Free Appendix - District Court of Delaware - Delaware

Case 1:06-cv-00521-GMS

Document 7

Filed 06/26/2007

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
Civil Action No. 06-00520-GMS, 06-00521-GMS

In re: NELLSON NURACEUTICAL, INC., et al.
Debtors.

Bankruptcy Case No. 06-10072 (CSS)

UNITED STATES TRUSTEE AND

OFFICIAL COMMTTEE OF UNSECURD CREDITORS
Appellants,
v.

NELLSON NURACEUTICAL, INC., et al.
Appellees.

APPEAL FROM THE UNTED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE (Christopher S. Sontchi, Judge)

APPENDIX RELATED TO BRIEF IN SUPPORT OF APPELLEES' MOTION TO DISMISS APPEAL ON MOOTNESS GROUNS
PACHUSKI STANG ZIEHL YOUNG JONES & WEINTRAUB LLP Laura Davis Jones (Bar No. 2436) Richard M. Pachulski (CA Bar No. 90073) Brad R. Godshall (CA Bar No. 105438) Maxim B. Litvak (CA Bar No. 215852) Rachel Lowy Werkheiser (Bar No. 3753)
919 North Market Street, 17th Floor

P.O. Box 8705 Wilmington, DE 19899-8705 (Courier 19801)
Telephone: (302) 652-4100 Facsimile: (302) 652-4400

Counsel for the Appellees
DATED:
June 26, 2007

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TABLE OF CONTENTS

TAB NO.

PAGE

NO.

Motion of the Debtors for Entry of an Order Authorizing and Approving Payments Under Management Incentive Plan
Order Authorizing and Approving Payments Under Management Incentive Plan
Notice of Appeal from Order Granting Debtors' Motion for Entry of an Order Authorizing and Approving Payments Under Management Incentive Plan (Related to Docket Entry No. 482)
fied by the Office of the United States Trustee

1

001

2

039

3

052

Notice of Appeal fied by the Official Commttee of Unsecured Creditors

4

056

11
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A-I

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IN THE UNTED STATE BANKUPCY COURT
FOR TH DISTRICT OF DELAWAR

In re

) Chapter 11

)

NELLSON NURACEUTICAL, INC., i
Debtors.

) Case No. 06-10072 (eSS)
) (Jointly Administered)

)

Objection Deadlie: May 16, 2006 at 4:00 p.m. prevailng Eastern time
Hearing Date: May 24, 2006 at 2:00 a.m. prevailng Eastern time

NOTICE OF MOTION OF THE DEBTORS FOR ENTRY OF AN ORDER AUTHORIZING AND APPROVING PA YMNTS UNER MANAGEMENT INCENTIVE PLAN
TO: (i) Office of the United States Trustee, (ii) Counsel to the Offcial Commttee of
Unsecured Creditors, Oil) counsel to UBS AG Stamford Branch, and (iv) Parties required
to receive notice pursuant to DeL. Bankr. LR 2002-1.

The above-captioned debtors and debtors in possession (the "Debtors") fied the
Motion of the Debtors for Entry of an Order Authorizing and Approving Payments Under

Management Incentive Plan (the "Motion") with the United States Bankrptcy Court for the
District of Delaware, 824 Market Street, Wilmington, Delaware 19801 (the

"Bankrptcy

Court"), seeking the Court's authorization, under sections lOS(a), 363(b) and 503(b) of the

Bankrptcy Code, to implement the Management Incentive Plan (as defined in the Motion).
Objections and other responses to the relief requested in the Motion, if any, must
be in writing and be fied with the Bankrptcy Court no later than 4:00 p.m. prevailng Eastern

Time on May 16, 2006.
J The Debtors and the last four digits of each of the Debtors' federal tax identification numbers are as follows:

~

(a) Neilson Nutraceutical, rnc., a Delaware corporation, Fed. Tax rd. #5044; (b) NeUson Holdings. Inc., a Delaware corporation, Fed. Tax rd. #0642; (c) Neilson Intermediate Holdings, Inc., a Delaware corporation, Fed. Tax Id. #0653; (d) Nellson Northern Operating, Inc., a Delaware corporation. Fed. Tax rd. #7694, (e) Nellson Nutraceutical Eastern Division, Inc., a Delaware corporation, Fed. Tax Id. #8503; (f) NeUson Nutraceutical Powder Division, Inc., a Delaware corporation, Fed. Tax Id. #3670; and (g) Vitex Foods, Inc., a California corporation, Fed. Tax Id. #9218.

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DOCKET -# ?:
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Any objections or other responses to the Motion, if any, must also be served so

that they are received not later than May 16, 2006 at 4:00 p.m. prevailing Eastern Time, by
(i) Pachulski Stang Ziehl Young Jones & Weintraub LLP, 919 N. Market Street, 17th Floor, P.O.

Box 8705, Wilmington, Delaware 19899-8705 Attn: Laura Davis Jones, and Cii) Pachulski Stang
Ziehl Young Jones & Weintraub LLP, 150 California Street, 15th Floor, San Francisco, CA
94111, Attn: Maxim B. Litvak.

IF NO OBJECTIONS ARE TIMLY FIED AN SERVED IN
ACCORDANCE WITH THIS NOTICE, THE BANKUPCY COURT MAY GRANT THE
RELIEF REQUESTED IN THE MOTION WITHOUT FUTHER NOTICE OR HEARG.

..
"

),;

:,è. 10'.

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IN THE EVENT THAT ANY OBJECTION OR RESPONSE is FIED AN

SERVED IN ACCORDANCE WITH TIlS NOTICE, A HEARG ON THE MOTION WIL
BE HELD BEFORE THE HONORABLE CHRSTOPHER S. SONTCm AT THE

BANUPCY COURT ON MAY 24, 2006 AT 2:00 P.M. PREVAILING EASTERN

TIM.
Dated: April2í,2006
PACHUSKI STANG ZIin YOUNG JONES & WEINTRAUB LLP

%i~ ~,WtNÚt~
Laura Davis Jones (Bar No. 2436) Richard M. Pachulski (CA Bar No. 90073) Brad R. Godshall (CA Bar No. 105438) Maxim B. Litvak (CA Bar No. 215852) Rachel Lowy Werkheiser (Bar No. 3753) 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, DE 19899-8705 (Courier 19801)
Telephone: (302) 652-4100

Facsimile: (302) 652-4400
Email: Ijones(Wpszyjw.com
rpachulski (W pszyjw .com bgodshall (Wpszyjw .com

mlitvak(Wpszyjw.com rwerkheiser(Wpszyjw.com

Counsel for Debtors and Debtors in Possession

~

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IN THE UNTED STATES BANKUPCY COURT
FOR THE DISTRICT OF DELAWARE

In re

) )

Chapter 11

NELLSON NURACEUTICAL, INC.,.
Debtors.

) ) )

Case No. 06-10072 (CSS)
(Jointly Administered)

MOTION OF THE DEBTORS FOR ENTRY OF AN ORDER AUTHORIZING AND APPROVING PAYMNTS UNER MANAGEMENT INCENTIVE PLAN
The above-captioned debtors and debtors in possession (each a "Debtor", and
collectively, the "Debtors"), hereby move this Court for entry of an order pursuant to sections

105(a), 363(b) and 503(b) of title 11 of the United States Code (the "Bankrptcy Code")
approving the performance-based Management Incentive Plan (as described in greater detail
herein) (the "Management Incentive Plan"). In support of

this Motion, the Debtors respectfully

represent as follows:

.Jurisdiction
1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157

and 1334. This is a core proceeding pursuant to 28 US.C. § 157(b)(2). Venue is proper in this
Court pursuant to 28 U.S.C. §§ 1408 and 1409.

