of Buyer to consummate the transactions contemplated hereby and by the Transaction Documents. Seller will provide prompt notification to Buyer when any such consent, approval, action, filing or notice referred to in clause (a) above is obtained, taken, made or given, as applicable, and will advise Buyer of any communications (and, unless precluded by law, provide copies of any such communications that are in writing) with any Governmental Body or other Person regarding any of the transactions contemplated by this Agreement or the Transaction Documents. Seller shall not agree to participate in any meeting with any Governmental Body in respect of any filings, investigation or other inquiry unless it consults with Buyer in advance and, to the extent permitted by such Governmental Body, gives Buyer the opportunity to attend and participate in such meeting.

4.3           Stockholder Meeting; Proxy.

(a)  As promptly as practicable following the Effective Date, the Seller, acting through its Board of Directors, shall, in accordance with Applicable Law and the Seller’s current certificate of incorporation and by-laws:

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(i)            duly call, give notice of, convene and hold an annual or special meeting of the Seller’s stockholders for the purposes of obtaining the Stockholder Approval (the “Seller Stockholders Meeting”); and

(ii)           in consultation with Buyer, prepare and file with the SEC a preliminary proxy or information statement relating to this Agreement and obtain and furnish the information required by the SEC to be included in the definitive proxy statement and, after consultation with Buyer, respond promptly to any comments made by the SEC with respect to the preliminary proxy or information statement and cause a definitive proxy or information statement (together with all amendments, supplements and exhibits thereto, the “Proxy Statement”) to be mailed to the Seller’s stockholders of record at the earliest practicable date; provided that no amendments or supplements to the Proxy Statement shall be made by the Seller without consultation with Buyer. Buyer shall provide the Seller with such information with respect to Buyer and its Affiliates as shall be required to be included in the Proxy Statement.

(b) Without limiting any other provision of this Agreement, whenever any party hereto becomes aware of any event or change which is required to be set forth in an amendment or supplement to the Proxy Statement, such party shall promptly inform the other parties thereof and each of the parties shall cooperate in the preparation, filing with the SEC and (as and to the extent required by applicable federal securities laws) dissemination to the Seller’s stockholders of such amendment or supplement.

4.4           No Solicitations. Subject to Section 7.3, Seller will not take, nor will it permit the Company, or any Affiliate of Seller or the Company (or authorize or permit any investment banker, financial advisor, attorney, accountant or other Person retained by or acting for or on behalf of Seller, the Company or any such Affiliate) to take, directly or indirectly, any action to initiate, assist, solicit, receive, negotiate, encourage or accept any offer or inquiry from any Person (a) to engage in any Business Combination with the Company, (b) to reach any agreement or understanding (whether or not such agreement or understanding is absolute, binding, revocable, contingent or conditional) for, or otherwise attempt to consummate, any Business Combination with the Company or (c) to furnish or cause to be furnished any information with respect to the Company to any Person (other than as contemplated by Section 4.1) who Seller, the Company, or such Affiliate (or any such Person acting for or on their behalf) knows or has reason to believe is in the process of considering any Business Combination with the Company. If Seller, the Company or any such Affiliate (or any such Person acting for or on their behalf) receives from any Person (other than Buyer or any other Person referred to in Section 4.1) any offer, inquiry or informational request referred to above, Seller will promptly advise such Person, by written notice, of the terms of this Section 4.4, and will promptly, orally and in writing, advise Buyer of such offer, inquiry or request and delivery of a copy of such notice to Buyer.

4.5           Conduct of Business. Seller will cause the Company to conduct the Company Business only in the ordinary course consistent with past practice. Without limiting the generality of the foregoing, Seller will:

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(a)           cause the Company to use commercially reasonable efforts to (i) preserve intact the present business organization and reputation of the Company and the Company Business, (ii) keep available (subject to dismissals and retirements in the ordinary course of business consistent with past practice) the services of the present officers, employees and consultants of the Company, (iii) maintain the assets and properties of the Company Business in good working order and condition, ordinary wear and tear excepted, (iv) maintain the good will of customers, suppliers, lenders and other Persons to whom the Company sells goods or provides services or with whom the Company otherwise has significant business relationships, (v) continue all current sales, marketing and promotional activities relating to the Company Business, (vi) confer with Buyer concerning operational matters of a material nature involving the Company Business, (vii) maintain the Intellectual Property Assets in the ordinary course of Company Business, and (viii) otherwise periodically report to Buyer concerning the status of the business, operations and finances of the Company and the Company Business;

(b)           except to the extent required by Applicable Law, (i) cause the books and records to be maintained in the usual, regular and ordinary manner consistent with past practice, (ii) not permit any material change in (A) any pricing, investment, accounting, financial reporting, inventory, credit, allowance or Tax practice or policy of the Company pertaining to the Company Business, or (B) any method of calculating any bad debt, contingency or other reserve of the Company for accounting, financial reporting or Tax purposes and (iii) not permit any change in the fiscal year of the Company;

(c)           (i) use, and will cause the Company to use, commercially reasonable efforts to maintain in full force and effect until the Closing substantially the same levels of insurance coverage relating to the Company Business and (ii) cause any and all benefits paid or payable (whether before or after the date of this Agreement) with respect to the Company Business, employees or assets and properties of the Company and the Company Business to be paid to the Company; and

(d)           cause the Company to comply, in all material respects, with all Applicable Laws and orders applicable to the Company Business and promptly following receipt thereof to give Buyer copies of any notice received from any Governmental Body, or other Person alleging any violation of any such law or order.

4.6           Employee Matters. Except as may be required by Applicable Law, Seller will refrain, and will cause the Company to refrain, from directly or indirectly:

(a)           making any representation or promise, oral or written, to any officer, employee or consultant of the Company concerning any Employee Plan, except for the statements as to the rights or accrued benefits of any officer, employee or consultant under the terms of any Employee Plan;

(b)           making any increase in the salary, wages or other compensation of any officer, employee or consultant of the Company whose annual salary is or, after giving effect to such change, would be $75,000 or more without the prior written consent of Buyer;

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(c)           adopting, entering into or becoming bound by any Employee Plan, employment-related contract or collective bargaining agreement covering employees or consultants of the Company, or amending, modifying or terminating (partially or completely) any Employee Plan, employment-related contract or collective bargaining agreement impacting employees or consultants of the Company, except to the extent required by Applicable Law and, in the event compliance with legal requirements presents options, only to the extent that the options which the Company reasonably believes to be the least costly is chosen; or

(d)           establishing or modifying any (i) targets, goals, pools or similar provisions in respect of any fiscal year under any Employee Plan, employment-related contract or other employee compensation arrangement covering employees or consultants of the Company or (ii) salary ranges, increase guidelines or similar provisions in respect of any Employee Plan, employment-related contract or other employee compensation arrangement covering employees or consultants of the Company.

Seller will cause the Company to administer each Employee Plan, or cause the same to be so administered, in all material respects in accordance with the applicable provisions of the Code, ERISA and all other Applicable Laws. Seller will promptly notify Buyer in writing of each receipt by Seller or the Company (and furnish Buyer with copies) of any notice of investigation or administrative proceeding by the IRS, Department of Labor, Pension Benefit Guaranty Corporation or other Person involving any Employee Plan.

4.7           Certain Restrictions. Seller will cause the Company to refrain from:

(a)           amending its certificates or articles of incorporation or by-laws (or other comparable corporate charter documents) or taking any action with respect to any such amendment or any recapitalization, reorganization, liquidation or dissolution;

(b)           authorizing, issuing, selling or otherwise disposing of any shares of capital stock of or any options with respect to the Company, or modifying or amending any right of any holder of outstanding shares of capital stock of or options with respect to the Company;

(c)           declaring, setting aside or paying any dividend or other distribution in respect of the capital stock of the Company except in the ordinary course of business and consistent with past practice or in connection with the transactions contemplated by this Agreement, or directly or indirectly redeeming, purchasing or otherwise acquiring any capital stock of or any options with respect to the Company;

(d)           acquiring or disposing of, or incurring any Encumbrance (other than a Permitted Encumbrance) on, any assets and properties of the Company Business having a fair market value, individually or in the aggregate, in excess of $25,000, except with respect to the disposition of inventory in the ordinary course of business;

(e)           (i) except in the ordinary course of business and consistent with past practice or as may be required to consummate the transactions contemplated by this Agreement, entering into, amending, modifying, terminating (partially or completely),

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granting any waiver under or giving any consent with respect to (A) any contract that would, if in existence on the date of this Agreement, be required to be disclosed in the Disclosure Letter or (B) any license, provided, however, that Seller and Company must consult with Buyer before taking any definitive action with respect to any of the matters described in Section 4.7(e)(i)(A) or Section 4.7(e)(i)(B), or (ii) granting any irrevocable powers of attorney;

(f)            violating, breaching or defaulting under, or taking or failing to take any action that (with or without notice or lapse of time or both) would constitute a material violation or breach of, or default under, any term or provision of any license held or used by the Company or used in the Company Business or any contract to which the Company is a party or by which any of the assets and properties of the Company Business are bound;

(g)           (i) incurring indebtedness in an aggregate principal amount exceeding $10,000 (net of any amounts of indebtedness discharged during such period), or (ii) other than as required in connection with the transactions contemplated hereby, purchasing, canceling, prepaying or otherwise providing for a complete or partial discharge in advance of a scheduled payment date with respect to, or waiving any right of the Company under, any indebtedness owing to the Company;

(h)           engaging with any Person in any Business Combination, except as permitted by Section 7.3;

(i)            making capital expenditures or commitments for additions to property, plant or equipment constituting capital assets in an aggregate amount exceeding $50,000;

(j)            making any material change in the Company Business;

(k)           writing off or writing down any of its assets and properties relating to the Company Business outside the ordinary course of business consistent with past practice; or

(l)            entering into any contract to do or engage in any of the foregoing.

4.8           Affiliate Transactions. Except as set forth in the Disclosure Letter, immediately prior to the Closing, all indebtedness and other amounts owing under contracts between Seller, any officer, director, Affiliate (other than the Company) on the one hand, and the Company, on the other, will be paid in full, and Seller will terminate and will cause any such officer, director, or Affiliate to terminate each such contract with the Company. Except as may be required in connection with the transactions contemplated by this Agreement, prior to the Closing, the Company will not enter into any contract or amend or modify any existing contract, and will not engage in any transaction outside the ordinary course of business consistent with past practice or not on an arm’s-length basis (other than pursuant to contracts disclosed pursuant to the Disclosure Letter), with Seller or any such officer, director, or Affiliate.

4.9           Books and Records. On the Closing Date, Seller will deliver or make available to Buyer at the offices of the Company all of the books and records pertaining to the Company

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Business, and if at any time after the Closing, Seller discovers in its possession or under its control any other books and records pertaining to the Company Business, it will forthwith deliver such books and records to Buyer.

4.10         Notice and Cure. Seller will notify Buyer in writing (where appropriate, through updates to the Disclosure Letter) of, and contemporaneously will provide Buyer with true and complete copies of any and all information or documents relating to, and will use all commercially reasonable efforts to cure before the Closing, any event, transaction or circumstance, as soon as practicable after it becomes known to Seller, occurring after the date of this Agreement that causes or will cause any covenant or agreement of Seller or the Company under this Agreement to be breached or that renders or will render untrue any representation or warranty of Seller contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. Seller also will notify Buyer in writing (where appropriate, through updates to the Disclosure Letter) of, and will use all commercially reasonable efforts to cure, before the Closing, any violation or breach, as soon as practicable after it becomes known to Seller, of any representation, warranty, covenant or agreement made by Seller in this Agreement, whether occurring or arising before, on or after the date of this Agreement. No notice given pursuant to this Section 4.10 shall have any effect on the representations, warranties, covenants or agreements contained in this Agreement for purposes of determining satisfaction of any condition contained herein or shall in any way limit Buyer’s right to seek indemnity under Article 3.

4.11         Fulfillment of Conditions. Seller will execute and deliver at the Closing each Transaction Document that Seller is required hereby to execute and deliver as a condition to the Closing, will take all commercially reasonable steps necessary or desirable and proceed diligently and in good faith to satisfy each condition to the obligations of Buyer contained in this Agreement and will not, and will not permit the Company to take or fail to take any action that could reasonably be expected to result in the nonfulfillment of any such condition.

4.12         Best Efforts. Subject to Section 7.3, between the Effective Date and the Closing Date, Seller will use its reasonable best efforts to cause the conditions in Article 2 to be satisfied.

4.13         Employee Stock Purchase Plan. Pursuant to Section 8.3 of the Seller’s Employee Stock Purchase Plan (the “ESPP”), because the Company will no longer be a subsidiary or affiliate of Seller, Company employees will not be eligible to participate in the ESPP on and after the Closing Date. Accordingly, Seller will return to the employees of the Company who participated in the ESPP at any time prior to the Closing Date all funds that such participating employees contributed prior to the Closing Date to the ESPP to the extent that such funds were not used as of the Closing Date to purchase shares of common stock of Seller. Seller shall return such funds to such employees as soon as administratively practicable through its existing payroll processes. Seller covenants and agrees that by purchasing the Shares, Buyer is not assuming any obligations under the ESPP.

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ARTICLE 5

COVENANTS OF BUYER PRIOR TO CLOSING DATE

5.1           Approvals of Governmental Bodies. As promptly as practicable after the Effective Date, Buyer will, and will cause each of its Related Persons to, (a) make all filings required by legal requirements to be made by them to consummate the transactions contemplated hereunder. Buyer will cooperate with Seller with respect to all filings that Seller is required by legal requirements to make in connection with the transactions contemplated hereunder, and (b) cooperate with Seller in obtaining all consents identified in the Disclosure Letter; provided that this Agreement will not require Buyer to dispose of or make any change in any portion of its business or to incur any other burden to obtain a Governmental Authorization.

