PROSPECTUS
DECEMBER 24, 1997
NBTY, INC.
OFFER TO EXCHANGE 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007
OF NBTY, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JANUARY 28, 1998, UNLESS EXTENDED.
NBTY, Inc., a Delaware corporation ("NBTY"), hereby offers (the "Exchange
Offer"), upon the terms and conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 8-5/8% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes"), registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 8-5/8% Senior Subordinated Notes due 2007
(the "Original Notes"), of which $150,000,000 principal amount is outstanding.
The form and terms of the Exchange Notes are the same as the form and terms of
the Original Notes except that (i) the Exchange Notes will bear a Series B
designation and a different CUSIP number from the Original Notes, (ii) the
issuance of the Exchange Notes will have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer thereof, and
(iii) holders of the Exchange Notes will not be entitled to certain rights of
holders of Original Notes under the Exchange and Registration Rights Agreement
(as defined). The Original Notes and the Exchange Notes are referred to herein
collectively as the "Notes." The Exchange Notes will evidence the same debt as
the Original Notes (which they replace) and will be issued under and be entitled
to the benefits of that certain Indenture, dated as of September 23, 1997 (the
"Indenture"), by and between NBTY, as issuer, and IBJ Schroder Bank & Trust
Company, as trustee, governing the Notes. See "The Exchange Offer" and
"Description of the Exchange Notes."
NBTY will accept for exchange any and all Original Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on January 28, 1998,
unless extended by NBTY in its sole discretion (the "Expiration Date"). Tenders
of Original Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer."
The Original Notes were sold by NBTY on September 23, 1997, to Chase
Securities Inc. (the "Initial Purchaser") in a transaction not registered under
the Securities Act in reliance upon an exemption under the Securities Act (the
"Initial Offering"). The Initial Purchaser subsequently placed the Original
Notes with qualified institutional buyers in reliance upon Rule 144A under the
Securities Act ("Rule 144A"). Accordingly, the Original Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder to satisfy the obligations of NBTY under that
certain Exchange and Registration Rights Agreement, dated as of September 23,
1997, by and between NBTY and the Initial Purchaser (the "Exchange and
Registration Rights Agreement"), entered into in connection with the Initial
Offering. See "The Exchange Offer - Purpose and Effect of the Exchange Offer."
Interest on the Exchange Notes will accrue from the last interest payment
on which interest was paid on the Original Notes surrendered in exchange
therefor or, if no interest has been paid on the Original Notes, from the Issue
Date (as defined), and will be payable semi-annually on September 15 and March
15 of each year, commencing on March 15, 1998. The Notes will mature on
September 15, 2007. Except as described below, NBTY may not redeem the Notes
prior to September 15, 2002. On or after such date, NBTY may redeem the Notes,
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in whole or in part, at the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of redemption. In addition, at
any time and from time to time on or prior to September 15, 2000, NBTY may,
subject to certain requirements, redeem up to 33-1/3% of the aggregate principal
amount of the Notes with the Net Cash Proceeds (as defined) from one or more
Public Equity Offerings (as defined) by NBTY at a price equal to 108.625% of the
principal amount to be redeemed, together with accrued and unpaid interest, if
any, to the date of redemption, provided that at least 66-2/3% of the original
aggregate principal amount of the Original Notes remains outstanding after each
such redemption. The Notes will not be subject to any sinking fund requirement.
Upon the occurrence of a Change of Control (as defined), NBTY will be required
to make an offer to repurchase the Notes at a price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest, if any, to
the date of repurchase. See "Description of the Exchange Notes."
The Notes will be unsecured and subordinated in right of payment to all
existing and future Senior Indebtedness (as defined) of NBTY. The Notes will
rank PARI PASSU in right of payment with any future senior subordinated
indebtedness of NBTY and will rank senior to all Subordinated Indebtedness (as
defined) of NBTY. The Indenture under which the Notes will be issued permits
NBTY to incur additional indebtedness, including Senior Indebtedness, subject to
certain restrictions. See "Description of the Exchange Notes." As of June 30,
1997, on a pro forma basis after giving effect to the Transaction (as defined),
the aggregate principal amount of NBTY's outstanding Senior Indebtedness would
have been approximately $31.1 million (exclusive of unused commitments) and NBTY
would have had no senior subordinated indebtedness outstanding other than the
Notes and no Subordinated Indebtedness. See "Description of the Exchange Notes"
and "Capitalization."
The common stock of NBTY is listed on the Nasdaq Stock Market under the
symbol "NBTY." There has not previously been any public market for the Original
Notes or the Exchange Notes. NBTY does not intend to list the Exchange Notes on
any securities exchange, but the Original Notes are eligible for trading in the
Private Offerings, Resales and Trading through Automated Linkages ("PORTAL")
market. There can be no assurance that an active market for the Exchange Notes
will develop. See "Risk Factors - Absence of Public Market." Moreover, to the
extent that the Original Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Original Notes
could be adversely affected.
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SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, NBTY believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Original Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is an "affiliate" of NBTY within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. See "The Exchange Offer - Resale of the Exchange Notes."
Holders of Original Notes wishing to accept the Exchange Offer must represent to
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NBTY, as required by the Exchange and Registration Rights Agreement, that such
conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account (an
"Exchanging Dealer") pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, an Exchanging Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by an Exchanging
Dealer in connection with resales of Exchange Notes received in exchange for
Original Notes where such Original Notes were acquired by such Exchanging Dealer
as a result of market making activities or other trading activities. NBTY has
agreed that, for a period of 180 days after the Expiration Date, it will make
this Prospectus available to any Exchanging Dealer for use in connection with
any such resale. See "Plan of Distribution."
NTBY will not receive any proceeds from the Exchange Offer. NBTY has agreed
to bear the expenses of the Exchange Offer. No underwriter is being used in
connection with the Exchange Offer. Holders of Original Notes not tendered and
accepted in the Exchange Offer will continue to hold such Original Notes and
will be entitled to all the rights and benefits and will be subject to the
limitations applicable thereto under the Indenture and with respect to transfer
under the Securities Act. The Exchange Offer is intended to satisfy certain
exchange and registration rights of holders of Original Notes under the Exchange
and Registration Rights Agreement. Such rights shall terminate upon consummation
of the Exchange Offer. See "The Exchange Offer - Purpose and Effect of the
Exchange Offer."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF ORIGINAL NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL MARCH 29, 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
The Exchange Notes will be available initially only in book-entry form.
Except as may be described under "Book-Entry; Delivery and Form," NBTY expects
that the Exchange Notes issued pursuant to the Exchange Offer will be
represented by one or more duly registered Global Notes (as defined), that will
be deposited with, or on behalf of, the Depository Trust Company ("DTC") and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Note representing the Exchange Notes will be shown on,
and transfers thereof will be effected only through, records maintained by DTC
and its participants. After the initial issuance of the Global Note, Exchange
Notes in certificated form will be issued in exchange for the Global Note only
in accordance with the terms and conditions set forth in the Indenture. See
"Book-Entry; Delivery and Form."
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This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available upon request from
Harvey Kamil, Secretary, NBTY, Inc., 90 Orville Drive, Bohemia, New York 11716,
(516) 567-9500. In order to ensure timely delivery of the documents, any request
should be made by January 23, 1998 (five days before Expiration Date).
THE CONTENTS OF THIS PROSPECTUS ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS
OR TAX ADVICE. EACH PROSPECTIVE PARTICIPANT IN THE EXCHANGE OFFER SHOULD CONSULT
ITS OWN ATTORNEY, BUSINESS ADVISOR OR TAX ADVISOR AS TO LEGAL, BUSINESS OR TAX
ADVICE. PROSPECTIVE INVESTORS MAY OBTAIN ADDITIONAL INFORMATION UPON REQUEST
FROM THE INITIAL PURCHASER OR THE COMPANY WHICH THEY MAY REASONABLY REQUIRE IN
CONNECTION WITH THE DECISION TO PARTICIPATE IN THE EXCHANGE OFFER.
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FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL OF THESE FORWARD LOOKING
STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE
COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN.
THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND
STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES OR STATEMENTS
WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY
FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY
CAUSE SUCH DIFFERENCES INCLUDE: (1) ADVERSE PUBLICITY REGARDING THE CONSUMPTION
OF NUTRITIONAL SUPPLEMENTS; (2) ADVERSE FEDERAL, STATE OR FOREIGN LEGISLATION OR
REGULATION OR ADVERSE DETERMINATIONS BY REGULATORS; (3) SLOW OR NEGATIVE GROWTH
IN THE NUTRITIONAL SUPPLEMENT INDUSTRY; (4) INABILITY OF THE COMPANY TO
SUCCESSFULLY IMPLEMENT ITS BUSINESS STRATEGY; (5) INCREASED COMPETITION; (6)
INCREASED COSTS; (7) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (8)
INCREASES IN THE COMPANY'S COST OF BORROWINGS OR INABILITY OR UNAVAILABILITY OF
ADDITIONAL DEBT OR EQUITY CAPITAL; AND (9) CHANGES IN GENERAL ECONOMIC
CONDITIONS IN THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE.
MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS
MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE
FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK
FACTORS."
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION, RISK FACTORS AND HISTORICAL
AND PRO FORMA COMBINED FINANCIAL DATA, INCLUDING THE RELATED NOTES, APPEARING
ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT
OTHERWISE REQUIRES, (I) "NBTY" REFERS TO NBTY, INC. AND ITS SUBSIDIARIES AS
CONSTITUTED PRIOR TO THE ACQUISITION, (II) "H&B" REFERS TO HOLLAND & BARRETT
HOLDINGS LTD. AND ITS SUBSIDIARIES AS CONSTITUTED PRIOR TO THE ACQUISITION, AND
(III) THE "COMPANY" REFERS TO NBTY, INC. AND ITS SUBSIDIARIES (INCLUDING H&B)
AFTER GIVING EFFECT TO THE ACQUISITION. UNLESS OTHERWISE INDICATED, ALL
FINANCIAL STATEMENTS IN THIS PROSPECTUS HAVE BEEN PREPARED IN ACCORDANCE WITH
U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("U.S. GAAP") AND ALL DOLLAR
REFERENCES ARE IN U.S. DOLLARS. FINANCIAL INFORMATION OF H&B HAS BEEN DERIVED
FROM THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF H&B PREPARED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED KINGDOM
("U.K. GAAP"). H&B FINANCIAL DATA, WHICH IS STATED IN U.S. DOLLARS, HAS BEEN
ADJUSTED TO REFLECT U.S. GAAP AND IS BASED ON AN EXCHANGE RATE OF ONE POUND
STERLING TO 1.665 U.S. DOLLARS. REFERENCES IN THIS PROSPECTUS TO FISCAL YEARS
ARE TO NBTY'S FISCAL YEARS ENDING SEPTEMBER 30 OR H&B'S FISCAL YEARS ENDING JUNE
30, AS THE CASE MAY BE. UNLESS OTHERWISE NOTED, ALL MARKET DATA PRESENTED IN
THIS PROSPECTUS IS BASED ON THE COMPANY'S RESEARCH AND ESTIMATES. NATURE'S
BOUNTY(REGISTERED), GOOD `N NATURAL(REGISTERED), HUDSON(REGISTERED), AMERICAN
HEALTH(REGISTERED), NATURAL WEALTH(REGISTERED), PURITAN'S PRIDE(REGISTERED),
VITAMIN WORLD(REGISTERED) AND HOLLAND & BARRETT ARE REGISTERED TRADEMARKS OF THE
COMPANY.
THE COMPANY
OVERVIEW
NBTY, founded in 1971, is one of the leading manufacturers and distributors
of nutritional supplements in the U.S., marketing a complete line of vitamins,
minerals and other nutritional supplements offered at value prices to its
customers. NBTY markets its multi-branded products primarily through (i) one of
the industry's leading mail order programs under its PURITAN'S PRIDE brand name
to its proprietary list of over two million active customers, (ii) 115 Vitamin
World retail stores strategically located primarily in factory outlet malls
across the U.S., and (iii) wholesale distribution to drug store chains,
supermarkets, independent pharmacies and health food stores such as Eckerd, Osco
and Albertson's under the NATURE'S BOUNTY, NATURAL WEALTH, HUDSON, AMERICAN
HEALTH and GOOD `N NATURAL brand names. Management believes that this unique
three-tiered distribution system enables NBTY to most effectively market its
products and lends stability, when compared to certain of its competitors, to
its revenues and EBITDA. NBTY's revenues from mail order, retail and wholesale
sales were approximately 42%, 16% and 42%, respectively, of total NBTY revenues
for the nine month period ended June 30, 1997. NBTY's revenues and EBITDA for
the nine month period ended June 30, 1997 were approximately $184 million and
$33 million, respectively, and same store sales growth for the same period was
approximately 15%.
NBTY acquired (the "Acquisition") Holland & Barrett Holdings Ltd. ("H&B"),
one of the leading nutritional supplement retailers in the United Kingdom
("U.K.") with 410 locations, on August 7, 1997. The Acquisition provides the
Company with significant strategic opportunities to enhance H&B's revenues and
profitability and increase its market share. H&B markets a broad line of
nutritional supplement products, including vitamins, minerals and other
nutritional supplements (approximately 58% of H&B's revenues for fiscal year
1997), and food products, including fruits and nuts, confectionery and other
items (approximately 42% of H&B's revenues for fiscal year 1997). H&B's
strategic retail locations in prime shopping areas and broad product offering
have enabled it to become one of the U.K.'s largest nutritional supplement
retailers. H&B's revenues and EBITDA for the fiscal year ended June 30, 1997
were approximately $171 million and $18 million, respectively, and same store
sales growth for the same period was approximately 3%.
The Company expects to derive substantial opportunities from the
combination of NBTY's and H&B's operations. Pro forma for the Acquisition, the
Company's revenues for mail order, retail and wholesale sales would have been
approximately 25%, 50% and 25%, respectively, of total Company revenues for the
nine month period ended June 30, 1997. Management believes that cross-selling an
expansive selection of NBTY-manufactured products into H&B's 410 retail stores
will enable H&B to offer a broader product selection at lower prices than its
competitors and, at the same time, enhance H&B's margins. In addition,
management expects to reduce per unit production costs in NBTY's manufacturing
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facilities through increased capacity utilization derived from this vertical
integration. The Company also plans to increase the efficiency of its H&B
operations by integrating NBTY's state-of-the-art point of sale ("POS") system
throughout H&B's retail stores that will allow for more effective management of
inventory and purchasing. The Company's vertically integrated structure and
three-tiered distribution system, combined with its breadth of well recognized,
value oriented brand names, position it to pursue continued growth and
competitive success in each of its distribution channels.
The U.S. retail market for vitamins, minerals and other nutritional
supplements has grown at a compound annual rate of approximately 15%, from $3.7
billion in 1992 to $6.5 billion in 1996, according to the 1997 Packaged Facts
Survey ("Packaged Facts"). According to the Simmons Market Research Bureau, 54%
of the U.S. adult population uses vitamins, minerals or supplements. Further,
based on U.S. Bureau of the Census data, the 45-and-older age group, which
accounted for approximately 32% of the U.S. population in 1990, is expected to
grow to 40% of the U.S. population by 2010. Management believes this industry
growth is expected to continue based on the following factors: (i) the aging
population, (ii) the growing body of research suggesting the benefits of certain
nutritional supplements, and (iii) the favorable regulatory environment that
allows for new product development, thereby stimulating total demand.
COMPETITIVE STRENGTHS
The Company believes that the following competitive strengths provide it
with a solid foundation to further enhance growth, profitability and the
Company's position as an industry leader:
. VERTICALLY INTEGRATED OPERATIONS. As a result of the Acquisition, the
Company will increase its degree of vertical integration by manufacturing
nutritional supplements in NBTY facilities for sale through H&B's retail
stores. Due to NBTY's existing level of vertical integration, NBTY is able
to price its products at its stores approximately 20-40% lower than its
largest competitor yet still maintain gross margins in excess of
approximately 50%. The Acquisition will allow the Company to further
increase its margins by providing NBTY-manufactured products throughout
H&B retail stores.
. EFFICIENT, MULTI-CHANNEL DISTRIBUTION NETWORK. NBTY's three-tiered U.S.
distribution network (mail order, retail and wholesale), supplemented by
H&B's strong retail position in the U.K. nutritional supplement market,
allows the Company to access a broader base of nutritional supplement
buyers and is unique among the Company's competitors. Management believes
this diverse network lowers distribution risk and lends stability, when
compared to certain of its competitors, to both revenues and EBITDA.
. STRONG PORTFOLIO OF RETAIL STORES. NBTY's 115 Vitamin World stores, in
combination with H&B's 410 stores, comprise a retail network that is
strategically located in the high growth U.S. and U.K. markets. These
stores delivered approximately 15% and 4% same store sales growth during
the nine month period ended June 30, 1997 in the U.S. and the U.K.,
respectively. In addition to providing a platform for growth, management
believes the Company's established retail stores pose significant barriers
to entry for new competitors due to the Company's penetration of U.S.
factory outlet malls and prime U.K. locations.
. LEADING MAIL ORDER SUPPLIER. Management believes NBTY is the industry
leader in the U.S. mail order nutritional supplement market with over two
million active customers and response rates that management believes to be
in excess of the mail order industry average. The Company's position as a
leading mail order nutritional supplement distributor allows the Company
to lower its per customer distribution costs, thereby enhancing margins.
The Company plans to further expand its mail order operations in the U.K.
by utilizing its mail order distribution warehouse in Southampton,
England, which became fully operational in January 1997.
. INNOVATIVE NEW PRODUCT DEVELOPMENT. NBTY continually pursues new product
development in response to customer demand. In 1997 alone, NBTY introduced
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more than 100 new stock keeping units ("SKUs") through its product
development and merchandising groups working directly with managers at the
retail level. Management believes its retail stores provide the Company
with rapid access to customer demand information and allow the Company to
test market new products before initiating a complete product launch
across all distribution channels.
. EXPERIENCED MANAGEMENT TEAM. Scott Rudolph, Chairman of the Board,
President and Chief Executive Officer, has 11 years of experience with
NBTY and 21 years in the nutritional supplement industry. Mr. Rudolph's
skilled management team averages over 14 years of industry experience
(primarily with NBTY) in the mail order, retail and wholesale distribution
channels.
BUSINESS STRATEGY
The Company's strategy is to target the growing value-conscious consumer
segment in order to increase sales and improve profitability, thereby
strengthening its position as an industry leader through the following key
initiatives:
. INCREASE HIGH MARGIN RETAIL SALES. As a result of the Acquisition, NBTY's
115 retail stores have been augmented by H&B's 410 U.K. stores. In the
U.S., the Company plans to open approximately 80 new stores per year,
substantially increasing its penetration of the factory outlet mall base.
By increasing overall foot traffic through its growing base of stores, the
Company expects to increase its revenues and profitability, and enhance
its market share. In the U.K., the Company expects to increase nutritional
supplement sales by offering its products at lower prices than its
competitors.
. INCREASE HIGH MARGIN MAIL ORDER SALES. Management believes NBTY's
PURITAN'S PRIDE mail order operation is the industry's leader with
approximately two million active mail order customers. NBTY is currently
in the process of automating its mail order shipping department, which
will enable NBTY to fulfill mail order requests with greater speed and
efficiency. NBTY expects to continue to strengthen its mail order sales
through frequent promotions in order to further improve its response rate,
which management believes is already above the mail order industry
average. NBTY also expects to continue to add customers through the
selective acquisition of companies that have similar or complementary
products. In addition, NBTY's recently increased manufacturing capability
will enable it to successfully compete for additional mail order customers
through its ability to quickly introduce and deliver new products in
response to consumer demand.
. EMPHASIZE HIGHER MARGIN PRODUCTS. In addition to manufacturing and
distributing high sales volume products (such as vitamins C and E), the
Company also manufactures and distributes higher margin, specialty
products. These popular specialty products, such as melatonin and St.
John's Wort, are targeted primarily at dedicated nutritional supplement
users and typically provide higher margins than more established products
and broaden the Company's product line.
. ENHANCE OPERATING EFFICIENCIES. The Acquisition will enable the Company to
increase its level of vertical integration by selling nutritional
supplements manufactured by NBTY through the H&B retail stores in the U.K.
Management expects to supply approximately 75% of H&B's nutritional
supplements from NBTY's U.S. manufacturing operations, thereby increasing
NBTY's manufacturing margins and increasing H&B's margins while reducing
per unit production costs in NBTY's manufacturing facilities through
increased capacity utilization. Additionally, the Company intends to
achieve significant operating efficiencies from the integration of its POS
system into the H&B stores, which will significantly improve inventory
management, production scheduling and administrative functions.
. RAPID NEW PRODUCT INTRODUCTION. Management believes that NBTY is among the
leaders in its industry in the timely introduction of products in response
to consumer demands. During 1997 alone, NBTY introduced more than 100 new
SKUs. Given the changing nature of consumer demands for new products and
the growing publicity of the value of vitamins, minerals and other
nutritional supplements in the promotion of general health, management
believes that NBTY will continue to attract new customers based upon its
ability to rapidly respond to consumer demands with high quality, value
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oriented products. As a result of the Company's ongoing manufacturing
expansion, the Company will be poised to further develop new products that
meet consumers' demand.
THE TRANSACTION
On August 7, 1997, NBTY acquired all of the issued and outstanding capital
stock of Holland & Barrett Holdings Ltd. from Lloyds Chemists plc ("Lloyds") for
an aggregate purchase price of approximately $169.0 million. Prior to the
Acquisition, H&B operated as a subsidiary of Lloyds. Lloyds was acquired by GEHE
AG ("GEHE") in January 1997 and, pursuant to GEHE's strategy of divesting Lloyds
of non-core assets, GEHE determined to divest the H&B subsidiary. NBTY issued to
Lloyds two promissory notes (the "Promissory Notes") totaling approximately
$169.0 million as consideration for the purchase of the capital stock of H&B.
In connection with the Acquisition, NBTY (i) entered into a $50.0 million
revolving credit facility (the "Revolving Credit Facility"), which provides for
borrowings for working capital and general corporate purposes, and (ii) issued
$150.0 million of Original Notes (the "Initial Offering," and together with the
Revolving Credit Facility, the "Financing"). The Acquisition and the Financing
are, together, referred to as the Transaction. On a pro forma basis, after
giving effect to the Transaction, the Company's unused availability under the
Revolving Credit Facility was approximately $37.5 million. See "Capitalization"
and "Description of the Revolving Credit Facility." NBTY paid in full the
Promissory Notes on October 17, 1997, using proceeds from the Initial Offering
and the Financing.
The sources and uses of funds for the Transaction, which assume that the
Transaction had occurred on June 30, 1997, are as follows:
SOURCES: (DOLLARS IN MILLIONS)
Cash on hand........................................ $ 15.2
Revolving Credit Facility(a)........................ 12.5
Original Notes...................................... 148.8
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Total Sources of Funds........................... $176.5
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USES:
Payment of Promissory Notes......................... $169.0
Transaction fees and expenses....................... 7.5
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Total Uses of Funds.............................. $176.5
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(a) Following consummation of the Transaction, the Company had available $37.5
million under the Revolving Credit Facility that may be drawn for working
capital and general corporate purposes, including capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
4
<PAGE>
THE INITIAL OFFERING
Original Notes............. The Original Notes were sold by NBTY on September
23, 1997 (the "Initial Offering"), to Chase
Securities Inc. (the "Initial Purchaser") pursuant
to a Purchase Agreement, dated as of September 17,
1997, by and between NBTY and the Initial Purchaser
(the "Purchase Agreement"). The Initial Purchaser
subsequently resold the Original Notes to qualified
institutional buyers pursuant to Rule 144A under the
Securities Act ("Rule 144A").
Exchange and Registration
Rights Agreement........... Pursuant to the Purchase Agreement, NBTY and the
Initial Purchaser entered into an Exchange and
Registration Rights Agreement (the "Exchange and
Registration Rights Agreement"), dated as of
September 23, 1997 (the "Issue Date"), which grants
the holders of the Original Notes certain exchange
and registration rights. The Exchange Offer is
intended to satisfy such exchange and registration
rights, which rights shall terminate upon
consummation of the Exchange Offer. See "The
Exchange Offer - Purpose and Effect of the Exchange
Offer."
THE EXCHANGE OFFER
Securities Offered......... $150,000,000 aggregate principal amount of 8-5/8%
Senior Subordinated Notes due 2007, Series B, of
NBTY (the "Exchange Notes").
The Exchange Offer........ $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of
Original Notes. As of the date hereof, $150,000,000
aggregate principal amount of Original Notes are
outstanding. NBTY will issue the Exchange Notes to
holders as promptly as practicable after the
Expiration Date.
Based on an interpretation by the staff of the
Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued
to third parties, NBTY believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange
for Original Notes may be offered for resale, resold
and otherwise transferred by any holder thereof
(other than any such holder that is an "affiliate"
of NBTY within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities
Act")) without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and
that such holder does not intend to participate and
has no arrangement or understanding with any person
to participate in the distribution of such Exchange
Notes.
Any participating broker-dealer (an "Exchanging
Dealer") that acquired Original Notes for its own
account as a result of market making activities or
other trading activities may be a statutory
underwriter. Each Exchanging Dealer that receives
Exchange Notes for its own account pursuant to the
5
<PAGE>
Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, an Exchanging Dealer will not be deemed
to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time,
may be used by an Exchanging Dealer in connection
with resales of Exchange Notes received in exchange
for Original Notes where such Original Notes were
acquired by such Exchanging Dealer as a result of
market making activities or other trading
activities. NBTY has agreed that, for a period of
180 days after the Expiration Date, it will make
this Prospectus available to any Exchanging Dealer
for use in connection with any such resale. See
"Plan of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff of
the Commission enunciated in no-action letters and,
in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. Failure to comply with
such requirements in such instance may result in
such holder incurring liability under the Securities
Act for which the holder is not indemnified by NBTY.
Expiration Date............ 5:00 p.m., New York City time, on January 28, 1998,
unless the Exchange Offer is extended, in which case
the term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Accrued Interest on the
Exchange Notes and the
Original Notes............ Interest on the Exchange Notes issued pursuant to
the Exchange Offer will accrue from the last
interest payment date on which interest was paid on
the Original Notes surrendered in exchange therefor
or, if no interest has been paid on the Original
Notes, from the Issue Date. Holders whose Original
Notes are accepted for exchange will be deemed to
have waived the right to receive any interest
accrued on the Original Notes.
Conditions to the
Exchange Offer............. The Exchange Offer is subject to certain customary
conditions, which may be waived by NBTY. See "The
Exchange Offer - Conditions."
Procedures for Tendering
Original Notes............. Each holder of Original Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof (or, in the case of a book-entry transfer,
transmit an Agent's Message (as defined) in lieu
thereof), in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile (or Agent's Message), together with the
Original Notes and any other required documentation
to the Exchange Agent (as defined) at the address
set forth herein. By executing the Letter of
Transmittal (or transmitting an Agent's Message),
each holder will represent to NBTY that, among other
6
<PAGE>
things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary
course of business of the person receiving such
Exchange Notes, whether or not such person is the
holder, that neither the holder nor any such other
person has any arrangement or understanding with any
person to participate in the distribution of such
Exchange Notes and that neither the holder nor any
such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of NBTY. See
"The Exchange Offer - Purpose and Effect of the
Exchange Offer" and "Procedures for Tendering."
Untendered Original Notes.. Following the consummation of the Exchange Offer,
holders of Original Notes eligible to participate
but who do not tender their Original Notes will not
have any further exchange or registration rights and
such Original Notes will continue to be subject to
certain restrictions on transfer. Accordingly, the
liquidity of the market for such Original Notes
could be adversely affected. See "Risk Factors -
Absence of Public Market."
Consequences of Failure
to Exchange................ Original Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Original Notes may be
resold only (i) to NBTY, (ii) pursuant to Rule 144A
or Rule 144 under the Securities Act or pursuant to
some other exemption under the Securities Act, (iii)
outside the United States to a foreign person
pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act. See
"The Exchange Offer - Consequences of Failure to
Exchange."
Shelf Registration
Statement.................. If any holder of Original Notes (other than any such
holder which is an "affiliate" of NBTY within the
meaning of Rule 405 under the Securities Act) is not
eligible under applicable securities laws to
participate in the Exchange Offer and such holder
has satisfied certain conditions relating to the
provision of information to NBTY for use therein,
and under certain other circumstances, NBTY has
agreed to use its reasonable best efforts to file
with the Commission a shelf registration statement
(the "Shelf Registration Statement"), and to use its
reasonable best efforts to have such Shelf
Registration Statement declared effective. NBTY has
agreed to maintain the effectiveness of the Shelf
Registration Statement for, under certain
circumstances, a maximum of two years, to cover
resales of the Original Notes held by any such
holders.
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering
its Original Notes, either make appropriate
arrangements to register ownership of the Original
Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The
7
<PAGE>
transfer of registered ownership may take
considerable time.
Guaranteed Delivery
Procedures................. Holders of Original Notes who wish to tender their
Original Notes and whose Original Notes are not
immediately available or who cannot deliver their
Original Notes (or comply with the procedures for
book-entry transfer), the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent (or transmit an
Agent's Message in lieu thereof) prior to the
Expiration Date must tender their Original Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer - Guaranteed Delivery
Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Original
Notes and Delivery of
Exchange Notes............. NBTY will accept for exchange any and all Original
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered as promptly
as practicable following the Expiration Date. See
"The Exchange Offer - Terms of the Exchange Offer."
Use of Proceeds............ There will be no cash proceeds to NBTY from the
exchange pursuant to the Exchange Offer.
Exchange Agent............. IBJ Schroder Bank & Trust Company.
THE EXCHANGE NOTES
General.................... The form and terms of the Exchange Notes are the
same as the form and terms of the Original Notes
(which they replace) except that (i) the Exchange
Notes bear a Series B designation and a different
CUSIP number from the Original Notes, (ii) the
issuance of the Exchange Notes will have been
registered under the Securities Act and, therefore,
will not bear legends restricting the transfer
thereof, and (iii) the holders of Exchange Notes
will not be entitled to certain rights under the
Exchange and Registration Rights Agreement,
including the provisions providing for an increase
in the interest rate on the Original Notes in
certain circumstances relating to the timing of the
Exchange Offer, which rights will terminate when the
Exchange Offer is consummated. See "The Exchange
Offer - Purpose and Effect of the Exchange Offer."
The Exchange Notes will evidence the same debt as
the Original Notes and will be entitled to the
benefits of the Indenture. See "Description of the
Exchange Notes." The Original Notes and the Exchange
Notes are referred to herein collectively as the
"Notes."
Issuer..................... NBTY, Inc.
Securities Offered......... $150 million aggregate principal amount of 8-5/8%
Senior Subordinated Notes due 2007, Series B.
Maturity................... September 15, 2007.
8
<PAGE>
Interest Payment Dates..... September 15 and March 15 of each year, commencing
March 15, 1998.
Sinking Fund............... None.
Optional Redemption........ Except as described below, NBTY may not redeem the
Exchange Notes prior to September 15, 2002. On or
after such date, NBTY may redeem the Exchange Notes,
in whole or in part, at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In
addition, at any time and from time to time on or
prior to September 15, 2000, NBTY may redeem up to
33-1/3% of the aggregate principal amount of the
Exchange Notes with the net cash proceeds of one or
more Public Equity Offerings (as defined) by NBTY,
at a redemption price equal to 108.625% of the
principal amount to be redeemed, together with
accrued and unpaid interest, if any, to the date of
redemption, provided that at least 66-2/3% of the
originally issued aggregate principal amount of the
Exchange Notes remains outstanding after each such
redemption. See "Description of the Exchange Notes
Optional Redemption."
Change of Control......... Upon the occurrence of a Change of Control, NBTY
will be required to make an offer to repurchase the
Exchange Notes at a price equal to 101% of the
principal amount thereof, together with accrued and
unpaid interest, if any, to the date of repurchase.
See "Description of the Exchange Notes - Change of
Control."
Ranking.................... The Exchange Notes will be unsecured and will be
subordinated in right of payment to all existing and
future Senior Indebtedness (as defined) of NBTY. The
Exchange Notes will rank PARI PASSU in right of
payment with any future senior subordinated
indebtedness of NBTY and will rank senior to all
Subordinated Indebtedness (as defined) of NBTY. As
of June 30, 1997, on a pro forma basis after giving
effect to the Transaction, the aggregate principal
amount of NBTY's outstanding Senior Indebtedness
would have been approximately $31.1 million. NBTY
would have had no senior subordinated indebtedness
outstanding other than the Notes. See "Description
of the Exchange Notes - Ranking" and "-
Subordination of the Exchange Notes."
Restrictive Covenants...... The indenture under which the Exchange Notes will be
issued (the "Indenture") will limit, among other
things, (i) the incurrence of additional
indebtedness by NBTY and its Subsidiaries, (ii) the
payment of dividends on, and redemption of, capital
stock of NBTY and its Subsidiaries, (iii)
investments, (iv) sales of assets and Subsidiary
stock, (v) transactions with affiliates and (vi)
consolidations, mergers and transfers of all or
substantially all of NBTY's assets. The Indenture
will also prohibit certain restrictions on
distributions from Subsidiaries. However, all of
these limitations and prohibitions are subject to a
number of important qualifications and exceptions.
See "Description of the Exchange Notes - Certain
Covenants."
9
<PAGE>
Use of Proceeds........... NBTY will not receive any proceeds from the Exchange
Offer. NBTY used the net proceeds from the Initial
Offering, together with amounts drawn under the
Revolving Credit Facility, to pay the Promissory
Notes issued in connection with the Acquisition and
to pay related fees and expenses. See "Use of
Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Original Notes in exchange for Exchange Notes. These
risk factors are generally applicable to the Original Notes as well as the
Exchange Notes.
--------------------------------------------
The principal executive offices of the Company are located at 90 Orville
Drive, Bohemia, New York 11716, and the Company's telephone number is (516)
567-9500.
10
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
THE COMPANY
The following table sets forth certain unaudited summary pro forma combined
financial data of the Company for the periods ended and as of the dates
indicated as described in the Unaudited Pro Forma Combined Financial Data. The
unaudited summary pro forma combined statement of income data give effect to the
Transaction as if it had occurred at the beginning of the periods indicated. The
unaudited summary pro forma combined balance sheet data give effect to the
Transaction as if it had occurred on June 30, 1997. "Other Data" below, not
directly derived from the Unaudited Pro Forma Combined Financial Data, or the
NBTY or H&B historical consolidated financial statements, have been presented to
provide additional analysis. The consolidated financial statements of H&B
prepared in accordance with U.K. GAAP used in preparing the Unaudited Pro Forma
Combined Financial Data have been adjusted to present such information in
accordance with U.S. GAAP and translated into U.S. dollar equivalent financial
statements using the exchange rate in effect at June 30, 1997, which was one
pound sterling to 1.665 U.S. dollars. For further information regarding the
effect, if any, of the difference between U.K. GAAP and U.S. GAAP, see Note 3 of
H&B's Consolidated Financial Statements included elsewhere in this Prospectus.
The Summary Pro Forma Combined Financial Data do not purport to represent what
the Company's results of operations or financial condition would have actually
been had the Transaction been consummated as of such dates or to project the
Company's results of operations or financial condition for any future period.
The Summary Pro Forma Combined Financial Data have been derived from and should
be read in conjunction with the Unaudited Pro Forma Combined Financial Data and
the notes thereto, the separate historical consolidated financial statements of
NBTY and H&B and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 SEPTEMBER 30, 1996
------------- ------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF INCOME DATA:
<S> <C> <C>
Net Sales.................................... $ 311.8 $ 345.3
Gross profit (a)............................. 157.3 169.8
Income from operations....................... 33.5 29.3
Interest expense, net........................ 12.5 17.2
Net income................................... 11.6 6.1
Net income per share......................... $ 0.58 $ 0.31
OTHER DATA:
EBITDA (b)................................... $ 47.3 $ 45.9
EBITDA margin (b)............................ 15.2% 13.3%
Capital expenditures......................... $ 18.8 $ 27.1
Number of retail stores (at end of period)... 516 444
Ratio of total debt to EBITDA................ -- --
Ratio of EBITDA to interest expense.......... 3.8x 2.7x
Ratio of earnings to fixed charges (c)....... 2.1x 1.5x
BALANCE SHEET DATA (END OF PERIOD):
Working capital.............................. $ 47.6
Total assets................................. 370.5
Total debt................................... 179.5
Stockholders' equity......................... 113.3
</TABLE>
- ----------
(a) Gross profit is defined as net sales less cost of sales.
(b) EBITDA is defined as net income before interest expense, income taxes and
depreciation and amortization. Management believes that EBITDA is a measure
commonly used by analysts and investors to determine a company's ability to
service and incur debt. Accordingly, this information has been presented to
permit a more complete analysis. EBITDA should not be considered a
substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity. EBITDA margin is computed as EBITDA as a percentage of net
sales.
