<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 2000
REGISTRATION NO. 333-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 3842 13-4018241
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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10700 BREN ROAD WEST
MINNETONKA, MN 55343
(952) 933-4666
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
DOUGLAS W. KOHRS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
10700 BREN ROAD WEST
MINNETONKA, MN 55343
(952) 933-4666
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
Thomas A. Letscher, Esq. Steven J. Gartner, Esq.
Oppenheimer Wolff & Donnelly LLP Willkie Farr & Gallagher
Plaza VII, Suite 3300, 45 South Seventh Street 787 Seventh Avenue
Minneapolis, Minnesota 55402 New York, New York 10019
(612) 607-7000 (212) 728-8000
</TABLE>
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Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $.01 per
share $86,250,000 $22,800
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the Securities and Exchange Commission
declares our registration statement effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 19, 2000
SHARES
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
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<S> <C>
Common Stock [AMS LOGO]
$ per share
</TABLE>
- --------------------------------------------------------------------------------
- - American Medical Systems Holdings, Inc. is offering shares.
- - We anticipate that the initial public offering price will be between
$ and $ per share.
- - This is our initial public offering and no public market currently exists for
our shares.
- - Proposed trading symbol: Nasdaq National Market -- AMMD.
----------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE .
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds to American Medical Systems........................ $ $
</TABLE>
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- --------------------------------------------------------------------------------
Warburg, Pincus Equity Partners, L.P. has granted the underwriters a 30-day
option to purchase up to additional shares of common stock to cover
over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF ANYONE'S INVESTMENT IN THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
U.S. BANCORP PIPER JAFFRAY
BANC OF AMERICA SECURITIES LLC
CHASE H&Q
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
[DESCRIBE GRAPHICS]
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<S> <C> <C>
AMS SPHINCTER 800(TM) URINARY PROSTHESIS
[Picture of AMS Artificial Sphincters are used to treat male and [Diagram of
Sphincter 800 Urinary female urinary and fecal incontinence. We are related anatomy]
Prosthesis] the worldwide leader in the artificial sphincter
market and the only company to provide these
products in the United States.
IN-FAST(TM) SLING SYSTEM
[Picture of In-Fast] Sling procedures are used to treat female [Diagram of
incontinence. The sling market is one of the related anatomy]
fastest growing markets in urology. We are one
of the leaders in the sling fixation market with
our In-Fast Sling System.
STRAIGHT-IN(TM) MALE SLING SYSTEM
[Picture of Straight-In] Sling procedures can also be used to treat male [Diagram of
incontinence. We recently introduced the related anatomy]
Straight-In product, which is used in a sling
procedure for the treatment of male
incontinence.
</TABLE>
2
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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Summary..................................................... 4
Risk Factors................................................ 10
Forward-Looking Statements.................................. 19
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Dilution.................................................... 23
Selected Financial Data..................................... 24
Unaudited Pro Forma Consolidated Statement of Operations.... 26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
Business.................................................... 39
Management.................................................. 58
Certain Transactions........................................ 69
Principal Stockholders...................................... 72
Description of Capital Stock................................ 74
Shares Eligible for Future Sale............................. 77
Underwriting................................................ 79
Legal Matters............................................... 81
Experts..................................................... 81
Where You Can Find More Information......................... 82
Index to Financial Statements............................... F-1
</TABLE>
---------------------------------------------
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, the securities in any state where the offer or sale is
not permitted. The information in this prospectus is complete and accurate as of
the date on the front cover, but the information may have changed since that
date.
3
<PAGE> 5
SUMMARY
The items in the following summary are described in more detail later in this
prospectus. This summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information set out in this prospectus, including the
financial statements.
BUSINESS OF AMERICAN MEDICAL SYSTEMS
We are the leading independent company focused solely on supplying medical
devices to physicians specializing in the treatment of urological disorders. We
currently manufacture and market a broad and well-established line of
proprietary products directly to urologists, with our principal focus on the
three major urological disorders: incontinence, erectile dysfunction and
prostate disease. We believe our long-standing reputation for quality and
innovative products and excellent relationships with leading urological surgeons
position us not only to benefit from the growth in the urology market, but to
drive it.
We are the worldwide leader in most of the markets in which we participate. The
following exemplify our market leadership:
- #1 market position in artificial urinary sphincters for the treatment of
incontinence.
- #1 or #2 market position in sling systems, one of the fastest growing
urological procedures.
- #1 market position in penile prostheses for the treatment of erectile
dysfunction, with more than 60% market share.
- #1 market position in permanent urethral stents for the treatment of
enlarged prostates, or BPH, and strictures.
Currently, approximately 60 million people in the United States suffer from the
urological disorders addressed by our products. However, a very small percentage
of people suffering from these disorders have undergone procedures to resolve
their conditions. We believe that several key factors will accelerate demand for
surgical approaches to treat these disorders. These factors include an aging
population, expanding treatment alternatives driven by new technologies and
techniques, increased consumer awareness and higher quality of life
expectations.
Our product development and acquisition strategy is designed to be responsive to
the wide range of surgical treatments demanded by our urologist customers and
their patients. During the past 18 months, we significantly enhanced our product
offering and added leading-edge, less-invasive medical devices in our core
product areas. In August 1999, we acquired the UroVive bulking system for the
treatment of urinary stress incontinence. In October 1999, we acquired exclusive
worldwide distribution rights to the InjecTx ethanol injection system for the
treatment of BPH. In December 1999, we acquired Influence, Inc., one of the
leading providers of surgical devices to treat female incontinence. We now offer
multiple surgical solutions for the treatment of the following major urological
disorders:
- Incontinence. Our products include artificial sphincters, sling systems
and bulking systems. Our incontinence products represented $26.9 million, or
33%, of our 1999 net sales. Sales of incontinence products would have been $37.5
million in 1999 if Influence sales had been included for the entire year.
- Erectile Dysfunction. Our erectile dysfunction products include a full
line of inflatable and malleable penile prostheses and a diagnostic system used
to determine the causes of erectile dysfunction. Urologists have implanted over
250,000 of our devices with high patient satisfaction rates. Our erectile
dysfunction products represented $47.2 million, or 58%, of our 1999 net sales.
4
<PAGE> 6
- Prostate Disease. We participate in the prostate disease market with our
endourethral stents, resection loops and a minimally invasive system for
treatment of BPH. Our prostate disease products represented $7.2 million, or 9%,
of our 1999 net sales.
Since our founding in 1972, we have focused solely on surgical product solutions
for urologists. These surgical products are generally high margin, sophisticated
products requiring training and frequent contact with physicians. Over time, our
sales force has developed very strong relationships throughout the urologist
community and we believe this is a primary competitive advantage. Today, we
employ one of the largest sales forces solely focused on the urology market,
with over 100 domestic and international direct sales representatives and 45
international distributors. Through this sales force, we continue to strengthen
our relationships with urologists by assisting them to expand their practices
and increase patient awareness of our products. Our relationship with urologists
is an important part of our growth strategy, providing us with a source of new
product ideas and a conduit through which to introduce new products.
In 1999, our international business represented 23% of our total sales. We plan
to grow our international business and expect it to be an increasing portion of
our sales. In order to achieve this goal, we have recently added a new senior
management team and restructured our international business. We are also
refocusing our European operations to respond to the needs of the local markets
and to develop marketing and reimbursement strategies on a country-by-country
basis.
CORPORATE INFORMATION
We founded our business in 1972. Pfizer Inc. acquired our business in 1985. In
September 1998, a group of investors led by Warburg, Pincus Equity Partners,
L.P., financed the purchase of our assets from Pfizer. We formed American
Medical Systems Holdings, Inc., our current holding company, in April 2000.
This prospectus contains references to our trademarks Acticon(TM), American
Medical Systems(TM), AMS 700(TM), AMS Ambicor(R), AMS Sphincter 800(TM),
Coaguloop(R), Flast(TM), In-Fast(TM), Influence(R), Straight-In(TM),
Triangle(R), UroLume(R), UroVive(TM), and Ultrex(R). All other trademarks or
trade names referred to in this prospectus are the property of their respective
owners, in particular Viagra(R) which Pfizer Inc. owns and MUSE(TM) which VIVUS,
Inc. owns.
In this prospectus, references to "AMS," "the company," "we" and "our," unless
the context otherwise requires, refer to American Medical Systems Holdings, Inc.
and its subsidiaries, including its wholly owned operating subsidiary, American
Medical Systems, Inc. References to "Warburg Pincus," unless we specifically
state otherwise, refer to Warburg, Pincus Equity Partners, L.P.
RECAPITALIZATION AND STOCK SPLIT
Prior to the closing of the offering, we will effect a three-for-one stock
split. Simultaneous with the completion of the offering, all of our outstanding
preferred stock, together with accumulated dividends, will be converted into
common stock, and we will amend our certificate of incorporation to eliminate
our currently designated preferred stock.
OFFICE AND WEBSITE LOCATION
Our principal executive offices are located at 10700 Bren Road West, Minnetonka,
Minnesota 55343, and our telephone number is (952) 933-4666. Our website is
located at www.visitAMS.com. Our website is not intended to be part of this
prospectus.
5
<PAGE> 7
THE OFFERING
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Common stock offered............................... shares
Common stock outstanding after the offering........ shares
Offering price..................................... $ per share
Use of proceeds.................................... We intend to use the proceeds from the offering
to repay approximately $40 million of
outstanding indebtedness under the guaranteed
portions of our senior credit facility, to pay
contingent purchase price payments relating to
our acquisition of Influence, and the balance to
fund future product development and acquisition.
See "Use of Proceeds" for more detailed
information about our use of proceeds from the
offering.
Proposed Nasdaq National Market symbol............. AMMD
</TABLE>
The number of shares of common stock to be outstanding after the offering
excludes:
- 2,936,625 shares of our common stock that we may issue upon the exercise
of options outstanding as of May 1, 2000 at a weighted average exercise
price of $1.67 per share;
- 493,875 shares of our common stock available for future issuances under
our 2000 Equity Incentive Plan as of the date of this prospectus; and
- shares of our common stock that we may issue under an Exchange
Agreement we entered into in December 1999 in connection with our
acquisition of Influence.
Except as otherwise noted, all information in this prospectus:
- assumes no exercise of the underwriters' over-allotment option;
- reflects the completion of a 3-for-1 stock split that will occur prior
to the closing of the offering;
- reflects the conversion upon the closing of the offering of all of our
outstanding series A preferred stock, plus accrued dividends on these
shares, into shares of our voting common stock and shares
of our non-voting common stock;
- reflects the conversion upon the closing of the offering of all of our
other outstanding preferred stock, plus accrued dividends on these
shares, into 3,296,871 shares of our voting common stock and 14,878,062
shares of our non-voting common stock; and
- assumes the filing of our amended and restated certificate of
incorporation which will occur simultaneously with the closing of the
offering.
6
<PAGE> 8
The total number of shares of common stock into which our preferred stock is
convertible is subject to adjustments for accumulated dividends on the preferred
stock as of the conversion date. In addition, the conversion price for the
series A preferred stock is equal to the initial public offering price. In this
prospectus, we have assumed an initial public offering price of $ and
that the conversion of all of our preferred stock will occur on June 30, 2000.
If the conversion of our preferred stock occurs after that date, additional
shares of common stock will be issued for the dividends that accumulate after
June 30, 2000. Approximately additional shares of common stock will be
issued for each month after June 30, 2000 that the conversion occurs.
7
<PAGE> 9
SUMMARY FINANCIAL DATA
In the pro forma column of the consolidated statement of operations data below,
we have adjusted the statement of operations data for the year ended December
31, 1999, to give the estimated effects of our acquisition of Influence on
December 16, 1999, as if the transaction closed on January 1, 1999.
In calculating the pro forma net loss per share in the consolidated statement of
operations data below, we have given effect to the conversion of all of our
outstanding preferred stock, plus accumulated dividends, into common stock as if
the conversion occurred at the beginning of the respective period. We will use
approximately $40 million of the proceeds of the offering to repay outstanding
debt. Assuming the issuance and sale of a number of shares which would generate
proceeds sufficient to repay $40 million of our debt as of the beginning of
1999, pro forma net loss per share would have been $ per share for the
year ended December 31, 1999 and $ for the three months ended March 31,
2000. We have not presented a calculation of historical net loss per share
because there was no outstanding common stock as of any of the dates presented.
<TABLE>
<CAPTION>
COMBINED PREDECESSOR CONSOLIDATED AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
---------------------------- ------------------------------------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, SEPTEMBER 11, PRO FORMA THREE MONTHS ENDED
YEAR ENDED 1998 TO 1998 TO YEAR ENDED YEAR ENDED MARCH 31,
DECEMBER 31, SEPTEMBER 10, DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------------
1997 1998 1998 1999 1999 1999 2000
------------ ------------- ------------- ------------ ------------ -------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............ $ 91,958 $54,615 $ 23,115 $ 81,353 $ 92,506 $ 20,169 $24,986
Cost of sales(1)..... 19,694 14,050 15,551 31,419 34,299 16,300 5,730
-------- ------- -------- -------- -------- -------- -------
Gross profit......... 72,264 40,565 7,564 49,934 58,207 3,869 19,256
Operating expenses:
Marketing and
sales............ 21,607 18,486 8,261 30,400 37,036 7,045 9,864
Research and
development...... 16,251 10,177 2,884 9,552 11,708 2,127 3,028
General and
administrative... 17,073 19,846 1,951 7,889 10,114 1,677 2,694
Transition and
reorganization... -- -- 2,517 3,000 3,000 3,000 --
Amortization of
intangibles...... 998 19 965 3,360 6,610 785 1,766
In-process research
and
development...... -- -- -- 7,354 7,354 -- --
-------- ------- -------- -------- -------- -------- -------
Total operating
expenses........... 55,929 48,528 16,578 61,555 75,822 14,634 17,352
-------- ------- -------- -------- -------- -------- -------
Operating income
(loss)............. 16,335 (7,963) (9,014) (11,621) (17,615) (10,765) 1,904
Royalty and other
income (expense)... (112) (155) 180 4,205 4,205 785 726
Interest income
(expense).......... -- -- (1,672) (6,873) (7,087) (1,741) (1,844)
-------- ------- -------- -------- -------- -------- -------
Income (loss) before
taxes.............. 16,223 (8,118) (10,506) (14,289) (20,497) (11,721) 786
- ------------------------------------------------------------------------------------------------------------------------
Footnotes appear on the following page.
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
COMBINED PREDECESSOR CONSOLIDATED AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
---------------------------- ------------------------------------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, SEPTEMBER 11, PRO FORMA THREE MONTHS ENDED
YEAR ENDED 1998 TO 1998 TO YEAR ENDED YEAR ENDED MARCH 31,
DECEMBER 31, SEPTEMBER 10, DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------------
1997 1998 1998 1999 1999 1999 2000
------------ ------------- ------------- ------------ ------------ -------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income tax benefit
(expense).......... (6,136) 3,241 4,024 4,998 4,998 4,688 (442)
-------- ------- -------- -------- -------- -------- -------
Net income (loss).... $ 10,087 $(4,877) $ (6,482) $ (9,291) $(15,499) $ (7,033) $ 344
======== ======= ======== ======== ======== ======== =======
Pro forma net loss
per share--basic
and diluted........
Shares used in pro
forma per share
calculation........
</TABLE>
- ---------------------------------------------
(1) In connection with our acquisition from Pfizer Inc., we recorded inventories
at fair market value at the date of the acquisition. This accounting
treatment required a $21.8 million write-up of inventories above
manufacturing costs. The write-up was charged to cost of sales over the
following six months as the acquired inventory was sold. Cost of sales were
charged $10.2 million in the period from September 11 to December 31, 1998
and $11.6 million in the first quarter of 1999 related to this fair value
cost adjustment.
In the pro forma column of the consolidated balance sheet data below, we have
adjusted the balance sheet data as of March 31, 2000, to give effect to the
conversion of all of our outstanding preferred stock, other than our series A
preferred stock, plus accumulated dividends, into 3,248,412 shares of our voting
common stock and 14,659,373 shares of our non-voting common stock upon the
closing of the offering.
In the pro forma as adjusted column of the consolidated balance sheet data
below, we have adjusted the balance sheet data as of March 31, 2000, to give
effect to the adjustments set forth above, the conversion of our series A
preferred stock into shares of voting common stock and shares of our
non-voting common stock and our receipt of the estimated net proceeds of $68.8
million from the sale of shares of common stock we are offering for
sale under this prospectus at an assumed initial public offering price of $
per share and the application of these proceeds as set forth under the caption
"Use of Proceeds."
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $5,106 $5,106 $33,856
Working capital (deficit)............................... (737) (737) 28,013
Total assets............................................ 190,781 190,781 219,531
Long-term liabilities................................... 96,621 96,621 56,621
Redeemable preferred stock.............................. 68,782 31,288 --
Stockholders' equity (deficit).......................... $(22,230) $15,264 $115,032
</TABLE>
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RISK FACTORS
You should carefully consider the following risk factors before you decide to
buy our common stock. You should also consider the other information in this
prospectus. In addition, the risks and uncertainties described below are not the
only risks we face because we are also subject to additional risks and
uncertainties not presently known to us. If any of these risks actually occur,
our business, financial condition, operating results or cash flows, could be
materially adversely affected. This could cause the trading price of our common
stock to decline, and you may lose part or all of your investment.
RISKS RELATED TO OUR BUSINESS
IF PATIENTS CHOOSE NON-INVASIVE ALTERNATIVES, OUR SALES MAY DECLINE.
We predominantly sell medical devices for invasive or minimally invasive
surgical procedures. If patients do not accept our products, our sales may
decline. Patient acceptance of our products depends on a number of factors,
including the failure of non-invasive therapies, the degree of invasiveness
involved in the procedures using our products, the rate and severity of
complications from the procedures using our products and other adverse side
effects from the procedures using our products.
Patients are always more likely first to consider non-invasive alternatives to
treat their urological disorders. Patients with incontinence conditions are
likely first to try pads, adult diapers or exercises to self-manage their
condition. Patients with erectile dysfunction are likely first to try oral
medications. For example, the primary oral medication used to treat erectile
dysfunction today is Viagra. Another non-invasive treatment is MUSE. MUSE is an
applicator which inserts medication into the urethra. Following the introduction
of MUSE in 1997 and the anticipation of Viagra in 1998, sales of our penile
implant products declined significantly. An advisory panel of the FDA recently
recommended for approval a new drug called Uprima to treat erectile dysfunction.
The introduction of new oral medications or other less-invasive therapies may
cause our sales to decline in the future.
IF PHYSICIANS DO NOT RECOMMEND AND ENDORSE OUR PRODUCTS, OUR SALES MAY DECLINE
OR WE MAY BE UNABLE TO INCREASE OUR REVENUES AND PROFITABILITY.
In order for us to sell our products, physicians must recommend and endorse
them. We may not obtain the necessary recommendations or endorsements from
physicians. Many of the products we recently acquired or are developing are
based on new treatment methods. Acceptance of our products is dependent on
educating the medical community as to the distinctive characteristics, perceived
benefits, clinical efficacy and cost-effectiveness of our products compared to
competitive products, and on training physicians in the proper application of
our products.
IF WE FAIL TO COMPETE SUCCESSFULLY IN THE FUTURE AGAINST OUR EXISTING OR
POTENTIAL COMPETITORS, OUR REVENUES AND OPERATING RESULTS MAY BE NEGATIVELY
AFFECTED AND WE MAY NOT ACHIEVE FUTURE GROWTH.
Many of our competitors in the urology market have greater resources, more
widely accepted products, less-invasive therapies, greater technical
capabilities and stronger name recognition than we do. Our competitors will
continue to improve their products and develop new competing products, including
less-invasive or non-invasive products such as Viagra. We may be unable to
compete effectively with our competitors if we cannot keep up with existing or
new alternative products, techniques, therapies and technology in the urology
market. These new technologies and products may beat our products to the market,
be more effective than our products or render our products obsolete by
substantially reducing the prevalence of incontinence, erectile dysfunction or
prostate diseases. See "Business--Competition" for more information about our
competitors.
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IF WE ARE UNABLE TO MANAGE SUCCESSFULLY OUR ISRAELI OPERATIONS, OUR RESEARCH AND
DEVELOPMENT EFFORTS MAY SUFFER.
We acquired Influence in December 1999. Influence's research and manufacturing
operations are located in the State of Israel. We are relying on our Influence
research and development staff to develop new products, particularly for
incontinence. If we fail to manage our Israeli operations effectively from the
United States we may not develop new or improved incontinence products. We rely
on the two founders of Influence to manage our Israeli operations. The Influence
founders have other business interests, and under their employment agreements
they are only required to devote 40% of their time to our business. These
employment agreements expire in December 2000, unless the parties agree to
extend them.
In addition, many of our Israeli employees are currently obligated to perform
annual reserve duty in the Israel Defense Forces and can be called to active
military duty at any time. A significant leave of absence of these employees,
without the ability to hire additional employees or replace key employees, could
have a negative impact on our product development efforts.
IF WE FAIL TO MANAGE SUCCESSFULLY OUR TWO U.S. SALES FORCES, WE MAY HARM OUR
BUSINESS BY CREATING CONFUSION IN THE UROLOGY MARKET.
Since our acquisition of Influence, we have maintained two separate sales forces
in the United States, one that sells our traditional products and one that sells
Influence's sling procedure kits for the treatment of incontinence. Our use of
two sales forces in the United States may create confusion in the urology market
because customers may not realize that they are both selling AMS products. The
Influence sales force sells products that are less invasive than some of the
products the AMS sales force sells. In some cases, our two sales forces sell
products that may compete for the same patients. In these cases, our sales
forces may be viewed as selling competing products.
IF WE CANNOT OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FROM THIRD-PARTY PAYORS FOR
OUR PRODUCTS, PHYSICIANS AND PATIENTS MAY BE RELUCTANT TO USE OUR PRODUCTS AND
SALES MAY DECLINE.
We may be unable to sell our products on a profitable basis if third-party
payors deny coverage or reduce their current levels of reimbursement. Our
revenues depend largely on government health care programs and private health
insurers reimbursing patients' medical expenses. Physicians, hospitals and other
health care providers may not purchase our products if they do not receive
satisfactory reimbursement from these third-party payors for the cost of the
procedures using our products. Payors continue to review their coverage policies
carefully for existing and new therapies and can, without notice, deny coverage
for treatments that include the use of our products.
The U.S. Health Care Financing Administration, or HCFA, issued a Final Rule on
its Prospective Payment System For Outpatient Services on April 7, 2000. We
estimate that more than half of the procedures using our products are used in an
outpatient hospital setting. This rule provides for a new system to reimburse
the outpatient services provided in a hospital made up of two parts: payment to
the hospital for the procedure costs and a separate payment, known as a
pass-through payment, intended to cover the cost of medical devices used during
the procedure that are more than 25% of the total procedure cost. This rule is
scheduled to become effective on July 1, 2000. On May 12, 2000, HCFA published a
list of 345 pharmaceuticals and medical devices that will be eligible for
pass-through payments starting July 1, 2000. HCFA currently intends only to
provide payment for the products on this list and update the list on a quarterly
basis. The current list contains approval for pass-through payments for our 700
line of penile implants and UroLume stent. It does not include our 650 or
Ambicor penile implants, artificial sphincters or sling procedure kits. If HCFA
does not add these products to the list of products eligible for pass-through
payments, our sales of these products may decline significantly.
If we are unable to obtain adequate levels of reimbursement from third-party
payors outside of the United States, international sales of our products may
decline. Outside of the United States, reimbursement
11
<PAGE> 13
systems vary significantly by country. Many foreign markets have governmentally
managed health care systems that govern reimbursement for new devices and
procedures. Some European countries, in particular France, have tightened
reimbursement rates, which has contributed to a decrease in our international
sales, particularly of our artificial urinary sphincter. See
"Business--Third-Party Reimbursement" for more information regarding
reimbursement in the United States and internationally.
IF OUR EFFORTS TO ACQUIRE OTHER COMPANIES OR PRODUCT LINES FAIL, OUR BUSINESS
MAY NOT GROW.
As part of our growth strategy, we intend to pursue acquisitions of other
companies or products and distribution arrangements. Our ability to grow through
acquisitions or distribution arrangements depends upon our ability to identify,
negotiate and complete suitable acquisitions or distribution arrangements. Even
if we complete acquisitions, we may also experience:
- difficulties in assimilating any acquired companies and products into
our existing business;
- delays in realizing the benefits of the acquired company or products;
- diversion of our management's time and attention from other business
concerns;
- lack of or limited direct prior experience in new markets we may enter;
or
- difficulties in retaining key employees of the acquired business
necessary to manage these acquisitions.
In addition, an acquisition could materially impair our operating results by
causing us to incur debt or requiring us to amortize acquisition expenses and
acquired assets.
IF WE SUPPLY PRODUCTS TO THE MARKET THAT WE MUST RECALL, OUR BUSINESS COULD
SUFFER FROM NEGATIVE PUBLICITY AND OUR SALES COULD DECLINE.
In the event that any of our products prove to be defective, we could
voluntarily recall, or the FDA could require us to redesign or implement a
recall of, any of our products. Since our acquisition from Pfizer, the cost of
sales for recalled products was approximately $1 million. Based on this
experience, and the fact that our competitors have also recalled products, we
believe there is a possibility that we may recall products in the future and
that future recalls could result in significant costs to us and significant
negative publicity which could harm our ability to market our products in the
future. Though it is not possible to quantify the economic impact of a recall,
it could have a negative impact on our business.
IF WE ARE INVOLVED IN LITIGATION OR OTHER PROCEEDINGS, WE MAY INCUR SUBSTANTIAL
COSTS AND OUR BUSINESS MAY SUFFER.
IF WE LOSE ANY EXISTING OR FUTURE INTELLECTUAL PROPERTY LAWSUITS, A COURT COULD
REQUIRE US TO PAY SIGNIFICANT DAMAGES OR PREVENT US FROM SELLING OUR
PRODUCTS. The medical device industry is litigious with respect to patents and
other intellectual property rights. Companies in the medical device industry
have used intellectual property litigation to gain a competitive advantage. We
are currently involved in two intellectual property lawsuits with Boston
Scientific Corporation relating to our sling procedure kits for the treatment of
incontinence. See "Business--Legal Proceedings" for more specific information
regarding these lawsuits. If Boston Scientific were to succeed in one or the
other of these lawsuits, the court may:
- require us to pay significant damages to Boston Scientific;
- prevent us from selling our sling procedure kits for the treatment of
incontinence; or
12
<PAGE> 14
- hold our patents invalid or unenforceable.
The occurrence of any of these would have a negative impact on our business.
In the future, we may become a party to other lawsuits involving patents or
other intellectual property. A legal proceeding, regardless of the outcome,
could drain our financial resources and divert the time and efforts of our
management. If we lose one of these proceedings, a court, or a similar foreign
governing body, could require us to pay significant damages to third parties,
require us to seek licenses from third parties and pay ongoing royalties,
require us to redesign our products or prevent us from manufacturing, using or
selling our products. In addition to being costly, protracted litigation to
defend or prosecute our intellectual property rights could result in our
customers or potential customers deferring or limiting their purchase or use of
the affected products until resolution of the litigation.
IF PRODUCT LIABILITY LAWSUITS ARE BROUGHT AGAINST US, OUR BUSINESS MAY BE
HARMED. The manufacture and sale of medical devices entails significant risk of
product liability claims. In the past, we have had a significant number of
product liability claims relating to our penile prostheses. In the future, we
may be subject to additional product liability claims, some of which may have a
negative impact on our business. Our existing products liability insurance
coverage may be inadequate to protect us from any liabilities we might incur. If
a product liability claim or series of claims is brought against us with respect
to uninsured liabilities or in excess of our insurance coverage, our business
could suffer.
IF WE LOSE ONE OF OUR KEY SUPPLIERS, WE MAY BE UNABLE TO MEET OUR CUSTOMER
ORDERS FOR OUR PRODUCTS IN A TIMELY MANNER OR WITHIN OUR BUDGET.
If we are unable to obtain materials we need from our key suppliers, we may be
unable to manufacture our products for a period of time or within our budget. We
rely on one supplier for the silicone used in most of our implantable penile
prosthesis and sphincters. We are aware of only two suppliers of silicone to the
medical device industry for permanent implant usage. We rely mostly on one
supplier for some of the components used in Influence's sling procedure kits. We
are currently aware of only a few suppliers of these components that we may use
if needed. In addition, some of our new products under development use materials
that are available only from limited sources.
Suppliers of raw materials and components may decide for reasons beyond our
control to cease supplying raw materials and components to us. For example, the
controversies in the United States surrounding the use of silicone in breast
implants have caused suppliers to carefully evaluate supplying silicone to
manufacturers of medical devices. We have no written agreements with our key
suppliers requiring them to supply us with these raw materials or components. In
addition, the FDA requires us to identify any supplier we use. The FDA may
require additional testing of any raw materials or components from new suppliers
prior to our use of these materials or components.
OUR USE OF SILICONE TO MANUFACTURE OUR PENILE IMPLANTS COULD CAUSE PUBLIC
CONTROVERSY WHICH MAY PREVENT CUSTOMERS FROM CHOOSING OUR PRODUCTS.
Our use of silicone in our products may result in controversies or even
litigation, which could decrease sales of our largest product line. Although we
do not use the type of silicone gel used in breast implants, the public may
still view our penile implant products as harmful as a result of the
controversies surrounding the use of silicone in breast implants. Studies or
research unknown to date may also cast doubt on the safety of our products and
the appropriateness of their intended use.
13
<PAGE> 15
IF WE ARE UNABLE TO CONTINUE TO MEET THE OPERATIONAL, LEGAL AND FINANCIAL
CHALLENGES WE MAY ENCOUNTER IN OUR INTERNATIONAL OPERATIONS, THE GROWTH OF OUR
INTERNATIONAL BUSINESS MAY BE LIMITED.
Our international sales and operations subject us and our representatives,
agents and distributors to laws and regulations of foreign jurisdictions. The
following factors, among others, may negatively impact our international sales
and operations if we are unable to meet or overcome them:
- changes in overseas economic conditions;
- the imposition of additional government controls;
- export license requirements;
- political instability, particularly in Israel where one of our
significant subsidiaries is located;
- trade restrictions;
- economic boycotts;
- changes in foreign tax laws or tariffs;
- distributor difficulties;
- communications problems;
- foreign competition;
- agreements which may be difficult to enforce;
- receivables which may be difficult to collect; and
- foreign customers with longer payment cycles.
FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES COULD RESULT IN DECLINES IN OUR
REPORTED SALES AND EARNINGS.
Since our international sales are denominated in local currencies and not in
U.S. dollars, our reported sales and earnings are subject to fluctuations in
foreign exchange rates. International sales accounted for 23% of our net sales
in 1999. We expect that international sales will continue to be a significant
portion of our business. At present, we do not engage in hedging transactions to
protect against uncertainty in future exchange rates between particular foreign
currencies and the U.S. dollars.
IF OUR PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS DO NOT ADEQUATELY PROTECT
OUR PRODUCTS, WE MAY LOSE MARKET SHARE TO OUR COMPETITORS AND BE UNABLE TO
OPERATE OUR BUSINESS PROFITABLY.
We rely on patents, trade secrets, copyrights, know-how, trademarks, license
agreements and contractual provisions to establish our intellectual property
rights and protect our products. These legal means, however, afford only limited
protection and may not adequately protect our rights. In addition, we cannot
assure you that any of our pending patent applications will issue. The U.S.
Patent and Trademark Office, or the PTO, may deny or significantly narrow claims
made under patent applications and the issued patents, if any, may not provide
us with significant commercial protection. We could incur substantial costs in
proceedings before the PTO. These proceedings could result in adverse decisions
as to the priority of our inventions. In addition, the laws of some of the
countries in which our products are or may be sold
14
<PAGE> 16
may not protect our products and intellectual property to the same extent as
U.S. laws, or at all. We may be unable to protect our rights in trade secrets
and unpatented proprietary technology in these countries.
We seek to protect our trade secrets and unpatented proprietary technology, in
part, with confidentiality agreements with our employees and consultants. We
cannot assure you, however, that:
- these agreements will not be breached;
- we will have adequate remedies for any breach; or
- trade secrets will not otherwise become known to or independently
developed by our competitors.
IF WE FAIL TO OBTAIN REGULATORY APPROVAL TO COMMERCIALLY MANUFACTURE OR SELL ANY
OF OUR PRODUCTS, OR IF APPROVAL IS DELAYED, WE WILL BE UNABLE TO GENERATE
REVENUE FROM THE SALE OF THOSE PRODUCTS.
WE MUST OBTAIN REGULATORY APPROVALS TO MARKET OUR PRODUCTS IN THE UNITED STATES
AND FOREIGN JURISDICTIONS. If we fail to receive regulatory approval for future
products, we will be unable to market and sell these future products. In the
United States, we must obtain approval from the FDA before we can begin
commercializing most of our products. The FDA approval process is typically
lengthy and expensive, and approval is never certain. For a description of the
FDA regulatory process, see "Business--Government Regulation." Products
distributed outside of the United States are also subject to foreign government
regulations which vary from country to country. The time required to obtain
approval from a foreign country may be longer or shorter than that required for
FDA clearance. Our failure to comply with regulatory approvals could result in
government authorities:
- imposing fines and penalties on us;
- preventing us from manufacturing our products;
- bringing civil or criminal charges against us;
- delaying the introduction of our new products into the market;
- recalling or seizing our products;
- disrupting the manufacture or distribution of our products; or
- withdrawing or denying approvals for our products.
WE WILL BE UNABLE TO SELL OUR PRODUCTS IF WE FAIL TO COMPLY WITH MANUFACTURING
REGULATIONS. In order to commercially manufacture our products we must comply
with the FDA's manufacturing regulations which govern design controls, quality
systems and documentation policies and procedures. The FDA and foreign
authorities periodically inspect our manufacturing facilities. Our failure to
comply with these manufacturing regulations may prevent us or delay us from
marketing or distributing our products and this would have a negative impact on
our business. For a description of the manufacturing regulations we must comply
with, see "Business--Government Regulation."
OUR BUSINESS MAY SUFFER IF OUR NEW PRODUCTS ARE NOT CLEARED TO MARKET IN THE
UNITED STATES OR ANY OTHER MARKET. We sell some of our products only in
international markets because they have not been cleared for marketing in the
United States. We may be unable to sell the products we are selling in Europe in
the United States. We may be unable to sell our future products in Europe, the
United States or any other
15
<PAGE> 17
market for a number of reasons. These reasons include, among others, the
possibilities that the potential products will be:
- ineffective or cause harmful side effects during preclinical testing or
clinical trials;
- difficult to manufacture on a large scale; or
- uneconomical.
IF THE CURRENT REGULATIONS GOVERNING THE USE OF HUMAN TISSUE CHANGE, SALES OF
OUR SLING PROCEDURE KITS MAY DECLINE.
We provide human cadaveric tissue as a service in conjunction with the sale of
our sling procedure kits for urinary incontinence. If we fail to comply with
laws or regulations relating to human tissue services, we may be unable to
provide human tissue with our sling procedure kits and sales of sling procedure
kits could decline. The procurement and transplantation of human tissue are
currently subject to federal regulation under a criminal statute, which
prohibits the purchase and sale of the human tissue we provide for valuable
consideration. The term valuable consideration does not include reasonable
payments associated with services such as the removal, transportation,
implantation, processing, preservation, quality control and storage of human
tissue. The FDA currently regulates human tissue-based products on a limited
basis, but has proposed a more comprehensive regulatory framework. If this more
comprehensive regulatory framework is adopted, we could be limited in our
ability to provide human cadaveric tissue. This could result in a decrease in
sales of our sling procedure kits.
IF OUR ROYALTY INCOME DECLINES, OUR NET INCOME WILL DECLINE.
In 1999, we recognized approximately $3.4 million of royalty income from the
sale of medical products by a third party that is covered by patents that we
own. Because the royalty income does not have any cost, all of our royalty
income contributes to pre-tax net income and has a greater impact on net income
than other revenue items. Any decrease in royalty income will reduce our pre-tax
net income by an equal amount.
RISKS RELATED TO THE OFFERING
IF A SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK IS SOLD INTO THE MARKET
FOLLOWING THE OFFERING, THE MARKET PRICE OF OUR COMMON STOCK COULD SIGNIFICANTLY
DECLINE, EVEN IF OUR BUSINESS IS DOING WELL.
Once a trading market develops for our common stock, many of our stockholders
will have an opportunity to sell their stock for the first time. Also, many of
our employees and directors may exercise their stock options in order to sell
the stock underlying their options in the market. Sales of a substantial number
of shares of our common stock in the public market after the offering could
depress the market price of our common stock and impair our ability to raise
capital through the sale of additional equity securities. Officers, directors,
stockholders and holders of outstanding options owning an aggregate of
approximately shares have agreed that they will not, without the prior
written consent of the underwriters, directly or indirectly sell any of these
restricted shares for 180 days after the date of this prospectus. For a more
detailed description, see "Shares Eligible for Future Sale."
OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, OUR BYLAWS AND DELAWARE
LAW CONTAIN PROVISIONS THAT COULD DISCOURAGE, DELAY OR PREVENT A TAKEOVER OF
AMS.
Provisions of our amended and restated certificate of incorporation, bylaws and
Delaware law may discourage, delay or prevent a merger with, or acquisition of,
AMS that you may consider favorable. See "Description of Capital
Stock--Undesignated Preferred Stock;--Anti-Takeover Provisions of Delaware Law"
for more information on the specific provisions of our amended and restated
certificate of
16
<PAGE> 18
incorporation, our bylaws and Delaware law that could discourage, delay or
prevent a change of control of AMS.
OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT IN OUR COMMON STOCK COULD
SUFFER A DECLINE IN VALUE.
There is currently no public market for our common stock. An active trading
market for our common stock may not develop, or, if one develops, trading may
not continue. You may be unable to resell the common stock you buy at or above
the initial public offering price. We will establish the initial public offering
price through our negotiations with the representatives of the underwriters. You
should not view the price they establish as any indication of prices that will
prevail in the trading market. With the current uncertainty about health care
policy, reimbursement and coverage in the United States, there has been
significant volatility in the market price and trading volume of securities of
medical device and other health care companies unrelated to the performance of
these companies. These broad market fluctuations may negatively affect the
market price of our common stock. Some specific factors that may have a
significant affect on our common stock market prices include:
- actual or anticipated fluctuations in our operating results;
- our announcements or our competitors' announcements of technological
innovations or new products;
- clinical trial results;
- changes in our growth rates or competitors' growth rates;
- developments regarding our patents or proprietary rights, or those of
our competitors;
- FDA and international actions with respect to the government regulation
of medical devices and third-party reimbursement matters;
- public concern as to the safety of our products;
- changes in health care policy in the United States and internationally;
- conditions in the financial markets in general;
- conditions of other medical device companies or the medical device
industry generally; and
- changes in stock market analyst recommendations regarding our common
stock, other comparable companies or the technology industry generally.