5.2           Best Efforts. Except as set forth in the proviso to Section 5.1, between the Effective Date and the Closing Date, Buyer will use its reasonable best efforts to cause the conditions in Article 2 to be satisfied.

ARTICLE 6
TAX MATTERS

6.1           Tax Indemnification.

(a)           Seller shall be liabile to Buyer for, and shall indemnify and hold Buyer and the Company harmless from and against, any and all Taxes due or payable by the Company or imposed on the Company for any Pre-Closing Tax Period, (as defined below) and any Straddle Period, (as defined below) except to the extent that accruals for such Taxes are reflected in the Closing Balance Sheet.

(b)           In the case of any taxable period that includes (but does not end on) the Closing Date (a “Straddle Period”), the amount of any Income Taxes for all taxable periods ending on or before the Closing Date and the portion through the end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date (“Pre-Closing Tax Period”) shall be determined based on an interim closing of the books as of the close of business on the Closing Date and the amount of other Taxes of the Company for a Straddle Period that relates to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the number of days in such Straddle Period.

6.2           Responsibility for Filing Tax Returns. Buyer shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company that are filed after the Closing Date other than Income Tax Returns with respect to periods for which a consolidated, unitary or combined Income Tax Return of Seller will include the operations of the Company. Buyer shall permit Seller to review and comment on each such Income Tax Return described in the preceding sentence prior to filing and shall make revisions to such Income Tax Returns as are reasonably requested by Seller. Seller shall permit Buyer to review and comment on each consolidated, unitary or combined Income Tax Return filed by the Company after the Closing

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Date with respect to the Pre-Closing Period, but only to the extent such consolidated, unitary, or combined Income Tax Return applies to the Company. Seller shall reimburse Buyer for Taxes of the Company with respect to the Pre-Closing Tax Period within fifteen (15) days after payment by Buyer or the Company of such Taxes to the extent such Taxes were not reflected as a liability in determining the Purchase Price pursuant to Section 1.2 of this Agreement.

6.3           Refunds and Tax Benefits. Any Tax refunds that are received by Buyer or the Company, and any amounts credited against Taxes to which Buyer or the Company become entitled, that relate to the Pre-Closing Tax Period shall be for the account of Seller, and Buyer shall pay over to Seller any such refund or the amount of any such credit within 15 days after receipt or entitlement thereto. In addition, to the extent that a claim for refund or a proceeding results in a payment or credit against Tax by a taxing authority to Buyer or the Company of any amount accrued on the Closing Balance Sheet, Buyer shall pay such amount to Seller within 15 days after receipt or entitlement thereto. Notwithstanding the foregoing, Seller shall not be entitled to any refund, or portion thereof, if such refund, or portion thereof, (i) is the result of the carryback of any operating losses, net operating losses, capital losses, Tax credits or similar items arising in a taxable period (or portion thereof) beginning after the Closing Date, or (ii) is taken into account in determining the Purchase Price pursuant to Section 1.2 of this Agreement. To the extent any refund from one jurisdiction is treated as income to another jurisdiction, any Tax owed to such other jurisdiction on account of such refund shall reduce the amount paid to the Seller under this Section 6.3.

6.4           Contests.

(a)           After the Closing, Buyer shall promptly notify the Seller in writing of any written notice of a proposed assessment or claim in an audit or administrative or judicial proceeding of Buyer or the Company which, if determined adversely to the Company, would be grounds for indemnification under this Agreement.

(b)           In the case of an audit or administrative or judicial proceeding that relates to taxable periods ending on or before the date of the Closing, the Seller shall have the right at its expense to participate in and control the conduct of such audit or proceeding; Buyer also may participate in any such audit or proceeding and, if the Seller does not assume the defense of any such audit or proceeding, Buyer may defend the same in such manner as it may deem appropriate, including settling such audit or proceeding after five days prior written notice to the Seller setting forth the terms and conditions of settlement; provided, however, if Buyer gives notice to Seller of the commencement of any audit or administrative or judicial proceedings and the Seller does not, within twenty (20) business days, after Buyer’s notice is given to Seller, give notice to Buyer or Company, as applicable, of its election to assume the defense thereof, then the Seller shall be bound by any determination made in such audit or administrative or judicial proceeding or any compromise or settlement thereof effected by Buyer. The failure of Buyer to give reasonably prompt notice of any audit or administrative or judicial proceeding shall not release, waive or otherwise affect Seller’s obligations with respect thereto except to the extent that the Seller can demonstrate actual loss as a result of such failure. In the event that issues relating to a potential adjustment are required to be contested in the same audit or proceeding as separate issues relating to a potential adjustment for which Buyer would

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be liable, Buyer shall have the right, at its expense, to control the audit or proceeding with respect to the latter issues.

(c)           With respect to issues relating to a potential adjustment for which both the Seller and Buyer or the Company could be liable, (i) both the Seller and Buyer may participate in the audit or proceeding, and (ii) the audit or proceeding shall be controlled by that party which would bear the burden of the greater portion of the sum of the adjustment and any corresponding adjustments that may reasonably be anticipated for future taxable periods; provided, however, neither Buyer nor the Seller shall enter into any compromise or agree to settle any such matter without the written consent of the other party, which consent may not be unreasonably withheld. The principle set forth in this Section 6.4(c) also shall govern for purposes of deciding any issue that must be decided jointly (including choice of judicial forum) in situations in which separate issues are otherwise controlled under this Article 6 by Buyer and the Seller; provided, however, neither Buyer nor Seller shall enter into any compromise or agree to settle any such matter without the written consent of the other party, which consent may not be unreasonably withheld.

(d)           With respect to any audit or administrative or judicial proceeding for a taxable period that begins before the Closing Date, neither Buyer nor the Seller shall enter into any compromise or agree to settle any claim pursuant to such audit or proceeding which would adversely affect the other party for such taxable period or a subsequent taxable period without the written consent of the other party, which consent may not be unreasonably withheld. Buyer and the Seller agree to cooperate, and Buyer agrees to cause the Company to cooperate, in the defense against or compromise of any claim in any such audit or proceeding.

6.5           Cooperation on Tax Matters.

(a)           Buyer, the Company and Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Section 6.5 and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information that are reasonably relevant to any such audit, litigation or other proceeding and making employees reasonably available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Company and Seller agree (i) to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Buyer or Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, the Company or Seller, as the case may be, shall allow the other party to take possession of such books and records.

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(b)           Buyer and Seller further agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby).

6.6           Tax Sharing Agreements. All Tax sharing agreements or similar agreements with respect to or involving the Company shall be either terminated or amended as of the Closing Date so that, after the Closing Date, the Company shall not be bound thereby or have any liability thereunder.

6.7           Tax Treatment of Indemnification Payments. Buyer and Seller agree to treat any indemnification payment made pursuant to this Agreement as an adjustment to the Purchase Price for all Tax purposes, unless otherwise required by Applicable Law.

6.8           Section 338(h)(10) Election. Buyer and Seller shall join in making an election under Code §338(h)(10) (and any corresponding elections under state, local, or foreign tax law) (collectively a “Section 338(h)(10) Election”) with respect to the purchase and sale of the Company hereunder. Buyer shall prepare an allocation of the applicable portion of the Purchase Price (and all other capitalized costs), to be jointly updated by Buyer and Seller for any adjustments to the Purchase Price pursuant to Sections 1.2 and 1.3, among the assets of the Company in accordance with Section 338(h)(10) of the Code and Treasury Regulations thereunder (and any similar provision of state, local or non-U.S. law, as appropriate). Buyer shall deliver its proposed allocation to Seller in writing within thirty (30) days following the final determination of the Closing Date Purchase Price pursuant to Section 1.2 (but in no event later than four (4) months following the Closing Date) and, to the extent that the Seller does not agree with such proposed allocations, it shall so notify Buyer in writing within thirty (30) days of receipt of the proposed allocations. Seller and Buyer shall in good faith cooperate with the other to resolve any issues with Buyer’s proposed allocations; provided, however, that if Seller and Buyer are unable to agree on the proposed allocations within twenty (20) days after the Seller’s delivery of its notice of disagreement with such proposed allocations, then resolution of any such disagreement shall be determined by a nationally recognized accounting firm agreeable to both Seller and Buyer and the determination by such accounting firm shall be binding on Buyer and Seller. If the parties elect to make a Section 338(h)(10) Election, Buyer, Seller the Company and their Related Persons and Affiliates shall report, act and file Tax Returns (including, but not limited to IRS Form 8023 and 8883) in all respects and for all purposes consistent with the allocation finally determined pursuant to this Section 6.8. If the parties elect to make a Section 338(h)(10) Election, none of Buyer, Seller, the Company nor their Related Persons and Affiliates shall take any position (whether in audits, Tax Returns, or otherwise) which is inconsistent with such final allocation unless required to do so by law.

ARTICLE 7
TERMINATION; ADDITIONAL AGREEMENTS

7.1           Termination. This Agreement may be terminated at any time prior to the Closing Date, whether before or after Stockholder Approval:

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(a)           by mutual written consent of Buyer and Seller; or

(b)           by either Buyer or Seller by giving written notice to the other party if the other party breaches any of its covenants contained in this Agreement and, if the breach is curable, the breach is not cured within ten (10) business days after such notice; or

(c)           by either Buyer or Seller by giving written notice to the other party if the other party breaches any of its representations or warranties contained in this Agreement that would result in a Material Adverse Effect and, if the breach is curable, the breach is not cured within ten (10) business days after such notice; or

(d)           by either Buyer or Seller if the Closing does not occur on or before October 31, 2006 (except that no party shall have the right to terminate this Agreement unilaterally if the event giving rise to the non-occurrence of the Closing is primarily attributable to that party or to any affiliated party); or

(e)           by Buyer if any of the conditions in Section 2.2 have not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; or by Seller if any of the conditions in Section 2.3 have not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to comply with its obligations under this Agreement) and Seller has not waived such condition on or before the Closing Date;

(f)            by Seller if Seller receives a Superior Proposal pursuant to Section 7.3; or

(g)           by Seller if Seller does not receive Stockholder Approval.

7.2           Effect of Termination. Each party’s right of termination under Section 7.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 7.1, all further obligations of the parties under this Agreement will terminate, except that the obligations in Section 7.13 will survive; provided, however, that if this Agreement is terminated by a party because of the breach of the Agreement by the other party or because one or more of the conditions to the terminating party’s obligations under this Agreement is not satisfied as a result of the other party’s failure to comply with its obligations under this Agreement, the terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

7.3           Fiduciary Duties.

(a)           Notwithstanding anything in this Agreement to the contrary, Seller may, in response to a bona fide unsolicited proposal that constitutes an Acquisition Proposal, participate in discussions or negotiations with, or furnish or disclose any non-public information to, any Person that makes such Acquisition Proposal if (i) Seller reasonably determines in good faith that such Acquisition Proposal is, or may reasonably be expected to lead to, a Superior Proposal, (ii) Seller shall have provided prompt notice to

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the Buyer of its intent to take such action, the identity of the Person making the Acquisition Proposal and the material terms and conditions of such Acquisition Proposal and (iii) Seller received from such Person an executed confidentiality agreement in reasonably customary form. If such an Acquisition Proposal results in a Superior Proposal, Seller may terminate this Agreement pursuant to Section 7.1; provided, however, that if Seller terminates this Agreement as a result of a Superior Proposal, Seller shall reimburse Buyer for all of its costs and expenses up to $750,000 incurred in connection with this Agreement and the transactions contemplated hereby.

(b)           Nothing in this Agreement shall prohibit the Seller from making any disclosure to Seller’s stockholders as, in the good faith judgment of Seller’s Board of Directors, is required under Applicable Law or where the failure to make such disclosure is reasonably likely to cause the members of the Board of Directors of the Seller to violate their fiduciary duties.

7.4           Books and Records; Post Closing. The parties will make reasonably available to one another any records or documents that they maintain with respect to the Company or the Company Business for purposes of compliance with applicable laws or in defending any third-party litigation arising in respect of this Agreement. Seller will make available to Buyer, at Buyer’s request and expense, all books and records of Seller relating to the Company Business which are reasonably necessary with respect to Buyer’s ongoing operations for inspection or copying by Buyer at any reasonable time for a five (5) year period after the Closing Date. Buyer will make available to Seller, at Seller’s request and expense, all books and records of Buyer relating to the Company Business which are reasonably necessary with respect to any governmental investigation or third-party litigation or claim for inspection or copying by Seller at any reasonable time for a five (5) year period after the Closing Date.

7.5           Use of Business Name. After the Closing, the Buyer will not, directly or indirectly, use or do business, or allow any Affiliate to use or do business, or assist any third party in using or doing business, under or using the name containing or similar to the word “Zila”; provided, however, that (a) Buyer shall have 30 days following the Closing Date to change the Company’s name to remove the word “Zila” and provide Seller with evidence of such change and (b) Buyer shall have the right to sell the Company’s inventory and all packaging materials existing as of the Closing. Buyer must use its commercially reasonable best efforts to dispose of any such inventory and packaging materials as soon as is commercially practicable after the Closing Date.

7.6           Transaction Expenses. Subject to Section 7.3(a), Seller shall be responsible for all of the legal fees and expenses relating to the proposed transactions incurred by Seller or the Company. Buyer shall be responsible for all of the legal fees and expenses relating to the proposed transaction incurred by Buyer.