2. The statutory and legal predicates for the relief sought herein are sections
105(a), 363(b) and 503(b) of the Bankrptcy Code.
..

i The Debtors and the last four digits of each of the Debtors' federal tax identifcation numbers are as follows:
(a) Nellson Nutraceutical, Inc., a Delaware corporation, Fed. Tax Id. #5044; (b) NeIlson Holdings, Inc., a Delaware corporation, Fed. Tax Id. #0642; (c) Neilson Intermediate Holdings, Inc., a Delaware corporation, Fed. Tax Id. #0653; (d) Nellson Northern Operating, Inc., a Delaware corporation, Fed. Tax Id. #7694, (e) Nellson Nutraceutical Eastern Division, Inc., a Delaware corporation, Fed. Tax Id. #8503; (f) Nellson NutraceuticaI Powder Division, Inc., a Delaware corporation, Fed. Tax Id. #3670; and (g) Vitex Foods, Inc., a California corporation, Fed. Tax Id. #9218.

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Back2round
A. Description of the Debtors
3. The Debtors are leading formulators and manufacturers of functional

nutrition bars and powders. The Debtors manufacture food bars and powders for weight loss,

sports training and wellness and medical categories. The Debtors have approximately 425
employees in the United States and, through a non-debtor Canadian subsidiary, approximately

784 employees in Canada. The Debtors' headquarers and principal manufacturing facilty is

located in Irindale, California. Specifically, the Debtors (and their non-debtor Canadian
affilate) operate three highly modem manufacturing facilties, which are located in Irwindale,
California, Salt Lake City, Utah and Montreal, Canada.
4. The Debtors do not manufacture products under their own label, but

produce for leading industry functional food marketers. As a result of such relationships, the
Debtors are the clear market leader with over 50% of the functional bar market and over three
times the sales of their next largest bar competitor.

5. The Debtors typically provide the majority of the product lines of their

customers under two to three-year exclusive contracts with pre-established pricing and have
long-term contracts in place with certain key customers. Unique to this type of company, the

Debtors own the rights to the majority of the formulations developed for customers and hold
proprietary knowledge with regard to temperatures, mix times, order of addition and other
preparation procedures around these formulations.
~

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B. The Debtors' Corporate Structure And Financial Performance
6. NeIlson is wholly-owned by Nellson Intermediate, which in turn, is owned

by NeIlson Holdings. Nellson is the direct parent and sale shareholder of NeIlson Northern,
Vitex and NeIlson Eastern. Vitex is the sole shareholder of NeIlson Powder. In 2003, NeIlson
acquired a Canadian manufacturer of nutritional bars and powders caled Baratrx Products

International, Inc., which is now NeIlson's wholly-owned, non-debtor operating subsidiar in

Canada "NeIlson Nutraceutical Canada, Inc." ("NeIlson Canada"). Nellson is a privately held
company. Its principal ultimate equity holder (by way of

NeIlson Holdings and NeIlson

Intermediate) is Fremont Investors VI, LLC ("Fremont").
7. Nellson's consolidated revenues for all business segments (including

Neilson Canada) for calendar year 2005 totaled $296.8 millon. NeIlson generated positive

earings for 2005 (before deductions for interest, taxes, depreciation and amortization) in the

amount of $40.8 millon (unaudited). Although Nellson realized a net consolidated loss for the
year in the amount of $22.6 millon, such loss is unrelated to the company's ordinar course

operations and is tied primarly to interest expenses and non-cash items. For calendar year 2004,
Nellson's consolidated revenues totaled approximately $350 millon, with earings (before

i;-

deductions for interest, taxes, depreciation and amortization) in the amount of $53 millon. As of
the Petition Date, the Debtors had $15.9 millon in cash on hand (excluding Canada). Debtors

currently have approximately $24 milion in cash on hand (approximately $30 millon including
Canada).

~ ~

';.

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c. The Debtors' PrincIDal Indebtedness
8. The Debtors (with the exception of NeIlson Holdings and Nellson

Intermediate) have three tranches of principal indebtedness consisting of (1) first priority secured

obligations to varous lenders (the "First Lien Prepetition Lenders") under that certain Amended
and Restated Credit Agreement dated as of July 3,2003 (as amended, modified or supplemented,

the "First Lien Credit Agreement"), pursuant to which UBS AG, Stamord Branch ("UBS") is
the administrative agent and collateral agent ("First Lien Agent"); (2) second priority secured

obligations to varous lenders (the "Second Lien Prepetition Lenders" and collectively with the
First Lien Prepetition Lenders, the "Prepetition Lenders") under that certain Second Lien Credit
Agreement dated as of February i 1, 2004 (as amended, modified or supplemented, the "Second
Lien Credit Agreement"), pursuant to which UBS is also the administrative agent and collateral

agent (the "Second Lien Agent," and together with the First Lien Agent, the "Prepetition
Agent"); and (3) unsecured obligations to trade vendors, lessors, and others.
9. NeIlson is the borrower and the other Debtors (with the exception of

.:

NeIlson Holdings and NeIlson Intermediate) are guarantors under both the First Lien Credit

,

!,
¡

Agreement and the Second Lien Credit Agreement (together, the "Credit Agreements"). The
Debtors' obligations under the Credit Agreements are secured by first and second liens,

respectively, on substantially all of the Debtors' assets. NeIlson Intermediate Holdings has also
pledged the stock of NeIlson to further secure the obligations under the Credit Agreements.
10.
~

As of the Petition Date, the Debtors' outstanding principal obligations

under the First Lien Credit Agreement total approximately $255 millon. The Debtors' principal

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obligations under the Second Lien Credit Agreement total approximately $75 millon as of the
Petition Date.
i i. The Debtors' remaining indebtedness consists of unsecured debt totaling

approximately $7 millon, exclusive of intercompany obligations or potential rejection damages
claims. NeIlson Holdings also has unsecured subordinated debt obligations to Fremont in the

original principal amount of $39.5 millon.
D. The Necessitv of

Film! These Cases

12. Beginning in the latter par of 2004 and continuing through 2005, the

Debtors' business was negatively impacted by a sequence of factors, including weaknesses in the
market for nutritional bars and powders and challenges in the company's production processes. As a general matter, the market for nutritional bars and powders experienced a substantial
:.:'

downturn as a result of a waning low-carb diet trend and an overall softness in the weight-

management industry. Concurrently with such market fluctuation, the Debtors lost a significant
customer and experienced productivity issues that reduced margins within the company's bar

manufacturing facilities. The Debtors began to address these challenges pro-actively by
expanding the company's marketing efforts to drive higher revenues and pursuing various

'.' ::~ ~ '."

initiatives, including cost-savings measures, to resolve any performance gaps. Through these initiatives, the Debtors expect to increase their profitabilty back to historic levels.
13.

Nonetheless, in November 2004, the Debtors' operational performance

~ ~

triggered certain defaults of financial covenants in the Credit Agreements. As a result, the

Prepetition Lenders and the Debtors commenced discussions regarding a restructuring of the

company's debt and equity strcture. On December 21, 2005, UBS sent notices of acceleration

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of the Debtors' obligations under the Credit Agreements to NeIlson and Fremont. The Debtors,

Fremont and UBS continued to engage in negotiations in an effort to reach a consensual

restructuring, but were unable to reach a resolution. The Debtors therefore commenced these

cases in order to reorganize the Debtors' afairs and prevent UBS from exercising its remedies
against the Debtors' assets to the detriment of all constituents.
14. The Debtors' goal during these chapter 11 cases is to maintain and expand

their cash flow positive operations while the issues relating to the restrcturing of the Debtors'
debt and equity strcture are resolved in an orderly manner, thereby maximizing enterprise value

for all stakeholders.
E. Post-Petition Activitv

15.