NEW INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price for a share of our common stock is
substantially higher than the net tangible book value per share of our common
stock. If you purchase shares of our common stock in the offering, you will
incur immediate and substantial dilution. You may also experience additional
dilution as a result of the exercise of our outstanding stock options. For a
definition of dilution see "Dilution."
OUR EXECUTIVE OFFICERS AND DIRECTORS MAY BE ABLE TO INFLUENCE MATTERS REQUIRING
STOCKHOLDER APPROVAL.
After the offering, our executive officers and directors will control
approximately % of our outstanding voting common stock, and Warburg Pincus,
individually, will own % of our voting common stock. This concentration of
ownership may have the effect of delaying, preventing or deterring a change in
control of
17
<PAGE> 19
our company, could deprive our stockholders of an opportunity to receive a
premium for their common stock as part of a sale or merger of AMS and may
negatively affect the market price of our common stock. All of our principal
stockholders are parties to a stockholders agreement, which provides that
current stockholders who own at least 10% of our capital stock have the right to
designate a specified number of persons to our board of directors so long as the
stockholder maintains specified levels of ownership of our outstanding common
stock. Upon the completion of the offering, Warburg Pincus will have the right
under the stockholders agreement to designate two persons to be appointed or
nominated to our board of directors. As a result of this share ownership and
minority representation on our board of directors, our current stockholders, in
particular Warburg Pincus, will be able to influence all affairs and actions of
our company, including matters requiring stockholder approval such as the
election of directors and approval of significant corporate transactions. The
interests of our executive officers, directors and principal stockholders may
differ from the interests of the other stockholders.
18
<PAGE> 20
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, principally in the sections
entitled "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" and "Business." Generally, you can identify these
statements because they use phrases like "anticipates," "believes," "expects,"
"future," "intends," "plans," and similar terms. These statements are only
predictions. Although we do not make forward-looking statements unless we
believe we have a reasonable basis for doing so, we cannot guarantee their
accuracy, and actual results may differ materially from those we anticipated due
to a number of uncertainties, many of which are unforeseen. You should not place
undue reliance on these forward-looking statements, which apply only as of the
date of this prospectus. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including,
among others, the risks we face as described on the previous pages and elsewhere
in this prospectus.
We believe it is important to communicate our expectations to our investors.
There may be events in the future, however, that we are unable to predict
accurately or over which we have no control. The risk factors listed on the
previous pages, as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in the previous risk factors and elsewhere in
this prospectus could negatively impact our business, operating results,
financial condition and stock price.
19
<PAGE> 21
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the
shares of our common stock we are offering under this prospectus at an assumed
initial public offering price of $ per share will be approximately $68.8
million, after deducting the underwriting discount and estimated offering
expenses. We will not receive any proceeds from the sale of common stock by
Warburg Pincus if the underwriters exercise their over-allotment option.
We anticipate using the net proceeds of the offering to:
- Repay approximately $40 million of outstanding indebtedness, which is
guaranteed by Warburg Pincus and three of its affiliated entities, under
our $115 million senior credit facility with a syndication of banks led
by Bank of America, N.A. See "Certain Transactions" and "Underwriting"
for more information on our senior credit facility. Borrowings under the
guaranteed portions of our senior credit facility bear interest at the
London InterBank Offering Rate, or LIBOR, plus 0.875%. As of April 30,
2000 this interest rate was 7.015%. Amounts outstanding under the
guaranteed portions of our senior credit facility are due in March 2006.
- Make contingent purchase price payments of up to $17.5 million under our
merger agreement with Influence.
We plan to use the balance of the proceeds to fund expansion of our current
product offering through research and development and acquisitions of
technologies, products and companies. We have no present understandings,
commitments or agreements with respect to any acquisitions. Pending the uses
described above, we intend to invest the net proceeds of the offering in
short-term, investment-grade, interest-bearing securities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for additional information
regarding our sources and uses of capital.
DIVIDEND POLICY
We have never declared or paid cash dividends. We currently intend to retain all
future earnings for the operation and expansion of our business. We do not
anticipate declaring or paying cash dividends on our common stock in the
foreseeable future. Any payment of cash dividends on our common stock will be at
the discretion of our board and will depend upon our results of operations,
earnings, capital requirements, contractual restrictions and other factors
deemed relevant by our board. In addition, our current senior credit facility
prohibits us from paying you any cash dividends without our lenders' consent.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents and
capitalization as of March 31, 2000.
In the pro forma column, we have made adjustments to give effect to the
conversion of all of our outstanding preferred stock other than our series A
preferred stock into our voting common stock and non-voting common stock upon
the closing of the offering.
In the pro forma as adjusted column, we have made adjustments to give effect to
the adjustments set forth above, the conversion of our series A preferred stock
into shares of our voting common stock and shares of our non-voting common
stock and our receipt of the estimated net proceeds of $68.8 million from the
sale of shares of common stock we are offering for sale under this prospectus
at an assumed initial public offering price of $ per share and the
application of these proceeds as set forth under the caption "Use of Proceeds."
You should read this table in conjunction with our consolidated financial
statements and their notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Use of Proceeds" and
"Description of Capital Stock" for additional information.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents................................. $5,106 $5,106 $ 33,856
======== ======== ========
Long-term debt, including current portion................. 104,100 104,100 56,621
Series A convertible non-voting preferred stock, $.01 par
value, 32,116 shares authorized; 27,749 shares issued
and outstanding actual and pro forma; no shares issued
and outstanding pro forma as adjusted................... 31,288 31,288 --
Series B convertible voting preferred stock, $.01 par
value, 4,050,000 shares authorized; 680,000 shares
issued and outstanding actual; no shares issued and
outstanding pro forma or pro forma as adjusted.......... 3,691 -- --
Series C convertible non-voting preferred stock, $.01 par
value, 6,000,000 shares authorized; 3,370,000 shares
issued and outstanding actual; no shares issued and
outstanding pro forma or pro forma as adjusted.......... 18,508 -- --
Series D convertible voting preferred stock, $.01 par
value, 4,800,000 shares authorized; 336,144 shares
issued and outstanding actual; no shares issued and
outstanding pro forma or pro forma as adjusted.......... 3,446 -- --
Series E convertible non-voting preferred stock, $.01 par
value, 3,400,000 shares authorized; 1,163,856 shares
issued and outstanding actual; no shares issued and
outstanding pro forma or pro forma as adjusted.......... 11,849 -- --
Stockholders' deficit:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding actual;
and no shares issued and outstanding pro forma or pro
forma as adjusted....................................
</TABLE>
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<PAGE> 23
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Voting common stock, $.01 par value, 75,000,000 shares
authorized; no shares issued and outstanding actual;
3,248,412 shares issued and outstanding pro forma;
and shares issued and outstanding pro forma as
adjusted............................................. -- 32
Non-voting common stock, $.01 par value, 20,000,000
shares authorized; no shares issued and outstanding
actual; 14,659,373 shares issued and outstanding pro
forma;
shares issued and outstanding and pro forma as
adjusted............................................. -- 147
Additional paid-in capital................................ 859 38,174
Deferred compensation..................................... (765) (765)
Accumulated other comprehensive loss...................... (1,065) (1,065)
Accumulated deficit....................................... (21,259) (21,259)
-------- -------- --------
Total stockholders' equity (deficit)................. (22,230) 15,264 115,302
-------- -------- --------
Total capitalization............................... $150,652 $150,652 $171,923
======== ======== ========
</TABLE>
The outstanding share information in the table above is based on the number of
shares outstanding as of March 31, 2000. The table above excludes:
- 2,936,625 shares of our common stock that we may issue upon the exercise
of options outstanding as of May 1, 2000 at a weighted average exercise
price of $1.67 per share;
- 493,875 shares of our common stock available for future issuances under
our 2000 Equity Incentive Plan as of the date of this prospectus; and
- shares of our common stock that we may issue under an Exchange
Agreement we entered into in December 1999 in connection with our
acquisition of Influence.
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<PAGE> 24
DILUTION
Our historical net tangible book deficit as of March 31, 2000 was approximately
$(126,787,000), or $ . per share of common stock. Our pro forma net
tangible book deficit as of March 31, 2000 was $(58,005,000) or approximately
$ per share. Pro forma net tangible book deficit per share represents our
total tangible assets less our total liabilities, divided by the number of
shares of our common stock outstanding, giving effect to the conversion of all
of our outstanding shares of preferred stock, including accumulated dividends on
these shares, into shares of our common stock. After giving effect to this
conversion, and the sale of the shares of common stock offered by this
prospectus and after deducting the underwriting discount and estimated offering
expenses, and without taking into account any other changes in our net tangible
book value after March 31, 2000, our net tangible book value as of March 31,
2000 would have been approximately $ , or $ . per share. This
represents an immediate increase in net tangible book value of $ . per
share to our existing stockholders and an immediate dilution of $ . per
share to new investors. Dilution is an accounting concept that refers to the
difference between what an investor pays for shares of a company and the book
value of the shares immediately after the transaction. Whenever the book value
is less than the investor paid, the investor suffers dilution. The dilution to
investors in the offering is illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share before the offering..... ( .)
Increase per share related to pro forma adjustments....... .
Increase per share attributable to new investors.......... .
Pro forma as adjusted net tangible book value per share
after the offering........................................ .
Dilution per share to new investors......................... .
</TABLE>
The following table enumerates the number of shares of common stock issued, the
total consideration paid and the average price per share paid by our existing
stockholders. The following table also enumerates the number of shares of common
stock purchased and the total consideration paid, calculated before deduction of
the underwriting discount and estimated offering expenses, and the average price
per share paid by the new investors in this offering assuming the sale of
shares of our common stock at an assumed initial offering price of $ per
share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... . % $ . % $ .
New investors............................ . % . % .
------ ------ ------- ------ ------
Total............................. 100.0% $ 100.0%
====== ====== ======= ====== ======
</TABLE>
The information presented in the previous table with respect to existing
stockholders assumes the conversion of all of our outstanding preferred stock,
including accumulated dividends on these shares, into shares of our
common stock. The table assumes that existing stockholders do not purchase any
shares of common stock in the offering. The previous table assumes no exercise
of stock options. As of May 1, 2000, there were options outstanding to purchase
2,936,625 shares of our common stock at a weighted average exercise price of
$1.67 per share. To the extent shares are issued upon the exercise of options,
there will be further dilution to new investors. See "Management" and
"Description of Capital Stock" for information regarding outstanding options.
23
<PAGE> 25
SELECTED FINANCIAL DATA
The following tables set forth certain selected combined and consolidated
financial data of American Medical Systems Holdings, Inc. and its predecessor
for the periods indicated. We derived our selected combined and consolidated
financial data as of December 31, 1998 and 1999 and for the period from January
1, 1998 to September 10, 1998 and September 11, 1998 to December 31, 1998 and
the year ended December 31, 1999 from our consolidated financial statements
included elsewhere in this prospectus and that were audited by Ernst & Young
LLP. We derived our selected combined financial data as of December 31, 1996 and
1997 and for each of the years in the three-year period ended December 31, 1997
from our financial statements that were audited by KPMG LLP. The audited
combined financial statements for the year ended December 31, 1997 are included
elsewhere in this prospectus. The audited combined financial statements for the
year ended December 31, 1996 are not included in this prospectus. We derived our
selected financial data as of December 31, 1995 from our unaudited combined
financial statements not included elsewhere in this prospectus. The selected
consolidated financial data for the three months ended March 31, 1999 and 2000
has been derived from our unaudited consolidated financial statements which, in
the opinion of management, include all adjustments, consisting solely of normal
recurring adjustments, necessary for a fair presentation of the consolidated
financial information shown on these statements. The results for the three
months ended March 31, 2000 are not necessarily indicative of the results to be
expected for the full year or any future period.
<TABLE>
<CAPTION>
COMBINED PREDECESSOR
--------------------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1, 1998
------------------------------ TO SEPTEMBER 10,
1995 1996 1997 1998
------- -------- ------- ----------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $89,734 $97,933 $91,958 $54,615
Cost of sales(1)............ 18,470 17,325 19,694 14,050
------- -------- ------- -------
Gross profit................ 71,264 80,608 72,264 40,565
Operating expenses:
Marketing and sales....... 27,316 26,851 21,607 18,486
Research and
development............. 12,949 13,747 16,251 10,177
General and
administrative.......... 10,052 9,926 17,073 19,846
Transition and
reorganization.......... -- -- -- --
Amortization of
intangibles............. 1,229 1,190 998 19
In-process research and
development............. -- -- -- --
------- -------- ------- -------
Total operating expenses.... 51,546 51,714 55,929 48,528
Operating income (loss)..... 19,718 28,894 16,335 (7,963)
Royalty and other income
(expense)................. (69) (571) (112) (155)
------- -------- ------- -------
Interest income (expense)...
Income (loss) before
taxes..................... 19,649 28,323 16,223 (8,118)
Income tax benefit
(expense)................. (8,149) (10,581) (6,136) 3,241
------- -------- ------- -------
Net income (loss)........... $11,500 $17,742 $10,087 $(4,877)
======= ======== ======= =======
Pro forma net loss per
share--basic and
diluted(2)................
Shares used in pro forma per
share calculation.........
OTHER FINANCIAL DATA:
EBITDA(3)................... $22,251 $31,029 $18,856 $(6,063)
Cash flows provided by (used
in) operating
activities................ 3,132 1,219 2,642 1,256
Cash flows provided by (used
in) investing
activities................ (3,132) (1,219) (2,642) (1,294)
Cash flows provided by (used
in) financing
activities................ -- -- -- --
- ----------------------------------------------------------------------------------
Footnotes appear on the following page.
<CAPTION>
CONSOLIDATED AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
---------------------------------------------------------
THREE MONTHS
PERIOD FROM ENDED
SEPTEMBER 11, 1998 YEAR ENDED MARCH 31,
TO DECEMBER 31, DECEMBER 31, -------------------
1998 1999 1999 2000
------------------ ------------ -------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $23,115 $81,353 $20,169 $24,986
Cost of sales(1)............ 15,551 31,419 16,300 5,730
------- -------- -------- -------
Gross profit................ 7,564 49,934 3,869 19,256
Operating expenses:
Marketing and sales....... 8,261 30,400 7,045 9,864
Research and
development............. 2,884 9,552 2,127 3,028
General and
administrative.......... 1,951 7,889 1,677 2,694
Transition and
reorganization.......... 2,517 3,000 3,000 --
Amortization of
intangibles............. 965 3,360 785 1,766
In-process research and
development............. -- 7,354 -- --
------- -------- -------- -------
Total operating expenses.... 16,578 61,555 14,634 17,352
Operating income (loss)..... (9,014) (11,621) (10,765) 1,904
Royalty and other income
(expense)................. (1,492) (2,668) (956) (1,118)
------- -------- -------- -------
Interest income (expense)...
Income (loss) before
taxes..................... (10,506) (14,289) (11,721) 786
Income tax benefit
(expense)................. 4,024 4,998 4,688 (442)
------- -------- -------- -------
Net income (loss)........... $(6,482) $(9,291) $(7,033) $344
======= ======== ======== =======
Pro forma net loss per
share--basic and
diluted(2)................
Shares used in pro forma per
share calculation.........
OTHER FINANCIAL DATA:
EBITDA(3)................... $2,980 $17,487 $3,004 $5,409
Cash flows provided by (used
in) operating
activities................ 850 13,898 5,831 (333)
Cash flows provided by (used
in) investing
activities................ (721) (39,092) (1,688) (4,460)
Cash flows provided by (used
in) financing
activities................ -- 29,253 2,500 2,800
- ----------------------------------------------------------------------------------
Footnotes appear on the following page.
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN MEDICAL
COMBINED PREDECESSOR SYSTEMS HOLDINGS, INC.
-------------------------------- ---------------------------------
AS OF DECEMBER 31, AS OF
-------------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $-- $-- $-- $2,808 $6,940 $5,106
Working capital (deficit)............................... 81,913 101,456 108,197 26,193 (577) (737)
Total assets............................................ 116,456 164,448 174,716 155,600 188,190 190,781
Long-term liabilities................................... 7,685 48,990 52,104 95,000 95,821 96,621
Redeemable preferred stock.............................. -- -- -- 40,981 67,465 68,782
Stockholders' equity (deficit).......................... $97,065 $115,458 $122,612 $(7,908) $(21,278) $(22,230)
</TABLE>
- ---------------------------------------------
(1) In connection with our acquisition from Pfizer Inc., we recorded inventories
at fair market value at the date of the acquisition. This accounting
treatment required a $21.8 million write-up of inventories above
manufacturing costs. The write-up was charged to cost of sales over the
following six months as the acquired inventory was sold. Cost of sales were
charged $10.2 million in the period from September 11 to December 31, 1998
and $11.6 million in the first quarter of 1999 related to this fair value
cost adjustment.
(2)In calculating the pro forma net loss per share, we have given effect to the
conversion of all our outstanding preferred stock, plus accumulated
dividends, into common stock as if the conversion occurred at the beginning
of the respective period. We will use approximately $40 million of the
proceeds of the offering to repay outstanding debt. Assuming the issuance and
sale of a number of shares which would generate proceeds sufficient to repay
$40 million of our debt as of the beginning of 1999, pro forma net loss per
share would have been $ per share for the year ended December 31, 1999
and $ for the three months ended March 31, 2000.
(3)EBITDA consists of net income (loss) excluding net interest, taxes,
depreciation, amortization (including amortization of deferred compensation),
non-cash charges related to acquired inventory, and the in-process research
and development write-off. EBITDA is provided because it is a measure of
financial performance commonly used as an indicator of a company's historical
ability to service debt. We have presented EBITDA to enhance your
understanding of our operating results. You should not construe it as an
alternative to operating income as an indicator of operating performance. It
should also not be construed as an alternative to cash flows from operating
activities as a measure of liquidity determined in accordance with GAAP. We
may calculate EBITDA differently from other companies. For further
information, see our financial statements and related notes elsewhere in this
prospectus.
25
<PAGE> 27
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Our unaudited pro forma consolidated statement of operations illustrates the
estimated effects of the acquisition of Influence on December 16, 1999. Our
unaudited pro forma consolidated statement of operations for the year ended
December 31, 1999 gives effect to the acquisition of Influence by applying the
purchase method of accounting and certain adjustments that are directly
attributable to the acquisition as if the transaction was consummated as of
January 1, 1999.
Our unaudited pro forma consolidated statement of operations is based upon
historical financial statements of AMS and Influence included elsewhere in this
prospectus, and should be read in connection with those statements and related
notes. Certain reclassifications have been made to the historical expenses of
Influence to conform to the AMS financial presentation. There is no pro forma
adjustment to reflect any expense savings which we expect to achieve after the
acquisition as the estimated benefits are based on projections and assumptions,
not actual experiences.
Our pro forma consolidated statement of operations does not purport to represent
what our results of operations would have been if the Influence acquisition had
in fact been consummated as of January 1, 1999 or to project the results of
operations for any future date or period. The pro forma adjustments are based
upon available information and upon certain assumptions that our management
believes are reasonable. In the opinion of our management, all adjustments
necessary to present fairly the unaudited pro forma consolidated statement of
operations have been made.
In calculating the pro forma net loss per share in the pro forma consolidated
statement of operations below, we have given effect to the conversion of all of
our outstanding preferred stock into common stock as if the conversion occurred
at the beginning of the year.
<TABLE>
<CAPTION>
AMERICAN
MEDICAL SYSTEMS
HOLDINGS, INC. INFLUENCE, INC.
--------------- ---------------
PERIOD FROM
JANUARY 1,
YEAR ENDED 1999 TO
DECEMBER 31, DECEMBER 15, PRO FORMA PRO FORMA
1999 1999 ADJUSTMENTS COMBINED
--------------- --------------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales................................... $81,353 $11,153 -- $92,506
Cost of sales............................... 31,419 2,880 -- 34,299
------- ------- ------- --------
Gross profit................................ 49,934 8,273 -- 58,207
Operating expenses:
Marketing and sales....................... 30,400 6,636 -- 37,036
Research and development.................. 9,552 2,156 -- 11,708
General and administrative................ 7,889 2,225 -- 10,114
Transition and reorganization............. 3,000 -- -- 3,000
Amortization of intangibles............... 3,360 -- 3,250(1) 6,610
In-process research and development....... 7,354 -- -- 7,354
------- ------- ------- --------
Total operating expenses....................
Operating income (loss)..................... (11,621) (2,744) (3,250) (17,615)
- ----------------------------------------------------------------------------------------------------------------
Footnotes appear on the following page.
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
AMERICAN
MEDICAL SYSTEMS
HOLDINGS, INC. INFLUENCE, INC.
--------------- ---------------
PERIOD FROM
JANUARY 1,
YEAR ENDED 1999 TO
DECEMBER 31, DECEMBER 15, PRO FORMA PRO FORMA
1999 1999 ADJUSTMENTS COMBINED
--------------- --------------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Royalty and other income (expense).......... 4,205 -- -- 4,205
Interest income (expense)................... (6,873) (514) 300(2) (7,087)
Income (loss) before taxes.................. (14,289) (3,258) (2,950) (20,497)
Income tax benefit (expense)................ 4,998 4,998
------- ------- ------- --------
Net income (loss)........................... $(9,291) $(3,258) $(2,950) $(15,499)
======= ======= ======= ========
Pro forma net loss per share--basic and
diluted(3)................................
Shares used in pro forma per share
calculation...............................
</TABLE>
- ---------------------------------------------
(1)Additional first-year amortization expense with respect to intangible assets
purchased in the acquisition of Influence using the straight-line method over
one to ten years.
(2)Elimination of interest expense of Influence of $514,000, offset by $214,000
of additional annual interest expense incurred on incremental borrowings
related to the Influence acquisition made under our senior credit facility.
(3)In calculating the pro forma net loss per share, we have given effect to the
conversion of all our outstanding preferred stock, plus accumulated
dividends, into common stock as if the conversion occurred at the beginning
of the respective period. We will use approximately $40 million of the
proceeds of the offering to repay outstanding debt. Assuming the issuance and
sale of a number of shares which would generate proceeds sufficient to repay
$40 million of our debt as of the beginning of 1999, pro forma net loss per
share would have been $ per share for the year ended December 31, 1999
and $ for the three months ended March 31, 2000.
27
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read together with the "Selected Financial Data" and our
financial statements and the related notes appearing elsewhere in this
prospectus. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. The actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including but not limited to those under the heading
"Risk Factors."
OVERVIEW
OPERATIONS OVERVIEW
We manufacture and market a broad and well-established line of medical devices
for patients suffering from incontinence, erectile dysfunction and prostate
disease. We are focused on expanding our product offering and adding
less-invasive medical devices for urological disorders through product
development and acquisitions.
In 1999, we expanded our commitment to the incontinence and prostate disease
markets with the acquisition of several technologies. These acquisitions have
enabled us to diversify our product portfolio and offer a sling product for
incontinence, one of the fastest growing portions of the urology market.
In August 1999, we acquired the UroVive bulking system for the treatment of
urinary incontinence. We paid $4.2 million at the closing of the acquisition and
are required to pay up to an additional $1.5 million if certain contingencies
are met. We are also committed to make royalty payments through 2003. In
connection with the transaction, we recorded $2.4 million of intangible assets
and expensed $1.3 million of in-process research and development costs.
In October 1999, we acquired exclusive worldwide distribution rights to an
injection system that offers a minimally invasive treatment option for BPH. In
exchange, we made a $2.0 million equity investment in the company that developed
this product and are required to invest up to an additional $2.5 million of
equity if certain clinical study milestones are achieved.
In December 1999, we acquired Influence, a provider of surgical devices used in
incontinence procedures. We paid $24.3 million at the closing of the
acquisition. We are also required to make contingent purchase price payments of
up to approximately $20.0 million, depending on the outcome of various
contingencies. Through March 31, 2000, we have made $2.5 million of these
contingent payments. In connection with the transaction, we expensed $6.1
million of in-process research and development costs and recorded $20.3 million
of goodwill and other intangible assets. We also capitalized $3.2 million
related to transaction and transition costs.
We manufacture most of our products and related components from our 180,000
square foot corporate headquarters located in Minnetonka, Minnesota. We
currently manufacture our sling products at our Israeli facility, but are in the
process of transferring most of this production to our Minnesota facility.
We have established a strong sales, marketing and distribution infrastructure
that includes over 100 direct field representatives worldwide. Our U.S. sales
force is comprised of two teams of sales representatives. One team is focused on
selling traditional AMS products, including our erectile dysfunction products,
artificial urinary sphincters and UroLume stents. The other team, made up
primarily of the former Influence sales force, is focused on selling sling
products to the incontinence market. During 1999, approximately 77% of our net
sales were in the United States. We also have direct sales representatives
located in five Western European countries, Canada and Australia. Supplementing
this sales force are approximately 45 distributors that sell our products
throughout Asia, Latin America, the Middle East and Africa.
Our marketing organization has effectively developed and implemented strategies
designed to create close working relationships with customers. These programs
are designed in part to educate physicians and
28
<PAGE> 30
patients. These programs provide us with exceptional access to physicians
throughout the world and help us establish long-term relationships with them.
Our U.S.-based research and development staff focuses on developing new products
to treat incontinence, erectile dysfunction and prostate disease. In addition,
research and development staff continually works on enhancing our current
product offerings. We also conduct research and development activities in
Israel. This team is led by the two founders of Influence and is focusing on a
next generation sling technology and other incontinence products. We regularly
conduct clinical trials to support our product introductions and to meet
regulatory requirements. During 1998, we abandoned an external research and
development project that cost $7.1 million in 1997 and $3.1 million in 1998. As
a result, our spending for research and development, regulatory and medical
affairs, quality systems and compliance decreased from $16.3 million in 1997 to
$9.6 million in 1999.
SEPARATION FROM PFIZER
We founded our business in 1972. Pfizer Inc. acquired our business in 1985. In
September 1998, a group of investors led by Warburg Pincus acquired our assets
from a Pfizer subsidiary. We formed, American Medical Systems Holdings, Inc.,
our current holding company in April 2000.
The acquisition of our assets was financed by a $40.0 million preferred stock
investment and $95.0 million of senior debt. Goodwill of approximately $75.5
million resulted from the acquisition.
Prior to the acquisition, we relied on Pfizer for various corporate functions,
including management information systems and benefit plans. Accordingly,
following the acquisition, we assessed our senior management personnel needs,
completed a strategic review of our research and development efforts, and
established new benefit plans and accounting and information systems. These
transition and reorganization expenses totaled $2.5 million in the period from
September 11 to December 31, 1998 and $3.0 million in the first quarter of 1999.
We borrowed $2.5 million in early 1999 to pay for these costs. During 1999, we
also hired additional senior corporate officers and established independent
management information systems.
In connection with the acquisition, we recorded inventories at fair market value
at the date of the acquisition. This accounting treatment required a $21.8
million write-up of inventories. The write-up was charged to cost of sales over
the six-month period during which these inventories were sold, including $10.2
million in the period from September 11 to December 31, 1998 and $11.6 million
in the first quarter of 1999.
In the first quarter of 1999, we collected $6.8 million of receivables from
Pfizer. This amount included $5.2 million for the working capital we used on
behalf of Pfizer between the date of the acquisition agreement and the closing
of the acquisition, $607,000 of pension costs related to terminated employees,
and $924,000 for services rendered under a service agreement with a subsidiary
of Pfizer.
FINANCIAL OVERVIEW
Our net sales decreased $14.2 million, or 15.4%, from $91.9 million in 1997 to
$77.7 million in 1998, including a $16.0 million decrease in sales of our
erectile dysfunction products. The decrease in sales was primarily due to the
1997 introduction of MUSE, a non-invasive drug delivery system for the treatment
of erectile dysfunction, and the early second quarter 1998 introduction of
Viagra. However, net sales increased $3.6 million, or 4.7%, from $77.7 million
in 1998 to $81.3 million in 1999, and since the first quarter of 1998 we have
experienced seven consecutive quarters of increasing sales of our erectile
dysfunction products.
We have incurred substantial losses since the September 1998 acquisition from
Pfizer. During the period from September 11 to December 31, 1998, we incurred a
loss of $10.5 million before income taxes and, during the year ended December
31, 1999, we incurred a loss of $14.3 million before income taxes. These losses
resulted primarily from costs related to the acquisition, including charges to
cost of sales related to
29
<PAGE> 31
acquired inventories of $10.2 million during the period from September 11 to
December 31, 1998 and $11.6 million in the first quarter of 1999, respectively.
We also wrote-off $7.4 million of in-process research and development during
1999 related to our acquisition of Influence and the UroVive bulking system.
Transition and reorganization costs of $2.5 million in the period from September
11 to December 31, 1998 and $3.0 million in 1999 also contributed to these
losses.
Under the Pfizer acquisition agreement, Pfizer agreed to indemnify us for the
costs of product liability claims relating to products sold prior to the
acquisition. General and administrative costs decreased $13.9 million, or 63.8%,
from $21.8 million in 1998 to $7.9 million in 1999 primarily due to legal
expenses relating to product liability exposure allocated to us by Pfizer prior
to the acquisition. Excluding these legal expenses, general and administrative
costs as a percentage of net sales decreased from 11.7% in 1998 to 9.7% in 1999,
in part because of efficiencies gained from operating as an independent company.
We expect our selling, general and administrative expenses as a percentage of
sales to increase because the expenses associated with hiring senior corporate
officers and establishing independent management information systems from Pfizer
did not occur until various times throughout 1999.
The debt incurred in connection with the acquisition led to interest expense of
$1.7 million in the period from September 11 to December 31, 1998 and $6.9
million in the year ended December 31, 1999. We plan to use proceeds from the
offering to reduce our debt to approximately $63.0 million under the terms of
our existing senior credit facility.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
financial data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN MEDICAL SYSTEMS
COMBINED PREDECESSOR HOLDINGS, INC.
----------------------------- ----------------------------------------------
PERIOD PERIOD
FROM FROM THREE MONTHS
YEAR JANUARY 1 SEPTEMBER 11 ENDED
ENDED TO TO YEAR ENDED MARCH 31,
DECEMBER 31, SEPTEMBER 10, DECEMBER 31, DECEMBER 31, --------------
1997 1998 1998 1999 1999 2000
------------ ------------- ------------ ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................. 21.4 25.7 67.3 38.6 80.8 22.9
----- ----- ----- ----- ----- -----
Gross profit................. 78.6 74.3 32.7 61.4 19.2 77.1
Operating expenses:
Marketing and sales.......... 23.5 33.9 35.7 37.4 34.9 39.5
Research and development..... 17.7 18.7 12.5 11.7 10.6 12.1
General and administrative... 18.6 36.3 8.4 9.7 8.3 10.8
Transition and
reorganization............ -- -- 10.9 3.7 14.9 --
Amortization of
intangibles............... 1.1 -- 4.2 4.1 3.9 7.1
In-process research and
development............... -- -- -- 9.0 -- --
----- ----- ----- ----- ----- -----
Total operating expenses....... 60.9 88.9 71.7 75.7 72.6 69.5
----- ----- ----- ----- ----- -----
Operating income (loss)........ 17.7 (14.6) (39.0) (14.3) (53.4) 7.6
Royalty and other income
(expense).................... (0.1) (0.3) 0.8 5.2 3.9 2.9
Interest income (expense)...... -- -- (7.3) (8.5) (8.6) (7.3)
----- ----- ----- ----- ----- -----
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN MEDICAL SYSTEMS
COMBINED PREDECESSOR HOLDINGS, INC.
----------------------------- ----------------------------------------------
PERIOD PERIOD
FROM FROM THREE MONTHS
YEAR JANUARY 1 SEPTEMBER 11 ENDED
ENDED TO TO YEAR ENDED MARCH 31,
DECEMBER 31, SEPTEMBER 10, DECEMBER 31, DECEMBER 31, --------------
1997 1998 1998 1999 1999 2000
------------ ------------- ------------ ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes..... 17.6 (14.9) (45.5) (17.6) (58.1) 3.2
Income tax benefit (expense)... (6.6) 6.0 17.5 6.2 23.2 (1.8)
----- ----- ----- ----- ----- -----
Net income (loss).............. 11.0% (8.9%) (28.0%) (11.4%) (34.9%) 1.4%
===== ===== ===== ===== ===== =====
</TABLE>
Our cost of sales for the period from September 11 to December 31, 1998 and the
year ended December 31, 1999 are not comparable to those of prior periods
because under generally accepted accounting principles, we were required to
revalue our inventories in connection with the acquisition from Pfizer. In
addition, in the fourth quarter of 1999, we recorded an $830,000 charge related
to a recall of the delivery system used to place our UroLume stent. The
following table sets forth an analysis of cost of sales expressed as a
percentage of sales adjusted to exclude these items:
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN MEDICAL SYSTEMS
COMBINED PREDECESSOR HOLDINGS, INC.
----------------------------- ----------------------------------------------
PERIOD PERIOD
FROM FROM THREE MONTHS
YEAR JANUARY 1 SEPTEMBER 11 ENDED
ENDED TO TO YEAR ENDED MARCH 31,
DECEMBER 31, SEPTEMBER 10, DECEMBER 31, DECEMBER 31, --------------
1997 1998 1998 1999 1999 2000
------------ ------------- ------------ ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Cost of sales.................. 21.4% 25.7% 67.3% 38.6% 80.8% 22.9%
Amortization of acquisition
costs assigned to
inventory.................... -- -- (44.3) (14.3) (57.6) --
Charge related to UroLume
recall....................... -- -- -- (1.0) -- --
----- ----- ----- ----- ----- -----
Adjusted cost of sales......... 21.4% 25.7% 23.0% 23.3% 23.2% 22.9%
===== ===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO THREE MONTHS ENDED MARCH 31,
2000
NET SALES. Net sales increased $4.8 million, or 23.9%, from $20.2 million in
the first quarter of 1999 to $25.0 million in the first quarter of 2000. Of this
increase, 70.9% was attributable to incontinence product sales. Incontinence
sales increased $3.2 million as a result of sales from the new products acquired
from Influence in December 1999. Erectile dysfunction sales increased 21.5% due
to volume and average selling price increases and a shift of product mix to
higher-priced products. This was our seventh consecutive quarter of increasing
sales of erectile dysfunction products.
Increased sales of our incontinence and erectile dysfunction products were
offset by a decline in sales in our prostate products. Sales of our UroLume
stents decreased $828,000 in the first quarter of 2000 compared to the first
quarter of 1999 due to the product recall of the delivery system used to place
our UroLume stent that we initiated in early 1999. We corrected this problem in
the first quarter of 2000, and sales of this product returned to pre-recall
levels in March 2000.
COST OF SALES. Cost of sales as a percentage of net sales decreased from 80.8%
in the first quarter of 1999 to 22.9% in the first quarter of 2000. Our cost of
sales for the first quarter of 1999 was negatively impacted because our
inventories were recorded at fair market value at the date of our acquisition
from Pfizer. Some of this inventory was sold during the first three months of
1999 resulting in an $11.6 million charge to cost of sales. Excluding this
charge, cost of sales as a percentage of net sales was 23.2% in the first
quarter of 1999.
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MARKETING AND SALES. Marketing and sales costs increased $2.8 million, or
40.0%, from $7.1 million in the first quarter of 1999 to $9.9 million in the
first quarter of 2000. Approximately $1.4 million of this increase was
attributable to marketing costs and the sales force that focuses on the
Influence products which we acquired in December 1999. An additional $1.2
million was due to increases in our domestic sales and marketing efforts. As a
percentage of net sales, marketing and sales costs increased from 34.9% to 39.5%
due to Influence-related sales and marketing costs being higher as a percentage
of net sales than our ratios prior to the Influence acquisition.
RESEARCH AND DEVELOPMENT. Research and development costs increased $901,000, or
42.4%, from $2.1 million in the first quarter of 1999 to $3.0 million in the
first quarter of 2000. This increased spending supports our strategic emphasis
on internal new product development. We also added a number of research and
development personnel through our acquisition of Influence.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased $1.0
million, or 60.6%, from $1.7 million in the first quarter of 1999 to $2.7
million in the first quarter of 2000. Part of this increase related to
administrative functions necessary to support the operations acquired from
Influence. Since the first quarter of 1999, we have also installed new
information systems in both the United States and Europe.
TRANSITION AND REORGANIZATION. In the first quarter of 1999, we completed an
assessment of senior management personnel needs and also completed a strategic
review of our research and development function. We incurred $3.0 million of
transition and reorganization expenses as a result of this review. These costs
primarily related to employee termination benefits and executive search fees.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased $1.0
million, or 125.0%, from $785,000 in the first quarter of 1999 to $1.8 million
in the first quarter of 2000. The acquisition of Influence in December 1999, and
the purchase of the UroVive assets in August 1999, added $981,000 of intangible
amortization expense during the first quarter of 2000. Excluding amortization
associated with the acquisition of Influence, amortization of intangibles
remained stable.
INTEREST EXPENSE. Interest expense increased $103,000, or 5.9%, from $1.7
million in the first quarter of 1999 to $1.8 million in the first quarter of
2000. This increase resulted primarily from borrowing levels that were
approximately $7.0 million higher in the first quarter of 2000 than in the
comparable period in 1999 due to costs incurred to acquire new technologies,
including Influence.
INCOME TAX BENEFIT (EXPENSE). We recorded a $4.7 million income tax benefit in
the first quarter of 1999. The recording of these tax benefits assumes that we
will achieve significant levels of profitability in the future. We believe we
will realize these benefits, based upon our past levels of profitability and
future operating expectations, although we cannot assure these results. Our
effective tax rate was 40.0% in the first quarter of 1999 compared to 56.2% in
the first quarter of 2000. The difference between our effective tax rate and the
statutory rate is primarily due to state income taxes and non-deductible
goodwill amortization.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997, 1998, INCLUDING THE PERIODS
FROM JANUARY 1 TO SEPTEMBER 10, 1998 AND FROM SEPTEMBER 11 TO DECEMBER 31, 1998,
AND 1999
NET SALES. Net sales increased $3.6 million, or 4.7%, from $77.7 million in
1998 to $81.3 million in 1999 primarily due to the growth in our erectile
dysfunction product line. Our erectile dysfunction sales increased 11.6% from
1998 to 1999. In addition, sales from products acquired from Influence in mid-
December 1999 accounted for $588,000 of the increase. Partially offsetting these
increases was a $1.1 million decrease in sales of our artificial urinary
sphincter for the treatment of incontinence. Our international sales of this
product decreased $1.7 million, primarily due to a decrease in the reimbursement
rates in certain European countries, particularly France.