7.7           Notices. All notices, and other communications hereunder will be in writing and deemed to have been given when (i) delivered by hand, (ii) sent by telecopier (with receipt confirmed), (iii) sent by email, or (iv) when actually received by the addressee, in each case to the following:

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If to Buyer:	NBTY, Inc.
	90 Orville Drive Bohemia, NY 11716 Phone: 631-218-2020 Fax No.: 631-567-7148 Attention: President
With a copy to:	Edwards Angell Palmer & Dodge LLP
	2800 Financial Plaza Providence RI, 02903 Phone: 401-276-6658 Fax No.: 401-276-6611 Attn.: Susan A. Keller, Esq.
If to Seller:	Zila, Inc.
	5227 N. 7th Street Phoenix, AZ 84014 Phone: (602) 266-6700 Fax No.: (602) 234-2264 Attn: Gary V. Klinefelter
With a copy to:	Snell & Wilmer L.L.P.
	400 East Van Buren Street
	Phoenix, AZ 85004
	Phone: (602) 382-6381
	Fax No.: (602) 382-6070
	Attn: Michael M. Donahey, Esq.

7.8           Governing Law. The validity, construction, and enforceability of this Agreement shall be governed in all respects by the laws of the State of Arizona, including, without limitation, its laws regarding choice of law.

7.9           Assignment. This Agreement will not be assigned by operation of law or otherwise, except that Buyer may assign all or any portion of its rights under this Agreement to any of its wholly-owned subsidiaries, but no such assignment will relieve Buyer of its obligations hereunder, and except that this Agreement may be assigned by operation of law to any corporation or entity with or into which Buyer may be merged or consolidated or to which Buyer transfers all or substantially all of its assets, and such corporation or entity assumes this Agreement and all obligations and undertakings of Buyer hereunder.

7.10         Intent to be Binding: Entire Agreement. The Disclosure Letter, the Transaction Documents and Exhibits referred to herein are incorporated herein by this reference as if fully set forth in the text of this Agreement. This Agreement may be executed in any number of counterparts, and each counterpart constitutes an original instrument, but all such separate counterparts constitute one and the same agreement. This Agreement (including the Disclosure Letter) and the Confidentiality Agreement contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations

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or warranties other than those set forth or referred to herein. This Agreement may not be amended except by an instrument in writing approved by Buyer and Seller. If any term, provision, covenant, or restriction of this Agreement is held by a court to be invalid or unenforceable, the remainder of the terms, provisions, covenants, and restrictions of this Agreement will remain in full force and effect and will in no way be affected or invalidated and the court will modify this Agreement or, in the absence thereof, the parties agree to negotiate in good faith to modify this Agreement to preserve each party’s anticipated benefits under this Agreement.

7.11         Waiver of Provisions. The terms, covenants, representations, warranties, and conditions of this Agreement may be waived only by a written instrument executed by the party waiving compliance. The rights and remedies of the parties to this Agreement are cumulated and not alternative. The failure of any party at any time to require performance of any provisions hereof will, in no manner, affect the right at a later date to enforce the same. No waiver by any party of any condition, or breach of any provision, term, covenant, representation, or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances, will be deemed to be or construed as a further or continuing waiver of any such condition or of the breach of any other provision, term, covenant, representation, or warranty of this Agreement.

7.12         Jurisdiction. Any Proceeding arising out of or relating to this Agreement, the Transaction Documents or any transaction contemplated hereunder or thereunder may be brought in the courts of the State of Delaware and each of the parties irrevocably submits to the exclusive jurisdiction of each such court in any such Proceeding, waives any objection it may now or hereafter have to venue or to convenience of forum, agrees that all claims in respect of the Proceeding shall be heard and determined only in any such court and agrees not to bring any Proceeding arising out of or relating to this Agreement, the Transaction Documents or any transaction contemplated hereunder or thereunder in any other court. The parties agree that either or both of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained agreement between the parties irrevocably to waive any objections to venue or to convenience of forum. Process in any Proceeding referred to in the first sentence of this section may be served on any party anywhere in the world.

7.13         Confidentiality. The terms of the mutual nondisclosure agreement dated as of March 30, 2006 (the “Confidentiality Agreement”) between Seller and Buyer are hereby incorporated herein by reference and shall continue in full force and effect until the Closing Date, at which time such Confidentiality Agreement and the obligations of Buyer under this Section 7.13 shall terminate.

7.14         Public Announcements. Neither party to this Agreement shall make, or cause to be made, any press release or public announcement in respect of this Agreement or the transactions contemplated by this Agreement or otherwise communicate with any news media without the prior written consent of the other party unless otherwise required by law or applicable stock exchange regulation, and the parties to this Agreement shall cooperate as to the timing and contents of any such press release, public announcement or communication.

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7.15         Third Party Beneficiaries. Except as specifically provided in Article 7 of this Agreement, neither this Agreement nor the transactions contemplated hereby is intended to, and none of them shall, create any rights in any other person other than the parties to this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement on the date first written above by their duly authorized officers.

“Buyer”
NBTY, INC., a Delaware corporation
By:	/s/ Irene Fisher
Name:	Irene Fisher
Title:	General Counsel
“Seller”
ZILA, INC., a Delaware corporation
By:	/s/ Gary K. Klinefelter
Name:	Gary K. Klinefelter
Title:	Vice-President, General Counsel & Secretary

[Signature Page to Stock Purchase Agreement]

EXHIBIT A

DEFINITIONS

For purposes of this Agreement, the Disclosure Letter and Exhibits thereto, the following terms have the following meanings.

“AAA Rules” has the meaning set forth in Section 1.2(d).

“Accounts Receivable” has the meaning set forth in paragraph 13 of Exhibit B.

“Acquisition Proposal” means (i) any proposal or offer from any Person relating to any direct or indirect acquisition of all or substantially all of the assets, or all of the shares of capital stock, of the Company, taken as a whole or (ii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company, other than the transactions contemplated by the Agreement.

“Affiliate” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended.

“Agreement” has the meaning set forth in the preface of this Agreement.

“Applicable Laws” means all laws, regulations, ordinances and other restrictions of foreign, federal, state, and local governments and agencies regulating or otherwise affecting Seller, the Company or the Company Business, including, without limitation, employee health and safety, the discharge of pollutants or wastes, and employee benefit plans.

“Arbitrating Accountant” has the meaning set forth in Section 1.2(d).

“Business Combination” means any merger, consolidation or combination to which the Company is a party, any sale, dividend, split or other disposition of capital stock or other equity interest of the Company or any sale, dividend or other disposition of all or substantially all of the assets and properties of the Company.

“Buyer” has the meaning set forth in the preface of this Agreement.

“Buyer Parties” has the meaning set forth in Section 3.4.

“Buyer’s Advisors” has the meaning set forth in Section 4.1.

“Cap” has the meaning set forth in Section 3.4(c).

“Capital Leases” means (a) that certain Commercial Master Lease Agreement No. 834867, effective as of January 25, 2006, by and between the Company and Trinity, A Division of Bank of the West; (b) that certain Master Lease Agreement, effective March 5, 2003, by and between the Company and General Electric Capital Corporation; and (c) that certain Master Lease Agreement, dated as of October 30, 2003, by and between the Company and Agilent Financial Services, Inc.

A-1

“Cleanup” has the meaning set forth within the definition of Environmental, Health, and Safety Liabilities.

“Closing” has the meaning set forth in Section 2.1.

“Closing Date” has the meaning set forth in Section 2.1.

“Closing Date Balance Sheet” has the meaning set forth in Section 1.2(b).

“Closing Date Working Capital Statement” has the meaning set forth in Section 1.2(c).

“Closing Date Purchase Price” has the meaning set forth in Section 1.2(a).

“Closing Working Capital” means the current assets of the Company as of the Closing Date (excluding all prepaid insurance amounts and similar amounts) less all current liabilities (including without limitation the current portion of the Capital Leases) of the Company as of the Closing Date, determined on a basis consistent with the Financial Statements, which, in each case were prepared in accordance with GAAP.

“Code” means the Internal Revenue Code of 1986 as amended, and any reference to any particular Code section shall be interpreted to include any revision of or successor to that section regardless of how numbered or classified.

“Company” has the meaning set forth in the recitals.

“Company Business” has the meaning set forth in the recitals.

“Confidentiality Agreement” has the meaning set forth in Section 7.13.

“Contingent Purchase Price” has the meaning set forth in Section 1.2(a).

“Copyright” has the meaning set forth in paragraph 25(a) of Exhibit B.

“Disclosure Letter” has the meaning set forth in Section 3.1.

“Earn Out Closing Statement” has the meaning set forth in Section 1.3(a).

“EBITDA” shall mean, for any time period with respect to the Company Business, an amount equal to the sum of each of the following, in each case for such period, as determined in accordance with GAAP: (a) net income (or net loss), excluding the aggregate amount of all non-cash losses reducing such net income, plus (b) interest expense, plus (c) depreciation, plus (d) amortization, plus (e) income taxes paid or accrued.

“EBITDA Target” has the meaning set forth in Section 1.3.

“Effective Date” has the meaning set forth in the preface of this Agreement.

“Employee Plans” has the meaning set forth in paragraph 19(a) of Exhibit B.

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“Encumbrance” means any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership.

“Environment” means soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins, and wetlands), ground waters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource.

“Environmental Properties” has the meaning set forth in paragraph 22 of Exhibit B.

“Environmental, Health, and Safety Liabilities” means any cost, damages, expense, liability, obligation, or other responsibility arising from or under any Environmental Law or Occupational Safety and Health Law including, without limitation, the following:

(a)any environmental, health, or safety matters or conditions (including on-site or off-site contamination, occupational safely and health, and regulation of chemical substances or products); or

(b)fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, claims, demands and response, investigative, remedial, or inspection costs and expenses arising under Environmental Law or Occupational Safety and Health Law; or

(c)financial responsibility under Environmental Law or Occupational Safety and Health Law for cleanup costs or corrective action, including any investigation, cleanup, removal, containment, or other remediation or response actions (“Cleanup”) required by applicable Environmental Law or Occupational Safety and Health Law (whether or not such Cleanup has been required or requested by any Governmental Body or any other Person) and for any natural resource damages; or

(d)any other compliance, corrective, investigative, or remedial measures required under Environmental Law or Occupational Safety and Health Law.

The terms “removal,” “remedial,” and “response action,” include the types of activities covered by the United States Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq., as amended.

“Environmental Law” means any legal requirement that requires or relates to:

(a)advising appropriate authorities, employees, and the public of intended or actual releases of pollutants or hazardous substances or materials, violations of discharge limits, or other prohibitions and of the commencements of activities, such as resource extraction or construction, that could have significant impact on the Environment; or

(b)preventing or reducing to acceptable levels the release of pollutants or hazardous substances or materials into the Environment; or

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(c)reducing the quantities, preventing the release, or minimizing the hazardous characteristics of wastes that are generated; or

(d)protecting resources, species, or ecological amenities; or

(e)reducing to acceptable levels the risks inherent in the transportation of hazardous substances, pollutants, oil, or other potentially harmful substances; or

(f)cleaning up pollutants that have been released, preventing the threat of release, or paying the costs of such clean up or prevention; or

(g)making responsible parties pay private parties, or groups of them, for damages done to their health or the Environment, or permitting self-appointed representatives of the public interest to recover for injuries done to public assets.

“ERISA” means the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law.

“ERISA Affiliate” has the meaning set forth in paragraph 19(a) of Exhibit B.

“ESPP” has the meaning set forth in Section 4.13.

“FFDC Act” shall have the meaning set forth in paragraph 14 of Exhibit B.

“Facility” means any real property, leaseholds, or other real property interests currently owned or operated by the Company and any buildings, plants or structures currently owned or operated by the Company.

“Financial Statements” has the meaning set forth in paragraph 5 of Exhibit B.

“GAAP” means generally accepted United States accounting principles, applied on a basis consistent with the basis on which the Financial Statements were prepared and have been prepared in the past.

“Governmental Authorization” means any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any legal requirement.

“Governmental Body” means any:

(i)nation, state, county, city, town, village, district, or other jurisdiction of any nature; or

(ii)federal, state, local, municipal, foreign, or other government; or

(iii)governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); or

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(iv)multi-national organization or body; or

(v)body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.

“Hazardous Activity” means the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, Release, storage, transfer, transportation, treatment, or use (including any withdrawal or other use of groundwater) of Hazardous Materials in, on, under, about, or from the Facility or any part thereof into the Environment.

“Hazardous Materials” means any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials.

“Income Tax” means any federal, state, local, or foreign income tax, including any interest, penalty, or addition thereto.

“Income Tax Return” means any Tax Return with respect to Income Taxes.

“Indemnified Party” has the meaning set forth in Exhibit D.

“Indemnifying Party” has the meaning set forth in Exhibit D.

“Intellectual Property Assets” has the meaning set forth in paragraph 25(a) of Exhibit B.

“IRS” means the United States Internal Revenue Service or any successor agency, and to the extent relevant, the United States Department of the Treasury.

“Knowledge” An individual will be deemed to have “Knowledge” of a particular fact or other matter if (a) such individual is actually aware of such fact or other matter or (b) a prudent individual could reasonably be expected to become aware of such fact or other matter within the normal scope of such individual’s responsibilities with the Company, Seller or Buyer, as applicable, which scope includes due inquiry relative to such individual’s responsibilities.

A Person (other than an individual) will be deemed to have “Knowledge” of a particular fact or other matter if any individual who is serving or who has within the last two years served as a director, executive officer, partner, executor, attorney (but only with respect to the matters set forth in paragraph 25 of Exhibit B) or trustee of such Person (or in any similar capacity) has, or at any time had, Knowledge of such fact or other matter.

“Loss” or “Losses” means any and all claims, liabilities, obligations, losses, fines, costs, royalties, proceedings, deficiencies or damages (including incidental and consequential damages).

A-5

“Marks” has the meaning set forth in paragraph 25(a) of Exhibit B.