On Januar 28, 2006 (the "Petition Date"), the Debtors commenced these
~..

cases by filng voluntar petitions for relief under chapter 11 of the Bankrptcy Code. On the
Petition Date, the Debtors also fied motions or applications seeking certain typical "first day"
orders.
16.

The Debtors have continued in the possession of their property and have
f::.~

continued to operate and manage their business as debtors in possession pursuant to sections

1l07(a) and 1108 of the Bankrptcy Code.
17.

No trustee or examner has been appointed in any of the Debtors' chapter
~
¡.

11 cases.
18.

The Debtors have done everything possible since the Petition Date to

ITnimize disruptions to their business. Specifically, the Debtors have (i) maintained and
continued their employee programs, including paying their employees their prepetition wages up

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to $10,000, see Docket No. 37; (ii) maintained their prepetition cash management systems, see Docket No. 246; (iii) continued their customer practices and programs to make the transition into
bankrptcy seamess for the customers, see Docket No. 32; (iv) established an escrow account to
give their utilty suppliers adequate assurance of

future performance, see Docket No. 133;

(v) received authority to use up to $2 millon dollars to pay prepetition claims of certain critical
vendors, see Docket No. 36; (vi) resolved claims pursuant to 11 U.S.C. §503(b)(9) and obtained Court approval of procedures to stream-line settlements of such claims, see Docket No. 259; and

(vii) assumed the lease, as amended, relating to the Debtors' manufacturing facilty, see Docket
No.

261.

F. Progress Towards a Consensual Plan of Reorganization

19. Without divulging the details of confidential settlement negotiations,

meaningful settlement negotiations with UBS have occurred both prior to and following the

Petition Date. It has become increasingly apparent, however, that divergent opinions concerning
the value of the Debtors' enterprise continue, albeit in the absence of actual, expert-prepared

valuation reports. These divergent opinions exist even within varous factions of the Pre-Petition
:.,

Lenders. It has become obvious that an adjudication of the "valuation issue" is a necessar

predicate to a consensual plan of reorganization.
G. Former Emplovee Bonus Plans

20.

In January 2006, prior to the Petition Date, the Debtors implemented a key

~
~"

employee retention program (the "KERP") that provided for payment to nine key employees in

the aggregate amount of $710,000 upon the occurrence of the earlier of either a termnation of

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employment (without cause) or a capital event involving a disposition of the Company's assets
or restructuring of its equity structure.

Relief Requested

21. By this Motion, the Debtors seek the Court's authorization, under sections
lOS(a), 363(b) and S03(b) of the Bankrptcy Code, to implement the Management Incentive Plan

and to allow all payments thereunder as admnistrative expenses of the estates.
22. Pursuant to the Management Incentive Plan, as detailed more fully on

Exhibit A, the Debtors seek to establish a bonus pool to provide incentives to key management

personnel (each an "Employee" and collectively, the "Employees") to assist the Debtors in their
efforts to reorganize the Debtors' business and maximize value for all stakeholders?
Description of the Manai!ement Incentive Plan
23. The Debtors seek to provide incentive compensation to the Employees as

needed to ensure the Employees' continued service to the Debtor through the expected

reorganization of the Debtors' businesses. A summary of the Management Incentive Plan3 is as
follows:
¡:

Performance-Based Milestones - The Management Incentive Plan provides that

an Employee wil receive a bonus payment upon reaching various performance

milestones as described below. The aggregate maxium amount to be paid under
2 The identities of each Employee and the amounts designated under the Management Incentive Plan have been
disclosed to the following: (i) counsel to the Offcial Committee of

~
::.,

Unsecured Creditors; (ii) counsel to UBS AG; First Lien Holders; and (iv) the Offce of the United States Trustee. As the Debtors (iii) counsel to the Committee of believe that this information is sensitive and fully disclosed to the representatives of the Debtors' creditor consti tuencies, the Debtors, in their business judgment, are not disclosing this information herein. 3 The following summary is qualified in its entirety by the Management Incentive Plan. In the event of a
discrepancy between the summary and the Management Incentive Plan, the Management Incentive Plan shall control.

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the perfornance-based component of the Management Incentive Plan is $1.395
millon, subject to reduction as provided below if the Milestones, as defined

herein, are not met.
(1)

Performance measurement criteria wil be earnings before deductions for interest, taxes, depreciation and amortization ("Budgeted EBITDA"), excluding costs associated with the reorganization (including professional fees), as reflected on the projected 2006 Budget (the "Budget"), as previously delivered to counsel for UBS, counsel for the Official Commttee of Unsecured Creditors ("Commttee"), and the Unofficial Commttee of First Lien Lenders.
performance criteria set forth in the Budget during the two
fiscal quarers ending July 2, 2006 (approximately Januar

,"

(2) Performance Milestone #1: If the Debtors meet the

through June) (the "First Hair'), the Debtors wil establish a fund, to be distributed as set forth on Exhibit A, in the maximum amount of $680,000, subject to reduction as
provided below.
(3)

Performance Milestone #2:4 If the Debtors meet the
perfornance criteria set forth in the Budget during the two fiscal quarers ending December 31,2006 (approximately

--=

July though December) (the "Second Half'), the Debtors wil establish a fund, to be distributed as set forth on Exhibit A, in the maximum amount of $715,000, subject to reduction as provided below.
(4)

If a Plan of Reorganization is confirmed on or before
December 31, 2006, the incentive payments associated with

Performance Milestone #1 and Performance Milestone #2 payments wil be vested. If the Debtors' businesses are liquidated, then incentive pay set forth in Performance Milestone #2 wil not be paid. (A sale as a going concern is not considered a "liquidation.")
(5)

If actual EBITDA for the First Half or the Second Half; is less than 100% of the Budgeted EBITDA for the First Half or the Second Half, the incentive payments for the respective half for which actual EBITDA was less than
Budgeted EBITDA shall be reduced as follows: (i) if such '.

~
~'.

actual EBITDA is seventy-five percent (75%) or more of
4 Pedormance Milestone #1 and Performance Milestone #2 are collectively referred to herein as the "Milestones."

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such Budgeted EBITDA, by an amount equal to the percentage by which such actual EBITDA is less than such Budgeted EBITDA and (ii) if such actual EBITDA is less than seventy-five percent (75%) of such Budgeted the Budgeted EBITDA, by seventy-five percent (75%). If EBITDA is missed by more than 50%, then no incentive payments would be made for that respecti ve period by the Debtors.
(6) Incentive payments wil become due and payable after the

Debtors' books are closed at the end of the First Half and the Second Half, respectively. EBITDA calculations wil be based on un-audited financials that wil be provided to the Commttee and counsel to UBS no less than three (3) business days' prior to the payments being made.
(7) By paricipating in this Management Incentive Plan, each

Employee agrees that he or she thereby waives and releases, effective upon receipt of an incentive payment,
any and all claims against the Debtors arsing under the

KERP. If the Employee does not receive any incentive payment to which he or she is entitled under the Management Incenti ve Plan on or before the completion of the Management Incentive Plan, such waiver and release shall be void and of no force and effect, and in such case the Employee shall retain all rights to such claim under the KERP.
24. The Debtors submit that the approval of the Management Incentive Plan

wil ensure a successful reorganization of the Debtors' businesses by establishing milestones of

accomplishment based on the Debtors' earings and wil give the Employees incentives to reach
these milestones.

Basis for Relief
25.

The Management Incentive Plan is an important par of the Debtors'

~

:...

abilty to reorganize the Debtors' business. The Debtors reasonably believe that the
implementation of the Management Incentive Plan is necessary to appropriately compensate the
Debtors' management employees given the enormous additional burdens placed on such

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employees by these Cases, and to ensure that the Employees remain motivated to peiform the
important tasks necessary to ensure successful reorganization of the Debtors' businesses.