Net sales decreased $14.2 million, or 15.4%, from $91.9 million in 1997 to $77.7
million in 1998 due to a $16.0 million, or 27.5%, decrease in erectile
dysfunction sales in 1998. The decrease in erectile dysfunction
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sales was primarily due to the 1997 introduction of MUSE, a non-invasive drug
delivery system for the treatment of erectile dysfunction, and the early second
quarter 1998 introduction of Viagra. Partially offsetting the erectile
dysfunction sales decrease were sales increases related to our artificial
urinary sphincter, our Acticon bowel sphincter and our Coaguloop Resection
Electrode, which we introduced to the domestic market in 1997.
COST OF SALES. Cost of sales as a percentage of net sales changed from 25.7% in
the period from January 1 to September 10, 1998 to 67.3% during the period from
September 11 to December 31, 1998 and to 38.6% in 1999. In connection with the
acquisition from Pfizer in September 1998, inventories were recorded at fair
market value requiring a $21.8 million write-up above manufactured costs. This
write-up was charged to cost of sales over a six-month period ending March 31,
1999, during which these inventories were sold. Cost of sales was charged $10.2
million in the period from September 11 to December 31, 1998 and $11.6 million
relating to this write-up in the first quarter of 1999. In addition, we recorded
an $830,000 charge in the fourth quarter of 1999 related to a recall of the
delivery system used to place our UroLume stent. Excluding these effects, cost
of sales as a percentage of net sales were 23.0% in the period from September 11
to December 31, 1998 and 23.3% in 1999.
Cost of sales as a percentage of sales increased from 21.4% in the year ended
December 31, 1997 to 25.7% in the period from January 1 to September 10, 1998.
This was primarily due to higher actual costs per unit produced resulting from
lower production volume of our erectile dysfunction devices and a shift in
product mix to lower margin products. We recorded greater obsolescence reserves
during the period from January 1 to September 10, 1998 than we had in previous
periods due to technological obsolescence identified during the period.
Excluding the effects of the higher costs of inventory charged to cost of sales
and the recall of the delivery system used to place our UroLume stent, cost of
sales as a percentage of sales decreased from 25.7% during the period from
January 1 to September 10, 1998 to 23.0% in the period from September 11 to
December 31, 1998. These reductions in cost of sales as a percentage of sales
primarily resulted from reduced manufacturing labor, obsolescence charges and
overhead spending. Slightly higher production volumes of erectile dysfunction
devices also helped this improvement.
MARKETING AND SALES. Marketing and sales costs increased $3.7 million, or
13.7%, from $26.7 million in 1998 to $30.4 million 1999. During 1999, we
restructured our European sales and marketing operations. These actions were
required for us to create autonomous sales and marketing operations following
our acquisition from Pfizer.
Marketing and sales costs increased $5.1 million, or 23.8%, from $21.6 million
in 1997 to $26.7 million in 1998. The increase in marketing spending was driven
by an attempt to counter the introduction of MUSE and Viagra and promotional
costs related to our new Acticon and Coaguloop Resection Electrode products.
RESEARCH AND DEVELOPMENT. Research and development costs decreased $3.2
million, or 19.6%, from $16.3 million in 1997 to $13.1 million in 1998. These
costs also decreased $3.5 million, or 26.9%, from $13.1 million in 1998 to $9.6
million in 1999. During 1998, we abandoned an external project that cost $7.1
million in 1997 and $3.1 million in 1998. The impact of abandoning this project
was to reduce our research and development spending $4.0 million in 1998 as
compared to 1997 and $3.1 million in 1999 as compared to 1998.
Excluding the effects of the abandoned project, our 1998 research and
development costs increased as compared to 1997 because we revised our strategic
research and development plan and increased our investment in our new research
and development efforts following the September 1998 acquisition from Pfizer.
GENERAL AND ADMINISTRATIVE. General and administrative costs decreased $13.9
million, or 63.8%, from $21.8 million in 1998 to $7.9 million in 1999 primarily
due to legal expenses relating to product liability exposure allocated to us by
Pfizer prior to the acquisition. During 1998, we charged operations for $13.2
million of legal expenses as compared to $2.0 million in 1999. The 1998 charges
were primarily
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incurred during the period from January 1 to September 10, 1998. Under the
Pfizer acquisition agreement, Pfizer agreed to indemnify us for the costs of
product liability claims relating to products sold prior to the acquisition.
Excluding these legal expenses, general and administrative costs as a percentage
of net sales increased from 11.7% in 1998 to 9.7% in 1999, in part because of
efficiencies gained from operating as an independent company. We expect our
selling, general and administrative expenses as a percentage of sales to
increase because of expenses associated with hiring senior corporate officers
and establishing independent management information systems. These actions were
required for us to create our autonomous operations following our acquisition
from Pfizer, which occurred at various times throughout 1999.
General and administrative costs increased $4.7 million, or 27.7%, from $17.1
million in 1997 to $21.8 million in 1998 primarily due to an increase in legal
expenses charged to us by Pfizer.
TRANSITION AND REORGANIZATION. In late 1998 following our acquisition from
Pfizer, we recorded $2.5 million of transition and reorganization expenses. We
also assessed our senior management personnel needs in early 1999 and conducted
a strategic review of our research and development efforts. Transition and
reorganization costs of $3.0 million expensed in 1999 were primarily related to
employee termination benefits and executive recruiting fees.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased $2.4
million, or 241.5%, from $984,000 in 1998 to $3.4 million in 1999 principally
related to approximately $74.6 million of goodwill recorded from the Pfizer
acquisition in September 1998. In the period from September 11 to December 31,
1998, $965,000 of intangible amortization was expensed. An affiliate charged us
amortization related to use of a technology during 1997. This charge did not
continue in subsequent periods.
IN-PROCESS RESEARCH AND DEVELOPMENT. We expensed $6.1 million of in-process
research and development costs in connection with the Influence acquisition in
December 1999 and $1.3 million of in-process research and development costs
related to the August 1999 UroVive acquisition.
ROYALTY AND OTHER INCOME (EXPENSE). We license our stent delivery technology to
a former subsidiary of Pfizer for a medical use outside of the urology field. We
entered into this license agreement in September 1998 in connection with our
acquisition from Pfizer.
INTEREST EXPENSE. Interest expense increased $5.2 million, or 311.1%, from $1.7
million in 1998 to $6.9 million in 1999. We borrowed $95.0 million to finance
our acquisition from Pfizer in September 1998 and $2.5 million in early 1999 to
pay for transition and reorganization expenses.
INCOME TAX BENEFIT (EXPENSE). We recorded tax benefits of $5.0 million in 1999
and $4.0 million in the period from September 11 to December 31, 1998. The 1999
tax benefit resulted primarily from the revaluation of acquired inventories, the
recording of write-offs of acquired research and development, the expensing of
transition and reorganization costs and interest expense. The tax benefit during
the period from September 11 to December 31, 1998 was caused by the impact of
the revaluation of acquired inventories, transition and reorganization costs and
interest expense. The recording of these tax benefits assumes that we will
achieve significant levels of profitability in the future. We believe our past
levels of profitability and future operating expectations will allow us to
realize these benefits, although we cannot assure these results.
The effective tax rates used to record these benefits were 35.0% in 1999 and
38.3% during the period from September 11 to December 31, 1998. These rates
compare to effective rates of 39.9% and 37.8% used to record tax expense in the
period January 1 to September 10, 1998 and the year ended December 31, 1997,
respectively. The effective rates differ from the statutory rates due to state
taxes, goodwill amortization and the impact of foreign taxes.
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QUARTERLY RESULTS OF OPERATIONS
The following table presents a summary of our unaudited quarterly operating
results for each of the four quarters in 1999 and for the quarter ended March
31, 2000. We derived this information from unaudited interim financial
statements that, in the opinion of management, have been prepared on a basis
consistent with the financial statements contained elsewhere in this prospectus
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of such information when read in conjunction with
our audited financial statements and related notes. These operating results
include Influence's financial results from the December 16, 1999 date of
acquisition. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
1999 2000
---------------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net sales...................................... $20,169 $20,065 $19,536 $21,583 $24,986
Cost of sales(1)............................... 16,300 4,809 4,497 5,813 5,730
------- ------- ------- ------- -------
Gross profit................................. 3,869 15,256 15,039 15,770 19,256
Operating expenses:
Marketing and sales.......................... 7,045 7,347 7,621 8,387 9,864
Research and development..................... 2,127 2,409 2,378 2,638 3,028
General and administrative................... 1,677 2,047 2,019 2,146 2,694
Transition and reorganization................ 3,000 -- -- -- --
Amortization of intangibles.................. 785 735 771 1,069 1,766
In-process research and development.......... -- -- -- 7,354 --
------- ------- ------- ------- -------
Total operating expenses....................... 14,634 12,538 12,789 21,594 17,352
------- ------- ------- ------- -------
Operating income (loss)........................ (10,765) 2,718 2,250 (5,824) 1,904
Royalty and other income (expense)............. 785 1,423 835 1,162 726
Interest income (expense)...................... (1,741) (1,617) (1,690) (1,825) (1,844)
------- ------- ------- ------- -------
Income (loss) before taxes..................... (11,721) 2,524 1,395 (6,487) 786
Income tax benefit (expense)................... 4,688 (1,000) (562) 1,872 (442)
------- ------- ------- ------- -------
Net income (loss).............................. $(7,033) $1,524 $833 $(4,615) $344
======= ======= ======= ======= =======
Net sales growth as compared to same quarter in
prior year................................... (13.0)% 10.3% 9.8% 12.6% 23.9%
</TABLE>
- ---------------------------------------------
(1)Cost of sales for the first quarter of 1999 includes $11.6 million of
amortization relating to revaluation of inventories acquired on September 10,
1998 from Pfizer.
SEASONALITY
Our sales and operating results have varied and are expected to continue to vary
significantly from quarter to quarter as a result of seasonal patterns. We
believe our business is seasonal, with the third quarter of each year typically
having the lowest sales and the fourth quarter of each year typically having the
highest sales. There can be no assurance that future seasonal fluctuations will
not adversely affect our business and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $5.1 million as of March 31, 2000 as compared to
$6.9 million as of December 31, 1999 and $2.8 million as of December 31, 1998.
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CASH PROVIDED FROM AND USED IN OPERATIONS. In the first quarter of 1999, our
operations provided $5.8 million of cash as compared to $333,000 of cash used
from operations in the first quarter of 2000. Our operating activities for the
three months ended March 31, 1999 were significantly impacted by the $11.6
million non-cash charge related to the acquisition write-up of inventories and
the collection of $6.8 million of receivables from former affiliates. We also
incurred $1.3 million of additional depreciation and amortization in the first
quarter of 2000 as compared to the same quarter of 1999. These increases
resulted from the acquisition of Influence and other technologies late in 1999.
We generated $13.9 million of cash from operations in 1999. Our net loss of $9.3
million was caused largely by noncash items, including the $11.6 million charge
for the acquisition write-up of inventories, the $7.4 million write-off of
in-process research and development resulting from the Influence and UroVive
acquisitions, $5.9 million of depreciation and amortization and $2.1 million of
pension expense that did not require funding. We collected $6.8 million from
former affiliates, but accounts receivable grew because of higher revenues. We
used cash to reduce our accrued liabilities particularly those related to
transition and reorganization costs.
We generated $850,000 million in cash from operations in the period from
September 11 to December 31, 1998 following the Pfizer acquisition. In the
period from January 1 to September 10, 1998, we generated $1.3 million of cash
from operations.
Our 1997 operations generated $2.6 million in cash. Transactions with affiliates
impacted the cash flows during this year. These affiliates used $11.7 million of
cash from the operations during this year.
CASH USED IN INVESTING ACTIVITIES. During 1999, we used $31.6 million to
purchase Influence and to acquire other technologies and assets. We also paid
$1.0 million to acquire a patent related to our incontinence products. In the
first quarter of 2000, we paid contingent purchase price payments of $2.5
million related to the acquisition of Influence and paid the second $1.0 million
installment related to the patent purchase.
In the first quarter of 2000, we completed implementation of new software
systems. We invested $1.0 million in property and equipment during the period,
primarily related to this project. We spent $6.5 million on the purchase of
property, plant and equipment in 1999, again mostly related to the development
of these systems and the purchase of related computer hardware. We spent $1.2
million of this in the first quarter of 1999.
We invested $2.0 million in equipment purchased during 1998 and purchased
property and equipment of $2.6 million in 1997. These acquisitions were for
manufacturing equipment and computer related hardware and software.
CASH PROVIDED BY FINANCING ACTIVITIES. We used $2.8 million of borrowings under
our credit facility to finance the Influence contingent payments and patent
acquisition in the first quarter of 2000. We borrowed $2.5 million under our
senior credit facility to finance 1999 purchases of computer hardware and
software and to fund the payment of accrued transition and reorganization
expenses.
The 1999 acquisition of Influence and other technologies were financed through
$23.0 million of additional preferred stock financing from our existing
stockholders and $6.3 million of borrowings under our senior credit facility.
INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS. At December 31, 1999, we had
net operating loss carryforwards of $14.0 million available for federal income
tax purposes to offset future taxable income, which begin to expire in 2018.
Realization of the future tax benefits related to this net deferred tax asset is
dependent on many factors, including our ability to generate taxable income
within the net operating loss carryforward period. To the extent the net
operating losses were created in a foreign jurisdiction, we have included a
valuation allowance of $5.0 million. This amount represents the approximate
amount by which we project the net operating losses to exceed future income in
that foreign jurisdiction.
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SENIOR CREDIT FACILITY. We have a $115.0 million senior credit facility, which
expires in March 2006. In April 2000, we refinanced our prior credit facility
that was due to expire in September 2000. The new facility consists of a $65.0
million term note, a $35.0 million guaranteed note, and a $15.0 million
guaranteed revolving line of credit. The guarantee is provided by Warburg
Pincus. Interest is payable quarterly based on the London InterBank Offering
Rate, or LIBOR, plus 0.875% for the guaranteed note and revolving line of credit
and LIBOR plus 3.0% for the term note. The term note requires quarterly
principal payments of $2.0 million through March 2002, $2.5 million from June
2002 through March 2003, $3.0 million from June 2003 through March 2004, and
$3.4 million from June 2004 through March 2006. At March 31, 2000, $10.9 million
was unused. The senior credit facility is secured by substantially all of our
assets, and contains restrictions concerning the payment of dividends,
incurrence of additional debt and capital expenditures. In addition, we are
subject to, and in compliance with, certain financial covenants including ratios
related to fixed charges coverage and leverage.
We plan to use a portion of the net proceeds of this offering to repay all of
the outstanding debt under the guaranteed portion of our current credit
facility, plus accumulated interest. We expect that approximately $40.0 million
will be needed for this purpose.
CASH COMMITMENTS. Our acquisition of Influence also obligates us to make
contingent purchase price payments of up to approximately $20.0 million,
depending on the outcome of various post-closing contingencies. Through March
31, 2000, we have made $2.5 million of these payments. We expect that up to
$17.5 million of the net proceeds of the offering could be used to meet these
future contingent payments.
We believe that funds generated from operations, together with the net proceeds
of the offering and funds available under our senior credit facility will be
sufficient to finance our current operations and planned capital expenditure
requirements for at least the next year.
INTEREST RATE HEDGING AND CURRENCY FLUCTUATIONS
We do not engage in trading market risk sensitive instruments or purchasing
hedging instruments that are likely to expose us to market risk, whether
interest rate, foreign currency exchange, and commodity price or equity price
risk. We have not purchased options or entered into swaps or forward or futures
contracts.
Our senior credit facility requires us to maintain protection against
fluctuations in interest rates beginning in mid-July 2000 and continuing for a
three-year period. Such protection must cover at least $30 million of debt and
be acceptable to our lenders.
Our operations outside of the United States are maintained in their local
currency, except for our Israeli subsidiary, where the U.S. dollar serves as the
functional currency. All assets and liabilities of our international
subsidiaries are translated to U.S. dollars at year-end exchange rates in effect
during the year. Translation adjustments arising from the use of differing
exchange rates are included in accumulated other comprehensive income in
stockholders' equity. Gains and losses on foreign currency transactions are
included in operations and were not material in any period.
INFLATION
We do not believe that inflation has had a material effect on our results of
operations in recent years and periods. There can be no assurance, however, that
our business will not be adversely affected by inflation in the future.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative which focused on
freestanding contracts, including, for example, options and forwards, and
futures and swaps, expanding it to include embedded derivatives and many
commodity contracts. Under
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<PAGE> 39
the statement, every derivative is recorded in the balance sheet as either an
asset or liability measured at its fair value. The statement requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS No. 133 is effective for
fiscal years beginning after June 15, 1999. We do not anticipate that the
adoption of SFAS No. 133 will have a material impact on our financial position
or results of operations. We do not currently hold derivative instruments or
engage in hedging activities.
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BUSINESS
OVERVIEW
We are the leading independent company focused solely on supplying medical
devices to physicians specializing in the treatment of urological disorders. We
believe our long-standing reputation for quality and innovative products and
excellent relationships with leading urological surgeons positions us not only
to benefit from the growth in the urology market, but to drive it.
We believe that our broad and diverse product offering is an important
competitive advantage because it allows us to address the various preferences of
doctors and patients, as well as the quality of life issues presented by
urological disorders. We offer medical devices to treat the three major
urological disorders: incontinence, erectile dysfunction and prostate disease.
- Incontinence. We offer a broad line of products designed to treat men
and women suffering from urinary and fecal incontinence. Our products
include artificial sphincters, sling systems and bulking systems. Our
incontinence products represented $26.9 million, or 33%, of our 1999 net
sales. Sales of incontinence products would have been $37.5 million in
1999 if Influence sales had been included for the entire year.
- Erectile Dysfunction. We are the leader in the surgical erectile
dysfunction market, with more than 60% market share in penile prostheses
based on 1999 sales. Our erectile dysfunction products include a full
line of inflatable and malleable penile prostheses and a diagnostic
system used to determine the causes of erectile dysfunction. Urologists
have implanted over 250,000 of our devices with high patient
satisfaction rates. Our erectile dysfunction products represented $47.2
million, or 58%, of our 1999 net sales.
- Prostate Disease. We participate in the prostate disease market with our
prostatic stents, resection loops and a minimally invasive ethanol
injection system which is under development for treatment of enlarged
prostates, also referred to as BPH. Our prostate disease products
represented $7.2 million, or 9%, of our 1999 net sales.
Our product development and acquisition strategy has focused on expanding our
product offering and on adding less-invasive medical devices for the treatment
of incontinence, erectile dysfunction and prostate disease. In 1999, we expanded
our commitment to the treatment of incontinence and prostate disease through the
acquisitions of several leading-edge technologies. In August 1999, we acquired
the UroVive bulking system, a minimally invasive treatment for female urinary
stress incontinence. In October 1999, we acquired exclusive worldwide
distribution rights to the InjecTx ethanol injection system, a minimally
invasive treatment for BPH. In December 1999, we acquired Influence, a provider
of less-invasive sling products for treating female incontinence.
We believe the size and strength of our sales organization are among our primary
competitive advantages. We employ one of the largest sales forces solely focused
on the urology market, with more than 100 domestic and international direct
sales representatives who are well-trained and highly motivated and 45
international distributors and agents who sell our products worldwide.
THE UROLOGY MARKET
The three most prevalent urological disorders are incontinence, erectile
dysfunction and prostate disease. Over 60 million people in the United States
suffer from one or more of these disorders. Historically, only a small
percentage of the patients suffering from these disorders has sought treatment.
In recent years, however, the number of people seeking treatment has grown as a
result of the publicity associated with new treatment alternatives, especially
new drug therapies.
When a patient seeks treatment, urologists generally assess the severity of the
urological disorder as mild, moderate or severe. Regardless of the degree of
severity, however, patients will often consider a non-invasive treatment first.
If the non-invasive treatment is unsuccessful, urologists may recommend a
surgical
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<PAGE> 41
treatment. Surgical treatment has demonstrated a higher degree of effectiveness
compared to non-invasive alternatives for patients suffering from moderate or
severe urological disorders.
The cost to the U.S. health care system for treatment of urological disorders
exceeds $24 billion annually. Of this amount, more than $1 billion is spent on
diagnostic and therapeutic medical devices. This market is comprised of five
major disorders including incontinence, erectile dysfunction, BPH, prostate
cancer and endourology. We currently offer products that provide solutions for
erectile dysfunction, incontinence and BPH. The U.S. market for medical devices
to treat these disorders is over $480 million annually.
We believe over the next several years a number of key demographic and
technological factors will accelerate growth in the market for medical devices
to treat urological disorders, particularly in our three product categories.
These factors include the following:
- Aging population. The incidence of urological disorders increases with
age. The over-40 age group in the United States is growing almost twice
as fast as the overall population. Accordingly, the number of
individuals developing urological disorders will increase significantly
as the population ages and as life expectancies continue to rise.
Approximately one half of all individuals over 50 suffer from
incontinence, erectile dysfunction or prostate disease.
- Less-invasive techniques and technologies. Patients often weigh the
clinical benefits against the invasiveness of the procedures when
choosing a treatment alternative. Technological advances have been
driving the development of less-invasive procedures that improve
outcomes and speed recovery. As a result, we believe patients will
increasingly choose surgical alternatives over alternatives that simply
manage their disorder.
- More patients seeking treatment. In recent years, the publicity
associated with new technological advances and new drug therapies has
increased the number of patients visiting their urologists to seek
treatment for urological disorders. For example, since Pfizer introduced
Viagra in April 1998, there have been approximately 8.6 million new
prescriptions written for Viagra. In contrast, prior to the introduction
of Viagra, approximately one million men sought treatment for erectile
dysfunction each year. Since non-surgical treatments are ineffective for
large numbers of patients, we believe the number of patients who will
try surgical treatments will increase as the overall number of patients
seeking treatment increases.
- Emphasis on quality of life. Baby boomers place an increased emphasis on
quality of life issues and maintaining active lifestyles. Their desire
to improve quality of life is usually an important factor in selecting a
treatment for their disorder. Baby boomers are more likely to consider
treatments designed to cure a urological disorder rather than simply
manage it. Because surgical treatment is one of the most effective ways
to treat urological disorders, we believe baby boomers will increasingly
choose surgical treatments.
OUR BUSINESS STRATEGY
We are the only major medical device company focusing solely on the urology
market. Our goal is to build the preeminent, worldwide urological medical device
company. The key elements of our strategy to achieve this goal are:
- Focus on urologists. We have developed extremely strong, long-standing
relationships with leading urologists treating incontinence, erectile
dysfunction and prostate disease. These relationships provide us with a
source of new product ideas, physician advisors for new products and a
conduit through which to introduce new products. Maintaining and
expanding these relationships is an important part of our growth
strategy, particularly for the development and introduction of new
products.
- Continue to focus on surgical product solutions. We focus on surgical
products because they are high-margin, proprietary products designed to
cure urological disorders. In addition, the sophisticated nature of
surgical products requires extensive and frequent contact between us and
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<PAGE> 42
physicians. As a result, we form close relationships that we believe
create barriers to entry for our competitors.
- Offer a broad range of products. We believe that our broad and diverse
product offering is an important competitive advantage because it allows
us to address the various preferences of doctors and patients, as well
as the quality of life issues presented by urological disorders.
Consolidation among hospital buying groups has reduced the number of
suppliers from which they purchase products, providing an advantage to
suppliers offering a broad range of products. An important part of our
growth strategy is to broaden our product line further to meet customer
needs by developing new products internally or acquiring new products
through acquisitions.
- Expand less-invasive alternatives. Generally, the surgical procedures in
which our products are used are at the patient's discretion. Patients
often weigh the clinical benefits against the invasiveness of the
procedure. We intend to expand our less-invasive treatment alternatives
while maintaining a high level of clinical effectiveness.
- Partner with urologists to build their practices and develop markets. We
have developed marketing programs to assist urologists in marketing
their practices. We intend to continue to provide innovative programs
focused on helping urologists attract appropriate patients and develop
referral networks. We also believe our marketing efforts to build
patient awareness of treatment alternatives and encourage patients to
see urologists will help urologists build their practices and
simultaneously increase sales of our products.
- Grow our international business. In order to grow our international
business, which represented 23% of our total 1999 sales, we have
recently added a new senior management team and restructured our
international business. We are refocusing our European operations to
respond to the needs of the local markets and to develop marketing and
reimbursement strategies on a country-by-country basis. New product
introductions will be key to growing our international operations.
OUR INCONTINENCE BUSINESS
OVERVIEW
Incontinence is the inability to control the release of urine or fecal matter
from the body. The urinary system is composed of two kidneys, two ureters, a
bladder and a urethra. The kidneys remove waste products from the blood and
continuously produce urine. The muscular, tube-like ureters move urine from the
kidneys to the bladder, where it is stored until it flows out of the body
through the tube-like urethra. A circular muscle, called the urinary sphincter,
controls the activity of the urethra. The neck of the bladder and the urinary
sphincter work together to act as a valve. As the bladder fills, the urinary
sphincter contracts to prevent urination. During urination, the urethra and
urinary sphincter muscle relax and open, the bladder contracts and the bladder
neck opens, all in a coordinated fashion, causing the passage of urine.
In normal continence, when the bladder neck opens involuntarily in response to
intra-abdominal pressure, the lower portion of the urinary sphincter tightens in
turn, so as to maintain continence. In order to maintain continence, the urethra
must be supported and compressed in its normal anatomic position. The female's
natural support system for the urethra is a hammock-like supportive layer.
Similarly, the urethra is also under muscular control so as to keep this tube
closed during the urine storage phase.
A malfunction in any part of the urinary system can cause urinary incontinence.
Incontinence may result from one or more conditions, including: weakened pelvic
muscles; pelvic organic prolapses; tumors or other cancers and cancer
treatments; prostate surgery; pelvic trauma; spinal cord damage; birth defects;
and degenerative changes associated with aging and medications. The most common
type of incontinence results from a lack of bladder neck or mid-urethral support
caused primarily by weak surrounding tissue.
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<PAGE> 43
The weakening of tissue surrounding the bladder, urethra and bladder neck arises
most commonly in women as a consequence of pelvic trauma caused by pregnancy and
childbirth.
There are four main types of urinary incontinence:
- Stress incontinence is the involuntary loss of urine caused by an
increase in abdominal pressure during stress events such as coughing,
sneezing, lifting or exercising. There are two main categories of stress
incontinence: hypermobility which refers to extra movement of the
urethra; and intrinsic sphincter dysfunction, or ISD, which refers to a
poorly functioning sphincter muscle.
- Urge incontinence is the involuntary loss of urine due to an
overwhelming need to urinate and the inability to suppress it long
enough to reach a toilet.
- Mixed incontinence is a combination of stress and urge incontinence.
- Overflow incontinence is the involuntary loss of urine when the amount
of urine produced exceeds the bladder's capacity. This occurs mostly in
patients with a neurogenic bladder where there is no feeling in the
bladder.
Our products are designed primarily for patients with stress incontinence.
Stress incontinence accounts for approximately two-thirds of incontinence
patients, or approximately 13 million people worldwide.
CURRENT TREATMENTS FOR INCONTINENCE
The majority of patients who suffer from incontinence have mild incontinence.
These patients will typically attempt to manage their incontinence condition
through the use of disposable adult diapers and pads, pelvic floor muscle
strengthening or, for men, a catheter and a urinary drainage bag. These
approaches only provide the patient a means to manage their incontinence. They
do not permanently cure incontinence.
Patients with moderate to severe incontinence typically find management of their
incontinence unacceptable and may be offered one of the following four
procedures to cure their incontinence:
-- A bulking procedure, where a bulking product is implanted in the wall
of the urethra at the bladder neck to bulk the sphincter and close
the urethra;
-- A sling procedure, where a sling material acts as a back stop to the
urethra to prevent leakage when there is a stress event;
-- A bladder neck suspension procedure, which lifts up vaginal or
periurethral tissue and repositions the bladder to prevent urine
leakage during a stress event; and
-- An artificial urinary sphincter procedure, where a saline-filled cuff
is inserted around the urethra to gently squeeze the urethra closed
to keep urine in the bladder.
We provide products that are used in all four of these procedures.
INCONTINENCE MARKET OPPORTUNITY
Incontinence represents one of the largest underserved urology markets. We
believe this market provides significant growth opportunities. Urinary
incontinence affects more than 13 million people in the United States costing
the U.S. health care system more than $15 billion annually. Of this amount, an
estimated $250 million was spent on medical devices used in approximately
200,000 procedures to treat incontinence. We believe that new less-invasive
surgical procedures will encourage more patients to seek surgical treatments.
There are approximately ten million women with incontinence in the United
States. However, only 175,000 of these women elect to undergo a sling or
suspension procedure to treat their incontinence problem annually. Based on
surveys we have conducted, we believe the sling procedure is one of the fastest
growing treatments for incontinence, with more than 30% growth in 1999. We
estimate that sling procedures currently represent more than 40% of the total
number of incontinence surgical procedures. The sling
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procedure is quickly becoming the leading technique for the treatment of female
stress incontinence because it provides an effective solution for a wide variety
of patients. In addition, urologists can perform this procedure using a
less-invasive approach, which reduces morbidity and costs associated with this
procedure.
We estimate that there are approximately 30,000 patients, mostly women, treated
with a bulking product in the United States each year. Until recently, there was
only one bulking product commercially available in the United States. The
effectiveness of that product is limited because it is resorbed by the body over
time. We believe that this market could grow with the introduction of a
non-resorbable product.
There are approximately three million men with incontinence in the United
States. Approximately 200,000 of these men suffer from stress incontinence.
Complications from procedures for BPH and prostate cancer are the primary causes
of male stress incontinence. We estimate that 10,000 men become incontinent each
year due to complications from these procedures. Treatments for male
incontinence include artificial urinary sphincters, bulking agents and slings.
OUR INCONTINENCE PRODUCTS
We believe the incontinence market is a major growth opportunity. We have made a
significant commitment to this market in the past year with our acquisitions of
Influence and the UroVive bulking system. We have the number one market position
in artificial urinary sphincters and are one of the top two providers of sling
systems. Our incontinence products represented $26.9 million, or 33%, of our
1999 net sales. Sales of incontinence products would have been $37.5 million in
1999 if Influence sales had been included for the entire year.
We offer a full line of incontinence products designed to meet a wide range of
patient needs in the treatment of urinary and fecal incontinence for men and
women. The following tables summarize our core incontinence products, products
under development and services. For more information on the FDA regulatory
approval process, see "Business--Government Regulation."
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
CURRENT PRODUCTS DESCRIPTION OF PRODUCT U.S. REGULATORY APPROVAL STATUS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
In-Fast Female Sling System Female sling fixation system 510(k) cleared
- ------------------------------------------------------------------------------------------------------------
Straight-In Male Sling System Male sling fixation system 510(k) cleared
- ------------------------------------------------------------------------------------------------------------
Synthetic Sling Material Synthetic material used in a sling 510(k) cleared
procedure
- ------------------------------------------------------------------------------------------------------------
AMS Sphincter 800 Urinary Small, fluid-filled implant for 510(k) cleared
Prosthesis urinary incontinence; only
commercially available artificial
urinary sphincter
- ------------------------------------------------------------------------------------------------------------
Acticon Neosphincter Small, fluid-filled implant for Humanitarian Device Exemption
fecal incontinence received; PMA will be submitted
- ------------------------------------------------------------------------------------------------------------
UroVive Bulking System A durable, reversible microballoon PMA classification; Revised IDE
bulking system will be submitted
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRODUCTS UNDER DEVELOPMENT DESCRIPTION OF PRODUCT U.S. REGULATORY APPROVAL STATUS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Next Generation Sling Systems Female sling fixation systems 510(k) cleared
- ------------------------------------------------------------------------------------------------------------
Synthetic Sling A strong synthetic material used 510(k) will be submitted
in a sling procedure
- ------------------------------------------------------------------------------------------------------------
Flast A device used to harvest human None required
tissue for a sling procedure
- ------------------------------------------------------------------------------------------------------------
Next Generation UroVive A durable, reversible microballoon PMA classification; Revised IDE
system will be submitted
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SERVICES DESCRIPTION OF SERVICE U.S. REGULATORY APPROVAL STATUS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cadaveric Fascia Lata Human fascia lata tissue used in a None required
sling procedure
- ------------------------------------------------------------------------------------------------------------
Cadaveric Dermal Tissue Human dermal tissue used in a None required
sling procedure
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Our In-Fast Sling System is one of the leading products for use in sling
procedures in the United States. In the In-Fast sling procedure, two titanium
bone screws are implanted into the pubic bone, one on each side of the urethra.
Either human tissue or a synthetic sling material is then placed in the space
between the urethra and the vagina. The sling material is attached to each screw
and forms a hammock or "sling" beneath the urethra. The sling material below the
urethra acts as a back stop during a stress event to close the urethra and
prevent leakage. Until recently, a sling procedure required an invasive surgical
procedure requiring hospitalization with associated discomfort, lengthy recovery
and high expense. However, today, less-invasive systems, such as our In-Fast
Sling System, are designed to facilitate a completely transvaginal approach,
which enables the urologist to perform the sling procedure in approximately 30
minutes in the operating room. These less-invasive procedures, which can be
performed on an outpatient basis with minimal post-operative pain and recovery
time, are driving the growth of sling procedures. Surgeons using our sling
system have reported that 95% of their patients are dry or improved five months
after their procedure.
Our Straight-In Male Sling System is a novel, less-invasive approach to male
incontinence that we recently introduced to the market. In this procedure, the
physician implants six titanium bone screws in the pubic bone, three on each
side of the urethra. Sling material is attached to the screws, and pulled tight,
to form passive compression and support for the urethra. This procedure offers
immediate relief of incontinence, is minimally invasive and can be performed in
less than one hour. It is generally performed on an outpatient basis and
requires minimal recovery time.
Our AMS Sphincter 800 Urinary Prosthesis is the only commercially available
artificial urinary sphincter. Approximately 90% of patients implanted with an
artificial urinary sphincter have a functioning device five years after the
procedure. The efficacy rate with the device varies between 80% and 94% over a
two to seven year period. An artificial urinary sphincter is an implantable
device that mimics the function of the sphincter muscle making natural urinary
control and urination possible. It is a miniature, hydraulic saline-filled
device consisting of an inflatable cuff placed around the urethra, a
pressure-regulating balloon placed abdominally and a control pump placed in the
scrotum. The cuff is implanted around the urethra at the bladder neck in the
female or around the bulbous urethra in the male, closing off the urethra. To
urinate, the patient squeezes the pump to move fluid out of the cuff into the
balloon, opening the urethra. The fluid then automatically returns from the
balloon to the cuff, restoring continence.
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Our Acticon Neosphincter Prosthesis is very similar to our AMS Sphincter 800
Urinary Prosthesis, but the cuff is placed around the anal canal to treat fecal
incontinence.
Our UroVive Bulking System is designed to treat urinary stress incontinence,
particularly in those women with a weak or poorly functioning sphincter muscle.
The UroVive Bulking System is a minimally invasive procedure that enables the
urologist to place hydrogel-filled microballoons around the bladder neck to help
close the urethra, restoring continence. This procedure is mostly used in
females although it can also be used in men. Until recently, there was only one
bulking agent commercially available in the United States. The effectiveness of
that product is limited in part because it is resorbed by the body over time.
Once a bulking product resorbs, it loses its effectiveness and retreatment is
often necessary. The microballoons used in the UroVive Bulking System are not
resorbed by the body. This feature provides a durable procedure that can be
reversed if necessary by puncturing the balloon. We are currently marketing this
product in Europe and are conducting FDA clinical studies in the United States.
We are also developing a next generation of this product which will improve its
ease of use and reduce its cost.
As part of the acquisition of Influence, we acquired a number of products that
are currently in development. Several of these products are improvements and
next generation products for female sling procedures. These next generation
products are lower cost and should be easier to use than the current systems. In
addition, we are developing a product that does not require a metal implant in
the pubic bone, which we believe will be particularly appealing to those
urologists and gynecologists who have historically avoided using a metal bone
anchor. Accordingly, we believe we can increase our market opportunity with a
product that appeals to a broader spectrum of physicians.
We are developing two new products as alternatives to cadaveric tissue for sling
procedures. We are developing a specially treated synthetic material, which is
designed to reduce the infection rate associated with other synthetic materials,
have greater strength than fascia lata and be less expensive. We also are
developing Flast, a device physicians can use to harvest fascia lata from the
patient's own thigh for sling material without making a large incision.
We offer several types of sling materials for use in male and female sling
procedures under the Triangle trademark. In the United States, we provide
cadaveric fascia lata sling material, fascia from the thigh of a donor, as a
service. There is a limited supply of this type of material. We recently added
the service of providing a cadaveric dermal tissue, or donor skin, product in
the United States. Cadaveric dermal tissue has superior strength characteristics
over cadaveric fascia lata. In addition, we offer two types of synthetic sling
material, primarily outside of the United States.
OUR ERECTILE DYSFUNCTION BUSINESS
OVERVIEW
Erectile dysfunction, or impotence, is the inability to achieve or maintain an
erection firm enough, or for a sufficient amount of time, for sexual
intercourse. The psychological and quality of life impact of erectile
dysfunction on a man's, and a couple's, life is significant.
A variety of physical and psychological conditions can cause erectile
dysfunction, including diabetes, vascular disorders, disorders that affect the
nervous system, complications from surgery, medication, alcoholism, spinal cord
injuries, depression, stress and performance anxiety. Erectile dysfunction is
most often caused by physical problems, rather than psychological problems.
Most physicians use a scoring system for erectile dysfunction that measures the
severity of a patient's disorder and categorizes it as mild, moderate or severe.
Of patients with erectile dysfunction, approximately 22% are categorized as
mild, 49% as moderate and 29% as severe. More than 90% of patients who receive a
penile implant have severe erectile dysfunction.
CURRENT TREATMENTS FOR ERECTILE DYSFUNCTION
The primary treatment options for erectile dysfunction are oral medications,
injectable medications, vacuum devices and penile implants. Today, the primary
oral medication used for treating erectile
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dysfunction is Viagra. Patients can also inject medication directly into the
penis using a small needle attached to a syringe or insert medication into the
urethra with an applicator instead of a needle. Before the advent of Viagra, a
primary treatment for erectile dysfunction was a vacuum constriction device,
which uses a vacuum to draw blood into the penis and a constriction ring to
prevent blood from flowing back out of the penis.