“Material Adverse Effect” or “Material Adverse Change” means any effect or change that would be materially adverse to the results of operations or the financial condition of the Company Business, taken as a whole, including without limitation any insolvency or similar filing by the Seller; provided, however, that none of the following, either alone or in combination, shall be deemed to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect or Material Adverse Change: (a) any adverse change, event, development, or effect arising from or relating to (1) general business or economic conditions affecting the industry in which the Company Business operates, including such conditions related to the Company Business unless the Company Business is disproportionately affected by such changes, (2) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (3) financial, banking, or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (4) changes in United States generally accepted accounting principles, unless the Company Business is disproportionably affected by such changes, (5) changes in laws, rules, regulations, orders, or other binding directives issued by any governmental entity, unless the Company Business is disproportionately affected by such changes or (6) the taking of any action contemplated by this Agreement and the other agreements contemplated hereby; (b) any existing event, occurrence, or circumstance that is set forth in the Disclosure Letter, but only to the extent of such disclosure, it being understood and agreed that a material adverse change beyond what is set forth in the Disclosure Letter may constitute either alone or in combination, a Material Adverse Effect or Material Adverse Change; and (c) any adverse change in or effect on the Company Business that is cured by Seller or the Company before the Closing Date.

“Material Contract” has the meaning set forth in paragraph 7 of Exhibit B.

“Measurement Period” has the meaning set forth in Section 1.3(a).

“Notice of Objection” has the meaning set forth in Section 1.2(d).

“Occupational Safety and Health Law” means any legal requirement designed to provide safe and healthy working conditions and to reduce occupational safety and health hazards, and any program, whether governmental or private (including those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthy working conditions.

“Order” means any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator.

“Patent” has the meaning set forth in paragraph 25(a) of Exhibit B.

“Permitted Encumbrances” has the meaning set forth in paragraph 6 of Exhibit B.

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“Person” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body.

“Pre-Closing Tax Period” has the meaning set forth in Section 6.1(b).

“Proceeding” means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator.

“Products” has the meaning set forth in the recitals.

“Proprietary Rights Agreement” has the meaning set forth in paragraph 23(b) of Exhibit B.

“Proxy Statement” has the meaning set forth in Section 4.3.

“Purchase Price” has the meaning set forth in Section 1.2(a).

“Related Person” (a) with respect to a particular individual:

(i)each other member of such individual’s Family (as defined below);

(ii)any Person that is directly or indirectly controlled by such individual or one or more members of such individual’s Family;

(iii)any Person in which such individual or members of such individual’s Family hold (individually or in the aggregate) a Material Interest (as defined below); and

(iv)any Person with respect to which such individual or one or more members of such individual’s Family serves as a director, officer, partner, executor, or trustee (or in a similar capacity).

(b)With respect to a specified Person other than an individual, an Affiliate.

For purposes of this definition, (a) the “Family” of an individual includes (i) the individual, (ii) the individual’s spouse, (iii) any other natural person who is related to the individual or the individual’s spouse within the second degree, and (iv) any other natural person who resides with such individual, and (b) “Material Interest” means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or other voting interests representing at least 5% of the outstanding voting power of a Person or equity securities or other equity interests representing at least 5% of the outstanding equity securities or equity interests in a Person.

“Release” means any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment, whether intentional or unintentional.

“Rights in Mask Work” has the meaning set forth in paragraph 25(a) of Exhibit B.

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“SEC” means the U.S. Securities and Exchange Commission.

“Section 338(h)(10) Election” has the meaning set forth in Section 6.8.

“Securities Act” means the Securities Act of 1933 or any successor law, and regulations and rules issued pursuant to that Act or any successor law.

“Seller” has the meaning set forth in the preface of this Agreement.

“Seller Stockholders Meeting” has the meaning set forth in Section 4.3.

“Shares” has the meaning set forth in the recitals.

“Stockholder Approval” means the affirmative vote of the holders of outstanding shares of the capital stock, and all option and warrant holders, if any, of Seller necessary for the approval of the transactions contemplated by this Agreement and the Transaction Documents.

“Straddle Period” has the meaning set forth in Section 6.1(b).

“Superior Proposal” means any Acquisition Proposal that the Seller’s Board of Directors determines, in its good faith judgment, to be more favorable to the Seller’s stockholders than the transactions completed by this Agreement.

“Target Working Capital” shall mean $6,852,171 as set forth in the Financial Statements dated February 28, 2006.

“Tax” any income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental, windfall profit, customs, vehicle, airplane, boat, vessel or other title or registration, capital stock, franchise, employees’ income withholding, foreign or domestic withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, value added, alternative, add-on minimum and other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever and any interest, penalty, addition or additional amount thereon imposed, assessed or collected by or under the authority of any Governmental Body or payable under any tax-sharing agreement or any other contract or as a successor or a transferee or pursuant to Treas. Reg. Sec. 1.1502-6.

“Tax Return” means any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any legal requirement relating to any Tax.

“Threshold Amount” has the meaning set forth in Section 3.4(c).

“Threat of Release” means a substantial likelihood of a Release that may require action in order to prevent or mitigate damage to the Environment that may result from such Release.

“Trade Secrets” has the meaning set forth in paragraph 25(a) of Exhibit B.

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“Transaction Documents” shall mean that certain non-compete agreement with Seller and the Buyer dated as of the Closing Date, substantially in the form of Exhibit G hereto.

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EXHIBIT B

REPRESENTATIONS AND WARRANTIES OF SELLER

The Seller represents and warrants to Buyer, as of the date hereof, or if a representation or warranty is made as of a specific date as of such date and as of the Closing Date, as follows:

1.Organization; Qualification.

(a)Seller is a corporation duly organized, validly existing, and in good standing under the laws of the state of Delaware, and has the requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the state of Arizona, and has full corporate power and authority to own and operate its properties and to carry on its business (including the Company Business) and to perform all of its obligations under this Agreement and under the Transaction Documents. The Disclosure Letter lists all lines of business in which the Company is participating or engaged. The Company is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction specified in the Disclosure Letter, which are the only jurisdictions in which either the ownership or use of the properties owned or used by the Company, or the nature of the activities conducted by it, requires such qualification. The name of each director and officer of the Company on the date hereof and the position with the Company held by each, are listed in the Disclosure Letter.

(b)Seller has delivered to Buyer true and complete copies of the incorporation documents of the Company, as in effect on the date hereof.

2.Authority Relative to this Agreement. The Seller has the requisite corporate power and authority to enter into this Agreement and the Transaction Documents and to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby including, without limitation, to own, hold, sell and transfer (pursuant to the Agreement) the Shares. The execution and delivery of this Agreement and the Transaction Documents by Seller and the consummation by Seller of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors and stockholders of Seller, and no other proceedings on the part of Seller or its stockholders are necessary. This Agreement and the Transaction Documents have been duly and validly executed and delivered by Seller, and constitute the legal, valid and binding obligations of Seller, enforceable against the Seller in accordance with their respective terms.

3.No Conflicts. Neither the Seller nor the Company is subject to, or obligated under, any provision of (a) their Certificate or Articles of Incorporation, Bylaws, or other organizational documents, (b) except as set forth in the Disclosure Letter, any agreement, arrangement, or understanding, (c) any license, franchise, or permit, or (d) any Applicable Law that would be breached, defaulted (with or without notice or lapse of time or both) or violated or in conflict with, or in respect of which a right of termination or acceleration or any other right would arise, or pursuant to which any Encumbrance on any of the Company Business or

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Company assets would be created, by its execution, delivery, and performance of this Agreement or the Transaction Documents and the consummation by either of them of the transactions contemplated hereby or thereby.

4.No Consents. Except (a) as set forth in the Disclosure Letter, (b) for the filing with the SEC of the Proxy Statement in definitive form, and other filings required under, and in compliance with the applicable requirements of, the Exchange Act, and (c) with respect to the Stockholder Approval, no authorization, notice, consent, action or approval of, or filing with, any Governmental Body or any Person is necessary on the part of Seller or Company for the execution, delivery and performance of this Agreement and the Transaction Documents or the consummation by Seller of the transactions contemplated by this Agreement or the Transaction Documents.

5.Financial Statements. The unaudited balance sheet, income statement, statement of cash flows and statement of stockholders equity of the Company as of and for the years ended July 31, 2005, 2004 and 2003 and as of and for the nine (9) months ended April 30, 2006 (collectively, the “Financial Statements”) are attached to the Disclosure Letter. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved and fairly present the financial position of the Company as of the dates thereof and the results of its operations, changes in stockholder’s equity and cash flow for the periods then ended; provided, however, that such interim Financial Statements are subject to normal year-end adjustments and lack footnotes and other presentation items. The Financial Statements were compiled from books and records of the Company regularly maintained by management and used to prepare financial statements of the Company in accordance with principles stated therein. The Company has maintained the books and records in a manner sufficient to permit the preparation of financial statements in accordance with GAAP, such books and records fairly reflect, in all material respects, the income, expenses, assets and liabilities of the Company and the books and records provided a fair and accurate basis for the preparation of the Financial Statements.

6.Title to the Company Business; Encumbrances; Sufficiency of Assets. Except as set forth in the Disclosure Letter, the Company is in possession of and has good and marketable title to, or has a valid leasehold interest in or valid rights under a contract to use, and owns all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) that it purports to own, whether located in any Facility or otherwise, that are used in or are necessary for the conduct of the Company Business, as historically conducted, reflected as owned in the books and records of the Company, including all of the properties and assets reflected in the Financial Statements. All properties and assets reflected in the Financial Statements are free and clear of all Encumbrances, except for: (a) Encumbrances for current taxes not yet due, and (b) with respect to real property, except as set forth on the Disclosure Letter, (i) minor imperfections of title, if any, none of which is substantial in amount, materially detracts from the value or impairs the use of the property subject thereto, or impairs the operations of the Company, and (ii) zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto (collectively, the “Permitted Encumbrances”).

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7.Contracts; No Defaults.

(a)The Disclosure Letter sets forth a listing (including names of parties and date of agreement) of all contracts, agreements and other verbal arrangements to which the Company is a party or the Seller is a party and the agreement or arrangement relates to the Company Business and the performance of which will involve consideration in excess of $50,000 or cannot be terminated on 60 days or less notice (each, a “Material Contract”). Material Contracts shall include all distribution agreements, license agreements, partnership, joint venture, shareholder and non-compete agreements with the Company and a third party or with the Seller and a third party relating to the Company Business. Seller has delivered to Buyer a correct and complete copy of each Material Contract listed in the Disclosure Letter.

(b)Except as set forth in the Disclosure Letter:

(i)Seller has not acquired any rights under, and Seller has not become subject to any obligation or liability under, any Material Contract that relates to the Company Business, or any of the assets owned or used by, the Company; and

(ii)No officer, director, agent, employee, consultant, or contractor of the Company is bound by any Material Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor to (A) engage in or continue any conduct, activity, or practice relating to the Company Business, or (B) assign to the Company or to any other Person any rights to any invention, improvement, or discovery or any other asset of the Company.

(c)Except as set forth in the Disclosure Letter, each Material Contract identified or required to be identified in the Disclosure Letter is in full force and effect and is valid and enforceable in accordance with its terms.

(d)Except as set forth in the Disclosure Letter:

(i)the Seller and the Company are, and at all times since August 1, 2002 have been, in full compliance with all applicable terms and requirements of each Material Contract under which the Company has or had any obligation or liability or by which the Company or any of the assets owned or used by the Company is or was bound;

(ii)each other Person that has or had any obligation or liability under any Material Contract under which the Company has or had any rights is, and at times since August 1, 2002 has been, in full compliance with all applicable terms and requirement of such Material Contract;

(iii)no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give the Company or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Material Contract; and

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(iv)the Company has not given to or received from any other Person, in writing at any time since December 1, 2004, any written notice regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Material Contract.

(e)The Company is not renegotiating and has not been requested by any Person to renegotiate any material amounts paid or payable to the Company under any current Material Contracts and no such Person has made written demand for such renegotiation.

(f)The contracts relating to the sale, design, manufacture, or provision of products or services by the Company have been entered into by the Company in the ordinary course of business and have been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any legal requirement.

(g)The Company has no obligations under or with respect to the ESPP.

8.Tax Matters. Except as set forth in the Disclosure Letter:

(a)The Company has timely filed all Tax Returns required to be filed on or before the date hereof and the Closing Date. The Company has paid all Taxes owed (whether or not shown, or required to be shown, on Tax Returns) on or before the date hereof and the Closing Date. The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. All Tax Returns filed by the Company were complete and correct in all respects, and such Tax Returns correctly reflected the facts regarding the income, business, assets, operations, activities, status and other matters of the Company and any other information required to be shown thereon. There are no liens for Taxes upon any of the Company’s assets, other than liens for Taxes not yet due and payable.

(b)None of the Tax Returns filed by the Company or Taxes payable by the Company have been the subject of an audit, action, suit, proceeding, claim, examination, deficiency or assessment by any governmental authority, and no such audit, action, suit, proceeding, claim, examination, deficiency or assessment is currently pending or, to the knowledge of the Company, threatened.

(c)The Company is not currently the beneficiary of any extension of time within which to file any Tax Return, and the Company has not waived any statute of limitation with respect to any Tax or agreed to any extension of time with respect to a Tax assessment or deficiency. All material elections with respect to Taxes affecting the Company, as of the date hereof, are set forth in the Disclosure Letter. The Company is not subject to, nor has applied for any private letter ruling of the Internal Revenue Service or comparable rulings of any Taxing Authority. Neither the Company nor any other Person on its behalf has granted to any Person any power of attorney that is currently in force with respect to any Company Tax matter.

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(d)The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (A) change in method of accounting for a taxable period ending on or prior to the Closing Date, (B) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign Tax law) executed on or prior to the Closing Date, (C) intercompany transaction or excess loss account described in United States Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local, or non-U.S. Tax law), (D) installment sale or open transaction made on or prior to the Closing Date, or (E) prepaid amount received on or prior to the Closing Date.