(c) For the purposes of computing these ratios, earnings consist of income
before income taxes and fixed charges. Fixed charges consist of interest
expense, amortization of debt financing costs and one-third of rental
expenses.
11
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
NBTY, INC.
The following table sets forth summary financial data of NBTY for each of
the five fiscal years in the period ended September 30, 1996 and for the nine
month periods ended June 30, 1997 and 1996. The statement of income data for the
five fiscal years in the period ended September 30, 1996 are derived from NBTY's
audited historical financial statements included elsewhere in this Prospectus.
The statement of income data for the nine month periods ended June 30, 1997 and
1996 has been derived from the unaudited financial statements of NBTY. "Other
Data" below, not directly derived from NBTY's historical financial statements,
have been presented to provide additional analysis. In the opinion of
management, the unaudited data includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the data for such
periods. Interim results for the nine month period ended June 30, 1997 are not
necessarily indicative of results that can be expected in future periods. The
summary financial data below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Historical Results of Operations -- NBTY," "Selected Historical Financial Data
- -- NBTY" and the historical financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, YEAR ENDED SEPTEMBER 30,
----------------- ----------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales.............. $184.1 $142.1 $194.4 $178.8 $156.1 $138.4 $100.9
Gross Profit (a)....... 95.9 70.0 98.8 84.9 76.2 70.4 50.3
Catalog printing,
postage and
promotion............ 14.6 13.2 17.6 19.3 14.8 11.5 7.5
Selling, general
and administrative... 53.9 42.8 58.6 56.7 49.2 42.8 35.5
Income from
operations........... 27.4 14.0 22.6 8.9 12.2 16.1 7.3
Interest expense,
net.................. 1.3 1.0 1.4 1.1 0.9 1.2 1.3
Net income............. 16.1 8.1 13.4 5.1 7.8 9.7 3.7
Net income per share... $ 0.80 $ 0.41 $ 0.67 $ 0.26$ 0.38 $ 0.53 $ 0.25
OTHER DATA:
EBITDA (b)............. $ 32.7 $ 18.6 $ 29.4 $ 14.3 $ 17.7 $ 20.8 $ 10.2
EBITDA margin (b)...... 17.8% 13.1% 15.1% 8.0% 11.3% 15.0% 10.1%
Capital expenditures... $ 11.1 $ 11.5 $ 15.8 $ 11.5 $ 11.6 $ 13.9 $ 4.6
Same store sales
growth............... 15.1% 23.1% 31.0% 16.0% 7.5% 31.9% --
Number of retail
stores (at end of
period).............. 106 58 55 19 7 3 2
Ratio of earnings to
fixed charges (c).... 14.4x 10.7x 11.7x 6.6x 10.7x 10.8x 4.6x
</TABLE>
- ----------
(a) Gross profit is defined as net sales less cost of sales.
(b) EBITDA is defined as net income before interest expense, income taxes and
depreciation and amortization. Management believes that EBITDA is a measure
commonly used by analysts and investors to determine a company's ability to
service and incur debt. Accordingly, this information has been presented to
permit a more complete analysis. EBITDA should not be considered a
substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity. EBITDA margin is computed as EBITDA as a percentage of net
sales.
(c) For the purposes of computing these ratios, earnings consist of income
before income taxes and fixed charges. Fixed charges consist of interest
expense, amortization of debt financing costs and one-third of rental
expenses.
12
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
HOLLAND & BARRETT HOLDINGS LTD.
The following table sets forth summary financial data of H&B for each of
the three fiscal years in the period ended June 30, 1997. The statement of
income data for the three fiscal years in the period ended June 30, 1997 are
derived from H&B's audited historical consolidated financial statements included
elsewhere in this Prospectus. The Summary Historical Financial Data have been
presented in accordance with U.K. GAAP in pounds sterling. "Other Data," not
directly derived from the H&B historical consolidated financial statements, have
been presented to provide additional analysis. In the opinion of management, the
unaudited data includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the data for such periods. The summary
financial data below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Historical
Results of Operations--H&B," "Selected Historical Financial Data--H&B" and the
historical consolidated financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996 1995
---- ---- ----
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Turnover (a)..................... (Pound (Pound (Pound
Sterling)102.9 Sterling)90.6 Sterling)77.1
Gross profit..................... 49.3 42.7 36.0
Distribution costs............... 39.4 33.9 28.7
Administrative expense........... 2.2 1.5 1.5
Operating profit................. 7.7 7.3 5.8
Interest payable and other
similar charges (b).............. 0.3 0.4 0.6
Profit on ordinary activities
after taxation (c)............... 4.8 4.4 3.5
OTHER DATA:
EBITDA (d)....................... (Pound (Pound (Pound
Sterling) 11.0 Sterling)10.0 Sterling) 7.4
EBITDA margin (d)................ 10.7% 11.0% 9.6%
Capital expenditures............. (Pound (Pound (Pound
Sterling) 6.8 Sterling) 6.8 Sterling) 6.1
Same store sales growth.......... 2.8% 8.0% --
Number of retail stores (at end
of period)....................... 410 389 347
</TABLE>
- ----------
(a) Turnover represents net sales.
(b) Interest payable and other similar charges includes non-operating charges.
(c) Profit on ordinary activities after taxation represents net income.
(d) EBITDA is defined as net income before interest expense, income taxes,
depreciation and amortization and other non-operating charges. Management
believes that EBITDA is a measure commonly used by analysts and investors
to determine a company's ability to service and incur debt. Accordingly,
this information has been presented to permit a more complete analysis.
EBITDA should not be considered a substitute for net income or cash flow
data prepared in accordance with generally accepted accounting principles
or as a measure of profitability or liquidity. EBITDA margin is computed as
EBITDA as a percentage of turnover.
13
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE
TENDERING ORIGINAL NOTES IN EXCHANGE FOR EXCHANGE NOTES. THE RISK FACTORS SET
FORTH BELOW ARE GENERALLY APPLICABLE TO THE ORIGINAL NOTES AS WELL AS THE
EXCHANGE NOTES.
EFFECT OF UNFAVORABLE PUBLICITY
The Company believes the nutritional supplement market is affected by
national media attention regarding the consumption of nutritional supplements.
There can be no assurance that future scientific research or publicity will be
favorable to the nutritional supplement market or any particular product, or
consistent with earlier favorable research or publicity. Future research reports
or publicity that are perceived as less favorable or that question such earlier
research or publicity could have a material adverse effect on the Company.
Because of the Company's dependence upon consumer perceptions, adverse
publicity, whether or not accurate, associated with illness or other adverse
effects resulting from the consumption of the Company's products or any similar
products distributed by other companies could have a material adverse effect on
the Company. Such adverse publicity could arise even if the adverse effects
associated with such products resulted from consumers' failure to consume such
products appropriately. See "Business -- Litigation."
GOVERNMENT REGULATION
UNITED STATES. The manufacturing, packaging, labeling, advertising,
distribution and sale of the Company's products are subject to regulation by
Federal, state and local agencies, the most active of which is the U.S. Food and
Drug Administration ("FDA"). The FDA regulates the Company's dietary
supplements, principally under amendments to the Federal Food, Drug, and
Cosmetic Act embodied in the Dietary Supplement Health and Education Act
("DSHEA"). Under DSHEA, new dietary ingredients (those not used in dietary
supplements marketed before October 15, 1994) require premarket submission to
the FDA of evidence of a history of their safe use, or other evidence
establishing that they are reasonably expected to be safe. There can be no
assurance that the FDA will accept the evidence of safety for any new dietary
ingredient that the Company may decide to use, and the FDA's refusal to accept
such evidence could result in regulation of such dietary ingredients as food
additives, requiring the FDA pre-approval based on newly conducted, costly
safety testing. Also, while DSHEA authorizes the use of statements of
nutritional support in the labeling of dietary supplements, the FDA is required
to be notified of such statements, and there can be no assurance that the FDA
will deem a given statement of nutritional support made by the Company to be
adequately substantiated as required by DSHEA, or that the FDA will not consider
such a statement to be a drug claim rather than an acceptable statement of
nutritional support, necessitating approval of a costly new drug application,
either of which findings could result in relabeling to delete or modify such a
statement.
DSHEA also authorizes the FDA to promulgate good manufacturing practice
regulations ("GMP") for dietary supplements, which would require special quality
controls for the manufacture, packaging, storage and distribution of
supplements. There can be no assurance, if such GMP rules are issued, that the
Company will be able to comply with them without incurring material expense to
do so. DSHEA further authorizes the FDA to promulgate regulations governing the
labeling of dietary supplements, including claims for supplements pursuant to
recommendations made by the Presidential Commission on Dietary Supplement
Labels. Such rules are expected to be issued, which will require relabeling of
the Company's dietary supplements, and may require additional record keeping and
claim substantiation testing, and even reformulation, recall or discontinuance
of certain of the Company's supplements, and there can be no assurance that such
requirements will not involve material expenses to the Company. Moreover, there
can be no assurance that new laws or regulations imposing more stringent
regulatory requirements on the dietary supplement industry will not be enacted
or issued.
NBTY is currently subject to a Federal Trade Commission ("FTC") consent
decree and a U.S. Postal Service consent order, prohibiting certain advertising
claims for certain of the Company's products. Violations of these orders could
14
<PAGE>
result in substantial monetary penalties, which could have a material effect on
the Company's business. See "Business--Government Regulation."
UNITED KINGDOM. In the U.K., the manufacture, advertising, sale and
marketing of food products is regulated by a number of government agencies
including the Ministry of Agriculture, Fisheries and Food ("MAFF") and the
Department of Health. In addition, there are various independent committees and
agencies that report to the government, such as the Food Advisory Committee,
which reports to MAFF and suggests appropriate courses of action by the relevant
government department where there are areas of concern relating to food, and the
Committee on Toxicity, which reports to the Department of Health. The relevant
legislation governing the sale of food includes the Food Safety Act 1990, which
sets out general provisions relating to the sale of food; for example, this law
makes it unlawful to sell food that is harmful to human health. In addition,
there are various statutory instruments and EC regulations governing specific
areas such as the use of sweeteners, coloring and additives in food. Trading
standards officers under the control of the Department of Trade and Industry
also regulate matters such as the cleanliness of the properties on which food is
produced and sold. There can be no assurance that more stringent regulations
will not be promulgated or that, if more stringent regulations are promulgated,
the Company will be able to meet such regulations without incurring material
expense to do so.
Food that has medicinal properties may fall under the jurisdiction of the
Medicines Control Agency ("MCA"), a regulatory authority whose responsibility is
to ensure that all medicines sold or supplied for human use in the U.K. meet
acceptable standards of safety, quality and efficacy. These standards are
determined by the 1968 Medicines Act together with an increasing number of
European Commission ("E.C.") regulations and directives laid down by the
European Union ("E.U."). The latter take precedence over national law. The MCA
has a "borderline department" that determines when food should be treated as a
medicine and should therefore fall under the relevant legislation relating to
medicines. The MCA operates as the agent of the licensing authority (the United
Kingdom Health Ministers) and its activities cover every facet of medicines
controlled in the U.K., including involvement in the development of common
standards of medicines controlled in Europe. The MCA is responsible, for
example, for licensing, inspection and enforcement to ensure that legal
requirements concerning manufacture, distribution, sale, labeling, advertising
and promotion are upheld. Although the general tendency has been to liberalize
restrictions on nutritional products and consider them food supplements rather
than medicines, there can be no assurance that all new U.K. or E.U. regulations
will be favorable for the Company. Any move by the U.K. or E.U. to restrict
existing products or potencies, as well as the development of new products or
potencies, could have a material adverse effect on the Company. Further, the
Company is unable to predict what effect, if any, the Labour Party's victory in
the 1997 U.K. elections will have on the Company, nor can the Company predict
what effect, if any, the regulations of the E.U. will have on the Company.
RISKS ASSOCIATED WITH INTERNATIONAL MARKETS
The Company may experience difficulty entering new international markets
due to greater regulatory barriers, the necessity of adapting to new regulatory
systems, and problems related to entering new markets with different cultural
bases and political systems. Giving effect to the Acquisition, approximately 45%
of the Company's pro forma net sales for the nine months ended June 30, 1997
would have been generated outside the U.S. Operating in international markets
exposes the Company to certain risks, including, among other things: (i) changes
in or interpretations of foreign regulations that may limit the Company's
ability to sell certain products or repatriate profits to the U.S.; (ii)
exposure to currency fluctuations; (iii) the potential imposition of trade or
foreign exchange restrictions or increased tariffs; and (iv) political
instability. As the Company continues to expand its international operations,
these and other risks associated with international operations are likely to
increase. See "Business--Business Strategy" and "--Government Regulation."
RETAIL STORE ROLL-OUT
The Company is currently pursuing an aggressive retail store roll-out
schedule, pursuant to which the Company anticipates opening an additional 80
Vitamin World stores per year. This strategy relies on the Company's ability to
continue to increase its comparable store sales figures as well as the continued
growth in the retail segment of the Company's business. There can be no
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assurance that the Company's roll-out strategy will be successful, or that
circumstances beyond the Company's control, such as unforeseen delays in the
construction process for new stores, will not hinder the Company's strategy. See
"Business--Business Strategy."
LEVERAGE; RESTRICTIVE COVENANTS
The Company has significant debt service obligations. As of June 30, 1997,
after giving effect to the Transaction, the Company would have had outstanding
debt of approximately $179.9 million and stockholders' equity of approximately
$113.3 million. See "The Transaction," "Use of Proceeds" and "Capitalization."
For the nine months ended June 30, 1997, the Company's ratio of earnings to
fixed charges, on a pro forma basis, would have been 2.1x.
The degree to which the Company is leveraged could have important
consequences to the holders of the Exchange Notes, including: (i) the Company's
ability to obtain additional financing for working capital, capital expenditures
or acquisitions may be limited; (ii) a portion of the Company's cash flow from
operations will be dedicated to the payment of the principal of, premium, if
any, and interest on its indebtedness, thereby reducing funds available for
investments; (iii) certain of the Company's borrowings, including all borrowings
under the Company's Revolving Credit Facility, are and will continue to be at
variable rates of interest, which exposes the Company to the risk of increased
interest rates; and (iv) the Company may be more vulnerable to economic
downturns and be limited in its ability to withstand competitive pressures.
Certain of the Company's competitors may currently operate on a less leveraged
basis and therefore could have significantly greater operating and financing
flexibility than the Company. The Company's ability to make scheduled payments
of the principal of, premium, if any, or interest on, or to refinance, its
indebtedness will depend on its future operating performance and cash flow,
which are subject to prevailing economic conditions, prevailing interest rate
levels, and financial, competitive, business and other factors, many of which
are beyond its control. See "--Risks Associated with International Markets."
The Company believes that, based upon current levels of operations, it will
be able to meet its debt service obligations, including payments of the
principal of, premium, if any, and interest on the Exchange Notes when due.
However, if the Company cannot generate sufficient cash flow from operations to
meet its debt service obligations, then the Company may be required to refinance
its indebtedness and may be forced to adopt an alternative strategy that could
include actions such as reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness, or seeking additional
equity capital. There is no assurance that refinancings would be permitted by
the terms of the Revolving Credit Facility or the Indenture or, along with the
alternative strategies, could be effected on satisfactory terms. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Revolving Credit Facility and the Indenture contain numerous
restrictive covenants that limit the discretion of the Company's management with
respect to certain business matters. These covenants place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to pay dividends
or make certain other payments, investments, loans and guarantees and to sell or
otherwise dispose of assets and merge or consolidate with another entity. The
Revolving Credit Facility contains a number of financial covenants that require
the Company to meet certain financial ratios and financial condition tests. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Description of the Revolving Credit Facility" and "Description of
the Exchange Notes--Certain Covenants." The Company's ability to meet these
financial ratios and financial condition tests can be affected by events beyond
its control, and there can be no assurance that the Company will meet such
ratios or such tests. A failure to comply with the obligations in the Revolving
Credit Facility or the Indenture could result in an event of default under the
Revolving Credit Facility or an Event of Default (as defined) under the
Indenture which, if not cured or waived, could permit acceleration of the
relevant indebtedness and acceleration of indebtedness under other instruments
that may contain cross-acceleration or cross-default provisions. If the
indebtedness under the Revolving Credit Facility were to be accelerated, there
can be no assurance that the assets of the Company would be sufficient to repay
in full that indebtedness and the other indebtedness of the Company, including
the Exchange Notes. Other indebtedness of the Company and its subsidiaries that
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may be incurred in the future may contain financial or other covenants more
restrictive than those applicable to the Exchange Notes.
SUBORDINATION
The Exchange Notes will be general unsecured obligations of the Company.
The payment of principal of, premium, if any, and interest on, and any other
amounts owing in respect of, the Exchange Notes will be subordinated to the
prior payment in full of all existing and future Senior Indebtedness of the
Company. In addition, repayment of the Revolving Credit Facility, but not the
Exchange Notes, is secured by the pledge of all tangible and intangible assets
of the Company. In the event of the bankruptcy, liquidation, dissolution,
reorganization and other winding up of the Company, the assets of the Company
will be available to pay obligations on the Exchange Notes only after all Senior
Indebtedness has been paid in full; accordingly, there may not be sufficient
assets remaining to pay amounts due on any or all of the Exchange Notes then
outstanding. In addition, under certain circumstances, the Company may not pay
principal of, premium, if any, or interest on, or pay other amounts owing in
respect of, the Exchange Notes, or purchase, redeem or otherwise retire the
Exchange Notes, in the event of certain defaults with respect to certain classes
of Senior Indebtedness. As of June 30, 1997, after giving pro forma effect to
the Transaction, there would have been approximately $31.1 million of Senior
Indebtedness outstanding (excluding unused commitments). Additional Senior
Indebtedness may be incurred by the Company from time to time, subject to
certain restrictions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of the Exchange
Notes--Certain Covenants--Limitation oN Indebtedness."
LIMITATIONS ON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer for cash to repurchase the Exchange Notes at a price equal to 101%
of the principal amount thereof, together with accrued and unpaid interest, if
any, to the date of repurchase. If a Change of Control were to occur, there can
be no assurance that the Company would have sufficient funds to pay the purchase
price for all of the Exchange Notes that the Company might be required to
purchase. Certain events involving a Change of Control may result in an event of
default under the Revolving Credit Facility or other indebtedness of the Company
that may be incurred in the future. In the event a Change of Control occurs at a
time when the Company is prohibited from purchasing the Exchange Notes, the
Company could seek the consent of its lenders to purchase the Exchange Notes or
could attempt to refinance the borrowings that contain such prohibition. There
can be no assurance that such consent or refinancing would be obtained, or, if
obtained, would be available on terms favorable to the Company. If the Company
does not obtain such consent or repay such borrowings, the Company would remain
prohibited from purchasing the Exchange Notes. In such case, the Company's
failure to purchase tendered Exchange Notes would constitute an Event of Default
under the Indenture. See "Description of the Exchange Notes--Subordination" and
"--Change of Control."
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will largely depend on the efforts and
abilities of its executive officers and certain other key employees, including
key H&B personnel. The Company's operations could be adversely affected if, for
any reason, such officers or employees did not remain with NBTY or H&B, as
applicable. See "Management."
RELIANCE ON CERTAIN SUPPLIERS
The Company purchases from third party suppliers certain important
ingredients and raw materials that the Company cannot manufacture. The principal
raw materials used in the manufacturing process are natural and synthetic
vitamins, purchased from bulk manufacturers in the United States, Japan and
Europe. Although raw materials are available from numerous sources, one supplier
currently provides approximately 10% of the Company's purchases; an unexpected
interruption of supply could cause the Company's results of operations to be
adversely affected. No other supplier accounts for 10% or more of the Company's
raw material purchases.
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COMPETITION
The market for vitamins and other nutritional supplements is highly
competitive in all of the Company's channels of distribution. Numerous companies
compete with the Company in the development, manufacture and marketing of
vitamins and nutritional supplements. In the U.S., the Company's NATURE'S BOUNTY
and NATURAL WEALTH brands compete for sales to drug store chains and
supermarkets with heavily advertised national brands manufactured by large
pharmaceutical companies, as well as Your Life, Nature Made and Sundown, sold by
Leiner Health Products, Inc., Pharmavite Corp. and Rexall Sundown, Inc.,
respectively. The Vitamin World stores compete with specialty vitamin stores,
such as General Nutrition Centers ("GNC") stores, health food stores and other
retail stores. With respect to mail order sales, management believes PURITAN'S
PRIDE is the largest mail order supplier of vitamins and other nutritional
supplements in the U.S. and competes with a large number of smaller, usually
less geographically diverse, mail order companies, some of which manufacture
their own products and some of which sell products manufactured by others.
Increased competition from companies that distribute through the wholesale
channel could have a material adverse effect on the Company as they may have
greater financial and other resources available to them and possess extensive
manufacturing, distribution and marketing capabilities far greater than those of
the Company. See "Business--Competition."
As in the U.S., the market for sales of vitamins, minerals and other
nutritional supplements in the U.K. is highly competitive. H&B's principal
competitors are large pharmacy chains, including Superdrug, Boots and Lloyds,
and major supermarket chains such as Tesco, Sainsbury's and ASDA. There are also
approximately 1,300 independent retailers of health foods and nutritional
supplements in the U.K. market. In addition, GNC has recently entered the U.K.
market and currently operates approximately 30 stores in the U.K. The Company
expects other large U.S.-based companies to enter the U.K. market as well. There
can be no assurance that H&B will be able to effectively compete with such other
companies, nor can there be any assurance that unfavorable market trends in the
U.K. will not develop.
ABILITY TO IMPLEMENT BUSINESS STRATEGY
Implementation of the Company's business strategy involves certain risks,
including risks associated with integrating and operating H&B's business, the
expansion of retail locations in the U.S., increased manufacturing demands to
supply products for H&B distribution and the manufacture and sale of new
products. There can be no assurance that the Company will be successful in
implementing its business strategy. The failure of the Company to successfully
implement its business strategy could have a material adverse effect on its
financial performance and its ability to pay principal of, premium, if any, and
interest on the Notes and meet its other obligations under the Indenture.
PROTECTION OF TRADEMARKS
The Company owns trademarks registered with the United States Patent and
Trademark Office and many foreign jurisdictions for its NATURE'S BOUNTY, GOOD `N
NATURAL, HUDSON, AMERICAN HEALTH, PURITAN'S PRIDE, VITAMIN WORLD and NATURAL
WEALTH brands, among others, and with the appropriate U.K. authorities for its
HOLLAND & BARRETT trademark, among others, and has rights to use other names
essential to its business. The Company's policy is to pursue registrations for
all trademarks associated with its key products. U.S. registered trademarks have
a perpetual life, as long as they are renewed on a timely basis and used
properly as trademarks, subject to the rights of third parties to seek
cancellation of the trademarks if they claim priority or confusion of usage. The
Company regards its trademarks and other proprietary rights as valuable assets
and believes they have significant value in the marketing of its products. The
Company vigorously protects its trademarks against infringement. There can be no
assurance that, to the extent the Company does not have patents or trademarks on
its products, another company will not replicate one or more of the Company's
products. Further, there can be no assurance that in those foreign jurisdictions
in which the Company conducts business the protection available to the Company
will be as extensive as the protection available to the Company in the U.S. See
"Business--Trademarks."
ABSENCE OF PUBLIC MARKET
The Original Notes were issued to, and the Company believes are currently
owned by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Original Notes. The Original
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Notes have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes by holders who are entitled to participate in the Exchange Offer.
The market for Original Notes not tendered for exchange in the Exchange Offer is
likely to be more limited than the existing market for Original Notes. The
holders of Original Notes (other than any such holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) who are not
eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Company is required to file a Shelf Registration
Statement with respect to such Original Notes. See "The Exchange Offer --
Purpose and Effect of the Exchange Offer."
The Exchange Notes are new securities for which there currently is no
market. Although the Initial Purchaser has informed the Company that it
currently intends to make a market in the Exchange Notes, it is not obligated to
do so and any such market making may be discontinued at any time without notice.
In addition, such market making activity may be limited during the effectiveness
of the Shelf Registration Statement (if filed). Accordingly, there can be no
assurance as to the development or liquidity of any market for the Exchange
Notes. The Original Notes have been designated for trading in the PORTAL market.
The Company does not intend to apply for listing of the Exchange Notes on any
securities exchange or for their quotation through an automated dealer quotation
system.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
FAILURE TO EXCHANGE ORIGINAL NOTES FOR EXCHANGE NOTES
Exchange Notes will be issued in exchange for Original Notes only after
timely receipt by the Exchange Agent of such Original Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. See "The Exchange Offer - Procedures for Tendering." Therefore,
holders of Original Notes desiring to tender such Original Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. Neither
the Exchange Agent nor the Company is under any duty to give notification of
defects or irregularities with respect to tenders of Original Notes for
exchange. Original Notes that are not tendered or are tendered but not accepted
will, following consummation of the Exchange Offer, continue to be subject to
the existing restrictions upon transfer thereof and, upon consummation of the
Exchange Offer, certain registration rights under the Exchange and Registration
Rights Agreement will terminate. In addition, any holder of Original Notes who
tenders in the Exchange Offer for the purpose of participating in the
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirement of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Original Notes, where such Original Notes were acquired
by such activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. To the extent that Original
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Original Notes could be adversely
affected due to the limited amount, or "float," of the Original Notes that are
expected to remain outstanding following the Exchange Offer. Generally, a lower
"float" of a security could result in less demand to purchase such security and
could, therefore, result in lower prices for such security. For the same reason,
to the extent that a large amount of Original Notes are not tendered or are
tendered and not accepted in the Exchange Offer, the trading market for the
Exchange Notes could be adversely affected. See "Plan of Distribution" and "The
Exchange Offer."
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements other than statements
of historical facts included in this Prospectus, including those regarding
financial position, business strategy, projected costs, and plans and objectives
of management for future operations, are forward looking statements. Although
the Company believes that the expectations reflected in such forward looking
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statements are reasonable, there can be no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
disclosed herein under "Risk Factors" and elsewhere in this Prospectus including
under "Forward Looking Statements" on page (iv) hereof. All subsequent written
and oral forward looking statements attributable to the Company or persons
acting on behalf of the Company are expressly qualified in their entirety by the
Cautionary Statements.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Original Notes were sold by the Company on September 23, 1997, to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently resold the Original Notes to qualified institutional buyers (as
defined in Rule 144A) ("QIBs") in reliance on Rule 144A. As a condition to the
Purchase Agreement, the Company and the Initial Purchaser entered into the
Exchange and Registration Rights Agreement on the date of the Initial Offering
(the "Issue Date").
The following description of the Exchange and Registration Rights Agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Exchange Offer
Registration Statement (as defined). See "Available Information."
Pursuant to the Exchange and Registration Rights Agreement, the Company
agreed to (i) file with the Securities and Exchange Commission (the
"Commission") on or prior to 60 days after the Issue Date a registration
statement (the "Exchange Offer Registration Statement") relating to the Exchange
Offer and (ii) use its reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
150 days after the Issue Date. As soon as practicable after the effectiveness of
the Exchange Offer Registration Statement, the Company will offer to the holders
of Transfer Restricted Securities (as defined) who are not prohibited by any law
or policy of the Commission from participating in the Exchange Offer the
opportunity to exchange their Transfer Restricted Securities for the Exchange
Notes. The Company will keep the Exchange Offer open for not less than 30 days
(or longer, if required by applicable law) after the date notice of the Exchange
Offer is mailed to the holders of the Original Notes. If a change in law or
applicable interpretations of the staff of the Commission do not permit the
Company to effect the Exchange Offer or do not permit any holder of the Original
Notes (including the Initial Purchaser) to participate in the Exchange Offer,
the Company will use its reasonable best efforts to file with the Commission a
shelf registration statement (the "Shelf Registration Statement") to cover
resales of Transfer Restricted Securities by such holders who satisfy certain
conditions relating to the provision of information in connection with the Shelf
Registration Statement. For purposes of the foregoing, "Transfer Restricted
Securities" means each Original Note until (i) the date on which such Original
Note has been exchanged for a freely transferable Exchange Note in the Exchange
Offer; (ii) the date on which such Original Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement; or (iii) the date on which such Original Note is
distributed to the public in accordance with Rule 144 under the Securities Act
or is salable pursuant to Rule 144(k) under the Securities Act.
The Company will use its reasonable best efforts to have the Exchange Offer
Registration Statement or, if applicable, the Shelf Registration Statement
(each, a "Registration Statement") declared effective by the Commission as
promptly as practicable after the filing thereof. Unless the Exchange Offer
would not be permitted by a policy of the Commission, the Company will commence
the Exchange Offer and will use its reasonable best efforts to consummate the
Exchange Offer as promptly as practicable, but in any event prior to 185 days
after the Issue Date. If applicable, the Company will use its best efforts to
keep the Shelf Registration Statement effective for a period of two years after
the Issue Date, or such shorter period as may be required to permit holders to
sell the Original Notes in accordance with Rule 144 under the Securities Act. If
(i) either an Exchange Offer Registration Statement or Shelf Registration
Statement is not filed with the Commission on or prior to 60 days after the
Issue Date; (ii) either an Exchange Offer Registration Statement or a Shelf
Registration Statement is not declared effective within 150 days after the Issue
Date; or (iii) the Exchange Offer is not consummated on or prior to 185 days
after the Issue Date in respect of tendered Original Notes and a Shelf
Registration Statement has not been declared effective or a Shelf Registration
Statement is filed and declared effective within 150 days after the Issue Date
but shall thereafter cease to be effective (at any time that the Company is
obligated to maintain the effectiveness thereof) without being succeeded within
60 days by an additional Registration Statement filed and declared effective
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(each such event referred to in clauses (i) through (iii), a "Registration
Default"), the Company will pay liquidated damages ("Liquidated Damages") to
each holder of Transfer Restricted Securities, during the period of one or more
such Registration Defaults, in an amount equal to $0.192 per week per $1,000
principal amount of the Original Notes constituting Transfer Restricted
Securities held by such holder until a Registration Statement is filed, an
Exchange Offer Registration Statement or Shelf Registration Statement is
declared effective or the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective or again becomes effective, as the
case may be. All accrued Liquidated Damages shall be paid to holders in the same
manner as interest payments on the Original Notes on semi-annual payment dates
which correspond to interest payment dates for the Original Notes. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will cease.
The Exchange and Registration Rights Agreement also provides that the
Company (i) shall make available for a period of 180 days after the consummation
of the Exchange Offer a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any such
Exchange Notes and (ii) shall pay all expenses incident to the Exchange Offer
(including the expense of one counsel to the holders of the Original Notes) and
will indemnify certain holders of the Original Notes (including any
broker-dealer) against certain liabilities, including liabilities under the
Securities Act. A broker-dealer which delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the Exchange and Registration Rights Agreement (including certain
indemnification rights and obligations).
Each holder of Original Notes who wishes to exchange such Original Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business; (ii) it
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes; and (iii) it is not an affiliate of the
Company or an Exchanging Dealer (as defined) not complying with the requirements
of the next paragraph, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Original Notes, where such Original Notes were acquired
by such broker-dealer as a result of market making activities or other trading
activities (an "Exchanging Dealer"), must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
Holders of the Original Notes will be required to make certain
representations to the Company (as described above) in order to participate in
the Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement in order to have their Original
Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth in the preceding paragraphs. A
holder who sells Original Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Exchange and
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification obligations).
Following the consummation of the Exchange Offer, holders of the Original
Notes who were eligible to participate in the Exchange Offer but who did not
tender their Original Notes will not have any further registration rights and
such Original Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Original Notes could
be adversely affected. See "Risk Factors - Absence of Public Market."
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Original
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding
Original Notes accepted in the Exchange Offer. Holders may tender some or all of
their Original Notes pursuant to the Exchange Offer. However, Original Notes may
be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Original Notes, (ii) the
issuance of the Exchange Notes will have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer thereof, and
(iii) the holders of the Exchange Notes will not be entitled to certain rights
under the Exchange and Registration Rights Agreement, including the provisions
providing for an increase in the interest rate on the Original Notes in certain
circumstances relating to the timing of the Exchange Offer, all of which rights
terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Original Notes and will be entitled to the
benefits of the Indenture.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of Original Notes are outstanding. The Company has fixed the close of business
on December 19, 1997 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Original Notes do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware or the Indenture in connection
with the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder.
The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Original Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Original Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
January 28, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by written notice and will mail to the registered holders
23
<PAGE>
of Original Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes issued pursuant to the Exchange Offer will
accrue from the last interest payment date on which interest was paid on the
Original Notes surrendered in exchange therefor or, if no interest has been paid
on the Original Notes, from the Issue Date. Holders whose Original Notes are
accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Original Notes.
Interest on the Exchange Notes is payable semi-annually in arrears on each
March 15 and September 15, commencing on March 15, 1998.
PROCEDURES FOR TENDERING
Only a holder of Original Notes may tender such Original Notes in the
Exchange Offer. For a holder to validly tender Original Notes pursuant to the
Exchange Offer, a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantee, or (in the case of a
book-entry transfer) an Agent's Message in lieu of the Letter of Transmittal,
and any other required documents must be received by the Exchange Agent at the
address set forth under "Exchange Agent" prior to 5:00 p.m., New York City time,
on the Expiration Date. In addition, prior to 5:00 p.m., New York City time, on
the Expiration Date, either (a) certificates for tendered Original Notes must be
received by the Exchange Agent at such address or (b) such Original Notes must
be transferred pursuant to the procedures for book-entry transfer described
below (and a confirmation of such tender received by the Exchange Agent,
including an Agent's Message if the tendering holder has not delivered a Letter
of Transmittal). The term "Agent's Message" means a message transmitted by the
book-entry transfer facility, The Depository Trust Company (the "Book-Entry
Transfer Facility"), to and received by the Exchange Agent and forming a part of
a book-entry confirmation, which states that the Book-Entry Transfer Facility
has received an express acknowledgment from the tendering participant that such
participant has received and agrees to be bound by the Letter of Transmittal and
that the Company may enforce such Letter of Transmittal against such
participant.
By executing the Letter of Transmittal (or transmitting an Agent's Message
in lieu thereof), each holder will make to the Company the representations set
forth above under the heading "-- Purpose and Effect of the Exchange Offer."