Although the success of some of these treatments, especially Viagra, has had a
positive impact on the diagnosis and treatment of patients suffering from
erectile dysfunction, many patients with severe erectile dysfunction are not
successfully treated with these therapies. For an effective treatment, many
patients with severe conditions often have no alternative other than a penile
implant. A penile implant is a device surgically implanted inside the penis to
mechanically simulate an erection. A penile implant provides natural looking and
feeling erections and has a very high patient and partner satisfaction rate.
Patients with a penile implant can generally ejaculate normally and experience
normal sensations during intercourse.
ERECTILE DYSFUNCTION MARKET OPPORTUNITY
Worldwide sales for erectile dysfunction products are estimated at $1.3 billion
annually. Approximately 20% of the adult male population suffers from erectile
dysfunction, which translates into more than 30 million men in the United
States, primarily those over the age of 40. Of these, approximately 4.6 million
suffer from chronic, severe erectile dysfunction. Viagra is an effective
treatment option for less than half of these patients. As a result, there are
2.8 million men who are candidates for penile implants in the United States
alone. However, only approximately 20,000 men received a penile implant
worldwide in 1999, generating worldwide sales of approximately $70 million. We
believe that increased marketing and a focus on physician and patient education
will continue to drive the growth of penile implants.
The introduction and advertising of Viagra have significantly increased the
population of patients seeking treatment for erectile dysfunction. Since Pfizer
introduced Viagra in 1998, there have been approximately 8.6 million new
prescriptions written for Viagra. Prior to the introduction of Viagra,
approximately one million men sought treatment for erectile dysfunction each
year.
OUR ERECTILE DYSFUNCTION PRODUCTS
Historically, we have derived most of our revenues from our penile implants. Our
erectile dysfunction products represented $47.2 million, or 58%, of our 1999 net
sales. We are the worldwide leader in the penile implant market, with more than
a 60% market share. Since we introduced the first inflatable penile prosthesis
in 1973, urologists have implanted over 250,000 of our penile prostheses with
patient satisfaction rates as high as 87% at five years.
In order to meet various physician and patient preferences, we offer a full line
of penile implants. The following tables lists our core erectile dysfunction
products on the market and those currently under
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<PAGE> 48
development. For more information on the FDA regulatory approval process, see
"Business--Government Regulation."
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CURRENT PRODUCTS DESCRIPTION OF PRODUCT U.S. REGULATORY APPROVAL STATUS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AMS 700 CX 3-piece hydraulic implant PDP approved
expands in girth only
- ----------------------------------------------------------------------------------------------------------------
AMS 700 Ultrex 3-piece hydraulic implant PDP approved
expands in length and girth
- ----------------------------------------------------------------------------------------------------------------
Ambicor 2-piece hydraulic implant 510(k) cleared; PDP supplement
submitted: FDA reviewing
- ----------------------------------------------------------------------------------------------------------------
AMS 650 Malleable implant 510(k) cleared
- ----------------------------------------------------------------------------------------------------------------
NEVA Nocturnal monitoring device for 510(k) cleared
diagnostic purposes
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRODUCTS UNDER DEVELOPMENT DESCRIPTION OF PRODUCT U.S. REGULATORY APPROVAL STATUS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Next Generation Penile Implants Implants designed for PDP supplements will be
durability, ease of use and submitted
resistance to infection
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Our AMS 700 product is a three-piece hydraulic inflatable implant that consists
of a pair of hollow silicone cylinders implanted into the penis, a control pump
placed in the scrotum and a reservoir balloon filled with saline placed in the
abdomen. The control pump provides the ability to direct the saline to flow out
of the balloon and into the cylinders, expanding the cylinders and causing an
erect penis. Hydraulic implants are the most popular type of implants because of
their natural look and feel in both the flaccid and erect positions. Our AMS 700
line includes our CX model, which expands in girth, and our Ultrex model, which
expands in both length and girth. Our Ultrex model most closely approximates the
process and feel of both a natural erection and a natural flaccid state and is
the only product of its kind on the market. We believe our AMS 700 CX line of
penile implants is the most widely used implant worldwide.
Our Ambicor product is a two-piece hydraulic implant. This product uses the
distal end of the implant as the reservoir site which allows us to eliminate the
abdominal balloon used in the AMS 700. The Ambicor product can be implanted in a
less-invasive and shorter procedure than the procedure required for the
three-piece device. For the patient it has the additional benefit of requiring
fewer pumps for activation.
Our AMS 650 is a malleable penile implant. This product is made of a
silicone-covered wire bundle that allows a man to manually straighten his penis
to allow for intercourse or bend it out of the way when it is not in use. This
product is a lower cost alternative to our hydraulic implants. Most of our sales
of the AMS 650 are outside of the United States.
We also distribute the NEVA System, an innovative diagnostic system designed to
measure nocturnal erectile events and record pertinent data for physician
review. Based on the information provided by the NEVA System, a physician can
better understand the origin of the erectile dysfunction problem and recommend
appropriate treatment options.
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OUR PROSTATE BUSINESS
OVERVIEW
There are three primary types of prostate disease: enlarged prostate, more
commonly known as BPH, strictures and prostate cancer. We currently offer
products to treat strictures and BPH. We also view the treatment of prostate
cancer as an attractive market opportunity. The prostate gland is located just
below the bladder, next to the rectum. The urethra runs through the middle of
the prostate and penis.
In BPH patients, the prostate enlarges which squeezes the urethra, thereby
restricting the normal passage of urine. More than half of men in their 60's
have BPH, and among men in their 70's and 80's, the figure may be as high as
90%. BPH patients also typically suffer from a variety of troubling symptoms
primarily relating to changes in urinary voiding which may have a significant
impact on their quality of life. These symptoms include: increased frequency of
urination; sudden urge to urinate; stopping and starting of flow during
urination; weak flow of urine; difficulty in starting urination and sensation of
incompleteness in emptying of bladder.
Strictures are scarring of the urethra, usually caused by sexually transmitted
diseases or from physical or surgical trauma, including passing of scopes or
other instrumentation within the urethra.
CURRENT TREATMENTS FOR PROSTATE DISEASE
Conventional treatments for prostate disease typically involve a number of
invasive surgical techniques and/or drug therapies. The following summarizes
treatment options for the three types of prostate diseases:
- BPH. The primary treatments for patients with mild to moderate BPH are
watchful waiting and drug therapy. Watchful waiting means that the
patient chooses no treatment at all, and seeks treatment only when the
condition worsens. For patients with moderate to severe BPH, the most
common surgical treatment is transurethral resection of the prostate, or
TURP. This procedure involves inserting a tiny looped wire into the
urethra through the penis and up to the prostate to remove the prostatic
tissue. New, less-invasive techniques have been introduced to the market
recently, such as lasers, radio frequency energy needles and microwave
therapy. These therapies are designed to kill prostatic tissue using
various forms of energy without damaging the urethra. While
less-invasive than TURPs, these therapies are somewhat less effective at
restoring high urine flow rates to patients. Stents are another
alternative for patients who suffer from BPH. They offer the advantages
of a less-invasive procedure, immediate relief of obstruction as well as
flow rates comparable to TURP.
- Strictures. Treatments of strictures include dilatation procedures,
urethrotomy procedures and stents. Urethral dilation involves the use of
metal dilators to gradually stretch out the strictured area of the
urethra. Urethrotomy involves making an incision in the urethra to open
up the scarred area. Urethral stents are placed to hold open the urethra
so that the scar does not reform, a common complication of other
procedures. A urethroplasty procedure is typically used when other
methods fail. In this procedure, the stricture is accessed through a
surgical incision, the strictured area is removed and the urethra is
re-attached.
- Prostate cancer. A radical prostatectomy is the most widely accepted
treatment to remove a cancerous prostate gland. In this procedure, the
entire prostate is removed in an invasive procedure. Radiation therapy,
particularly brachytherapy, has become an important new technology for
treatment of prostate cancer. Brachytherapy is a less-invasive procedure
in which small radiation seeds are implanted in the prostate through the
perineum to kill the cancerous prostatic tissue. Cryotherapy has also
recently been reintroduced to the market. This procedure uses cryo
probes placed perineally to freeze the prostate and kill the cancerous
tissue.
PROSTATE DISEASE MARKET OPPORTUNITY
Prostate disease affects approximately 16 million patients in the United States.
The estimated U.S. market for products to treat prostate disease is more than
$300 million annually. BPH is the most common type of
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prostate disease, affecting more than 13 million men in the United States. In
addition, the American Cancer Society estimates that there will be 180,400 new
cases of prostate cancer diagnosed in 2000.
OUR PROSTATE PRODUCTS
We have the number one market position in permanent urethral stents for the
treatment of BPH and strictures. Our prostate disease products represented $7.2
million, or 9.0%, of our 1999 net sales. The following tables list our core
prostate products and products under development. For more information on the
FDA regulatory approval process, see "Business--Government Regulation."
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
CURRENT PRODUCTS DESCRIPTION OF PRODUCT REGULATORY APPROVAL STATUS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UroLume Endoprosthesis An expandable braided wire PMA approved
stent
- ---------------------------------------------------------------------------------------------------
Coaguloop Resection Electrode A resection loop using radio 510(k) cleared
frequency energy to resect
the prostate
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PRODUCTS UNDER DEVELOPMENT DESCRIPTION OF PRODUCT REGULATORY APPROVAL STATUS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
InjecTx System A needle injecting probe is IND/NDA will be submitted;
used to inject ethanol into IND for Phase I and II trials
the prostate to kill the in preparation
tissue
- ---------------------------------------------------------------------------------------------------
Next Generation UroLume An expandable braided wire PMA supplement will be
stent which is more submitted
comfortable and easier to
remove
- ---------------------------------------------------------------------------------------------------
Bioresorable Stent Urethral stent designed to IDE/PMA will be submitted
maintain its structure for
2-4 weeks after implant
- ---------------------------------------------------------------------------------------------------
</TABLE>
Our UroLume Endoprosthesis is an expandable braided wire stent intended as a
treatment to relieve urinary obstruction caused by BPH, detrusor external
sphincter dyssenergia, or DESD, and strictures. Our UroLume procedure is
minimally invasive, using a direct vision delivery system for precise
positioning and easy placement. Urologists perform this procedure under local or
general anesthesia. We are currently developing a next generation UroLume
product which is designed to be easier to remove and less irritative.
Our Coaguloop Resection Electrode is a premium resection loop used during TURP
and bladder cancer procedures. It is used as a treatment to relieve urinary
obstruction caused by BPH. The main advantage of our loop is that it has
superior coagulation characteristics compared to other loops.
We acquired the exclusive rights to distribute the InjecTx injection device on a
worldwide, long-term basis in October 1999. The InjecTx System is an injection
system designed to treat BPH in a less-invasive manner by injecting ethanol into
the prostate to kill prostatic tissue. The device is made up of a curved
injection needle that facilitates precise placement of the ethanol into the
prostate. This system does not require the physician to invest in any capital
equipment, unlike competitive products currently on the market. Urologists can
perform this transurethral injection procedure in an ambulatory surgery center
without the use of general anesthesia. We are currently seeking FDA approval to
market this product in the United States for BPH. We plan to launch this product
in early-2001 outside of the United States.
We are in the process of developing a bioresorbable stent. This product is
designed for use in post-surgical procedures, particularly after less-invasive
BPH procedures. A high percentage of these patients are sent
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home with catheters after the procedure because of temporary obstruction caused
by swelling of the urethra. Our product is designed to hold open the urethra for
a period of two to four weeks. This would allow patients immediate
post-operative voiding without the use of a catheter.
SALES AND MARKETING
UNITED STATES
We have a strong sales, marketing and distribution infrastructure that includes
well-trained, direct field representatives worldwide. Our U.S. sales force is
comprised of two teams of sales representatives. One team is focused on selling
traditional AMS products, including our penile implants, artificial urinary
sphincters and UroLume stents. The other team, made up primarily of the former
Influence sales force, is focused on selling sling products to the incontinence
market. We believe this allows both sales teams to focus on their core
competencies and to maximize sales. We also have surgical specialists in the
field who support our selling efforts by attending procedures involving our
products.
We believe the size and strength of our sales organization are among our
important competitive advantages. Our sales force is very well trained in the
technical aspects of the procedures urologists perform with our products. In
addition, our AMS sales team has strong, long-term relationships with the
urologists who use our products. Our Influence sales team is a competitive
selling organization.
Our marketing department consists of more than 30 professionals who develop and
implement marketing programs designed to increase awareness of our products with
patients and urologists. Our marketing programs have provided us with
exceptional access to physicians throughout the world. These programs include:
- Medical Marketing Programs are intended to educate physicians and their
staff about successfully promoting their practices, efficiently educate
patients about the diagnosis and treatment of various urological
conditions and effectively train office staff to work with patients.
- Surgical Training Programs are offered to physicians interested in
improving their surgical techniques.
- Education Materials, such as brochures and videos, are developed to
educate patients and urologists about treatment options for
incontinence, erectile dysfunction, prostate disease and about our
products in particular.
- Reimbursement Assistance is provided by our Health Care Affairs
department and outside consultants to assist patients and surgeons in
obtaining appropriate reimbursement for our products.
- Medical Advisory Boards are comprised of key U.S. and international
opinion leaders who provide us feedback about our current and future
products, diagnostic and treatment trends and other areas of interest.
- Website marketing is focused on educating both patients and urologists
about our product alternatives, reimbursement for our procedures and our
marketing programs.
INTERNATIONAL
In order to grow our international business, which represented 23% of our total
sales in 1999, we have recently added a new senior management team and
restructured our international business. We currently employ a direct sales
force located in five Western European countries, Canada and Australia. All of
our international sales people sell our entire product line. We also have a
network of approximately 45 foreign independent distributors and agents who
supplement our direct sales force. These distributors and agents sell our
products primarily in Eastern Europe, Southeast Asia, South America, the Middle
East and Africa. The local market condition, regulatory situation and
competitive situation determine the type of products sold in our distributor
markets. New product introductions will be key to growing our international
operations.
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MANUFACTURING AND SUPPLY
We have approximately 75,000 square feet at our headquarters located in
Minnetonka, Minnesota used for manufacturing, research and development,
warehousing and distribution. We have numerous manufacturing capabilities at the
Minnesota facility, including high-skilled operations specialists and expertise
in plastic injection molding, silicone transfer molding, silicone molding, dip
coating and silicone extrusion using state-of-the-art technology. We manufacture
almost all of our products and related components in our Minnesota facility,
except our sling products, which are currently manufactured at our Israeli
facility. We are in the process of transferring production of our In-Fast sling
products from our Israeli facility to our Minnesota facility. We plan to
continue to use our Israeli facility to manufacture prototypes and other
lower-volume incontinence products.
Although most of the components we purchase to use in our manufacturing facility
are available from multiple sources, some materials are only supplied by a
limited number of vendors. The main component of our implantable prostheses is
raw silicone. We currently rely on one supplier to provide the silicone used in
most of our implantable products. We are aware of only two suppliers of silicone
to the medical device industry for permanent implant usage. We rely mostly on
one supplier for some of the components used in Influence's sling procedure kits
for the treatment of incontinence, although there are a few other authorized
suppliers of these components. We purchase other raw materials from multiple
suppliers in the United States.
We maintain a comprehensive quality assurance and quality control program, which
includes documentation of all material specifications, operating procedures,
equipment maintenance and quality control test methods. Our documentation
systems comply with FDA and ISO 9001 requirements.
Currently, we are operating one manufacturing shift and are at approximately 25%
of our production capacity in our Minnesota facility. We have the ability to
increase production levels of our current product lines without expanding our
facility. We believe that our property in Minnesota is adequate to serve our
business operations for the foreseeable future.
RESEARCH AND DEVELOPMENT
Our U.S.-based research and development staff of more than 30 people focuses on
developing new products to treat incontinence, erectile dysfunction and prostate
disease. In addition, our research and development staff continually works on
enhancing our current product offerings, also known as continuation engineering.
The incontinence, erectile dysfunction and prostate disease teams focus on
developing new, unique and cost-effective products to treat these disorders. The
continuation engineering team focuses on developing improvements to our existing
products. Our research and development staff also consults with our network of
leading urologists to develop new products and new features to our existing
products.
In addition, our Israeli subsidiary continues to employ the two founders of
Influence who lead a research and development staff of approximately 15 people
in Israel. This team focuses on next generation sling technology and other
incontinence products. The Israeli research and development team works closely
with our U.S. research and development staff. To support the Israeli research
and development team, we have maintained Influence's prototype manufacturing
group, consisting of 10 highly skilled machinists and craftsmen. The prototype
manufacturing group is responsible for transferring the technology developed by
the Israeli research and development team to a manufacturing platform.
We spent $16.3 million in 1997, $12.8 million in 1998 and $9.6 million in 1999
on research and development. These costs include clinical and regulatory
expenses. Our research and development costs declined in 1998 and 1999 because
we abandoned a research project on which we spent $7.1 million in 1997 and $3.1
million in 1998. We abandoned this project in early 1999, and did not spend a
significant amount on this project in 1999.
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COMPETITION
Competition in the medical device industry is intense and is characterized by
extensive research efforts and rapid technological progress. We believe that the
primary competitive factors include price, quality, technical capability,
breadth of product line and distribution capabilities. Many of our competitors
in the urology market have greater resources, more widely accepted products,
less-invasive therapies, greater technical capabilities and stronger name
recognition than we do. Our ability to compete is affected by our ability to:
- develop new products and innovative technologies;
- obtain regulatory clearance and compliance for our products;
- protect the proprietary technology of our products and manufacturing
process;
- market our products;
- attract and retain skilled employees; and
- maintain and establish distribution relationships.
Our principal competition in the erectile dysfunction market is with Mentor
Corporation's penile implants and with oral medications such as Pfizer's Viagra.
In addition, TAP Pharmaceuticals Products, Inc.'s Uprima, another oral
medication for the treatment of erectile dysfunction, recently received FDA
panel approval. Our principal competitors in the incontinence market are C.R.
Bard, Inc., Boston Scientific Corporation, Johnson & Johnson, UroPlasty, Inc.
and Advanced UroSciences, Inc. Our principal competitors in the prostate disease
market are Johnson & Johnson, Boston Scientific Corporation, EDAP Technomed,
Urologix, Inc. and VidaMed, Inc.
Our competitors also include academic institutions and other public and private
research organizations that continue to conduct research, seek patent protection
and establish arrangements for commercializing products in this market which
will compete with our products.
INTELLECTUAL PROPERTY
We seek to aggressively protect technology, inventions and improvements that we
consider important through the use of patents and trade secrets in the United
States and significant foreign markets. We cannot assure you that our patents
will provide competitive advantages for our products, or that our competitors
will not challenge or circumvent these rights. In addition, we cannot assure you
that the PTO will issue any of our pending patent applications. The PTO may also
deny or significantly narrow claims made under our patent applications. Any
issued patents may not provide us with significant commercial protection. We
could incur substantial costs in proceedings before the PTO, including
interference proceedings. These proceedings could result in adverse decisions as
to the priority of our inventions. The laws of some of the countries in which
our products are or may be sold may not protect our products and intellectual
property to the same extent as the laws in the United States, or at all.
While we do not believe that any of our products infringe any valid claims of
patents or other proprietary rights held by third parties, we cannot assure you
that we do not infringe any patents or other proprietary rights held by third
parties. If a third party makes an infringement claim, our costs to defend the
claim could be substantial and adversely affect us, even if we were ultimately
successful in defending the claim. If our products were found to infringe any
proprietary right of a third party, we could be required to pay significant
damages or license fees to the third party or cease production. Litigation may
also be necessary to enforce patent rights we hold or to protect trade secrets
or techniques we own. Any claims or litigation could result in substantial costs
and diversion of effort by our management. We are currently involved in two
intellectual property lawsuits with Boston Scientific Corporation. See
"Business--Legal Proceedings" for more specific information regarding these
lawsuits.
We also rely on trade secrets and other unpatented proprietary technology. We
cannot assure you that we can meaningfully protect our rights in these
unpatented proprietary technology or that others will not
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independently develop substantially equivalent proprietary products or processes
or otherwise gain access to our proprietary technology. We seek to protect our
trade secrets and proprietary know-how, in part, with confidentiality agreements
with employees and consultants. We cannot assure you, however, that the
agreements will not be breached, that we will have adequate remedies for any
breach or that our competitors will not discover or independently develop our
trade secrets.
GOVERNMENT REGULATION
UNITED STATES
Numerous governmental authorities, principally the FDA and corresponding state
and foreign regulatory agencies, strictly regulate our products and research and
development activities. The Federal Food, Drug, and Cosmetic Act, or FDA Act,
the regulations promulgated under this act, and other federal and state statutes
and regulations, govern, among other things, the pre-clinical and clinical
testing, design, manufacture, safety, efficacy, labeling, storage, record
keeping, advertising and promotion of medical devices.
Generally, before we can market a new medical device, we must obtain marketing
clearance through a 510(k) premarket notification, approval of a premarket
approval application, or PMA, or approval of product development protocol, or
PDP. The FDA will typically grant a 510(k) clearance if it can establish that
the device is substantially equivalent to a predicate device. It generally takes
several months from the date of a 510(k) submission to obtain clearance, but it
may take longer, particularly if a clinical trial is required.
A PMA or PDP application must be submitted if a proposed device does not qualify
for a 510(k) premarket clearance procedure. The scientific data required to
support an approval to market a product using a PMA or PDP is generally the
same. PMA and PDP applications must be supported by valid scientific evidence to
demonstrate the safety and effectiveness of the device, typically including the
results of clinical trials, bench tests, and laboratory and animal studies. The
PMA and PDP must also contain a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling, advertising, and any training materials. The PMA and PDP
process can be expensive, uncertain and lengthy, require detailed and
comprehensive data and generally take significantly longer than the 510(k)
process. Toward the end of the PMA review process, the FDA generally will
conduct an inspection of the manufacturer's facilities to ensure compliance with
applicable quality standard regulation requirements which include elaborate
testing, control documentation and other quality assurance procedures. Separate
preapproval inspections are required for each PMA application.
If human clinical trials of a device are required, either for a 510(k)
submission or a PMA application, and the device presents a significant risk, the
sponsor of the trial, usually the manufacturer or the distributor of the device,
must file an investigational device exemption, or an IDE, application prior to
commencing human clinical trials. The IDE application must be supported by data,
typically including the results of animal and/or laboratory testing. If the IDE
application is approved by the FDA and one or more appropriate institutional
review boards, or IRBs, human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a nonsignificant risk to the patient, a sponsor may
begin the clinical trial after obtaining approval for the study by two or more
appropriate IRBs without separate approval from the FDA. Submission of an IDE
does not give assurance that the FDA will approve the IDE and, if it is
approved, there can be no assurance the FDA will determine that the data derived
from the studies support the safety and efficacy of the device or warrant the
continuation of clinical trials. An IDE supplement must be submitted to and
approved by the FDA before a sponsor or investigator may make a change to the
investigational plan that may affect its scientific soundness, study indication
or the rights, safety or welfare of human subjects.
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Our core implantable products are or will be approved through the PMA or PDP
application process. Most of our other products are approved through the 510(k)
premarketing notification process. We have conducted clinical trials to support
many of our regulatory approvals.
We currently plan to seek approval from the FDA to market the InjecTx device and
ethanol as a drug/device combination product in the United States. In order to
obtain this approval, we will need to conduct preclinical laboratory and animal
tests; submit to the FDA of an investigational new drug application, commonly
known as an IND application; conduct clinical and other studies to assess safety
and dosage parameters of use; conduct adequate and well-controlled randomized
clinical trials to establish the safety and effectiveness of the drug product;
submit to the FDA a new drug application, commonly known as an NDA; and obtain
FDA approval of the NDA prior to any commercial sale or shipment of the product
in the United States. Throughout the process, we will be required to submit
extensive clinical data to the FDA, which the FDA will review and analyze. This
process is expensive, uncertain and generally takes several years to complete.
In addition to granting approvals for our products, the FDA and international
regulatory authorities periodically inspect our company. We must comply with the
host of regulatory requirements that apply to medical devices marketed in the
United States and internationally. These requirements include labeling
regulations, manufacturing regulations, quality system regulation requirements,
and the medical device reporting regulations which require a manufacturer to
report to the FDA adverse events involving its products, and the FDA's general
prohibitions against promoting products for unapproved or off-label uses. The
FDA periodically inspects device and drug manufacturing facilities in the United
States in order to assure compliance with applicable quality system regulations.
The FDA last inspected our Minnetonka, Minnesota manufacturing facility in 1999
and our Israeli facility in 2000.
If the FDA believes we are not in compliance with law, it can institute
proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against us and our officers
and employees. If we fail to comply with these regulatory requirements, our
business, financial condition and results of operations would be harmed. In
addition, regulations regarding the manufacture and sale of our products are
subject to change. We cannot predict the effect, if any, that these changes
might have on our business, financial condition and results of operations.
Our manufacturing facility is generally compliant with FDA requirements. We have
also implemented comprehensive procedures to ensure compliance with the FDA
quality system regulations with a focus on comprehensive product design
controls.
In addition to the FDA's regulation of the sale and marketing of medical
devices, we are also subject to the National Organ Transplant Act, or NOTA,
because we provide human tissue in connection with our sling systems for urinary
incontinence. NOTA prohibits the purchase and sale of human organs, including
bone and related tissue, for valuable consideration. NOTA permits the payment of
reasonable expenses associated with the removal, transportation, processing,
preservation, quality control, implantation and storage of human bone tissue.
NOTA enables the federal government to impose civil and criminal penalties on
those found to have violated this federal statute.
The FDA currently regulates human tissue-based products under the Public Health
Services Act. FDA regulations do not require a premarket clearance for human
tissue that is minimally manipulated, although human tissue is subject to tissue
donor screening and testing, processing and record keeping, and other controls.
The FDA, however, has proposed a more comprehensive regulatory framework that
will, if adopted, build upon and supersede the existing regulations for human
tissue-based products. Implementation of this proposed regulatory approach would
lead to new regulations for the human tissue we provide with our sling kits.
Most major foreign countries also regulate the use of human tissue, though with
different regulations and standards in each country.
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INTERNATIONAL
In order to market our products in European and other foreign countries, we must
obtain required regulatory approvals and comply with extensive regulations
governing product safety, quality and manufacturing processes. These regulations
vary significantly from country to country and with respect to the nature of the
particular medical device. The time required to obtain these foreign approvals
to market our products may be longer or shorter than that required in the United
States, and requirements for licensing may differ from FDA requirements.
In order to market our products in the member countries of the European Union,
we are required to comply with the medical devices directive and obtain CE mark
certification. CE mark certification is an international symbol of adherence to
quality assurance standards and compliance with applicable European medical
device directives. Under the medical devices directives, all medical devices
including active implants and in-vitro diagnostic products must qualify for CE
marking.
All our products sold internationally are subject to appropriate foreign
regulatory approvals, like CE Marking for the European Union. Our products are
manufactured in ISO 9001 compliant facilities.
THIRD-PARTY REIMBURSEMENT
In the United States, as well as in foreign countries, government-funded or
private insurance programs, commonly known as third-party payors, pay the cost
of a significant portion of a patient's medical expenses. A uniform policy of
reimbursement does not exist among all these payors. Therefore, reimbursement
can be quite different from payor to payor. We believe that reimbursement is an
important factor in the success of any medical device. Consequently, we seek to
obtain reimbursement for all of our products.
Reimbursement in the United States depends on our ability to obtain FDA
clearances and approvals to market these products. Reimbursement also depends on
our ability to demonstrate the short-term and long-term clinical and
cost-effectiveness of our products from the results we obtain from clinical
experience and formal clinical trials. We present these results at major
scientific and medical meetings and publish them in respected, peer-reviewed
medical journals.
The U.S. Health Care Financing Administration, or HCFA, sets reimbursement
policy for the Medicare program in the United States. HCFA has a national
coverage policy, which provides for the diagnosis and treatment of erectile
dysfunction in Medicare beneficiaries. It is estimated that 50-60% of penile
prosthesis procedures are performed on patients covered by Medicare.
Commercial payor coverage for erectile dysfunction varies widely across the
United States. Prior authorization is required for penile prosthesis surgeries,
and we have developed programs to address coverage denials for physicians and
their patients. For example, the introduction of Viagra resulted in some plans
establishing broad coverage exclusions for erectile dysfunction, most notably
some Blue Cross/Blue Shield plans.
Medicare has a national coverage policy that pays for our AMS 800 Artificial
Urinary Sphincter. Likewise, the Influence In-Fast and Straight-In sling
fixation systems are utilized in surgical procedures that are well-accepted and
paid for by third-party payors. Minimally invasive treatments for prostate
disease are generally covered under many third-party reimbursement programs.
Treatment for stricture of the urethra is covered in nearly every state in the
United States and BPH is covered in 33 states with six additional states
pending.
All third-party reimbursement programs, whether government funded or insured
commercially, whether inside the United States or outside, are developing
increasingly sophisticated methods of controlling health care costs through
prospective reimbursement and capitation programs, group purchasing, redesign of
benefits, second opinions required prior to major surgery, careful review of
bills, encouragement of healthier lifestyles and exploration of more
cost-effective methods of delivering health care. These types of
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programs can potentially limit the amount which health care providers may be
willing to pay for medical devices.
HCFA issued a Final Rule on its Prospective Payment System For Outpatient
Services on April 7, 2000. We estimate that more than half of the procedures
using our products are used in an outpatient hospital setting. This rule
provides for a new system to reimburse the outpatient services provided in a
hospital made up of two parts: payment to the hospital for the procedure costs
and a separate payment, known as a pass-through payment, intended to cover the
cost of medical devices used during the procedure that are more than 25% of the
total procedure cost. This rule is scheduled to become effective on July 1,
2000. On May 12, 2000, HCFA published a list of 345 pharmaceuticals and medical
devices that will be eligible for pass-through payments starting July 1, 2000.
HCFA currently intends to only provide payment for the products on this list and
updates the list on a quarterly basis. The current list contains approval for
pass-through payments for our 700 line of penile implants and UroLume stent. It
does not include our 650 or Ambicor penile implants, artificial sphincters or
sling procedure kits.
EMPLOYEES
As of April 15, 2000, we employed directly and through our subsidiaries 508
people in the following areas: 145 in manufacturing, 190 in sales and marketing,
72 in administration, 45 in regulatory, clinical and quality assurance, 49 in
research and development and 7 in human resources. We do not have any active
organized labor unions. We believe we have an excellent relationship with our
employees.
FACILITIES
Our corporate headquarters, main warehouse and manufacturing operations are
located in a 180,000 square foot building we own in Minnetonka, Minnesota. The
manufacturing operations at this location include sufficient capacity to expand
production of our current product line as well as absorb the transfer of
Influence's high volume manufacturing and assembling operations.
We lease office space for our international operations in France, Spain,
Germany, Belgium, England, Australia and Canada. We also lease space in a
building in Israel which contains research and development and prototype
manufacturing capabilities.
LEGAL PROCEEDINGS
BOSTON SCIENTIFIC CORPORATION V. INFLUENCE, INC.
On February 3, 1999, Boston Scientific Corporation filed an action in the
Federal District Court in San Francisco, California against Influence, which we
acquired in December 1999. Boston Scientific alleges that Influence has and
continues to induce the infringement of four United States patents by its
promotion and sale of products for the surgical treatment of female stress
urinary incontinence. Influence has counter-claimed against Boston Scientific
alleging that Boston Scientific infringes two United States patents owned by
Influence.
Boston Scientific is seeking its alleged lost profits, royalties and an
injunction. Influence likewise seeks its lost profits, royalties and an
injunction. Each party contends the asserted patents of the other party are
invalid and unenforceable. Due to the early stage of discovery, the lack of any
significant rulings by the Court in the case to date, and the inherent
uncertainty of litigation, the outcome of the action is uncertain. If Boston
Scientific were to succeed in obtaining the relief it claims, the Court could
award damages to Boston Scientific, could impose an injunction against further
sales of Influence's products for the surgical treatment of stress urinary
incontinence, and could rule that Influence's patents are invalid or
unenforceable. We are unable to quantify the potential range of any damage
award. A damage award could be significant.
AMERICAN MEDICAL SYSTEMS, INC. V. BOSTON SCIENTIFIC CORPORATION
On March 27, 2000, we filed a complaint in Federal District Court in
Minneapolis, Minnesota, alleging that Boston Scientific infringes one of our
patents through Boston Scientific's sales and promotion of products and methods
for the treatment of female stress urinary incontinence. In the complaint, we
seek
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damages and an injunction against Boston Scientific. Boston Scientific's
response is due on May 19, 2000. Boston Scientific may assert counterclaims
against us. It may also assert that the patent at issue is invalid or
unenforceable.
OTHER
We have been and are also currently subject to various other legal proceedings
and other matters which arise in the ordinary course of business, including
product liability claims. In connection with the purchase of our assets from
Pfizer in 1998 by Warburg Pincus, Pfizer retained liability for claims relating
to products that were sold before the completion of the acquisition. We are
liable for claims relating to products sold after the completion of the
acquisition.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Set forth below is certain information concerning our executive officers,
directors and key employees, including their age, as of May 1, 2000:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Douglas W. Kohrs.......................... 42 President, Chief Executive Officer and
Director
Richard J. Faleschini..................... 53 Vice President, Sales and Marketing
Gregory J. Melsen......................... 48 Vice President, Finance and Chief
Financial Officer
J. Daniel Ruys............................ 49 Vice President, International
Johann Neisz.............................. 42 Vice President, Research and Development
Lawrence W. Getlin........................ 54 Vice President, Regulatory, Medical
Affairs Assurance and Quality Systems and
Compliance
Brian A. Millberg......................... 43 Vice President, Manufacturing and
Operations
Janet L. Dick............................. 44 Vice President, Human Resources
Eva S. Snitkin............................ 28 Director, Business Development
Richard B. Emmitt(1)...................... 55 Director
Christopher H. Porter, Ph.D............... 56 Director
David W. Stassen(1)....................... 48 Director
James T. Treace(1)(2)..................... 54 Director
Elizabeth H. Weatherman(2)................ 40 Director
</TABLE>
- ---------------------------------------------
(1)Member of the audit committee.
(2)Member of the compensation committee.
Douglas W. Kohrs has served as our President, Chief Executive Officer and
Director since April 1999. Mr. Kohrs has 18 years of experience in the medical
device industry, most recently as general manager of Sulzer Spine-Tech, Inc.
from May 1998 to April 1999. Mr. Kohrs was part of the founding team at Spine-
Tech when it was formed in 1991 to develop and commercialize the BAK spinal
fusion cage, a novel implantable device to improve the surgical treatment of
degenerative disc disease. Mr. Kohrs also served as Vice President of Research
and Development and Vice President of Marketing during his tenure at Spine-
Tech. Prior to working for Spine-Tech, Mr. Kohrs spent seven years with Johnson
& Johnson and two years at Zimmer, a division of Bristol-Myers Squibb. Mr. Kohrs
currently serves as a director of Kyphon, Inc. and Pioneer Surgical
Technologies, privately held companies
Richard J. Faleschini has served as our Vice President, Sales and Marketing
since November 1999. Mr. Faleschini has over 20 years experience in medical
device sales, marketing and general management. From July 1995 to August 1999,
he served in various executive positions at Medtronic, Inc. with
responsibilities for several sectors of its cardiovascular businesses, including
coronary stents, most recently as Vice President, U.S. Cardiovascular Health
Care Systems Marketing. His previous experience also includes sales and
marketing management responsibilities at Cordis Corporation from 1990 to 1995,
at Biomagnetic Technologies from 1985 to 1990 and at ATL and ADR Ultrasound from
1977 to 1985.
Gregory J. Melsen has served as our Vice President, Finance, Treasurer and Chief
Financial Officer since March 1999. From January 1996 to March 1999, Mr. Melsen
was Vice President, Finance, Treasurer and Chief Financial Officer of Avecor
Cardiovascular, Inc., a publicly-traded medical device company that Medtronic,
Inc. acquired in March 1999. His 25-year tenure in accounting and finance
includes two years as Vice President and Chief Financial Officer of PACE
Incorporated, an environmental testing company, and 19 years with Deloitte &
Touche, including nine years as an audit partner.
J. Daniel Ruys has served as our Vice President, International since July 1999.
Mr. Ruys has 20 years of experience in sales, marketing and general management
with medical device companies and has spent
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most of his career based in Europe. From April 1997 to June 1999, he served as
the European Director of MICROVENA International B.V. From March 1995 to March
1997, he served as the Vice President, Europe of CardioGenesis B.V. From January
1994 to February 1995, he served as General Manager of Hepatix, Inc. From 1977
through 1993, he served in various capacities at Baxter Healthcare/American
Hospital Supply.
Johann Neisz has served as our Vice President, Research and Development since
May 1999. Mr. Neisz has 16 years of medical device product development
experience. From July 1988 to May 1999, Mr. Neisz was employed by Medtronic,
Inc. in senior level Research and Development capacities in The Netherlands,
Sweden, and in the United States with its Neuro, Synectics-Dantec, Corporate
Ventures and Tachyarrhythmia Instruments businesses.
Lawrence W. Getlin, J.D. has served as our Vice President, Regulatory, Medical
Affairs and Quality Systems and Compliance since 1990. Prior to joining us, Mr.
Getlin served for 14 years with the Pharmaseal Division of Baxter
Healthcare/American Hospital Supply, the last eight years as the Director of
Regulatory Affairs. He is a member of the California State Bar as well as the
U.S. Court of Appeals 9th District, and District Court, Central District of
California, and is Regulatory Affairs Certified.
Brian A. Millberg has served as our Vice President, Manufacturing and Operations
since September 1998. Mr. Millberg joined us in 1984, spending his first 11
years with us in positions of increasing responsibility within research and
development. In 1996, he was promoted to Director of Operations, with full
responsibility for our manufacturing operations.
Janet L. Dick has served as our Vice President, Human Resources since 1996.
Overall, Ms. Dick has spent almost 15 years in positions of increasing
responsibility within our human resources department and Schneider's human
resources department, both of which were divisions of Pfizer at the time. Prior
to joining us, Ms. Dick was Assistant Vice President/Personnel Officer for Utica
National Bank & Trust for four years.