(e)The Company is not a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of (i) any “excess parachute payments” within the meaning of Section 280G of the Code (without regard to the exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) of the Code) or (ii) any amount for which a deduction would be disallowed or deferred under Section 162(m) of the Code.

(f)The Company has not filed a consent pursuant to Section 341(f) of the Code, relating to collapsible corporations and Section 341(f)(2) does not apply to any of the Company’s assets. The Company is not, and has not been, a U.S. real property holding company (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(l)(A)(ii), of the Code. The Company does not own, and has not owned, any assets that it owned prior to August 10, 1993 that are “Section 197 Intangibles” within the meaning of Section 197 of the Code.

(g)The Company did not constitute either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (A) in the two (2) years prior to the date of this Agreement or (B) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the transactions contemplated by this Agreement.

(h)The Company does not have any net operating losses or other tax attributes presently subject to limitation under Sections 382, 383 or 384 of the Code, or the federal consolidated return regulations (other than limitations imposed as a result of the transactions contemplated by this Agreement). The Company has never (i) made an election under Section 1362 of the Code to be treated as an S corporation for federal income tax purposes or (ii) made a similar election under any comparable provision of any state, local or non-U.S. Tax law.

(i)The Company is not a party to any Tax sharing agreement or similar arrangement (including, but not limited to, an indemnification agreement or arrangement). Except as set forth in the Disclosure Letter, the Company has never been a member of a group filing a consolidated federal income Tax Return or a combined, consolidated, unitary or other affiliated group Tax Return for state, local or non-U.S. Tax

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purposes (other than a group the common parent of which is the Company). The Company does not have any liability for the Taxes of any Person (other than the Company) under Treasury Regulation Section 1.1502-6 (or any corresponding provision of state, local or non-U. S. Tax law), or as a transferee or successor, or by contract, or otherwise.

(j)The unpaid Taxes of the Company does not exceed the reserve for actual Taxes (as opposed to any reserve for deferred Taxes established to reflect timing differences between book and Tax income) and will not exceed such reserve as adjusted for the passage of time through the Closing Date in accordance with the reasonable past custom and practice of the Company in filing Tax Returns. The Company will not incur any liability for Taxes from February 28, 2006 through the Closing Date other than in the ordinary course of business and consistent with reasonable past practice.

(k)The Disclosure Letter contains a list of all jurisdictions (whether foreign or domestic) to which any Tax is properly payable by the Company. No claim has ever been made by a government authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to Tax in that jurisdiction. The Company does not have, nor has ever had, a permanent establishment or other taxable presence in any foreign country, as determined pursuant to applicable foreign law and any applicable Tax treaty or convention between the United States and such foreign country.

(1)The Company has not (i) participated or engaged in any transaction, or taken any Tax Return position, described in Treasury Regulation Section 301.6111 -2(b)(2) (or any corresponding or similar provision of state, local or non-U.S. Tax law) or (ii) participated or engaged in any “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4 (or any corresponding or similar provision of state, local or non-U.S. Tax law).

(m)The Company is not and has never been a party to a transaction or agreement that is in conflict with the Tax rules on transfer pricing in any relevant jurisdiction and all transactions and agreements (whether written or oral) between or among the Company and any Related Person (or any of their Affiliates) and/or the terms thereof have been conducted in an arm’s length manner consistent with the Company’s transactions or agreements with unrelated third parties.

9.Litigation. Except as set forth in the Disclosure Letter, there are no suits, claims, actions, arbitrations, investigations, or proceedings entered against, now pending, or to the Knowledge of Seller threatened against the Company, or against the Seller relating to the Company Business, before any court, arbitration, administrative or regulatory body, or any governmental agency. There are no facts or circumstances known to Seller that could reasonably be expected to give rise to any Proceeding that would be required to be disclosed pursuant to this Paragraph 9. Neither Seller nor the Company is subject to any continuing court or administrative order, writ, injunction, or decree that is applicable to the Company or the Company Business, or to the Company’s property or employees, and neither Seller nor the Company is in default with respect to any order, writ, injunction, or decree of any court or federal, state, municipal, or other

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governmental department, commission, board, agency, or instrumentality relating to the Company or the Company Business.

10.Brokers’ Fees. Neither Seller nor any Affiliate has dealt with any broker, finder, or other person or entity entitled to any brokerage commissions, finders’ fees, or similar compensation in connection with the transactions contemplated by this Agreement that could give rise to liability on the part of the Company.

11.Capitalization; Ownership of Shares; Subsidiaries. (a) The authorized capital stock of the Company consists solely of one hundred (100) shares of Common Stock, $0.01 par value, of which only the Shares have been issued. The Shares are duly authorized, validly issued and outstanding, fully paid and nonassessable and were not issued in violation of any preemptive rights. There are no options, warrants, convertible securities or other rights, agreements, arrangements or commitments relating to the Shares or the Company or obligating either the Seller or the Company to issue or sell any shares of Common Stock, or any other interest in, the Company. There are no rights to receive or exercise any benefit or right similar to any right enjoyed by or accruing to the holder of shares of capital stock of the Company that are held by anyone other than the Seller, including any rights to participate in the equity or income of the Company or to participate in or direct the election of any officers or directors of the Company or the manner in which any shares of capital stock of the Company are voted. The Shares constitute all the issued and outstanding capital stock of the Company and are owned of record and beneficially by the Seller free and clear of all Encumbrances, except as set forth in the Disclosure Letter. There are no contracts relating to the issuance, sale, or transfer of any equity securities or other securities of the Company. The Seller has not caused the Company to issue or sell, and the Company (or any of its predecessors) has not issued or sold any equity or other securities in violation of the Securities Act or any other legal requirement. The Company does not own, or have any contract to acquire, any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business.

(b)The delivery of a certificate or certificates at the Closing evidencing the Shares in the manner provided in Section 2.2 will transfer to Buyer good and valid title to the Shares, free and clear of all Encumbrances.

(c)The Company has no subsidiaries.

12.Condition and Sufficiency of Assets. The buildings, plants, structures, and equipment of the Company Business are structurally sound, are in good operating condition and repair, ordinary wear and tear excepted, and are adequate for the uses to which they are being put, and none of such buildings, plants, structures, or equipment is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The building, plants, structures, and equipment of the Company are sufficient for the continued conduct of the Company Business after the Closing in substantially the same manner as conducted prior to the Closing. No assets of the Seller are used or held for use in the Company Business.

13.Accounts Receivable. All accounts receivable of the Company that are reflected on the Financial Statements or the Closing Date Balance Sheet (collectively, the “Accounts

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Receivable”) represent or will represent obligations arising from sales actually made or services actually performed in the ordinary course of business. Unless paid prior to the Closing Date, the Accounts Receivable are or will be as of the Closing Date current and collectible net of the respective reserves for bad debts, returns and allowances (which reserves are adequate and calculated consistent with past practice and, in the case of the reserve as of the Closing Date, will not represent a greater percentage of the Accounts Receivable as of the Closing Date than the reserve reflected in Financial Statements represented of the Accounts Receivable reflected therein and will not represent a Material Adverse Change in the composition of such Accounts Receivable in terms of aging). Subject to such reserves and except as set forth in the Disclosure Letter, each of the Accounts Receivable either has been or will be collected in full, without any set-off, within ninety (90) days after the day on which it first becomes due and payable. There is no pending, or to the Seller’s Knowledge, threatened contest, claim, or right of set-off, other than returns in the ordinary course of business, pending, or to the Seller’s Knowledge threatened, under any Material Contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable.

14.Inventory. All inventory of the Company, whether or not reflected in the Financial Statements, consists of a quality and quantity usable and salable in the ordinary course of business, except for obsolete items and items of below-standard quality, all of which have been written off or written down to net realizable value in the Financial Statements or on the accounting records of the Company as of the Closing Date, as the case may be. All inventories not written off have been priced at the lower of cost or market on a first in, first out basis. The quantities of each item of inventory (whether raw materials, work-in-process, or finished goods) are not excessive, but are reasonable in the present circumstances of the Company Business. To Seller’s Knowledge, the raw materials, food, herbal and dietary supplements of the Company (i) are not adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, as amended (“FFDC Act”), or within the meaning of any Applicable Law within which the definitions of adulteration or misbranding are substantially the same as those contained in the FFDC Act; and (ii) are not articles which may not, under the provisions of Sections 404, 405 and 512 of the FFDC Act, be introduced into interstate commerce.

15.No Undisclosed Liabilities. The Company has no indebtedness or liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations (a) reflected or reserved against in the Financial Statements or Closing Date Balance Sheet; (b) incurred in the ordinary course of business consistent with past practices since the respective dates thereof or (c) set forth in the Disclosure Letter.

16.Books and Records. Except as set forth on the Disclosure Letter, the books of account, minute books, stock record books, and other records of the Company, including, without limitation, Seller’s records of its acquisition of the Company, all of which have been made available to Buyer prior to the date hereof, are complete and correct, and have been maintained in accordance with commercially reasonable business practices and reflect the current ownership of the Shares. The minute books and similar records of the Company contain accurate and complete records of all meetings held of, and corporate action taken by, the stockholder, the Board of Directors, and committees of the Board of Directors of the Company, and no meeting of any such stockholder, Board of Directors, or committee has been held for

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which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the Company. The Company does not have any of its books and records recorded, stored, maintained, operated or otherwise wholly or partly dependent upon or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of the Company.

17.No Material Adverse Change. Since August 1, 2005, there has not been any Material Adverse Change in the business, operations, properties, prospects, assets, or condition of the Company, and no event has occurred or circumstance exists that may result in such a Material Adverse Change.

18.Insurance. The Disclosure Letter contains a true and complete list (including the names and addresses of the insurers, the names of the Persons to whom such Policies have been issued, the expiration dates thereof, whether it is a “claims made” or an “occurrence” policy and a brief description of the interest insured thereby) of all liability, property, workers’ compensation, directors’ and officers’ liability and other insurance policies currently in effect that insure the Company Business, operations or employees of the Company or affect or relate to the ownership, use or operation of the Company Business and that have been issued to the Company or any Person (other than the Company) for the benefit of the Company. Except as set forth on the Disclosure Letter, the insurance coverage provided by any of the policies described above will not terminate or lapse prior to the Closing Date by reason of the transactions contemplated by the Agreement. Each policy listed in the Disclosure Letter is a valid and binding and in full force and effect, no premiums due thereunder have not been paid and neither the Company nor the Person to whom such policy has been issued has received any notice of cancellation or termination in respect of any such policy or is in default thereunder. The insurance policies listed in the Disclosure Letter are placed with financially sound and reputable insurers and, in light of the respective business, operations and the Company Business, are in amounts and have coverages that are reasonable and customary for Persons engaged in businesses and operations similar to the Company Business. Neither the Company nor the Person to whom such policy has been issued has received notice that any insurer under any policy referred to in this Section is denying liability with respect to a claim thereunder or defending under a reservation of rights clause.

19.Employee Benefits.

(a)Set forth in the Disclosure Letter is a complete and correct list of all “employee benefit plans” as defined by Section 3(3) of ERISA, all specified fringe benefit plans as defined in Section 6039D of the Code, and all other bonus, incentive-compensation, deferred-compensation, profit-sharing, stock-option, stock-appreciation-right, stock-bonus, stock-purchase, employee-stock-ownership, savings, severance, change-in-control, supplemental-unemployment, layoff, salary-continuation, retirement, pension, health, life-insurance, disability, accident, group-insurance, vacation, holiday, sick-leave, fringe-benefit or welfare plan, and any other employee compensation or benefit plan, agreement, policy, practice, commitment, contract or understanding (whether qualified or nonqualified, written or unwritten) and any trust, escrow or other agreement related thereto that is maintained or contributed to by the Seller with respect to

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the Company, the Company or any other corporation or trade or business controlled by, controlling or under common control with the Company (within the meaning of Section 414 of the Code or Section 4001(a)(14) or 4001(b) of ERISA) (“ERISA Affiliate”), or with respect to which Company or any ERISA Affiliate has or may have any liability, and provides benefits, or describes policies or procedures applicable to any current or former director, officer, employee or service provider of the Company, or the dependents of any thereof, (collectively the “Employee Plans”).

(b)The Company has delivered to Buyer true, accurate and complete copies of (i) the documents comprising each Employee Plan (or, with respect to any Employee Plan which is unwritten, a detailed written description of eligibility, participation, benefits, funding arrangements, assets and any other matters which relate to the obligations of Company or any ERISA Affiliate); (ii) all trust agreements, insurance contracts or any other funding instruments related to the Employee Plans; (iii) the most recent actuarial and financial reports (audited and/or unaudited) and the annual reports filed with any Government Body with respect to the Employee Plans during the current year and each of the three preceding years; (iv) all collective bargaining agreements pursuant to which contributions to any Employee Plan(s) have been made or obligations incurred (including both pension and welfare benefits) by the Company or any ERISA Affiliate, and all collective bargaining agreements pursuant to which contributions are being made or obligations are owed by such entities: (v) all securities registration statements filed with respect to any Employee Plan; (vi) all contracts with third-party administrators, actuaries, investment managers, consultants and other independent contractors that relate to any Employee Plan; (vii) all summary plan descriptions, summaries of material modifications and memoranda, employee handbooks and other written communications regarding the Employee Plans; and (viii) the most recent IRS determination letter with respect to each Employee Plan.

(c)No Employee Plan is a plan subject to Title IV of ERISA or the minimum funding requirements of Section 302 of ERISA or 412 of the Code, nor has the Company or any subsidiary or any ERISA Affiliate during each year within the six (6) year period preceding the Closing Date, maintained or contributed to a plan subject to Title IV of ERISA. No Employee Plan is a multiemployer plan as defined in Section 3(37) of ERISA.