The tender of Original Notes by a holder and the acceptance thereof by the
Company will constitute agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
24
<PAGE>
DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Original Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box entitled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act, which is a member of
one of the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Original Notes listed therein, such Original Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Original
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Company or their authority to so act must be submitted with
the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Original Notes at the Book-Entry Transfer Facility for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Original Notes by causing such
Book-Entry Transfer Facility to transfer such Original Notes into the Exchange
Agent's account with respect to the Original Notes in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. Although delivery
of the Original Notes may be effected through book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility, an appropriate
Letter of Transmittal properly completed and duly executed with any required
signature guarantee (or, in the case of book-entry transfer, an Agent's Message
in lieu thereof) and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Original Notes and withdrawal of tendered
Original Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Original Notes not properly tendered or any Original Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole discretion
to waive any defects, irregularities or conditions of tender as to particular
Original Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will be
25
<PAGE>
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Original Notes must be cured prior to the
Expiration Date. Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Original Notes, nor shall any of them incur any liability for failure
to give any such notice. Tenders of Original Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Original Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available, (ii) who cannot deliver their Original
Notes, the Letter of Transmittal (or, in the case of book-entry transfer, an
Agent's Message) or any other required documents to the Exchange Agent, or (iii)
who cannot complete the procedures for book-entry transfer (including delivery
of an Agent's Message), prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution (i) an Agent's Message with respect to guaranteed delivery
that is accepted by the Company, or (ii) a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s) of
such Original Notes and the principal amount of Original Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three New
York Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s) representing
the Original Notes (or a confirmation of book-entry transfer of such Original
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility),
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal or
facsimile thereof (or, in the case of book-entry transfer, an Agent's Message),
as well as the certificate(s) representing all tendered Original Notes in proper
form for transfer (or a confirmation of book-entry transfer of such Original
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility),
and all other documents required by the Letter of Transmittal are received by
the Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Original Notes in the Exchange Offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received by
the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Original Notes to be
withdrawn (the "Depositor"), (ii) identify the Original Notes to be withdrawn
(including the certificate number(s) and principal amount of such Original
Notes, or, in the case of Original Notes transferred by book-entry transfer, the
name and number of the account at the Book-Entry Transfer Facility to be
credited), (iii) be signed by the holder in the same manner as the original
26
<PAGE>
signature on the Letter of Transmittal by which such Original Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the
Original Notes register the transfer of such Original Notes into the name of the
person withdrawing the tender, and (iv) specify the name in which any such
Original Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Original Notes so withdrawn will
be deemed not to have been validly tendered for purposes of the Exchange Offer
and no Exchange Notes will be issued with respect thereto unless the Original
Notes so withdrawn are validly retendered. Any Original Notes which have been
tendered but which are not accepted for exchange will be retendered to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Original Notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Original
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Original Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer which,
in the sole judgment of the Company, might materially impair the ability of the
Company to proceed with the Exchange Offer, or any material adverse development
has occurred in any existing action or proceeding with respect to the Company or
any of its subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment of
the Company, might materially impair the ability of the Company to proceed with
the Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Original Notes and
return all tendered Original Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Original Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw such
Original Notes (see "-- Withdrawal of Tenders"), or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Original Notes which have not been withdrawn. The Company is not aware of any
federal or state consents that must be obtained, other than obtaining the
effectiveness of the Exchange Offer Registration Statement, prior to
consummation of the Exchange Offer.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent (the
"Exchange Agent") for the Exchange Offer. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
27
<PAGE>
BY OVERNIGHT DELIVERY: BY MAIL: BY HAND:
IBJ Schroder Bank & IBJ Schroder Bank & IBJ Schroder Bank &
Trust Company Trust Company Trust Company
One State Street P.O. Box 84 One State Street
New York, NY 10004 Bowling Green Station New York, NY 10004
Attn: Securities New York, NY 10274-0084 Attn: Securities
Processing Window Attn: Reorganization Processing Window
Subcellar One (SC-1) Operations Department Subcellar One (SC-1)
FACSIMILE TRANSMISSION NUMBER:
(212) 858-2611
CONFIRM BY TELEPHONE:
(212) 858-2103
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes, which is face value, less the original issue discount (net of
amortization) as reflected in the Company's accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. Certain expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Original
Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) so long as the Original Notes are eligible for resale pursuant
to Rule 144A, to a person inside the United States whom the seller reasonably
believes is a qualified institutional buyer within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company), (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
28
<PAGE>
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Original Notes in the ordinary
course of business and who is not participating, does not intend to participate,
and has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquired Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Exchanging Dealer that receives Exchange
Notes for its own account in exchange for Original Notes, where such Original
Notes were acquired by such Exchanging Dealer as a result of market making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
As contemplated by these no-action letters and the Exchange and
Registration Rights Agreement, each holder accepting the Exchange Offer is
required to represent to the Company in the Letter of Transmittal that (i) the
Exchange Notes are to be acquired by the holder or the person receiving such
Exchange Notes, whether or not such person is the holder, in the ordinary course
of business, (ii) the holder or any such other person (other than a
broker-dealer referred to in the next sentence) is not engaging, and does not
intend to engage, in the distribution of the Exchange Notes, (iii) the holder or
any such other person has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) neither the holder
nor any such other person is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act, and (v) the holder or any such other person
acknowledges that if such holder or other person participates in the Exchange
Offer for the purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those
no-action letters. As indicated above, each Exchanging Dealer that receives an
Exchange Note for its own account in exchange for Original Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Exchanging Dealers, see "Plan of Distribution."
29
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Exchange and Registration
Rights Agreement. The Company will not receive any proceeds from the issuance of
the Exchange Notes offered hereby. In consideration for issuing the Exchange
Notes contemplated in this Prospectus, the Company will receive Original Notes
in like principal amount, the form and terms of which are the same as the form
and terms of the Exchange Notes (which replace the Original Notes), except as
otherwise described herein. The Original Notes surrendered in exchange for
Exchange Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any increase or decrease in
the indebtedness of the Company. As such, no effect has been given to the
Exchange Offer in the pro forma statements or capitalization tables.
The $148.8 million of gross proceeds from the Initial Offering (before
deductions of underwriting discounts and other expenses of the Initial
Offering), together with cash on hand of $15.2 million and borrowings under the
Revolving Credit Facility, estimated to be approximately $12.5 million, were
used to pay (i) the Promissory Notes and (ii) fees and expenses, estimated to be
approximately $7.5 million, incurred in connection with the Transaction. See
"Description of the Revolving Credit Facility."
THE TRANSACTION
On August 7, 1997, NBTY acquired all of the issued and outstanding capital
stock of H&B from Lloyds for an aggregate purchase price of approximately $169.0
million. Prior to the Acquisition, H&B operated as a subsidiary of Lloyds.
Lloyds was acquired by GEHE in January 1997 and, pursuant to GEHE's strategy of
divesting Lloyds of non-core assets, GEHE determined to divest the H&B
subsidiary. NBTY issued to Lloyds the Promissory Notes totaling approximately
$169.0 million as consideration for the purchase of the capital stock of H&B.
In connection with the Acquisition, NBTY (i) entered into a $50.0 million
Revolving Credit Facility, which provides for borrowings for working capital and
general corporate purposes, and (ii) issued $150.0 million of Original Notes
pursuant to the Initial Offering. On a pro forma basis, after giving effect to
the Transaction, the Company's unused availability under the Revolving Credit
Facility was approximately $37.5 million. See "Capitalization" and "Description
of the Revolving Credit Facility." NBTY paid in full the Promissory Notes on
October 17, 1997, using proceeds from the Initial Offering and the Financing.
The sources and uses of funds for the Transaction, which assume that the
Transaction had occurred on June 30, 1997, are as follows:
(DOLLARS IN MILLIONS)
SOURCES:
Cash on hand....................................... $ 15.2
Revolving Credit Facility(a)....................... 12.5
Original Notes..................................... 148.8
------
Total Sources of Funds......................... $ 176.5
======
USES:
Payment of Promissory Notes........................ $ 169.0
Transaction fees and expenses...................... 7.5
------
Total Uses of Funds............................ $ 176.5
======
- ----------
(a) Upon consummation of the Transaction, the Company had available $37.5
million under the Revolving Credit Facility that may be drawn for working
capital and general corporate purposes, including capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
30
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
each of NBTY and H&B as of June 30, 1997 and as adjusted to give pro forma
effect to the Transaction as if it had been consummated on June 30, 1997. See
"Use of Proceeds" and "The Transaction." This table should be read in
conjunction with the Unaudited Pro Forma Consolidated Balance Sheet as of June
30, 1997 and the related notes thereto and the separate historical financial
statements and related notes thereto of NBTY and H&B, all included elsewhere in
this Prospectus.
AS OF JUNE 30, 1997
-------------------------------------------
PRO FORMA PRO FORMA
NBTY H&B(a) ADJUSTMENTS(b) COMBINED
---- ------ -------------- --------
(DOLLARS IN MILLIONS)
Current portion of $ 1.0 $ 17.1 $ (17.1) $ 1.0
long-term debt and
capital leases.............
Long-term debt:...............
Existing indebtedness(c)... 17.6 -- -- 17.6
Revolving Credit........... -- -- 12.5 12.5
Facility(d)................
Notes offered hereby....... -- -- 148.8 148.8
----- ------- --------- -----
18.6 17.1 144.2 179.9
Total debt................. ----- ------- --------- -----
Stockholders' equity:.........
Common stock............... 0.1 1.7 (1.7) 0.1
Additional paid-in
capital.................... 56.3 7.6 (7.6) 56.3
Retained earnings.......... 60.1 21.2 (21.2) 60.1
Treasury shares and
other...................... (3.2) -- -- (3.2)
----- ---- ----- -----
Total stockholders'
equity.................... 113.3 30.5 (30.5) 113.3
----- ----- -------- -------
Total capitalization...... $ 131.9 $ 47.6 $ 113.7 $ 293.2
======= ======= ======= =======
- ----------
(a) The capitalization of H&B as of June 30, 1997 has been adjusted to present
such information in accordance with U.S. GAAP and translated into the U.S.
dollar equivalent using the exchange rate in effect at June 30, 1997 of
1.665 U.S. dollars to each pound sterling. For further information
regarding the effect of the difference between U.K. GAAP and U.S. GAAP, see
Note 3 of H&B's Consolidated Financial Statements included elsewhere in
this Prospectus.
(b) The pro forma adjustments reflect the purchase price of the Acquisition and
related fees and expenses associated with the Transaction totaling $176.5
million, of which $15.2 million was paid with available cash and $161.3
million was paid through the Financing.
(c) Existing indebtedness relates primarily to capital lease obligations and
mortgages on NBTY's manufacturing facilities.
(d) Upon consummation of the Transaction, the Company had available $37.5
million under the Revolving Credit Facility that may be drawn for working
capital and general corporate purposes, including capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
31
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
NBTY, INC.
The following table sets forth selected financial data of NBTY as of and
for each of the five fiscal years in the period ended September 30, 1996 and for
the nine month periods ended June 30, 1997 and 1996. The statement of income and
balance sheet data as of and for each of the five fiscal years in the period
ended September 30, 1996 are derived from NBTY's audited historical consolidated
financial statements included elsewhere in this Prospectus. The statement of
income and balance sheet data as of and for the nine month periods ended June
30, 1997 and 1996 have been derived from the unaudited historical financial
statements of NBTY. In the opinion of management, the unaudited data includes
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the data for such periods. Interim results for the nine month
period ended June 30, 1997 are not necessarily indicative of results that can be
expected in future periods. "Other Data," not directly derived from NBTY's
financial statements, have been presented to provide additional analysis. The
Selected Historical Financial Data below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Historical Results of Operations -- NBTY," "Summary HistoricaL
Financial Data -- NBTY" and the historical financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
------------ ------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in Millions Except per Share Amounts)
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $184.1 $142.1 $194.4 $178.8 $156.1 $138.4 $100.9
Cost of sales.............. 88.2 72.1 95.6 93.9 79.9 68.0 50.6
----- ------ ----- ----- ----- ----- -----
Gross profit............... 95.9 70.0 98.8 84.9 76.2 70.4 50.3
Catalog printing,
postage and promotion ... 14.6 13.2 17.6 19.3 14.8 11.5 7.5
Selling, general and
administrative........... 53.9 42.8 58.6 56.7 49.2 42.8 35.5
----- ----- ----- ----- ----- ----- -----
Income from operations..... 27.4 14.0 22.6 8.9 12.2 16.1 7.3
Interest expense, net 1.3 1.0 1.4 1.1 0.9 1.2 1.3
Miscellaneous income
(expense), net........... 0.7 0.6 1.2 0.6 1.3 0.7 (0.2)
----- ----- ----- ----- ----- ----- -----
Income before income taxes. 26.8 13.6 22.4 8.4 12.6 15.6 5.8
Income taxes............... 10.7 5.5 9.0 3.3 4.8 5.9 2.1
----- ----- ----- ----- ----- ----- -----
Net income................. $ 16.1 $ 8.1 $ 13.4 $ 5.1 $ 7.8 $ 9.7 $ 3.7
====== ====== ====== ====== ====== ====== =======
Net income per share....... $ 0.80 $ 0.41 $ 0.67 $ 0.26 $0.38 $ 0.53 $0.25
====== ====== ====== ====== ====== ====== =======
OTHER DATA:
EBITDA(a)................. $ 32.7 $ 18.6 $ 29.4 $ 14.3 $ 17.7 $ 20.8 $ 10.2
EBITDA margin(a).......... 17.8% 13.1% 15.1% 8.0% 11.3% 15.0% 10.1%
Capital expenditures...... $ 11.1 $ 11.5 $ 15.8 $ 11.5 $ 11.6 $ 13.9 $ 4.6
Same store sales growth... 15.1% 23.1% 31.0% 16.0% 7.5% 31.9% --
Number of retail stores
(at end of period....... 106 58 55 19 7 3 2
Ratio of earnings to
fixed charges (b)....... 14.4x 10.7x 11.7x 6.6x 10.7x 10.8x 4.6x
BALANCE SHEET DATA (END OF PERIOD):
Working capital........... $ 61.9 $ 49.8 $ 52.3 $ 40.7 $ 39.5 $ 42.9 $ 13.1
Total assets.............. 173.7 138.6 145.6 123.5 115.1 102.6 58.3
Total debt................ 18.6 19.6 19.3 11.3 13.3 8.5 21.2
Stockholders' equity...... 113.3 91.6 96.9 82.6 78.0 70.0 16.5
</TABLE>
- ----------
(a) EBITDA is defined as net income before interest expense, income taxes and
depreciation and amortization. Management believes that EBITDA is a measure
commonly used by analysts and investors to determine a company's ability to
service and incur debt. Accordingly, this information has been presented to
permit a more complete analysis. EBITDA should not be considered a
substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity. EBITDA margin is computed as EBITDA as a percentage of net
sales.
(b) For the purposes of computing these ratios, earnings consist of income
before income taxes and fixed charges. Fixed charges consist of interest
expense, amortization of debt financing costs and one-third of rental
expenses.
32
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
HOLLAND & BARRETT HOLDINGS LTD.
The following table sets forth selected financial data of H&B as of and for
each of the three fiscal years in the period ended June 30, 1997. The statement
of income and balance sheet data set forth below are derived from H&B's audited
historical consolidated financial statements included elsewhere in this
Prospectus. Such Statements and the Selected Historical Financial Data have been
presented in accordance with U.K. GAAP in pounds sterling. "Other Data" below,
not directly derived from the H&B historical consolidated financial statements,
have has been presented to provide additional analysis. The Selected Historical
Financial Data below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Historical
Results of Operations--H&B," "Summary Historical Financial Data--H&B" and the
historical consolidated financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1997 1996 1995
(POUNDS STERLING IN MILLIONS)
---------------------------------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Turnover(a)......................... (Pound (Pound (Pound
Sterling)102.9 Sterling) 90.6 Sterling)77.1
Cost of sales....................... 53.6 47.9 41.1
----- ----- -----
Gross profit........................ 49.3 42.7 36.0
Distribution costs.................. 39.4 33.9 28.7
Administrative expense ............. 2.2 1.5 1.5
----- ----- -----
Operating profit.................... 7.7 7.3 5.8
Interest payable and other similar
charges(b)........................ 0.3 0.4 0.6
----- ----- -----
Profit on ordinary activities
before taxation................... 7.4 6.9 5.2
Taxation and profit on ordinary
activities........................ 2.6 2.5 1.7
----- ----- ----
Profit on ordinary activities
after taxation(c)................. (Pound (Pound (Pound
Sterling) 4.8 Sterling) 4.4 Sterling) 3.5
===== ===== ====
OTHER DATA:
EBITDA(d)........................... (Pound (Pound (Pound
Sterling) 11.0 Sterling)10.0 Sterling) 7.4
EBITDA margin(d).................... 10.7% 11.0% 9.6%
Capital expenditures................ (Pound (Pound (Pound
Sterling) 6.8 Sterling) 6.8 Sterling) 6.1
Same store sales growth............. 2.8% 8.0% --
Number of retail stores (at end
of period)........................ 410 389 347
BALANCE SHEET DATA (END OF PERIOD):
Working capital(e).................. (Pound
Sterling) 0.6 -- --
Total assets ....................... 50.8 -- --
Total debt.......................... 11.1 -- --
Shareholders' funds................. 16.9 -- --
</TABLE>
- ----------
(a) Turnover represents net sales.
(b) Interest payable and other similar charges includes non-operating charges.
(c) Profit on ordinary activities after taxation represents net income.
(d) EBITDA is defined as net income before interest expense, income taxes,
depreciation and amortization and other non-operating charges. EBITDA is a
measure commonly used by analysts and investors to determine a company's
ability to service and incur debt. Accordingly, this information has been
presented to permit a more complete analysis. EBITDA should not be
considered a substitute for net income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
profitability or liquidity. EBITDA margin is computed as EBITDA as a
percentage of turnover.
(e) Working capital is presented in accordance with U.K. GAAP. As such, cash on
hand, non-trading intercompany receivables and payables, and corporation
taxes payable are excluded from the calculation of working capital.
33
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following Unaudited Pro Forma Combined Financial Data of the Company
are based on, and should be read in conjunction with, the Consolidated Financial
Statements of NBTY and H&B and the notes thereto included elsewhere in this
Prospectus, and have been adjusted to give pro forma effect to the Transaction.
The Unaudited Pro Forma Combined Statement of Income of the Company for the
nine months ended June 30, 1997 and for the year ended September 30, 1996 give
pro forma effect to the Transaction as if it had occurred on October 1, 1995.
The Unaudited Pro Forma Combined Income Statement for the nine month period
ended June 30, 1997 has been prepared by combining the Consolidated Statement of
Income of NBTY for the nine month period ended June 30, 1997 with the
Consolidated Profit and Loss Account of H&B for the nine month period ended
March 31, 1997. The Unaudited Pro Forma Combined Statement of Income for the
year ended September 30, 1996 has been prepared by combining the Consolidated
Statement of Income of NBTY for the year ended September 30, 1996 with the
Consolidated Profit and Loss Account of H&B for the year ended June 30, 1996.
The Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997 has been
prepared by combining the June 30, 1997 consolidated balance sheets of NBTY and
H&B and give pro forma effect to the Transaction as if it had occurred on such
date.
The pro forma adjustments are based upon available information and certain
assumptions that NBTY believes are reasonable. Other data included on the pro
forma statements of income have been presented to provide additional analysis.
The Acquisition has been accounted for using the purchase method of accounting.
Allocations of the purchase price have been determined based upon preliminary
information and estimates of fair value and are subject to change. Differences
between the amounts included herein and the final allocations are not expected
to have a material effect on the Unaudited Pro Forma Combined Financial Data.
The Unaudited Pro Forma Combined Financial Data do not purport to represent what
the Company's results of operations would have been if such events had occurred
at the dates indicated, nor do such statements purport to project the results of
the Company's operations for any future period.
34
<PAGE>
NBTY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTH PERIOD ENDED JUNE 30, 1997
PRO FORMA PRO FORMA
NBTY H&B ADJUSTMENTS CONSOLIDATED
---- --- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales................... $ 184,108 $ 127,659 $ --- $ 311,767
--------- -------- ----------
Costs and expenses:
Cost of sales............. 88,205 66,245 --- 154,450
Catalog printing, postage
and promotion........... 14,581 --- --- 14,581
Selling, general and
administrative.......... 53,885 51,357 $ 3,996(b) 109,238
--------- -------- ------- ----------
156,671 117,602 3,996 278,269
Income from operations...... 27,437 10,057 (3,996) 33,498
Other income (expense):
Interest, net............. (l,294) 103 (11,325)(c)(d) (12,516)
Miscellaneous, net........ 612 (80) --- 532
--------- -------- ------- ----------
(682) 23 (11,325) (11,984)
Income before income taxes.. 26,755 10,080 (15,321) 21,514
Income taxes................ 10,702 3,698 (4,530)(e) 9,870
--------- -------- ------- ----------
Net income.................. $ 16,053 $ 6,382 $(10,791) $ 11,644
========= ======== ======= ==========
Net income per share........ $ 0.80 $ 0.58
========= ==========
Weighted average common
shares outstanding........ 20,052,391 20,052,391
========== ==========
Other Data:
EBITDA(f).................................................... $ 47.3
EBITDA margin(f) ............................................ 15.2%
Capital expenditures......................................... $ 18.8
See Notes to Unaudited Pro Forma Combined Financial Data.
35
<PAGE>
NBTY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1996
PRO FORMA PRO FORMA
NBTY H&B ADJUSTMENTS CONSOLIDATED
---- --- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales................... $ 194,403 $ 150,902 $ --- $ 345,305
--------- -------- ----------
Costs and expenses:
Cost of sales............. 95,638 79,867 --- 175,505
Catalog printing, postage
and promotion........... 17,635 --- --- 17,635
Selling, general and
administrative.......... 58,515 58,999 $ 5,328(b) 122,842
--------- -------- ------- ----------
171,788 138,866 5,328 315,982
Income from operations...... 22,615 12,036 (5,328) 29,323
Other income (expense):
Interest, net............. (l,445) (654) (15,100)(c)(d) (17,199)
Miscellaneous, net........ 1,203 --- --- 1,203
--------- -------- ------- ----------
(242) (654) (15,100) (15,996)
Income before income taxes.. 22,373 11,382 (20,428) 13,327
Income taxes................ 9,021 4,236 (6,040)(e) 7,217
--------- -------- ------- ----------
Net income.................. $ 13,352 $ 7,146 $(14,388) $ 6,110
========= ======== ======= ==========
Net income per share........ $ 0.67 $ 0.31
========= ==========
Weighted average common
shares outstanding........ 19,975,678 19,975,678
========== ==========
Other Data:
EBITDA(f).................................................... $ 45.9
EBITDA margin(f) ............................................ 13.3%
Capital expenditures......................................... $ 27.1
See Notes to Unaudited Pro Forma Combined Financial Data.
36
<PAGE>
NBTY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NBTY H&B ADJUSTMENTS(a)(g) CONSOLIDATED
---- --- ----------------- ------------
(DOLLARS IN THOUSANDS)
ASSETS:
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents...... $ 2,915 $ 9,437 $ (9,437) $ 2,915
Short term investments......... 15,541 -- (15,238) 303
Accounts receivable, net....... 13,012 163 -- 13,175
Accounts receivable, other..... -- 4,739 (4,545) 194
Inventories.................... 58,682 19,113 -- 77,795
Deferred income taxes.......... 3,155 -- -- 3,155
Prepaid catalog and other
current assets............... 7,649 12,887 -- 20,536
------- ------ ------- -------
Total current assets...... 100,954 46,339 (29,220) 118,073
Property, plant and equipment,
net............................ 68,448 38,275 -- 106,723
Intangible assets, net........... 3,748 2,207 133,189 139,144
Deferred financing costs......... -- -- 6,000 6,000
Other assets..................... 515 -- -- 515
------- -------- -------- --------
Total assets.............. $173,665 $ 86,821 $109,969 $370,455
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term
debt and capital lease
obligations.................. $ 995 $ 17,131 $(17,131) $ 995
Accounts payable............... 22,807 26,429 -- 49,236
Taxes payable.................. -- 5,144 (3,643) 1,501
Accrued expenses............... 15,259 3,500 -- 18,759
------- ------- ------- -------
Total current liabilities 39,061 52,204 (20,774) 70,491
Long-term debt................... 14,782 -- $161,262 176,044
Obligations under capital leases 2,864 -- -- 2,864
Deferred income taxes............ 2,827 4,098 -- 6,925
Other liabilities................ 793 -- -- 793
------- ------- ------- -------
Total liabilities......... 60,327 56,302 140,488 257,117
Commitments and contingencies
Stockholders' equity:
Common stock................... 161 1,748 (1,748) 161
Capital in excess of par....... 56,304 7,637 (7,637) 56,304
Retained earnings.............. 60,062 21,134 (21,134) 60,062
------- ------- -------- -------
116,527 30,519 (30,519) 116,527
Less treasury shares at cost..... 2,663 -- -- 2,663
Stock subscriptions receivable... 526 -- -- 526
------- ------ -------- -------
Total stockholders' equity.. 113,338 30,519 (30,519) 113,338
------- ------ -------- -------
Total liabilities and
stockholders' equity...... $173,665 $ 86,821 $109,969 $370,455
======== ======= ======= =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Data.
37
<PAGE>
NBTY INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) On August 7, 1997 NBTY, Inc. and Subsidiaries ("NBTY") acquired Holland &
Barrett Holdings Ltd. ("H&B") for approximately $169,000. Prior to the
Acquisition, H&B operated as a subsidiary of Lloyds Chemists plc,
("Lloyds") which was recently acquired by GEHE AG. NBTY completed the
acquisition by issuing two promissory notes (the "Promissory Notes") for
approximately $169,000 at an interest rate of 4.5% to Lloyds. NBTY paid the
Promissory Notes and Transaction costs of $7,500 through proceeds of
$148,762 realized from the Initial Offering, borrowings under the Revolving
Credit Facility of $12,500 and available cash of $15,238. Pursuant to the
terms of the Acquisition agreement, NBTY will not be receiving cash and
certain receivables aggregating $13,982 and will not be assuming
approximately $20,774 in liabilities of H&B.
(b) Represents amortization of the excess purchase price over the net assets
acquired of $3,996 and $5,328 for the nine months and year end periods,
respectively, which are amortized over a twenty-five year period on a
straight-line basis.
(c) Reflects the amortization of $450 and $600 for the nine month and year end
periods, respectively, of the deferred financing costs of $6,000, which are
amortizable over the life of the debt.
(d) Reflects (i) additional interest expense relating to the Notes of $9,703
and $12,938 for the nine month and year end periods, respectively, at an
annual interest rate of 8.625%, (ii) additional interest expense on the
Revolving Credit Facility of $704 and $938 for the nine month and year end
periods, respectively, at an annual interest rate of 7.5%, (iii)
amortization of $93 and $124 for the nine month and year end periods,
respectively, of the original issue discount of $1,238, and (iv) a decrease
in interest income of $375 and $500 for the nine month and year end
periods, respectively, earned on cash utilized to pay for the Acquisition.
(e) Represents the tax effect of the pro forma adjustments, excluding the
amortization of goodwill which is not deductible for tax purposes.
(f) EBITDA is defined as net income before interest expense, income taxes and
depreciation and amortization. Management believes that EBITDA is a measure
commonly used by analysts and investors to determine a company's ability to
service and incur debt. Accordingly, this information has been presented to
permit a more complete analysis. EBITDA should not be considered a
substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity. EBITDA margin is computed as EBITDA as a percentage of net
sales.
(g) To reflect the use of $15,238 of available cash and the proceeds of
$148,762 from the issuance of $150,000 of the Notes and borrowings of
$12,500 under the Revolving Credit Facility in order to fund the
acquisition of H&B, related acquisition costs of approximately $1,500 and
financing costs of approximately $6,000. Pursuant to the terms of the
Acquisition agreement, NBTY will not be receiving cash and certain
receivables aggregating $13,982 and will not be assuming approximately
$20,774 in liabilities of H&B.
(h) The historical consolidated financial statements of H&B used in the
Unaudited Pro Forma Combined Financial Data have been adjusted to present
such information in accordance with U.S. GAAP and translated into U.S.
dollar equivalent financial statements using the exchange rate in effect at
June 30, 1997 which was one pound sterling to 1.665 U.S. dollars. For
further information regarding the effect of the difference between U.K.
GAAP and U.S. GAAP, see Note 3 of the H&B Historical Consolidated Financial
Statements included elsewhere in this Prospectus. Certain reclassifications
have been made to the historical consolidated financial statements of H&B
to conform to the NBTY presentation.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the historical results of operations
and financial condition of NBTY and H&B cover periods before completion of the
Transaction. Accordingly, the discussion and analysis of such historical periods
does not reflect the significant impact that the Transaction will have on the
Company. See "Unaudited Pro Forma Combined Financial Data." This discussion and
analysis should be read in conjunction with the historical financial statements
of NBTY and H&B and the notes thereto included elsewhere in this Prospectus.
HISTORICAL RESULTS OF OPERATIONS--NBTY
GENERAL
NBTY, founded in 1971, is one of the leading manufacturers and distributors
of nutritional supplements in the U.S., marketing a complete line of vitamins,
minerals and other nutritional supplements offered at value prices to its
customers. NBTY markets its multi-branded products primarily through (i) one of
the industry's leading mail order programs under its PURITAN'S PRIDE brand name
to its proprietary list of over two million active customers, (ii) 115 Vitamin
World retail stores strategically located primarily in factory outlet malls
across the U.S., and (iii) wholesale distribution to drug store chains,
supermarkets, independent pharmacies and health food stores such as Eckerd, Osco
and Albertson's under the NATURE'S BOUNTY, NATURAL WEALTH, HUDSON, AMERICAN
HEALTH and GOOD `N NATURAL brand names. Management believes that this unique
three-tiered distribution system enables NBTY to most effectively market its
products and lends stability, when compared to certain of its competitors, to
its revenues and EBITDA. NBTY's revenues from mail order, retail and wholesale
sales were approximately 42%, 16% and 42%, respectively, of total NBTY revenues
for the nine month period ended June 30, 1997. NBTY's revenues and EBITDA for
the nine month period ended June 30, 1997 were approximately $184 million and
$33 million, respectively, and same store sales growth for the same period was
approximately 15%.
The following table sets forth certain historical operating results of NBTY
as a percentage of sales:
Nine Months Ended Year Ended
June 30, September 30,
----------------- ---------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales............... 47.9 50.7 49.2 52.5 51.2
Catalog printing, postage and
promotion................. 7.9 9.3 9.1 10.8 9.5
Selling, general and
administrative............ 29.3 30.1 30.1 31.7 31.5
---- ---- ----- ----- -----
85.1 90.1 88.4 95.0 92.2
---- ---- ----- ----- -----
Income from operations........ 14.9 9.9 11.6 5.0 7.8
Interest expense and other.... (0.4) (0.3) (0.1) (0.3) 0.2
------ ------ ------ ------- -----
Income before income taxes.... 14.5 9.6 11.5 4.7 8.0
Income taxes.................. 5.8 3.9 4.6 1.8 3.0
----- ----- ----- ----- -----
Net income.................... 8.7% 5.7% 6.9% 2.9% 5.0%
====== ====== ====== ====== ======
NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30, 1996
Net sales in the nine months ended June 30, 1997 were $184.1 million,
compared with $142.1 million for the nine months ended June 30, 1996, an
increase of $42.0 million or 29.6%. Sales increases were across all channels of
distribution. Mail order sales were $78.0 million, compared to $62.9 million for
the prior comparable period (an increase of $15.1 million or 24.0%) due to
increased response to promotional efforts; wholesale sales were $77.4 million,
compared to $64.4 million for the prior comparable period (an increase of $13.0
million or 20.2%) due to increased shelf space and consumer demand; and retail
39
<PAGE>
sales were $28.7 million, compared to $14.8 million (an increase of $13.9
million or 93.9%) due to an increase in the number of retail stores for the
prior comparable period. Comparable same store sales for stores open for more
than one year were up $1.8 million (or 15.1%) over the nine months ended June
30, 1996. Approximately 70 new SKUs were introduced over the past nine months.
Sales for NBTY's new mail order operation in the U.K. were $1.6 million in 1997
and $0.5 million in 1996.
Cost of sales for the nine months ended June 30, 1997 was $88.2 million (or
47.9% of sales), compared to $72.1 million for the prior comparable period (or
50.7% of sales). The decrease was associated with lower raw material costs due
to discounts obtained for long-term purchase commitments, manufacturing
efficiencies, and changes in product mix due to the introduction of new higher
margin products.
Catalog printing, postage and promotion expenses were $14.6 million for the
nine months ended June 30, 1997 (an increase of $1.4 million or 10.6%) from
$13.2 million for the nine months ended June 30, 1996. As a percentage of sales,
catalog printing, postage and promotion expenses were 7.9% for the nine months
ended June 30, 1997 and 9.3% for the prior comparable nine months. The increase
in expenditures was primarily attributable to national television advertising
and the increased number of catalogs printed and mailed for the mail order
division.
Selling, general and administrative expenses were $53.9 million, or 29.3% as
a percentage of sales for the nine months ended June 30, 1997, compared with
$42.8 million, or 30.1% as a percentage of sales for the prior comparable
period, an increase of $11.1 million (or 26.0%). This increase was primarily due
to increases in indirect salaries, building, freight and outside services
expenses. These expenses increased due to the retail store expansion and the
opening of the international mail order operations.
NBTY's net income was $16.1 million for the nine month period ended June 30,
1997, and $8.1 million for the nine months ended June 30, 1996.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Net sales for fiscal year 1996 were $194.4 million, an increase of $15.6
million or 8.7% over fiscal year 1995. Of the $15.6 million increase, $8.8
million was attributable to increased retail sales; $1.8 million was
attributable to increased wholesale sales; and $13.2 million was attributable to
mail order sales, less a decrease of $8.2 million from Beautiful Visions, a
cosmetic catalog which was sold in October 1995.
Cost of sales for fiscal year 1996 was $95.6 million, an increase of $1.9
million or 2.0% over fiscal year 1995. Gross profit increased to 50.8% in fiscal
year 1996 from 47.5% in fiscal year 1995. This increase was due to various
factors, including lower raw material costs due to discounts obtained for
long-term purchase commitments, manufacturing efficiencies, and changes in
product mix due to the introduction of new higher margin products.
Catalog printing, postage and promotion expenses for 1996 were $17.6 million,
a decrease of $1.7 million over 1995. Such costs, as a percentage of net sales,
were 9.1% in 1996 compared with 10.8% in 1995. The decrease was mainly due to
the discontinuance of the Beautiful Visions mail order operation.
Selling, general and administrative expenses for fiscal year 1996 were $58.6
million, an increase of $1.9 million over fiscal year 1995. As a percentage of
net sales, these costs were 30.1% in fiscal year 1996 as compared to 30.7% in
fiscal year 1995. Decreases in fringe benefits and other miscellaneous costs
were offset by increases due to the retail store expansion and professional
fees.
NBTY's net income was $13.4 million for fiscal year 1996, and $5.1 million
for fiscal year 1995.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Net sales for fiscal year 1995 were $178.8 million, an increase of $22.7
million or 14.5% over fiscal year 1994. Of the $22.7 million increase, $12.5
million was attributable to wholesale and retail sales and $10.2 million was
attributable to mail order sales. In October 1995, Beautiful Visions, a cosmetic
catalog operation, was sold. Sales for such operation in fiscal year 1995 were
$8.2 million, a decrease of $5.0 million from the prior fiscal year.
40
<PAGE>
Cost of sales for fiscal year 1995 was $93.9 million, an increase of $14.0
million or 17.5% over fiscal year 1994. Gross profit decreased to 47.5% in
fiscal year 1995 from 48.8% in fiscal year 1994. This decrease as a percentage
of net sales was due to various factors which included pricing pressures and
write-downs for labels and unsold Beautiful Visions inventory.
Catalog printing, postage and promotion for fiscal year 1995 was $19.3
million, an increase of $4.5 million or 30.3% over fiscal year 1994. This cost,
as a percentage of net sales, was 10.8% in fiscal year 1995 compared with 9.5%
in fiscal year 1994. The increase was mainly due to expanded trade advertising
and costs associated with promotional programs to independent stores and chain
stores.
Selling, general and administrative expenses for fiscal year 1995 was $56.7
million, an increase of $7.5 million or 15.3% over fiscal year 1994. As a
percentage of net sales, these costs remained relatively constant at 31.7% in
fiscal year 1995 and 31.5% in fiscal year 1994. The increase was primarily a
result of increases in salaries, wages, fringe benefits and professional
services.
NBTY's net income was $5.1 million for fiscal year 1995, and $7.8 million for
fiscal year 1994.
HISTORICAL RESULTS OF OPERATIONS--H&B
GENERAL
H&B markets a broad line of nutritional supplement products, including
vitamins, minerals and other nutritional supplements (approximately 58% of
revenues for fiscal year 1997), and food products, including fruits and nuts,
confectionery and other items (approximately 42% of revenues for fiscal year
1997). H&B's strategic retail locations in prime shopping areas and broad
product offering have enabled it to become one of the U.K.'s largest nutritional
supplement retailers. The Consolidated Financial Statements of H&B have been
prepared in accordance with U.K. GAAP. For further information regarding the
effect of the difference between U.S. GAAP and U.K. GAAP, see note 3 of the
Consolidated Financial Statements of H&B included elsewhere in this Prospectus.
The following table sets forth certain historical operating results of H&B in
accordance with U.K. GAAP as a percentage of sales:
Year Ended June 30,
-------------------
1997 1996
---- ----
Turnover............................................. 100.0% 100.0%
Cost of sales........................................ 52.1 52.9
----- -----
Gross profit......................................... 47.9 47.1
Distribution costs................................... 38.3 37.4
Administrative expenses.............................. 2.1 1.7
------ ------
Operating profit..................................... 7.5 8.0
------ ------
Profit on ordinary activities after taxation......... 4.7% 4.8%
====== ======
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996 (DOLLARS AND
POUNDS STERLING IN MILLIONS)
For the fiscal years ended June 30, 1997 and 1996, sales were (Pounds
Sterling) 102.9 (or $171.3) and (Pounds Sterling) 90.6 (or $150.9),
respectively, an increase of 13.5%. The number of retail stores operating at the
end of fiscal years 1997 and 1996 was 410 and 389, respectively. For the fiscal
year ended June 30, 1997, same store sales for comparable stores increased 3%.
Gross profit for the fiscal year ended 1997 was (Pounds Sterling) 49.3
(or $82.1) or 47.9% as a percentage of sales, and for the fiscal year ended June
30, 1996, gross profit was (Pounds Sterling) 42.7 (or $71.0) or 47.1% as a
percentage of sales.
Payroll costs for the fiscal year ended June 30, 1997 were (Pounds
Sterling) 13.8 (or $23.0) and (Pounds Sterling) 11.5 (or $19.1) for the fiscal
year ended June 30, 1996. Payroll costs increased mainly due to the increased
number of employees. Operating profits for the fiscal year ended June 30, 1997
were (Pounds Sterling) 7.7 (or
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$12.8) and (Pounds Sterling) 7.3 (or $12.2) for the fiscal year ended June 30,
1996. As a percentage of sales, operating profits were 7.5% for the fiscal year
ended June 30, 1997, and 8.0% for the fiscal year ended June 30, 1996. Profit on
ordinary activities before taxation was (Pounds Sterling) 7.4 (or $12.4) for the
fiscal year ended June 30, 1997, and (Pounds Sterling) 6.9 (Or $11.5) for the
fiscal year ended June 30, 1996.