Eva S. Snitkin has served as our Director, Business Development since October
1998. From January 1996 to August 1998, Ms. Snitkin served with Banc of America
Securities, formerly NationsBanc Montgomery Securities, as a research analyst,
where she covered the medical device industry with a focus on the urology
market. For the two years prior to that, Ms. Snitkin covered the medical device
industry as an associate research analyst with Hambrecht & Quist.
Richard B. Emmitt has served as one of our directors since September 1998. Mr.
Emmitt is currently a Managing Director of The Vertical Group, Inc., an
investment management and venture capital firm which he founded in 1989 to focus
exclusively on the medical device industry. From 1977 to 1989, Mr. Emmitt served
in various capacities at F. Eberstadt & Co., and its successor, Eberstadt
Fleming. He currently also serves on the board of directors of A-Med Systems,
Inc. and Wright Medical Technologies, Inc., and he previously served on the
board of directors of Xomed Surgical Products, Inc. and SciMed Life Systems,
Inc.
Christopher H. Porter, Ph.D. has served as one of our directors since December
1998. He currently serves as Principal of Medical Genesis, a consulting company
he founded in 1992. His 25 year career in the medical device industry includes
research and development and management experience with 3M, Johnson & Johnson
and Pfizer Inc., as well as several early stage companies. Mr. Porter also
served as our Vice President, Research and Development from 1981 to 1987. He has
introduced over 30 medical products during his career and holds 24 U.S. patents.
David W. Stassen has served as one of our directors since July 1999. Since
January 1999 he has been the Managing Director of Upper Lake Growth Capital,
LLC, a venture capital company based in Minneapolis, Minnesota. Mr. Stassen was
the President of Sulzer Spine-Tech, Inc., formerly Spine-Tech, Inc., which
developed and commercialized the BAK spinal fusion cage, a novel implantable
device to improve the surgical treatment of degenerative disc disease, from June
1992 through June 1998. From 1990 to 1992, Mr. Stassen was the Executive Vice
President of St. Paul Venture Capital, Inc., a venture capital
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company. From 1980 to 1989, Mr. Stassen was Vice President of North Star
Ventures, Inc., a privately-held Minnesota-based venture capital fund. Mr.
Stassen also currently serves as a director of Directag.com, Heartstent, Image
Guided Neurologies and Broncus Technologies, privately-held companies.
James T. Treace has served as one of our directors since December 1998. He
currently is the President of Medtronic/Xomed, the leader in the market for
surgical products used by ear, nose and throat surgeons, a position he has held
since 1996. From 1993 until its acquisition by Xomed Surgical Products, Inc. in
April 1996, Mr. Treace served as Chief Executive Officer, President and Chairman
of the Board of TreBay Medical Corp., an ear, nose and throat and orthopaedic
product company Mr. Treace co-founded in 1993. From 1990 to 1993, Mr. Treace
served as President of Linvatec Corporation, a minimally invasive orthopaedic
medical device company formerly known as Concept, Inc. Mr. Treace is currently a
director of Wright Medical Technologies, Inc. and serves on the operating
committee of Medtronic, Inc.
Elizabeth H. Weatherman has served as one of our directors since July 1998. She
is a Managing Director of E.M. Warburg, Pincus & Co., LLC where she has been a
member of the health care group since 1988. She is responsible for Warburg
Pincus' medical device investment activities. Ms. Weatherman currently also
serves on the board of directors of Wright Medical Technologies, Inc., and she
previously served on the board of directors of Xomed Surgical Products, Inc. and
E.P. Technologies, Inc.
BOARD OF DIRECTORS COMPOSITION AND COMPENSATION
Our board currently has six members. Each director serves until the expiration
of his or her term or until his or her successor is duly elected and qualified.
According to a stockholders agreement, Warburg Pincus will have the right to
designate two persons to our board of directors upon the completion of the
offering. Currently, Warburg Pincus has designated Elizabeth H. Weatherman as
its representative under this agreement. See "Certain Transactions" for more
information about the stockholders agreement, in particular what rights our
current stockholders will have under this agreement once the offering is
completed. Elizabeth H. Weatherman, is currently a Managing Director of E.M.
Warburg, Pincus & Co., LLC which is the sole general partner of Warburg, Pincus
Equity Partners, L.P., our principal stockholder.
We currently pay our non-employee directors $1,500 for each regularly scheduled
meeting of our board of directors, regardless of whether attendance is in person
or by telephone. We do not pay our non-employee directors this fee, however, if
our board holds a telephone meeting solely to approve actions a committee of our
board recommend. We also reimburse non-employee directors for reasonable
out-of-pocket expenses incurred in connection with attending regularly scheduled
meetings of our board of directors. Non-employee directors are directors who are
not our employees or a representative of one of our stockholders.
In addition, our non-employee directors have received grants of stock options
under our stock option plan for their service on our board. We have granted each
of our non-employee directors a non-qualified stock option to purchase 75,000
shares of our common stock at an exercise price of $1.67 per share. The options
vest over a four-year period from the date of grant as long as the non-employee
director continues to serve on our board. The options expire ten years from the
date of grant. No other options have been granted to any other person in respect
of their service as one of our directors. See "2000 Equity Incentive Plan" for
more information about our stock option plan.
BOARD COMMITTEES
The board of directors has established an audit committee and a compensation
committee.
The audit committee provides assistance to the board in satisfying its fiduciary
responsibilities relating to accounting, auditing, operating and reporting
practices and reviews the annual financial statements, the selection and work of
our independent auditors, the scope of the annual audits, the fees to be paid to
the auditors and the adequacy of internal controls for compliance with corporate
policies and directives. This committee consists of David W. Stassen, Richard B.
Emmitt and James T. Treace.
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The compensation committee reviews general programs of compensation and benefits
for all employees and makes recommendations to our board of directors concerning
executive officer and director compensation. This committee consists of James T.
Treace and Elizabeth H. Weatherman.
EXECUTIVE COMPENSATION
The following table describes the compensation earned in fiscal year 1999 by our
current and former President and Chief Executive Officer, and our other top four
executive officers whose salaries and bonuses exceeded $100,000 in fiscal year
1999. The executives named in this table are referred to in this prospectus as
our named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- ------------------------------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Douglas W. Kohrs(1).............................. $155,192 $20,000(2) 450,000 --
Current President and Chief Executive Officer
Gregory J. Melsen(3)............................. $124,496 $15,192(2) 150,000 $15,939(4)
Vice President, Finance and Chief Financial
Officer
Lawrence W. Getlin............................... $170,000 $9,690(2) 150,000 $11,618(5)
Vice President, Regulatory, Medical Affairs and
Quality Assurance
Brian A. Millberg................................ $117,500 $6,120(2) 150,000 $4,500(6)
Vice President, Manufacturing and Operations
Janet L. Dick.................................... $134,000 $16,344(2) 150,000 $6,555(7)
Vice President, Human Resources
Sam B. Humphries(8).............................. $75,000 $37,500 -- $173,442(9)
Former President and Chief Executive Officer
Helen Vallerand(10).............................. $62,500 -- 150,000 $282,296(11)
Former Vice President, Marketing
William R. Stein(12)............................. $79,038 -- 150,000 $224,627(13)
Former Vice President, North American Sales
</TABLE>
- ---------------------------------------------
(1)Mr. Kohrs' first day of employment with us was April 23, 1999.
(2)Bonuses were for services performed in 1999, but paid in 2000. These amounts
do not include bonuses paid in 1999.
(3)Mr. Melsen's first day of employment with us was March 11, 1999.
(4)Consists of $2,804 we paid under our 401(k) plan, and $1,808 we paid under
our supplemental employee retirement plan, as matching contributions, and
$11,327 we paid to Mr. Melsen for consulting services he performed prior to
his employment with us.
(5)Consists of $5,071 we paid under our 401(k) plan, and $3,400 we paid under
our supplemental employee retirement plan, as matching contributions, and
$3,147 in perquisites.
(6)Consists of $4,500 we paid under our 401(k) plan, as matching contributions.
(7)Consists of $6,332 we paid under our 401(k) plan, and $223 we paid under our
supplemental employee retirement plan, as matching contributions.
(8)Mr. Humphries' last day of employment with us was April 23, 1999.
(9)Consists of $150,000 in severance payments, $16,442 for accrued vacation, a
$2,000 car allowance and $5,000 we paid under our 401(k) plan as a matching
contribution. See "Certain Transactions--Agreements with Former Chief
Executive Officer" for more information regarding Mr. Humphries' severance
arrangement.
(10)Ms. Vallerand's last day of employment with us was May 14, 1999.
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(11)Consists of $247,041 in severance payments, $23,582 for accrued vacation,
$7,330 for a pro rated bonus through Ms. Vallerand's termination date and
$4,343 we paid under our 401(k) plan as a matching contribution. See
"Certain Transactions--Other Severance Agreements" for more information
regarding Ms. Vallerand's severance arrangement.
(12)Mr. Stein's last day of employment with us was July 9, 1999.
(13)Consists of $197,400 in severance payments, $17,532 for accrued vacation,
$5,297 for a pro rated bonus through Mr. Stein's termination date and $4,398
we paid under our 401(k) plan as a matching contribution. See "Certain
Transactions--Other Severance Agreements" for more information regarding Mr.
Stein's severance arrangement.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning stock options
granted during fiscal year 1999 to each of our named executive officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE VALUE
--------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED EXERCISE TERM(2)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR 1999 SHARE DATE 5% 10%
- --------------------------- ---------- ---------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Kohrs........... 450,000(3) 16.2% $1.67 04/23/09 $471,671 $1,195,307
Gregory J. Melsen.......... 150,000(4) 5.4% $1.67 04/23/09 $157,224 $398,436
Lawrence W. Getlin......... 150,000(4) 5.4% $1.67 01/05/09 $157,224 $398,436
Brian A. Millberg.......... 150,000(4) 5.4% $1.67 01/05/09 $157,224 $398,436
Janet L. Dick.............. 150,000(4) 5.4% $1.67 01/05/09 $157,224 $398,436
Helen Vallerand............ 150,000(5) 5.4% $1.67 -- -- --
William R. Stein........... 150,000(5) 5.4% $1.67 -- -- --
</TABLE>
- ---------------------------------------------
(1)All of the options granted to the named executive officers were granted under
our 2000 Equity Incentive Plan. See "Management--2000 Equity Incentive Plan"
for a summary of the material terms of the options granted under this plan.
(2)In accordance with the rules of the SEC, the amounts shown on this table
represent hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from
the date the respective options were granted to their expiration date and do
not reflect our estimates or projections of our future common stock prices.
The gains shown are net of the option price, but do not include deductions
for taxes or other expenses associated with the exercise. Actual gains, if
any, on stock option exercises will depend upon the future performance of our
common stock, the executive's continued employment with us or our
subsidiaries and the date on which the options are exercised. The amounts
represented in this table might not necessarily be achieved.
(3)A total of 112,500 shares underlying this option vested on March 31, 2000.
The remaining 337,500 shares vest in increments of 28,125 shares on the last
day of each calendar quarter following March 31, 2000 as long as Mr. Kohrs is
providing services on each of these dates.
(4)A total of 37,500 shares underlying these options vested on December 31,
1999. The remaining 112,500 shares vest in increments of 9,375 shares on the
last day of each calendar quarter following December 31, 1999 as long as the
named executive officer is providing services on each of these dates.
(5)These options did not vest prior to the termination dates for these
employees, and were terminated effective as of their last day of employment
with AMS.
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FISCAL YEAR-END OPTION VALUES
None of our named executive officers exercised any stock options in fiscal year
1999. The following table sets forth information concerning stock options held
by the named executive officers at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999 (1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Douglas W. Kohrs............................... -- 450,000 $ $
Gregory J. Melsen.............................. 37,500 112,500 $ $
Lawrence W. Getlin............................. 37,500 112,500 $ $
Brian A. Millberg.............................. 37,500 112,500 $ $
Janet L. Dick.................................. 37,500 112,500 $ $
</TABLE>
- ---------------------------------------------
(1)There was no public trading market for our common stock on December 31, 1999.
Accordingly, these values have been calculated in accordance with the rules
of the SEC, on the basis of an assumed initial public offering price per
share of $ minus the exercise price of $1.67 per share.
PENSION PLAN TABLE
The named executive officers will continue to participate in our pension plan
following the offering. The following table sets forth the approximate annual
pension that a named executive officer may receive under the pension plan
assuming selection of a straight life annuity, retirement at age 65 and the
current level of covered compensation, based on the indicated assumptions as to
covered compensation and years of service. There are other annuity options
available under the pension plan which would reduce the following amounts. The
amount of the normal retirement benefit under the pension plan is the greater
of:
- the product of 1.4% times years of credited participation in the pension
plan, up to 35 years, times final average compensation, the highest 5
years of covered compensation; or
- the difference between (A) the product of 1.75% times years of credited
participation in the pension plan, up to 35 years, times final average
compensation, the highest 5 years of covered compensation, and (B) the
product of 1.5% times the named executive officer's primary social
security benefit times years of credited participation in the pension
plan, up to 35 years.
Compensation covered by the pension plan includes salary and cash bonuses.
Credited years of participation for the named executive officers are as follows:
Mr. Kohrs--1 year; Mr. Melsen--1 year; Mr. Getlin--10 years; Mr. Millberg--15
years; and Ms. Dick--14 years. The amounts shown do not reflect limitations
imposed by the Internal Revenue Code on retirement benefits which may be paid
under plans qualified under the Code. We have agreed to provide under our
Nonfunded Supplemental Retirement Plan the portion of the retirement benefits
earned under the pension plan which would otherwise be subject to Code
limitations. Under the Code the maximum annual benefit currently allowed under
the pension plan is $135,000 and the maximum annual compensation that may be
taken into account is currently $170,000.
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PENSION TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000........... $29,016 $38,688 $48,361 $58,033 $67,705
150,000........... 35,579 47,438 59,298 71,158 83,017
175,000........... 42,141 56,188 70,236 84,283 98,330
200,000........... 48,704 64,938 81,173 97,408 113,642
225,000........... 55,266 73,688 92,111 110,533 128,955
250,000........... 61,829 82,438 103,048 123,658 144,267
275,000........... 68,391 91,188 113,986 136,783 159,580
300,000........... 74,954 99,938 124,923 149,908 174,892
350,000........... 88,079 117,438 146,798 176,158 205,517
400,000........... 101,204 134,938 168,673 202,408 236,142
450,000........... 114,329 152,438 190,548 228,658 266,767
500,000........... 127,454 169,938 212,423 254,908 297,392
</TABLE>
EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Douglas W. Kohrs on April 23, 1999.
Mr. Kohrs is currently serving as our President and Chief Executive Officer. The
current term of this agreement expires on April 23, 2001. This agreement extends
automatically for consecutive one-year periods until either we or Mr. Kohrs
provides notice of termination to the other not less than 60 days prior to an
anniversary date of this agreement. We currently pay Mr. Kohrs an annual base
salary of $250,000. Mr. Kohrs is eligible to receive an annual bonus based upon
certain performance criteria established by our board of directors. Under this
agreement, we granted Mr. Kohrs an option to purchase 450,000 shares of our
common stock at an exercise price of $1.67 per share, of which 112,500 shares
vested on April 23, 2000 and 28,125 shares of which vest on the last day of each
calendar quarter following March 31, 2000 while he is employed by us. We have
also agreed to reimburse Mr. Kohrs' reasonable and necessary business expenses.
This agreement also entitles Mr. Kohrs to participate in our other standard
benefit programs and contains customary confidentiality and non-competition
provisions. See "Certain Transactions--Sales of Capital Stock" for information
regarding sales of our preferred stock to Mr. Kohrs.
We entered into an employment agreement with Gregory J. Melsen on March 24,
1999. Under the terms of this agreement, Mr. Melsen is currently serving as our
Vice President, Finance and Chief Financial Officer for an initial term expiring
on March 24, 2001. Upon the expiration of the initial term, this agreement will
extend automatically for consecutive one-year periods until either we or Mr.
Melsen provides notice of termination to the other not less than 60 days prior
to an anniversary date of this agreement. We currently pay Mr. Melsen an annual
base salary of $161,200. Mr. Melsen is also eligible to receive an annual bonus
based upon performance criteria established by our board of directors. Under
this agreement, we granted Mr. Melsen an option to purchase 150,000 shares of
our common stock at an exercise price of $1.67 per share, of which 37,500 shares
vested on December 31, 1999, and 9,375 shares of which vest on the last day of
each calendar quarter following December 31, 1999 while he is employed by us. We
have also agreed to reimburse Mr. Melsen's reasonable and necessary business
expenses. This agreement also entitles Mr. Melsen to participate in our other
standard benefit programs and contains customary confidentiality and
non-competition provisions.
Both of the agreements with Mr. Kohrs and Mr. Melsen include the following
termination benefits:
- If the employee dies or becomes disabled while employed by us, his
estate will be entitled to receive all amounts and benefits accrued but
unpaid under the agreement through his death and
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his salary at the rate in effect at the time of his death for a period
of twelve months following his death.
- If we terminate the employee for cause, he will receive no additional
compensation or termination benefits.
- If we terminate the employee without cause, we are required to continue
to pay his salary and provide health and welfare benefits for a period
of twelve months following his termination. If the employee, however,
accepts or engages in other employment prior to the last day of the
twelve-month period, we will be entitled to deduct from amounts and
benefits due the employee, other than in respect of any amount owed him
for bonus, the amounts and benefits he received from the other
employment.
- If we terminate the employee without cause, or if the employee
terminates his employment for a good reason, such as diminution in
responsibility or relocation, during the twelve-month period immediately
following a change of control:
-- we will pay the employee all amounts and benefits accrued but unpaid
through the date of his termination;
-- all unvested shares subject to the option granted him under the
agreement will immediately vest and be exercisable;
-- we will pay the employee a lump sum payment equal to his annual
salary at the rate in effect on the date of his termination, plus his
target bonus for the year in which the change of control occurs; and
-- we will provide, at our cost, any health and welfare benefits he
received at the time of termination for a twelve-month period
following termination.
2000 EQUITY INCENTIVE PLAN
Our board of directors approved our 2000 Equity Incentive Plan on April 17,
2000. Our stockholders also approved the plan on April 17, 2000. The plan
replaced the American Medical Systems, Inc. 1998 Equity Incentive Plan, which
was terminated in connection with the formation of American Medical Systems
Holdings, Inc. All options outstanding under the 1998 Equity Incentive Plan were
exchanged for options under the 2000 Equity Incentive Plan. The exchanged
options have the same terms and are subject to the same conditions, except that
upon exercise, the holders of the options will receive common stock of American
Medical Systems Holdings, Inc., rather than common stock of American Medical
Systems, Inc. We currently have a total of 3,450,000 shares of our common stock
reserved for issuance under the plan. As of March 31, 2000, we had outstanding
options to purchase an aggregate of 2,964,375 shares of our common stock at a
weighted average exercise price of $1.67 per share.
The plan provides for the grant to eligible persons of:
- options to purchase our common stock that qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended;
- options to purchase our common stock that do not qualify as incentive
stock options under the Code;
- restricted stock awards, which are subject to certain forfeiture and
transferability restrictions that lapse after specified employment
periods; and
- awards of unrestricted shares of common stock in the form of stock
bonuses, stock appreciation rights, phantom stock and performance share
units.
Except for stock options, we have not granted any other awards under the plan.
Our employees, directors and consultants are eligible to participate in the
plan. Under present law, incentive stock options may only
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be granted to employees. Our board, or a committee of the board, may administer
the plan, and has the authority to:
- select plan participants;
- determine the nature and extent of the awards made to each plan
participant;
- determine when awards will be made to plan participants;
- determine the duration of the period and vesting schedule for each
award;
- determine any payment conditions of the awards;
- prescribe the form of agreements evidencing awards made under the plan;
and
- make all other decisions relating to the administration of the plan.
Under the plan, the administrator also determines the exercise price at the time
of grant. The exercise price may not be less than 100% of the fair market value
of a share of our common stock on the day the administrator grants the option.
The options are generally granted for a ten year term, but may terminate earlier
if the participant's employment with us terminates before the end of the
ten-year period. If a plan participant who holds an incentive stock option also
owns, or is deemed to own, more than 10% of the combined voting power of all of
our classes of stock, the option period shall not exceed five years and the
exercise price of the option may not be less than 110% of the fair market value
on the grant date.
Under our standard agreement covering stock option grants, if we undergo a
change in control and within nine months after the change of control, we
terminate the employee's employment for any reason other than death, disability
or cause, or the employee terminates his or her employment with us for a good
reason, then without any action by the administrator of the plan, all
outstanding options may become immediately exercisable in full and may remain
exercisable for a period of up to twelve months from the date of termination
depending upon the reason for the employee's termination.
For purposes of the plan, a change in control of AMS will be deemed to have
occurred, among other events, upon:
- a reorganization, merger, consolidation or disposition of all or
substantially all of our assets, but only if we or our affiliates:
-- do not control the new entity resulting from the transaction;
-- an unrelated person does not own, directly or indirectly, 50% or more
of the outstanding common stock of the new entity, including shares
that could be issued upon the exercise of outstanding stock options,
or 50% or more of the combined voting power of the new entity; and
-- at least a majority of the members of the board of the new entity
were members of our board at the time of the transaction.
- the sale at least 80% of our assets to an unrelated party;
- the approval by our stockholders of a complete liquidation or
dissolution of our company;
- any unrelated person purchasing 50% or more of our then outstanding
shares of common stock, taking into account shares that may be issued
upon the exercise of outstanding stock options, or 50% or more of the
combined voting power of our then outstanding securities ordinarily
having the right to vote at the election of director; or
- the current members of our board, or future members of our board who are
approved by at least two-thirds of our current board, cease to
constitute at least a majority of the board.
Under our standard agreement covering stock options, we have the right to
repurchase any stock issued upon exercise of an option at the same price the
option holder paid if we terminate the employee for cause. Also, if a
participant in the plan owns our common stock and receives an offer to purchase
this stock from another person, we have the right to purchase the stock from the
participant before the participant can sell it to the third party.
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EMPLOYEE STOCK PURCHASE PLAN
We intend to adopt an Employee Stock Purchase Plan before completing the
offering and implement it after the offering.
Under this plan, eligible employees will have the right to purchase shares of
our common stock through payroll deductions made during consecutive offering
periods. The plan is intended to qualify under the provisions of Section 421 and
423 of the Code. Subject to certain restrictions imposed by the Code, persons
eligible to participate in the plan are those who are employed by us for at
least 20 hours per week and for more than five months in a calendar year.
Eligible employees participate voluntarily and may withdraw from any offering
period at any time before they purchase stock. Participation terminates
automatically upon termination of employment.
We will sell shares under the plan to participants at a discount from fair
market value. The purchase price per share of common stock in an offering period
will not be less than 85% of the lesser of its fair market value at the
beginning of an offering period or at the end of an offering period. To
accumulate the purchase price for the shares, each participant executes an
agreement which authorizes payroll deductions. The plan restricts the maximum
number of shares we may issue to a participant during a single offering period,
and provides that no participant will be permitted to subscribe for shares if,
immediately after the sale, that participant would own more than 5% of the
combined voting power or value of all classes of our stock.
The plan will provide for adjustments in the number of shares subject to
purchase under the plan, and in the purchase price per share, if there is a
change in our capitalization that results in an increase or decrease in the
number of outstanding shares of our common stock. The plan will also give our
board the authority to shorten an offering period, and thereby accelerate a
participant's right to purchase shares, in the event of a proposed sale of all
or substantially all of our assets or a proposed merger with another company.
AMS 2000 MANAGEMENT INCENTIVE COMPENSATION PLAN
Our 2000 Management Incentive Compensation Plan became effective on January 1,
2000 to reward our vice presidents, directors and other key management with
additional performance-based compensation. This plan allows eligible
participants to earn bonuses up to stated percentages of their base salary. The
bonuses are paid in the first quarter of the following calendar year and based
on our specific achievement of sales and operating income goals and the
achievement of specific individual goals set by the participant. If any
participant voluntarily terminates his or her employment with us, or we
terminate his or her employment based upon performance during any plan year,
then their incentive award for that year is forfeited. For the year 2000, the
percentages for the participants are as follows:
- up to a maximum of 70% for our President and Chief Executive Officer if
we achieve 125% of our business plan;
- up to a maximum of 60% for our Vice Presidents if we achieve 150% or
more of our business plan; and
- up to a maximum of 55% for our director level employees if we achieve
150% or more of our business plan.
During 1999, we had a total of 20 employees participating in this plan, and paid
a total of $138,289 to these employees under this plan.
EMPLOYEE BENEFIT PLANS
AMS RETIREMENT ANNUITY PLAN. In September 1998, we adopted a defined benefit
retirement plan known as the AMS Retirement Annuity Plan which covers all of our
U.S. employees, except those hired after December 31, 1999. This pension plan is
intended to meet the requirements for qualification under Section 401(a) of the
Code, and provides a pension benefit to a participating employee based on the
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employee's years of service and average compensation prior to retirement. Our
funding policy is to contribute annually to a trust maintained for the pension
plan in amounts as are necessary to maintain the pension plan on a sound
actuarial basis and to meet minimum funding standards required by applicable
law. This pension plan is administered by the employee benefits committee which
directs the investment of the assets of the pension plan in various investment
options. The participants in this pension plan acquire a vested interest in a
retirement annuity under the pension plan over a five-year period subject to
requirements relating to the number of hours worked in any given year. In
December 1999, our board of directors amended the pension plan to deny
additional participation for any employees who initially began employment with
us after December 31, 1999.
AMS NONFUNDED SUPPLEMENTAL RETIREMENT PLAN. The Internal Revenue Code limits the
annual benefit that we may pay from tax-qualified pension plans such as our
Retirement Annuity Plan. As a result, we established the AMS Nonfunded
Supplemental Retirement Plan to provide retirees with supplemental benefits so
that they will receive, in the aggregate, the benefits they would have been
entitled to receive under our pension plan had those limits not been in effect.
AMS SAVINGS AND INVESTMENT PLAN--401(K) PLAN. In September 1998, we adopted a
defined contribution 401(k) plan known as the AMS Savings and Investment Plan
covering our employees located in the United States. Our 401(k) plan is intended
to meet the requirements for qualification and the requirements for a qualified
cash or deferred arrangement under Section 401(a) of the Code, so that salary
deferral contributions by employees, matching contributions by us and the
investment earnings are not taxable to our employees until withdrawn from the
401(k) plan. Pursuant to our 401(k) plan, eligible employees may elect to reduce
their current annual compensation between 2% and 15%, in whole percents, up to
the statutorily prescribed annual limit of $10,500 in year 2000 and to have the
amount of the reduction contributed to the 401(k) plan. Under our 401(k) plan,
we provide an additional matching contribution to each participant in the amount
of 100% of the participant's salary deferral contribution up to 2% of the
participant's compensation, and 50% of the participant's salary deferral
contribution between 2% and 6% of the participant's compensation. For employees
hired after January 1, 2000, these matching contributions vest on a four-year
graded vesting schedule. As of December 31, 1999, we had 364 eligible employees
participating in this 401(k) plan, and we made matching contributions of
approximately $866,000 for 1999.
AMS NONFUNDED DEFERRED COMPENSATION AND SUPPLEMENTAL SAVINGS PLAN. The Code
limits the amount that may be contributed to 401(k) plans. We established the
AMS Nonfunded Deferred Compensation and Supplemental Savings Plan to provide
employees the opportunity to make elective contributions to the plan and receive
the full amount of the matching contribution which are otherwise unavailable
under our 401(k) plan because of the limits imposed under the Code.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James T. Treace and Elizabeth H. Weatherman, each of whom is a member of our
board of directors, are members of the board's compensation committee. No
executive officer of ours serves as a member of the board of directors or
compensation committee of any entity that has an executive officer serving as a
member of our board of directors or compensation committee.
Ms. Weatherman is a managing director E.M. Warburg, Pincus & Co., LLC, referred
to as EMWP. Warburg Pincus is managed by EMWP. Warburg Pincus led a group of
private investors in the acquisition of our assets from Pfizer in September
1998. In connection with the acquisition, Warburg Pincus purchased 19,000 shares
of our series A preferred stock and 3,600,000 shares of our series C preferred
stock for a total of $38,000,000. In December 1999, in connection with the
financing of our acquisition of Influence, Warburg Pincus purchased an
additional 6,410 shares of our series A preferred stock, as well as 118,072
shares of our series D preferred stock and all 1,163,856 shares of our
outstanding series E preferred stock for a total of $19,229,280. Warburg Pincus
has also guaranteed a portion of our senior credit facility. See "Certain
Transactions."
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CERTAIN TRANSACTIONS
ACQUISITION FROM PFIZER
In July 1998, Warburg Pincus led a group of private investors to form WPAMS
Acquisition Corp. to acquire the business of AMS and its subsidiaries from
Pfizer Inc. On July 21, 1998, Pfizer, WPAMS and other corporations Pfizer
controls entered into an Asset Purchase Agreement, which was later amended on
September 10, 1998, setting forth the terms and conditions upon which Pfizer and
its affiliates agreed to sell to WPAMS substantially all of the assets and WPAMS
agreed to assume all liabilities related to those assets, of American Medical
Systems and its subsidiaries. On September 10, 1998, WPAMS completed its
acquisition of AMS from Pfizer, and on September 25, 1998, WPAMS changed its
name to American Medical Systems, Inc.
SALES OF CAPITAL STOCK
In connection with the acquisition of American Medical Systems from Pfizer, we
sold to five institutional investors, including Warburg Pincus, an aggregate of:
- 20,000 shares of series A preferred stock for $1,000 per share, or a
total of $20,000,000;
- 400,000 shares of series B preferred stock for $5.00 per share, or a
total of $2,000,000; and
- 3,600,000 shares of series C preferred stock for $5.00 per share, or a
total of $18,000,000.
Of the shares issued,
- Warburg Pincus purchased 19,000 shares of our series A preferred stock,
200,000 shares of our series B preferred stock and 3,600,000 shares of
our series C preferred stock for a total of $38,000,000; and
- Vertical Fund Associates, L.P., an affiliate of Richard B. Emmitt, one
of our directors, purchased 500 shares of our series A preferred stock
and 100,000 shares of our series B preferred stock for a total of
$1,000,000.
In June 1999, we sold to Douglas W. Kohrs, our current President and Chief
Executive Officer, 250 shares of our series A preferred stock for $1,000 per
share, or a total of $250,000, and 50,000 of our series B preferred stock for
$5.00 per share, or a total of $250,000.
In July 1999, we sold to Upper Lake Growth Capital LLC and Crane Island Ventures
LLC, of which one of our directors, David W. Stassen, is Co-Managing Director,
an aggregate of 500 shares of our series A preferred stock for $1,000 per share,
or a total of $500,000, and 100,000 shares of our series D preferred stock for
$10.00 per share, or a total of $1,000,000.
In connection with the acquisition of Influence in December 1999, we sold to
seven of our stockholders the following additional shares:
- 6,999 shares of series A preferred stock for $1,000 per share, or a
total of $6,999,000;
- 236,144 shares of series D preferred stock for $10.00 per share, or a
total of $2,361,440; and
- 1,163,856 shares of series E convertible preferred stock for $10.00 per
share, or a total of $11,638,560.
Of the shares issued,
- Warburg Pincus purchased 6,410 shares of series A preferred stock,
118,072 shares of series D preferred stock and all of the series E
preferred stock for a total of $19,229,280;
- Vertical Fund Associates purchased 169 shares of series A preferred
stock and 33,735 shares of series D preferred stock for a total of
$506,350;
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- Upper Lake Growth Capital and Crane Island Ventures purchased an
aggregate of 168 shares of series A preferred stock and 33,735 shares of
series D preferred stock for a total of $505,350; and
- Douglas W. Kohrs purchased 84 shares of series A preferred stock and
16,867 shares of series D convertible preferred stock for a total of
$252,670.
Upon completion of the offering, all of our series A preferred stock, plus
accumulated dividends, will convert, at a conversion price equal to an assumed
initial public offering price of $ , into 3,296,871 shares of our voting
common stock and 19,878,062 shares of our non-voting common shares. Upon
completion of the offering, each outstanding share of our other series of
preferred stock, plus accumulated dividends, will convert into three shares of
common stock for a total of shares of our voting common stock and
shares of our non-voting common stock. Warburg Pincus will own
all of the shares of non-voting common stock. We anticipate that following the
closing of the offering, Warburg Pincus will convert a number of shares of
non-voting common stock into shares of voting common stock such that Warburg
Pincus will own approximately 49% of our outstanding shares of voting common
stock.
We have granted all holders of our series A preferred stock registration rights
with respect to all shares of common stock, including shares issuable upon
conversion of preferred stock, owned by our series A stockholders. See
"Description of Capital Stock -- Registration Rights."
FORMATION OF HOLDING COMPANY
On March 17, 2000 we formed American Medical Systems Holdings, Inc. to establish
a holding company for American Medical Systems, Inc. On April 17, 2000, American
Medical Systems Holdings, Inc. entered into an exchange agreement with the then
existing stockholders of American Medical Systems, Inc. and American Medical
Systems, Inc. Under this agreement, all the then existing stockholders of
American Medical Systems, Inc., including Warburg Pincus, institutional
stockholders controlled by Richard Emmitt and David Stassen, two of our
directors, and Douglas W. Kohrs, our President and Chief Executive Officer,
agreed to exchange their shares of American Medical Systems, Inc. for shares of
American Medical Systems Holdings, Inc. As a result of this transaction, the
former shareholders of American Medical Systems, Inc. became the shareholders of
American Medical Systems Holdings, Inc., and American Medical Systems, Inc.
became a wholly owned subsidiary of American Medical Systems Holdings, Inc.
STOCKHOLDERS AGREEMENT
On April 17, 2000, we entered into a stockholders agreement with Warburg Pincus
and all of our then existing stockholders. Following the completion of the
offering, as long as any of our current stockholders own at least 20% of our
outstanding shares of capital stock, we are obligated to nominate and use our
best efforts to have two individuals designated by that stockholder elected to
our board of directors. We are also obligated, following the completion of the
offering, to nominate and use our best efforts to have one individual designated
by any stockholder who owns at least 10% of our outstanding shares of capital
stock elected to our board of directors. Accordingly, upon the completion of the
offering, Warburg Pincus will have the right under this stockholders agreement
to designate two persons to our board of directors.
CREDIT FACILITY
We have a $115.0 million senior credit facility, which expires in March 2006. In
April 2000, we refinanced our prior credit facility that was due to expire in
September 2000. The new facility consists of a $65.0 million term note, a $35.0
million guaranteed note and a $15.0 million guaranteed revolving line of credit.
The guarantee is provided by Warburg Pincus. Interest is payable quarterly based
on LIBOR plus 0.785% for the guaranteed note and revolving line of credit and
LIBOR plus 3.0% for the term note. The term note requires quarterly principal
payments of $2.0 million through March 2002, $2.5 million from June 2002 through
March 2003, $3.0 million from June 2003 through March 2004 and $3.4 million from
June 2004 through March 2006. At March 31, 2000, $10.9 million was unused. The
senior credit facility is secured by substantially all of our assets and
contains restrictions concerning the payment of dividends,
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incurrence of additional debt and capital expenditures. In addition, we are
subject to, and in compliance with, certain financial covenants including ratios
related to fixed charges coverage and leverage.
We plan to use approximately $40 million of the net proceeds of the offering to
repay all of the outstanding debt under the guaranteed portion of our current
senior credit facility.
CONSULTING AGREEMENT
On September 1, 1999, we entered into a consulting agreement with Medical
Genesis. Christopher H. Porter, Ph.D., one of our directors, controls Medical
Genesis. Under this agreement, Medical Genesis performs consulting services for
us as we request up to 2.5 days per month. We pay Medical Genesis $3,500 per
month for performing these consulting services and $1,400 a day for each day
above 2.5 days. We also pay all reasonable expenses Medical Genesis incurs while
performing services for us. This agreement expires on September 1, 2000. In
1999, we paid Medical Genesis $99,333 for performing services under this
agreement.
AGREEMENTS WITH FORMER CHIEF EXECUTIVE OFFICER
On September 25, 1998, Warburg Pincus sold Sam B. Humphries, our then President
and Chief Executive Officer, 200 shares of its series A preferred stock at
$1,000 per share and 40,000 shares of its series B convertible preferred stock
at a price equal to $5.00 per share for a total purchase price of $400,000. Mr.
Humphries executed a full recourse promissory note payable to Warburg Pincus for
the full purchase price of the shares he purchased. The shares he purchased were
pledged as security for the note. This note bears interest at the rate of 5.54%
per year and is due on September 25, 2002. If Mr. Humphries sells any of the
shares, however, he must use the net proceeds from the sale to repay the note.
In connection with Mr. Humphries' severance agreement described below, Mr.
Humphries surrendered the 200 shares of series A preferred stock and $200,000 of
the principal and interest on the note was cancelled. Upon Mr. Humphries initial
employment with us, we loaned him $208,250 under a non-recourse promissory note.
This note is secured by a pledge of 105,062 shares of common stock of Optical
Sensors Incorporated. This note bears interest at the rate of 5.54% per year and
is due on September 25, 2001.
In June 1999, we entered into a separation agreement with Mr. Humphries. Under
the terms of this agreement, Mr. Humphries' employment with us was terminated on
April 23, 1999. We agreed to continue to pay Mr. Humphries his salary, at the
rate of $225,000 per year, through February 28, 2000 and provide health care and
welfare benefits through April 22, 2000. We also paid Mr. Humphries a lump sum
of $37,500 plus $16,442 for accrued but unused vacation and floating holidays up
to the date of his termination. All stock options we issued to Mr. Humphries
under our 1998 Equity Incentive Plan, whether vested or unvested, were
cancelled.
OTHER SEVERANCE ARRANGEMENTS
Following our acquisition from Pfizer, David Booth, Roger Mitchell, Helen
Vallerand and William Stein, all of whom were executive officers, left our
company. Under our employee separation plan, which we are required to maintain
through September 10, 2000, pursuant to our agreement with Pfizer, we paid Mr.
Booth $609,608, Mr. Mitchell $207,011, Ms. Vallerand $277,952 and Mr. Stein
$220,228.