(d)The Company has, at all times, complied, and currently complies, in all material respects with the applicable continuation requirements for its welfare benefit plans, including (1) Section 4980B of the Code (as well as its predecessor provision, Section 162(k) of the Code) and Sections 601 through 608, inclusive, of ERISA, which provisions are hereinafter referred to collectively as “COBRA” and (2) any applicable state statutes mandating health insurance continuation coverage for employees.

(e)All contributions (including all employer contributions and employee salary reduction contributions) and other payments required by and due from the Company under the terms of each Employee Plan have been made within the time periods prescribed by the Employee Plan, ERISA and the Code.

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(f)Neither the Seller nor the Company has filed, or is considering filing, an application under the Internal Revenue Service’s Employee Plans Compliance Resolution System or the Department of Labor’s Voluntary Fiduciary Correction Program with respect to any Employee Plan. No condition or circumstance exists that would prevent the amendment or termination of any Employee Plan without liability to the Company. Neither the Seller nor the Company has announced any plan or made any legally binding commitment to create any additional Employee Plans or to amend or modify any existing Employee Plans.

(g)The form of all Employee Plans is in compliance with the applicable terms of ERISA, the Code, and any other Applicable Laws, including the Americans with Disabilities Act of 1990, the Family Medical Leave Act of 1993 and the Health Insurance Portability and Accountability Act of 1996, and such plans have been operated in compliance with such laws and the written Employee Plan documents. Neither the Company nor any fiduciary of an Employee Plan has violated the requirements of Section 404 of ERISA. All required reports and descriptions of the Employee Plans (including Internal Revenue Service Form 5500 Annual Reports, Summary Annual Reports and Summary Plan Descriptions and Summaries of Material Modifications) have been (when required) timely filed with the IRS, the U.S. Department of Labor or other Governmental Body and distributed as required, and all notices required by ERISA or the Code or any other legal requirement with respect to the Employee Plans have been appropriately given.

(h)Each Employee Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the IRS (which determination letter takes into account the Plan’s amendment for tax law changes commonly known as “GUST”), and the Company has no Knowledge of any circumstances that will or could result in revocation of any such favorable determination letter. Each trust created under any Employee Plan has been determined to be exempt from taxation under Section 501(a) of the Code, and the Company is not aware of any circumstance that will or could result in a revocation of such exemption and each such Employee Plan has been timely amended for tax law changes commonly known as “EGTRRA.”

(i)There is no material pending or threatened Proceeding relating to any Employee Plan, nor is there any basis for any such Proceeding. Neither the Company nor any fiduciary of an Employee Plan has engaged in a transaction with respect to any Employee Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject Company or Buyer to a Tax or penalty imposed by either Section 4975 of the Code or Section 502(1) of ERISA or a violation of Section 406 of ERISA. The transactions contemplated hereunder will not result in the potential assessment of a Tax or penalty under Section 4975 of the Code or Section 502(1) of ERISA nor result in a violation of Section 406 of ERISA.

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20.Compliance with Legal Requirements; Governmental Authorizations.

(a)Except as set forth in the Disclosure Letter:

(i)The Company and the Company Business are, and at all times since August 1, 2002 have been, in full compliance in all material respects with each legal requirement that is or was applicable to the Company or to the conduct or operation of the Company Business or the ownership or use of any of the Company’s assets;

(ii)no event has occurred or circumstance exists that (with or without notice or lapse of time) (A) constitutes or results in a violation by the Company or Seller with respect to the Company Business of, or a failure on the part of the Company or Seller with respect to the Company Business to comply with, any legal requirement, or (B) may give rise to any obligation on the part of the Company or any other Person with respect to the Company Business to undertake, or to bear all or any portion of the cost of, any remedial action of any nature; and

(iii)neither the Seller nor the Company has received, at any time since December 1, 2004, any written notice from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or potential violation of, or failure to comply with, any legal requirement applicable to the Company Business, or (B) any actual, alleged, possible, or potential obligation on the part of the Company or any other Person with respect to the Company Business to undertake, or to bear all or any portion of the cost of, any remedial action of any nature.

(b)The Disclosure Letter contains a complete and accurate list of each Governmental Authorization that is held by the Company or relates to any of the assets owned or used by, the Company and/or the Company Business. Each Governmental Authorization listed or required to be listed in the Disclosure Letter is valid and in full force and effect and will not be revoked, withdrawn, suspended, cancelled, terminated or modified as a result of the transactions contemplated by this Agreement. Except as set forth in the Disclosure Letter:

(i)The Company and the Company Business are, and at all times since August 1, 2002 have been, in full compliance in all material respects with all of the terms and requirements of each Governmental Authorization identified or required to be identified in the Disclosure Letter;

(ii)no event has occurred or circumstance exists that may (with or without notice or lapse of time) (A) constitute or result directly or indirectly in a violation by the Company or the Company Business of or a failure by the Company or the Company Business to comply with any term or requirement of any Governmental Authorization listed or required to be listed in the Disclosure Letter, or (B) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any

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Governmental Authorization listed or required to be listed in the Disclosure Letter;

(iii)Neither the Seller nor the Company has received, at any time since December 1, 2004, any written notice from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or potential violation of or failure by the Company or the Company Business to comply with any term or requirement of any Governmental Authorization, or (B) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any Governmental Authorization listed or required to be listed on the Disclosure Letter; and

(iv)all applications required to have been filed for the renewal of the Governmental Authorizations listed or required to be listed in the Disclosure Letter have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies.

The Governmental Authorizations listed in the Disclosure Letter collectively constitute all of the Governmental Authorizations reasonably necessary to permit the Company to lawfully conduct and operate the Company Business in the manner conducted and operated and to permit the Company to own and use its assets in the manner in which it currently owns and uses such assets.

21.Absence of Certain Changes and Events. Except as set forth in the Disclosure Letter and for the transactions contemplated by this Agreement, since August 1, 2005, the Company has conducted the Company Business only in the ordinary course of business and consistent with past practice and without limiting the generality of the foregoing, there has not been any:

(a)change in the Company’s authorized or issued capital stock; grant of any stock option or right to purchase shares of capital stock of the Company; issuance of any security convertible into such capital stock; grant of any registration rights; purchase, redemption, retirement, or other acquisition by the Company of any shares of any such capital stock; or declaration or payment of any dividend or other distribution or payment in respect of shares of capital stock; or

(b)amendment to the organizational documents of the Company; or

(c)except in the ordinary course of business consistent with past practice, payment or increase by the Company of any bonuses, salaries, or other compensation to any stockholder, director, officer, or (except in the ordinary course of business consistent with past practice) employee or entry into any employment, severance, or similar contract with any director, officer, or employee; or

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(d)adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of the Company; or

(e)damage to or destruction or loss of any asset or property of the Company, whether or not covered by insurance, in excess of $50,000; or

(f)entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit, or similar agreement, or (ii) any contract or transaction involving a total remaining commitment by or to the Company of at least $50,000; or

(g)sale (other than sales of inventory in the ordinary course of business consistent with past practice), lease, or other disposition of any asset or property of the Company or mortgage, pledge, or imposition of any Encumbrance or other encumbrance on any material asset or property of the Company, including the sale, lease, or other disposition of any of the Intellectual Property Assets, in excess of $50,000; or

(h)cancellation or waiver of any claims or rights with a value to the Company in excess of $50,000; or

(i)material change in the accounting methods used by the Company; or

(j)any material change in (x) pricing, discounts, investment or inventory policy of the Company or (y) any method of calculating bad debt or other reserves of the Company; or

(k)any new license agreement for Trademarks or Patents; or

(1)any promotion or credit or similar incentive granted to customers in excess of $25,000 per customer; or

(m)capital expenditures in excess of $50,000; or

(n)transaction with Affiliates; or

(o)agreement, whether oral or written, by the Company to do any of the foregoing.

In addition, except in connection with the transactions contemplated by this Agreement, since April 17, 2006 there has not been any material election made in respect of Taxes or any material change in any existing election, adoption or change of any accounting method in respect of Taxes or otherwise, entering into any closing agreement, settlement of any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes.

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22.Environmental Matters. Except as set forth in the Disclosure Letter:

(a)Each of the Company and the Seller with respect to the Company Business is, and at all times has been, in full compliance with, and has not been and is not in violation of or liable under, any Environmental Law. Neither Seller with respect to the Company Business nor the Company has any basis to expect, nor has either of them or any other Person for whose conduct they are or may be held to be responsible received, any actual or threatened order, notice, or other communication from (i) any Governmental Body or private citizen acting in the public interest, or (ii) the current or prior owner or operator of the Facility, of any actual or potential violation or failure to comply with any Environmental Law, or of any actual or threatened obligation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to the Facility or any other properties or assets (whether real, personal, or mixed) in which Seller or the Company (or any predecessor) has or had an interest (collectively, the “Environmental Properties”), or with respect to any property or any of the Environmental Properties at or to which Hazardous Materials were generated, manufactured, refined, transferred, imported, used, or processed by Seller, the Company, or any other Person for whose conduct they are or may be held responsible, or from which Hazardous Materials have been transported, treated, stored, handled, transferred, disposed, recycled, or received.

(b)There are no pending or, to the Knowledge of Seller and the Company, threatened claims, Encumbrances, or other restrictions of any nature, resulting from any Environmental, Health, and Safety Liabilities or arising under or pursuant to any Environmental Law, with respect to or affecting any of the Environmental Properties.

(c)Neither Seller nor the Company has any basis to expect, nor has either of them or any other Person for whose conduct they are or may be held responsible, received, any citation, directive, inquiry, notice, Order, summons, warning, or other communication that relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential violation or failure to comply with any Environmental Law, or of any alleged, actual, or potential obligation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect any of the Environmental Properties, or with respect to any property or facility to which Hazardous Materials generated, manufactured, refined, transferred, imported, used, or processed by Seller, the Company, or any other Person for whose conduct they are or may be held responsible, have been transported, treated, stored, handled, transferred, disposed, recycled, or received.

(d)Neither Seller nor the Company, or any other Person for whose conduct they are or may be held responsible, has any Environmental, Health, and Safety Liabilities with respect to any of the Environmental Properties, or at any property geologically or hydrologically adjoining the Facility or any such other property or assets.

(e)Except as set forth in the Disclosure Letter, there are no Hazardous Materials present on or in the Environment at any of the Environmental Properties or at any geologically or hydrologically adjoining property, including any Hazardous Materials contained in barrels, above or underground storage tanks, landfills, land deposits, dumps,

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equipment (whether moveable or fixed) or other containers, either temporary or permanent, and deposited or located in land, water, sumps, or any other part of any of the Environmental Properties or such adjoining property, or incorporated into any structure therein or thereon except in full compliance with all applicable Environmental Laws. None of Seller, the Company, any other Person for whose conduct they are or may be held responsible, or any other Person, has permitted or conducted, or is aware of, any Hazardous Activity conducted with respect to any of the Environmental Properties except in full compliance with all applicable Environmental Laws.

(f)There has been no Release or, to the Knowledge of Seller, Threat of Release, of any Hazardous Materials at or from the Facility or any of the Environmental Properties or at any other locations where any Hazardous Materials were generated, manufactured, refined, transferred, produced, imported, used, or processed from or by the Facility or any of the Environmental Properties, or to the Knowledge of Seller and the Company any geologically or hydrologically adjoining property, whether by Seller, the Company, or any other Person.

(g)Seller has delivered to Buyer true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or initiated by Seller or the Company pertaining to Hazardous Materials or Hazardous Activities in, on, or under the Facility, or concerning compliance by Seller, the Company, or any other Person for whose conduct they are or may be held responsible, with Environmental Laws.

23.Employees.

(a)The Disclosure Letter contains a complete and accurate list of the following information for each employee or director of the Company, including each employee on leave of absence or layoff status: name; job title; current compensation paid or payable and any change in compensation since August 1, 2005; vacation accrued; and service credited for purposes of vesting and eligibility to participate under the Company’s pension, retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash bonus, employee stock ownership (including investment credit or payroll stock ownership), severance pay, insurance, medical, welfare, or vacation plan, other Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or any other employee benefit plan or any Director Plan, if any.

(b)To the Seller’s Knowledge, no employee or director of the Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, between such employee or director and any other Person (“Proprietary Rights Agreement”) that in any way adversely affects or will affect (i) the performance of his/her duties as an employee or director of the Company, or (ii) the ability of the Company to conduct its business, including any Proprietary Rights Agreement with Seller or the Company by any such employee or director. To Seller’s Knowledge, no director, officer, or other key employee of the Company intends to terminate his employment with the Company.

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(c)The Disclosure Letter also contains a complete and accurate list of the following information for each retired employee or director of the Company receiving benefits or scheduled to receive benefits in the future: name, pension benefit, pension option election, retiree medical insurance coverage, retiree life insurance coverage, and other benefits.

24.Labor Relations; Compliance.

Neither the Seller nor the Company has been or is a party to any collective bargaining or other labor contract. Since August 1, 2002, there has not been, there is not presently pending or existing, and to Seller’s Knowledge there is not threatened, (a) any strike, slowdown, picketing, work stoppage, or employee grievance process, (b) any Proceeding against or affecting the Company or the Company Business relating to the alleged violation of any legal requirement pertaining to labor relations or employment matters, including any charge or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable Governmental Body, organizational activity, or other labor or employment dispute against or affecting the Company or the Company Business, or (c) any application for certification of a collective bargaining agent. To Seller’s Knowledge, no event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute. There is no lockout of any employees by the Company, and no such action is contemplated by the Company. The Company has complied in all material respects with all legal requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safely and health, and plant closings. The Company is not liable for the payment of any compensation, damages, taxes, fines, penalties, or other amounts, however designated, for failure to comply with any of the foregoing legal requirements.

25.Intellectual Property; Licenses.