Capital expenditures for the years ended June 30, 1997 and 1996 remained
constant at(Pounds Sterling) 6.8 (or $11.3).
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Transaction, interest payments on the Notes and on the
Revolving Credit Facility represent significant liquidity requirements for the
Company. The Company anticipates that the Notes will require annual interest
payments of approximately $12.9 million. See "Unaudited Pro Forma Combined
Financial Data."
In addition to its debt service obligations, the Company will require
liquidity for capital expenditures and working capital needs. Total capital
expenditures for the Company are expected to be approximately $23.0 million for
fiscal year 1998, of which $7.0 million will be related to maintenance capital
expenditures.
The Company believes that the cash flow generated from its operations,
together with amounts available under the Revolving Credit Facility, should be
sufficient to fund its debt service requirements, working capital needs,
anticipated capital expenditures and other operating expenses for the
foreseeable future. The Revolving Credit Facility provides the Company with
available borrowings up to an aggregate principal amount of $50.0 million. On a
pro forma basis, after giving effect to the Transaction, the Company's unused
availability under the Revolving Credit Facility would have been $37.5 million.
The Company's future operating performance and ability to service or refinance
the Notes and to refinance the Revolving Credit Facility will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond the Company's control. See "Risk Factors."
The Revolving Credit Facility and the Notes impose certain restrictions on
the Company's ability to make capital expenditures and limit the Company's
ability to incur additional indebtedness. Such restrictions could limit the
Company's ability to respond to market conditions, to provide for unanticipated
capital investments or to take advantage of business or acquisition
opportunities. The covenants contained in the Revolving Credit Facility and the
Notes also, among other things, limit the ability of the Company to dispose of
assets, repay indebtedness or amend other debt instruments, pay distributions,
create liens on assets, enter into sale and leaseback transactions, make
investments, loans or advances and make acquisitions.
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BUSINESS
OVERVIEW
NBTY, founded in 1971 by Arthur Rudolph, is one of the leading manufacturers
and distributors of nutritional supplements in the U.S., marketing a complete
line of vitamins, minerals and other nutritional supplements offered at value
prices to its customers. NBTY markets its multi-branded products primarily
through (i) one of the industry's leading mail order programs under its
PURITAN'S PRIDE brand name to its proprietary list of over two million active
customers, (ii) 115 Vitamin World retail stores strategically located primarily
in factory outlet malls across the U.S., and (iii) wholesale distribution to
drug store chains, supermarkets, independent pharmacies and health food stores
such as Eckerd, Osco and Albertson's under the NATURE'S BOUNTY, NATURAL WEALTH,
HUDSON, AMERICAN HEALTH and GOOD `N NATURAL brand names. Management believes
that this unique three-tiered distribution system enables NBTY to most
effectively market its products and lends stability, when compared to certain of
its competitors, to its revenues and EBITDA. NBTY's revenues from mail order,
retail and wholesale sales were approximately 42%, 16% and 42%, respectively, of
total NBTY revenues for the nine month period ended June 30, 1997. NBTY's
revenues and EBITDA for the nine month period ended June 30, 1997 were
approximately $184 million and $33 million, respectively, and same store sales
growth for the same period was approximately 15%.
NBTY acquired H&B, one of the leading nutritional supplement retailers in the
U.K. with 410 locations, on August 7, 1997. The Acquisition provides the Company
with significant strategic opportunities to enhance H&B's revenues and
profitability and increase its market share. H&B markets a broad line of
nutritional supplement products, including vitamins, minerals and other
nutritional supplements (approximately 58% of H&B's revenues for fiscal year
1997) and food products, including fruits and nuts, confectionery and other
items (approximately 42% of H&B's revenues for fiscal year 1997). H&B's
strategic retail locations in prime shopping areas and broad product offering
have enabled it to become one of the U.K.'s largest nutritional supplement
retailers. H&B's revenues and EBITDA for the fiscal year ended June 30, 1997
were approximately $171 million and $18 million, respectively, and same store
sales growth for the same period was approximately 3%.
The Company expects to derive substantial opportunities from the combination
of NBTY's and H&B's operations. Pro forma for the Acquisition, the Company's
revenues for mail order, retail and wholesale sales would have been
approximately 25%, 50% and 25%, respectively, of total Company revenues for the
nine month period ended June 30, 1997. Management believes that cross-selling an
expansive selection of NBTY-manufactured products into H&B's 410 retail stores
will enable H&B to offer a broader product selection at lower prices than its
competitors and, at the same time, enhance H&B's margins. In addition,
management expects to reduce per unit production costs in NBTY's manufacturing
facilities through increased capacity utilization derived from this vertical
integration. The Company also plans to increase the efficiency of its H&B
operations by integrating NBTY's state-of-the-art POS system throughout H&B's
retail stores that will allow for more effective management of inventory and
purchasing. The Company's vertically integrated structure and three-tiered
distribution system, combined with its breadth of well recognized, value
oriented brand names, position it to pursue continued growth and competitive
success in each of its distribution channels.
COMPETITIVE STRENGTHS
The Company believes that the following competitive strengths provide it with
a solid foundation to further enhance growth, profitability and the Company's
position as an industry leader:
. VERTICALLY INTEGRATED OPERATIONS. As a result of the Acquisition, the
Company will increase its degree of vertical integration by manufacturing
nutritional supplements in NBTY facilities for sale through H&B's retail
stores. Due to NBTY's existing level of vertical integration, NBTY is able
to price its products at its stores approximately 20-40% lower than its
largest competitor yet still maintain gross margins in excess of
approximately 50%. The Acquisition will allow the Company to further
increase its margins by providing NBTY-manufactured products throughout
all 410 H&B retail stores.
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. EFFICIENT, MULTI-CHANNEL DISTRIBUTION NETWORK. NBTY's three-tiered U.S.
distribution network (mail order, retail and wholesale), supplemented by
H&B's strong retail position in the U.K. nutritional supplement market,
allows the Company to access a broader base of nutritional supplement
buyers and is unique among the Company's competitors. Management believes
this diverse network lowers distribution risk and lends stability to both
revenues and EBITDA.
. STRONG PORTFOLIO OF RETAIL STORES. NBTY's 115 Vitamin World stores, in
combination with H&B's 410 stores, comprise a retail network that is
strategically located in the high growth U.S. and U.K. markets. These
stores delivered approximately 15% and 4% same store sales growth during
the nine month period ended June 30, 1997 in the U.S. and the U.K.,
respectively. In addition to providing a platform for growth, management
believes the Company's established retail stores pose significant barriers
to entry for new competitors due to the Company's penetration of U.S.
factory outlet malls and prime U.K. locations.
. LEADING MAIL ORDER SUPPLIER. Management believes NBTY is the industry
leader in the U.S. mail order nutritional supplement market with over two
million active customers and response rates that management believes to be
in excess of the mail order industry average. The Company's position as a
leading mail order nutritional supplement distributor allows the Company
to lower its per customer distribution costs, thereby enhancing margins.
The Company plans to further expand its mail order operations in the U.K.
by utilizing its mail order distribution warehouse in Southampton,
England, which became fully operational in January 1997.
. INNOVATIVE NEW PRODUCT DEVELOPMENT. NBTY continually pursues new product
development in response to customer demand. In 1997 alone, NBTY introduced
100 new SKUs through its product development and merchandising groups
working directly with managers at the retail level. Management believes
its retail stores provide the Company with rapid access to customer demand
information and allow the Company to test market new products before
initiating a complete product launch across all distribution channels.
. EXPERIENCED MANAGEMENT TEAM. Scott Rudolph, Chairman of the Board,
President and Chief Executive Officer, has 11 years of experience with
NBTY and 21 years in the nutritional supplement industry. Mr. Rudolph's
skilled management team averages over 14 years of industry experience
(primarily with NBTY) in the mail order, retail and wholesale distribution
channels.
BUSINESS STRATEGY
The Company's strategy is to target the growing value-conscious consumer
segment in order to increase sales and improve profitability, thereby
strengthening its position as an industry leader through the following key
initiatives:
. INCREASE HIGH MARGIN RETAIL SALES. As a result of the Acquisition, NBTY's
115 retail stores have been augmented by H&B's 410 U.K. stores. In the
U.S., the Company plans to open approximately 80 new stores per year under
its proven store format, substantially increasing its penetration of the
factory outlet mall base. By increasing overall foot traffic through its
growing base of stores, the Company expects to increase its revenues and
profitability, and enhance its market share. In the U.K, the Company
expects to increase nutritional supplement sales by offering its products
at lower prices than its compeititors.
. INCREASE HIGH MARGIN MAIL ORDER SALES. Management believes NBTY's
PURITAN'S PRIDE mail order operation is the industry's leader with
approximately two million active mail order customers. NBTY is currently
in the process of automating its mail order shipping department, which
will enable NBTY to fulfill mail order requests with greater speed and
efficiency. NBTY expects to continue to strengthen its mail order sales
through frequent promotions in order to further improve its response rate,
which management believes is already above the mail order industry
average. NBTY also expects to continue to add customers through the
selective acquisition of companies that have similar or complementary
products. In addition, NBTY's recently increased manufacturing capability
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will enable it to successfully compete for additional mail order customers
through its ability to quickly introduce and deliver new products in
response to consumer demand.
. EMPHASIZE HIGHER MARGIN PRODUCTS. In addition to manufacturing and
distributing high sales volume products (such as vitamins C and E), the
Company also manufactures and distributes higher margin, specialty
products. These popular specialty products, such as melatonin and St.
John's Wort, are targeted primarily at dedicated nutritional supplement
users and typically provide higher margins than more established products
and broaden the Company's product line.
. ENHANCE OPERATING EFFICIENCIES. The Acquisition will enable the Company
to increase its level of vertical integration by selling nutritional
supplements manufactured by NBTY through the H&B retail stores in the U.K.
Management expects to supply approximately 75% of H&B's nutritional
supplements from NBTY's U.S. manufacturing operations, thereby increasing
NBTY's manufacturing margins and increasing H&B's margins while reducing
per unit production costs in NBTY's manufacturing facilities through
increased capacity utilization. Additionally, the Company intends to
achieve significant operating efficiencies from the integration of its POS
system into the H&B stores, which will significantly improve inventory
management, production scheduling and administrative functions.
. RAPID NEW PRODUCT INTRODUCTION. Management believes that NBTY is among
the leaders in its industry in the timely introduction of products in
response to consumer demands. During 1997 alone, NBTY introduced more than
100 new SKUs. Given the changing nature of consumer demands for new
products and the growing publicity of the value of vitamins, minerals and
other nutritional supplements in the promotion of general health,
management believes that NBTY will continue to attract new customers based
upon its ability to rapidly respond to consumer demands with high quality,
value oriented products. As a result of the Company's ongoing
manufacturing expansion, the Company will be poised to further develop new
products that meet consumers' demand.
COMPANY HISTORY
NBTY. The business of NBTY as a direct marketer of vitamins was begun in 1971
under the name of NATURE'S BOUNTY, Inc. by Arthur Rudolph, NBTY's former
chairman, and NBTY completed its initial public offering of stock that same
year. NBTY first developed its manufacturing capabilities in 1974 in order to
capitalize on efficiencies gained through vertical integration. NBTY began its
mail order operation in 1974, opened its first retail store in 1979 and has
grown through a series of strategic acquisitions that included the acquisition,
in 1989, of GNC's mail order operation. It changed its name to NBTY, Inc. in
1995.
H&B. H&B, founded in 1920, was acquired in the late 1960s by Booker plc.
Under the direction of Booker plc, the H&B network was expanded to 183 stores
through new store openings as well as through the acquisition of independent
health food stores. In 1991, H&B was acquired by Lloyds. Under the direction of
Lloyds, H&B was expanded to 410 stores through continued store openings and
acquisitions of independent health food stores. Lloyds was acquired by GEHE in
January 1997 and, pursuant to GEHE's strategy of divesting Lloyds of non-core
assets, GEHE determined to divest the H&B subsidiary.
INDUSTRY OVERVIEW
The U.S. retail market for vitamins, minerals and other nutritional
supplements ("VMS") has grown at a compound annual rate of approximately 15%,
from $3.7 billion in 1992 to $6.5 billion in 1996, according to the 1997
Packaged Facts Survey. This growth has stemmed primarily from the availability
of new supplements and wider distribution as well as from a positive regulatory
environment. In addition to these factors driving the growth of the nutritional
supplement industry, recent scientific research suggesting important health
benefits derived from the regular consumption of vitamins and other nutritional
supplement products has fueled an increasing societal interest in preventive
health measures.
The continued aging of the U.S. population, together with an increased focus
on preventive health measures, is expected to result in a continuing increase in
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demand for nutritional supplement products. According to the Simmons Market
Research Bureau, 54% of the U.S. adult population regularly uses vitamins,
minerals or supplements. Further, based on U.S. Bureau of the Census data, the
45-and-older age group, which accounted for approximately 32% of the U.S.
population in 1990, is expected to grow to 40% of the U.S.
population by 2010.
Vitamins and other nutritional supplements are sold primarily through the
following channels of distribution: health food stores, drug stores,
supermarkets and other grocery stores, discount stores, mail order and direct
sales organizations. Mass market retailers (drug stores, grocery stores and
discount stores), health food stores and mail order and direct selling account
for approximately 46%, 38%, and 16%, respectively, of industry sales. The mass
marketers traditionally offer more mainstream VMS products, such as
multivitamins, individual vitamins (such as Vitamins A, C and E), and minerals
(such as calcium, potassium and magnesium), while the health food stores, mail
order and direct selling companies traditionally offer greater product breadth,
including the more sophisticated supplement products.
The retail and wholesale segments of the VMS industry are highly fragmented.
There are approximately 11,000 health food and vitamin chain stores in the U.S.,
of which approximately 70% are independently owned and operated and
approximately 30% are associated with one of several regional or national
chains.
PRODUCTS
NBTY. NBTY manufactures and markets over 650 different products, including
vitamins, minerals, herbs, amino acids, sports nutrition products, diet aids and
other nutritional supplements. Management believes that NBTY's unique production
process enables the Company to manufacture smaller, easier to swallow products
than its competitors. Products are then packaged in recyclable plastic bottles
with tamper-evident hinged caps. As a result, NBTY's products appeal to the
needs of today's environmentally and safety conscious consumer. NBTY assures
total customer satisfaction by employing rigorous quality assurance programs in
its state-of-the-art laboratories.
H&B. H&B's product range is classified into two categories: nutritional
supplement products, which generated approximately 58% of total sales in fiscal
year 1997, and food products, which generated approximately 42% of total sales
in fiscal year 1997. Nutritional supplement products include herbal and
alternative remedies, sports nutrition, aromatherapy, and diet products. Food
product lines include fruit and nuts, confectionery, chilled and frozen foods,
beverages and milk, vegetarian foods, herbal teas, water and juices, honeys and
spreads, breakfast foods, condiments, and biscuits.
MANUFACTURING AND QUALITY CONTROL
NBTY. As a result of its ongoing manufacturing expansion, NBTY operates
technologically advanced manufacturing and production facilities, located on
Long Island in Bohemia, New York, consisting of approximately 625,000 square
feet in four modern buildings, of which 100,000 square feet is devoted to
manufacturing, 72,000 square feet to office space, 1,500 square feet to a
quality assurance and testing laboratory and the balance to warehouse and
distribution. All manufacturing is conducted in accordance with the good
manufacturing practices ("GMP") of the FDA and other applicable regulatory
standards. NBTY believes that the capacity of its manufacturing and distribution
facilities is adequate to meet the requirements of its current business and will
be adequate to meet the requirements of anticipated increases in net sales as a
result of the Acquisition.
NBTY's manufacturing process places special emphasis on quality control. All
raw materials used in production are initially held in quarantine during which
time NBTY's laboratory employees assay the product against the manufacturer's
certificate of analysis. Once cleared, a lot number is assigned, samples are
retained and the material is processed by formulating, mixing and granulating,
compression and sometimes coating operations. After the tablet is manufactured,
laboratory employees test its weight, purity, potency, dissolution and
stability. When a product such as vitamin tablets is ready for bottling, the
automated equipment counts the tablets, inserts them into bottles, adds a
tamper-resistant cap with an inner safety seal and affixes a label. NBTY uses
computer-generated documentation for picking and packing for order fulfillment.
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H&B. H&B has been a direct seller of a wide range of food and nutritional
supplement products and health food products and has not historically
manufactured its products. Prior to the Acquisition, H&B purchased all of its
products direct from wholesale manufacturers and third party representatives and
sold certain of these products under the H&B name.
SALES AND ADVERTISING
NBTY. NBTY has approximately 400 sales employees located throughout the U.S.
in its Vitamin World stores, and 70 employees who sell to NBTY's wholesale
distributors. In addition, NBTY sells through commissioned sales representative
organizations. In fiscal year 1996 and for the nine months ended June 30, 1997,
NBTY spent approximately $12.8 million and $10.6 million, respectively, on
advertising in print and media, including cooperative advertising. NBTY creates
its own advertising materials through a staff of approximately 22 employees.
H&B. During fiscal year 1997 H&B employed an average of 1,979 sales employees
in its retail stores. H&B runs advertisements weekly in four national
newspapers. It also conducts approximately 17 promotions per year at its retail
locations in addition to managers' specials. Six times per year H&B publishes a
glossy magazine with helpful articles and promotional materials.
RAW MATERIALS
The principal raw materials used in the manufacturing process are natural and
synthetic vitamins, purchased from bulk manufacturers in the U.S., Japan and
Europe. NBTY purchases raw materials from numerous sources. One supplier
currently provides approximately 10% of NBTY's purchases, and no other supplier
accounts for 10% or more of NBTY's raw material purchases. NBTY believes that
the loss of its largest supplier would have a temporary adverse effect upon its
operations but that, over time, NBTY would be able to replace such source of
supply.
PROPERTIES
NBTY. NBTY owns a total of approximately 625,000 square feet of plant
facilities located at 60, 90, 105 and 115 Orville Drive in Bohemia, New York and
4320 Veterans Memorial Highway, Holbrook, New York. In addition, NBTY leases
approximately 10,000 square feet of warehouse space in Southampton, England, and
approximately 10,000 square feet of warehouse space in Reno, Nevada. NBTY
operates 115 retail stores under the name Vitamin World. The stores have an
average selling area of 1,200 square feet. Generally, NBTY leases the stores for
three to five years at annual base rents ranging from $12,000 to $94,000 and
percentage rents in the event sales exceed a specified amount.
H&B. H&B leases all of the locations of its 410 retail stores for terms
varying between 10 and 25 years at varying rents. No percentage rents are
payable. H&B leases approximately 9,000 square feet of space in Hinckley for
executive and administrative staff and also leases a 44,500 square foot facility
in Hinckley for warehouse and distribution space.
COMPETITION
UNITED STATES. The market for vitamins and other nutritional supplements is
highly competitive in all of NBTY's channels of distribution. With respect to
mail order sales, management believes that PURITAN'S PRIDE is the largest mail
order supplier of vitamins and other nutritional supplements and competes with a
large number of smaller, usually less geographically diverse, mail order
companies, some of which manufacture their own products and some of which sell
products manufactured by other companies. In its retail Vitamin World stores,
the Company competes regionally with specialty vitamin stores, such as GNC and
local drug stores, health food stores, supermarkets, department stores and mass
merchandisers. NBTY's NATURE'S BOUNTY and NATURAL WEALTH brands compete with
numerous vitamin distributors and manufacturers for sales to drug store chains
and supermarkets with heavily advertised national brands manufactured by large
pharmaceutical companies, as well as Your Life, Nature Made and Sundown,
marketed by Leiner Health Products, Inc., Pharmavite Corp. and Rexall Sundown,
Inc., respectively. It is not possible to estimate accurately the number of
competitors since the nutritional supplement industry is fragmented.
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Management believes that NBTY competes favorably with other mail order
sellers of similar products on the basis of price and customer service,
including speed of delivery and new product offerings. Management believes that
NBTY competes favorably with the large pharmaceutical companies and other
companies that sell to wholesalers, on the basis of price, breadth of product
line, reputation and customer service, including innovative packaging and
displays and other services. Management believes that NBTY derives a competitive
advantage from its ability to manufacture and package its own vitamin and
nutritional supplement products, which affords it the flexibility to respond to
the shifting demands of each channel of distribution and, consequently, the
ability to achieve the manufacturing and operating efficiencies resulting from
larger production runs of products that can be packaged for sale in one or more
such channel.
UNITED KINGDOM. As in the U.S., the market for sales of vitamins, minerals
and other nutritional supplements is highly competitive. H&B's principal
competitors are large pharmacy chains, including Superdrug, Boots and Lloyds,
and major supermarket chains such as Tesco, Sainsbury's and ASDA. There are also
approximately 1,300 independent retailers of health foods and nutritional
supplements in the U.K. market. In addition, GNC has recently entered the U.K.
market and currently operates approximately 30 stores in the U.K. As a result of
the Acquisition, H&B intends to compete more effectively with its competition
through improved store formats, greater product offerings and value pricing.
GOVERNMENT REGULATION
UNITED STATES. The manufacturing, packaging, labeling, advertising,
distribution and sale of NBTY's products are subject to regulation by one or
more federal agencies, the most active of which is the FDA. The Company's
products are also subject to regulation by the FTC, the Consumer Product Safety
Commission, the U.S. Department of Agriculture and the Environmental Protection
Agency, and by various agencies of the states and localities and foreign
countries in which NBTY's products are sold. In particular, the FDA, pursuant to
the Federal Food, Drug, and Cosmetic Act ("FDCA") regulates the production,
packaging, labeling and distribution of dietary supplements, including vitamins,
minerals and herbs, and over-the-counter ("OTC") drugs. In addition, the FTC has
jurisdiction to regulate advertising of dietary supplements and OTC drugs, while
the U.S. Postal Service regulates advertising claims with respect to such
products sold by mail order.
The FDCA has been amended several times with respect to dietary supplements,
most recently by the Dietary Supplement Health and Education Act of 1994
("DSHEA") and the Nutrition Labeling and Education Act of 1990 ("NLEA"). DSHEA,
enacted on October 15, 1994, introduced a new statutory framework governing the
composition and labeling of dietary supplements. With respect to composition,
DSHEA creates a new class of "dietary supplements," dietary ingredients
consisting of vitamins, minerals, herbs, amino acids and other dietary
substances for human use to supplement the diet, as well as concentrates,
metabolites, extracts or combinations of such dietary ingredients. Generally,
under DSHEA, dietary ingredients that were on the market before October 15, 1994
may be sold without FDA pre-approval and without notifying the FDA. On the other
hand, a new dietary ingredient (one not on the market before October 15, 1994)
requires proof that it has been used as an article of food without being
chemically altered, or evidence of a history of use or other evidence of safety
establishing that it is reasonably expected to be safe. The FDA must be supplied
with such evidence at least 75 days before the initial use of a new dietary
ingredient. There can be no assurance that the FDA will accept the evidence of
safety for any new dietary ingredients that the Company may decide to use, and
the FDA's refusal to accept such evidence could result in regulation of such
dietary ingredients as food additives requiring FDA pre-approval prior to
marketing.
As for labeling, DSHEA permits "statements of nutritional support" for
dietary supplements without FDA pre-approval. Such statements may describe how
particular dietary ingredients affect the structure, function or general
well-being of the body, or the mechanism of action by which a dietary ingredient
may affect body structure, function or well-being (but may not state that a
dietary supplement will diagnose, mitigate, treat, cure or prevent a disease). A
company making a statement of nutritional support must possess substantiating
evidence for the statement, disclose on the label that the FDA has not reviewed
that statement and that the product is not intended for use for a disease, and
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notify the FDA of the statement within 30 days after its initial use. However,
there can be no assurance that the FDA will not determine that a given statement
of nutritional support that the Company makes is not adequately substantiated as
required by DSHEA, or is a drug claim rather than an acceptable nutritional
support statement requiring the Company's submission and the FDA's approval of a
new drug application ("NDA"). Either determination could entail costly and
time-consuming clinical studies and in either situation the Company may have to
delete or modify the statement or claim involved. In addition, DSHEA allows the
dissemination of "third party literature", publications such as reprints of
scientific articles linking particular dietary ingredients with health benefits.
Third party literature may be used in connection with the sale of dietary
supplements to consumers at retail or by mail order. Such a publication may be
so distributed if, among other things, it is not false or misleading, no
particular manufacturer or brand of dietary supplement is mentioned, and a
balanced view of available scientific information on the subject matter is
presented. There can be no assurance, however, that all pieces of third party
literature that may be disseminated in connection with the Company's products
will be determined by the FDA to satisfy each of these requirements, and any
such failure could subject the product involved to regulation as a new drug.
Management anticipates that the FDA may promulgate good manufacturing
practice ("GMP") regulations authorized by DSHEA, which are specific to dietary
supplements. GMP regulations would require supplements to be prepared, packaged
and held in compliance with such rules, and may require similar quality control
provisions contained in the GMP regulations for drugs. The Company currently
manufactures its vitamins and nutritional supplement products pursuant to the
applicable food GMP rules. There can be no assurance that, if the FDA adopts GMP
regulations specific to dietary supplements, NBTY will be able to comply with
such GMP rules upon promulgation or without incurring material expense to do so.
The FDA has finalized regulations to implement certain labeling provisions of
DSHEA. In addition, further DSHEA labeling regulations are expected to be
proposed by the FDA once the agency receives the final report of the expert
Commission on Dietary Supplement Labels, established by DSHEA to provide
recommendations on labeling claims for supplements. The Commission on Dietary
Supplements issued its final report in November 1997. It is uncertain when the
FDA will propose further regulations based on this report. NBTY cannot determine
what effect such regulations, when promulgated, will have on its business in the
future. There can be no assurance that such regulations will not require
expanded or different labeling for NBTY's vitamins and nutritional products or,
among other things, require the recall, reformulation or discontinuance of
certain products, additional recordkeeping, warnings, notification procedures
and expanded documentation of the properties of certain products and scientific
substantiation regarding ingredients, product claims, safety or efficacy.
NLEA prohibits the use of any health claim describing the relationship
between a nutrient and a disease or health-related condition (as distinguished
from "statements of nutritional support" permitted by DSHEA) for foods,
including dietary supplements, unless the health claim is supported by
significant scientific agreement and is pre-approved by the FDA. To date, the
FDA has approved the use of health claims for dietary supplements only in
connection with the use of calcium for osteoporosis and the use of folic acid
for neural tube defects. However, under the recently enacted Food and Drug
Administration Modernization Act of 1997, a health claim can now be made on the
basis of an authoritative statement of a governmental or quasi-governmental
body other than the FDA (e.g., the National Institutes of Health, the Centers
for Disease Control or the National Academy of Sciences), as long as the FDA is
pre-notified of the claim, the authoritative statement, and a balanced
representation of the scientific literature on which the authoritative statement
is based.
NLEA also prohibits the use of any nutrient content claim describing the
amount of a nutrient in a food or dietary supplement (e.g., "high in," "low in,"
"rich in," "good source of"), unless it complies with FDA nutrient content claim
regulations. However, the FDA Modernization Act of 1997 now permits nutrient
content claims on the basis of authoritative statements of other governmental or
quasi-governmental bodies under the same conditions that this new statute
permits health claims.
The FDA has broad authority to enforce the provisions of the FDCA applicable
to dietary supplements, including the power to seize adulterated or misbranded
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products or unapproved new drugs, to request their recall from the market, to
enjoin their further manufacture or sale, to publicize information about a
hazardous product, to issue warning letters and to institute criminal
proceedings. Although the regulation of dietary supplements is less restrictive
than that imposed upon drugs and food additives, there can be no assurance that
dietary supplements will continue to be subject to the less restrictive
statutory scheme and regulations currently in effect. Further, there can be no
assurance that, if more stringent statutes are enacted or regulations are
promulgated, the Company will be able to comply with such statutes and
regulations without incurring material expense to do so.
The OTC pharmaceutical products distributed by the Company are subject to
regulation by a number of Federal and State governmental agencies. In
particular, the FDA regulates the formulation, manufacture, packaging and
labeling of all OTC pharmaceutical products pursuant to a monograph system
specifying OTC active drug ingredients that are generally recognized as safe and
effective for particular therapeutic conditions. Compliance with applicable FDA
monographs is required for the lawful interstate sale of OTC drugs. The FDA has
the same above-noted enforcement powers for violations of the FDCA by drug
manufacturers as it does for such violations by dietary supplement producers.
The FTC, which exercises jurisdiction over the advertising of dietary
supplements, has in the past several years instituted enforcement actions
against several dietary supplement companies for false and misleading
advertising of certain products. These enforcement actions have resulted in
consent decrees and the payment of fines by the companies involved. In addition,
the FTC has increased its scrutiny of infomercials. The Company is currently
subject to an FTC consent decree for past advertising claims for certain of its
products, and the Company is required to maintain compliance with this decree
under pain of civil monetary penalties. Further, the U.S. Postal Service has
issued cease and desist orders against certain mail order advertising claims
made by dietary supplement manufacturers, including NBTY, and NBTY is required
to maintain compliance with this order, also under pain of civil monetary
penalties.
The Company is also subject to regulation under various international, state
and local laws that include provisions regulating, among other things, the
marketing of dietary supplements and the operations of direct sales programs.
The Company may be subject to additional laws or regulations administered by the
FDA or other federal, state or foreign regulatory authorities, the repeal of
laws or regulations that considers favorable, such as DSHEA, or more stringent
interpretations of current laws or regulations, from time to time in the future.
The Company is unable to predict the nature of such future laws, regulations,
interpretations or applications, nor can it predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. These regulations could, however,
require the reformulation of certain products to meet new standards, the recall
or discontinuance of certain products not able to be reformulated, imposition of
additional recordkeeping requirements, expanded documentation of the properties
of certain products, expanded or different labeling, and/or scientific
substantiation. Any or all of such requirements could have a material adverse
effect on the Company's results of operations and financial condition. See "Risk
Factors--Government Regulation."
UNITED KINGDOM. In the U.K., the manufacture, advertising, sale and marketing
of food products is regulated by a number of government agencies including the
Ministry of Agriculture, Fisheries and Food and the Department of Health. In
addition, there are various independent committees and agencies that report to
the government, such as the Food Advisory Committee, which reports to MAFF and
suggests appropriate courses of action by the relevant government department
where there are areas of concern relating to food, and the Committee on
Toxicity, which reports to the Department of Health. The relevant legislation
governing the sale of food includes the Food Safety Act 1990, which sets out
general provisions relating to the sale of food; for example, this law makes it
unlawful to sell food that is harmful to human health. In addition, there are
various statutory instruments and E.C. regulations governing specific areas such
as the use of sweeteners, colouring and additives in food. Trading standards
officers under the control of the Department of Trade and Industry also regulate
matters such as the cleanliness of the properties on which food is produced and
sold.
Food that has medicinal properties may fall under the jurisdiction of the
Medicines Control Agency, a regulatory authority whose responsibility is to
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ensure that all medicines sold or supplied for human use in the U.K. meet
acceptable standards of safety, quality and efficacy. These standards are
determined by the 1968 Medicines Act together with an increasing number of E.C.
regulations and directives laid down by the European Union. The latter take
precedence over national law. The MCA has a "borderline department" which
determines when food should be treated as a medicine and should therefore fall
under the relevant legislation relating to medicines. The MCA operates as the
agent of the licensing authority (the United Kingdom Health Ministers) and its
activities cover every facet of medicines controlled in the U.K. including
involvement in the development of common standards of medicines controlled in
Europe. The MCA is responsible, for example, for licensing, inspection and
enforcement to ensure that legal requirements concerning manufacture,
distribution, sale, labeling, advertising and promotion are upheld.
TRADEMARKS
NBTY. NBTY owns trademarks registered with the United States Patent and
Trademark Office and many foreign jurisdictions for its NATURE'S BOUNTY, GOOD `N
NATURAL, HUDSON, AMERICAN HEALTH, NATURAL WEALTH, PURITAN'S PRIDE and Vitamin
World trademarks and has rights to use other names essential to its business.
U.S. registered trademarks have a perpetual life, as long as they are renewed on
a timely basis and used properly as trademarks, subject to the rights of third
parties to seek cancellation of the marks. NBTY regards its trademarks and other
proprietary rights as valuable assets and believes they have significant value
in the marketing of its products. NBTY vigorously protects its trademarks
against infringement.
H&B. H&B owns trademarks registered with the appropriate U.K. authorities for
its Holland & Barrett trademark and has rights to use other names essential to
its business.
EMPLOYEES
NBTY. As of June 30, 1997, NBTY employed approximately 1,460 persons, of whom
approximately 350 are in executive and administrative capacities, 70 are in
wholesale sales, 400 are in the Vitamin World stores and the balance are in
manufacturing, shipping and packaging. None of NBTY's employees are represented
by a labor union. NBTY believes that its relationship with its employees is
excellent.
H&B. During fiscal year 1997, H&B employed an average of 2,195 persons, of
whom 99 worked in executive or administrative capacities, 1,979 worked in retail
stores and 117 worked in warehouse and distribution. Other administrative,
clerical and buying services were provided by Lloyds personnel pursuant to a
central services arrangement. There is no trade union representation at H&B. H&B
management believes that its relationship with its employees is excellent.
LITIGATION
NBTY. NBTY and certain other companies in the industry have been named as
defendants in cases arising out of the ingestion of products containing
L-Tryptophan. NBTY had been named in more than 265 such lawsuits, of which four
are still pending against NBTY. The other 261 lawsuits have been settled at no
cost to NBTY. NBTY's supplier of L-Tryptophan agreed to indemnify NBTY and the
other companies named in the lawsuits through the final resolution of all cases
involving L-Tryptophan. In addition, the supplier has posted, for the benefit of
NBTY and the other companies named in the lawsuits, a revolving, irrevocable
letter of credit of $20 million to be used in the event that the supplier is
unable or unwilling to satisfy any claims or judgments. While not all of these
suits quantify the amount demanded, NBTY believes that the amount required to
either settle these cases or to pay judgments rendered therein will be paid by
the supplier or by NBTY's product liability insurance carrier.
In October 1994, litigation was commenced in the U.S. District Court, Eastern
District of New York, against NBTY and two of its officers. An Amended Complaint
was filed in October 1996, alleging that false and misleading statements and
representations were made concerning NBTY's sales and earnings estimates for the
fiscal years ending September 30, 1993 and 1994 and the fiscal quarters of 1994.
The allegations are that NBTY improperly (i) recognized revenue on a sale to a
customer in September 1993, (ii) capitalized and amortized certain promotional
costs in 1994, (iii) reported positive sales trends in mid-1994 by an improper
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comparison to prior year sales, and (iv) expressed comfort with an independent
analyst's projection of modest earnings for 1994 when earnings later proved to
be less than analysts predicted. Plaintiffs' case has been certified as a class
action. NBTY and its officers denied the allegations of the Amended Complaint
and have vigorously contested the claim. In order to avoid the further
commitment of senior management time and to limit further litigation expense, on
October 17, 1997, NBTY signed a Memorandum of Understanding to settle the class
action. While vigorously denying any liability, under the terms of the
settlement, the Company will pay a total of $8 million, comprised of $4.4
million in cash and $3.6 million in stock. The settlement requires the approval
of the Court to be finalized. An undetermined portion of that payment will be
covered by insurance reimbursement under a Directors and Officer Indemnity
Policy, which was purchased prior to the commencement of the lawsuit.
H&B. H&B is not involved in any litigation believed to be material to its
business or operations.
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MANAGEMENT
DIRECTORS AND OFFICERS
Set forth below are the names and other relevant information regarding
executive and certain other of officers of the Company as of August 29, 1997.
Commencement
Year of Term as
First Executive
Elected Or Other
Name Age Position Director Officer
- ---- --- -------- -------- -----------
Scott Rudolph 39 Chairman of the Board,
President and Chief
Executive Officer 1986 1986
Harvey Kamil 53 Executive Vice President,
Chief Financial Officer and
Secretary -- 1982
Barry Drucker 49 Senior Vice President--Sales -- 1985
Patricia E. Ciccarone 41 Vice President--Vitamin World -- 1992
James P. Flaherty 40 Vice President--Advertising -- 1988
James A. Taylor 56 Vice President--Production -- 1982
Arthur Rudolph 69 Director 1971 --
Aram Garabedian 62 Director 1971 --
Bernard G. Owen 69 Director 1971 --
Alfred Sacks 69 Director 1971 --
Murray Daly 70 Director 1988 --
Glenn Cohen 38 Director 1994 --
Bud Solk 64 Director 1994 --
Nathan Rosenblatt 40 Director 1994 --
The Directors of the Company are elected to serve a three-year term or until
their respective successors are elected and qualified. Officers of the Company
hold office until the meeting of the Board of Directors immediately following
the next annual shareholders meeting or until removal by the Board, whether with
or without cause.