Indeed, if the Debtors are not authorized to implement this program, the dedication, confidence

and cooperation of their management employee would suffer at a critical juncture in the
Debtors' reorganization efforts.
A. Implementation of the Management Incentive Plan

Pursuant to Section 363(b) of the Bankruptcy Code is a
Valid Exercise of

the Debtors' Business .Jud2ßent

26.

The Court may authorize the Debtors to implement the Management

Incentive Plan under section 363(b)(1) of the Banptcy Code. Section 363(b)(1) provides that

"(t)he trustee, after notice and a hearng, may use, sell, or lease, other than in the ordinar course
of business, property of the estate." 11 V.S.C. § 363(b)(1).s The use, sale, or lease of property
i.

of the estate, other than in the ordinar course of business, is authorized when a "sound business

r

purposed" justifies such action. See, M, In re Montgomery Ward Holding Coi:., 242 B.R. 147,
153 (D. DeL. 1999) (affirmng bankrptcy court approval of key employee retention program,

stated that "in determining whether to authorize the use, sale, or lease of property of the estate
under (section 363(b)J, courts require the debtors to show that a sound business purpose justifies
such actions"); Myers v. Marin (I re Marin), 91 F.3d 389, 395 (3d Cir. 1996) (noting that

under normal circumstances, courts defer to a trustee's judgment concernng use of property
:;¡

5 The Management Incentive Plan does not conflct with newly-enacted section 503(c)(1) of the Bankruptcy Code.
Section 503(c)(1) only applies to payments that are meant to induce insiders to "remain with the (debtors') business" by requiring, among other things. that a debtor demonstrates that the insider (a) has a bona fide job offer from another business and (b) is "essential to the survival of the business." 11 U.S.C. §503(c)(1)(A) and (B). The Management Bonus Plan is not intended to "induce" anyone to "remain with the Debtors' business," in any manner different than any other component of their management compensation. (Obviously, all compensation is in some respect intended to induce employees to remain with their employer.) Instead, the Management Incentive Plan is
intended to create incentives for the Employees to reach certain performance goals and to faciltate the successful

~
;.~

reorganization the Debtors' business.

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under §363(b) when there us a legitimate business justification); In re Delaware & Hudson R.R.
Co., 124 B.R. 169, 176 (D DeL. 1991) (explaining that the Third Circuit has adopted the "sound

business purpose" test to evaluate motions brought pursuant to section 363(b)); see also Stephen

Indus.. Inc. v. McClung, 789 F.2d 386,390 (6th Cir. 1986) (adopting the "sound business

purpose" standard for sales proposed pursuant to section 363(b)); Titusvile County Club v.

Pennbank an re Titusvile Country Club), 128 B.R. 396, 399 (Bank. W.D. Pa 1991) (same).
27. Courts have found that a debtors' use of reasonable retention bonuses and

other incenti yes to retain employees is a valid exercise of a debtors' business judgment. See,

~, In ie America West Airlines. Inc., 171 B.R. 674, 678 (Bankr. D. Arz 1994) (it is the proper
use of a debtors' business judgment to propose bonuses for employees who helped propel the

debtor successfully through the bankrptcy process); In ie Interco Inc., 128 B.R. 229, 234
(Bankr. B.D. Mo 1991) ("debtors' business judgment" was controllng in the approval of a
"performance/retention program").
28. Even since the recent amendments to the Bankptcy Code which went

into effect in October 2005, courts in this District have approved employee bonus programs tied
i.

to performance targets as valid exercises of business judgment. See e.g., In re Riverstone
Networks. Inc., Case No. 06-10110 (CSS) (Bankr. D. DeL. Apr. 3, 2006) (approving $1.4 millon

incentive plan for the debtors' management subject to certain pares' reservation of rights); In re
Pliant Corp., Case No. 06-10001 (MF) (Bankr. D. DeL. Feb. 21, 2006) (approving postpetition
~

payments under a prepetition annual performance-based management incentive plan tied to both

individual and corporate performance levels); In ie Nobex Corp., Case No. 05-20050 (M)
(Bankr. D. DeL. Jan 20, 2006) (approving "sale-related incentive pay" to two officers, contingent
15

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APPELLEES' APPENDIX PAGE 015

Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 17 of 39

on a successful sale of the company for a price in excess of that offered by an existing, stalking
horse bidder, in connection with the debtor's aggressively pursuing the sale of the company.).
29. In the instant cases, the Debtors submit that authorizing the Debtors to

provide incentive compensation to the Employees wil accomplish a similarly sound business
purpose. The Debtors have determned that the costs associated with such additional postpetition

compensation are more than justified by the benefits that the Debtors wil realize by creating
appropriate incentive for the Employees, whose experience, skills and diligent work are critical
for the Debtors to operate and reorganize their businesses.
30. The additional bonus pay proposed in this Motion wil provide these

Employees with the appropriate incentives to reach the Milestones, which are based on the

Debtors' performance and wil enable the Debtors to maxiinze the value of their assets for the
benefit of the estates and their creditors.

B. The Management Incentive Plan May Additionally Be
Authorized Pursuant to Section l05(a) of the Bankruptcv Code
31. Section 105(a) of the Bankrptcy Code empowers the Court to "issue any

order, process, or judgment that is necessary to car out the provisions of (Bankrptcy Code)."
11 US.C. § 105(1).

32. As stated, the Debtors strongly and reasonably believe that the
Management Incentive Plan is critical to their reorganzation effort. With respect to the
~.' y.-

Management Incentive Plan, such payments are essential to appropriately reward the Employees

for all of their efforts throughout these bankrptcy cases, to maintain the morale of the Debtors'
management and employees, and to ensure the focus of the Debtors' management and employees

59903-00 l\DOCS_DE: i 17465. io

16
APPELLEES' APPENDIX PAGE 016

Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 18 of 39

is centered on the reorganization process. The Debtors submit that such payments are necessary
to maximize value for their estates, their creditors, and their shareholders.
33. The Debtors respectfully submit that the post-petition compensation

described herein for the Employees is an appropriate exercise of the Debtors' business judgment,
is necessar and in the best interest of the Debtors, their creditors, and their estates and should be

approved under sections 105(a) and 363(b) of the Bankrptcy Code and allowed as

administrative expenses under 503(b) of the Bankrptcy Code.
Notice
34. Notice of this Motion has been given to the following: (i) United States

Trustee; (ii) counsel to the Commttee; (iii) counsel to UBS; (iv) counsel to the Committee of

First Lien Holders; and (v) all those paries requesting notice under Bankrptcy Rule 2002. In
light of the nature of the relief requested herein, the Debtors submit that no other or further
notice is necessary.

~
i-

59903-001\DOCS_DE:117465.10

17

!\PELLEES' APPENDIX PAGE 017

Case 1:06-cv-00521-GMS

Document 7-2

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Page 19 of 39

WHREFORE, the Debtors respectflly request that his Court enter an order, in
substantially the form attached hereto, granting the relief requested herein and such other and
further relief as the Court deems just and proper.

Dated: ~\ 2-'i

,2006
PACHUSKI STANG ZIEHL YOUNG JONES & WEINTRAUB LLP

~~d~ V\~
Telephone: (302) 652-4100

Laura Davis Jones (Bar No. 2436) Richard M. Pachulski (CA Bar No. 90073) Brad R. Godshall (CA Bar No. 105438) Maxim B. Litvak (CA Bar No. 215852) Rachel Lowy Werkheiser (Bar No. 3753) 919 Nort Market Street, 17th Floor P.O. Box 8705 Wilmington, DE 19899-8705 (Courier 19801)

Facsimile: (302) 652-4400
Email: ljones(gpszyjw.com
rpachulski (gpszyjw .com

bgodsha1l (gpszyj w.com mlitvak(g pszyjw .com

rwerkheiser(gpszyjw.com
Counsel for Debtors and Debtors in Possession
r.o

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59903-001\DOCS_DE:117465.1O

18

APPELLEES' APPENDIX PAGE 018

Case 1:06-cv-00521-GMS

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Page 20 of 39

,.
,..