(a)Intellectual Property. The term “Intellectual Property Assets” are the following as relates to the Company and the Company Business:

(i)Except as set forth in the Disclosure Letter, all rights of Seller to the names “Ester C” and “Ester E”, all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications (collectively, “Marks”);

(ii)all patents, patent applications, and inventions and discoveries that may be patentable, owned by Company or Seller (collectively, “Patents”);

(iii)all licenses owned or possessed by Company or Seller relating to Company’s right to make, use and/or sell the patented technology of others (collectively, “Patent Licenses”);

(iv)all registered copyrights in both published works and unpublished works (collectively, “Copyrights”);

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(v)all rights in mask works (collectively, “Rights in Mask Works”);

(vi)all rights to technical information, know-how, and inventions, whether patentable or unpatentable, formulations, confidential information, customer lists, software, data, process technology, plans, drawings, and blueprints (collectively, “Trade Secrets”) owned or possessed by the Seller and all rights to Trade Secrets owned, used or licensed by the Company as licensor or to the Company as licensee.

(b)Agreements. The Disclosure Letter contains a complete and accurate list and summary description, including any royalties paid or received by Seller with respect to Company Business or by the Company, of all contracts relating to the Intellectual Property Assets to which the Seller, with respect to Company Business, or Company, is a party or by which the Company is bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a purchase price of less than $10,000 under which the Company is the licensee. Seller or Company has the right to cancel any license agreement where Seller, with respect to the Company Business, or Company, is the licensor on no more than 90 days notice and without incurring any payments in connection with said termination. Seller or Company has the right to cancel any of the Patent Licenses on no more than 180 days notice and without incurring any payment in connection with said termination. There are no outstanding and, to Seller’s Knowledge, no threatened disputes or disagreements with respect to any such agreements. By acquiring the Shares, Buyer is acquiring the Intellectual Property Assets free and clear of all Encumbrances.

(c)Know-How Necessary for the Business.

(i)The Intellectual Property Assets of the Company and the Company Business are owned by or licensed to the Seller or Company, and are all those necessary for the operation of the Company Business as currently conducted. Except as set forth in the Disclosure Letter, the Company is the exclusive owner of all right, title, and interest in and/or licensed to each of the Intellectual Property Assets, free and clear of all Encumbrances and other adverse claims, and has the right to manufacture, use, advertise, offer for sale, or sell all of the Products currently sold by the Company, in any country where the Company, or any licensee of the Company, is making, having made, using, advertising, offering for sale or selling such Products.

(ii)The Patent Licenses are the only licenses necessary for the operation of the Company Business as currently conducted. All milestone payments have been fully paid and all royalties due pursuant to the Patent Licenses will be paid up to and through the Closing Date. The Patent Licenses are in full force and effect. The Seller will take all necessary steps and bear all related costs to affect a transfer, assignment and/or sublicense of the Patent Licenses to Buyer.

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(iii)Except as set forth in the Disclosure Letter, all former and current employees of the Company have executed written contracts with the Company that assign to the Company all rights to any inventions, improvements, discoveries, or information relating to the Company Business. To Seller’s Knowledge, no employee of the Company has entered into any contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than the Company.

(d)Patents.

(i)The Disclosure Letter contains a complete and accurate list and summary description of all Patents, including the Patent Licenses. Except as set forth in the Disclosure Letter, the Company is the owner of all right, title, and interest in and to each of the Patents, free and clear of all Encumbrances and other adverse claims.

(ii)All of the issued Patents are in good standing with respect to the payment of filing, examination, and maintenance fees and proofs of working or use, are valid and enforceable and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date, except as set forth in the Disclosure Letter.

(iii)No Patent is involved in any interference, reissue, reexamination, or opposition proceeding. There are no interfering or dominating patents or patent applications of any third party which affect in any way, the Company’s ability to manufacture, have manufactured, use, sell, advertise, or offer for sale the Ester-C Products in any country where the Company, or any licensee of the Company, is making, having made, using, advertising, offering for sale or selling such Products. There are no interfering or dominating patents or patent applications of any third party except for the patents covered by the Patent Licenses which affect, in any way, the Company’s ability to manufacture, have manufactured, use, advertise, offer for sale, or sell the ESTER-E Products in any country where the Company, or any licensee of the Company, is making, having made, using, advertising, offering for sale or selling such Products.

(iv)No Patent is infringed by a third party. No Patent has been challenged or threatened in any way. To Seller’s Knowledge, no patent licensed under the Patent Licenses is infringed by a third party. To Seller’s Knowledge, no patent licensed under the Patent Licenses has been challenged or threatened in any way. None of the current Products manufactured and sold, nor any process or know-how used, by the Company or in the Company Business infringes or is alleged to infringe any patent or other proprietary right of any other Person.

(v)All Ester-C products currently made, used, advertised or sold by the Company are covered by one or more of the issued Patents

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(vi)All Ester-E products currently made, used, advertised or sold by the Company are covered by one or more patents licensed under the Patent Licenses.

(e)Trademarks.

(i)The Disclosure Letter contains a complete and accurate list and summary description of all Marks used in the Company Business and lists all licenses pertaining to such Marks. Except as set forth in the Disclosure Letter, the Company is the exclusive owner of all right, title, and interest in and to each of the Marks, free and clear of all Encumbrances.

(ii)Except as set forth in the Disclosure Letter, the Marks are valid wherever the Company or licensees of the Company currently sell products. The foregoing registrations are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date.

(iii)Except as set forth in the Disclosure Letter, no Mark has been or is now involved in any opposition, invalidation, or cancellation and, to Seller’s Knowledge, no such action is threatened with the respect to any of the Marks.

(iv)Except as set forth in the Disclosure Letter, there is no potentially interfering trademark or trademark application of any third party.

(v)Except as set forth in the Disclosure Letter, no Mark or the use thereof has been challenged or, to Seller’s Knowledge, threatened in any way by any third party and none of the Marks used by the Company or in the Company Business is alleged to infringe any trade name, trademark, or service mark of any third party. Except as set forth in the Disclosure Letter, no Mark is being infringed by any third party. Except as set forth in the Disclosure Letter, no Mark infringes any trade name, trademark, or service mark of any third party.

(vi)All packaging of products of the Company sold by the Company to its licensees bearing a Mark include the proper federal registration notice where permitted by law. All licensees of the Marks are using the proper federal registration notice on the licensees’ packaging of products containing an ingredient sold by the Company to the licensees for use in licensees’ products.

(f)Copyrights.

(i)The Disclosure Letter contains a complete and accurate list and summary description of all Copyrights related to the Company Business. The Company is the owner of all right, title, and interest in and to each of the Copyrights, free and clear of all Encumbrances and other adverse claims.

(ii)All the Copyrights are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date.

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(iii)          No Copyright is infringed, and no Copyright has been infringed, challenged or, to Seller’s Knowledge, threatened in any way and none of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on the work of a third party.

(iv)          All works encompassed by the Copyrights have been marked with the proper copyright notice.

(g)           Trade Secrets.

(i)            With respect to each Trade Secret, Company has taken all commercially reasonable steps to maintain all documentation relating to such Trade Secret current and accurate.

(ii)           Seller and the Company have taken all commercially reasonable precautions to protect the secrecy, confidentiality, and value of their Trade Secrets.

(iii)          The Company has an absolute (but not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and have not been used, divulged, or appropriated either for the benefit of any Person (other than the Company) or to the detriment of the Company. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way.

26.           Related Party. The Disclosure Letter sets forth in reasonable detail all transactions existing between the Company and any Affiliate entered into since August 1, 2005 or that are in existence as of the date hereof. All such transactions will be terminated at or prior to the Closing with no ongoing liability to the Company following the Closing. All such transactions between the Company and any Affiliate have been entered into on an arms-length basis. Except as disclosed in the Disclosure Letter, since August 1, 2005, all settlements of intercompany liabilities between the Company, on the one hand, and Seller or any such officer, director or Affiliate, on the other, have been made, and all allocations of intercompany expenses have been applied, in the ordinary course of business consistent with past practice. No Related Person of Seller or the Company owns or has any interest in any property (whether real, personal, or mixed and whether tangible or intangible), used in or pertaining to the Company Business. No Related Person of Seller or of the Company has owned (of record or as a beneficial owner) an equity interest or any other financial or profit interest in, a Person that has (a) had business dealings or a material financial interest in any transaction with the Company other than business dealings or transactions conducted in the ordinary course of business and consistent with past practice with the Company at substantially prevailing market prices and on substantially prevailing market terms, or (b) engaged in competition with the Company with respect to any line of the products or services of the Company Business in any market presently served by the Company. Except as set forth in the Disclosure Letter, no Related Person of Seller or of the Company is a party to any contract with, or has any claim or right against, the Company. There is no indebtedness owed to the Company by a Related Person or by the

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Company to a Related Person. Except as set forth on the Disclosure Letter, neither Seller nor any officer, director or Affiliate provides or causes to be provided any assets, services or facilities to the Company or the Company Business nor does the Company provide or cause to be provided any assets, services or facilities to Seller or any such officer, director or Affiliate.

27.           Real Property.

(a)           The Disclosure Letter contains a true and correct list of (i) each parcel of real property owned by the Company and used for the Company Business, (ii) each parcel of real property leased by the Company (as lessor or lessee) and used for the Company Business and (iii) all Encumbrances (other than Permitted Encumbrances) relating to or affecting any parcel of real property referred to in clause (i).

(b)           Except as disclosed in the Disclosure Letter, the Company has good and marketable fee simple title to each parcel of real property owned by it, free and clear of all Encumbrances, other than Permitted Encumbrances. Except for the real property leased to others referred to in clause (ii) of paragraph (a) above, the Company is in possession of each parcel of real property owned by it, together with all buildings, structures, facilities, fixtures and other improvements thereon. The Company has adequate rights of ingress and egress with respect to the real property listed in the Disclosure Letter and all buildings, structures, facilities, fixtures and other improvements thereon. None of such real property, buildings, structures, facilities, fixtures or other improvements, or the use thereof, contravenes or violates any building, zoning, administrative, occupational safety and health or other Applicable Law in any material respect (whether or not permitted on the basis of prior nonconforming use, waiver or variance).

(c)           The Company has a valid and subsisting leasehold estate in and the right to quiet enjoyment of the real properties leased by it for the full term of the lease thereof. Each lease referred to in clause (ii) of paragraph (a) above is a legal, valid and binding agreement, enforceable in accordance with its terms, of the Company and of each other Person that is a party hereto, and except as set forth in the Disclosure Letter, there is no, and the Company has not received notice of any, default (or any condition or event which, after notice or laps of time or both, would constitute a default) thereunder. The Company does not owe any brokerage commissions with respect to any such leased space.

(d)           Seller has delivered to Buyer prior to the execution of this Agreement true and complete copies of (i) all deeds, leases, mortgages, deeds of trust, certificates of occupancy, title insurance policies, title reports, surveys and similar documents, and all amendments thereof, with respect to the real property owned by the Company and used in the Company Business, and (ii) all leases (including any amendments and renewal letters) and, to the extent reasonably available, all other documents referred to in clause (i) of this Paragraph (d) with respect to the real property leased by the Company and used in the Company Business.

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(e)           Except as set forth in the Disclosure Letter, no tenant or other party in possession of any of the real properties owned by the Company and used in the Company Business, has any right to purchase, or holds any right of first refusal to purchase, such properties.

(f)            Except as disclosed in the Disclosure Letter, the improvements on the real property identified in the Disclosure Letter are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, are adequate and suitable for the purpose for which they are presently being used and, there are no condemnation or appropriation proceedings pending or to Seller’s Knowledge, threatened against any of such real property or the improvements thereon.

28.           Substantial Customers and Suppliers. The Disclosure Letter lists the ten (10) largest customers of the Company Business, on the basis of revenues for goods sold or services provided for the most recently completed fiscal year. The Disclosure Letter lists the ten (10) largest suppliers to the Company Business, on the basis of cost of goods or services purchased for the most recently completed fiscal year. Except as disclosed in the Disclosure Letter, no such customer or supplier has ceased or materially reduced its purchase from, use of the services of, sales to or provision of services to the Company since, or to the Knowledge of Seller, has threatened to cease or materially reduce such purchases, use, sales or provision of services after the date hereof. Except as disclosed in the Disclosure Letter, to the Knowledge of Seller, no such customer or supplier is threatened with bankruptcy or insolvency.

29.           Bank and Brokerage Accounts; Investment Assets. The Disclosure Letter sets forth (a) a true and complete list of the names and locations of all banks, trust companies, securities brokers and other financial institution at which the Company has an account or safe deposit box or maintains a banking, custodial, trading or other similar relationship; (b) a true and complete list and description of each such account, box and relationship, indicting in each case the account number and the names of the respective officers, employees, agents or other similar representatives of the Company having signatory power with respect thereto; and (c) a list of each investment asset, the name of the record and beneficial owner thereof, the location of the certificates, if any, therefore, the maturity date, if any, and any stock or bond powers or other authority for transfer granted with respect thereto.

30.           Disclosure. No representation or warranty contained in this Agreement, and no statement contained in the Disclosure Letter or in any certificate, list or other writing furnished to Buyer pursuant to any provision of this Agreement (including, without limitation, the Financial Statements), contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein, in the light of the circumstances under which they were made, not misleading;

31.           Proxy Statement. Subject to the accuracy of the representations and warranties of Buyer set forth in paragraph 9 of Exhibit C, the Proxy Statement will not, on the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders of the Seller, contain any untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading and will not, at the time of the Seller

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Stockholders Meeting, omit to state any material fact necessary to correct any statement in any earlier communication from the Seller with respect to the solicitation of proxies for the Seller Stockholders Meeting which shall have become false or misleading in any material respect. The Proxy Statement will comply as to form in all respects with the applicable requirements of the Exchange Act. Notwithstanding the foregoing, the Seller makes no representation or warranty with respect to information supplied by or on behalf of the Buyer for inclusion in the Proxy Statement.