SCOTT RUDOLPH is the Chairman of the Board of Directors, President and Chief
Executive Officer and is a shareholder of the Company. Mr. Rudolph founded U.S.
Nutrition Corp., a mail order vitamin company in 1976, which was purchased by
NBTY in 1986. He is the Chairman of Dowling College, Long Island, New York. He
joined NBTY in 1986. He is the son of Arthur Rudolph.
HARVEY KAMIL is Executive Vice President, Chief Financial Officer and
Secretary. He is on the Board of Directors of the Council for Responsible
Nutrition. He joined NBTY in 1982.
BARRY DRUCKER is Senior Vice President--Sales. He joined NBTY in 1976.
PATRICIA E. CICCARONE is Vice President--Vitamin World. She previously
served as Director of Stores for Park Lane, a 500 store hosiery chain. She
joined NBTY in 1988.
JAMES P. FLAHERTY is Vice President--Advertising. He joined NBTY in 1979.
JAMES E. TAYLOR is Vice President--Production. He joined NBTY in 1981.
ARTHUR RUDOLPH founded Arco Pharmaceuticals, Inc., NBTY's predecessor, in
1960 and served as NBTY's Chief Executive Officer and Chairman of the Board of
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Directors since that date until his resignation in September 1993. He remains a
member of the Board of Directors and was responsible for the formation of NBTY
in 1971. He is the father of Scott Rudolph.
ARAM GARABEDIAN has been a real estate developer in Rhode Island since 1988.
He was associated with NBTY and its predecessor, Arco Pharmaceuticals, Inc., for
20 years in a sales capacity and as an Officer. He has served as a Director
since 1971.
BERNARD G. OWEN has been associated with Cafiero, Cuchel and Owen Insurance
Agency, Pitkin, Owen Insurance Agency and Wood-HEW Travel Agency for more than
the past five years. He currently serves as Chairman of these firms.
ALFRED SACKS has been engaged as President of Al Sacks, Inc., an insurance
agency, for the past thirty years.
MURRAY DALY, formerly a Vice President of J. P. Egan Office Equipment Co.,
is currently a consultant to the office equipment industry.
GLENN COHEN has been the President of Glenn-Scott Landscape and Design for
more than five years.
BUD SOLK has been President of Chase/Ehrenberg & Rosene, Inc., an
advertising and marketing agency located in Chicago, Illinois since 1995.
Previously, Mr. Solk was President of Bud Solk Associates, Inc., which he
founded in 1958.
NATHAN ROSENBLATT is the President and Chief Executive Officer of Ashland
Maintenance Corp., a commercial maintenance organization located in Long Island,
New York.
EMPLOYMENT AGREEMENTS
Scott Rudolph, Chairman of the Board, President and Chief Executive Officer
of the Company, entered into an employment agreement effective February 1, 1994,
as amended, to terminate January 31, 2004, providing for annual compensation of
$450,000 with annual cost of living index increases, bonuses and other fringe
benefits accorded other executives of NBTY.
Harvey Kamil, Executive Vice President, Chief Financial Officer and
Secretary of the Company, entered into an employment agreement effective
February 1, 1994, to terminate January 31, 2004, providing for annual
compensation of $250,000 with annual cost of living index increases, bonuses and
other fringe benefits accorded other executives of NBTY.
Each of the above agreements also provides for the immediate acceleration of
the payment of all compensation for the term of the contract and the
registration and sale of all issued stock, stock options and shares underlying
options in the event of a change of control, a tender offer for shares of NBTY,
which offer was not authorized by the Board of Directors, or involuntary (i)
termination of employment, (ii) reduction of compensation, or (iii) diminution
of responsibilities or authority. Additionally, three rnembers of H&B's senior
executive staff have 12 month service contracts which require that they provide
the Company with three months notice prior to termination of the contract.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following information with respect to the outstanding shares of common
stock beneficially owned by (i) each director of the Company, (ii) the chief
executive officer and the five other most highly compensated executive officers,
(iii) all beneficial owners of more than five percent of common stock known to
the Company, and (iv) the directors and executive officers as a group, is
furnished as of August 25, 1997, except as otherwise indicated.
Number of
Shares of Percent of
Name of Beneficial Owner(a) Common Stock Class
- ------------------------- ------------ -----------
Scott Rudolph(b).......................... 3,147,686 16.0%
Arthur Rudolph(b)......................... 647,982 3.5
Aram Garabedian........................... 14,000 *
Bernard G. Owen........................... 27,500 *
Alfred Sacks.............................. -- --
Murray Daly............................... 15,009 *
Glen Cohen................................ 29,000 *
Bud Solk.................................. 14,000 --
Nathan Rosenblatt......................... -- --
Harvey Kamil.............................. 689,780 3.7
Barry Drucker............................. 100,131 *
James P. Flaherty......................... 44,408 *
James H. Taylor........................... 41,483 *
Patricia E. Ciccarone..................... 1,781 *
All directors and Executive Offficers
as a group (14 persons)(b)............ 4,099,778 20.4
NBTY, Inc. Profit Sharing Plan............ 1,062,228 5.7
(*) Indicates ownership of less than one percent of class.
- -----------------
(a) Each stockholder shown on the table has sole voting and investment power
with respect to the shares beneficially owned. Each named person or group
is deemed to be the beneficial owner of securities which may be acquired
within 60 days through the exercise or conversion of options, if any, and
such securities are deemed to be outstanding for the purpose of computing
the percentage beneficially owned by such person or group. Such securities
are not deemed to be outstanding for the purpose of computing the
percentage of class beneficially owned by any other person or group.
Accordingly, the indicated number of shares includes shares issuable upon
exercise of options (including employee stock options) and any other
beneficial ownership of securities held by such person or group.
(b) Includes shares held in a Trust created by Arthur Rudolph for the benefit
of Scott Rudolph and others.
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DESCRIPTION OF THE REVOLVING CREDIT FACILITY
The Revolving Credit Facility is provided by a syndicate of banks and
other financial institutions led by The Chase Manhattan Bank, as administrative
agent (the "Agent"), and provides for borrowings in an aggregate principal
amount of up to $50.0 million (of which up to $5.0 million is available in the
form of letters of credit and up to $5.0 million may be extended in the form of
swingline loans). The Company used a portion of the Revolving Credit Facility to
pay the Promissory Notes. The following summary of the Revolving Credit Facility
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the Revolving Credit Facility.
SECURITY, GUARANTEES. The obligations of the Company under the Revolving
Credit Facility are unconditionally and irrevocably guaranteed, jointly and
severally, by each direct and indirect domestic subsidiary of the Company and
each subsequently acquired or organized subsidiary of the Company. In addition,
the obligations of the Company under the Revolving Credit Facility and the
guarantees thereunder are secured by substantially all of the non-real estate
assets of the Company and the guarantors.
INTEREST. The Revolving Credit Facility is a six-year facility and bears
interest at a rate per annum equal (at the Company's option) to: (i) the Agent's
Eurodollar rate plus an applicable margin, (ii) an alternate base rate plus an
applicable margin or (iii) the Agent's Eurocurrency rate plus an applicable
margin. Principal amounts under the Revolving Credit Facility not paid when due
shall bear interest at a default rate equal to 2.00% per annum above the
otherwise applicable rate. Other amounts not paid when due under the Revolving
Credit Facility shall bear interest at the interest rate then applicable to
alternate base rate loans under the Revolving Credit Facility plus 2.00% per
annum.
PREPAYMENTS. Voluntary prepayments of borrowings under the Revolving
Credit Facility and voluntary reductions of the unutilized portions of the
Revolving Credit Facility are permitted at any time in minimum principal amounts
to be agreed upon.
FEES. The Company is required to pay the lenders, on a quarterly basis, a
commitment fee ranging from 0.25% to 0.50% per annum on the undrawn portion of
the commitments, based upon the Company's ratio of (i) consolidated total debt
as of the date of determination and (ii) consolidated EBITDA for the period of
four consecutive fiscal quarters most recently ended as of such date of
determination. The Company is also required to pay (a) a per annum letter of
credit fee, on a quarterly basis, equal to the applicable Eurodollar loan margin
on the amount available to be drawn under standby letters of credit, (b) a fee,
on a quarterly basis, equal to 0.25% of the aggregate face amount of outstanding
commercial letters of credit, (c) a fronting bank fee, and (d) agent,
arrangement and other similar fees.
COVENANTS. The Revolving Credit Facility contains a number of covenants
that, among other things, restrict the ability of the Company and its
subsidiaries, subject to certain exceptions, to dispose of assets, incur
additional indebtedness, incur guarantee obligations, prepay other indebtedness
or amend other debt instruments, make distributions or pay dividends on
partnership interests or capital stock, redeem and repurchase partnership
interests or capital stock, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations, change the business conducted by the
Company or its subsidiaries, make capital expenditures or engage in certain
transactions with affiliates and otherwise restrict certain business activities.
In addition, the Company is required to comply with specified financial ratios
and tests, including minimum fixed charge coverage ratios, maximum leverage
ratios and minimum net worth tests.
The Revolving Credit Facility also contains provisions that prohibit any
modification of the Indenture in any manner adverse to the lenders and that
limit the Company's ability to refinance or otherwise prepay the Exchange Notes
without the consent of such lenders.
EVENTS OF DEFAULT. The Revolving Credit Facility contains customary events
of default, including payment defaults, breach of representations and
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warranties, covenant defaults, cross-defaults and cross-acceleration to certain
other indebtedness, certain events of bankruptcy and insolvency, Employee
Retirement Income Security Act of 1974 events, judgment defaults, actual or
asserted invalidity of any security documents or guarantees, change of control,
the voluntary creation of security interests relating to partnership interests
in the Company or the voluntary creation of any prohibition on the creation of
such security interests.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based on the current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. The Company recommends that each holder consult such holder's own tax
advisor as to the particular tax consequences of exchanging such holder's
Original Notes for Exchange Notes, including the applicability and effect of any
state, local or foreign tax laws.
The Company believes that the exchange of Original Notes for Exchange
Notes pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes will not be considered to
differ materially in kind or extent from the Original Notes. Rather, the
Exchange Notes received by a holder will be treated as a continuation of the
Original Notes in the hands of such holder. As a result, there should be no
federal income tax consequences to holders exchanging Original Notes for
Exchange Notes pursuant to the Exchange Offer.
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DESCRIPTION OF THE EXCHANGE NOTES
The Original Notes were, and the Exchange Notes will be, issued under an
Indenture (the "Indenture"), dated as of September 23, 1997, by and between the
Company and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). The
form and terms of the Exchange Notes are the same as the form and terms of the
Original Notes (which they replace) except that (i) the Exchange Notes bear a
Series B designation, (ii) the Exchange Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, and (iii) the holders of Exchange Notes will not be entitled to certain
rights under the Exchange and Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the Original Notes
in certain circumstances relating to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer is consummated. The Original Notes
issued in the Initial Offering and the Exchange Notes offered hereby are
referred to collectively as the "Notes."
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act, as in effect on the date of the Indenture.
The definitions of certain capitalized terms used in the following summary are
set forth below under "Certain Definitions." References in this "Description of
the Exchange Notes" section and the "Registration Rights," "Book-Entry; Delivery
and Form" and "Plan of Distribution" sections to "the Company" mean only NBTY,
Inc. and not any of its Subsidiaries.
GENERAL
The Notes are unsecured, senior subordinated obligations of the Company. The
Original Notes were and the Exchange Notes will be, issued only in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. Pursuant to the Indenture, the Trustee, initially, will serve as
registrar and paying agent. No service charge will be made for any registration
of transfer or exchange of the Notes, except for any tax or other governmental
charge that may be imposed in connection therewith.
RANKING
The Notes rank junior to, and are subordinated in right of payment to, all
existing and future Senior Indebtedness of the Company, PARI PASSU in right of
payment with all senior subordinated Indebtedness of the Company and senior in
right of payment to all Subordinated Indebtedness of the Company. At June 30,
1997, on a pro forma basis after giving effect to the Transaction, the Company
would have had approximately $31.1 million of Senior Indebtedness outstanding
(excluding unused commitments) and no senior subordinated Indebtedness, other
than the Notes. All debt incurred under the Revolving Credit Facility is Senior
Indebtedness of the Company, is guaranteed by the Company's domestic
Subsidiaries and is secured by substantially all of the assets of the Company
and its Subsidiaries.
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MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes are limited to $150 million aggregate principal amount and will
mature on September 15, 2007. Cash interest on the Notes will accrue at a rate
of 8-5/8% per annum and will be payable semi-annually in arrears on each
September 15 and March 15, commencing on March 15, 1998, to the holders of
record of Notes at the close of business on September 1 and March 1,
respectively, immediately preceding such interest payment date. Interest will
accrue from the most recent interest payment date to which interest has been
paid or, if no interest has been paid, from the date of issuance. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after September 15, 2002, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
beginning on September 15, of the years indicated below:
Redemption
Year Price
- ---- ----------
2002................................................ 104.313%
2003................................................ 102.875%
2004................................................ 101.438%
2005 and thereafter................................. 100.000%
In addition, at any time and from time to time on or prior to September 15,
2000, the Company may redeem in the aggregate up to 33-1/3% of the originally
issued aggregate principal amount of the Notes with the net cash proceeds of one
or more Public Equity Offerings by the Company at a redemption price in cash
equal to 108.625% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); PROVIDED, HOWEVER, that at least 66-2/3% of the
originally issued aggregate principal amount of the Notes must remain
outstanding immediately after giving effect to each such redemption (excluding
any Notes held by the Company or any of its Affiliates). Notice of any such
redemption must be given within 60 days after the date of the closing of the
relevant Public Equity Offering of the Company.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
PROVIDED, HOWEVER, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; provided, further, however, that if a partial redemption is
made with the net cash proceeds of a Public Equity Offering by the Company,
selection of the Notes or portions thereof for redemption shall be made by the
Trustee only on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to the procedures of The Depository Trust Company), unless
such method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
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the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
has deposited with the paying agent for the Notes funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash of all Senior Indebtedness.
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any payment
from funds deposited in accordance with, and held in trust for the benefit of
Holders pursuant to, "Legal Defeasance and Covenant Defeasance" (a "Defeasance
Trust Payment")), upon any dissolution or winding up or total liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all Senior
Indebtedness then due shall first be paid in full in cash before the Holders of
the Notes or the Trustee on behalf of such Holders shall be entitled to receive
any payment by the Company of the principal of, premium, if any, or interest on
the Notes, or any payment by the Company to acquire any of the Notes for cash,
property or securities, or any distribution by the Company with respect to the
Notes of any cash, property or securities (excluding any payment or distribution
of Permitted Junior Securities and excluding any Defeasance Trust Payment).
Before any payment may be made by, or on behalf of, the Company of the principal
of, premium, if any, or interest on the Notes upon any such dissolution or
winding up or total liquidation or reorganization, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, any
payment or distribution of assets or securities of the Company of any kind or
character, whether in cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment), to which the Holders of the Notes or the Trustee on their behalf would
be entitled, but for the subordination provisions of the Indenture, shall be
made by the Company or by any receiver, trustee in bankruptcy, liquidation
trustee, agent or other Person making such payment or distribution, directly to
the holders of the Senior Indebtedness (pro rata to such holders on the basis of
the respective amounts of Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Senior Indebtedness may
have been issued, as their respective interests may appear, to the extent
necessary to pay all such Senior Indebtedness in full in cash after giving
effect to any prior or concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or on
behalf of the Company of principal of, premium, if any, or interest on the
Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant
to an Offer to Purchase or otherwise, shall be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Senior Indebtedness, whether at maturity, on account of
mandatory redemption or prepayment, acceleration or otherwise, and such default
shall not have been cured or waived or the benefits of this sentence waived by
or on behalf of the holders of such Senior Indebtedness. In addition, during the
continuance of any non-payment event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be immediately
accelerated, and upon receipt by the Trustee of written notice (a "Payment
Blockage Notice") from the holder or holders of such Designated Senior
Indebtedness or the trustee or agent acting on behalf of the holders of such
Designated Senior Indebtedness, then, unless and until such event of default has
been cured or waived or has ceased to exist or such Designated Senior
Indebtedness has been discharged or repaid in full in cash or the benefits of
these provisions have been waived by the holders of such Designated Senior
Indebtedness, no direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment) will be made by or on behalf of the Company of principal of, premium,
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if any, or interest on the Notes, whether pursuant to the terms of the Notes,
upon acceleration, pursuant to an Offer to Purchase or otherwise, to such
Holders, during a period (a "Payment Blockage Period") commencing on the date of
receipt of such notice by the Trustee and ending 179 days thereafter.
Notwithstanding anything in the subordination provisions of the Indenture or the
Notes to the contrary, (x) in no event will a Payment Blockage Period extend
beyond 179 days from the date the Payment Blockage Notice in respect thereof was
given, (y) there shall be a period of at least 181 consecutive days in each
360-day period when no Payment Blockage Period is in effect and (z) not more
than one Payment Blockage Period may be commenced with respect to the Notes
during any period of 360 consecutive days. No event of default that existed or
was continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period (to the extent the holder of Designated Senior Indebtedness, or trustee
or agent, giving notice commencing such Payment Blockage Period had knowledge of
such existing or continuing event of default) may be, or be made, the basis for
the commencement of any other Payment Blockage Period by the holder or holders
of such Designated Senior Indebtedness or the trustee or agent acting on behalf
of such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default has been cured or waived for a
period of not less than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the Notes. See "Events of
Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders of
the Notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Company may be
unable to meet fully or at all its obligations with respect to the Notes.
At the time of the issuance of the Notes, the Revolving Credit Facility will
be the only outstanding Senior Indebtedness of the Company. Subject to the
restrictions set forth in the Indenture, in the future the Company may issue
additional Senior Indebtedness.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), the Company shall notify the Holders of the
Notes of such occurrence in the manner prescribed by the Indenture and shall,
within 20 days after the Change of Control Date, make an Offer to Purchase all
Notes then outstanding at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Purchase Date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
If a Change of Control occurs which also constitutes an event of default
under the Revolving Credit Facility, the lenders under the Revolving Credit
Facility would be entitled to exercise the remedies available to a secured
lender under applicable law and pursuant to the terms of the Revolving Credit
Facility. Accordingly, any claims of such lenders with respect to the assets of
the Company will be prior to any claim of the Holders of the Notes with respect
to such assets.
If the Company makes an Offer to Purchase, the Company will comply with all
applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of the Indenture relating to such Offer to Purchase
occurring as a result of such compliance shall not be deemed a Default or an
Event of Default.
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Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not cause or
permit any Subsidiary to, directly or indirectly, Incur any Indebtedness
(including Acquired Indebtedness), except for Permitted Indebtedness; PROVIDED,
HOWEVER, that the Company may Incur Indebtedness if, at the time of and
immediately after giving pro forma effect to such Incurrence of Indebtedness and
the application of the proceeds therefrom, the Consolidated Coverage Ratio would
be greater than (x) 2.375 to 1.00 if such Indebtedness is Incurred prior to the
first anniversary of the Issue Date; (y) 2.5 to 1.00 if such Indebtedness is
Incurred on or after the first anniversary of the Issue Date and prior to the
second anniversary of the Issue Date; and (z) 2.625 to 1.00 if such Indebtedness
is Incurred thereafter. Notwithstanding the foregoing, after October 17, 1997,
the Company shall not permit to be outstanding the Promissory Notes or the
letters of credit issued to collateralize such Promissory Notes.
The limitations contained in the preceding paragraph will not apply to the
Incurrence of any of the following (collectively, "Permitted Indebtedness"),
each of which shall be given independent effect:
(a) Indebtedness under the Notes;
(b) Indebtedness of the Company Incurred under the Revolving Credit Facility
in an aggregate principal amount at any one time outstanding not to exceed $60
million;
(c) Indebtedness of any Subsidiary of the Company owed to and held by the
Company or any Wholly Owned Subsidiary, and Indebtedness of the Company owed to
and held by any Wholly Owned Subsidiary that is unsecured and subordinated in
right of payment to the payment and performance of the Company's obligations
under any Senior Indebtedness, the Indenture and the Notes; PROVIDED, HOWEVER,
that an Incurrence of Indebtedness that is not permitted by this clause (c)
shall be deemed to have occurred upon (i) any sale or other disposition of any
Indebtedness of the Company or any Subsidiary of the Company referred to in this
clause (c) to a Person (other than the Company or a Wholly Owned Subsidiary),
(ii) any sale or other disposition of Equity Interests of any Subsidiary which
holds Indebtedness of the Company or another Subsidiary;
(d) Interest Rate Protection Obligations; PROVIDED, HOWEVER, that such
Interest Rate Protection Obligations have been entered into for bona fide
business purposes and not for speculation;
(e) Purchase Money Indebtedness and Capitalized Lease Obligations of the
Company or any Subsidiary of the Company and other Indebtedness of the Company,
in an aggregate principal amount at any one time outstanding not to exceed $20
million;
(f) Indebtedness of the Company under Currency Agreements; PROVIDED, HOWEVER,
(i) that such Currency Agreements have been entered into for bona fide business
purposes and not for speculation and (ii) that in the case of Currency
Agreements which relate to Indebtedness, such Currency Agreements do not
increase the Indebtedness of the Company and its Subsidiaries outstanding other
than as a result of fluctuations in foreign currency exchange rates or by reason
of fees, indemnities and compensation payable thereunder;
(g) Indebtedness to the extent representing a replacement, renewal,
refinancing or extension (collectively, a "refinancing") of outstanding
Indebtedness (other than Indebtedness Incurred under clauses (b), (c), (d), (e),
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(f) or (h) of this covenant); PROVIDED, HOWEVER, that (i) any such refinancing
shall not exceed the sum of the principal amount (or accreted amount (determined
in accordance with GAAP), if less) of the Indebtedness being refinanced, plus
the amount of accrued interest thereon, plus the amount of any reasonably
determined prepayment premium necessary to accomplish such refinancing and such
reasonable fees and expenses incurred in connection therewith, (ii) Indebtedness
representing a refinancing of Indebtedness other than Senior Indebtedness shall
have a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Indebtedness being refinanced; (iii)
Indebtedness that is pari passu with the Notes may only be refinanced with
Indebtedness that is made pari passu with or subordinate in right of payment to
the Notes and Subordinated Indebtedness may only be refinanced with Subordinated
Indebtedness; and (iv) Indebtedness of the Company may only be refinanced by
Indebtedness of the Company and Indebtedness of a Subsidiary of the Company may
only be refinanced by Indebtedness of Subsidiaries or by the Company; and
(h) guarantees by a Subsidiary of the Company of Senior Indebtedness Incurred
by the Company so long as the Incurrence of such Indebtedness is otherwise
permitted by the terms of the Indenture.
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. The Company shall not,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Notes and subordinate in right of payment
to any other Indebtedness of the Company.
LIMITATION ON RESTRICTED PAYMENTS. The Company shall not, and shall not cause
or permit any Subsidiary of the Company to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any Equity
Interests of the Company or any Subsidiary of the Company or make any payment
or distribution to the direct or indirect holders (in their capacities as
such) of Equity Interests of the Company or any Subsidiary of the Company
(other than any dividends, distributions and payments made to the Company or
any Wholly Owned Subsidiary of the Company and dividends or distributions
payable to any Person solely in Qualified Equity Interests of the Company or
in options, warrants or other rights to purchase Qualified Equity Interests
of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any Subsidiary of the Company (other than any
such Equity Interests owned by the Company or any Subsidiary of the Company);
or
(iii) make any Investment in any Person (other than Permitted Investments)
(any such payment or any other action (other than any exception thereto)
described in (i), (ii) or (iii) (a "Restricted Payment"), unless
(a) no Default or Event of Default shall have occurred and be continuing at
the time or immediately after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the Company
would be able to Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph of
"Limitation on Indebtedness" above; and
(c) immediately after giving effect to such Restricted Payment, the aggregate
amount of all Restricted Payments declared or made on or after the Issue Date
does not exceed an amount equal to the sum of (1) 50% of cumulative Consolidated
Net Income determined for the period (taken as one period) from the beginning of
the first fiscal quarter commencing after the Issue Date and ending on the last
day of the most recent fiscal quarter immediately preceding the date of such
Restricted Payment for which consolidated financial information of the Company
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is available (or if such cumulative Consolidated Net Income shall be a loss,
minus 100% of such loss), plus (2) the aggregate net cash proceeds received by
the Company either (x) as capital contributions to the Company after the Issue
Date or (y) from the issue and sale (other than to a Subsidiary of the Company)
of its Qualified Equity Interests after the Issue Date (excluding the net
proceeds from any issuance and sale of Qualified Equity Interests financed,
directly or indirectly, using funds borrowed from the Company or any Subsidiary
of the Company until and to the extent such borrowing is repaid), plus (3) the
principal amount (or accreted amount (determined in accordance with GAAP), if
less) of any Indebtedness of the Company or any Subsidiary of the Company
Incurred after the Issue Date which has been converted into or exchanged for
Qualified Equity Interests of the Company (minus the amount of any cash or
property distributed by the Company or any Subsidiary of the Company upon such
conversion or exchange), plus (4) in the case of the disposition or repayment of
any Investment constituting a Restricted Payment made after the Issue Date, an
amount equal to 100% of the net cash proceeds thereof (or dividends,
distributions or interest payments received in cash thereon).
The foregoing provisions will not prevent (i) the payment of any dividend or
distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of such
formal notice such payment or redemption would comply with the provisions of the
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent issue and sale (other than to a Subsidiary of
the Company) of, Qualified Equity Interests of the Company; PROVIDED, HOWEVER,
that any such net cash proceeds and the value of any Qualified Equity Interests
issued in exchange for such retired Equity Interests are excluded from clause
(c)(2) of the preceding paragraph (and were not included therein at any time)
and are not used to redeem the Notes pursuant to "--Optional Redemption" above;
(iii) the purchase, redemption or other acquisition for value of shares of
capital stock of the Company (other than Disqualified Capital Stock) or options
on such shares held by officers or employees or former officers or employees (or
their estates or beneficiaries under their estates) upon the death, disability,
retirement or termination of employment of such current or former officers or
employees pursuant to the terms of an employee benefit plan or any other
agreement pursuant to which such shares of capital stock or options were issued
or pursuant to a severance, buy-sell or right of first refusal agreement with
such current or former officer or employee; PROVIDED, HOWEVER, that the
aggregate cash consideration paid, or distributions made, pursuant to this
clause (iii) do not in any one fiscal year exceed $1 million; and (iv)
Investments constituting Restricted Payments made as a result of the receipt of
non-cash consideration from any Asset Sale made pursuant to and in compliance
with "--Disposition of Proceeds of Asset Sales" below; provided however, that in
the case of each of clauses (ii), (iii) and (iv), no Default or Event of Default
shall have occurred and be continuing or would arise therefrom.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i) and (iv) of the immediately
preceding paragraph shall be included as Restricted Payments. The amount of any
non-cash Restricted Payment shall be deemed to be equal to the Fair Market Value
thereof at the date of the making of such Restricted Payment.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not cause or permit any Subsidiary of the
Company to, directly or indirectly, create or otherwise cause or suffer to exist
or become effective any encumbrance or restriction on the ability of any
Subsidiary of the Company to (a) pay dividends or make any other distributions
to the Company or any other Subsidiary of the Company on its Equity Interests or
with respect to any other interest or participation in, or measured by, its
profits, or pay any Indebtedness owed to the Company or any other Subsidiary of
the Company, (b) make loans or advances to, or guarantee any Indebtedness or
other obligations of, or make any Investment in, the Company or any other
Subsidiary of the Company or (c) transfer any of its properties or assets to the
Company or any other Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of (i) the Revolving Credit Facility as
in effect on the Issue Date, any other agreement of the Company or its
Subsidiaries outstanding on the Issue Date as in effect on the Issue Date and
any other agreement of the Company or its Subsidiaries outstanding from time to
time governing Senior Indebtedness provided that such encumbrances or
restrictions are no more adverse to the Company than those contained in the
Revolving Credit Facility as in effect on the Issue Date, and any amendments,
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restatements, renewals, replacements or refinancings thereof; PROVIDED, HOWEVER,
that any such amendment, restatement, renewal, replacement or refinancing is no
more restrictive with respect to such encumbrances or restrictions than those
contained in the agreement being amended, restated, reviewed, replaced or
refinanced; (ii) applicable law; (iii) any instrument governing Indebtedness or
Equity Interests of an Acquired Person acquired by the Company or any Subsidiary
of the Company as in effect at the time of such acquisition (except to the
extent such Indebtedness was Incurred by such Acquired Person in connection
with, as a result of or in contemplation of such acquisition); PROVIDED,
HOWEVER, that such encumbrances and restrictions are not applicable to the
Company or any Subsidiary of the Company, or the properties or assets of the
Company or any Subsidiary of the Company, other than the Acquired Person; (iv)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices; (v) Purchase Money
Indebtedness for property acquired in the ordinary course of business that only
imposes encumbrances and restrictions on the property so acquired; (vi) any
agreement for the sale or disposition of the Equity Interests or assets of any
Subsidiary of the Company; PROVIDED, HOWEVER, that such encumbrances and
restrictions described in this clause (vi) are only applicable to such
Subsidiary or assets, as applicable, and any such sale or disposition is made in
compliance with "Disposition of Proceeds of Asset Sales" below to the extent
applicable thereto; (vii) refinancing Indebtedness permitted under clause (g) of
the second paragraph of "Limitation on Indebtedness" above; PROVIDED, HOWEVER,
that such encumbrances and restrictions contained in the agreements governing
such Indebtedness are no more restrictive in the aggregate than those contained
in the agreements governing such Indebtedness being refinanced immediately prior
to such refinancing; or (viii) the Indenture.
LIMITATION ON LIENS. The Company shall not, and shall not cause or permit any
Subsidiary of the Company to, directly or indirectly, Incur any Liens of any
kind against or upon any of their respective properties or assets now owned or
hereafter acquired, or any proceeds therefrom or any income or profits
therefrom, to secure any Indebtedness unless contemporaneously therewith
effective provision is made to secure the Notes and all other amounts due under
the Indenture, equally and ratably with such Indebtedness (or, in the event that
such Indebtedness is subordinated in right of payment to the Notes prior to such
Indebtedness) with a Lien on the same properties and assets securing such
Indebtedness for so long as such Indebtedness is secured by such Lien, except
for (i) Liens securing Senior Indebtedness and (ii) Permitted Liens.
DISPOSITION OF PROCEEDS OF ASSET SALES. The Company shall not, and shall not
cause or permit any Subsidiary of the Company to, directly or indirectly, make
any Asset Sale, unless (i) the Company or such Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the assets sold or otherwise disposed of and (ii) at least 85%
of such consideration consists of (A) cash or Cash Equivalents or (B) properties
and capital assets that replace the properties and assets that were the subject
of such Asset Sale or in properties and capital assets that will be used in the
business of the Company and its Subsidiaries as existing on the Issue Date or in
businesses reasonably related thereto (as determined in good faith by the
Company's Board of Directors) ("Replacement Assets"), provided that if the
property or assets subject to such Asset Sale were directly owned by the Company
such Replacement Assets also shall be so directly owned. The amount of any
Indebtedness (other than any Subordinated Indebtedness) of the Company or any
Subsidiary of the Company that is actually assumed by the transferee in such
Asset Sale and from which the Company and its Subsidiaries are fully and
unconditionally released shall be deemed to be cash for purposes of determining
the percentage of cash consideration received by the Company or its
Subsidiaries.
The Company or such Subsidiary of the Company, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 180 days of receipt thereof
to repay Senior Indebtedness and permanently reduce any related commitment, or
(ii) make an Investment in Replacement Assets; PROVIDED, HOWEVER, that such
Investment occurs or the Company or a Subsidiary of the Company enters into
contractual commitments to make such Investment, subject only to customary
conditions (other than the obtaining of financing), on or prior to the 180th day
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following the receipt of such Net Cash Proceeds and Net Cash Proceeds
contractually committed are so applied within 270 days following the receipt of
such Net Cash Proceeds.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are not
applied as described in clause (i) or (ii) of the immediately preceding
paragraph within the time periods set forth therein (the "Net Proceeds
Utilization Date") (such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"),
the Company shall, within 20 days after such Net Proceeds Utilization Date, make
an Offer to Purchase all outstanding Notes up to a maximum principal amount
(expressed as a multiple of $1,000) of Notes equal to such Unutilized Net Cash
Proceeds, at a purchase price in cash equal to 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date;
PROVIDED, HOWEVER, that the Offer to Purchase may be deferred until there are
aggregate Unutilized Net Cash Proceeds equal to or in excess of $5 million, at
which time the entire amount of such Unutilized Net Cash Proceeds, and not just
the amount in excess of $5 million, shall be applied as required pursuant to
this paragraph.
With respect to any Offer to Purchase effected pursuant to this covenant,
among the Notes, to the extent the aggregate principal amount of Notes tendered
pursuant to such Offer to Purchase exceeds the Unutilized Net Cash Proceeds to
be applied to the repurchase thereof, such Notes shall be purchased pro rata
based on the aggregate principal amount of such Notes tendered by each Holder.
To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of
Notes tendered by the Holders of the Notes pursuant to such Offer to Purchase,
the Company may retain and utilize any portion of the Unutilized Net Cash
Proceeds not required to be applied to repurchase Notes tendered pursuant to
such Offer for any purpose consistent with the other terms of the Indenture.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of the Indenture relating
to such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.
Each Holder shall be entitled to tender all or any portion of the Notes owned
by such Holder pursuant to the Offer to Purchase, subject to the requirement
that any portion of a Note tendered must be tendered in an integral multiple of
$1,000 principal amount and subject to any proration among tendering Holders as
described above.
MERGER, SALE OF ASSETS, ETC. The Indenture provides that the Company shall
not consolidate with or merge with or into any other entity and the Company
shall not and shall not cause or permit any Subsidiary to, sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all of the
Company's and its Subsidiaries' properties and assets (determined on a
consolidated basis for the Company and its Subsidiaries) to any entity in a
single transaction or series of related transactions, unless: (i) either (x) the
Company shall be the Surviving Person or (y) the Surviving Person (if other than
the Company) shall be a corporation organized and validly existing under the
laws of the United States of America or any State thereof or the District of
Columbia, and shall, in any such case, expressly assume by a supplemental
indenture, the due and punctual payment of the principal of, premium, if any,
and interest on all the Notes and the performance and observance of every
covenant of the Indenture and the Registration Rights Agreement to be performed
or observed on the part of the Company; and (ii) immediately thereafter, no
Default or Event of Default shall have occurred and be continuing.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Subsidiaries of the
Company the Equity Interests of which constitutes all or substantially all the
properties and assets of the Company shall be deemed to be the transfer of all
or substantially all the properties and assets of the Company.
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TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not cause or
permit any Subsidiary of the Company to, directly or indirectly, conduct any
business or enter into any transaction (or series of related transactions) with
or for the benefit of any of their respective Affiliates or any officer,
director or employee of the Company or any Subsidiary of the Company (each an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
which are no less favorable to the Company or such Subsidiary, as the case may
be, than would be available in a comparable transaction with an unaffiliated
third party and (ii) if such Affiliate Transaction (or series of related
Affiliate Transactions) involves aggregate payments or other consideration
having a Fair Market Value in excess of $500,000, such Affiliate Transaction is
in writing and a majority of the disinterested members of the Board of Directors
of the Company shall have approved such Affiliate Transaction and determined
that such Affiliate Transaction complies with the foregoing provisions. In
addition, any Affiliate Transaction involving aggregate payments or other
consideration having a Fair Market Value in excess of $2.5 million will also
require a written opinion from an Independent Financial Advisor (filed with the
Trustee) stating that the terms of such Affiliate Transaction are fair, from a
financial point of view, to the Company or its Subsidiaries involved in such
Affiliate Transaction, as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any Wholly
Owned Subsidiary or between or among Wholly Owned Subsidiaries; (ii) reasonable
fees and compensation paid to and indemnity provided on behalf of, officers,
directors, employees or agents of the Company or any Subsidiary of the Company
as determined in good faith by the Company's Board of Directors; (iii) any
transactions undertaken pursuant to any contractual obligations in existence on
the Issue Date (as in effect on the Issue Date); and (iv) any Restricted
Payments made in compliance with "Limitation on Restricted Payments" above.