EXHIBIT A

,. í:?

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APPELLEES' APPENDIX PAGE 019

Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 21 of 39

Manaeement Incentive Plan

This Management Incentive Plan (this "Plan") of Neilson Nutraceutical, Inc. and the subsidiares listed on the signature page hereto (collectively, "NeIlson"), dated as of April_, 2006, is adopted for the benefit of the Paricipants (as hereinafter defined).

Recitals
Nellson hereby acknowledges as follows:
A. NeIlson is engaged in the manufacturng of nutritional food bars and powders for

weight loss, sports training and wellness and medical categories (the "Business").
B. Nellson is debtor and debtor in possession in Case No. 06-10072 (PJW) (the

"Case") before the United States Bankruptcy Court for the Distrct of Delaware (the "Bankrptcy Court") in proceedings under ehapter 11 of the Bankrptcy Code.
.:

C. In the Case, NeIlson is pursuing a restructuring of its debt and equity structure
(the "Restructuring") to maximize the value of the Business for al constituents.

D. Nellson believes that the successful accomplish~ent of the Restructuring
depends, among other factors, on NeIlson's ability to manage the Business in accordance with its budget.
E. NeIlson believes that the Participants are critical to the successful management of
r;

the Business in accordance with its budget, and that an incentive plan is both necessary and appropriate to encourage the Paricipants to devote their full time, attention, energy and effort to such management.
F. NeIlson wishes to clearly set forth the terms and conditions of such incentive plan.

Terms and Conditions
¡:

Nellson hereby agrees as follows:
1. Definitions. For purposes of this Plan, the following terms shall have the

following meanings:

"Bankptcy Court" has the meaning given to such term in the recitals to this
Plan.

"Budget" means NeIlson's Budget for fiscal year 2006 as previously delivered to
the Commttee and to UBS AG. Stanford Branch, as administrative agent and collateral agent for

~ ~

the Existing Senior Debt.

LA: 152124.3

1

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Page 22 of 39

"Budgeted EBITDA" means EBITDA as projected in the Budget, before professional fees, Incentive Bonuses under this Plan and other costs incurred by NeIlson in connection with the Restructuring and the Case.

"Capital Event" means any or all of the following (whether in one or a series of related transactions):
(a) any "person" (as such tenn is used in Sections 13(d) and 14(d) of

the Securities Exchange Act of 1934, as amended) other than Fremont Investors vn, LLe becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of NeIlson representing fifty percent (50%) or more of the total voting power represented by the then outstanding voting securties of NeIlson;
(b) the conversion to equity of some or all of the debt owing by

NeIlson to the holders of the Existing Secured Debt and/or the holders of the Existing Other Secured Debt;
(c) the date of the consummation of a merger or consolidation of

NeIlson with any other entity, other than a merger or consolidation which would result in the voting securities of NeIlson outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of NeIlson or such surviving entity outstanding immediately after such merger or consolidation;
(d) the sale of substantially all of the assets of Nellson (whether in one

or more transactions) as a going concern, and not in a liquidation; or
(e) the confirmation of a plan of reorganization under chapter 11 of

the United States Bankrptcy Code.
"Case" has the meaning give to such term in the recitals to this Plan.
¡::

"Chapter 11 Plan Effective Date" means the date on which a Chapter 11 plan of reorganization in the Case become effective.
"Commttee" means the Official Commttee of

Unsecured Creditors in the Case.

"Constructive Termnation" means the occurrence of any of the following prior to, or concurrently with, the occurrence of any Capital Event: (i) any actual or implied threat of discharge of Partcipant by Nellson under circumstances which would not constitute a Termination For Cause and which results in an involuntary resignation of employment by Paricipant (provided that clause (i) shall not apply to any actual or implied threat of discharge arising from any actual or possible Capital Event), (ii) any act(s) by Nellson which are designed to or have the effect of rendering Paricipant's working conditions so intolerable or demeaning on a recurrng basis that a reasonable person would resign such employment, which act(s) result
LA: 152124.3

i: lj
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2

APPELLEES' APPENIL(
PAGE 021

Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 23 of 39

in the involuntar resignation of employment by the Paricipant prior to or concurrently with the occurrence of any Capital Event, (ii) a material adverse alteration in Paricipant's reporting relationships, position, responsibilties, title or status, which results in the involuntary resignation of employment by Participant prior to or concurrently with the occurrence of any Capital Event; (iv) a material reduction in Paricipant's compensation or a substantial reduction in benefits provided to Paricipant that are provided for or referenced hereunder; (v) any material change in
any benefit, retirement, or deferred compensation plan or arangement made available to

Paricipant which is adverse to Parcipant; or (vi) any actual or proposed relocation of Paricipant to a location that is more than 35 miles from the location of Paricipant's current employment for NeIlson as of the Effective Date, which actual or proposed relocation causes the Participant to resign from his or her employment prior to or concurrently with the occurrence of
any Capital Event.

"EBITDA" means the earngs before interest, taxes, depreciation and amortization of Nellson, before professional fees and other costs incurred by NeIlson in connection with the Restructuring and the Case and as determned by NeIlson reasonably, in good faith, and in a manner consistent with Budgeted EBITDA.
"Effective Date" shall be the date on which this Plan is approved by the

Bankrptcy Court.
"Existing Secured Debt" means any and all obligations of Neilson arsing under that certain Amended and Restated Credit Agreement, dated as of July 3,2003, and that certain Second Lien Credit Agreement, dated as of February 11, 2004, as such agreements may have been amended, supplemented or modified.

¡,
I

"First Half' means the two fiscal quarers ending July 2, 2006.
"First Half Incentive Bonus" means, with respect to a Parcipant, the dollar

amount set forth opposite such Paricipant's name under the heading "First Half Incentive Bonus" on Exhibit "A" hereto, subject to adjustment under Section 2(d) hereof. To the extent that any individuals in addition to those listed on "Exhibit A" are designated as Paricipants in
the discretion of NeIlson, the First Half Incentive Bonus payable to such Paricipants shall not

exceed $100,000 in the aggregate, as reflected on the ''Emergency Contingency" line item on Exhibit "A."

"First Half Vesting Date" means, with respect to the First Half Incentive Bonus of
any Participant, the first to occur of the following dates: (a) July 2,2006, (b) the effective date

of any Capital Event during the First Half, (c) the date during the First Half on which the Paricipant's employment with Nellson is terminated by NeHson for any reason other than a Termnation For Cause, (c) the date during the First Half on which the Paricipant's employment
with NeIlson is terminated in a Constructive Termnation, and (d) the Chapter 11 Plan Effective Date.

~
"'

"NeIlson" has the meaning given such term in the introductory paragraph of this
Plan.
LA: 152124.3

3

APPELLEES' APPENDIX PAGE 022

Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 24 of 39

"Paricipant" means those individuals listed on Exhibit "A" hereto, plus any Nellson. additional individuals that may be designated as Paricipants in the discretion of
"Plan Payments" means the payments contemplated by this Plan.
"Restructuring" has the meanng given to such term in the recitals to this Plan.

HSecond Half' means the two fiscal quarers ending December 31,2006.

"Second Half Incentive Bonus" means, with respect to a Paricipant, the dollar Incentive Bonus" on Exhibit "A" hereto, as adjusted by Section 3(d) hereof. To the extent that any individuals in addition to those listed on "Exhibit A" are designated as Paricipants in the
amount set forth opposite such Parcipant's name under the heading "Second Half

discretion of Nellson, the Second Half Incentive Bonus payable to such Paricipants shall not

exceed $100,000 in the aggregate, as reflected on the "Emergency Contingency" line item on Exhibit "A."