All future transactions, including any loans from us to our officers, directors,
principal stockholders or affiliates, will be on terms no less favorable to us
than could be obtained from unaffiliated third parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth information regarding beneficial ownership of our
common stock as of May 1, 2000, and as adjusted to reflect the sale of shares of
common stock in the offering, for:
- each stockholder who we know owns beneficially more than 5% of the
outstanding shares of common stock;
- each of our directors;
- each named executive officer; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules and regulations
of the SEC. For the purpose of calculating the percentage beneficially owned,
the number of shares of common stock deemed outstanding "Before Offering"
includes:
- 19,500 shares of common stock outstanding as of May 1, 2000;
- the conversion upon the closing of the offering of all of our
outstanding preferred stock, plus accrued dividends on these shares,
into shares of voting common stock and shares of non-voting common
stock; and
- shares of common stock subject to options held by the person or group
that are currently exercisable or exercisable within 60 days from May 1,
2000.
The number of shares of common stock outstanding "After Offering" includes an
additional shares offered hereby. Except as indicated in the footnotes to this
table and subject to applicable community property laws, the persons named in
the table have sole voting and investment power with respect to all shares of
common stock listed as beneficially owned by them. The address for each of our
named executive officers is 10700 Bren Road West, Minnetonka, Minnesota 55343.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON
STOCK BENEFICIALLY OWNED
TOTAL SHARES ---------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Warburg, Pincus Equity Partners, L.P.(1)(2)........ % %
Douglas W. Kohrs(3)................................ % %
Gregory J. Melsen(4)............................... 56,250 % %
Lawrence W. Getlin(4).............................. 56,250 % %
Brian A. Millberg(4)............................... 56,250 % %
Janet L. Dick(4)................................... 56,250 % %
Richard B. Emmitt(5)............................... % %
Christopher H. Porter, Ph.D.(6).................... 28,125 % %
David W. Stassen(7)................................ % %
James T. Treace(6)................................. 28,125 % %
Elizabeth H. Weatherman(8)......................... % %
Sam B. Humphries................................... % %
All directors and executive officers as a group (13
persons)(8)...................................... % %
</TABLE>
- ---------------------------------------------
*Less than 1%.
(1)Warburg, Pincus Equity Partners, L.P., referred to as Warburg Pincus,
includes three affiliated partnerships. Warburg, Pincus & Co. referred to as
WP, is the sole general partner of Warburg Pincus. Warburg Pincus is managed
by E.M. Warburg, Pincus & Co., LLC, referred to as EMWP. Lionel I. Pincus is
the managing partner of WP and the managing member of EMWP and may be deemed
to control both entities. The address of the Warburg Pincus entities is 466
Lexington Avenue, New York, New York 10017. The number of shares beneficially
owned includes shares of preferred stock that will convert into shares of
common stock and shares of non-voting common stock on the closing of the
offering.
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(2)Assumes no exercise of the underwriters' over-allotment option. Warburg
Pincus has granted the underwriters a 30-day option to purchase up to
shares of common stock to cover over-allotments, if any. In the event the
over-allotment option is exercised, Warburg Pincus will beneficially own
shares, or %, of the common stock after the offering.
(3)The number of shares beneficially owned includes 140,625 shares subject to
options which may be exercised within 60 days, and 67,200 shares of preferred
stock that will convert into shares of common stock on the closing of the
offering.
(4)The number of shares beneficially owned includes 56,250 shares subject to
options which may be exercised within 60 days.
(5)Mr. Emmitt is one of our directors and the managing director of The Vertical
Group, Inc., one of our stockholders. All shares indicated as owned by Mr.
Emmitt are included because of his affiliation with The Vertical Group, Inc.
The number of shares beneficially owned includes shares of preferred stock
that will convert into shares of common stock on the closing of the
offering.
(6)The number of shares beneficially owned includes 28,125 shares subject to
options which may be exercised within 60 days.
(7)Mr. Stassen is one of our directors and the co-managing director of Upper
Lake Growth Capital LLC and Crane Island Ventures LLC, two of our
stockholders. All shares indicated as owned by Mr. Stassen are included
because of his affiliation with the Upper Lake Growth Capital and Crane
Island Ventures. The number of shares beneficially owned includes shares of
preferred stock that will convert into shares of common stock on the
closing of the offering.
(8)Ms. Weatherman is one of our directors, a partner of WP and a managing
director of EMWP. All shares indicated as owned by Ms. Weatherman are
included because of her affiliation with the Warburg Pincus entities. Ms.
Weatherman disclaims beneficial ownership of all shares owned by the Warburg
Pincus entities.
(9)The number of shares beneficially owned includes shares subject to options
which may be exercised within 60 days. This number also includes shares
beneficially owned by Mr. Emmitt, Mr. Stassen and Ms. Weatherman, see
footnotes 4, 6 and 7 above.
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DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of our capital stock.
However, you should refer to the actual terms of the capital stock contained in
our amended and restated certificate of incorporation referenced below and
applicable law. A copy of our amended and restated certificate of incorporation
which has been amended and restated in connection with the offering has been
filed as an exhibit to the registration statement of which this prospectus is a
part. The following description refers to the certificate of incorporation as
amended and restated upon the completion of the offering and gives effect to the
conversion of all of our outstanding shares of preferred stock into voting
common stock and non-voting common stock upon the completion of the offering.
Our amended and restated certificate of incorporation provides that the
authorized capital stock of our company consists of 75 million shares of voting
common stock, $.01 par value, 20 million shares of non-voting common stock, $.01
par value and 5 million shares of preferred stock, $.01 par value, that are
undesignated as to series. Upon completion of the offering:
- Our outstanding shares of series A preferred stock, plus accumulated
dividends on these shares, will convert into shares of voting
common stock and shares of non-voting common stock at a conversion
price equal to an assumed initial public offering price of $ per
share.
- Our outstanding shares of series B preferred stock, plus accumulated
dividends on these shares, will convert into 2,247,771 shares of voting
common stock at a conversion price equal to $1.67 per share.
- Our outstanding shares of series C preferred stock, plus accumulated
dividends on these shares, will convert into 11,270,310 shares of
non-voting common stock at a conversion price equal to $1.67 per share.
- Our outstanding shares of series D preferred stock, plus accumulated
dividends on these shares, will convert into 1,049,100 shares of voting
common stock at a conversion price equal to $3.33 per share.
- Our outstanding shares of series E preferred stock, plus accumulated
dividends on these shares, will convert into 3,607,752 shares of
non-voting common stock at a conversion price equal to $3.33 per share.
Warburg Pincus will own all of the shares of non-voting common stock. We
anticipate that following the closing of the offering, Warburg Pincus will
convert a number of shares of non-voting common stock into shares of voting
common stock such that Warburg Pincus will own approximately 49% of our
outstanding shares of voting common stock.
VOTING COMMON STOCK
The holders of voting common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders and are not
entitled to cumulate votes. The holders of voting common stock are entitled to
receive ratably dividends as may be declared by our board of directors out of
legally available funds. Upon our liquidation, dissolution or winding up, the
holders of voting common stock are entitled to share ratably in all assets that
are legally available for distribution after payment of all debts and other
liabilities, subject to the prior rights of any holders of preferred stock then
outstanding. The holders of voting common stock have no other preemptive,
subscription, redemption, sinking fund or conversion rights. All outstanding
shares of common stock are fully paid and nonassessable. The shares of voting
common stock to be issued upon completion of the offering will also be fully
paid and nonassessable. The rights, preferences and privileges of holders of
voting common stock are subject to, and may be negatively impacted by, the
rights of the holders of shares of any series of preferred stock which we may
designate and issue in the future.
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NON-VOTING COMMON STOCK
Our non-voting common stock is identical to our voting common stock except in
two respects. First, our non-voting common stock is not entitled to any voting
rights, except as required by law and under situations where we repeal or
negatively impact the holders rights with respect to liquidation or dividend
preferences or voting rights as they relate to common stock. Second, holders of
our non-voting common stock may, at their option, convert their shares into
fully paid and non-assessable shares of common stock on a share-for-share basis
upon the occurrence of a sale of our company meeting specific conditions or a
public sale of our securities except that if the holder is Warburg Pincus, it
may only convert if it owns less than an aggregate of 50% of our outstanding
voting common stock.
UNDESIGNATED PREFERRED STOCK
There will not be any shares of preferred stock outstanding upon the closing of
the offering. Under our amended and restated certificate of incorporation which
will become effective simultaneously with the offering, our board of directors
has the authority, without action by our stockholders, to designate and issue
any authorized but unissued shares of preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of our common stock. It is not possible
to state the actual effect of the issuance of any shares of preferred stock upon
the rights of holders of our common stock or non-voting common stock until our
board determines the specific rights of the holders of preferred stock. However,
the effects might include, among other things, restricting dividends on the
common stock, diluting the voting power of the common stock, impairing the
liquidation rights of the common stock and delaying or preventing a change in
control of our common stock without further action by our stockholders. We have
no present plans to issue any shares of preferred stock.
OPTIONS
As of May 1, 2000, we had outstanding options to purchase an aggregate of
2,936,625 shares of common stock at a weighted average exercise price of $1.67
per share under our 2000 Equity Incentive Plan. All outstanding options provide
for anti-dilution adjustments in the event of certain mergers, consolidations,
reorganizations, recapitalizations, stock dividends, stock splits or other
changes in our corporate structure.
REGISTRATION RIGHTS
Under a registration rights agreement, dated as of May 18, 2000, we granted
registration rights with respect to shares of common stock issuable
upon conversion of our preferred stock held by Warburg Pincus, Mr. Kohrs and the
other holders of series A preferred stock. These registration rights also extend
to any shares of our capital stock hereafter acquired by these investors.
Under the registration rights agreement, investors holding more than 50% of the
then outstanding registrable securities may demand that we file a registration
statement under the Securities Act covering some or all of the investors'
registrable securities. We are not required to effect more than two demand
registrations nor are we required to effect a registration if the requested
registration would have an aggregate offering price to the public of less than
$15 million. In an underwritten offering, the managing underwriter of any such
offering has the right, subject to certain conditions, to limit the number of
registrable securities.
In addition, the investors have "piggyback" registration rights. If we propose
to register any of our equity securities under the Securities Act other than
pursuant to the investors' demand registration right noted above or certain
excluded registrations, the investors may require us to include all or a portion
of their registrable securities in the registration and in any related
underwriting. In an underwritten offering, the managing underwriter, if any, of
any such offering has the right, subject to certain conditions, to limit the
number of registrable securities.
Further, if we are eligible to effect a registration on Form S-3, the investors
may demand that we file a registration statement on Form S-3 covering all or a
portion of the investors' registrable securities, provided
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that the registration has an aggregate offering price of $5 million and that we
are not required to effect more than three such registrations at the investors'
request.
In general, we will bear all fees, costs and expenses of such registrations,
other than underwriting discounts and commissions.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law. In
general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a business combination with an interested stockholder for a period
of three years following the date the person became an interested stockholder,
unless the business combination or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a business
combination includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
interested stockholder is a person who, together with affiliates and associates,
owns or, in the case of affiliates or associates of the corporation, within
three years prior to the determination of interested stockholder status, did own
15% or more of a corporation's voting stock. The existence of this provision
could have anti-takeover effects with respect to transactions not approved in
advance by the board of directors, such as discouraging takeover attempts that
might result in a premium over the market price of the common stock.
Stockholders will not be entitled to cumulative voting in the election of
directors. The authorization of undesignated preferred stock will make it
possible for our board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
effect a change of control of our company. The foregoing provisions of our
amended and restated certificate of incorporation and the Delaware General
Corporation Law may have the effect of deterring or discouraging hostile
takeovers or delaying changes in control of our company.
LIMITATION ON LIABILITY OF DIRECTORS AND INDEMNIFICATION
Our amended and restated certificate of incorporation will limit our directors'
liability to the fullest extent permitted under Delaware's corporate law.
Specifically, our directors are not liable to us or our stockholders for
monetary damages for any breach of fiduciary duty by a director, except for
liability for:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- dividends or other distributions of our corporate assets that are in
contravention of restrictions in Delaware law, our amended and restated
certificate of incorporation, bylaws or any agreement to which we are a
party; and
- any transaction from which a director derives an improper personal
benefit.
This provision will generally not limit liability under state or federal
securities laws.
Delaware law, and our amended and restated certificate of incorporation, provide
that we shall, in certain situations, indemnify any person made or threatened to
be made a party to a proceeding by reason of that person's former or present
official capacity with our company against judgments, penalties, fines,
settlements and reasonable expenses including reasonable attorney's fees. Any
person is also entitled, subject to certain limitations, to payment or
reimbursement of reasonable expenses in advance of the final disposition of the
proceeding.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A. is our transfer agent and registrar.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering there has not been a public market for our common stock.
We cannot predict the effect, if any, that market sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. As described below, only a limited number of shares will be
available for sale shortly after the offering due to contractual and legal
restrictions on resale. Nevertheless, sales of substantial amounts of our common
stock in the public market after the restrictions lapse could cause the market
price of our common stock to decline.
When the offering is completed, we will have a total of shares of
common stock outstanding. The shares offered by this prospectus
will be freely tradable unless our affiliates, as defined in Rule 144 under the
Securities Act of 1933, as amended, purchase them. The remaining
shares are "restricted," which means they were originally sold in offerings that
were not subject to a registration statement filed with the SEC. These
restricted shares may be resold only through registration under the Securities
Act or under an available exemption from registration, such as Rule 144.
LOCK-UP AGREEMENTS
Our officers, directors, stockholder and holders of rights to purchase our
common stock have agreed to a 180-day "lock-up" with respect to
shares of our common stock. This generally means that they cannot sell these
shares during the 180 days following the date of this prospectus. After the
180-day lock-up period, these shares may only be sold in accordance with an
available exemption from registration, such as Rule 144.
RULE 144
In general, under Rule 144, a person or persons whose shares are aggregated, who
has beneficially owned restricted securities for at least one year, including
the holding period of any holder who is not an affiliate, is entitled to sell
within any three-month period a number of our shares of common stock that does
not exceed the greater of:
- 1% of the then outstanding shares of our common stock, which will equal
approximately shares upon completion of the offering; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of sale is filed with the SEC.
Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice and the availability of current public information about us. Under Rule
144 and subject to volume limitations, many of the restricted shares will be
eligible for sale beginning 180 days after the date of the final prospectus, and
the remaining restricted shares will become salable at various times thereafter.
RULE 144(k)
A person who is not deemed an affiliate of ours at any time during the 90 days
preceding a sale and who has beneficially owned shares for at least two years,
including the holding period of any prior owner who is not an affiliate, would
be entitled to sell shares following the offering under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
or notice requirements of Rule 144.
RULE 701 AND OPTIONS
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with some restrictions, including the holding period requirement, of
Rule 144. Any employee, officer or director or consultant who purchased his or
her shares pursuant to a written compensatory plan or contract may be entitled
to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell these shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders
77
<PAGE> 79
of Rule 701 shares are required to wait 90 days after the date of this
prospectus before selling these shares. However, an aggregate of
shares of common stock issuable upon exercise of options held by officers and
directors are subject to lock-up provisions and will only become eligible for
sale upon the expiration of 180 days after the date of this prospectus.
REGISTRATION
Following the offering, we intend to file a registration statement under the
Securities Act covering shares of common stock subject to outstanding options or
issued or issuable under our 2000 Equity Incentive Plan. This registration
statement will automatically become effective upon filing. Accordingly, shares
registered under this registration statement will, subject to Rule 144 volume
limitations applicable to our affiliates, be available for sale in the open
market immediately after the expiration of the 180-day lock-up agreements.
78
<PAGE> 80
UNDERWRITING
The underwriters named below have agreed to buy, subject to the terms and
conditions of the purchase agreement, the number of shares listed opposite their
names below. The underwriters are committed to purchase and pay for all of the
shares if any are purchased, other than those shares covered by the over-
allotment option described below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
U.S. Bancorp Piper Jaffray, Inc. .................
Banc of America Securities LLC....................
Chase Securities Inc. ............................
Total...........................................
</TABLE>
The underwriters have advised us that they propose to offer the shares to the
public initially at $ per share, and to certain dealers at the same price
less a concession of not more than $ per share. The underwriters may allow
and the dealers may reallow a concession of not more than $ per share on
sales to certain other brokers and dealers. After the offering, these figures
may be changed by the underwriters.
At our request, the underwriters have reserved for sale, at the initial public
offering price, up to shares of common stock for our directors,
officers, employees and business associates. The number of shares of common
stock available for sale to the general public will be reduced to the extent
those persons purchase any of the reserved shares. Any reserved shares not
purchased will be reoffered immediately by the underwriters to the public at the
initial public offering price.
Warburg Pincus has granted to the underwriters an option to purchase up to an
additional shares of common stock at the same price to the
public, and with the same underwriting discount, as set forth in the table
above. The underwriters may exercise this option any time during the 30-day
period after the date of this prospectus, but only to cover over-allotments, if
any. To the extent the underwriters exercise the option, each underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of the additional shares as it was obligated to purchase under
the purchase agreement.
The following table shows the underwriting fees to be paid to the underwriters
in connection with the offering. These amounts are shown assuming both no
exercise and full exercise of the over-allotment option.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share........................... $ $
Total............................... $ $
</TABLE>
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in respect to those
liabilities.
The underwriters have informed us that neither they, nor any other underwriter
participating in the distribution of the offering, will make sales of the common
stock offered by this prospectus to accounts over which they exercise
discretionary authority without the prior specific written approval of the
customer.
The offering of our shares of common stock is made for delivery when, as and if
accepted by the underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The underwriters
reserve the right to reject an order for the purchase of shares in whole or
part.
We and each of our directors, executive officers, principal shareholders and
holders of options to purchase approximately shares of common stock
have agreed to certain restrictions on our ability to sell
79
<PAGE> 81
additional shares of our common stock for a period of 180 days after the date of
this prospectus. We have agreed not to directly or indirectly offer for sale,
sell, contract to sell, grant any option for the sale of, or otherwise issue or
dispose of, any shares of common stock, options or warrants to acquire shares of
common stock, or any related security or instrument, without the prior written
consent of U.S. Bancorp Piper Jaffray. The agreements provide exceptions for:
- sales to underwriters pursuant to the purchase agreement;
- our issuance of shares of common stock in connection with the exercise
of options granted and the granting of options to purchase up to an
additional shares under our 2000 Equity Incentive Plan; and
- other common exceptions.
Some of the underwriters or their affiliates have provided from time to time,
and expect to provide in the future, investment banking, financial advisory and
other related services to us and our affiliates, for which they have received
and may continue to receive customary fees and commissions. U.S. Bancorp Piper
Jaffray, the lead managing underwriter, provided financial advisory services to
Warburg Pincus with respect to the original acquisition of our assets from
Pfizer in 1998, and provided financial advisory services to us with respect to
our acquisition of Influence in 1999. Certain affiliated funds and entities of
U.S. Bancorp Piper Jaffray purchased 500 shares of series A preferred stock for
$500,000 and 100,000 shares of series B preferred stock for $500,000 in
September 1998. In addition, they purchased 168 shares of series A preferred
stock for $168,000 and 33,735 shares of series D preferred stock for $337,350 in
December 1999. These shares will be converted into shares of common
stock upon the consummation of the offering.
Banc of America Securities LLC acts as sole lead arranger and sole book manager,
and its affiliate, Bank of America, N.A., acts as agent under our $115,000,000
senior credit facility and receive fees under our senior credit facility
customary for performing these services. A portion of the proceeds from the
offering will be used to repay $40,000,000 plus accrued interest under the
senior credit facility, part of which will be paid to Bank of America, N.A. as a
lender under the credit agreement.
Because affiliates of Banc of America Securities LLC will receive in excess of
10% of the proceeds in the offering, the offering is being conducted in
accordance with Rule 2710(c)(8) and 2720 of the NASD Conduct Rules. These rules
require that the initial public offering price may be no higher than that
recommended by a "qualified independent underwriter," as defined by the NASD.
Chase Securities Inc. is serving in that capacity and has conducted due
diligence and participated in the preparation of this prospectus and the
registration statement of which this prospectus forms a part. The initial public
offering price will not be higher than the price recommended by Chase Securities
Inc.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price for the shares of common stock
offered by this prospectus was negotiated by us and the underwriters. The
primary factors considered in determining the initial public offering price
include:
- the history of and the prospects for the industry in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future earnings;
- the recent market prices of securities of generally comparable
companies; and
- the general condition of the securities markets at the time of the
offering.
There can be no assurance that the initial public offering price of the common
stock will corresponded to the price at which the common stock will trade in the
public market subsequent to the offering or that an active public market for the
common stock will develop and continue after the offering.
80
<PAGE> 82
To facilitate the offering, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during and
after the offering. Specifically, the underwriters may over-allot or otherwise
create a short position in the common stock for their own account by selling
more shares of common stock than have been sold to them by us. The underwriters
may elect to cover any short position by purchasing shares of common stock in
the open market or by exercising the over-allotment option granted to the
underwriters. In addition, the underwriters may stabilize or maintain the price
of the common stock by bidding for or purchasing shares of common stock on the
open market and may impose penalty bids. If penalty bids are imposed, selling
concessions allowed to syndicate members or other broker-dealers participating
in the offering are reclaimed if shares of common stock previously distributed
in the offering are repurchased, whether in connection with stabilization
transactions or otherwise. The effect of these transactions may be to stabilize
or maintain the market price of the common stock at a level above that which
might otherwise prevail in the open market. The imposition of a penalty bid may
also affect the price of the common stock to the extent that it discourages
resales of the common stock. The magnitude or effect of any stabilization or
other transactions is uncertain. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
LEGAL MATTERS
Oppenheimer Wolff & Donnelly LLP, Minneapolis, Minnesota will pass on the
validity of the common stock offered by this prospectus for us. Willkie Farr &
Gallagher will pass on legal matters relating to the offering for the
underwriters. Oppenheimer Wolff & Donnelly LLP has in the past, and may continue
to, perform legal services for U.S. Bancorp Piper Jaffray, Inc. Willkie Farr &
Gallagher has in the past performed, and may continue to perform, legal services
for us and Warburg Pincus, our principal stockholder.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated financial
statements as of December 31, 1998 and 1999, and for the periods from January 1,
1998 to September 10, 1998 and September 11, 1998 to December 31, 1998, and the
year ended December 31, 1999 as set forth in their report. We have included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
The consolidated financial statements of Influence, Inc. appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, to the extent indicated in their report thereon also
appearing elsewhere herein and in the Registration Statement. Such consolidated
financial statements have been included herein in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
The financial statements of American Medical Systems, a business unit of Pfizer
Inc., "the Company," for the year ended December 31, 1997, have been included
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Influence, Inc. as of December 31, 1997
and for the two years then ended included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
81
<PAGE> 83
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the stock we
are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for copies of the actual
contract, agreement or other document. When we complete the offering, we will
also be required to file annual, quarterly and special reports, proxy statements
and other information with the SEC.
You can read our SEC filings, including this registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any documents we file with the SEC at its public reference facilities at 450
Fifth Street, N.W., Washington D.C. 20549, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
facilities. Our SEC filings are also available a the office of the Nasdaq
National Market. For further information on obtaining copies of our public
filings at the Nasdaq National Market, you should call (212) 656-5060.
82
<PAGE> 84
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
Report of Independent Auditors........................... F-2
Independent Auditors' Report............................. F-3
Consolidated Balance Sheets.............................. F-4
Combined and Consolidated Statements of Operations....... F-6
Combined and Consolidated Statements of Stockholders'
Equity (Deficit)....................................... F-7
Combined and Consolidated Statements of Cash Flows....... F-8
Notes to Combined and Consolidated Financial
Statements............................................. F-9
INFLUENCE, INC.
Report of Independent Auditors........................... F-24
Report of Independent Accountants........................ F-25
Consolidated Balance Sheets.............................. F-26
Consolidated Statements of Operations.................... F-27
Consolidated Statement of Stockholders' Deficit.......... F-28
Consolidated Statements of Cash Flows.................... F-29
Notes to Consolidated Financial Statements............... F-30
</TABLE>
F-1
<PAGE> 85
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
American Medical Systems Holdings, Inc.
We have audited the accompanying consolidated balance sheets of American Medical
Systems Holdings, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, changes in shareholders' equity (deficit)
and cash flows for the year ended December 31, 1999 and for the period from
September 11, 1998 to December 31, 1998 and the consolidated statements of
operations, changes in shareholders' equity (deficit) and cash flows of the
Predecessor for the period from January 1, 1998 to September 10, 1998. 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 auditing standards generally accepted
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Medical
Systems Holdings, Inc. as of December 31, 1998 and 1999, and the consolidated
results of its operations and its cash flows for the year ended December 31,
1999 and the period from September 11, 1998 to December 31, 1998, and of the
Predecessor for the period from January 1, 1998 to September 10, 1998, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
May 12, 2000
F-2
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Medical Systems Holdings, Inc.:
We have audited the accompanying combined statements of operations and cash
flows of American Medical Systems, a Business of Pfizer Inc. ("the Company") for
the year ended December 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall combined financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of American Medical Systems, a Business of Pfizer Inc., for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Minneapolis, Minnesota
June 29, 1998
F-3
<PAGE> 87
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
AS OF DECEMBER 31, AS OF AS OF
-------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $2,808 $6,940 $5,106 $5,106
Accounts receivable, net.......................... 16,552 19,809 22,299 22,299
Receivable from former affiliate.................. 6,757 -- -- --
Inventories....................................... 21,731 11,045 12,599 12,599
Deferred income taxes............................. 4,519 6,336 6,169 6,169
Other current assets.............................. 1,353 1,475 698 698
-------- -------- -------- --------
Total current assets......................... 53,720 45,605 46,871 46,871
Property, plant and equipment, net.................. 21,972 26,774 26,843 26,843
Intangibles, net.................................... 73,623 102,851 104,557 104,557
Deferred income taxes............................... 6,008 12,533 11,972 11,972
Other assets........................................ 277 427 538 538
-------- -------- -------- --------
Total assets................................. $155,600 $188,190 $190,781 $190,781
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $3,946 $2,753 $4,385 $4,385
Accrued compensation expenses..................... 9,282 11,684 10,744 10,744
Accrued warranty expense.......................... 6,348 7,385 7,432 7,432
Deferred income tax liability..................... 413 8,624 8,339 8,339
Other accrued expenses............................ 7,538 9,736 8,708 8,708
Current portion of notes payable.................. -- 6,000 8,000 8,000
-------- -------- -------- --------
Total current liabilities.................... 27,527 46,182 47,608 47,608
Long-term notes payable............................. 95,000 95,300 96,100 96,100
Minority interest................................... -- 521 521 521
Redeemable preferred stock:
Series A convertible preferred stock, par value
$.01 per share; authorized 32,116 shares;
issued and outstanding 20,000 shares for 1998
and 27,749 shares for 1999 and 2000............ 20,613 30,523 31,288 31,288
Series B convertible preferred stock, par value
$.01 per share; authorized 4,050,000 shares;
issued and outstanding 400,000 shares for 1998
and 680,000 shares for 1999 and 2000........... 2,037 3,657 3,691
Series C convertible preferred stock, par value
$.01 per share; authorized 6,000,000 shares;
issued and outstanding 3,600,000 shares for
1998 and 3,370,000 shares for 1999 and 2000.... 18,331 18,235 18,508
</TABLE>
F-4
<PAGE> 88
<TABLE>
<CAPTION>
PRO FORMA
AS OF DECEMBER 31, AS OF AS OF
-------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Series D convertible preferred stock, par value
$.01 per share; authorized 4,800,000 shares;
issued and outstanding no shares for 1998 and
336,144 for 1999 and 2000...................... -- 3,395 3,446 --
Series E convertible preferred stock, par value
$.01 per share; authorized 3,400,000 shares;
issued and outstanding no shares for 1998 and
1,163,856 for 1999 and 2000.................... -- 11,675 11,849 --
Stockholders' deficit:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued........................
Common stock, par value $.01 per share; authorized
95,000,000 shares; none issued, 17,907,785
shares pro forma............................... 179
Additional paid-in capital........................ -- -- 859 38,174
Deferred compensation............................. -- -- (765) (765)
Accumulated other comprehensive loss.............. (445) (993) (1,065) (1,065)
Accumulated deficit............................... (7,463) (20,285) (21,259) (21,259)
-------- -------- -------- --------
Total stockholders' equity (deficit)......... (7,908) (21,278) (22,230) 15,264
-------- -------- -------- --------
Total liabilities and stockholders' equity
(deficit)................................. $155,600 $188,190 $190,781 $190,781
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 89
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
COMBINED PREDECESSOR CONSOLIDATED AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
----------------------------------------- --------------------
PERIOD FROM PERIOD FROM
YEAR ENDED JANUARY 1, 1998 SEPTEMBER 11, 1998
DECEMBER 31, 1997 TO SEPTEMBER 10, 1998 TO DECEMBER 31, 1998
----------------- --------------------- --------------------
<S> <C> <C> <C>
Net sales.................. $91,958 $54,615 $23,115
Cost of sales.............. 19,694 14,050 15,551
------- ------- -------
Gross profit............. 72,264 40,565 7,564
Operating expenses:
Marketing and sales...... 21,607 18,486 8,261
Research and
development............ 16,251 10,177 2,884
General and
administrative......... 17,073 19,846 1,951
Transition and
reorganization
expenses............... -- -- 2,517
Amortization of
intangibles............ 998 19 965
In-process research and
development............ -- -- --
------- ------- -------
Total operating expenses... 55,929 48,528 16,578
------- ------- -------
Operating income (loss).... 16,335 (7,963) (9,014)
Royalty and other income
(expense)................ (112) (155) 180
Interest income
(expense)................ -- -- (1,672)
------- ------- -------
Income (loss) before income
taxes.................... 16,223 (8,118) (10,506)
Income tax benefit
(expense)................ (6,136) 3,241 4,024
------- ------- -------
Net income (loss).......... $10,087 $(4,877) $(6,482)
======= ======= =======
<CAPTION>
CONSOLIDATED AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
---------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED -------------------------------
DECEMBER 31, 1999 MARCH 31, 1999 MARCH 31, 2000
----------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales.................. $81,353 $20,169 $24,986
Cost of sales.............. 31,419 16,300 5,730
---------- ------- ----------
Gross profit............. 49,934 3,869 19,256
Operating expenses:
Marketing and sales...... 30,400 7,045 9,864
Research and
development............ 9,552 2,127 3,028
General and
administrative......... 7,889 1,677 2,694
Transition and
reorganization
expenses............... 3,000 3,000 --
Amortization of
intangibles............ 3,360 785 1,766
In-process research and
development............ 7,354 -- --
---------- ------- ----------
Total operating expenses... 61,555 14,634 17,352
---------- ------- ----------
Operating income (loss).... (11,621) (10,765) 1,904
Royalty and other income
(expense)................ 4,205 785 726
Interest income
(expense)................ (6,873) (1,741) (1,844)
---------- ------- ----------
Income (loss) before income
taxes.................... (14,289) (11,721) 786
Income tax benefit
(expense)................ 4,998 4,688 (442)
---------- ------- ----------
Net income (loss).......... $(9,291) $(7,033) $344
========== ======= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 90
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
ACCUMULATED PAID-IN DEFERRED COMPREHENSIVE
EARNINGS (DEFICIT) CAPITAL COMPENSATION LOSS TOTAL
------------------ ---------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Combined Predecessor:
Balances at December 31,
1996......................... $115,458 $-- $-- $-- $115,458
Net income................... 10,087 -- -- -- 10,087
Net activity with Pfizer..... (2,933) -- -- -- (2,933)
--------- ---- ----- ------- ---------
Balances at December 31,
1997......................... 122,612 -- -- -- 122,612
Net income................... (4,877) -- -- -- (4,877)
Net activity with Pfizer..... (2,296) -- -- -- (2,296)
Transfer of value due to
acquisition.................. (115,439) -- -- -- (115,439)
--------- ---- ----- ------- ---------
Consolidated Successor:
Balances at September 10,
1998......................... -- -- -- -- --
Comprehensive loss
Net loss..................... (6,482) -- -- -- (6,482)
Cumulative translation
adjustment................ -- -- -- (445) (445)
--------- ---- ----- ------- ---------
Total comprehensive loss....... (6,482) -- -- (445) (6,927)
Accretion of cumulative
preferred stock dividends.... (981) -- -- -- (981)
--------- ---- ----- ------- ---------
Balances at December 31,
1998......................... (7,463) -- -- (445) (7,908)
Comprehensive loss
Net loss..................... (9,291) -- -- -- (9,291)
Cumulative translation
adjustment................ -- -- -- (548) (548)
--------- ---- ----- ------- ---------
Total comprehensive loss....... (9,291) -- -- (548) (9,839)
Accretion of cumulative
preferred stock dividends.... (3,531) -- -- -- (3,531)
--------- ---- ----- ------- ---------
Balances at December 31,
1999......................... (20,285) -- -- (993) (21,278)
Comprehensive income
Net income................... 344 -- -- -- 344
Cumulative translation
adjustment................ -- -- -- (72) (72)
--------- ---- ----- ------- ---------
Total comprehensive income..... 344 -- -- (72) 272
Issuance of compensatory stock
options...................... -- 859 (859) -- --
Amortization of deferred
compensation................. -- -- 94 -- 94
Accretion of cumulative
preferred stock dividends.... (1,318) -- -- -- (1,318)
--------- ---- ----- ------- ---------
Balances at March 31, 2000
(unaudited).................. $(21,259) $859 $(765) $(1,065) $(22,230)
========= ==== ===== ======= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 91
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
(In thousands, except share data)
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN SYSTEMS MEDICAL
COMBINED PREDECESSOR HOLDINGS, INC.
---------------------------- -----------------------------------------------
PERIOD FROM PERIOD FROM THREE MONTHS
JANUARY 1, SEPTEMBER 11, ENDED MARCH
YEAR ENDED 1998 TO 1998 TO YEAR ENDED 31
DECEMBER 31, SEPTEMBER 10, DECEMBER 31, DECEMBER 31, ----------------
1997 1998 1998 1999 1999 2000
------------ ------------- ------------- ------------ ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $10,087 $(4,877) $(6,482) $(9,291) $(7,033) $344
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation............................... 1,635 2,036 613 2,578 588 919
Amortization of intangibles................ 998 19 965 3,360 785 1,766
In-process research and development........ -- -- -- 7,354 -- --
Noncash pension charge..................... -- (470) 590 2,058 278 355
Noncash deferred compensation.............. -- -- -- -- -- 94
Change in net deferred taxes............... (1,440) (451) (843) (2,814) (704) (234)
Changes in operating assets and
liabilities:
Accounts receivable...................... 3,066 3,720 (2,891) (1,800) (1,389) (2,676)
Receivable from former affiliate......... (11,704) 2,296 (1,166) 6,757 6,757 --
Inventories.............................. 1,802 (3,120) 11,190 11,921 13,087 (1,612)
Accounts payable......................... (3,125) (1,112) 2,958 (1,498) (1,398) 1,637
Accrued expenses......................... -- 2,990 (3,237) (4,718) (4,348) (324)
Other noncurrent liabilities............. 777 -- -- -- (1,268)
Other assets............................. 546 225 (847) (9) (792) 666
------- ------- ------- ------- ------- ------
Net cash provided by (used in)
operating activities................. 2,642 1,256 850 13,898 5,831 (333)
------- ------- ------- ------- ------- ------
Cash flows from investing activities:
Purchase of property, plant and equipment.... (2,642) (1,294) (721) (6,470) (1,188) (988)
Acquisition of businesses, net of cash
acquired................................... -- -- -- (31,622) (500) (2,472)
Purchase of other intangibles................ -- -- -- (1,000) (1,000)
------- ------- ------- ------- ------- ------
Net cash used in investing activities...... (2,642) (1,294) (721) (39,092) (1,688) (4,460)
------- ------- ------- ------- ------- ------
Cash flows from financing activities:
Sale of preferred stock...................... -- -- -- 22,953 -- --
Borrowings on long-term debt................. -- -- -- 6,300 2,500 2,800
------- ------- ------- ------- ------- ------
Net cash provided by financing
activities............................... -- -- -- 29,253 2,500 2,800
------- ------- ------- ------- ------- ------
Effect of exchange rates....................... -- -- (202) 73 144 159
------- ------- ------- ------- ------- ------
Net increase (decrease) in cash and cash
equivalents.................................. -- (38) (73) 4,132 6,787 (1,834)
Cash and cash equivalents, beginning of
period....................................... -- -- 2,881 2,808 2,808 6,940
------- ------- ------- ------- ------- ------
Cash and cash equivalents, end of period....... $0 $(38) $2,808 $6,940 $9,595 $5,106
======= ======= ======= ======= ======= ======
Supplemental disclosure:
Cash paid for interest....................... $-- $-- $1,571 $6,049 $1,493 $2,244
Non-cash investing activities:
Property, plant and equipment from Pfizer.... 1,890 -- -- -- -- --
Property, plant and equipment to Pfizer...... 1,593 -- -- -- -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE> 92
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
American Medical Systems, Inc., predecessor to American Medical Systems
Holdings, Inc. (collectively, the "Company"), was a business unit within Pfizer
Inc. until September 10, 1998 when it, and certain net assets exclusively used
in its business, was acquired by a group of private investors. The Company
manufactures and markets a broad and well-established line of proprietary
surgical products directly to urologists. The Company principally focuses on the
three major urological disorders: incontinence, erectile dysfunction and
prostate disease.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of American Medical
Systems Holdings, Inc. and its subsidiaries after elimination of all significant
intercompany transactions and accounts. The Company formed American Medical
Systems Holdings, Inc. in April 2000 effecting a reorganization of entities
under common control. The financial statements are presented as if this
reorganization took place effective September 10, 1998.
Basis of Presentation -- Year Ended 1997 and Period from January 1, 1998 to
September 10, 1998
The combined financial statements for 1997 and for the period from January 1,
1998 to September 10, 1998 present the financial position, results of operations
and cash flows for AMS as if it were a separate legal entity. All significant
transactions and balances among AMS locations have been eliminated. Operations
outside of the U.S. were included on a fiscal year basis ending November 30. The
combined financial statements included the accounts specifically attributed to
AMS, including allocations of certain assets, liabilities and expenses relating
to shared services and administrative functions incurred at the corporate and
business segment operating levels of Pfizer. No cash balances were reflected in
the accompanying combined statement of cash flows at December 31, 1997 since all
cash was included in Pfizer's centralized cash management system. Accordingly,
AMS' lack of cash at December 31, 1997 may not be representative of an
independent company.