LIMITATION ON THE SALE OR ISSUANCE OF EQUITY INTERESTS OF SUBSIDIARIES. The
Company shall not sell any Equity Interest of a Subsidiary of the Company, and
shall not cause or permit any Subsidiary of the Company, directly or indirectly,
to issue or sell or have outstanding any Equity Interests, except to the Company
or a Wholly Owned Subsidiary. Notwithstanding the foregoing, the Company is
permitted to sell all the Equity Interest of a Subsidiary of the Company as long
as the Company is in compliance with the terms of the covenant described under
"Disposition of Proceeds of Asset Sales" and, if applicable, "Merger, Sale of
Assets, Etc." above.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
the Company shall file with the SEC (if permitted by SEC practice and applicable
law and regulations) the annual reports, quarterly reports and other documents
which the Company would have been required to file with the SEC pursuant to such
Section 13(a) or 15(d) or any successor provision thereto if the Company were so
subject, such documents to be filed with the SEC on or prior to the respective
dates (the "Required Filing Dates") by which the Company would have been
required so to file such documents if the Company were so subject. The Company
shall also in any event (a) within 15 days of each Required Filing Date (whether
or not permitted or required to be filed with the SEC) (i) transmit (or cause to
be transmitted) by mail to all Holders, as their names and addresses appear in
the Note register, without cost to such Holders, and (ii) file with the Trustee,
copies of the annual reports, quarterly reports and other documents which the
Company is required to file with the SEC pursuant to the preceding sentence, or,
if such filing is not so permitted, information and data of a similar nature,
and (b) if, notwithstanding the preceding sentence, filing such documents by the
Company with the SEC is not permitted by SEC practice or applicable law or
regulations, promptly upon written request supply copies of such documents to
any Holder. In addition, for so long as any Notes remain outstanding and prior
to the later of the consummation of the Exchange Offer and the filing of the
Initial Shelf Registration Statement, if required, the Company will furnish to
the Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act, and, to any beneficial holder of Notes, if not
obtainable from the SEC, information of the type that would be filed with the
SEC pursuant to the foregoing provisions, upon the request of any such Holder.
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EVENTS OF DEFAULT
The occurrence of any of the following will be defined as an "Event of
Default" under the Indenture: (a) failure to pay principal of (or premium, if
any, on) any Note when due (whether or not prohibited by the provisions of the
Indenture described under "Subordination of the Notes" above); (b) failure to
pay any interest on any Note when due, continued for 30 days or more (whether or
not prohibited by the provisions of the Indenture described under "Subordination
of the Notes" above); (c) default in the payment of principal of or interest on
any Note required to be purchased pursuant to any Offer to Purchase required by
the Indenture when due and payable or failure to pay on the Purchase Date the
Purchase Price for any Note validly tendered pursuant to any Offer to Purchase
(whether or not prohibited by the provisions of the Indenture described under
"Subordination of the Notes" above); (d) failure to perform or comply with any
of the provisions described under "Certain Covenants-Merger, Sale of Assets,
etc." above; (e) failure to perform any other covenant, warranty or agreement of
the Company under the Indenture or in the Notes, continued for 30 days or more
after written notice to the Company by the Trustee or Holders of at least 25% in
aggregate principal amount of the outstanding Notes; (f) default or defaults
under the terms of one or more instruments evidencing or securing Indebtedness
of the Company or any of its Subsidiaries having an outstanding principal amount
of $5.0 million or more individually or in the aggregate that has resulted in
the acceleration of the payment of such Indebtedness or failure by the Company
or any of its Subsidiaries to pay principal when due at the stated maturity of
any such Indebtedness and such default or defaults shall have continued after
any applicable grace period and shall not have been cured or waived; (g) the
rendering of a final judgment or judgments (not subject to appeal) against the
Company or any of its Subsidiaries in an amount of $5.0 million or more (net of
any amounts covered by reputable and creditworthy insurance companies) which
remains undischarged or unstayed for a period of 60 days after the date on which
the right to appeal has expired; or (h) certain events of bankruptcy, insolvency
or reorganization affecting the Company or any of its Significant Subsidiaries.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of Notes, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in aggregate principal amount of the outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
such Trustee.
If an Event of Default with respect to the Notes (other than an Event of
Default described in clause (h) of the preceding paragraph) occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the outstanding Notes, by notice in writing to the Company may declare
the unpaid principal of (and premium, if any) and accrued interest to the date
of acceleration on all the outstanding Notes to be due and payable immediately
and, upon any such declaration, such principal amount (and premium, if any) and
accrued interest, notwithstanding anything contained in the Indenture or the
Notes to the contrary, will become immediately due and payable. If an Event or
Default specified in clause (h) of the preceding paragraph occurs under the
Indenture, the Notes will ipso facto become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder of the
Notes.
Any such declaration with respect to the Notes may be rescinded and annulled
by the Holders of a majority in aggregate principal amount of the outstanding
Notes upon the conditions provided in the Indenture. For information as to
waiver of defaults, see "Modification and Waiver" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes
outstanding, give the Holders of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; PROVIDED, HOWEVER, that,
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except in the case of a Default or an Event of Default in payment with respect
to the Notes or a Default or Event of Default in complying with "Certain
Covenants-Merger, Sale of Assets, etc." above, the Trustee shall be protected in
withholding such notice if and so long as a committee of its trust officers in
good faith determines that the withholding of such notice is in the interest of
the Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding, and
the Trustee shall have not have received from the Holders of a majority in
aggregate principal amount of such outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted by a Holder of
such a Note for enforcement of payment of the principal of and premium, if any,
or interest on such Note on or after the respective due dates expressed in such
Note.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR, MANAGER
AND STOCKHOLDERS
No director, officer, employee, incorporator, manager or stockholder of the
Company or any of its Affiliates, as such, shall have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its obligations
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes, except
for (i) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the Notes when such payments are due, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (iii) the rights, powers,
trust, duties and immunities of the Trustee and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
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Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Senior Indebtedness,
including, without limitation, those arising under the Indenture and (B)
assuming no intervening bankruptcy of the Company between the date of deposit
and the 91st day following the date of the deposit and that no Holder is an
insider of the Company, after the 91st day following the date of the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (ix) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (ii)
above need not be delivered if all Notes not theretofore delivered to the
Trustee for cancellation (x) have become due and payable, (y) will become due
and payable on the maturity date within one year or (z) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of New
York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in aggregate principal
amount of the outstanding Notes (including consents obtained in connection with
a tender offer or exchange offer for the Notes); PROVIDED, HOWEVER, that no such
modification or amendment to the Indenture may, without the consent of the
Holder of each Note affected thereby, (a) change the maturity of the principal
of or any installment of interest on any such Note or alter the optional
redemption or repurchase provisions of any such Note or the Indenture in a
manner adverse to the Holders of the Notes; (b) reduce the principal amount of
(or the premium of) any such Note; (c) reduce the rate of or extend the time for
payment of interest on any such Note; (d) change the place or currency of
payment of principal of (or premium) or interest on any such Note; (e) modify
any provisions of the Indenture relating to the waiver of past defaults (other
than to add sections of the Indenture or the Notes subject thereto) or the right
of the Holders of Notes to institute suit for the enforcement of any payment on
or with respect to any such Note or the modification and amendment provisions of
the Indenture and the Notes (other than to add sections of the Indenture or the
Notes which may not be modified, amended, supplemented or waived without the
consent of each Holder affected); (f) reduce the percentage of the principal
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amount of outstanding Notes necessary for amendment to or waiver of compliance
with any provision of the Indenture or the Notes or for waiver of any Default in
respect thereof; (g) waive a default in the payment of principal of, interest
on, or redemption payment with respect to, the Notes (except a rescission of
acceleration of the Notes by the Holders thereof as provided in the Indenture
and a waiver of the payment default that resulted from such acceleration); (h)
modify the ranking or priority of any Note or modify the definition of Senior
Indebtedness or amend or modify the subordination provisions of the Indenture in
any manner adverse to the Holders of the Notes; or (i) modify the provisions of
any covenant (or the related definitions) in the Indenture requiring the Company
to make an Offer to Purchase in a manner materially adverse to the Holders of
Notes affected thereby otherwise than in accordance with the Indenture.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
with certain restrictive provisions of the Indenture. Subject to certain rights
of the Trustee, as provided in the Indenture, the Holders of a majority in
aggregate principal amount of the Notes, on behalf of all Holders, may waive any
past default under the Indenture (including any such waiver obtained in
connection with a tender offer or exchange offer for the Notes), except a
default in the payment of principal, premium or interest or a default arising
from failure to purchase any Notes tendered pursuant to an Offer to Purchase, or
a default in respect of a provision that under the Indenture cannot be modified
or amended without the consent of the Holder of each Note that is affected.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company or any other obligor upon the Notes, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claim as security or otherwise. The Trustee is
permitted to engage in other transactions with the Company or an Affiliate of
the Company; PROVIDED, HOWEVER, that if it acquires any conflicting interest (as
defined in the Indenture or in the Trust Indenture Act), it must eliminate such
conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Subsidiary of the Company or is merged or consolidated with or
into the Company or any Subsidiary of the Company.
"ACQUIRED PERSON" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"ACQUISITION" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Subsidiary of the
Company to any other Person, or any acquisition or purchase of Equity Interests
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of any other Person by the Company or any Subsidiary of the Company, in either
case pursuant to which such Person shall become a Subsidiary of the Company or
shall be consolidated with or merged into the Company or any Subsidiary of the
Company or (ii) any acquisition by the Company or any Subsidiary of the Company
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"ASSET SALE" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company, in one transaction or a series of related
transactions, of (i) any Equity Interest of any Subsidiary of the Company (other
than directors' qualifying shares, to the extent mandated by applicable law);
(ii) any assets of the Company or any Subsidiary of the Company which constitute
substantially all of an operating unit or line of business of the Company or any
Subsidiary of the Company; or (iii) any other property or asset of the Company
or any Subsidiary of the Company outside of the ordinary course of business
(including the receipt of proceeds paid on account of the loss of or damage to
any property or asset and awards of compensation for any asset taken by
condemnation, eminent domain or similar proceedings). For the purposes of this
definition, the term "Asset Sale" shall not include (a) any transaction
consummated in compliance with "Certain Covenants--Merger, Sale of Assets, etc."
above and the creation of any Lien not prohibited by "Certain
Covenants--Limitation on Liens" above; (b) sales of property or equipment that
has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Subsidiary of the Company, as
the case may be; and (c) any transaction consummated in compliance with "Certain
Covenants--Limitation on Restricted Payments" above. In addition, solely for
purposes of "Certain Covenants--Disposition of Proceeds of Asset Sales" above,
any sale, conveyance, transfer, lease or other disposition of (i) the Company's
cosmetic pencil business or (ii) any property or asset, whether in one
transaction or a series of related transactions, involving assets with a Fair
Market Value not in excess of $100,000 in any fiscal year, shall be deemed not
to be an Asset Sale.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the present value (discounted according
to GAAP at the cost of indebtedness implied in the lease) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale and Lease-Back Transaction (including any period for
which such lease has been extended).
"BOARD RESOLUTION" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would at
such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"CASH EQUIVALENTS" means: (a) U.S. dollars; (b) securities issued or directly
and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition; (c) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(b) and (c) above entered into with any financial institution meeting the
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qualifications specified in clause (c) above; (e) commercial paper rated P-1,
A-1 or the equivalent thereof by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, and in each case maturing within six months
after the date of acquisition; and (f) in the case of any Subsidiary of the
Company whose jurisdiction of incorporation is not the United States or any
state thereof or the District of Columbia, Investments: (i) in direct
obligations of the sovereign nation (or any agency thereof) in which such
foreign Subsidiary is organized and is conducting business or in obligations
fully and unconditionally guaranteed by such sovereign nation (or any agency
thereof) or (ii) of the type and maturity described in clauses (a) and (b) above
of foreign obligors, which Investment or obligors (or the parents of such
obligors) have ratings described in such clauses or equivalent ratings from
comparable foreign rating agencies.
"CHANGE OF CONTROL" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than one or more Permitted Holders, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time, upon the happening of an event or otherwise),
directly or indirectly, of more than 35% of the total voting power of the then
outstanding Voting Equity Interests of the Company; (ii) the Company
consolidates with, or merges with or into, another Person (other than a Wholly
Owned Subsidiary) or the Company or any of its Subsidiaries sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
the assets of the Company and its Subsidiaries (determined on a consolidated
basis) to any Person (other than the Company or any Wholly Owned Subsidiary),
other than any such transaction where immediately after such transaction the
Person or Persons that "beneficially owned" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time)
immediately prior to such transaction, directly or indirectly, a majority of the
total voting power of the then outstanding Voting Equity Interests of the
Company "beneficially own" (as so determined), directly or indirectly, a
majority of the total voting power of the then outstanding Voting Equity
Interests of the surviving or transferee Person; (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors of the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (iv) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution other
than in a transaction which complies with the provisions described under
"--Merger, Sale of Assets, etc."
"CHANGE OF CONTROL DATE" has the meaning set forth under "Offer to Purchase
upon Change of Control" above.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the ratio
of (i) the aggregate amount of Consolidated EBITDA for the four quarter period
of the most recent four consecutive fiscal quarters ending prior to the date of
such determination (the "Four Quarter Period") to (ii) Consolidated Interest
Expense for such Four Quarter Period; PROVIDED, HOWEVER, that (1) if the Company
or any Subsidiary of the Company has incurred any Indebtedness since the
beginning of such Four Quarter Period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be
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calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such Four Quarter Period
and the discharge of any other Indebtedness repaid, repurchased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such Four Quarter Period, (2) if since the
beginning of such Four Quarter Period the Company or any Subsidiary of the
Company shall have made any Asset Sale, the Consolidated EBITDA for such Four
Quarter Period shall be reduced by an amount equal to the Consolidated EBITDA
(if positive) directly attributable to the assets that are the subject of such
Asset Sale for such Four Quarter Period or increased by an amount equal to the
Consolidated EBITDA (if negative) directly attributable thereto for such Four
Quarter Period and Consolidated Interest Expense for such Four Quarter Period
shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Subsidiary of
the Company repaid, repurchased or otherwise discharged with respect to the
Company and its continuing Subsidiaries in connection with such Asset Sale for
such Four Quarter Period (or, if the Equity Interests of any Subsidiary of the
Company are sold, the Consolidated Interest Expense for such Four Quarter Period
directly attributable to the Indebtedness of such Subsidiary to the extent the
Company and its continuing Subsidiaries are no longer liable for such
Indebtedness after such sale), (3) if since the beginning of such Four Quarter
Period the Company or any Subsidiary of the Company (by merger or otherwise)
shall have made an Investment in any Subsidiary of the Company (or any Person
that becomes a Subsidiary of the Company) or an acquisition of assets, including
any acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, Consolidated EBITDA and Consolidated Interest
Expense for such Four Quarter Period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such Four Quarter Period
and (4) if since the beginning of such Four Quarter Period any Person (that
subsequently became a Subsidiary or was merged with or into the Company or any
Subsidiary of the Company since the beginning of such Four Quarter Period) shall
have made any Asset Sale or any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Subsidiary of the Company during such Four Quarter Period,
Consolidated EBITDA and Consolidated Interest Expense for such Four Quarter
Period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition of assets occurred on, with respect to any
Investment or acquisition, the first day of such Four Quarter Period and, with
respect to any Asset Sale, the day prior to the first day of such Four Quarter
Period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in accordance with Regulation S-X under the Securities Act as in
effect on the date of such calculation. If any Indebtedness bears a floating
rate of interest and is being given pro forma effect, the interest expense on
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any agreement under which Interest Rate Protection Obligations are
outstanding applicable to such Indebtedness if such agreement under which such
Interest Rate Protection Obligations are outstanding has a remaining term as at
the date of determination in excess of 12 months); PROVIDED, HOWEVER, that the
Consolidated Interest Expense of the Company attributable to interest on any
Indebtedness Incurred under a revolving credit facility computed on a pro forma
basis shall be computed based upon the average daily balance of such
Indebtedness during the Four Quarter Period.
"CONSOLIDATED EBITDA" means, for any period, the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Income Tax Expense for such period;
(ii) Consolidated Interest Expense for such period; and (iii) Consolidated
Non-cash Charges for such period less (A) all non-cash items increasing
Consolidated Net Income for such period and (B) all cash payments during such
period relating to non-cash charges that were added back in determining
Consolidated EBITDA in any prior period.
"CONSOLIDATED INCOME TAX EXPENSE" means, with respect to the Company for any
period, the provision for Federal, state, local and foreign income taxes payable
by the Company and its Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and its Subsidiaries for such period as determined on a consolidated basis in
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accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (e) all capitalized interest and all accrued interest, (f) non-cash
interest expense and (g) interest on Indebtedness of another Person that is
guaranteed by the Company or any Subsidiary of the Company actually paid by the
Company or any Subsidiary of the Company and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and its Subsidiaries during such period as determined on
a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated net income
(loss) of the Company and its Subsidiaries; PROVIDED, HOWEVER, that there shall
not be included in such Consolidated Net Income: (i) any net income (loss) of
any Person if such person is not a Subsidiary of the Company, except the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income; (ii) any net income (loss)
of any person acquired by the Company or a Subsidiary of the Company in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (but not loss) of any Subsidiary of the
Company if such Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions by such Subsidiary,
directly or indirectly, to the Company to the extent of such restrictions; (iv)
any gain or loss realized upon the sale or other disposition of any asset of the
Company or its Subsidiaries (including pursuant to any sale/leaseback
transaction) outside of the ordinary course of business including, without
limitation, on or with respect to Investments (and excluding dividends,
distributions or interest thereon); (v) any extraordinary gain or loss; (vi) the
cumulative effect of a change in accounting principles after the Issue Date; and
(vii) any restoration to income of any contingency reserve of an extraordinary,
non-recurring or unusual nature, except to the extent that provision for such
reserve was made out of Consolidated Net Income accrued at any time following
the Issue Date.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period the sum of (A) depreciation, (B) amortization and (C) other non-cash
expenses of such Person and its Subsidiaries reducing Consolidated Net Income of
such Person and its Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP (excluding, for purposes of clause (C) only, such
charges which require an accrual of or a reserve for cash charges for any future
period.)
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Subsidiary of the Company against fluctuations in currency
values.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means (a) any Indebtedness outstanding under
the Revolving Credit Facility and (b) any other Senior Indebtedness which, at
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the time of determination, has an aggregate principal amount outstanding,
together with any commitments to lend additional amounts, of at least $25.0
million, if the instrument governing such Senior Indebtedness expressly states
that such Indebtedness is "Designated Senior Indebtedness" for purposes of the
Indenture and a Board Resolution setting forth such designation by the Company
has been filed with the Trustee.
"DISPOSITION" means, with respect to any Person, any merger, consolidation or
other business combination involving such Person (whether or not such Person is
the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"DISQUALIFIED EQUITY INTEREST" means any Equity Interest which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the earlier
of the maturity date of the Notes or the date on which no Notes remain
outstanding.
"EQUITY INTEREST" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the SEC thereunder.
"EXPIRATION DATE" has the meaning set forth in the definition of "Offer to
Purchase" below.
"FAIR MARKET VALUE" means, with respect to any asset, the price (after taking
into account any liabilities relating to such assets) which could be negotiated
in an arm's-length free market transaction, for cash, between a willing seller
and a willing and able buyer, neither of which is under any compulsion to
complete the transaction; PROVIDED, HOWEVER, that the Fair Market Value of any
such asset shall be determined conclusively by the Board of Directors of the
Company acting in good faith, and shall be evidenced by resolutions of the Board
of Directors of the Company delivered to the Trustee.
"FOUR QUARTER PERIOD" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"GUARANTEE" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
"HOLDERS" means the registered holders of the Notes.
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Subsidiary of
the Company (or is merged into or consolidated with the Company or any
Subsidiary of the Company), whether or not such Indebtedness was Incurred in
connection with, as a result of, or in contemplation of, such Acquired Person
becoming a Subsidiary of the Company (or being merged into or consolidated with
the Company or any Subsidiary), shall be deemed Incurred at the time any such
Acquired Person becomes a Subsidiary or merges into or consolidates with the
Company or any Subsidiary.
"INDEBTEDNESS" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
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every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business); (e)
every Capital Lease Obligation of such Person; (f) every net obligation under
Interest Rate Protection Obligations or similar agreements or Currency
Agreements of such Person; (g) Attributable Indebtedness; (h) every obligation
of the type referred to in clauses (a) through (g) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has guaranteed or is responsible or liable for, directly or indirectly, as
obligor, guarantor or otherwise; and (i) any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (a) through
(h) above. Indebtedness (i) shall not be calculated taking into account any cash
and cash equivalents held by such Person; (ii) shall not include obligations of
any Person (x) arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn against
insufficient funds in the ordinary course of business, provided that such
obligations are extinguished within two Business Days of their incurrence, (y)
resulting from the endorsement of negotiable instruments for collection in the
ordinary course of business and consistent with past business practices and (z)
under stand-by letters of credit to the extent collateralized by cash or Cash
Equivalents; (iii) which provides that an amount less than the principal amount
thereof shall be due upon any declaration of acceleration thereof shall be
deemed to be Incurred or outstanding in an amount equal to the accreted value
thereof at the date of determination; and (iv) shall not include obligations
under performance bonds, performance guarantees, surety bonds and appeal bonds,
letters of credit or similar obligations, incurred in the ordinary course of
business.
"INDEPENDENT FINANCIAL ADVISOR" means a nationally recognized accounting,
appraisal, investment banking firm or consultant (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means, with respect to any Person, any
liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"INTEREST" means, with respect to the Notes, the sum of any cash interest and
any Liquidated Damages (as defined under "Registration Rights" below) on the
Notes.
"INTEREST RATE PROTECTION OBLIGATIONS" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan,
advance, guarantee or other extension of credit or capital contribution to (by
means of transfers of cash or other property or assets to others or payments for
property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. For
purposes of the "Limitation on Restricted Payments" covenant above, the amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment; reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; PROVIDED, HOWEVER, that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
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such amounts would be included in Consolidated Net Income. In determining the
amount of any Investment involving a transfer of any property or asset other
than cash, such property shall be valued at its fair market value at the time of
such transfer, as determined in good faith by the Board of Directors (or
comparable body) of the Person making such transfer.
"ISSUE DATE" means the original issue date of the Notes.
"LIEN" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"MATURITY DATE" means the date, which is set forth on the face of the Notes,
on which the Notes will mature.
"NET CASH PROCEEDS" means the aggregate proceeds in the form of cash or Cash
Equivalents received by the Company or any Subsidiary of the Company in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale; including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee (provided that the amount of any such reserves shall be deemed to
constitute Net Cash Proceeds at the time such reserves shall have been reversed
or are not otherwise required to be retained as a reserve); and (e) with respect
to Asset Sales by Subsidiaries, the portion of such cash payments attributable
to Persons holding a minority interest in such Subsidiary.
"NET PROCEEDS UTILIZATION DATE" has the meaning set forth in the second
paragraph under "Certain Covenants--Disposition of Proceeds of Asset Sales"
above.
"OBLIGATIONS" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"OFFER" has the meaning set forth in the definition of "Offer to Purchase"
below.
"OFFER TO PURCHASE" means a written offer (the "Offer") sent by or on behalf
of the Company by first-class mail, postage prepaid, to each holder at his
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase, which shall
be not less than 20 Business Days nor more than 60 days after the date of such
Offer, and a settlement date (the "Purchase Date") for purchase of Notes to
occur no later than five Business Days after the Expiration Date. The Company
shall notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain all the information required by
applicable law to be included therein. The Offer shall also contain information
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concerning the business of the Company and its Subsidiaries which the Company in
good faith believes will enable such Holders to make an informed decision with
respect to the Offer to Purchase (which at a minimum will include (i) the most
recent annual and quarterly financial statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to the Indenture (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein). The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Offer to Purchase. The Offer shall also state: (1) the Section of the Indenture
pursuant to which the Offer to Purchase is being made; (2) the Expiration Date
and the Purchase Date; (3) the aggregate principal amount of the outstanding
Notes offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such amount has been
determined pursuant to the Section of the Indenture requiring the Offer to
Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the
Company for each $1,000 aggregate principal amount of Notes accepted for payment
(as specified pursuant to the Indenture) (the "Purchase Price"); (5) that the
Holder may tender all or any portion of the Notes registered in the name of such
Holder and that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount; (6) the place or places where Notes are to
be surrendered for tender pursuant to the Offer to Purchase; (7) that interest
on any Note not tendered or tendered but not purchased by the Company pursuant
to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date
the Purchase Price will become due and payable upon each Note being accepted for
payment pursuant to the Offer to Purchase and that interest thereon shall cease
to accrue on and after the Purchase Date; (9) that each Holder electing to
tender all or any portion of a Note pursuant to the Offer to Purchase will be
required to surrender such Note at the place or places specified in the Offer
prior to the close of business on the Expiration Date (such Note being, if the
Company or the Trustee so requires, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing); (10) that Holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or its Paying Agent) receives, not later than the
close of business on the fifth Business Day next preceding the Expiration Date,
a telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Note the Holder tendered, the
certificate number of the Note the Holder tendered and a statement that such
Holder is withdrawing all or a portion of his tender; (11) that (a) if Notes in
an aggregate principal amount less than or equal to the Purchase Amount are duly
tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall
purchase all such Notes and (b) if Notes in an aggregate principal amount in
excess of the Purchase Amount are tendered and not withdrawn pursuant to the
Offer to Purchase, the Company shall purchase Notes having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis (with such
adjustments as may be deemed appropriate so that only Notes in denominations of
$1,000 principal amount or integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unpurchased portion of the Note so
tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"PERMITTED HOLDER" means Scott Rudolph and Arthur Rudolph and members of
either of their immediate families and trusts of which such persons are the
beneficiaries.
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"PERMITTED INDEBTEDNESS" has the meaning set forth in the second paragraph of
"Certain Covenants-Limitation on Indebtedness" above.
"PERMITTED INVESTMENTS" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) Interest
Rate Protection Obligations and Currency Agreements; (d) Investments received in
connection with the bankruptcy or reorganization of suppliers and customers and
in settlement of delinquent obligations of, and other disputes with, customers
and suppliers, in each case arising in the ordinary course of business; (e)
Investments in the Company and direct or indirect loans, advances, guarantees or
other extensions of credit in the ordinary course of business to or on behalf of
a Subsidiary of the Company and cash Investments in a Person that, as a result
of or in connection with such Investment, is merged with or into or consolidated
with the Company or a Wholly Owned Subsidiary; (f) Investments paid for in
Common Stock of the Company; and (g) loans or advances to officers or employees
of the Company and its Subsidiaries in the ordinary course of business for bona
fide business purposes of the Company and its Subsidiaries (including travel and
moving expenses) not in excess of $1 million in the aggregate at any one time
outstanding.
"PERMITTED JUNIOR SECURITIES" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or (ii)
debt securities expressly subordinated in right of payment to all Senior
Indebtedness that may at the time be outstanding, to substantially the same
extent as, or to a greater extent than, the Notes are subordinated as provided
in the Indenture, in any event pursuant to a court order so providing and as to
which (a) the rate of interest on such securities shall not exceed the effective
rate of interest on the Notes on the date of the Indenture, (b) such securities
shall not be entitled to the benefits of covenants or defaults materially more
beneficial to the holders of such securities than those in effect with respect
to the Notes on the date of the Indenture and (c) such securities shall not
provide for amortization (including sinking fund and mandatory prepayment
provisions) commencing prior to the date six months following the final
scheduled maturity date of the Senior Indebtedness (as modified by the plan of
reorganization of readjustment pursuant to which such securities are issued).
"PERMITTED LIENS" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Subsidiary of the Company; PROVIDED, HOWEVER, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Subsidiary of the Company other than
the property or assets subject to the Liens prior to such merger or
consolidation; (b) Liens imposed by law such as carriers', warehousemen's and
mechanics' Liens and other similar Liens arising in the ordinary course of
business which secure payment of obligations not more than 30 days past due or
which are being contested in good faith and by appropriate proceedings; (c)
Liens existing on the Issue Date and Liens in favor of the lenders under the
Revolving Credit Facility; (d) Liens securing only the Notes; (e) Liens in favor
of the Company or any Subsidiary of the Company; (f) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; PROVIDED, HOWEVER, that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (g) easements, reservation of rights of way,
restrictions and other similar easements, licenses, restrictions on the use of
properties, or minor imperfections of title that in the aggregate are not
material in amount and do not in any case materially detract from the properties
subject thereto or interfere with the ordinary conduct of the business of the
Company and its Subsidiaries; (h) Liens resulting from the deposit of cash or
notes in connection with contracts, tenders or expropriation proceedings, or to
secure workers' compensation, surety or appeal bonds, costs of litigation when
required by law and public and statutory obligations or obligations under
franchise arrangements entered into in the ordinary course of business; (i)
Liens securing Indebtedness consisting of Capitalized Lease Obligations,
Purchase Money Indebtedness, mortgage financings, industrial revenue bonds or
other monetary obligations, in each case incurred solely for the purpose of
financing all or any part of the purchase price or cost of construction or
installation of assets used in the business of the Company or its Subsidiaries,
or repairs, additions or improvements to such assets, PROVIDED, HOWEVER, that
(I) such Liens secure Indebtedness in an amount not in excess of the original
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purchase price or the original cost of any such assets or repair, addition or
improvements thereto (plus an amount equal to the reasonable fees and expenses
in connection with the incurrence of such Indebtedness), (II) such Liens do not
extend to any other assets of the Company or its Subsidiaries (and, in the case
of repair, addition or improvements to any such assets, such Lien extends only
to the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the Incurrence of such Indebtedness is permitted by "Certain
Covenants-Limitation on Indebtedness" above and (IV) such Liens attach within 90
days of such purchase, construction, installation, repair, addition or
improvement; and (j) Liens to secure any refinancings, renewals, extensions,
modifications or replacements (collectively, "refinancings") (or successive
refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in the clauses above so long as such Lien does not extend to any
other property (other than improvements thereto).
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"POST-PETITION INTEREST" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"PREFERRED EQUITY INTEREST," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"PRINCIPAL" of a debt security means the principal of the security plus, when
appropriate, the premium, if any, on the security.
"PUBLIC EQUITY OFFERING" means, with respect to the Company, an underwritten
public offering of Qualified Equity Interests of the Company pursuant to an
effective registration statement filed under the Securities Act (excluding
registration statements filed on Form S-8).
"PURCHASE AMOUNT" has the meaning set forth in the definition of "Offer to
Purchase" above.
"PURCHASE DATE" has the meaning set forth in the definition of "Offer to
Purchase" above.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company or any
Subsidiary of the Company Incurred for the purpose of financing in the ordinary
course of business all or any part of the purchase price or the cost of
construction or improvement of any property; PROVIDED, HOWEVER, that the
aggregate principal amount of such Indebtedness does not exceed the lesser of
the Fair Market Value of such property or such purchase price or cost, including
any refinancing of such Indebtedness that does not increase the aggregate
principal amount (or accreted amount, if less) thereof as of the date of
refinancing.
"PURCHASE PRICE" has the meaning set forth in the definition of "Offer to
Purchase" above.
"QUALIFIED EQUITY INTEREST" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"REDEMPTION DATE" has the meaning set forth in the third paragraph of
"Optional Redemption" above.
"REPLACEMENT ASSETS" has the meaning set forth in the first paragraph under
"Certain Covenants--Disposition of Proceeds of Asset Sales" above.
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"REVOLVING CREDIT FACILITY" means the credit and guarantee agreement, dated
as of the Issue Date, by and among the Company, the Subsidiaries of the Company
identified on the signature pages thereof and any Subsidiary of the Company that
is later added thereto, the lenders named therein, and The Chase Manhattan Bank,
N.A. as Agent, as amended, including any deferrals, renewals, extensions,
replacements, refinancings or refundings thereof, or amendments, modifications
or supplements thereto and any agreement providing therefor, whether by or with
the same or any other lender, creditor, group of lenders or group of creditors,
and including related notes, guarantee and note agreements and other instruments
and agreements executed in connection therewith.
"SALE AND LEASE-BACK TRANSACTION" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company of any
real or tangible personal Property, which property has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation of
such leasing.
"SEC" means the Securities and Exchange Commission.
"SENIOR INDEBTEDNESS" means, at any date, (a) all Obligations of the Company
under the Revolving Credit Facility; (b) all Interest Rate Protection
Obligations of the Company and all Obligations of the Company under Currency
Agreements; (c) all Obligations of the Company under stand-by letters of credit;
and (d) all other Indebtedness of the Company, including principal, premium, if
any, and interest (including Post-Petition Interest) on such Indebtedness,
unless the instrument under which such Indebtedness of the Company is Incurred
expressly provides that such Indebtedness for money borrowed is not senior or
superior in right of payment to the Notes, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Senior Indebtedness shall not include (a) to the extent that it may
constitute Indebtedness, any Obligation for Federal, state, local or other
taxes; (b) any Indebtedness among or between the Company and any Subsidiary of
the Company or any Affiliate of the Company or any of such Affiliate's
Subsidiaries; (c) to the extent that it may constitute Indebtedness, any
Obligation in respect of any trade payable Incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business; (d)
that portion of any Indebtedness that is Incurred in violation of the Indenture;
(e) Indebtedness evidenced by the Notes; (f) Indebtedness of the Company that is
expressly subordinate or junior in right of payment to any other Indebtedness of
the Company; (g) to the extent that it may constitute Indebtedness, any
obligation owing under leases (other than Capitalized Lease Obligations) or
management agreements; and (h) any obligation that by operation of law is
subordinate to any general unsecured obligations of the Company. No Indebtedness
shall be deemed to be subordinated to other Indebtedness solely because such
other Indebtedness is secured.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, (a) any
Subsidiary of the Company that, together with its Subsidiaries (i) for the most
recent fiscal year of the Company accounted for more than 10.0% of the
consolidated revenues of the Company and its Subsidiaries or (ii) as of the end
of such fiscal year, owned more than 10.0% of the consolidated assets of the
Company and its Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Subsidiaries for such year prepared in
conformity with GAAP, and (b) any Subsidiary of the Company which, when
aggregated with all other Subsidiaries of the Company that are not otherwise
Significant Subsidiaries and as to which any event described in clause (h) of
"Events of Default" above has occurred, would constitute a Significant
Subsidiary under clause (a) of this definition.
"STATED MATURITY" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable.
"SUBORDINATED INDEBTEDNESS" means, with respect to the Company, any
Indebtedness of the Company which is expressly subordinated in right of payment
to the Notes.
82
<PAGE>
"SUBSIDIARY" means, with respect to any Person, (a) any corporation of which
the outstanding Voting Equity Interests having at least a majority of the votes
entitled to be cast in the election of directors shall at the time be owned,
directly or indirectly, by such Person, or (b) any other Person of which at
least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"SURVIVING PERSON" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"UNITED STATES GOVERNMENT OBLIGATIONS" means direct non-callable obligations
of the United States of America for the payment of which the full faith and
credit of the United States is pledged.
"UNUTILIZED NET CASH PROCEEDS" has the meaning set forth in the third
paragraph under "Certain Covenants--Disposition of Proceeds of Asset Sales"
above.
"VOTING EQUITY INTERESTS" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"WHOLLY OWNED SUBSIDIARY" means any Subsidiary of the Company all of the
outstanding Voting Equity Interests (other than directors' qualifying shares) of
which are owned, directly or indirectly, by the Company.
83
<PAGE>
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Notes initially will be
represented by one or more permanent global certificates in definitive, duly
registered form (the "Global Notes"). The Global Notes will be deposited on the
Issue Date with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"), and registered in the name of a nominee of DTC.
THE GLOBAL NOTES. The Company expects that pursuant to procedures established
by DTC (i) upon the issuance of the Global Notes, DTC or its custodian will
credit, on its internal system, an interest in such Global Notes to the
respective accounts of persons who have accounts with DTC and (ii) ownership of
beneficial interests in the Global Notes will be shown on, and the transfer of
such ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchaser and ownership of beneficial interests in the Global Notes will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. QIBs and institutional Accredited Investors
who are not QIBs may hold their interests in the Global Notes directly through
DTC if they are participants in such system, or indirectly through organizations
which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium, if any, and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any Paying Agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, and interest on the Global Notes, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in the Global Notes
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states that require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in a Global Note in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
84
<PAGE>
is an Event of Default under the Indenture, DTC will exchange the Global Notes
for Certificated Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Issuer within 90 days, Certificated Securities will be issued
in exchange for the Global Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Original
Notes where such Original Notes were acquired as a result of market making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until March 29, 1998, all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
85
<PAGE>
For a period of 180 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the
Original Notes), other than commissions or concessions of any broker-dealers and
will indemnify the holders of the Original Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act. The
Company will be indemnified by the holders of Original Notes, severally, against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for the
Company by Kirkpatrick & Lockhart LLP, Washington, D.C.
INDEPENDENT ACCOUNTANTS
The consolidated balance sheets as of September 30, 1996 and 1995 and the
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1996 of NBTY, Inc. and
Subsidiaries included in this Prospectus have been included herein in reliance
on the report of Coopers & Lybrand L.L.P., independent accountants given on the
authority of that firm as experts in accounting and auditing.