"Second Half Vesting Date" means, with respect to the Second Half Incentive
Bonus of any Paricipant, the first to occur of the following dates: (a) December 31,2006, (b)

the effective date of any Capital Event during the Second Half, (c) the date during the First Half on which the Paricipant's employment with NeIlson is termnated by NeIlson for any reason other than a Termnation For Cause, (c) the date during the Second Half on which the Participant's employment with Nellson is termnated in a Constructive Termination, and (d) the
Chapter i 1 Plan Effecti ve Date.

"Termination For Cause" means termnation of a Paricipant upon a good faith determnation by the Chief Executive Offcer or Chief Financial Officer of NeIlson (or the board
of directors in the case of the CEO or CFO), as applicable, with respect to any Paricipant that

anyone or more of the following has occurred:
(a) The Paricipant shall have committed an act of fraud,

embezzlement, misappropriation or breach of fiduciary duty against Nellson;
;:;

(b) The Paricipant shall have been convicted by a court of competent

jurisdiction of, or pleaded guilty or nolo contendere to, any felony or any crime involving
moral turpitude;
(c) The Paricipant shall have commtted a breach of any

confidentiality or non-compete obligation imposed by law or by covenants contained in
any written employment or confidentiality agreement between Parcipant and NeIlson;
~
(d) The Paricipant shall have wilfully failed to perform his duties on
~;

a regular basis and such wilful failure shall have continued for a period of ten (10) calendar days after written notice to the Paricipant specifying such wilful failure in reasonable detail;
LA: 152124,3

4

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(e) The Paricipant shall have refused, after explicit written notice, to obey any lawful directive or resolution by the Chief Executive Offcer or Chief Financial Offcer of NeIlson (or the board of directors in the case of the CEO or CFO) that is
consistent with such Paricipant's duties to NeIlson;
(f) The Participant shall have commtted either (i) acts of gross

misconduct or (ii) acts constituting grounds for immediate dismissal pursuant to the effective employee handbook of NeIlson or other written policies of NeIlson; or
(g) The Participant shall have engaged in the unlawful use or
possession of ilegal drugs on the premises of Nellson.

2. First Half Incenti ve Bonus.
(a) On the terms and conditions of this Plan, Neilson hereby grants

and awards a First Half Incentive Bonus to each of the Paricipants.
(b) No Parcipant shall be entitled to a First Half Incentive Bonus under this Plan unless and until such Paricipant's right to such First Half Incentive Bonus has vested under this Plan.
(c) Subject to Section 2( d) and 2( e) hereof, a Participant's right to a

First Half Incentive Bonus under this Plan shall vest on the First Half Vesting Date, if and only if both of the following conditions are met (i) Paricipant has remained regularly employed by NeIlson from the date hereof through the First Half Vesting Date and (ii) actual EBITDA for the First Half, determined in accordance with Section 2(e), is fifty percent (50%) or more of Budgeted EBITDA for the First Half.
(d) A Paricipant's First Half Incentive Bonus shall be in the amount

set forth opposite such Participant's name under the heading "First Half Incentive Bonus" on Exhibit "A" hereto, which amount shall be subject to adjustment in accordance with this paragraph. If actual EBITDA for the First Half is less than one hundred percent Budgeted EBITDA for the First Half, a Parcipant's First Half Incentive (100%) of Bonus shall be reduced as follows: (i) if such actual EBITDA is seventy-five percent (75%) or more of such Budgeted EBITDA, by an amount equal to the percentage by which such actual EBITDA is less than such Budgeted EBITDA and (ii) if such actual EBITDA is less than seventy-five percent (75%) of such BudgetedEBITDA, by seventyfive percent (75%).
(e) Promptly after the end of the First Half, NeIlson wil close its accounting books and records for such period, prepare internal unaudited financial statements for such period in accordance with its post practices, and deliver such financial statements to the Committee and to UBS AG, Stamford Branch, as adnnistrative agent and collateral agent for the Existing Secured Debt. A First Half Incentive Bonus that has vested under this Plan shall become due and payable, and
LA: 152124.3

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APPELLEES' APPENDIX PAGE 024

Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 26 of 39

NeIlson shall pay such First Half Incentive Bonus, after the third (3rd) business day after such delivery.
3. Second Half Incentive Bonus.
(a) On the terms and conditions of this Plan, Nellson hereby grants and awards a Second Half Incentive Bonus to each of the Parcipants.

(b) No Paricipant shall be entitled to a Second Half Incentive Bonus
under this Plan unless and until such Paricipant's right to such Second Half

Incentive

Bonus has vested under this Plan.
(c) Subject to Section 3(d) and 3(e) hereof, a Paricipant's right to a

Second Half Incentive Bonus under this Plan shall vest on the Second Half Vesting Date, if and only if both of the following conditions are met: (i) Paricipant has remained regularly employed by NeIlson from the date hereof through the Second Half Vesting Date and (ii) EBITDA for the Second Half, determned in accordance with Section 3(e), is fifty percent (50%) or more of Budgeted EBITDA for the Second Half.
(d) A Paricipant's Second Half Incentive Bonus shall be in the

amount set forth opposite such Paricipant's name under the heading "Second Half Incentive Bonus" on Exhibit "An hereto, which amount shall be subject to adjustment in accordance with this paragraph. If actual EBITA for the Second Half is less than one hundred percent (100%) of Budgeted EBITA for the Second Half, a Paricipant's Second Half Incentive Bonus shall be reduced as follows: (i) if such actual EBITDA is seventy-five percent (75%) or more of such Budgeted EBITDA, by an amount equal to the percentage by which such actual EBITA is less than such Budgeted EBITDA and (ii) if such actual EBITDA is less than seventy-five percent (75%) of such Budgeted EBITA, by seventy-five percent (75%).
(e) Promptly after the end of the Second Half, Nellson wil close its accounting books and records for such period, prepare internal unaudited financial statements for such penod in accordance with past practices, and deliver such financial statements to the Commttee and to UBS AG, Stamford Branch, as administrative agent and collateral agent for the Existing Secured Debt. A Second Half Incentive Bonus that has vested under this Plan shall become due and payable, and NeIlson shall pay such Second Half Incentive Bonus, after the third (3rd) business day after such delivery.
4. Effectiveness. This Plan shall become effective upon its approval by the
Bankruptcy Court. If this Plan does not become effective on or before May _, 2006, it shall be

r.:

" ','

deemed to have been termnated by NeIlson and shall have no further force or effect.
5. Pnor KERP. By paricipating herein, each Paricipant agrees that he or she hereby waives and releases, effective upon receipt of any Plan Payment, any and all claims against NeIlson arsing under the Key Employee Retention Plan adopted by Nellson in January 2006. If Paricipant does not receive any Plan Payment to which he or she is entitled under the
LA: 152124.3

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".'.

APPELLEES' APPENDIX PAGE 025

Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 27 of 39

Plan on or before the completion of such Plan, such waiver and release shall be void and of no force or effect, and in such case Participant shall retain all rights to such claims.
6. Constrction. This Plan shall be governed by and construed in accordance

with the laws of the State of California. Expressions such as "hereof," "herein," and "hereto" refer to this Plan, as amended from time to time, and all exhibits or schedules attached hereto. Unless otherwise stated in this Plan, "including" shall mean "including without limitation." Wherever the context so requires, the masculine shall include the feminine and neuter and the
singular shall include the pluraL. The captions and headings of the aricles, sections and

paragraphs of this Plan are inserted solely for convenience of reference and are not a par of, and are not intended to govern, limit or aid in the construction or interpretation of any term or provision herein. Unless otherwise specified in this Plan, references to articles or sections refer
to the aricles and sections of this Plan.