Corporate and Divisional Allocated Costs -- Years ended 1997 and Period from
January 1, 1998 to September 10, 1998
Pfizer allocated certain actual corporate service and employee benefit expenses
to AMS based on number of personnel, occupied office space and third party
sales. Pfizer did not allocate various other corporate overhead expenses to its
operating divisions. However, an allocation of such expenses has been included
in the accompanying combined statements of income and is summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED JANUARY 1, 1998 TO
DECEMBER 31, 1997 SEPTEMBER 10, 1998
----------------- ------------------
<S> <C> <C>
Pfizer corporate and the Medical Technology Group
division of Pfizer (MTG) division overhead costs... $2,832,000 $2,296,000
========== ==========
</TABLE>
Pfizer corporate overhead costs represent a portion of corporate functions such
as personnel, legal, accounting, treasury and information systems which were
allocated based primarily on sales of AMS compared to total Pfizer revenues.
MTG division overhead costs represent personnel, quality control, regulatory
compliance, finance and business development which were allocated based
primarily on sales to third party customers of AMS compared to total MTG sales.
F-9
<PAGE> 93
AMS purchased certain products from an affiliated entity which were carried at
the affiliate's manufactured cost. In addition, the combined statement of income
for 1997 includes $973,000 of goodwill amortization charged by the affiliate for
use of the technology associated with the UroLume product line.
Certain costs including marketing, research and development, quality assurance,
finance, information technology and personnel were shared between AMS and
another member of the MTG division. Such shared service costs were charged to
AMS based on estimated usage and were approximately $9.2 million for the year
ended December 31, 1997 and $4.4 million for the period from January 1 to
September 10, 1998. The nature and amount of these shared services may not be
indicative of American Medical Systems, Inc. stand alone costs.
Included within operating expenses on the accompanying combined statement of
income are credits earned for the co-promotion of Cardura, an affiliate's
product. Net of sales costs, such amounts were $3.4 million for the year ended
December 31, 1997 and $982,000 for the period from January 1 to September 10,
1998.
Management believes that all allocations were made on a reasonable basis;
however, these costs may not necessarily be representative of the costs that
would have been or will be incurred by AMS as an independent company.
BASIS OF PRESENTATION--UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of March 31, 1999 and 2000
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
For financial reporting purposes, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. The Company's cash and cash equivalent balances are
concentrated primarily with one investment manager and the majority is invested
in daily money market funds.
CONCENTRATION OF RISKS
The Company's accounts receivable are primarily due from hospitals and
independent foreign distributors located mainly in the United States and Western
Europe. Although the Company does not require collateral from its customers,
concentrations of credit risk in the United States are somewhat mitigated by a
large number of geographically dispersed customers. The Company does not
presently anticipate credit risk associated with foreign trade receivables,
although collection could be impacted by the underlying economies of the
respective countries.
One Company subsidiary, Influence Medical Technologies Ltd., has its product
development and production facility located in Israel, and the Company is
directly affected by the political, economic and military conditions to which
the country is subject. Accordingly, any major hostilities involving Israel or
the interruption or curtailment of trade between Israel and its present trading
partners could have an adverse effect on the Company's business, financial
conditions, and results of operations.
INVENTORIES
The majority of inventories are stated at the lower of cost, determined on the
first-in, first-out method, or market. At the date the Company was acquired from
Pfizer Inc., inventories were recorded at fair value requiring a $21.8 million
write-up. This write-up was charged to the statement of operations over a six-
month period ended March 31, 1999, representing an estimate of the period over
which inventories were
F-10
<PAGE> 94
sold. Cost of sales was charged $10.2 million in the period from September 11 to
December 31, 1998 and $11.6 million relating to this write-up in the first
quarter 1999.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including internal and external costs of computer
software, are carried at cost less accumulated depreciation and amortization.
Depreciation and amortization are generally recorded using the straight-line
method over the following estimated useful asset lives:
<TABLE>
<S> <C>
Building............................................ 20 years
Machinery and equipment............................. 8-12 years
Furniture, fixtures and other....................... 3-12 years
Software............................................ 3-5 years
</TABLE>
Maintenance, repairs and minor improvements are charged to expense as incurred
while major betterments and renewals are capitalized. When assets are sold or
retired, the cost and related accumulated depreciation and amortization are
removed from the accounts and the resulting gain or loss is included in
operations.
INTANGIBLE ASSETS
Intangible assets consist of goodwill and purchased intangibles related to
workforce, non-compete agreements, tradename, and developed research and
development technologies. Intangible assets are being amortized on a
straight-line basis over periods ranging principally from 10 to 25 years.
LONG-LIVED ASSETS
The recoverability of long-lived assets is assessed annually or whenever adverse
events or changes in circumstances or business climate indicate that the
expected cash flows previously anticipated warrant reassessment. When such
reassessments indicate the potential of impairment, all business factors are
considered and, if the carrying values of long-lived assets are not likely to be
recovered from future net operating cash flows, they will be written down for
financial reporting purposes.
REVENUE RECOGNITION
The Company recognizes sales upon product shipment.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
ADVERTISING COSTS
Advertising costs are charged to operations in the year incurred. Advertising
costs charged to operations during the year ended December 31, 1997, the periods
from January 1 to September 10, 1998 and September 11 to December 31, 1998, and
the year ended December 31, 1999 were $1,900,000, $1,300,000, $400,000, and
$3,200,000, respectively.
PRODUCT WARRANTY COSTS
The Company provides a warranty on its products and accrues estimated future
warranty costs based on its history of actual warranty costs incurred.
INCOME TAXES
Pre September 10, 1998
As an operating unit of Pfizer, AMS did not file separate tax returns but rather
was included as part of the various returns filed by Pfizer or its subsidiaries.
For reporting purposes, AMS' tax provision was computed as if it were a separate
company and income taxes were settled with Pfizer on a current basis. Deferred
tax assets and liabilities were recognized for the expected future tax
consequences of differences between the financial reporting and tax bases of
assets and liabilities using enacted tax rates and laws. In accordance
F-11
<PAGE> 95
with Pfizer's policy, no provision was made for taxes on overseas earnings which
were deemed to be permanently reinvested.
Post September 10, 1998
The Company accounts for income taxes using the liability method. The liability
method provides that deferred tax assets and liabilities are recorded based on
the differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes ("temporary differences")
using enacted tax rates in effect in the years in which the differences are
expected to reverse. Temporary differences relate primarily to the allowance for
doubtful accounts, obsolete inventory allowances, depreciation, and accruals for
vacation, product liability and warranty costs.
FOREIGN CURRENCY TRANSLATION
The financial statement amounts attributed to operations outside of the United
States are maintained in their local currency, except for Influence Medical
Technologies Ltd., where the United States dollar serves as the functional
currency. All assets and liabilities of the Company's international subsidiaries
are translated to United States dollars at year-end exchange rates, while
elements of the statement of operations are translated at average exchange rates
in effect during the year. Translation adjustments arising from the use of
differing exchange rates are included in accumulated other comprehensive income
in stockholders' equity. Gains and losses on foreign currency transactions are
included in operations and were not material during the periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant areas
which require the use of management's estimates relate to the determination of
the allowances for doubtful accounts receivable and obsolete inventories, the
period of goodwill amortization, the extent of required warranty reserve, the
extent of the contingency for product liability claims, the need for a valuation
allowance on deferred tax assets, and additionally, for the year ended December
31, 1997 and, for the period from January 1, 1998 to September 10, 1998
allocations of certain assets, liabilities and expenses relating to shared
services and administrative functions incurred at the corporate and business
segment operating levels of Pfizer. The Company is subject to risks and
uncertainties, such as changes in the health care environment, competition and
legislation that may cause actual results to differ from estimated results.
RECLASSIFICATION
Certain 1997 and 1998 amounts have been reclassified to conform to the 1999
presentation.
COMMON STOCK SPLITS
Effective prior to the closing of the offering, the Company's common stock will
be split three for one. All share and per share information in the financial
statements has been restated to give effect to this stock split.
EARNINGS PER SHARE
Earnings per share data is not presented for any period because no common shares
were outstanding.
PRO FORMA MARCH 31, 2000 BALANCE SHEET (UNAUDITED)
The terms of the Series B, C, D and E Convertible Preferred Stock provide that
the stock will automatically convert into Common Stock at the time of an initial
public offering. The pro forma March 31, 2000 balance sheet reflects the
Company's financial position as of that date adjusted to give effect to the
conversion of the Company's Convertible Preferred Stock into 17,907,785 shares
of Common Stock.
F-12
<PAGE> 96
2. ACQUISITIONS
INFLUENCE, INC.
On December 16, 1999 the Company acquired Influence Inc., a supplier of bone
anchors and sling products used in the treatment of female incontinence. The
Company paid the former shareholders of Influence, Inc. $24.3 million at the
closing of the acquisition and capitalized $3.2 million related to transaction
and transition costs. The Company is also obligated to make contingent purchase
price payments of up to approximately $20 million, depending on the outcome of
various post-closing contingencies. Subsequent to closing, the Company has paid
$2.5 million of those contingencies. In connection with this transaction, the
Company expensed $6.1 million of acquired in-process research and development,
and recorded $6.6 million of goodwill and other intangibles including $9.9
million of developed research technology, $2.2 million of tradename, $1.1
million related to non-compete agreements, and $500,000 related to the
workforce.
The Company's consolidated statements of operations include Influence, Inc.'s
financial results from the December 16, 1999 date of acquisition. The following
provides Company results on a pro forma basis including Influence Inc. (in
thousands):
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 11 TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------------ ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................................... $23,115 $25,654 $81,353 $92,506
Net loss........................................... $(6,482) $(8,991) $(9,291) $(15,499)
</TABLE>
UROSURGE
On August 3, 1999 the Company acquired all assets related to its UroVive bulking
agent system for the treatment of female stress urinary incontinence. The
Company paid UroSurge, Inc. $4.2 million at closing of the acquisition. The
Company is also obligated to pay UroSurge, Inc. payments of up to an additional
$1.5 million if certain milestones are successfully completed. In addition, the
Company has agreed to pay royalties on net sales generated by the acquired
products through December 2003. In connection with this transaction, the Company
expensed $1.3 million of acquired in-process research and development and
recorded intangible assets of $2.2 million related to developed research
technology and $200,000 of licensed patents.
INJECTx
On October 4, 1999 the Company signed an exclusive, long-term agreement with
InjecTx to distribute its urethral injection system worldwide. The Company made
a $2.0 million equity investment in InjecTx. The Company is also required to
invest up to an additional $2.5 million of equity if certain clinical study
milestones.
IN-PROCESS RESEARCH AND DEVELOPMENT
The Company estimated that $6.1 million and $1.3 million of the purchase price
for Influence and Urosurge, respectively, represented purchased in-process
research and development ("IPR&D") that had not yet reached technological
feasibility and had no alternative future use. Accordingly, these amounts were
expensed during 1999 following consummation of the acquisitions. The value
assigned to IPR&D was determined by identifying research projects in areas for
which technological feasibility had not been achieved. The value was determined
by estimating the costs to develop the IPR&D into commercially viable products,
estimating the resulting net cash flows from such projects, and discounting the
net cash flows back to their present value.
F-13
<PAGE> 97
3. TRANSITION AND REORGANIZATION EXPENSE
Pre-September 10, 1998
In connection with Pfizer's worldwide restructuring program initiated in 1993, a
restructuring reserve was established for the consolidation of facilities. In
1997, $573,000 of the restructuring reserve was utilized.
Post-September 10, 1998
The Company recorded $2.5 million of transition and reorganization expenses for
the period September 11, 1998 to December 31, 1998. These expenses related to
senior management changes and the need to establish new benefit plans and new
accounting and information systems following the acquisition of the Company's
assets by a group of private investors.
In the first quarter of 1999, the Company completed an assessment of senior
management personnel needs and also completed a strategic review of its research
and development efforts. As a result of this review, the Company incurred $3.0
million of transition and reorganization expenses for the year ended December
31, 1999 primarily related to employee termination benefits and executive search
recruiting fees. Forty employees were terminated as a result of these
reorganizations, ten in 1998 and thirty in 1999.
Below is a summary of transition and reorganization expenditures (in thousands):
<TABLE>
<CAPTION>
PROFESSIONAL EXECUTIVE
SEVERANCE FEES SEARCH FEES OTHER TOTAL
--------- ------------ ----------- ----- ------
<S> <C> <C> <C> <C> <C>
Period from September 11 - December 31, 1998
Accrued...................................... $750 $1,440 $94 $233 $2,517
Paid......................................... (83) (1,001) (94) (104) (1,282)
------ ------ ---- ---- ------
Balance at December 31, 1998................... 667 439 -- 129 1,235
Accrued...................................... 2,490 145 314 51 3,000
Paid......................................... (2,279) (584) (314) (129) (3,306)
------ ------ ---- ---- ------
Balance at December 31, 1999................... 878 -- -- 51 929
Paid......................................... (475) -- -- (51) (526)
------ ------ ---- ---- ------
Balance at March 31, 2000 (unaudited).......... $403 $-- $-- $-- $403
====== ====== ==== ==== ======
</TABLE>
4. BALANCE SHEET INFORMATION
The following provides additional information concerning selected balance sheet
accounts (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1998 1999 2000
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable, net:
Trade accounts receivable................................. $17,125 $19,325 $20,773
Other receivables......................................... 127 888 2,093
Allowance for doubtful accounts........................... (700) (404) (567)
------- ------- -------
$16,552 $19,809 $22,299
======= ======= =======
Inventories:
Raw materials............................................. $1,996 $2,940 $3,753
Work-in-progress.......................................... 1,307 1,843 2,540
Finished goods............................................ 20,914 8,455 8,278
Obsolescence reserve...................................... (2,486) (2,193) (1,972)
------- ------- -------
$21,731 $11,045 $12,599
======= ======= =======
</TABLE>
F-14
<PAGE> 98
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1998 1999 2000
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Property, plant and equipment, net:
Land and building......................................... $13,076 $13,183 $13,183
Machinery and equipment................................... 5,873 9,590 9,451
Furniture, fixtures and other............................. 2,789 2,718 3,061
Software.................................................. 847 4,917 5,674
------- ------- -------
$22,585 $30,408 $31,369
Accumulated depreciation and amortization................... (613) (3,634) (4,526)
------- ------- -------
$21,972 $26,774 $26,843
======= ======= =======
Intangible assets, net:
Goodwill.................................................. $74,512 $87,892 $90,348
Developed technologies.................................... -- 12,073 12,073
Trademarks................................................ -- 2,233 2,233
Investment in technology.................................. -- 2,000 2,000
Other..................................................... 76 2,966 3,993
------- ------- -------
$74,588 $107,164 $110,647
Accumulated amortization.................................... (965) (4,313) (6,090)
------- ------- -------
$73,623 $102,851 $104,557
======= ======= =======
</TABLE>
5. SENIOR CREDIT FACILITY
The Company has a $115.0 million senior credit facility, which expires in March
2006. In April 2000 the Company refinanced its prior credit facility that was
due to expire in September 2000. As such the senior credit facility has been
classified according to the terms of the refinanced agreement. The new facility
consists of a $65.0 million term note, a $35.0 million guaranteed note, and a
$15.0 million guaranteed revolving line of credit. The guarantee is provided by
a major shareholder. Interest is payable quarterly based on LIBOR plus 7/8% for
the guaranteed note and revolving line of credit and LIBOR plus 3% for the term
note. The term note requires quarterly principal payments of $2.0 million
through March 2002, $2.5 million from June 2002 through March 2003, $3.0 million
from June 2003 through March 2004, and $3.4 million from June 2004 through March
2006.
At March 31, 2000, $10.9 million was unused. During 1999 interest was payable
quarterly based on either a Eurodollar rate plus .875% or a federal funds rate
plus .5%. A .375% fee was charged on unused amounts. The interest rate at
December 31, 1999 was 7%. Prepaid interest of approximately $900,000 was charged
to expense over a 15-month period ending December 31, 1999.
The carrying value of the $104.1 million outstanding at March 31, 2000
approximates fair value estimated using the Company's incremental borrowing rate
for similar liabilities. The Company is subject to, and is in compliance with,
certain covenants including ratios related to fixed charge coverage and
leverage.
6. STOCKHOLDERS' EQUITY
PREFERRED STOCK
Series A Redeemable Preferred:
The holders of Series A Preferred Stock are entitled to receive cumulative
dividends of 10% per annum payable in cash. Dividends of $613,000 for the period
September 11 to December 31, 1998; $2,207,000 for the year ended December 31,
1999 and $764,000 for the three months ended March 31, 2000 have been accrued
but not paid. As long as any shares of Series A are outstanding, no dividends
may be paid to other preferred or common shareholders. Holders of Series A
Preferred Stock have no voting rights, but have preference over other preferred
and common shareholders in liquidation or dissolution.
F-15
<PAGE> 99
The Series A Preferred Stock is subject to mandatory redemption at $1,000 per
share plus accrued but unpaid dividends at the time of certain public offerings,
a sale of the Company or on December 31, 2006. The Company may redeem the Series
A Preferred Stock at any time. In addition, the shares of Series A Preferred
Stock will automatically convert into a number of shares of voting common stock
and non-voting common stock equal to the redemption price of $1,000 per share
plus accrued dividends, divided by the initial public offering price upon
completion of the offering.
Series B, Series C, Series D and Series E Convertible Preferred
Except with respect to voting rights, conversion rates and the class of capital
stock into which they convert, Series B, C, D and E Convertible Preferred Stock
have the same powers, preferences, rights and qualifications. The holders of
these Series of Convertible Preferred Stock are entitled to receive cumulative
dividends of 6% per annum payable in additional shares of the respective series.
Dividends of $368,000 for the period September 11, 1998 to December 31, 1998;
$1,324,000 for the year ended December 31, 1999; and $554,000 for the three
months ended March 31, 2000 have been accrued but not paid. No dividends may be
paid to these Series of shareholders if any shares of Series A are outstanding.
Each share of Series B and D Preferred Stock will be automatically converted
into shares of voting common stock and each share of Series C and Series E
Preferred Stock will be automatically converted into shares of non-voting common
stock at the time of a public offering (assuming a total Company valuation of at
least $100 million and gross proceeds to the Company of at least $50 million) or
if the majority of the shares of the Convertible Preferred Stock vote to convert
such shares. At the option of the shareholder, each share of Series B and Series
D Preferred Stock may be converted into voting common stock at $1.67 and $3.33
per share, respectively, plus accrued but unpaid dividends. Each share of Series
C and Series E Preferred Stock may be converted into non-voting common stock, at
$1.67 and $3.33 per share, respectively, plus accrued but unpaid dividends. Each
share of Series C Preferred Stock is also convertible into Series B Preferred
Stock and each share of Series E Preferred Stock is also convertible into Series
D preferred stock at the election of the shareholder subject to a limitation
that no shareholder may own more than 50% of Series B and Series D Preferred
Stock.
The Series B and C Convertible Preferred Stock is subject to mandatory
redemption at $1.67 per share plus accrued but unpaid dividends and Series D and
E Convertible Preferred Stock is subject to mandatory redemption at $3.33 per
share plus accrued but unpaid dividends at the time of sale of the Company or on
December 31, 2006. The Company may redeem these Series of Preferred Stock at any
time with consent of the holders of the majority of shares of outstanding
Convertible Preferred Stock.
STOCK INCENTIVE PLAN
The Company's Equity Incentive Plan ("Plan") provides for granting to eligible
employees and certain other individuals nonqualified and incentive stock
options. The Company had reserved 3,000,000 shares of common stock for issuance
under the Plan at December 31, 1999. Subsequent to December 31, 1999, the pool
of shares reserved for such issuance was increased to 3,450,000. Options granted
under the Plan generally become exercisable 25% on the first anniversary date of
the grant and 6.25% per quarter
F-16
<PAGE> 100
thereafter. The options typically expire, if not exercised, ten years after the
date of grant. Options are granted at the fair market value on the date of the
grant. Activity in the plan was as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE EXERCISE
SHARES PRICE PER SHARE
--------- ----------------
<S> <C> <C>
Balance at September 10, 1998........................ -- --
Granted............................................ 450,000 $1.67
---------
Balance at December 31, 1998......................... 450,000 1.67
Granted............................................ 2,781,000 1.67
Canceled or terminated............................. (779,250) 1.67
---------
Balance at December 31, 1999......................... 2,451,750 1.67
Granted............................................ 516,750 1.67
Canceled or terminated............................. (4,125) 1.67
---------
Balance at March 31, 2000............................ 2,964,375 $1.67
=========
</TABLE>
Options to purchase 485,625 common shares are available for grant under the Plan
at March 31, 2000. At March 31, 2000, the weighted average remaining contractual
life of outstanding options was 9 years and 456,000 shares were exercisable.
The Company has elected to follow Accounting Principles Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related interpretations
in accounting for employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation ("Statement 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options. The exercise price of the Company's employee stock options
equaled the market price of the underlying stock on the date of grant for all
options granted through December 31, 1999, and thus, under APB 25, no
compensation expense is recognized. During the three months ended March 31,
2000, the Company recognized deferred compensation of $859,000, reflecting the
excess of the fair value of the underlying stock on the date of grant over the
exercise price. The deferred compensation will be amortized over vesting periods
of two to four years.
Pro forma information regarding net income (loss) and income (loss) per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
Statement 123. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions; risk-free interest rates of 4.6% to 6% in 1999 and
4% in 1998; volatility factor of the expected market price of the Company's
common stock of .001; no expected dividends; and a weighted-average expected
life of the option of 8 years. The operations impact of options issued during
the period September 11 to December 31, 1998, the year ended December 31, 1999,
and the three months ended March 31, 2000 was not significant.
In management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options because
the Company's employee stock options have characteristics significantly
different from those of traded options and have vesting restrictions and because
changes in the subjective input assumptions can materially affect the fair value
estimates. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require input
of highly subjective assumptions.
7. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is self-insured on product liability claims below a certain dollar
limitation and maintains product liability insurance above this limitation per
claim and in the aggregate. Product liability events and
F-17
<PAGE> 101
claims prior to the September 10, 1998 acquisition of the Company from Pfizer
are the responsibility of Pfizer.
The Company is involved in two patent infringement lawsuits with Boston
Scientific Corporation ("BSC"). Prior to the Company's acquisition of Influence,
Inc., BSC filed a patent infringement lawsuit in United States District Court
for the Northern District of California alleging that Influence, Inc. infringed
four patents owned by BSC by encouraging the use of its bone anchor insertion
devices in stress urinary incontinence procedures. On March 15, 1999, Influence
Inc. answered the complaint denying the allegations and filed counterclaims. On
March 27, 2000, the Company filed a complaint in United States District Court
for the District of Minnesota alleging that BSC infringes one patent owned by
the Company through BSC's sales and promotion of products and methods for the
treatment of female stress urinary incontinence and that BSC has misappropriated
trade secrets.
The Company is also involved in a number of claims and lawsuits considered
normal in its business, including product liability matters. While it is not
possible to predict the outcome of legal actions brought against the Company,
the Company believes that the liability resulting from the pending claims and
suits would not have a material adverse effect on the results of its operations,
cash flows, or financial position at December 31, 1999 or for the year then
ended.
In May 1997, Influence Medical Technologies Ltd. signed a facility lease
agreement for a period of five years. The Company has a renewal option, to
extend the lease by an additional period of five years. Future minimum rental
payments as of December 31, 1999, are as follows: $297,000 for 2000, $297,000
for 2001, and $185,000 for 2002. The Company has facility lease agreements at
other international subsidiary locations with future minimal rental payments as
of December 31, 1999, as follows: $176,000 for 2000, $91,000 for 2001, and
$21,000 for 2002.
Rent expense for the year ended December 31, 1997, the periods January 1 to
September 10, 1998 and September 11 to December 31, 1998, and the year ended
December 31, 1999 was $374,000; $467,000; $204,000; and $847,000, respectively.
8. INDUSTRY SEGMENT INFORMATION AND FOREIGN OPERATIONS
Since its inception, the Company has operated in the single industry segment of
developing, manufacturing and marketing medical devices.
The Company distributes its products through its direct sales force and
independent sales representatives in the United States, Canada, and most of
Europe. Additionally, the Company distributes its products through foreign
independent distributors, primarily in Europe and Asia, who then market the
products directly to medical institutions. No customer or distributor accounted
for 10% or more of the Company's net sales during the year ended December 31,
1997, the periods January 1 through September 10, 1998 and the period September
11 through December 31, 1998 or the year ended December 31, 1999.
Total export sales from the United States to unaffiliated entities (primarily to
Europe and payable in United States dollars) were $4,913,000 for the year ended
December 31, 1997; $2,401,000 for the period January 1 to September 10, 1998;
$1,117,000 for the period from September 11 to December 31, 1998 and $4,829,000
for the year ended December 31, 1999.
F-18
<PAGE> 102
At December 31, 1998 and 1999, consolidated accounts receivable included
$7,955,000 and $6,253,000, respectively, due from customers located outside of
the United States.
<TABLE>
<CAPTION>
AMERICAN
MEDICAL INFLUENCE, INC. FOREIGN
SYSTEMS, INC. SUBSIDIARY SUBSIDIARIES CONSOLIDATED
(In thousands) ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Sales to unaffiliated customers............... $73,073 -- $18,885 $91,958
Operating income (loss)....................... 12,430 -- 3,905 16,335
Identifiable assets........................... 166,695 -- 8,021 174,716
PERIOD FROM JANUARY 1-SEPTEMBER 10, 1998
Sales to unaffiliated customers............... 41,917 -- 12,698 54,615
Operating income (loss)....................... (5,623) -- (2,340) (7,963)
Identifiable assets........................... 39,167 -- 7,184 46,351
PERIOD FROM SEPTEMBER 11-DECEMBER 31, 1998
Sales to unaffiliated customers............... $18,727 -- $4,388 $23,115
Operating income (loss)....................... (9,133) -- 119 (9,014)
Identifiable assets........................... 129,274 -- 26,326 155,600
YEAR ENDED DECEMBER 31, 1999
Sales to unaffiliated customers............... $67,161 $588 $13,604 $81,353
Operating income (loss)....................... (13,346) (32) 1,757 (11,621)
Identifiable assets........................... 158,915 3,763 25,512 188,190
</TABLE>
9. PENSION AND POSTRETIREMENT BENEFITS
The Company has pension plans covering most employees worldwide. For United
States employees, the Company sponsors the AMS Retirement Annuity Plan. Plan
benefits depend on years of service and employee final average earnings.
Participants vest in their benefits after as few as five years of service.
The Company also sponsors a postretirement plan in the United States, which
provides medical and life insurance benefits to retirees and their eligible
dependents. Employees are eligible if they meet age and service requirements and
qualify for retirement benefits. The Company does not fund other postretirement
benefit plans, but contributes to the plans as benefits are paid.
F-19
<PAGE> 103
The following tables present reconciliations of the benefit obligation of the
plans, the plan assets of the pension plan and the funded status of the plans
(in thousands):
<TABLE>
<CAPTION>
PENSION OTHER BENEFITS
------------------ ------------------
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year............... $15,655 $16,394 $2,869 $3,032
Service cost.......................................... 425 1,469 105 366
Interest cost......................................... 317 1,099 58 205
Actuarial (gains) or losses........................... (3) (4,204) -- (705)
Benefit payments...................................... -- (297) -- --
Transfer out.......................................... -- (265) -- --
------- ------- ------- -------
Benefit obligation at end of year..................... $16,394 $14,196 $3,032 $2,898
Change in plan assets:
Fair value of plan assets at beginning of year........ $12,433 $12,713 -- --
Actual return on plan assets.......................... 280 710 -- --
Benefit payments...................................... -- (296) -- --
Transfer out.......................................... -- (430) -- --
------- ------- ------- -------
Fair value of plan assets at end of year................ $12,713 $12,697 -- --
Funded status........................................... $(3,681) $(1,499) $(3,032) $(2,898)
Unrecognized net actuarial (gain) loss.................. 32 (3,637) -- (705)
------- ------- ------- -------
Net amount of (accrued) benefit cost.................... $(3,649) $(5,136) $(3,032) $(3,603)
======= ======= ======= =======
</TABLE>
The components in the balance sheet as of December 31, 1998 and 1999 consist of:
<TABLE>
<CAPTION>
PENSION OTHER BENEFITS
----------------- -----------------
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Accrued benefit liability................................ $3,649 $5,136 $3,032 $3,603
</TABLE>
The weighted-average assumptions used and the annual cost related to these plans
consist of:
<TABLE>
<CAPTION>
PENSION OTHER BENEFITS
-------------- ---------------
1998 1999 1998 1999
---- ------ ---- ----
<S> <C> <C> <C> <C>
Discount Rate:.............................................. 6.75% 8.0% 6.75% 8.0%
Rate of future compensation increase........................ 4.5% 4.5% 4.5% 4.5%
Expected long-term return on plan assets.................... 8.5% 8.5% -- --
Service Cost................................................ $425 $1,469 $105 $366
Interest Cost............................................... 317 1,098 58 205
Expected return on plan assets.............................. (315) (1,080) -- --
---- ------ ---- ----
Net periodic benefit costs.................................. $427 $1,487 $163 $571
==== ====== ==== ====
</TABLE>
An average increase of 7.5% and 7.0% in the cost of covered health care benefits
was assumed for 1998 and 1999, respectively, is projected to decrease gradually
to 5.0% for 2004 and remain at that level thereafter.
The Company was allocated a portion of Pfizer's pension cost which resulted in a
credit of $83,000 in 1997.
10. SAVINGS AND INVESTMENT PLAN
The AMS Savings and Investment Plan (the "plan") allows employees in the United
States to contribute a portion of their salaries to the plan. The Company
matches a portion of the contributions. The plan is
F-20
<PAGE> 104
intended to satisfy the requirements of Section 401(a)(27) of the Internal
Revenue Code. Generally, all employees of the Company are eligible to
participate in the plan. The Company made contributions of $611,000, $728,000,
$243,000, and $866,000 to the plan for the year ended December 31, 1997, the
periods January 1 to September 10, 1998 and September 11 to December 31, 1998,
and the year ended December 31, 1999, respectively.
11. INCOME TAXES
Components of the Company's income (losses) before income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
PERIOD PERIOD THREE MONTHS
YEAR ENDED JANUARY 1 TO SEPTEMBER 11 TO YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 10, DECEMBER 31, DECEMBER 31, MARCH 31, 2000
1997 1998 1998 1999 (UNAUDITED)
------------ ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Domestic....................... $12,441 $(10,007) $(9,381) $(14,095) $800
Foreign........................ 3,782 1,889 (1,125) (194) (14)
------- -------- -------- -------- ----
Total........................ $16,223 $(8,118) $(10,506) $(14,289) $786
======= ======== ======== ======== ====
</TABLE>
Components of the Company's income tax benefit (expense) are as follows (in
thousands):
<TABLE>
<CAPTION>
PERIOD PERIOD THREE MONTHS
YEAR ENDED JANUARY 1 TO SEPTEMBER 11 TO YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 10, DECEMBER 31, DECEMBER 31, MARCH 31, 2000
1997 1998 1998 1999 (UNAUDITED)
------------ ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Current
Federal...................... $(4,612) $2,834 $2,236 $1,345 $(606)
State........................ (786) 730 518 785 (75)
Foreign...................... (2,178) (774) 427 54 5
Deferred....................... 1,440 451 843 2,814 234
------- ------ ------ ------ -----
Total........................ $(6,136) $3,241 $4,024 $4,998 $(442)
======= ====== ====== ====== =====
</TABLE>
A reconciliation of income tax benefit (expense) computed at the United States
statutory rate to the effective income tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD PERIOD THREE MONTHS
YEAR ENDED JANUARY 1 TO SEPTEMBER 11 TO YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 10, DECEMBER 31, DECEMBER 31, MARCH 31, 2000
1997 1998 1998 1999 (UNAUDITED)
------------ ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Statutory Rate................. $(5,681) $2,841 $3,572 $4,858 $(267)
Meals & Entertainment.......... (114) (75) (28) (108) (27)
Goodwill....................... -- -- (56) (178) (97)
Foreign........................ 227 (113) 45 8 1
Other.......................... -- -- 124 (125) (2)
State Taxes.................... (568) 588 367 543 (50)
------- ------ ------ ------ -----
Total..................... $(6,136) $3,241 $4,024 $4,998 $(442)
======= ====== ====== ====== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-21
<PAGE> 105
Significant components of the Company's deferred income tax assets and
liabilities as of December 31, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1998 1999 2000
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $3,190 $5,377 $4,692
Foreign NOL/Credits....................................... -- 9,614 9,614
Acquired NOL.............................................. -- 421 421
Pension liability......................................... 2,539 3,324 3,510
Accrued warranty expenses................................. 2,412 2,806 2,824
UroSurge assets........................................... 471 483
Compensation accruals..................................... 998 954 713
Start up costs............................................ 361 277 258
Other, primarily certain reserves......................... 1,027 625 626
Valuation allowance....................................... -- (5,000) (5,000)
------- ------- ------
Total deferred tax assets................................... 10,527 18,869 18,141
Deferred tax liabilities:
Acquired technology....................................... -- 7,691 7,371
Tax over book amortization................................ 163 693 826
Other..................................................... 250 240 142
------- ------- ------
Total deferred tax liabilities.............................. 413 8,624 8,339
------- ------- ------
Net deferred tax asset...................................... $10,114 $10,245 $9,802
======= ======= ======
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of $14 million available to offset future taxable
income, which begin to expire in 2018. Realization of the future tax benefits
related to the net deferred tax assets is dependent on many factors, including
the Company's ability to generate taxable income within the net operating loss
carryforward period. To the extent the net operating losses were created in a
foreign jurisdiction, the Company has included a valuation allowance of $5
million. This amount represents the approximate amount by which the net
operating losses are projected to exceed future income in that foreign
jurisdiction. Management believes that, at a minimum, it is more likely than not
that future taxable income will be sufficient to realize the remaining recorded
asset.
F-22
<PAGE> 106
CONSOLIDATED FINANCIAL STATEMENTS
INFLUENCE, INC.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
F-23
<PAGE> 107
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and
Shareholders of Influence, Inc.
We have audited the accompanying consolidated balance sheet of Influence, Inc.
and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Influence, Inc.
and subsidiaries at December 31, 1998, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
October 26, 1999, except for Note 10, as to
which the date is November 12, 1999
F-24
<PAGE> 108
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Influence, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
Influence, Inc. and its subsidiaries at December 31, 1997, and the results of
their operations and their cash flows for the two years in the period ended
December 31, 1997, in conformity with accounting principles generally accepted
in the United States. 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 of these
financial statements in accordance with auditing standards generally accepted in
the United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements for any period subsequent to
December 31, 1997.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
June 23, 1998
F-25
<PAGE> 109
INFLUENCE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1997 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $2,737 $2,558
Short-term investments.................................... 2,459 94
Accounts receivable, net.................................. 391 1,425
Inventories............................................... 918 1,182
Other current assets...................................... 964 511
------- -------
Total current assets................................. 7,469 5,770
Property and equipment, net................................. 1,252 1,157
------- -------
Total assets......................................... $8,721 $6,927
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $619 $575
Income taxes payable...................................... -- 319
Accrued liabilities and other............................. 1,229 2,079
------- -------
Total current liabilities............................ 1,848 2,973
Note payable................................................ -- 7,000
------- -------
Total liabilities.................................... 1,848 9,973
Stockholders' equity (deficit):
Series A convertible preferred Stock, par value $.01 per
share:
Authorized shares--750,000
Issued and outstanding shares--713,000................. 7 7
Common stock, par value $.001 per share:
Authorized shares--30,000,000
Issued and outstanding shares -- 6,612,569............. 7 7
Additional paid-in capital................................ 25,616 27,125
Deferred compensation..................................... (137) (288)
Accumulated deficit....................................... (18,620) (29,897)
------- -------
Total stockholders' equity (deficit)................. 6,873 (3,046)
------- -------
Total liabilities and stockholders' equity
(deficit)........................................... $8,721 $6,927
======= =======
</TABLE>
See accompanying notes.
F-26
<PAGE> 110
INFLUENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenues.................................................... $-- $1,114 $5,624
Cost of revenues............................................ -- 2,765 2,967
--------- --------- ---------
Gross margin................................................ -- (1,651) 2,657
Operating expenses:
Research and development.................................. 3,219 3,155 2,914
Sales and marketing....................................... 667 3,837 7,380
General and administrative................................ 1,769 2,073 3,398
--------- --------- ---------
Total operating expenses.................................... 5,655 9,065 13,692
Operating loss.............................................. (5,655) (10,716) (11,035)
Other (expense) income...................................... (118) (134) 78
--------- --------- ---------
Net loss before income taxes................................ (5,773) (10,850) (10,957)
Income tax expense.......................................... -- -- 320
--------- --------- ---------
Net loss.................................................... $(5,773) $(10,850) $(11,277)
========= ========= =========
Basic and diluted net loss per share........................ $(.92) $(1.66) $(1.73)
========= ========= =========
Shares used in computing basic and diluted net loss per
share..................................................... 6,278,354 6,517,547 6,517,547
========= ========= =========
</TABLE>
See accompanying notes.
F-27
<PAGE> 111
INFLUENCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(In thousands, except share data)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ------------------ PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
------- ------ --------- ------ ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995........................ 713,000 $7 6,138,182 $7 $3,131 $-- $(1,997) $1,148
Issuance of compensatory
stock options............. -- -- -- -- 610 (610) -- --
Exercise of stock options... -- -- 39,000 -- 125 -- -- 125
Issuance of stock options in
connection with
services.................. -- -- -- -- 837 -- -- 837
Amortization of deferred
compensation.............. -- -- -- -- -- 327 -- 327
Net loss.................... -- -- -- -- -- -- (5,773) (5,773)
------- -- --------- -- ------- ------ -------- -------
Balance at December 31,
1996........................ 713,000 7 6,177,182 7 4,703 (283) (7,770) (3,336)
Conversion of debenture to
common stock at $62.55 per
share..................... -- -- 419,787 -- 20,838 -- -- 20,838
Issuance of stock options in
connection with
services.................. -- -- -- -- 101 (101) -- --
Amortization of deferred
compensation.............. -- -- -- -- -- 171 -- 171
Exercise of stock options... -- -- 15,600 -- 50 -- -- 50
Cancellation of compensatory
stock options............. -- -- -- -- (76) 76 -- --
Net loss.................... -- -- -- -- -- (10,850) (10,850)
------- -- --------- -- ------- ------ -------- -------
Balance at December 31,
1997........................ 713,000 7 6,612,569 7 25,616 (137) (18,620) 6,873
Issuance of compensatory
stock options............. -- -- -- -- 1,246 (1,246) -- --
Issuance of stock options in
connection with
services.................. -- -- -- -- 311 (311) -- --
Amortization of deferred
compensation.............. -- -- -- -- -- 1,358 -- 1,358
Cancellation of compensatory
stock options............. -- -- -- -- (48) 48 -- --
Net loss.................... -- -- -- -- -- -- (11,277) (11,277)
------- -- --------- -- ------- ------ -------- -------
Balance at December 31,
1998........................ 713,000 $7 6,612,569 $7 $27,125 $(288) $(29,897) $(3,046)
======= == ========= == ======= ====== ======== =======
</TABLE>
See accompanying notes.