The consolidated balance sheets as of June 30, 1997 and 1996 and the
consolidated profit and loss accounts, statements of total recognized gains and
losses, and cash flows for each of the three years in the period ended June 30,
1997 of Holland & Barrett Holdings Ltd. included in this Prospectus have been
included herein in reliance on the report of KPMG, chartered accountants and
registered auditors, given on the authority of that firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, covering the Exchange Notes offered hereby. This Prospectus does not
contain all the information set forth in the Exchange Offer Registration
Statement. For further information with respect to the Company and the Exchange
Offer, reference is made to the Exchange Offer Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to such
contract, agreement or other document filed as an exhibit to the Exchange Offer
Registration Statement, reference is made to the exhibit for a more complete
description of the document or matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
While any Original Notes remain outstanding the Company will make available,
upon request, to any holder and any prospective purchaser of Notes the
information required pursuant to Rule 144A(d) (4) under the Securities Act
during any period in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act. Any such request should be directed to Harvey Kamil,
Secretary, NBTY, Inc., 90 Orville Drive, Bohemia, New York 11716-2510.
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such material, including the Exchange Offer
Registration Statement, may be inspected and copied at prescribed rates at the
86
<PAGE>
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC 20549, and at the following Regional
Offices of the Commission: Seven World Trade Center, New York, New York 10048;
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, as does the Company; the address of such
site is http://www.sec.gov. The common stock of NBTY is listed on the Nasdaq
Stock Market under the symbol "NBTY." Material filed by NBTY may be inspected at
the offices of the National Association of Securities Dealers, Inc., Reports
Section, 1735 K Street, N.W. Washington, D.C. 20006.
The Indenture provides that the Company will furnish copies of the periodic
reports required to be filed with the Commission under the Exchange Act to the
holders of the Notes. If the Company is not subject to the periodic reporting
and informational requirements of the Exchange Act, it will, to the extent such
filings are accepted by the Commission, and whether or not the Company has a
class of securities registered under the Exchange Act, file with the Commission,
and provide the Trustee and the holders of the Notes within 15 days after such
filings with, annual reports containing the information required to be contained
in Form 10-K promulgated under the Exchange Act, quarterly reports containing
the information required to be contained in Form 10-Q promulgated under the
Exchange Act, and from time to time such other information as is required to be
contained in Form 8-K promulgated under the Exchange Act. If filing such reports
with the Commission is not accepted by the Commission or prohibited by the
Exchange Act, the Company will also provide copies of such reports, at its cost,
to prospective purchasers of the Notes and participants in the Exchange Offer
promptly upon written request.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by NBTY with the Commission,
are incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended September 30,
1996.
2. Quarterly Reports on Form 10-Q for the fiscal quarters ended December
31, 1996, March 31, 1997 and June 30, 1997.
3. Reports on Form 8-K, dated August 21, 1997, October 17, 1997 and
November 4, 1997.
All documents filed by NBTY with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the sale of the Exchange Notes offered hereby shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
NBTY will provide without charge to each person to whom this Prospectus is
delivered, upon the written or oral request of such person, a copy of any or all
of the documents which have been or may be incorporated by reference in this
Prospectus, other than exhibits to such documents not specifically described
above. Requests for such documents should be directed to Harvey Kamil, Executive
Vice President and Secretary, at the address of NBTY.
87
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
NBTY, INC. AND SUBSIDIARIES
Report of Independent Accountants................................ F-2
Consolidated Balance Sheets as of September 30, 1996 and 1995.... F-3
Consolidated Statements of Income for the Years Ended
September 30, 1996, 1995 and 1994............................ F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1996, 1995 and 1994............... F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994........................... F-6
Notes to Consolidated Financial Statements....................... F-8
Condensed Consolidated Balance Sheets as of
June 30, 1997 (Unaudited) and September 30, 1996............ F-18
Condensed Consolidated Statements of Income (Unaudited) for
the Nine Months Ended June 30, 1997 and 1996................ F-19
Consolidated Statements of Cash Flows (Unaudited) for the
Nine Months Ended June 30, 1997 and 1996.................... F-20
Notes to Condensed Consolidated Financial Statements............. F-22
HOLLAND & BARRETT HOLDINGS LIMITED
(formerly Holland & Barrett Retail Limited)
a wholly-owned subsidiary of Gehe AG
Independent Auditors' Report..................................... F-24
Consolidated Profit and Loss Accounts for the Years Ended
June 30, 1997, 1996 and 1995 ............................... F-25
Consolidated Statements of Total Recognized Gains and
Losses for the Years Ended June 30, 1997, 1996 and 1995..... F-26
Reconciliation of Movements in Group Shareholders' Funds for
the Years Ended June 30, 1997, 1996 and 1995................ F-26
Consolidated Balance Sheets at June 30, 1997 and 1996............ F-27
Consolidated Cash Flow Statements for the Years Ended
June 30, 1997, 1996 and 1995 .............................. F-28
Notes to the Consolidated Financial Statements................... F-29
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of NBTY, Inc.:
We have audited the consolidated financial statements of NBTY, Inc. and
Subsidiaries as listed on page F-1. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NBTY,
Inc. and Subsidiaries as of September 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Melville, New York
November 5, 1996
F-2
<PAGE>
NBTY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents................................................... $ 9,292,374 $ 10,378,476
Short-term investments...................................................... 11,024,624
Accounts receivable, less allowance for doubtful accounts
of $793,669 in 1996 and $576,579 in 1995................................ 11,625,112 12,354,545
Inventories................................................................. 38,070,071 36,972,592
Deferred income taxes....................................................... 3,155,163 1,846,875
Prepaid catalog costs and other current assets.............................. 5,682,874 6,170,243
----------- -----------
Total current assets.................................................... 78,850,218 67,722,731
Property, plant and equipment, net.............................................. 61,731,625 48,324,576
Intangible assets, net.......................................................... 3,974,573 5,813,031
Other assets.................................................................... 993,785 1,668,309
----------- -----------
Total assets............................................................ $145,550,201 $123,528,647
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations............. $ 934,887 $ 358,675
Accounts payable............................................................ 10,943,228 16,411,562
Accrued expenses............................................................ 14,704,507 10,287,989
----------- -----------
Total current liabilities............................................... 26,582,622 27,058,226
----------- -----------
Long-term debt.................................................................. 15,178,412 9,705,534
Obligations under capital leases................................................ 3,219,127 1,218,920
Deferred income taxes........................................................... 2,827,198 2,161,537
Other liabilities............................................................... 792,985 768,985
----------- -----------
Total liabilities....................................................... 48,600,344 40,913,202
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.008 par; authorized 25,000,000 shares; issued 20,079,676
shares in 1996 and 19,207,676 shares in 1995 and outstanding 18,592,119
shares in 1996 and 17,766,
119 shares in 1995...................................................... 160,638 153,662
Capital in excess of par.................................................... 56,012,910 54,151,206
Retained earnings........................................................... 44,008,465 30,656,586
----------- -----------
100,182,013 84,961,454
Less 1,487,557 and 1,441,557 treasury shares at cost, in
1996 and 1995, respectively............................................. 2,648,256 2,346,009
Stock subscriptions receivable.............................................. 583,900
----------- -----------
Total stockholders' equity.............................................. 96,949,857 82,615,445
----------- -----------
Total liabilities and stockholders' equity.............................. $145,550,201 $123,528,647
=========== ===========
See notes to consolidated financial statements.
F-3
<PAGE>
NBTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 1996, 1995 and 1994
1996 1995 1994
----------- ------------ ------------
Net sales........................................... $ 194,403,040 $ 178,759,871 $ 156,057,056
----------- ----------- -----------
Costs and expenses:
Cost of sales................................... 95,638,272 93,875,162 79,891,302
Catalog printing, postage and promotion......... 17,634,801 19,261,733 14,786,217
Selling, general and administrative............. 58,515,059 56,728,368 49,207,943
----------- ----------- -----------
171,788,132 169,865,263 143,885,462
----------- ----------- -----------
Income from operations.............................. 22,614,908 8,894,608 12,171,594
----------- ----------- -----------
Other income (expenses):
Interest, net................................... (1,445,036) (1,084,331) (913,583)
Miscellaneous, net.............................. 1,203,061 571,098 1,284,953
----------- ----------- -----------
(241,975) (513,233) 371,370
----------- ----------- -----------
Income before income taxes.......................... 22,372,933 8,381,375 12,542,964
Income taxes........................................ 9,021,054 3,245,517 4,766,526
----------- ----------- -----------
Net income................................ $ 13,351,879 $ 5,135,858 $ 7,776,438
=========== =========== ===========
Net income per share................................ $ 0.67 $ 0.26 $ 0.38
=========== =========== ===========
Weighted average common shares outstanding.......... 19,975,678 19,974,270 20,257,325
=========== =========== ===========
See notes to consolidated financial statements.
F-4
<PAGE>
</TABLE>
NBTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Treasury Stock
___________________ ____________________ Stock
Number of Capital in Retained Number of Subscriptions
Shares Amount Excess of Par Earnings Shares Amount Receivable Total
------- ------- ------------- -------- ---------- ------ ------------- -----
Balance, September 30,
<S> <C> <C> <C> <C> <C> <C> <C>
1993....................... 18,717,676 $149,742 $ 52,970,926 $17,744,290 1,213,404 $ (862,722) $ 70,002,236
Net income for year ended
September 30, 1994....... 7,776,438 7,776,438
Expenses associated with
prior year public
offering of stock........ (225,000) (225,000)
Exercise of stock options.. 60,000 480 29,520 30,000
Tax benefit from
exercise of stock
options.................. 433,200 433,200
--------- -------- ---------- ---------- --------- --------- --------- --------
Balance, September 30,
1994....................... 18,777,676 150,222 53,208,646 25,520,728 1,213,404 (862,722) 78,016,874
Net income for year ended
September 30, 1995....... 5,135,858 5,135,858
Exercise of stock
options.................. 430,000 3,440 211,560 215,000
Tax benefit from exercise
of stock options......... 731,000 731,000
Purchase of treasury
stock, at cost........... 228,153 (1,483,287) (1,483,287)
--------- -------- ---------- ---------- --------- --------- --------- --------
Balance, September 30,
1995....................... 19,207,676 153,662 54,151,206 30,656,586 1,441,557 (2,346,009) 2,615,445
Net income for year ended
September 30, 1996....... 13,351,879 13,351,879
Exercise of stock
options.................. 872,000 6,976 587,904 $(583,900) 10,980
Tax benefit from exercise
of stock options......... 1,273,800 1,273,800
Purchase of treasury
stock, at cost........... 46,000 (302,247) (302,247)
--------- -------- ------------ ---------- --------- --------- ---------- --------
Balance, September 30,
1996..................... 20,079,676 $160,638 $ 56,012,910 $ 44,008,465 1,487,557 $ (2,648,256) $ 96,949,857 $ (583,900)
========= ======== ============ ========== ========= ========= ========== =========
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
NBTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 13,351,879 $ 5,135,858 $ 7,776,438
Adjustments to reconcile net income to cash
provided by operating activities:
Loss on disposal/sale of property, plant and equipment........ 422 374,126 519
Depreciation and amortization............................... 5,623,277 4,840,570 4,243,985
Provision (recovery) for allowance for doubtful accounts.... 217,090 (17,943) 89,968
Deferred income taxes....................................... (642,627) 684,426 3,046,493
Changes in assets and liabilities:
Accounts receivable....................................... 1,615,504 (2,119,589) (454,841)
Inventories............................................... (2,035,883) 4,453,583 (10,770,809)
Income tax receivable..................................... 1,300,198 3,089,929
Prepaid catalog costs and other current assets............ 487,369 (264,253) (2,297,276)
Other assets.............................................. 674,524 1,123,818 (2,465,151)
Accounts payable.......................................... (5,468,334) 3,160,180 (2,828,998)
Accrued expenses.......................................... 5,690,318 2,809,518 3,226,894
Other liabilities......................................... 24,000 274,999 (353,225)
---------- ---------- ----------
Net cash provided by operating activities............... 19,537,539 21,755,491 2,303,926
---------- ---------- ----------
Cash flows from investment activities:
Purchase of property, plant and equipment....................... (15,750,517) (11,547,570) (11,592,662)
Increase in intangible assets................................... (66,691) (1,063,953) (253,772)
Proceeds from sale of property, plant and equipment............. 4,270 11,000
Purchase of short-term investments.............................. (11,024,624)
Receipt of payments on notes from sale of direct mail
cosmetics business............................................ 741,303
Proceeds from sale of direct mail cosmetic business............. 350,000
---------- ---------- ----------
Net cash used in investing activities................... (25,746,259) (12,611,523) (11,835,434)
---------- ---------- ----------
Cash flows from financing activities:
Net (payments) borrowings under line of credit agreement........ (5,000,000) 5,000,000
Borrowings under long-term debt agreements...................... 6,000,000 2,400,000
Principal payments under long-term debt agreements
and capital leases............................................ (586,115) (797,799) (221,307)
Purchase of treasury stock...................................... (302,247) (1,292,287)
Proceeds from stock options exercised........................... 10,980 24,000 30,000
Proceeds from public offering, less expenses.................... (225,000)
---------- ---------- ----------
Net cash provided by (used in) financing activities..... 5,122,618 (4,666,086) 4,583,693
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents.............. (1,086,102) 4,477,882 (4,947,815)
Cash and cash equivalents at beginning of year.................... 10,378,476 5,900,594 10,848,409
---------- ---------- ----------
Cash and cash equivalents at end of year.......................... $ 9,292,374 $ 10,378,476 $ 5,900,594
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........................ $ 1,454,380 $ 1,085,647 $ 913,145
========== ========== ==========
Cash paid during the period for income taxes.................... $ 5,386,714 $ 1,648,765 $ 2,349,198
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING INFORMATION:
The Company entered into capital leases for machinery and equipment
aggregating $2,635,412 during fiscal 1996 and $1,416,472 in fiscal 1995.
During fiscal 1996, 1995 and 1994, options were exercised with shares of
common stock issued to certain officers and directors. Accordingly, the tax
benefit of approximately $1,274,000, $731,000 and $433,000 for the years ended
September 30, 1996, 1995 and 1994, respectively, was recorded as an increase in
capital in excess of par and a reduction in taxes currently payable. (See Note
11.)
On October 9, 1995, the Company sold certain assets of its direct-mail
cosmetics business for approximately $2,495,000. The Company received $350,000
in cash and non-interest bearing notes aggregating approximately $2,145,000 for
inventory, a customer list and other intangible assets. The notes will be paid
over a three-year period based on a predetermined formula with guaranteed
minimum payments. A final payment for the remaining outstanding balance will be
made on September 30, 1998.
See notes to consolidated financial statements.
F-7
<PAGE>
NBTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS
NBTY, Inc., formerly Nature's Bounty, Inc. (the "Company"), manufactures
and distributes vitamins, food supplements and health and beauty aids. The
processing, formulation, packaging, labeling and advertising of the Company's
products are subject to regulation by one or more federal agencies, including
the Food and Drug Administration, the Federal Trade Commission, the Consumer
Product Safety Commission, the United States Department of Agriculture, the
United States Environmental Protection Agency and the United States Postal
Service.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment or, with respect to its own
retail store operations, upon the sale of products. The Company has no single
customer that represents more than 10% of annual net sales or accounts
receivable as of September 30, 1996.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis. The cost elements of inventory
include materials, labor and overhead. One supplier provided approximately 12%
of the Company's purchases in 1996.
PREPAID CATALOG COSTS
Mail order production and mailing costs are capitalized as prepaid
catalog costs and charged to income over the catalog period, which typically
approximates three months.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation is
provided on a straight-line basis over the estimated useful lives of the related
assets. Expenditures which significantly improve or extend the life of an asset
are capitalized.
Maintenance and repairs are charged to expense in the year incurred.
Cost and related accumulated depreciation for property, plant and equipment are
removed from the accounts upon sale or disposition and the resulting gain or
loss is reflected in earnings.
F-8
<PAGE>
INTANGIBLE ASSETS
Goodwill represents the excess of purchase price over the fair value of
identifiable net assets of companies acquired. Goodwill and other intangibles
are amortized on a straight-line basis over appropriate periods not exceeding 40
years.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term interest bearing investments are those with maturities of
less than one year but greater than three months when purchased. These
investments are readily convertible to cash and are stated at market value,
which approximates cost. Realized gains and losses are included in other income
on a specific identification basis in the period they are realized.
COMMON SHARES AND EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common
shares outstanding during the period. Common stock equivalents are not included
in income per share computations since their effect on the calculation is
immaterial.
STOCK-BASED PLANS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which establishes financial accounting and reporting standards
for stock based plans. The Statement, which becomes effective in fiscal 1997,
requires the Company to choose between accounting for issuances of stock and
other equity instruments to employees based on their fair value or to continue
to use an intrinsic value based method and disclosing the pro forma effects such
accounting would have had on the Company's net income and earnings per share.
The Company will continue to use the intrinsic value based method, which
generally does not result in compensation cost.
RECLASSIFICATIONS
Certain reclassifications have been made to conform prior year amounts
to the current year presentation.
F-9
<PAGE>
2. SALE OF DIRECT-MAIL COSMETICS BUSINESS
On October 9, 1995, the Company sold certain assets of its direct-mail
cosmetics business for approximately $2,495,000. The Company received $350,000
in cash and non interest bearing notes aggregating approximately $2,145,000 for
inventory, a customer list and other intangible assets. The notes will be paid
over a three-year period based on a predetermined formula with guaranteed
minimum payments. A final payment for the remaining outstanding balance will be
made on September 30, 1998. Revenues applicable to this marginally unprofitable
business were $136,648, $8,283,517 and $13,276,045 for fiscal 1996, 1995 and
1994, respectively.
3. INVENTORIES
<TABLE>
<CAPTION>
September 30,
-------------------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Raw materials................................................. $17,131,532 $15,898,215
Work-in-process............................................... 1,522,803 1,848,629
Finished goods................................................ 19,415,736 19,225,748
---------- ----------
$38,070,071 $36,972,592
========== ==========
4. PROPERTY, PLANT AND EQUIPMENT
September 30,
-----------------------------------
1996 1995
----------- -----------
Land.......................................................... $ 4,764,965 $ 3,064,965
Buildings and leasehold improvements.......................... 38,087,461 31,830,638
Machinery and equipment....................................... 28,560,427 22,279,226
Furniture and fixtures........................................ 8,484,103 6,065,382
Transportation equipment...................................... 640,982 200,982
Computer equipment............................................ 8,544,945 7,296,395
---------- ----------
89,082,883 70,737,588
Less accumulated depreciation and amortization................ 27,351,258 22,413,012
========== ==========
$61,731,625 $48,324,576
</TABLE>
Depreciation and amortization of property, plant and equipment for the
years ended September 30, 1996, 1995 and 1994 was approximately $4,974,000,
$4,064,000 and $3,190,000, respectively.
Property, plant and equipment includes approximately $4,052,000 and
$1,416,000 for assets recorded under capital leases for fiscal 1996 and 1995,
respectively.
F-10
<PAGE>
5. INTANGIBLE ASSETS
Intangible assets, at cost, acquired at various dates are as follows:
<TABLE>
<CAPTION>
September 30,
----------------------
1996 1995 Amortization
----- ---- Period
<S> <C> <C> <C>
Goodwill.............................. $ 469,400 $ 469,400 20-40
Customer lists........................ 8,783,475 10,540,017 6-15
Trademark and licenses................ 1,201,205 1,134,514 2-3
Covenants not to compete.............. 1,304,538 1,304,538 5-7
---------- ----------
11,758,618 13,448,469
Less accumulated amortization..... 7,784,045 7,635,438
---------- ----------
$ 3,974,573 $ 5,813,031
========== ==========
</TABLE>
Amortization included in the consolidated statements of income under the
caption "selling, general and administrative expenses" in 1996, 1995 and 1994
was approximately $649,000, $776,000 and $1,054,000, respectively.
Effective October 1, 1993, the Company changed its estimates of the
lives of certain customer lists. Customer list amortization lives that
previously averaged 6 years were increased to an average of 15 years. This
change was made to better reflect the estimated periods during which an
individual will remain a customer of the Company. The change had the effect of
reducing amortization expense by approximately $500,000 and increasing the net
income by $310,000 in 1994.
6. ACCRUED EXPENSES
September 30,
------------------------------
1996 1995
---- ----
Payroll and related payroll taxes......... $ 2,730,453 $ 2,166,355
Customer deposits......................... 1,862,837 2,034,175
Accrued purchases......................... 1,765,420 1,734,844
Income taxes payable...................... 2,670,270 39,815
Other..................................... 5,675,527 4,312,800
---------- ----------
$14,704,507 $10,287,989
========== ==========
F-11
<PAGE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
September 30,
--------------------------
1996 1995
---- ----
Mortgages:
<S> <C> <C>
First mortgage, payable in monthly principal and interest
(10.375%) installments (a)................................. $ 7,447,859 $ 7,566,144
First mortgage payable in monthly principal and interest
(9.73%) installments of $25,396 (b)........................ 2,257,729 2,338,432
First mortgage, payable in monthly principal and interest
(7.375%) installments of $55,196 (c)....................... 5,926,038
---------- ---------
15,631,626 9,904,576
Less current portion............................................. 453,214 199,042
---------- ---------
$15,178,412 $ 9,705,534
========== =========
</TABLE>
- -------------
(a) In September 1990, the Company obtained an $8,000,000 first mortgage,
collateralized by the underlying building, issued through the Town of
Islip, New York Industrial Development Agency. The taxable bond, held by
an insurance company, has monthly principal and interest payments of
$74,821 for ten years through 2000, with a final payment of $6,891,258
in September 2000.
(b) In November 1994, the Company purchased a building which it previously
occupied under a long-term lease. The purchase price of approximately
$3,090,000 was funded with $690,000 in cash and the balance through a
15-year mortgage note payable. This agreement contains restrictive
covenants identical to the covenants noted under the revolving credit
facility described below.
(c) In April 1996, the Company obtained a $6,000,000 first mortgage with a
fixed interest rate of 7.375%, collateralized by the underlying real
estate. The mortgage has monthly principal and interest payments of
$55,196 for fifteen years through 2011.
On April 3, 1996, the Company renewed a revolving credit agreement (the
"Agreement") with two banks that provides for unsecured borrowings up to
$15,000,000 which expires March 31, 1999. As of September 30, 1996, there were
no borrowings under this Agreement. Under the most restrictive covenants of the
Agreement, the Company is required to maintain tangible net worth of at least
$84,000,000, a current ratio of at least 1.75 to 1.00 and has a limitation on
the amount of capital expenditures.
Required principal payments of long-term debt are as follows:
YEARS ENDED
SEPTEMBER 30,
- ----------
1997.............................. $ 453,214
1998.............................. 494,324
1999.............................. 539,266
2000.............................. 7,419,600
2001.............................. 443,875
Thereafter........................ 6,281,347
-----------
$15,631,626
===========
F-12
<PAGE>
8. CAPITAL LEASE OBLIGATIONS
The Company entered into six capital leases for machinery and equipment
aggregating $2,635,412 during fiscal 1996 and two capital leases for machinery
and equipment aggregating $1,416,472 in fiscal 1995. The leases provide the
Company with bargain purchase options at the end of such lease terms.
Future minimum payments under capital lease obligations as of September
30, 1996 are as follows:
1997................................................... $ 758,872
1998................................................... 758,872
1999................................................... 758,872
2000................................................... 758,872
2001................................................... 758,872
Thereafter............................................. 870,186
---------
4,664,546
Less, amount representing interest..................... 963,746
---------
Present value of minimum lease payments
(including $481,673 due within one year)............... $3,700,800
=========
9. INCOME TAXES
Provision for income taxes consists of the following:
Year Ended September 30,
--------------------------------------------
1996 1995 1994
---- ---- ----
Federal
Current.....................$ 7,551,755 $ 2,224,935 $ 856,774
Deferred.................... (501,249) 636,516 3,156,289
State
Current..................... 2,111,926 336,156 515,893
Deferred.................... (141,378) 47,910 237,570
--------- --------- ---------
Total provision.................$ 9,021,054 $ 3,245,517 $ 4,766,526
========= ========= =========
The following is a reconciliation of the income tax expense computed
using the statutory federal income tax rate to the actual income tax expense and
its effective income tax rate.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------------------------------
1996 1995 1994
---------------- ---------------- --------------
Percent of Percent of Percent of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at
statutory rate..................... $ 7,830,527 35.0% $ 2,849,668 34.0% $ 4,390,037 35.0%
State income taxes, net of
federal income tax benefit......... 1,280,856 5.7% 253,483 3.0% 489,751 3.9%
Other, individually less than 5%....... (90,329) (0.4)% 142,366 1.7% (113,262) (0.9)%
----------- ------ --------- ---- --------- ------
Actual income tax
provision.......................... $ 9,021,054 40.3% $ 3,245,517 38.7% $ 4,766,526 38.0%
=========== ====== =========== ===== ========= ======
</TABLE>
F-13
<PAGE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Deferred tax assets:
<S> <C> <C>
Current:
Inventory capitalization...................................... $ 243,000 $ 178,034
Accrued expenses and reserves not currently deductible........ 2,591,137 1,049,584
Tax credits................................................... 321,026 555,822
Miscellaneous................................................. 63,435
--------- ---------
Current deferred tax assets......................... 3,155,163 1,846,875
--------- ---------
Noncurrent:
Intangibles................................................... 334,820 231,701
Reserves not currently deductible............................. 200,070 342,910
--------- ---------
Total noncurrent.................................... 534,890 574,611
--------- ---------
Deferred tax liabilities:
Property, plant and equipment....................................... (3,362,088) (2,736,148)
--------- ---------
Net deferred tax asset (liability).................. $ 327,965 $ (314,662)
========= =========
</TABLE>
Available state tax credits of $321,026 and $555,822 in 1996 and 1995,
respectively, are scheduled to expire through fiscal 2002.
10. COMMITMENTS
LEASES
The Company conducts retail operations under operating leases which
expire at various dates through 2011. Some of the leases contain renewal options
and provide for additional rentals based upon sales plus certain tax and
maintenance costs.
Future minimal rental payments under the retail location and automotive
leases that have initial or noncancelable lease terms in excess of one year at
September 30, 1996 are as follows:
Year Ending
September 30,
- -------------
1997.......................................... $ 3,319,803
1998.......................................... 3,010,636
1999.......................................... 2,807,311
2000.......................................... 2,375,884
2001.......................................... 1,660,407
Thereafter.................................... 811,796
-----------
$13,985,837
===========
Operating lease rental expense, including real estate tax and
maintenance costs and leases on a month to month basis, was approximately
$1,979,000, $1,248,000 and $1,200,000 for the years ended September 30, 1996,
1995 and 1994, respectively.
F-14
<PAGE>
PURCHASE COMMITMENTS
The Company was committed to make future purchases under various
purchase order arrangements with fixed price provisions aggregating
approximately $12,923,000 and $972,000 at September 30, 1996 and 1995,
respectively.
EMPLOYMENT AND CONSULTING AGREEMENT AGREEMENTS
The Company has employment agreements with two of its officers. The
agreements, which expire in January 2004, provide for minimum salary levels, as
adjusted for cost of living changes, as well as contain provisions regarding
severance and changes in control of the Company. The commitment for salaries as
of September 30, 1996 was approximately $749,000 per year.
The Company also has a two-year consulting agreement with its former
chairman and current director which expires on December 31, 1996. Such agreement
required annual payments of approximately $300,000. The parties are presently
negotiating a renewal of the agreement under substantially comparable terms. In
addition, an entity owned by a relative of an officer received sales commissions
of $417,000, $510,000 and $351,000 in 1996, 1995 and 1994, respectively.
11. STOCK OPTION PLANS
The Board of Directors approved the issuance of 1,608,000 non-qualified
stock options on December 11, 1989, exercisable at $0.50 per share, which
options terminated on December 10, 1994. The Board also approved the issuance of
2,220,000 non-qualified options on September 23, 1990, exercisable at $0.63 per
share, which options terminate on September 23, 2000. In addition, on March 11,
1992, the Board of Directors approved the issuance of an aggregate of 1,800,000
non-qualified stock options to directors and officers, exercisable at $0.92 per
share, and expiring on March 10, 2002. The exercise price of each of the
aforementioned issuances was in excess of the market price at the date such
options were granted.
During fiscal 1996, options were exercised with 872,000 shares of common
stock issued to certain officers and directors for $10,980 and interest bearing
notes in the amount of $583,900. As a result of the exercise of these options,
the Company is entitled to a compensation deduction for tax purposes of
approximately $3,145,000 which should ultimately result in a tax benefit to the
Company of approximately $1,273,800. Accordingly, the Company has recorded an
increase in capital in excess of par and has adjusted its current liability to
recognize the effect of this tax benefit.
During fiscal 1995, options were exercised with 430,000 shares of common
stock issued to certain officers and directors for $24,000 and an interest
bearing note in the amount of $191,000. The promissory note, including interest,
was paid by the surrender of 23,153 NBTY common shares to the Company at the
prevailing market price. As a result of the exercise of these options, the
Company was entitled to a compensation deduction of approximately $1,827,500
which resulted in a tax benefit of approximately $731,000. Such benefit was
recorded as an increase in capital in excess of par and a reduction to taxes
currently payable.
During fiscal 1994, options were exercised with 60,000 shares of common
stock issued to certain directors for $30,000. As a result of the exercise of
these options, the Company was entitled to a compensation deduction for tax
purposes of approximately $1,140,000 which resulted in a tax benefit of
approximately $433,200. Such benefit was recorded as an increase to capital in
excess of par and a reduction to taxes currently payable.
F-15
<PAGE>
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
COMMON EXERCISE PRICE
SHARES PER SHARE
------ -------------
<S> <C> <C>
Shares under option, September 30, 1994 (fully exercisable)..... 2,825,000 $.50-$.92
Exercised in 1995..................................... 430,000 $.50
-------- --------
2,395,000 $.63-$.92
Shares under option, September 30, 1995 (fully exercisable)
Exercised in 1996..................................... 872,000 $.63-$.92
-------- --------
Shares under option, September 30, 1996 (fully exercisable)..... 1,523,000 $.63-$.92
======== ========
</TABLE>
12. EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution savings plan, which
qualifies under Section 401(k) of the Internal Revenue Code, and an employee
stock ownership plan. The accompanying financial statements reflect
contributions to these plans in the approximate amount of $489,000, $498,000 and
$103,000 for the years ended September 30, 1996, 1995 and 1994, respectively.
13. LITIGATION
L-TRYPTOPHAN
The Company and certain other companies in the industry, including
distributors, wholesalers and retailers (the "Indemnified Group") had been named
as defendants in cases arising out of the ingestion of products containing
L-tryptophan. The Company had been named in more than 265 lawsuits, 4 of which
are still pending against the Company. The Indemnified Group has entered into an
agreement with the Company's supplier of bulk L-tryptophan, Showa Denko America,
Inc. (the "Supplier"), under which the Supplier, a U.S. subsidiary of a major
Japanese corporation, Showa Denko K.K., has assumed the defense of all claims
against the Indemnified Group and has agreed to pay the legal fees and expenses
in that defense. The Supplier and Showa Denko K.K. has agreed to indemnify the
Indemnified Group against any judgments and to fund settlements arising out of
those actions and claims.
The Supplier has posted a revolving, irrevocable letter of credit of $20
million to be used for the benefit of the Indemnified Group in the event that
the Supplier is unable or unwilling to satisfy any claims or judgments.
While not all of these suits quantify the amount demanded, it can
reasonably be assumed that the amount required to either settle these cases or
to pay judgments rendered therein will be paid by the Supplier or by the
Company's product liability insurance carrier. To date, no cases in which the
Company is a party have reached trial.
While the outcome of any litigation is uncertain, it is the opinion of
management and legal counsel of the Company that it is remote that the Company
will incur a material loss as a result of the L-tryptophan litigation and
claims. Accordingly, no provision for liability, if any, that may result
therefrom has been made in the Company's financial statements.
SHAREHOLDER LITIGATION
In October 1994, litigation was commenced in the U.S. District Court,
Eastern District of New York, against the Company and two of its officers. The
F-16
<PAGE>
complaint alleges that false and misleading statements and representations were
made concerning the Company's sales and earnings estimates for the fourth fiscal
quarter and the year ended September 30, 1994. The allegations are that: (a)
sales were artificially inflated; (b) costs were improperly capitalized; (c)
sales and profit margins were materially declining; (d) inventory and accounts
receivable were overstated; and (e) that because of the foregoing, the Company
would incur a loss in its fourth fiscal quarter. The Plaintiffs seek Class
Action certification and an unspecified amount of monetary damages. The Company
and its officers deny the allegations of the complaints and intend to vigorously
contest the litigation. In 1994, prior to commencement of these lawsuits, the
Company purchased a directors and officers Indemnity Policy. Special counsel has
been retained to represent the Company and its officers. Since the outcome of
any litigation is uncertain, the Company is unable to predict (i) whether it
will ultimately prevail; (ii) whether it will be fully or partially indemnified,
if at all; (iii) the amount of loss, if any, that may be attributable to the
above, and (iv) the amount of expense which may be incurred in the defense of
these actions.
OTHER LITIGATION
The Company is also involved in miscellaneous claims and litigation
which, taken individually or in the aggregate, would not have a material adverse
effect on the Company's financial position or its business.
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for fiscal 1996 and 1995 (dollars in thousands, except per share
data):
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------
December 31, March 31, June 30, September 30,
--------- -------- ------ ----------
<S> <C> <C> <C> <C>
Net sales............................ $ 38,589 $ 55,605 $ 47,900 $ 52,309
Gross profit......................... 17,779 27,760 24,453 28,773
Income (loss) before income taxes.... (412) 7,502 6,503 8,780(a)
Net income (loss).................... (251) 4,576 3,763 5,264
Earnings (loss) per share............ $ (0.01) $ 0.23 $ 0.19 $ 0.26
1995:
Net sales............................ $ 37,478 $ 50,945 $ 41,650 $ 48,687
Gross profit......................... 18,380 25,220 20,564 20,720
Income before income taxes........... 1,648 4,336 2,004 394(b)
Net income........................... 939 2,552 1,152 493
Earnings per share................... $ 0.05 $ 0.13 $ 0.06 $ 0.02
</TABLE>
- ------------
(a) 1996 year-end adjustments resulting in an increase to pre-tax income of
approximately $2 million related to adjustments of inventory amounts.
(b) 1995 year-end adjustments resulting in a charge to operations included
approximately $1,475,000 for various accruals and for the write-off of
certain equipment associated with the Company's cosmetic pencil
operation, and $900,000 pertaining to the identification of obsolete
inventory.
F-17
<PAGE>
NBTY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
------- ----------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents.............................................. $ 2,915,318 $ 9,292,374
Short-term investments................................................. 15,540,808 11,024,624
Accounts receivable, less allowance for doubtful accounts of $996,491
in 1997 and $793,669 in 1996..................................... 13,012,095 11,625,112
Inventories............................................................ 58,682,289 38,070,071
Deferred income taxes.................................................. 3,155,163 3,155,163
Prepaid catalog costs and other current assets......................... 7,648,111 5,682,874
----------- -----------
Total current assets....................................................... 100,953,784 78,850,218
Property, plant and equipment.............................................. 99,846,582 89,082,883
Less accumulated depreciation and amortization............................. 31,398,648 27,351,258
----------- -----------
68,447,934 61,731,625
Intangible assets, net..................................................... 3,748,030 3,974,573
Other assets............................................................... 514,845 993,785
----------- -----------
Total assets............................................................... $173,664,593 $145,550,201
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations........ $ 995,225 $ 934,887
Accounts payable....................................................... 22,807,676 10,943,228
Accrued expenses....................................................... 15,258,867 14,704,507
----------- -----------
Total current liabilities.................................................. 39,061,768 26,582,622
Long-term debt............................................................. 14,782,083 15,178,412
Obligations under capital leases........................................... 2,863,638 3,219,127
Deferred income taxes...................................................... 2,827,198 2,827,198
Other liabilities.......................................................... 792,985 792,985
----------- -----------
Total liabilities.......................................................... 60,327,672 48,600,344
Commitments and contingencies
Stockholders' equity:
Commonstock, $.008 par; authorized 25,000,000 shares;
issued 20,116,676 shares in 1997 and 20,079,676
in 1996 and outstanding 18,628,491 shares in 1997
and 18,592, 119 shares in 1996................................... 160,934 160,638
Capital in excess of par................................................... 56,303,677 56,012,910
Retained earnings.......................................................... 60,061,732 44,008,465
----------- -----------
116,526,343 100,182,013
Less 1,488,185 and 1,487,557 treasury shares at
cost, in 1997 and 1996, respectively.................................... 2,663,167 2,648,256
Stock subscriptions receivable............................................. 526,255 583,900
----------- -----------
Total stockholders' equity................................................. 113,336,921 96,949,857
----------- -----------
Total liabilities and stockholders' equity................................. $173,664,593 $145,550,201
=========== ===========
See notes to condensed consolidated financial statements.