B-24

EXHIBIT C

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller each of the following:

1.             Organization and Qualification. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of Delaware, and has the requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted in each jurisdiction where the failure to do so would have a material adverse effect on its business, properties, or ability to conduct the business currently conducted by it.

2.             Authority Relative to this Agreement. Buyer has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby has been duly authorized by Buyer, and no other corporate proceedings on the part of Buyer are necessary to authorize this Agreement and such transactions entered into. This Agreement has been duly executed and delivered by Buyer and constitutes a valid and binding obligation of Buyer, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, or other similar laws relating to the enforcement of creditors’ rights generally and by general principles of equity.

3.             No Conflicts. Buyer is not subject to, or obligated under, any provision of (a) its Certificate of Incorporation or Bylaws, (b) any material agreement, arrangement, or understanding to which the Buyer is a party, (c) any material license, franchise, or permit, or (d) any law, regulation, order, judgment, or decree to which the Buyer is subject, which would be breached or violated by its execution, delivery, and performance of this Agreement and the consummation by it of the transactions contemplated hereby.

4.             No Consents. No authorization, consent, or approval of, or filing with, any public body, court, or authority is necessary on the part of Buyer for the consummation by Buyer of the transactions contemplated by this Agreement.

5.             Investment Purposes. Buyer is acquiring the Shares and not with a view to their distribution with the meaning of Section 2(i) of the Securities Act.

6.             Litigation. As of the date hereof, no action by or against the Buyer is pending or, to the best Knowledge of the Buyer, threatened, which could affect the legality, validity or enforceability of this Agreement, or the consummation of the transactions contemplated hereby.

7.             Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer.

8.             Independent Investigation; Seller’s Representation. Buyer has conducted its own independent investigation, review and analysis of the business, operations, assets, liabilities, results of operations, financial condition, software, technology and prospects of the Company Business, which investigation, review and analysis was done by Buyer and its Affiliates and

C-1

representatives. Buyer acknowledges that it and its representatives have been provided adequate access to the personnel, properties, premises and records of the Company for such purpose. In entering into this Agreement, Buyer acknowledges that it has relied solely upon the aforementioned investigation, review and analysis and not on any factual representations or opinions of the Seller or its representatives (except the specific representations and warranties of the Seller set forth in Exhibit B and the Disclosure Letter thereto). Buyer hereby acknowledges and agrees that (a) other than the representations and warranties made in Exhibit B, none of the Seller, its Affiliates, or any of their respective officers, directors, employees or representatives make or have made any representations or warranty, express or implied, at law or in equity, with respect to the Company, the Shares or the Company Business, including as to (i) merchantability or fitness for any particular use or purpose or (ii) the probable success or profitability of the Company Business after the Closing Date.

9.             Proxy Statement. Subject to the accuracy of the representations and warranties of the Seller set forth in paragraph 31 of Exhibit B, the information supplied by Buyer for inclusion in the Proxy Statement will not, on the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders of the Seller, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading, and will not, at the time of the Seller Stockholders Meeting, omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Seller Stockholders Meeting which shall have become false or misleading in any material respect. Notwithstanding the foregoing, Buyer makes no representation or warranty with respect to any information supplied by or on behalf of the Seller for inclusion in the Proxy Statement.

C-2

EXHIBIT D

PROCEDURE FOR INDEMNIFICATION

Subject to the limitations set forth in Article 4 of the Agreement, the party seeking to be indemnified (the “Indemnified Party”) will promptly give written notice hereunder to the party from which it seeks to be indemnified by (the “Indemnifying Party”) after obtaining notice of any claim as to which recovery may be sought against the Indemnifying Party. However, the right to indemnification hereunder will not be affected by any delay in or failure of an Indemnified Party to give any notice, unless, and then only to the extent that, the rights and remedies of the Indemnifying Party will have been prejudiced as a result of the failure to give, or delay in giving, notice.

If the indemnity claim arises from the claim of a third-party, the Indemnified Party will permit the Indemnifying Party to assume the defense of any such claim and any litigation resulting from such claim at the Indemnifying Party’s cost and expense. If the Indemnifying Party fails to notify an Indemnified Party of its election to defend any such claim or action by a third party with respect to which it has the option to defend within 30 days after the Indemnifying Party receives notice of such claim or action, then the Indemnifying Party will be deemed to have waived its right to defend such claim or action. If the Indemnifying Party assumes the defense of a third-party claim, the obligations of the Indemnifying Party as to such claim will include taking all steps necessary in the defense or settlement of such claim or litigation and holding the Indemnified Party harmless from and against any and all damages caused by or arising out of any settlement approved by the Indemnifying Party or any judgment in connection with such claim or litigation. The Indemnifying Party shall not, in the defense of such claim or any litigation resulting therefrom, consent to entry of any judgment (other than a judgment of dismissal on the merits without costs) except with the written consent of the Indemnified Party, or enter into any settlement (except with the written consent of the Indemnified Party) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party a release from all liability in respect of such claim or litigation. The non-defending party may, with counsel of its choice and at its expense, participate in the defense of any such claim or litigation.

If the Indemnifying Party does not assume the defense of any such claim or litigation by a third-party, the Indemnified Party may defend against such claim or litigation in such manner as it deems appropriate. The Indemnified Party may not settle such claim or litigation without the written consent of Indemnifying Party, which consent may not be unreasonably withheld. The Indemnifying Party will promptly pay or reimburse the Indemnified Party for all expenses in defending any claim, for the amount of any settlement, and for all damages incurred by the Indemnified Party in connection with any such claim or litigation.

Notwithstanding the foregoing, if an Indemnified Party determines in good faith that there is a reasonable probability that a Proceeding may adversely affect it or its Affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Party may at the Indemnifying Party’s sole cost and expense, by notice to the Indemnifying Party, assume the exclusive right to defend, compromise, or settle such Proceeding, but the Indemnifying Party will not be bound by any determination of a

D-1

Proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld).

Seller and Buyer hereby consent to the non exclusive jurisdiction of any court in which a Proceeding is brought against any Indemnified Person for purposes of any claim that an Indemnified Person may have under this Agreement with respect to such Proceeding or the mattes alleged therein, and agree that process may be served on Seller with respect to such a claim anywhere in the world.

With respect to any third-party claim subject to indemnification under this Exhibit D: (i) both the Indemnified Party and the Indemnifying Party, as the case may be, shall keep the other Person reasonably informed of the status of such third-party claim and any related Proceedings at all stages thereof where such Person is not represented by its own counsel, and (ii) the parties agree (each at its own expense) to render to each other such assistance as they may reasonably require of each other and to cooperate in good faith with each other in order to ensure the proper and adequate defense of any third-party claim.

With respect to any third-party claim subject to indemnification under this Exhibit D, the parties agree to cooperate in such a manner as to preserve in full (to the extent possible) the confidentiality of all confidential information and the attorney-client and work-product privileges. In connection therewith, each party agrees that: (i) it will use its best efforts, in respect of any third-party claim in which it has assumed or participated in the defense, to avoid production of confidential information (consistent with Applicable Law and rules of procedure), and (ii) all communications between any party hereto and counsel responsible for or participating in the defense of any third-party claim shall, to the extent possible, be made so as to preserve any applicable attorney-client or work-product privilege.

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EXHIBIT E

FORM OF SELLER OPINION LETTER

Omitted

EXHIBIT F

FORM OF BUYER OPINION LETTER

Omitted

EXHIBIT G

FORM OF NON-COMPETITION AGREEMENT

Omitted

EX-10.16

Exhibit 10.16

FIRST AMENDMENT TO

STOCK PURCHASE AGREEMENT

FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT dated as of September 28, 2006 by and between Zila, Inc, a Delaware corporation (“Seller”) and NBTY, Inc., a Delaware corporation (“Buyer”).

W I T N E S S E T H:

WHEREAS, the above parties have entered into a Stock Purchase Agreement dated as of August 13, 2006 (“Stock Purchase Agreement”); and

WHEREAS, the Stock Purchase Agreement provides in Section 7.10 that it may be amended by the written agreement of the Buyer and Seller; and

WHEREAS, the undersigned parties wish to amend the Stock Purchase Agreement in the manner set forth below;

NOW, THEREFORE, the undersigned parties agree as follows:

1. The last sentence of paragraph 25 (c)(ii) of Exhibit B is hereby amended by deleting it in its entirety and replacing it with the following:

“The Seller will take all necessary steps and bear all related costs to affect a transfer, assignment and/or sublicense of the Patent Licenses to the Company.”.

2. Paragraph 25 of Exhibit B is hereby further amended by adding a new subsection to subsection (a) as follows:

“(vii) all domain names owned or controlled by the Company (the “Domain Names”).”.

3. Paragraph 25 of Exhibit B is hereby further amended by adding a new subsection as follows:

“(h)  Domain Names.

The Disclosure Letter contains a complete and accurate list of all Domain Names.”.

4. All references to the Stock Purchase Agreement in the Stock Purchase Agreement or in any documents delivered in connection therewith, shall be deemed to mean the Stock Purchase Agreement as amended hereby.

5. Except as modified by this First Amendment, the Stock Purchase Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the undersigned have executed this First Amendment on the date first written above by their duly authorized officers.

ZILA, INC.
By:	/s/ GARY KLINEFELLER
Its:	Vice President
NBTY, INC.
By:	/s/ MICHAEL SLADE
Its:	Senior Vice President

EX-12.1

Exhibit 12.1

NBTY INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

	Fiscal year ended September 30,
(Dollars in thousands)	2006			2005			2004
EARNINGS AVAILABLE TO COVER FIXED CHARGES:
Income before provision for income taxes	$	152,827		$	119,262		$	169,005
Less:
Interest capitalized	(985		)	(494		)	—
Add:
Fixed charges deducted from earnings (see below)	60,151			62,552			58,203
Earnings available to cover fixed charges	$	211,993		$	181,320		$	227,208
FIXED CHARGES:
Interest expensed and capitalized and amortized premiums, discounts and capitalized expenses related to indebtedness	$	25,924		$	26,475		$	24,663
Appropriate portion of rentals	34,227			36,077			33,540
Fixed charges	$	60,151		$	62,552		$	58,203
Ratio of Earnings to Fixed Charges	3.52			2.90			3.90

EX-21.1

Exhibit 21.1

Subsidiaries of

NBTY, Inc. (Delaware)

De Tuinen, B.V. (Netherlands)
Health & Diet Centres Limited (United Kingdom)
Health & Diet Food Company Limited (United Kingdom)
Holland & Barrett Retail Limited (United Kingdom)
Le Naturiste J.M.B. Inc. (Canada)
Knox (a fictitious name of NBTY, Inc.)
Met-Rx Nutrition, Inc. (Delaware)
Met-Rx USA, Inc. (Nevada)
Nature Bounty de Mexico S. de R.L. de C.V. (Mexico)
Nature’s Bounty, Inc. (New York), d/b/a:
	Arco Pharmaceuticals
	Hudson Co.
Nature’s Way Limited (Republic of Ireland)
NBTY Manufacturing, LLC (Delaware), d/b/a:
	D&F Industries
	NBTY Manufacturing Colorado
	NBTY Manufacturing Florida
	NBTY Manufacturing Illinois
	NBTY Manufacturing New Jersey
	NBTY Manufacturing New York
	NBTY Manufacturing West
	Nutro Laboratories
	Omni-Pak Industries
	Raven Industries
NBTY Europe Limited (United Kingdom)
Puritan’s Pride, Inc. (New York)
Rexall Sundown, Inc. (Florida)
SISU Inc. (Canada)
Solgar, Inc. (Delaware)
Solgar Holdings, Inc. (Delaware)
Sundown, Inc. (Florida)
United States Nutrition, Inc. (Delaware), d/b/a US Nutrition
Vitamin World Limited (United Kingdom)
Vitamin World, Inc. (Delaware)
Worldwide Sport Nutritional Supplements, Inc. (New York)

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We hereby consent to the incorporation by reference in Registration Statement on Form S-8 (No. 333-46188, 333-71691 and 333-108038) of NBTY, Inc. of our report dated December 11, 2006, relating to the financial statements, financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting, which appears in this Form 10K.

/s/ PricewaterhouseCoopers

Stamford, Connecticut
December 11, 2006

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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-23.2

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Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We consent to the incorporation by reference in Registration Statement Nos. 333-46188, 333-71691 and 333-108038 of NBTY, Inc. on Form S-8 of our reports dated December 22, 2005 (March 15, 2006 as to Note 20), relating to the consolidated financial statements and financial statement schedule of NBTY, Inc., appearing in this Annual Report on Form 10-K of NBTY, Inc. for the year ended September 30, 2006.

/s/ Deloitte & Touche LLP

Jericho, New York
December 11, 2006

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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-31.1

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Exhibit 31.1

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 make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: December 11, 2006

Signature:

/s/  SCOTT RUDOLPH

Scott Rudolph
Principal Executive Officer

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CERTIFICATIONS

EX-31.2

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Exhibit 31.2

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 report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision 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 report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: December 11, 2006

Signature:

/s/  HARVEY KAMIL

Harvey Kamil
Principal Financial Officer

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CERTIFICATIONS

EX-32.1

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Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of NBTY, Inc. (the "Company") on Form 10-K for the period ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Scott Rudolph, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

        (1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/  SCOTT RUDOLPH Scott Rudolph
Chief Executive Officer
December 11, 2006

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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.2

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Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of NBTY, Inc. (the "Company") on Form 10-K for the period ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Harvey Kamil, President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

        (1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/  HARVEY KAMIL Harvey Kamil
President and Chief Financial Officer
December 11, 2006

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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002