7. Understanding. The Participants acknowledge that they have carefully

read this Plan, that they have had sufficient time and opportunity to consider its terms and to obtain legal advice, if desired, that they fully understand its final and binding effect, that the only promises made to such Paricipants are those stated above, and that they are signing and-agreeing to the terms of this Plan voluntarily.

8. Plan Payments. Any Plan Payments under this Plan shall be treated as
cash compensation by NeIlson to the Parcipant and shall be subject to aU required or customar

withholding in order to permit Nellson to comply with applicable law, including, without limitation, the employer's portion of any social security or other tax.
9. Amendments. This Plan may be amended from time to time with respect to any Participant only by written instrment executed by NeIlson and the Paricipant.
10. Assignment. By virtue of the unique relationships and responsibilties
involved in the services provided by the Paricipants, the rights and obligations of the

Paricipants are not transferable or delegable and no Paricipant shall transfer any right, title or
interest in this Plan, nor shall any such right, title or interest be subject to garishment,

attachment, lien, levy or execution or be subject to transfer by operation of law. This Plan shall bind and inure to the benefit of NeIlson and the Participants and each of their respective successors, assigns, personal representatives, heirs and legatees. Each person executing this Plan and/or all amendments or supplements to it binds and obligates himself/herself, his/her present spouse, his/her estate, and all persons claiming by, through or under himler.
11. Attorneys' Fees. Except as otherwise provided herein, in the event of

i:,

arbitration or litigation concerning any provision of this Plan or the rights and duties of any person in relation thereto, reasonable attorneys' fees shall be paid to the prevailing pary.
12. Severabilty. If any term, provision, covenant or condition of this Plan is

t~

held by a court of competent jurisdiction to be invalid, void or unenforceable, the rest of this Plan shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
LA: 152124.3

7

APPELLEES' APPENDIX PAGE 026

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Page 28 of 39

13. Entire Plan. This Plan constitutes the entire Management Incentive Plan

promulgated by Nellson for the benefit of the Paricipants. Except as provided for in this Plan,

there are no representations, plans, arangements, or understandings, oral or written, between or among Nellson and any of the Paricipants relating to the subject matter hereof that are not fully
expressed herein.

14. Waiver. No waiver of any of the provisions of this Plan shall be deemed a
waiver of the right of any Pary hereto to enforce strct compliance with the provisions hereof in
any subsequent instance.

,.
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LA: 152124.3

8

APPELLEES' APPENDIX PAGE 027

Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 29 of 39

IN WINESS WHREOF, the paries hereto have duly executed this Plan as of the
Effective Date.

NELLSON NUTRACEUTICAL, INC.:
By:

Title:

NELLSON NUTRACEUTICAL POWDER DIVISION, INC.:
By:

Title:

NELLSON NORTHERN OPERATING, INC.:
By:

Title:

NELLSON HOLDINGS, INC.:
By:

Title:

NELLSON INTERlDIA TE HOLDINGS, INC.:
By:

Title:

~

(SIGNATUR PAGE TO NELLSON MANAGEMENT INCENTIVE PLAN)

r-:

LA: 152124.3

9

APPELLEES' APPENDIX PAGE 028

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Document 7-2

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Page 30 of 39

NELLSON NURACEUTICAL EASTERN DIVISION, INC.:
By:

Title:

VlTEX FOODS, INC.:
By:

Title:

(SIGNATUR PAGE TO NELLSON MANAGEMENT INCENTIVE PLAN)
:....

~

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LA: 152124.3

10

APPELLEES' APPENDIX PAGE 029

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Exhibit A to Management Incentive Plan
;.

Intentionally Not Included

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APPELLEES' APPENDIX PAGE 030

Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 32 of 39

IN THE UNTED STATES BANKUPCY COURT
FOR THE DISTRICT OF DELA WAR

In re

) )
) )

Chapter 11

NELLSON NURACEUTICAL, INC., i
Debtors.

Case No. 06-10072 (CSS) (Jointly Administered)

)

ORDER AUTHORIZING AND APPROVIG PAYMNTS UNER MANAGEMENT INCENTIVE PLAN
Upon the motion (the "Motion'i of the above-captioned debtors and debtors in
possession (the "Debtors") for entry of an order authorizing and approving the Management
Incentive Plan; and this Court having jurisdiction over the matters set forth in the Motion; and
finding that notice of the Motion was appropriate, and that no further notice is needed; and upon
, ¡

the record established at the hearng on the Motion; and finding that good and sufficient cause
exists to grant the relief set forth in the Motion; accordingly, it is hereby

f:
,

ORDERED, that the Motion is granted; and it is furher
ORDERED, that the Debtors are authorized to implement the Management
i.¡.

Incentive Plan; and it is further

ORDERED, that the Debtors are authorized, but not directed, to make payments
to the Employees, under the Management Incentive Plan, up to an aggregate amount of $1.395

millon; and it is further
1 The Debtors and the last four digits of each of the Debtors' federal tax identification numbers are as follows:

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s:
v:.

(a) Nellson Nutraceutical, Inc., a Delaware corporation, Fed. Tax Id. #5044; (b) Nellson Holdings, Inc., a Delaware corporation, Fed. Tax Id. #0642; (c) Nellson Intermediate Holdings, Inc., a Delaware corporation, Fed. Tax Id. #0653; (d) Neilson Northern Operating, Inc., a Delaware corporation, Fed. Tax Id. #7694, (e) NeIlson NutraceuticaI Eastern Division, Inc., a Delaware corporation, Fed. Tax Id. #8503; (f) Neilson Nutraceutical Powder Division, Inc., a Delaware corporation, Fed. Tax Id. #3670; and (g) Vitex Foods, Inc., a California corporation, Fed. Tax Id. #9218. 2 Capitalized terms not otherwise defined herein are to be given the meanings ascribed to them in the Motion,

59903-001\DOCS_DE:117465.10

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Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 33 of 39

ORDERED, that all payments under the Management Incentive Plan shall be
deemed allowed administrative expenses of the Debtors' estates under section 503(b) of the

Bankrptcy Code; and it is further
ORDERED, that this Court shall retain jurisdiction over all matters set forth in the

Motion, including the entitlement of any pary to any payment pursuant to the Management
Incentive Plan.

Dated: May _, 2006

Christopher S. Sontchi

United States Banptcy Judge

;l

~

~~.

59903-001 \DOCS_DE: 1 17465.1 0

2
APPELLEES' APPENDIX PAGE 032

Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 34 of 39

IN THE UNITED STATES BANUPTCY COURT
FOR THE DISTRICT OF DELAWAR

hue
NELLSON NUTRACEUTICAL, INC., i

) Chapter 11

)
) Case No. 06-10072 (CSS)
) (Jointly Adminstered)

Debtors.