F-18
<PAGE>
NBTY, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE NINE MONTHS
ENDED JUNE 30,
----------------------------
1997 1996
---- ----
Net sales......................................................... $ 184,107,656 $ 142,093,552
----------- -----------
Costs and expenses:
Cost of sales................................................. 88,205,269 72,101,151
Catalog printing, postage and promotion....................... 14,580,501 13,240,001
Selling, general and administrative........................... 53,884,692 42,782,415
----------- -----------
156,670,462 128,123,567
----------- -----------
Income from operations............................................ 27,437,194 13,969,985
----------- -----------
Other income (charges):
Interest expense.............................................. (1,294,232) (1,017,497)
Miscellaneous, net............................................ 612,483 640,730
----------- -----------
(681,749) (376,767)
----------- -----------
Income before income taxes........................................ 26,755,445 13,593,218
Income taxes...................................................... 10,702,178 5,505,398
----------- -----------
Net income........................................................ $ 16,053,267 $ 8,087,820
=========== ===========
Earnings per common share and common share equivalents............ $0.80 $0.41
=========== ===========
Weighted average common shares and
common share equivalents...................................... 20,052,391 19,939,042
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE>
NBTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JUNE 30,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
Net income.................................................................. $ 16,053,267 $ 8,087,820
Adjustments to reconcile net income to cash provided by
operating activities:
(Gain), Loss on sale of property, plant and equipment................... 25,526 (2,250)
Depreciation and amortization........................................... 4,582,566 4,003,164
Provision for allowance for doubtful accounts........................... 202,822 169,481
Changes in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable........................ (2,636,906) 797,534
(Increase) decrease in inventories................................ (20,612,218) 229,671
Increase in prepaid catalog costs and other current assets........ (1,965,237) (4,499,475)
Decrease other assets............................................. 453,343 2,547,275
Increase (decrease) in accounts payable........................... 11,864,448 (5,083,382)
Increase in accrued expenses...................................... 880,193 2,298,094
---------- ----------
Net cash provided by operating activities................................... 8,847,804 8,547,932
---------- ----------
Cash flow from investing activities:
Increase in intangible assets........................................... (40,047)
Purchase of property, plant and equipment............................... (11,092,412) (11,494,483)
Proceeds from sale of property, plant and equipment..................... 20,150 2,250
Purchase of short-term investments...................................... (4,516,184)
Proceeds from sale of direct-mail cosmetics business.................... 350,000
Receipt of payments from direct-mail cosmetics business................. 1,047,101 499,670
---------- ----------
Net cash used in investing activities................................... (14,541,345) (10,682,610)
---------- ----------
Cash flows from financing activities:
Borrowings under long term debt agreements.............................. 6,000,000
Principal payments under long-term debt agreements
and capital leases................................................ (691,479) (368,248)
Purchase of treasury stock.............................................. (14,911) (302,247)
Proceeds from stock options exercised................................... 22,875 10,980
---------- ----------
Net cash (used in) provided by financing activities......................... (683,515) 5,340,485
---------- ----------
Net (decrease) increase in cash and cash equivalents........................ (6,377,056) 3,205,807
Cash and cash equivalents at beginning of year.............................. 9,292,374 10,378,476
---------- ----------
Cash and cash equivalents at end of quarter................................. $ 2,915,318 $ 13,584,283
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest................................ $ 1,294,232 $ 1,012,622
Cash paid during the period for taxes................................... $ 11,067,626 $ 2,178,025
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-20
<PAGE>
NBTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING INFORMATION:
The Company entered into capital leases for machinery and equipment
aggregating $2,635,412 for the nine months ended June 30, 1996.
During the first nine months of 1997, options were exercised with 37,000
shares of common stock issued to certain officers for $22,875 and a note for
$10,980. As a result of the exercise of those options, the Company received a
compensation deduction for tax purposes of approximately $643,000 and a tax
benefit of approximately $257,200. An additional 628 NBTY common shares were
surrendered to the Company, at market price, in payment of a stock subscription
receivable and interest in 1997. The average cost of shares was $22.50 in 1997.
During the first nine months of fiscal 1996, options were exercised with
872,000 shares of common stock issued to certain officers for $10,980 and
interest bearing notes in the amount of $583,900. As a result of the exercise of
those options, the Company received a compensation deduction for tax purposes of
approximately $3,150,000 and a tax benefit of approximately $1,230,000.
On October 9, 1995, the Company sold certain assets of its direct-mail
cosmetics business for approximately $2,495,000. The Company received $350,000
in cash and non-interest bearing notes aggregating approximately $2,145,000 for
inventory, a customer list and other intangible assets. The inventory note was
repaid in full in October 1996. In April 1997, the Company received $725,000 as
a final payment of the customer list note.
See notes to condensed consolidated financial statements.
F-21
<PAGE>
NBTY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly its financial position as of June 30, 1997 and results of operations for
the nine months ended June 30, 1997 and 1996 and statements of cash flows for
the nine months ended June 30, 1997 and 1996. The consolidated condensed balance
sheet as of September 30, 1996 has been derived from the audited balance sheet
as of that date. This report should be read in conjunction with the Company's
annual report filed on Form 10-K for the fiscal year ended September 30, 1996.
2. The results of operations and cash flows for the nine months ended June 30,
1997 are not necessarily indicative of the results to be expected for the full
year.
3. Sale of Direct-Mail Cosmetic Business:
On October 9, 1995, the Company sold certain assets of its direct-mail
cosmetics business for approximately $2,495,000. The Company received $350,000
in cash and non-interest bearing notes aggregating approximately $2,145,000 for
inventory, a customer list and other intangible assets. The inventory note was
repaid in full in October 1996. In April 1997, the Company received $725,000 as
a final payment of the customer list note.
4. Inventories have been estimated by using the gross profit method for the
interim periods. The components of the inventories are as follows:
June 30, September 30,
1997 1996
---------- ----------
(UNAUDITED)
Raw materials and work-in-process........ $35,023,137 $18,654,335
Finished goods........................... 23,659,152 19,415,736
---------- ----------
$58,682,289 $38,070,071
=========== ===========
5. Intangible assets, at cost, acquired at various dates are as follows:
June 30, September 30,
1997 1996
---------- ----------
(UNAUDITED)
Goodwill................................. $ 469,400 $ 469,400
Customer lists........................... 8,783,475 8,783,475
Trademark and licenses................... 1,201,205 1,201,205
Covenants not to compete................. 1,304,538 1,304,538
---------- ----------
11,758,618 11,758,618
Less, accumulated amortization........... 8,010,588 7,784,045
---------- ----------
$ 3,748,030 $ 3,974,573
========== ==========
F-22
<PAGE>
6. Accrued expenses:
June 30, September 30,
1997 1996
---------- ----------
(UNAUDITED)
Payroll and related payroll taxes... $ 3,286,118 $ 2,730,453
Customer deposits................... 2,499,656 1,862,837
Accrued purchases................... 935,110 1,765,420
Income taxes payable................ 2,115,214 2,670,270
Other............................... 6,422,769 5,675,527
---------- ----------
$15,258,867 $14,704,507
========== ==========
7. The Company purchased 46,000 shares of its common stock for $302,247 for the
nine months ended June 30, 1996 in open market transactions. The average price
per share was $6.57. An additional 628 NBTY common shares were surrendered to
the Company at market price in payment of a stock subscription receivable and
interest in 1997. The average cost of shares was $22.50 in 1997.
8. Earnings per share are based on the weighted average number of common shares
and common equivalent shares outstanding during the three and nine month periods
ended June 30, 1997 and 1996. The calculation of earnings per share include
1,441,560 and 1,501,084 common stock equivalent shares for the nine month
periods ended June 30, 1997 and 1996, respectively.
9. During the first nine months of 1997, options were exercised with 37,000
shares of common stock issued to certain officers and a director for $22,875 and
a note for $10,980. As a result of the exercise of those options, the Company
received a compensation deduction for tax purposes of approximately $643,000 and
a tax benefit of approximately $257,200. An additional 628 NBTY common shares
were surrendered to the Company, at market price, in payment of a stock
subscription receivable and interest in 1997. The average cost of shares was
$22.50 in 1997.
During the first nine months of 1996, options were exercised with
872,000 shares of common stock issued to certain officers for $10,980 and
interest bearing notes in the amount of $583,900. As a result of the exercise of
those options, the Company received a compensation deduction for tax purposes of
approximately $3,150,000 and a tax benefit of approximately $1,230,000.
In November 1995, options were exercised with shares of common stock
issued to certain officers for an interest bearing note in the amount of
$437,500. As a result of the exercise of those options, the Company received a
compensation deduction for tax purposes of approximately $2,362,500 and a tax
benefit of approximately $920,000.
The following is a summary of changes in outstanding options for the
Company's Stock Option Plans for the nine month period ended June 30, 1997:
Exercise Price
--------------
Shares under option, September 30, 1996
(fully exercisable).................. 1,523,000 $.63 - $.92
Options exercised......................... (37,000) $.92
Shares exercisable, June 30, 1997
(fully exercisable).................. 1,486,000 $.63 - $.92
10. Subsequent event:
The Company has entered into negotiations to acquire a vitamin and
health food retailer that operates 410 stores in the United Kingdom. The Company
would finance the purchase with bonds and borrowings through a U.S. bank. The
Company has not reached an agreement in principle in connection with this
potential transaction.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To: The Directors and shareholders of Holland & Barrett Holdings Limited
We have audited the accompanying consolidated balance sheets of Holland &
Barrett Holdings Limited (formerly Holland & Barrett Retail Limited) and its
subsidiaries ("the Group") as at 30 June 1996 and 1997 and the related
consolidated profit and loss accounts, cash flow statements, statements of total
recognized gains and losses and changes in shareholders' funds for each of the
years in the three year period ended 30 June 1997. These consolidated financial
statements are the responsibility of the Group's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United Kingdom which do not differ in any material respects from
generally accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Holland & Barrett
Holdings Limited and subsidiaries as of 30 June 1996 and 1997, and the results
of their operations and their cash flows for each of the years in the three year
period ended 30 June 1997 in conformity with generally accepted accounting
principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations for each of the years in the
two year period ended 30 June 1997 and shareholders' equity as of 30 June 1997
and 1996, to the extent summarized in Note 3 of the consolidated financial
statements.
KPMG
Chartered Accountants
Registered Auditors
Birmingham, England
4 August 1997,
except for Note 23
which is as of
7 August 1997
F-24
<PAGE>
HOLLAND & BARRETT HOLDINGS LIMITED
(a wholly-owned subsidiary of Gehe AG)
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
For the three years ended 30 June
<TABLE>
<CAPTION>
Year Ended 30 June
---------------------------------------------------------
1997 1996 1995
(Pounds (Pounds (Pounds
Note Sterling)`000 Sterling)`000 Sterling)`000
---- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Turnover..................................... 102,880 90,632 77,124
Cost of sales................................ (53,578) (47,968) (41,077)
------ ------ -----
Gross profit................................. 49,302 42,664 36,047
Distribution costs........................... (39,365) (33,860) (28,729)
Administrative expenses...................... (2,232) (1,532) (1,512)
Other operating income....................... -- 46 1
------ ------ -----
Operating profit............................. 4 7,705 7,318 5,807
Loss on sale of fixed assets................. (372) (46) (230)
Other interest receivable and similar income. 7 92 -- 2
Interest payable and similar charges......... 8 (7) (393) (387)
------ ------ -----
Profit on ordinary activities before taxation 7,418 6,879 5,192
Taxation on profit on ordinary activities.... 9 (2,575) (2,493) (1,725)
------ ------ -----
Profit on ordinary activities after taxation. 4,843 4,386 3,467
Dividend written back/(proposed)............. 8,100 (8,100) (2,395)
------ ------ -----
Retained profit/(loss) for the financial year 10,19 12,943 (3,714) 1,072
------ ------ -----
</TABLE>
- ------------
There are no discontinued activities.
The effect of acquisitions on turnover and operating profit is considered to be
not material.
The ccompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
HOLLAND & BARRETT HOLDINGS LIMITED
(a wholly-owned subsidiary of Gehe AG)
CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
For the three years ended 30 June 1997
During the three years ended 30 June 1997 there were no gains or losses
other than the profit for the financial year.
RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Year Ended 30 June
--------------------------------------------------------------
1997 1996 1995
(Pounds (Pounds (Pounds
Sterling)`000 Sterling)`000 Sterling)`000
---- ---- ----
<S> <C> <C> <C>
Profit for the year...................................... 4,843 4,386 3,467
Dividends written back/(proposed)........................ 8,100 (8,100) (2,395)
------ ----- -----
12,943 (3,714) 1,072
Other recognized gains and losses relating to the year:
Goodwill written off................................. (130) -- (595)
------ ----- -----
Net movement in shareholders' funds.................. 12,813 (3,714) 477
Shareholders' funds at beginning of year............. 4,095 7,809 7,332
------ ----- -----
Shareholders' funds at end of year................... 16,908 4,095 7,809
------ ----- -----
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
HOLLAND & BARRETT HOLDINGS LIMITED
(a wholly-owned subsidiary of Gehe AG)
CONSOLIDATED BALANCE SHEETS
At 30 June 1997 and 1996
<TABLE>
<CAPTION>
Note 1997 1996
---- ---- ----
(Pounds (Pounds
Sterling) `000 Sterling)`000
<S> <C> <C> <C>
FIXED ASSETS:
Tangible assets...................................... 11 22,988 20,042
------ ------
CURRENT ASSETS:
Stocks............................................... 13 11,479 12,037
Debtors.............................................. 14 10,684 8,559
Cash at bank and in hand............................. 5,668 2,748
------ ------
27,831 23,344
Creditors: amounts falling due within one year........... 15 (31,354) (24,734)
------ ------
Net current liabilities.................................. (3,523) (1,390)
------ ------
Total assets less current liabilities.................... 19,465 18,652
Creditors: amounts falling due after more than one year.. 16 -- (12,500)
Provisions for liabilities and charges................... 17 (2,557) (2,057)
------ ------
NET ASSETS............................................... 16,908 4,095
====== ======
Capital and reserves
Called up share capital.............................. 18 1,050 1,050
Goodwill write off reserve........................... 19 (680) (582)
Consolidated goodwill................................ 19 (715) (715)
Capital reserve...................................... 19 4,587 4,587
Profit and loss account.............................. 19 12,666 (245)
------ ------
Equity shareholders' funds............................... 16,908 4,095
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
HOLLAND & BARRETT HOLDINGS LIMITED
(a wholly-owned subsidiary of Gehe AG)
CONSOLIDATED CASH FLOW STATEMENTS
For the Three Years Ended 30 June 1997
<TABLE>
<CAPTION>
1997 1996 1995
(Pounds (Pounds (Pounds
Sterling)`000 Sterling)`000 Sterling)`000
----------- ----------- -----------
<S> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES................................. 20(a) 10,994 11,050 6,087
------ ------ -----
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE:
Interest received..................................................... 92 -- 2
Interest paid......................................................... (7) (393) (387)
------ ------ -----
85 (393) (385)
------ ------ -----
TAXATION
Corporation tax (paid)/received........................................... (1,368) 21 (1,795)
------ ------ -----
CAPITAL EXPENDITURES
Payments to acquire tangible fixed assets................................. (6,817) (6,787) (6,141)
Receipts from sales of tangible fixed assets.............................. 156 153 79
------ ------ -----
(6,661) (6,634) (6,062)
------ ------ -----
ACQUISITIONS AND DISPOSALS
Acquisition of businesses and subsidiaries................................ (130) -- (388)
------ ------ -----
Net cash inflow/(outflow) before financing and increase/(decrease)
in cash and cash equivalents.......................................... 20(b) 2,920 4,044 (2,543)
====== ====== =====
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-28
<PAGE>
HOLLAND & BARRETT HOLDINGS LIMITED
(a wholly-owned subsidiary of Gehe AG)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION OF FINANCIAL INFORMATION
The consolidated financial statements of Holland & Barrett Holdings
Limited (formerly Holland and Barrett Retail Limited), a wholly-owned subsidiary
of Gehe AG (the "Parent") have been prepared under the historical cost
convention and in accordance with generally accepted accounting principles in
the United Kingdom ("UK GAAP"). Transfers of net assets between entities under
the common control of the Parent have been accounted for at historical cost in a
manner similar to pooling of interests with the financial statements restated to
give effect to the transactions as if such entities had always been combined.
On 11 October 1996, Holland & Barrett Holdings Limited was incorporated
under the Laws of England and Wales. On 11 April 1997 it acquired the investment
in Holland & Barrett Retail Limited ("Retail") from Lloyds Chemists plc, a
fellow subsidiary company.
On 30 June 1995, Holland & Barrett Retail Limited ("Retail") acquired
the trade and assets of the Holland & Barret Distribution ("Distribution") from
Barclay Pharmaceutical Limited at book value, a fellow subsidiary of Lloyds
Chemists plc.
On 11 April 1997 Retail acquired Holland & Barrett Limited ("H&B") and
Lifecycle Limited ("Lifecycle"), two dormant subsidiaries of Lloyds Chemists plc
for (Pounds Sterling)50,000. The net assets of H&B and Lifecycle were (Pounds
Sterling) 4,637,000, being amounts due from Lloyds Chemists plc. The excess of
net assets over the purchase price was treated as a capital transaction.
The results and assets of Distribution, H&B and Lifecycle have been
included in the consolidated financial statements for the three year period
ended 30 June 1997.
2. ACCOUNTING POLICIES
The following accounting policies conform with UK Generally Accepted
Accounting Principles ("UK GAAP") and have been applied consistently in dealing
with the items which are considered material in relation to the consolidated
financial statements:
CONSOLIDATION
The consolidated financial statements include the financial statements
of all wholly owned subsidiaries, all of which are made up to 30 June each year.
Intercompany transactions and balances have been eliminated.
FIXED ASSETS
Fixed assets are stated at cost, less appropriate depreciation and
provisions. Depreciation is calculated so as to write off the gross book value
less estimated residual value of tangible fixed assets over their estimated
F-29
<PAGE>
useful lives. The principal rates used are as follows:
Short leasehold property -- period of the lease
Motor vehicles -- 25% on a reducing balance
Fixtures, fittings and equipment -- 10%-20% on a straight time basis
LEASED ASSETS
All leases are operating leases and the rental charges are taken to the
profit and loss account on a straight tine basis over the life of the lease.
STOCKS
Stocks are valued at the lower of cost and net realizable value. Cost
for this purpose consists of materials and an appropriate proportion of
overheads.
PENSIONS
The company sponsors a defined contribution pension scheme operated as
part of Lloyds Chemists Group. The assets of the scheme are held separately in
an independently administered fund. The pension cost charge represents
contributions payable during the year.
TAXATION
The charge for taxation is based on the profit for the year and takes
into account taxation deferred because of timing differences between the
treatment of certain items for taxation and accounting purposes. Provision is
made for deferred tax only to the extent that it is probable that an actual
liability will crystallize.
GOODWILL
Goodwill relating to the acquisition of businesses is written off
immediately against reserves.
TURNOVER
Turnover represents amounts invoiced by the group to third parties in
respect of goods sold during the year, excluding value added tax and trade
discounts. In the opinion of the directors there is only one class of business.
All turnover is within the UK.
3. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP
The consolidated financial statements have been prepared in accordance
with UK GAAP which differs in certain significant respects from generally
accepted accounting principles in the United States ("US GAAP"). This summary
should not be taken as a complete list of all differences between UK GAAP and US
GAAP. The significant differences between UK GAAP and US GAAP which affect the
Group's net profit and shareholders' funds are set out below:
F-30
<PAGE>
(a) Goodwill and other intangibles
Under UK GAAP, the Group writes off goodwill, being the excess of
cost over the fair value attributable to the net assets acquired, to
consolidated equity in the year of acquisition. In calculating any gain
or loss resulting from a disposal of assets, attributable goodwill
previously written off is included. Under US GAAP, goodwill is
capitalized and amortized through the statement of income over a period
representing its estimated useful life of 25 years.
(b) Deferred taxation
Under UK GAAP, provision is made for deferred taxation under the
liability method unless there is reasonable certainty that such deferred
taxation will not become payable or receivable in the foreseeable
future. Under US GAAP, deferred taxation is provided on all temporary
differences which will result in taxable or tax deductible amounts in
future years, subject to a valuation allowance to reduce deferred tax
assets if it is more likely than not that the related tax benefit will
not be realized.
(c) Dividends
Under UK GAAP, dividends are provided for in the year to which
they relate. These dividends are deducted from current year earnings, US
GAAP recognizes dividends as a reduction of retained earnings in the
accounting period in which they are formally declared.
(d) Cash flows
Under UK GAAP, the Group complies with Financial Reporting
Standard No. 1 (revised), "Cash flow statements" ("FRSI"). Its
objectives and principles are similar to US GAAP as set out in Statement
of Financial Accounting Standards No 95, "Statement of Cash flows"
("SFAS No 95"). The principal difference between the standards is in
respect of classification. Under FRSI, the Group presents its cash flows
for a) operating activities, b) returns on investments and servicing of
finance, c) taxation, d) capital expenditure and financial investment,
e) acquisitions and disposals, f) equity dividends paid, g) management
of liquid resources and h) financing. SFAS No 95 requires only three
categories of cash flow activity: a) operating activities, b) investing
activities and c) financing activities.
Under FRSI, cash includes deposits and overdrafts, repayable on demand
while movements on short term investments are included in management of liquid
resources. SFAS No 95 defines cash and cash equivalents as also including short
term highly liquid investments.
Cash flows arising from taxation and returns on investments and
servicing of finance under FRSI would be included as operating activities under
SFAS No 95. Cash flows relating to capital expenditure and financial investment
and acquisitions and disposals would be included as investing activities under
SFAS No 95. Equity dividend payments would be included as a financing activity
under SFAS No 95.
A summarized consolidated cash flow under US GAAP is as follows:
<TABLE>
<CAPTION>
1997 1996
(Pounds Sterling)`000 (Pounds Sterling)`000
----------- ----------
<S> <C> <C>
Cash inflow from operating activities................. 9,711 10,678
Cash (outflow) on investing activities................ (6,791) (6,634)
Cash inflow/(outflow) from financing activities....... -- --
----- ------
Increase in cash and cash equivalents................. 2,920 4,044
Cash and cash equivalents at beginning of year........ 2,748 (1,296)
----- ------
Cash and cash equivalents at end of year.............. 5,668 2,748
===== ======
</TABLE>
F-31
<PAGE>
The following is a summary of the material adjustments to net income and
shareholders' funds which would have been required if US GAAP had been applied
instead of UK GAAP.
Years Ended 30 June
-------------------------------
1997 1996
---- ----
(Pounds (Pounds
Sterling)`000 Sterling)`000
----------- -----------
Profit after tax--UK GAAP.............. 4,843 4,386
Adjustments to conform with US GAAP
Amortization of goodwill........... (59) (43)
Deferred tax....................... (35) (51)
------ ------
Net income--US GAAP.................... 4,749 4,292
====== ======
At 30 June
-----------------
1997 1996
(Pounds (Pounds
Sterling)`000 Sterling)`000
---------- -----------
Shareholders' funds, UK GAAP............ 16,908 4,095
Adjustment to conform to US GAAP:
Goodwill...................... 1,326 1,255
Deferred tax.................. 96 131
Dividends..................... -- 8,100
------ ------
Shareholders' funds, US GAAP............ 18,330 13,581
====== ======
4. OPERATING PROFIT
This is stated after charging the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
(Pounds (Pounds (Pounds
Sterling)'000 Sterling)`000 Sterling)`000
<S> <C> <C> <C>
Depreciation...................... 3,343 2,659 1,619
Directors' emoluments (see note 6) 181 128 121
Payments under operating leases:
Land and buildings............ 13,981 11,864 10,162
Plant and machinery........... 510 113 145
Auditors' renumeration:
Audit......................... 15 19 15
------ ------ ------
</TABLE>
F-32
<PAGE>
5. STAFF NUMBERS AND COSTS:
The average number of persons employed by the group (including
directors) during the year, was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
Number Number Number
<S> <C> <C> <C>
Administration.......................... 99 127 120
Retail.................................. 1,979 1,786 1,539
Distribution............................ 117 109 100
------ ------ -----
2,195 2,022 1,759
====== ====== =====
The aggregate payroll costs of these
persons were as follows: (Pounds (Pounds (Pounds
Sterling)'000 Sterling)'000 Sterling)'000
Wages and salaries.................. 12,947 10,720 8,899
Social security costs............... 844 702 581
Other pension costs................. 40 31 25
------ ------ -----
13,831 11,453 9,505
====== ====== =====
</TABLE>
6. EMOLUMENTS OF DIRECTORS
The emoluments (excluding pension contributions) including estimated
benefits in kind of the director who served as chairman during the year were
(Pounds Sterling) Nil (1996: (Pounds Sterling) Nil; 1995:(Pounds Sterling) Nil).
Excluding pension contributions, the emoluments of the highest paid
director were(Pounds Sterling)99,246 (1996:(Pounds Sterling)75,750; 1995:(Pounds
Sterling)64,000). Excluding pension contributions but including benefits in kind
the emoluments of the directors were within the following ranges:
<TABLE>
<CAPTION>
1997 1996 1995
Number Number Number
----- ----- ------
<S> <C> <C> <C>
(Pounds Sterling) 0 -(Pounds Sterling)5,000.............. 8 6 6
(Pounds Sterling) 5,001 -(Pounds Sterling)10,000............. 1 -- --
(Pounds Sterling)45,001 -(Pounds Sterling)50,000............. -- 1 1
(Pounds Sterling)60,001 -(Pounds Sterling)65,000............. 1 -- --
(Pounds Sterling)70,001 -(Pounds Sterling)75,000............. -- -- 1
(Pounds Sterling)75,001 -(Pounds Sterling)80,000............. -- 1 --
(Pounds Sterling)95,001 -(Pounds Sterling)100,000............. 1 -- --
---- ---- ----
</TABLE>
7. OTHER INTEREST RECEIVABLE AND SIMILAR INCOME
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(Pounds (Pounds (Pounds
Sterling)`000 Sterling)`000 Sterling)`000
<S> <C> <C> <C>
Bank Interest............. 92 -- 2
----- ------- ------
8. INTEREST PAYABLE AND SIMILAR CHARGES
1997 1996 1995
----- ----- -----
(Pounds (Pounds (Pounds
Sterling)`000 Sterling)`000 Sterling)`000
On bank overdrafts......... 7 393 387
- --- ---
</TABLE>
F-33
<PAGE>
9. TAX ON PROFIT ON ORDINARY ACTIVITIES
Taxation based on the profit for the year:
<TABLE>
<CAPTION>
1996 1995 1997
----- ----- -----
(Pounds (Pounds (Pounds
Sterling)'000 Sterling)'000 Sterling)'000
<S> <C> <C> <C>
Corporation tax at 33% (1996: 33%; 1995: 33%)........ 2,196 1,558 979
Deferred taxation.................................... 310 733 752
Adjustments in respect of prior years:
Corporation tax.................................. (121) 430 (6)
Deferred taxation................................ 190 (228) --
----- ----- -----
2,575 2,493 1,725
===== ===== =====
10. RETAINED PROFIT/(LOSS) FOR THE FINANCIAL YEAR
1997 1996 1995
------ ------ -----
(Pounds (Pounds (Pounds
Sterling)`000 Sterling)`000 Sterling)`000
Holland and Barrett Holdings Limited................. 12,812 (3,914) 1,218
Subsidiaries......................................... 131 200 (146)
------ ----- -----
12,943 (3,714) 1,072
====== ===== =====
11. TANGIBLE FIXED ASSETS
SHORT FIXTURES,
FREEHOLD LEASEHOLD MOTOR LININGS, TOOLS
LAND PROPERTY VEHICLES AND EQUIPMENT TOTAL
------ ------- ------ ---------- ------
(Pounds (Pounds (Pounds (Pounds (Pounds
Sterling)'000 Sterling)'000 Sterling)'000 Sterling)'000 Sterling)'000
COST
At 1 July 1996........... 130 4,712 261 24,373 29,476
Additions............ -- -- 5 6,812 6,817
Disposals............ -- (361) -- (1,435) (1,796)
--- ----- --- ------ ------
At 30 June 1997.......... 130 4,351 266 29,750 34,497
=== ===== === ====== ======
DEPRECIATION
At 1 July 1996........... -- 2,717 41 6,676 9,434
Charged in year...... -- 225 44 3,074 3,343
Disposals............ -- (292) -- (976) (1,268)
--- ----- --- ------ ------
At 30 June 1997.......... -- 2,650 85 8,774 11,509
=== ===== === ====== ======
NET BOOK VALUE
At 30 June 1997.......... 130 1,701 181 20,976 22,988
--- ----- --- ------ ------
At 30 June 1996.......... 130 1,995 220 17,697 20,042
=== ===== === ====== ======
</TABLE>
F-34
<PAGE>
12. SUBSIDIARY UNDERTAKINGS
The investments in subsidiary undertakings, which are all wholly owned
directly by Holland and Barrett Retail Limited, are as follows:
<TABLE>
<CAPTION>
NAME PRINCIPAL ACTIVITY SHARES
- ----- ------------------ -----
<S> <C> <C>
Holland & Barrett (Franchising)
Limited............................ Dormant company 50,000 ordinary shares of (Pounds Sterling)1 each
Natural Health & Beauty Stores
Limited............................ Dormant company 100 ordinary shares of (Pounds Sterling)1 each
100 preferred ordinary shares of (Pounds Sterling) 1 each
Hillstart Limited...................... Dormant company 160,000 ordinary shares of (Pounds Sterling)1 each
Nature's Way Limited................... Dormant company 100 ordinary shares of (Pounds Sterling)1 each
Beaumonts Health Stores Limited........ Retailer Healthfood 100 ordinary shares of (Pounds Sterling)1 each
produces
Naplers of Edinburgh Limited........... Dormant company 99 ordinary shares of (Pounds Sterling)1 each
Neals Yard (Wholefoods) Limited........ Retailer Health food 100 ordinary shares of (Pounds Sterling)1 each
products 234,900 redeemable preference shares of (Pounds Sterling) 1 each
Holland & Barrett Limited.............. Dormant company 5,533,398 ordinary shares of(Pounds Sterling)1 each
Lifecycle Limited...................... Dormant company 1,500,000 ordinary shares of(Pounds Sterling)1 each
</TABLE>
With the exception of Holland & Barrett (Franchising) Limited which is
registered in Scotland, all of these companies are registered in England and
Wales.
13. STOCKS
1997 1996
----- -----
(Pounds (Pounds
Sterling)`000 Sterling)`000
Goods for resale...................... 11,479 12,037
------ ------
14. DEBTORS
1997 1996
----- -----
(Pounds (Pounds
Sterling)`000 Sterling)`000
Trade debtors.............................. 98 282
Amounts owed by the Parent and its
subsidiary undertakings............... 2,846 1,110
Other debtors.............................. 288 431
Corporation tax recoverable................ -- 92
Prepayments................................ 7,452 6,644
------ -----
10,684 8,559
====== ======
F-35
<PAGE>
15. CREDITORS; AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
---- -----
(Pounds (Pounds
Sterling)`000 Sterling)`000
<S> <C> <C>
Trade creditors.................................................... 15,039 15,457
Amounts owed to the Parent and its subsidiary undertakings......... 11,123 5,933
Other taxation and social security................................. 902 276
Other creditors and accruals....................................... 2,102 1,495
Corporation tax.................................................... 2,188 1,573
------ ------
31,354 24,734
====== ======
16. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
1997 1996
---- ----
(Pounds (Pounds
Sterling)`000 Sterling)`000
Amounts owed to the parent and its subsidiary undertakings........ -- 12,500
------- ------
17. PROVISIONS FOR LIABILITIES AND CHARGES
DEFERRED TAXATION
-----------------
(Pounds
Sterling)`000
At 1 July 1996................................................................ 2,057
Charge for the year........................................................... 500
-----
At 30 June 1997............................................................... 2,557
=====
The amounts provided for deferred taxation and the full potential
liability are set out below.
1997 1996
----- -----
(Pounds (Pounds
Sterling) `000 Sterling)`000
Accelerated capital allowances.................................................. 2,559 2,094
Short term timing differences................................................... (2) (37)
Chargeable gains rolled over.................................................... 73 73
----- -----
Full potential liability........................................................ 2,630 2,130
Amounts provided in financial statements........................................ (2,557) (2,057)
----- -----
Amounts for which no provisions have been made.................................. 73 73
===== =====
F-36
<PAGE>
18. CALLED UP SHARE CAPITAL
1997 1996
------ -----
(Pounds (Pounds
Sterling)`000 Sterling)`000
AUTHORIZED, ALLOTTED, CALLED UP AND FULLY PAID:
1,050,000 ordinary shares of (Poundd Sterling)1 each.......... 1,050 1,050
----- -----
19. RESERVES
CONSOLIDATED GOODWILL PROFIT
GOODWILL WRITE OFF CAPITAL AND LOSS
RESERVE RESERVE RESERVE ACCOUNT
--------- -------- -------- --------
(Pounds (Pounds (Pounds
Sterling)`000 Sterling)`000 Sterling)`000
At 1 July 1996............................. (715) (582) 4,587 (245)
Goodwill written off....................... -- (130) -- --
Goodwill transferred to profit and loss
account................................ -- 32 -- (32)
Retained profit for the year............... -- -- -- 12,943
--- --- ----- ------
At 30 June 1997............................ (715) (680) 4,587 12,666
=== === ===== ======
20. CASH FLOW NOTES
(a) Reconciliation of operating profit to net cash inflow from operating activities:
1997 1996 1995
------ ------ ------
(Pounds (Pounds (Pounds
Sterling)`000 Sterling)`000 Sterling)`000
Operating profit........................ 7,705 7,318 5,807
Depreciation............................ 3,343 2,659 1,619
Decrease/(increase) in stocks........... 558 (3,921) (855)
(Increase)/decrease in debtors.......... (210) (3,170) (1,957)
(Decrease)/Increase in creditors........ (402) 8,164 1,473
------ ------ -----
10,994 11,050 6,087
====== ====== =====
(b) Analysis of change in cash and cash equivalents during the year:
CASH OVERDRAFT NET
------ ------- ------
(Pounds (Pounds (Pounds
Sterling)`000 Sterling)`000 Sterling)`000
Balance at 1 July 1994..................... 1,247 -- 1,247
Net Cash inflow............................ (1,209) (1,334) (2,543)
----- ----- -----
Balance at 30 June 1995.................... 38 (1,334) (1,296)
Net cash inflow............................ 2,710 1,334 4,044
----- ----- -----
Balance at 30 June 1996.................... 2,748 -- 2,748
Net cash inflow............................ 2,920 -- 2,920
----- ----- -----
Balance at 30 June 1997.................... 5,668 -- 5,668
===== ===== =====
</TABLE>
F-37
<PAGE>
21. COMMITMENTS UNDER OPERATING LEASES
Annual commitments under non-cancelable operating leases in respect of
assets other than land and buildings are:
1997
------
(Pounds
Sterling)`000
Commitments which expire
Within one year....................................... 669
Within two to five years.............................. 1,602
After five years...................................... 12,089
------
14,360
======
22. RELATED PARTY TRANSACTIONS
In the three year period ended 30 June 1997 Lloyds Chemists plc charged
the following management fees to the Group 1997 (Pounds Sterling) Nil, 1996
(Pounds Sterling) 362,000, 1995 (Pounds Sterling) 430,000, representing the cost
of central services, including legal, company secretarial, property maintenance
and management, personnel and payroll services and data processing departments.
Such fees are included within administrative expenses in the profit and loss
account.
23. SUBSEQUENT EVENTS
On 7 August 1997 the whole of the issued share capital of Holland &
Barrett Holdings Limited was acquired by NBTY Inc. for an aggregate
consideration of approximately $169 million.
F-38
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
Summary......................................................................1
Risk Factors................................................................14
The Exchange Offer..........................................................21
Use of Proceeds.............................................................30
The Transaction.............................................................30
Capitalization..............................................................31
Selected Historical Financial Data..........................................32
Unaudited Pro Forma Combined Financial Data.................................34
Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................39
Business....................................................................43
Management..................................................................53
Security Ownership of Certain Beneficial Owners and Management..............55
Description of the Revolving Credit Facility................................56
Certain Federal Income Tax Considerations...................................57
Description of the Exchange Notes...........................................58
Book-Entry; Delivery and Form...............................................84
Plan of Distribution........................................................85
Legal Matters...............................................................86
Independent Accountants.....................................................86
Available Information.......................................................86
Incorporation of Certain Documents by Reference.............................87
Index to Financial Statements..............................................F-1
<PAGE>
PROSPECTUS
$150,000,000
NBTY, INC.
OFFER TO EXCHANGE 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007
OF NBTY, INC.
DECEMBER 24, 1997