)
)

AFFIDAVIT OF SERVICE

STATE OF DELAWAR
COUNTY OF NEW CASTLE

"

)
) ss.:

)

Rasheda Stewart, being duly sworn according to law, deposes and says that she is
employed by the law firm of

Pachulski Stang Ziehl Young Jones & Weintraub LLP, counsel for

the Debtors and Debtors in Possession, in the above-captioned action, and that on the 28th day of
April

2006, she caused a tre and correct copy ofthe following docUTent(s) to be served upon

the attached service list(s) in the maner indicated:

1. NOTICE OF MOTION OF THE DEBTORS FOR ENTRY OF AN ORDER AUTHORIZING AND APPROVING PAYMNTS UNDER MAAGEMENT INCENTIVE PLAN;

:.:'

2. MOTION OF THE DEBTORS FOR ENTRY OF AN ORDER AUTHORIZING AND APPROVING PAYMNTS UNER MANAGEMENT INCENTIVE PLAN; and

g
'(

i The Debtors and the last four digits of each of the Debtors' federal tax identification numbers are as follows:
(a) Nellson Nutraceutical, Inc., a Delaware corporation, Fed. Tax Id. #5044; (b) NeIlson Holdings, Inc., a Delaware corporation, Fed. Tax rd. #0642; (c) NeIlson Intermediate Holdings, Inc., a Delaware corporation, Fed. Tax rd. #0653; (d) Neilson Nortern Operatig, Inc., a Delaware corporation, Fed. Tax Id. #7694, (e) Nellson Nutraceutical Eastern Division, Inc., a Delaware corporation, Fed. Tax rd. #8503; (f) Nellson Nutraceutical Powder Division, Inc., a Delaware corporation, Fed. Tax Id. #3670; and (g) Vitex Foods, Inc., a Californa corporation, Fed. Tax Id. #9218.
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APPELLEES' APPENDIX PAGE 033

Case 1:06-cv-00521-GMS

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Page 35 of 39

3.

~~ ~
Notar

Sworn to and subscribed before methS28ildaYOf~~

Public . e. 'Z&:.o-l
MARLENE S. CHAPPE
NOTARY PUBLIC STATE OF DELAWARE My Comission Exoires Aug. 26, 2007

My Commission Expires:

~~

~
~~ " '.-

59903-00l\DOCS-ÐE:! 14985.8

4
APPELLEES' APPENDIX PAGE 034

Case 1:06-cv-00521-GMS
Nellson Nutraceutical, Inc. 2002 Service List Case No. 06-10072 (CSS)
Document No. 114109

Document 7-2

Filed 06/26/2007

Page 36 of 39

10 - Hand Delivery 02 - Interoffice Delivery 31 - First Class Mail
(Counsel to the Debtors) Laura Davis Jones, Esquire Rachel Lowy Werkheiser, Esquire Pachulski Stang ZieW YOWlg Jones & Weintraub LLP
919 North Market Street, 17t Floor

Hand Delivery (Counsel to Fremont mvestors VII, LLC) Mark D. Collns, Esquire Richards Layton & Finger One Rodney Square

920 North Kig Street
Wilmgton, DE 19801

Hand Delivery (Counsel to Wells Fargo Ban, N.A. and Wells Fargo Brokerage Services, LLC)
Richard Cobb, Esquire

P.O. Box 8705 Wilmington, DE 19899-8705

J are L. Edmonson, Esquire

Interoffice Mail
(Counsel to the Debtors) Debra Grassgreen, Esquire Maxim B. Litvak, Esquire Pachulski Stang Ziehl Young Jones & Weintraub LLP 150 Californa Street, 15th Floor San Francisco, CA 94111

Landis, Rath & Cobb LLP 919 Market Street, Suite 600 Wilmington, DE 19801
Hand Delivery (Counsel to Westaff(USA) and Pnde Transport, me.,
Ene Foods, Inc.)

James E. Huggett, Esquire
Jackson Shr, Esquire

Ron L. Woodmar, Esquire

Interoffce Mail
(Counsel to the Debtors) Richard M. Pachulski, Esquire Brad R. Godshall, Esquire Pachulski Stang Ziehl Young Jones & Weintraub LLP 10100 Santa Monica Boulevard, Suite 11 00 Los Angeles, CA 90067 Hand Delivery (Copy Service)
Parcels, Inc.

Harey Pennngton Ltd. 913 Nort Market Street, Suite 702
Wilmington, DE 19801
Hand Delivery (Counsel to UBS) Richard W. Riley, Esquire Duane Morrs LLP 1100 North Market Street, Suite 1200
Wilmngton, DE 19801

Vito 1. DiMaio 4 East Seventh Street

Hand Delivery
(Counsel to the Offcial Committee of

Unsecured

Wilmington, DE 19801
Hand Delivery (United States Trustee)

Creditors)

Kurt F. Gwyne, Esquire

Wiliam Harngton, Esquire
Office of the United States Trustee J. Caleb Boggs Federal Building 844 N. King Street, Suite 2207
Lockbox 35

Reed Smith LLP 1201 Market Street, Suite 1500 Wilmington, DE 19801
;; !l

Hand Delivery (Counsel to Orafti, American Honey and Kerr, Inc.) Mark E. Felger, Esquire
Cozen O'Connor
Chase Manattan Centre

~

Wilmington, DE 19801

1201 Nort Market Street Suite 1400
Wilmngton, DE 19801

APPELLEES' APPENDIX PAGE 035

Case 1:06-cv-00521-GMS
Hand Delivery (Counsel to Dell Marketing, L.P.)
Patrcia P. McGonigle, Esquire

Document 7-2

Filed 06/26/2007

Page 37 of 39

First Class Mail
(Counsel to UBS) Gregory A. Bray, Esquire Thomas R. Kreller, Esquire
Milban, Tweed, Hadley & McCloy LLP

Seitz, Vanogtop & Green, P.A. 222 Delaware Avenue, Suite 1500 PO Box 68
Wilmgton, DE 19899

601 South Figueroa Street, 30th Floor Los Angeles, CA 90017

Hand Delivery
(Counsel to Informal Commttee of

First Class Mail
First Lien Lenders)

(Counsel to Fremont hivestors VII, LLC)
Suzzane Uhland, Esquire

Robert S. Brady, Esquire

Young Conaway Stargatt & Taylor LLP The Brandywine Building 1 000 West Street, 17th Floor Wilmington, DE 19801

O'Melveny & Myers LLP Embarcadero Center West 275 Battery Street San Francisco, CA 94111-3305

Hand Delivery
(Counsel to Utah Paperbox Company)

First Class Mail (Counsel to Wells Fargo Ban, N.A. and Well Fargo
Brokerage Services, LLC)

Neil B. Glassman, Esquire Danel K. Astin, Esquire Ashley B. Stitzer, Esquire The Bayard Firm 222 Delaware Avenue, Suite 900
Wilmngton, DE 19801

Mara K. Pur, Esquire
Whte & Case LLP

633 West Fift Street, Suite 1900 Los Angeles, CA 90071

First Class Mail
Hand Delivery (Counsel to The Solae Company)
Jennfer A.L. Kelleher, Esquire
(Counsel to the Ad Hoc Commttee of

First Lien

Lenders) Fred Hodara, Esquire

Ballard Spah Andrews & higersoll, LLP
919 N. Market Street, 12th Floor
Wilmngton, DE 19801

Ak Gump Strauss Hauer & Feld LLP
590 Madison Avenue New York, NY 10022-2524

Hand Delivery (Counsel to The Blommer Chocolate Company) Norman M. MOIÙait, Esquire Rosenthal, Monhait & Goddess, P.A. 919 Market Street, Suite 1401 Wilmington, DE 19801

First Class Mail
(Counsel to Wells Fargo Ban, N.A. and Well Fargo Brokerage Services, LLC) Danel P. Ginsberg, Esquire Whte & Case LLP
1155 Avenue of

~

the Americas

New York, NY 10036-2787

First Class Mail
(Counsel to UBS) James J. Holman, Esquire Duane Morrs LLP
30 South i 7th Street Philadelphia, P A

First Class Mail (Wells Fargo Ban, N.A. and Well Fargo Brokerage
Services, LLC) Ms. Ellen Trach

~ .~

Wells Fargo Ban, N.A.
MAC N9305-198 90 South ih Street
Mieapolis, MN 55479

APPELLEES' APPENDIX PAGE 036

Case 1:06-cv-00521-GMS

Document 7-2

Filed 06/26/2007

Page 38 of 39

First Class Mail
(Counsel to Erie Foods International, Inc.) Dale G. Haae, Esquire Katz, Huntoon & Fieweger, P .C. 1000 36th Avenue