F-28
<PAGE> 112
INFLUENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(5,773) $(10,850) $(11,277)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 58 166 315
Interest on convertible debenture......................... 100 738 --
Amortization of deferred compensation..................... 327 171 1,358
Stock compensation........................................ 837 -- --
Loss on disposal of property and equipment................ -- -- 3
Changes in assets and liabilities:
Accounts receivable.................................... -- (391) (1,034)
Inventories............................................ (244) (674) (264)
Other current assets................................... (108) (740) 453
Accounts payable....................................... 301 (61) (44)
Income taxes payable................................... -- -- 320
Accrued expenses....................................... 413 716 850
------- -------- --------
Net cash used in operating activities....................... (4,089) (10,925) (9,320)
INVESTING ACTIVITIES
Purchase of short-term investments.......................... (103) (2,357) --
Proceeds from short-term investments........................ -- -- 2,366
Proceeds from the sale of property and equipment............ -- -- 357
Purchases of property and equipment......................... (561) (778) (581)
------- -------- --------
Net cash (used in) provided by investing activities......... (664) (3,135) 2,141
FINANCING ACTIVITIES
Proceeds from exercise of stock options..................... 125 50 --
Proceeds from notes payable--stockholder.................... 3,000 -- --
Proceeds from note payable.................................. -- -- 7,000
Repayment of principal on notes payable to stockholder...... (3,000) -- --
Proceeds from convertible debenture......................... 20,000 -- --
------- -------- --------
Net cash provided by financing activities................... 20,125 50 7,000
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 15,372 (14,010) (179)
Cash and cash equivalents at beginning of year.............. 1,375 16,747 2,737
------- -------- --------
Cash and cash equivalents at end of year.................... $16,747 $2,737 $2,558
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
Conversion of convertible debenture and accrued interest
into Common Stock......................................... $-- $20,838 $--
Deferred compensation from stock options issued for
services.................................................. -- -- 311
Deferred compensation from issuance of compensatory stock
options................................................... -- -- 1,246
Supplemental cash flow disclosure:
Interest paid............................................. $79 $-- $40
</TABLE>
See accompanying notes.
F-29
<PAGE> 113
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. ORGANIZATION AND NATURE OF BUSINESS
Influence, Inc. was incorporated in Delaware on November 9, 1994. Its
wholly-owned subsidiary, Influence Medical Technologies, Ltd. ("IMT"), an
Israeli corporation, was incorporated on November 22, 1994 and commenced
operations on January 1, 1995. On November 7, 1996, IMT incorporated a
wholly-owned subsidiary, Influence Medical Technologies, GmbH, in Germany.
Influence, Inc. and its wholly-owned subsidiaries (the "Company") is a medical
device manufacturer engaged in the design, development and commercialization of
minimally invasive products in the areas of urology/gynecology, otolaryngology
and cancer radiotherapy.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Influence, Inc.
and its wholly-owned subsidiaries. The carrying amount of net assets of the
Company's wholly-owned subsidiaries were approximately $3.5 million at December
31, 1997 and $3.6 million at December 31, 1998. All significant intercompany
accounts and transactions have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Significant areas requiring management estimates relate to the
allowances for doubtful accounts and for obsolete inventory, valuation
allowances for deferred tax assets and useful lives for depreciation and
amortization. Actual results could differ from those estimates.
FOREIGN CURRENCY
The Company's subsidiaries consider their functional currency to be the United
States dollar. All of the Company's financing activity is in United States
dollars. Further, substantially all of the Company's revenues and purchases of
materials and components are also denominated in United States dollars.
Accordingly, the primary economic environment in which the Company operates is
the United States dollar.
Monetary assets and liabilities denominated in currencies other than United
States dollars are remeasured using the exchange rates in effect at each balance
sheet date, while nonmonetary items are remeasured at historical rates.
The Company has not engaged in hedging activities to minimize the risk of
fluctuations in exchange rates. Remeasurement adjustments and foreign currency
transactions gains or losses are recognized in the consolidated statement of
operations. Such amounts were not significant for the years ended December 31,
1996, 1997 and 1998.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments which have an original
maturity of three months or less to be cash equivalents. The carrying amount
reported in the consolidated balance sheet for cash and cash equivalents
approximates its fair value.
F-30
<PAGE> 114
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHORT-TERM INVESTMENTS
The Company's short-term investments consist of bank deposits and commercial
paper. All of the Company's investment securities are classified as
available-for-sale and are stated at fair market value which approximates cost.
CONCENTRATION OF RISKS
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents, short-term
investments and accounts receivable. Cash equivalents and short-term investments
are placed in high credit quality instruments and their composition and
maturities are regularly monitored by management. The Company deposits most of
its cash with a single financial institution.
The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral. The Company maintains an
allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.
The Company's product development and production facility is located in Israel,
and the Company is directly affected by the political, economic and military
conditions to which the country is subject. Accordingly, any major hostilities
involving Israel or the interruption or curtailment of trade between Israel and
its present trading partners could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is required to purchase a certain component used with one of its
products from a sole supplier. Although there is currently only one manufacturer
of this component, management believes that other suppliers could provide a
similar component at comparable terms. However, the loss of this supplier could
delay the shipment of one of the Company's products and have a material adverse
effect on the Company's results of operations.
INVENTORIES
Inventories are stated at the lower of cost, determined using the moving average
method, or market.
PROPERTY AND EQUIPMENT
Machinery and equipment, office furniture and equipment and leasehold
improvements are stated at cost, less accumulated depreciation. Property and
equipment are depreciated on a straight-line basis over their estimated useful
lives or over the life of the lease, whichever is shorter. Useful lives range
from three to seventeen years for office furniture and equipment and seven to
fourteen years for machinery and equipment.
REVENUE RECOGNITION
Revenues are recognized as products are shipped. Allowances for estimated
returns are provided upon shipment.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109"). SFAS 109 requires that the Company recognize deferred tax
liabilities and assets for the expected future tax consequences of events
F-31
<PAGE> 115
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that have been included in the consolidated financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined on the
basis of the difference between the income tax basis of assets and liabilities
and their respective financial reporting amounts at enacted tax rates in effect
for the periods in which the differences are expected to reverse.
STOCK-BASED COMPENSATION
The Company has elected to follow the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation. SFAS 123 allows companies to choose whether to account for
stock-based compensation under the current method as prescribed in Accounting
Principles Board Opinion No. 25 ("APB 25") or use the fair value method
described in SFAS 123. The Company plans to continue to follow the accounting
measurement provisions of APB 25.
BASIC AND DILUTED NET LOSS PER SHARE
The Company adopted SFAS No. 128, Earnings Per Share, during the year ended
December 31, 1997 and retroactively restated all prior periods. Basic net loss
per share is computed using the weighted average number of common shares
outstanding during the period. Diluted net loss per share is computed using the
weighted average number of common and potential common shares outstanding during
the period. Potential common shares consist of the incremental common shares
issuable upon the exercise of stock options (using the treasury stock method)
and upon the conversion of the convertible debenture and Series A Convertible
Preferred Stock (using the if-converted method). Potential common shares have
been excluded from the computation of diluted net loss per share as their effect
is anti-dilutive.
COMPREHENSIVE NET INCOME (LOSS)
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income ("SFAS 130"). SFAS 130 establishes standards for the
reporting of comprehensive income (loss) and its components in a full set of
general-purpose financial statements. Comprehensive income (loss) is comprised
of net income (loss) and other comprehensive earnings such as foreign currency
cumulative translation adjustments and unrealized gains or losses on
available-for-sale short-term investments. The Company's unrealized gains and
losses on available-for-sale short-term investments have been insignificant for
all periods presented.
3. BALANCE SHEET COMPONENTS
The following provides additional information concerning selected balance sheet
accounts as of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1997 1998
------ ------
<S> <C> <C>
Accounts receivable, net:
Trade accounts receivable................................. $428 $1,608
Allowance for doubtful accounts........................... (37) (183)
------ ------
$391 $1,425
====== ======
</TABLE>
F-32
<PAGE> 116
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BALANCE SHEET COMPONENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1997 1998
------ ------
<S> <C> <C>
Inventories:
Raw materials............................................. $582 $727
Work-in-process........................................... 66 81
Finished goods............................................ 270 505
Less reserve for obsolescence............................. -- (131)
------ ------
$918 $1,182
====== ======
Property and equipment:
Machinery and equipment................................... $925 $922
Office furniture and equipment............................ 468 594
Leasehold improvements.................................... 92 137
Less accumulated depreciation............................. (233) (496)
------ ------
$1,252 $1,157
====== ======
</TABLE>
Other current assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------
1997 1998
---- ----
<S> <C> <C>
Prepaid expenses............................................ $445 $300
VAT refundable.............................................. 120 126
Prepaid taxes............................................... 72 38
Due from employees.......................................... 150 1
Deposits.................................................... 73 45
Other....................................................... 104 1
---- ----
$964 $511
==== ====
</TABLE>
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1997 1998
------ ------
<S> <C> <C>
Accrued compensation and related payroll taxes.............. $409 $719
Professional fees........................................... 446 845
Clinical fees............................................... 99 175
Other....................................................... 275 340
------ ------
$1,229 $2,079
====== ======
</TABLE>
4. GEOGRAPHIC AREA INFORMATION
The Company operates in one industry segment: the development and
commercialization of disease management systems. Operating losses are determined
by deducting from net revenues the related costs and operating expenses
attributable to each geographic region. Research and development costs are
F-33
<PAGE> 117
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. GEOGRAPHIC AREA INFORMATION (CONTINUED)
reflected in the geographic region in which the activity was performed. The
following table presents a summary of operations by geographic region.
<TABLE>
<CAPTION>
UNITED STATES ISRAEL GERMANY ELIMINATIONS CONSOLIDATED
(IN THOUSANDS) ------------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1996
Operating losses........................ $(654) $(4,888) $(113) $-- $(5,655)
Total assets............................ 21,644 1,347 120 (5,154) 17,957
1997
Net sales............................... -- 1,114 -- -- 1,114
Operating losses........................ (26) (10,634) (21) (35) (10,716)
Total assets............................ 24,765 4,352 308 (20,704) 8,721
1998
Net sales............................... -- 5,624 -- -- 5,624
Operating losses........................ (1,039) (9,359) -- (637) (11,035)
Total assets............................ 32,600 8,093 300 (34,066) 6,927
</TABLE>
For the year ended December 31, 1998, approximately 45% of the Company's net
sales were derived from exports to Europe.
5. FINANCING ARRANGEMENTS
In June 1999, the Company issued a note payable to a shareholder and director
for $1.0 million. The note bears interest at the applicable federal rate (4.33%
at December 31, 1998).
On August 17, 1998, the Company signed a distribution agreement with Indigo
Medical, Incorporated ("Indigo"), a subsidiary of Johnson & Johnson ("J&J"),
pursuant to which Indigo will become the Company's exclusive distributor outside
the United States of the Company's current and future products in the fields of
urology and gynocology and its radiotherapy product under development. In
connection with this distribution agreement, the Company and Johnson & Johnson
Development Corporation ("JJDC"), a subsidiary of J&J, entered into an
investment agreement. The investment agreement provides, in addition to the $1.0
million note entered into in June 1998, that JJDC invest an additional $6.0
million in the Company. In exchange for the $6.0 million cash investment and the
outstanding $1.0 million note, the Company entered into a new $7.0 million
convertible note (the "J&J Note"). The J&J Note is automatically convertible
into shares of the Company's Common Stock at the earlier of completing an
initial public offering of Common Stock or May 1999. The J&J Note accrues
interest at 10% per annum only from the date of any default and will convert at
the initial public offering price upon completion of such offering. In the event
the initial public offering is not completed by May 1999, the J&J Note and any
accrued interest thereon will automatically convert into shares of Common Stock
at a per share price equal to $82.0 million divided by the number of then
outstanding shares of Common Stock and equivalents, as defined.
On June 22, 1998, the Company entered into a $6.0 million revolving line of
credit agreement (the "Agreement") with a bank. Amounts drawn under the
Agreement are guaranteed by a shareholder, who is also a member of the Board of
Directors. Advances under the Agreement bear interest at 1% above the London
Interbank Offer Rate. There were no advances outstanding as of December 31,
1998. The Agreement expired on June 19, 1999.
In November 1996, the Company entered into an agreement with Medtronic, Inc.
("Medtronic") which granted Medtronic the option to purchase the Company on or
before June 10, 1997 at a purchase price of
F-34
<PAGE> 118
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. FINANCING ARRANGEMENTS (CONTINUED)
$180.0 million (the "Agreement"). In December 1996, in connection with the
Agreement, the Company issued a one-year convertible debenture to Medtronic in
exchange for cash of $20.0 million. The convertible debenture accrued interest
at the prime rate. Upon termination of the purchase option, the convertible
debenture and accrued interest thereon automatically converted into shares of
the Company's Common Stock at a per share price equal to $400.0 million divided
by the number of then outstanding Common Stock and equivalents as defined in the
Agreement. The convertible debenture, plus accrued interest of $838,000, was
converted into 419,787 shares of Common Stock at a conversion price, in excess
of fair value, of $62.55 per share on June 10, 1997.
6. INCOME TAXES
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Currently payable:
Federal........................................... $300
State............................................. 20
----
Total..................................... $320
====
</TABLE>
There were no income taxes paid in 1998.
Deferred income taxes arise from the recognition of certain items of expense in
different years for tax and financial statement purposes. The principal sources
of these differences are the different methods used for tax and financial
statement purposes in reporting depreciation expense, start-up costs and certain
accrued liabilities. For financial reporting purposes, a valuation allowance
$1,954,000 as of December 31, 1997 and $189,000 as of December 31, 1998 has been
recognized to offset the net deferred tax assets. Significant components of the
Company's net deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1997 1998
------ ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $1,484 $--
Expenses not currently deductible......................... 470 190
------ ----
1,954 190
Deferred tax liabilities:
Depreciation.............................................. -- (1)
------ ----
1,954 189
Valuation allowance......................................... (1,954) (189)
------ ----
Net deferred tax assets..................................... $-- $--
====== ====
</TABLE>
F-35
<PAGE> 119
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The components of net loss were as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Domestic.................................................... $(576) $495 $(636)
Foreign..................................................... (5,197) (11,345) (10,641)
------- -------- --------
Net loss.................................................... $(5,773) $(10,850) $(11,277)
======= ======== ========
</TABLE>
The Company's Israeli manufacturing facility has received "Approved Enterprise"
status under Israeli tax law. As such, undistributed income derived from the
Company's manufacturing facility in Israel will be tax-exempt for a maximum of
two years after IMT has taxable income, and will be subject to a reduced income
tax rate for a maximum of eight additional years (depending upon the level of
foreign investment). In the event that IMT were to pay a dividend to the Company
in the United States during any tax-exempt period, however, the amount of the
dividend would be subject to the Israeli corporate income tax from which it was
exempt, plus a 15% withholding tax. Further, license fees remitted to the
Company in the United States will also be subject to a 15% withholding tax.
As of December 31, 1997 and 1998, the Company has net operating loss
carryforwards and other future tax deductions for Israeli tax purposes of
approximately $13.0 and $3.0 million and $20.0 million and $3.0 million,
respectively, for which, due to the uncertainty of their realizability, no
deferred tax assets have been recognized.
7. STOCKHOLDERS' DEFICIT
SERIES A CONVERTIBLE PREFERRED STOCK
The Company has authorized 850,000 shares of Preferred Stock, 750,000 of which
have been designated as Series A Convertible Preferred Stock. The holders of the
Series A Convertible Preferred Stock have no voting rights but their shares are
convertible at any time at the option of the holder on a 1-for-1 basis into
Common Stock. Each share of Series A Convertible Preferred Stock is
automatically converted into 1 share of Common Stock prior to the closing of an
initial public offering. Upon the dissolution or liquidation of the Company, the
holders of the Series A Convertible Preferred Stock are entitled to receive
$5.00 per share before any payments are made to the holders of any other shares
of stock. Any remaining amount available after this payment will be distributed
to holders of all outstanding shares equally.
Dividends, when and as declared by the Board, shall be payable to the holders of
the Common Stock and Series A Convertible Preferred Stock in amounts consistent
with the conversion ratio in effect on the dividend date.
STOCK OPTIONS
Under the Influence, Inc. 1995 Stock Option Plan (the "1995 Plan"), options are
granted at prices determined by the Board of Directors, vest over various
periods generally not exceeding five years, and terminate ten years from the
date of grant. In June 1998, the Board canceled all remaining shares available
for future grant under the 1995 Plan.
In June 1998, the Board authorized 995,400 shares of Common Stock for issuance
pursuant to the Company's 1998 Long-Term Incentive Plan (the "1998 Plan"). Under
the 1998 Plan, options are granted at prices determined by the Board of
Directors, vest over various periods generally not exceeding four years and
terminate ten years from the date of grant.
F-36
<PAGE> 120
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' DEFICIT (CONTINUED)
The following table summarizes the options to purchase shares of the Company's
Common Stock under the Company's stock option plans:
<TABLE>
<CAPTION>
SHARES WEIGHTED
AVAILABLE OPTIONS AVERAGE
FOR GRANT OUTSTANDING EXERCISE PRICE
--------- ----------- --------------
<S> <C> <C> <C>
Outstanding as of December 31, 1995........................ 621,651 252,349 $3.21
Granted.................................................. (534,300) 534,300 3.82
Exercised................................................ -- (39,000) 3.21
Canceled................................................. 21,060 (21,060) 3.21
-------- ---------
Outstanding as of December 31, 1996........................ 108,411 726,589 8.67
Additional shares reserved............................... 624,000 --
Granted.................................................. (378,488) 378,488 10.79
Exercised................................................ -- (15,600) 3.21
Canceled................................................. 93,600 (93,600) 10.05
-------- ---------
Balance December 31, 1997.................................. 447,523 995,877 5.52
Additional shares reserved............................... 995,400 -- --
Granted.................................................. (906,266) 906,266 5.07
Canceled................................................. 414,055 (414,055) 9.02
Terminated............................................... (487,938) -- --
-------- ---------
Balance December 31, 1998.................................. 462,774 1,488,088 $3.58
======== =========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE
RANGE OF EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
----------------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$0.01.................................................. 132,000 9.5 $.01
$1.00 - $3.10.......................................... 660,942 7.5 3.21
$4.50 - $9.00.......................................... 695,146 9.4 6.68
---------
1,488,088
=========
</TABLE>
The weighted average grant date fair value of options granted during the year
ended December 31, 1998 was $2.48 per share. All grants during 1998 were at
prices lower than market prices and have been recorded as deferred compensation
and amortized according to their vesting schedules.
At December 31, 1996, 1997 and 1998, 407,068, 538,382 and 924,762 options with
weighted average exercise prices of $4.01, $4.20 and $3.86, respectively, were
exercisable.
F-37
<PAGE> 121
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' DEFICIT (CONTINUED)
The following table summarizes information about stock options granted under the
1995 and 1998 Plans for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE FAIR EXERCISE FAIR EXERCISE FAIR
PRICE VALUE PRICE VALUE PRICE VALUE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Options granted at market price....... $3.21 $0.46 $10.79 $2.52 $-- $--
Options granted below market price.... 3.73 3.42 -- -- 5.37 2.48
</TABLE>
The Company accounts for stock options granted to employees in accordance with
the provisions of Accounting Principles Board Opinion No. 25. Had compensation
expense for options granted to employees been determined based upon the
estimated grant date fair value pursuant to SFAS 123, the Company's net loss and
net loss per share would have been as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Pro forma net loss.......................................... $(6,077) $(11,151) $(11,277)
======= ======== ========
Pro forma net loss per share................................ $(.97) $(1.71) $(1.73)
======= ======== ========
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
minimum value method with the following assumptions: dividend yield of 0%;
risk-free annual interest rates of 5.21% to 6.42%, 6.20% and 5.45% for the years
ended December 31, 1996, 1997 and 1998, respectively, and an expected option
term of three years for all years presented.
During 1996, 1997 and 1998, the Company granted 109,200, 59,000, and 242,980
options, respectively, to consultants in exchange for services. The 1996 options
vested immediately and resulted in $837,000 of compensation expense. The 1997
and 1998 options resulted in deferred compensation of $101,000 and $311,000,
respectively, which will be amortized over various vesting periods up to five
years.
During the year ended December 31, 1996 and 1998, the Company granted options to
employees to purchase 366,445 and 663,286 shares of Common Stock at a weighted
average exercise price of $3.21 and $5.15 per share, respectively. These options
have various vesting periods from immediately to up to five years. The Company
recorded $610,000 and $1,246,000 of deferred compensation for 1996 and 1998,
respectively.
Amortization and cancellation of deferred compensation were $327,000 and $-0-,
respectively, for the year ended December 31, 1996, $171,000 and $76,000,
respectively, for the year ended December 31, 1997, and $1,358,000 and $48,000,
respectively, for the year ended December 31, 1998.
8. RELATED PARTY TRANSACTIONS
Two founders of the Company are also General Managers of InStent Israel, Ltd.,
("InStent"), a subsidiary of Medtronic. Medtronic is a principal shareholder of
the Company. There have been no material related party transactions between
InStent and the Company.
During 1994 and 1995, the Company acquired certain technologies for use in its
research and development programs from NMB Medical Applications, Ltd. ("NMB"),
an affiliate of the Company by way of
F-38
<PAGE> 122
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
common ownership. As consideration for the technology, the Company paid $327,000
and expensed this amount as the technology had no alternative future use.
Under the terms of a management agreement, which commenced in March 1995, the
Company is obligated to pay a minimum management fee of $7,000 per month to NMB
in lieu of compensation to two of the Company's founders. The Company incurred
management fees in connection with this agreement totaling $224,000 for the year
ended December 31, 1996. As of July 1, 1996, required payments under the formal
management agreement has ceased and the two founders entered into employment
agreements pursuant to which each was to receive an annual salary of $150,000
and certain other fringe benefits. Subsequently, at the founders requests,
payments have continued to NMB to fulfill the Company's obligation under such
employment agreements. The Company incurred fees totaling $371,000 and $183,000
under the employment agreements for the years ended December 31, 1997 and 1998,
respectively. Included in accrued expenses at December 31, 1996, 1997 and 1998
were management fees payable totaling approximately $144,000, $46,000 and $-0-,
respectively.
In April 1996, the Company entered into an agreement with Jessco Medical Supply
("Jessco"), under which the Company pays $2,500 per month for consulting
services. One of the Company's Board members is the owner of Jessco. The Company
paid $23,000, $30,000 and $-0- to Jessco for consulting services for the years
ended December 31, 1996, 1997 and 1998, respectively.
Between June 10, 1996 and November 7, 1996, the Company borrowed $3.0 million
from a stockholder in exchange for promissory notes which bore interest at the
Applicable Federal Rate as defined by the Internal Revenue Code. On December 18,
1996, the Company repaid the notes, plus accrued interest of $59,000.
In March, 1998 the Company reached an agreement in principle with Galil Medical
Ltd., an affiliate of ESC Medical Systems, Ltd ("ESC"), under which the
companies have agreed to form a joint venture to develop technology and product
in the cryo-surgery field. Material terms, including commitments under the
agreement are subject to final negotiation. One of the Company's Board members
is the Chief Executive Officer and Chairman of the Board of ESC.
9. COMMITMENTS AND CONTINGENCIES
The Company occupies most of its facilities under long-term operating leases.
Certain leases contain escalation provisions and renewal options. Future minimum
rental payments under noncancelable operating leases at December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Period ended December 31:
1999............................................. $241,000
2000............................................. 458,000
2001............................................. 455,000
2002............................................. 343,000
2003............................................. 152,000
2004 and beyond.................................. 64,000
----------
$1,713,000
==========
</TABLE>
Rent expense totaled approximately $66,000, $145,000 and $322,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.
Israeli labor laws and agreements require IMT to make severance payments to
employees in certain circumstances. Severance accruals are recorded in the
consolidated balance sheets and funded by the
F-39
<PAGE> 123
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
purchase of managers' insurance policies with insurance companies and by
deposits made with a recognized severance fund. The severance liability was
$193,000 at December 31, 1997 and $85,000 at December 31, 1998.
The Company is involved in a patent infringement suit filed in the Northern
District of California. The Company denies the allegations brought against it,
plans to vigorously defend its case and has filed related counterclaims.
The Company has entered into an employment agreement with one of its officers
which expires in May 1999. The agreement provides for a minimum annual salary
level of $150,000, as well as for incentive bonuses which are payable upon
attainment of certain performance criteria established from time to time by the
Board of Directors.
The Company is subject to various legal proceedings and other matters which
arise in the ordinary course of business. In the opinion of management, the
amount of any ultimate liability with respect to these matters will not
materially affect the results of operations or financial position of the
Company.
In March 1998, the Company entered into a Technology Development and License
Agreement with The Titan Corporation ("Titan") and TomoTherapeutics, Inc.
("TTI"), a subsidiary of Titan (the "TTI Agreement"). Under the terms of the TTI
Agreement, the Company was granted a license to certain patented technology,
agreed to purchase certain tangible assets from TTI and to work initially with
TTI, and subsequently on its own, to develop and market products based on the
licensed technology. Upon completion of certain performance milestones by the
Company, the Company will issue up to 35,714 shares of its Common Stock to TTI.
In the event the Company realizes any revenues resulting from future products
developed pursuant to the TTI Agreement, the Company is obligated to pay the
greater of $200,000 or a royalty of 8% on such revenues until the Company has
paid cumulative royalties of $2.0 million. Thereafter, the Company is obligated
to pay TTI a royalty of 5% on revenues resulting from future products developed
pursuant to the TTI Agreement. Payments under this agreement were $33,000 in
1998.
10. SUBSEQUENT EVENTS
On November 12, 1999, the Company entered into an Agreement and Plan of Merger
(the "Agreement") under which the Company's Common Stock and Preferred Stock
issued and outstanding immediately prior to closing will be purchased for the
agreed-upon merger consideration as defined in the Agreement.
On November 12, 1999, the Company and JJDC agreed to terminate the distribution
agreement between the Company and Indigo and convert the JJDC note into 674,082
shares of the Company's Common Stock.
F-40
<PAGE> 124
INSIDE BACK COVER
<TABLE>
<S> <C> <C>
AMS 700(TM) PENILE PROSTHESIS [Diagram of related anatomy]
[Picture of AMS 700 PRODUCT LINE
Penile Prosthesis]
Penile implants are used to
treat erectile dysfunction.
We are the leading provider
of penile implants in the
world. We offer a full line
of implants to serve a
variety of patient and
physician needs.
UROLUME(R) ENDOPROSTHESIS [Diagram of related anatomy]
[Picture of Urolume]
Stents are used to treat
strictures and BPH in men.
AMS is the only company with
a permanent urethral stent on
the United States market.
INJECTX(TM) SYSTEM [Diagram of related anatomy]
[Picture of InjecTx probe]
Injection of ethanol into the
prostate is a
development-stage product for
treatment of BPH. AMS
licensed a novel injection
system from InjecTx in 1999.
</TABLE>
<PAGE> 125
SHARES
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
COMMON STOCK
[AMERICAN MEDICAL SYSTEMS HOLDINGS LOGO]
---------------------------
PROSPECTUS
---------------------------
Until , 2000, all dealers that effect transactions in these
securities, whether or not participating in the offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
U.S. BANCORP PIPER JAFFRAY
BANC OF AMERICA SECURITIES LLC
CHASE H&Q
, 2000
<PAGE> 126
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by AMS in connection with the
sale of common stock being registered. All amounts shown are estimates, except
the SEC registration fee, the NASD filing fees and the Nasdaq listing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee........................... $ 22,800
NASD fee....................................... $ 9,125
Nasdaq listing fee............................. $ 95,000
Blue Sky fees and expenses..................... $ 5,000
Legal fees and expenses........................ $ 300,000
Accounting fees and expenses................... $ 250,000
Printing expenses.............................. $ 75,000
Transfer agent fees............................ $ 20,000
Miscellaneous.................................. $ 223,075
----------
Total................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware Law and our amended and restated certificate of incorporation provide
that we will, under certain situations, indemnify any director, officer,
employee or agent of AMS made or threatened to be made a party to a proceeding,
by reason of the former or present official capacity of the person, against
judgments, penalties, fines, settlements and reasonable expenses including
attorney's fees, incurred by the person in connection with the proceeding if
certain statutory standards are met. Any person is also entitled, subject to
certain limitations, to payment or reimbursement of reasonable expenses in
advance of the final disposition of the proceeding. A proceeding means a
threatened, pending or completed civil, criminal, administrative, arbitration or
investigative proceeding, including one by or in the right of AMS. Reference is
made to Section 145 of the Delaware General Corporate Law for a full statement
of these indemnification rights.
We also maintains a directors and officers insurance policy pursuant to which
our directors and officers are insured against liability for actions in their
capacity as directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since July 20, 1998, our date of incorporation, we have issued and sold the
following securities without registration under the Securities Act in reliance
on Section 4(2) of the Securities Act:
(1) In July 1998, we sold all of the then outstanding shares of our common
stock to Warburg Pincus at a cash price of $1.00 per share for a total
price of $10.00.
(2) In connection with our recapitalization in September 1998, we made the
following sales of stock:
- Warburg Pincus purchased 19,000 shares of our series A preferred
stock at $1,000 per share, 200,000 shares of our series B preferred
stock at $5.00 per share and 3,600,000 shares of our series C
preferred stock for $5.00 per share, for a total purchase price of
$38,000,000 which included retiring the initial shares it received
upon our formation in July 1998;
- Vertical Fund Associates, L.P. purchased 500 shares of our series A
preferred stock at $1,000 per share, and 100,000 shares of our series
B preferred stock at $5.00 per share, for a total purchase price of
$1,000,000 in cash;
II-1
<PAGE> 127
- Standby Fund 1998 purchased 125 shares of our series A preferred
stock at $1,000 per share, and 25,000 shares of our series B
preferred stock at $5.00 per share, for a total purchase price of
$250,000 in cash;
- AMS Investors purchased 250 shares of our series A preferred stock at
$1,000 per share, and 50,000 shares of our series B preferred stock
at $5.00 per share, for a total purchase price of $500,000 in cash;
and
- Second Century Growth Deferred Compensation Plan purchased 125 shares
of our series A preferred stock at $1,000 per share, and 25,000
shares of our series B preferred stock at $5.00 per share, for a
total purchase price of $250,000 in cash.
(3) In September 1998, Warburg Pincus sold Sam B. Humphries 200 shares of
our series A preferred stock at $1,000 per share, and 40,000 shares of
our series B preferred stock at $5.00 per share, for a total purchase
price of $400,000 in cash.
(4) In June 1999, we sold to Douglas W. Kohrs 250 shares of our series A
preferred stock at $1,000 per share, and 50,000 of our series B
preferred stock at $5.00 per share, for a total purchase price of
$500,000 in cash.
(5) In July 1999, we sold to Crane Island Venture LLC 40 shares of series A
preferred stock at $1,000 per share, and 8,000 shares of our series D
preferred stock at $10.00 per share, for a total purchase price of
$120,000 in cash.
(6) In July 1999, we sold Upper Lake Growth Capital LLC 460 shares of our
series A preferred stock at $1,000 per share, and 92,000 shares of our
series D preferred stock at $10.00 per share, for a total purchase price
of $1,380,000 in cash.
(7) In connection with our acquisition of Influence in December 2000 we sold
to seven of our current stockholders:
- Warburg Pincus purchased 6,410 shares of our series A preferred stock
at $1,000 per share, 118,072 shares of series D preferred stock at
$10.00 per share and 1,163,856 shares of series E preferred stock at
$10.00 per share, for a total purchase price of $19,229,280;
- Vertical Fund Associates purchased 169 shares of our series A
preferred stock at $1,000 per share and 33,735 shares of our series D
preferred stock at $10.00 per share, for a total purchase price of
$506,350;
- AMS Investors II purchased 126 shares of our series A preferred stock
at $1,000 per share, and 25,301 shares of our series D preferred
stock at $10.00 per share, for a total purchase price of $379,010;
- Second Century Growth Deferred Compensation Plan purchased 42 shares
of our series A preferred stock at $1,000 per share and 8,434 shares
of our series D preferred stock at $10.00 per share, for a total
purchase price of $126,340;
- Upper Lakes Growth Capital purchased 155 shares of our series A
preferred stock at $1,000 per share and 31,036 of our series D
preferred stock at $10.00 per share, for a total purchase price of
$465,360;
- Douglas W. Kohrs purchased 84 shares of our series A preferred stock
at $1,000 per share and 16,867 shares of our series D preferred stock
at $10.00 per share, for a total purchase price of $252,670; and
- Crane Island Ventures purchased 13 shares of our series A preferred
stock at $1,000 per share and 2,699 shares of our series D preferred
stock at $10.00 per share, for a total purchase price of $39,990.
II-2
<PAGE> 128
(8) From September 1998 through April 2000 we granted options to purchase
1,249,250 shares of our common stock to employees under our 2000 Equity
Incentive Plan. During this period 263,875 shares were canceled upon
termination of employment. All of these options were issued with a $5.00
per share exercise price. As of May 1, 2000, 6,500 shares underlying
these options have been exercised and 978,875 remain outstanding.
(9) From December 1999 through May 1, 2000 we granted options to purchase a
total of 50,000 shares of our common stock to non-employee directors
under the 2000 Equity Incentive Plan. All were issued with a per share
exercise price of $5.00. None of these options have been exercised and
as of May 1, 2000, and therefore, all remained outstanding.
The above option grants were made in reliance on Rule 701 or Section 4(2) under
the Securities Act. With regard to our reliance upon the exemptions set forth in
the previous sentence, we made inquiries to establish that these sales qualified
for exemptions from the registration requirements. In particular, we confirmed
that:
- all offers of sales and sales were made by personal contact from our
officers or directors or other persons closely associated with us;
- each investor made representations that he or she was sophisticated
in relation to this investment and we have no reason to believe these
representations were incorrect;
- each purchaser gave assurance of investment intent and the
certificates for the shares bear a legend accordingly; and
- offers and sales within any offering were made to a limited number of
persons.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
See the Exhibit Index attached to this registration statement which is
incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
(a) The Registrant undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in denominations and
registered in names as required by the Underwriters to permit prompt delivery to
each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission this indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether this
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of this issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
II-3
<PAGE> 129
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we have duly caused
this Registration Statement on Form S-1 to be signed on our behalf by the
undersigned, thereunto duly authorized, in Minneapolis, Minnesota on this 19th
day of May, 2000.
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
By: /s/ DOUGLAS W. KOHRS
-----------------------------------------
Douglas W. Kohrs
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Douglas W. Kohrs and
Gregory J. Melsen, and each one of them acting singly, as such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any additional Registration
Statements filed pursuant to Rule 462(b) under the Securities Act of 1933, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated,
on May 19, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DOUGLAS W. KOHRS Director, President and Chief Executive Officer (Principal
- --------------------------------------- Executive Officer)
Douglas W. Kohrs
/s/ GREGORY J. MELSEN Chief Financial Officer (Principal Financial Officer and
- --------------------------------------- Principal Accounting Officer)
Gregory J. Melsen
/s/ ELIZABETH H. WEATHERMAN Director
- ---------------------------------------
Elizabeth H. Weatherman
/s/ JAMES T. TREACE Director
- ---------------------------------------
James T. Treace
/s/ CHRISTOPHER H. PORTER, PH.D. Director
- ---------------------------------------
Christopher H. Porter, Ph.D.
/s/ DAVID W. STASSEN Director
- ---------------------------------------
David W. Stassen
/s/ RICHARD B. EMMITT Director
- ---------------------------------------
Richard B. Emmitt
</TABLE>
II-5
<PAGE> 131
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Exchange Agreement, dated April 17, 2000, among American
Medical Systems Holdings, the then current stockholders of
American Medical Systems, Inc. and American Medical Systems,
Inc.
2.2* Exchange Agreement, dated April 17, 2000, between American
Medical Systems Holdings, Inc. and American Medical Systems,
Inc.
2.3 Asset Purchase Agreement, dated July 21, 1998, among Pfizer
Inc., the Asset Selling Corporation and WPAMS Acquisition
Corp.
2.4 Amendment No. 1 to Asset Purchase Agreement, dated September
10, 1998, among Pfizer Inc., the Asset Selling Corporation
and WPAMS Acquisition Corp.
3.1* Amended and Restated Certificate of Incorporation of
American Medical Systems Holdings, Inc.
3.2 Bylaws of American Medical Systems Holdings, Inc.
5.1* Opinion of Oppenheimer Wolff & Donnelly LLP.
10.1* Stockholders Agreement, dated April 17, 2000, among Warburg,
Pincus Equity Partners, L.P., the then existing stockholders
of American Medical Systems Holdings, Inc. and American
Medical Systems Holdings, Inc.
10.2 Employment Agreement, dated April 23, 1999, between Douglas
Kohrs and American Medical Systems, Inc.
10.3 Amendment to the Employment Agreement, dated April 17, 2000,
between Douglas Kohrs and American Medical Systems, Inc.
10.4 Stock Option Agreement, dated April 23, 1999, between
Douglas Kohrs and American Medical Systems, Inc.
10.5 Employment Agreement, dated March 24, 1999, between Gregory
J. Melsen and American Medical Systems, Inc.
10.6 Employment Agreement, dated May 1, 1999, between Johann
Neisz and American Medical Systems, Inc.
10.7 Employment Agreement, dated July 22, 1999, between Jan
Daniel Ruys and American Medical Systems Benelux B.V.B.A.
10.8 Consulting Agreement, dated September 1, 1999, between
Medical Genesis and American Medical Systems, Inc.
10.9 2000 Equity Incentive Plan.
10.10 Form of Incentive Stock Option Agreement.
10.11 Form of Non-Qualified Stock Option Agreement.
10.12* Employee Stock Purchase Plan.
10.13 American Medical Systems Nonfunded Deferred Compensation and
Supplemental Savings Plan.
10.14 American Medical Systems Nonfunded Supplemental Retirement
Plan.
10.15 2000 Management Incentive Plan.
10.16 Leasing Contract among Oil and Energy Infrastructures, Ltd.,
Fuel Products Line, Ltd. and Influence Medical Technologies
Ltd.
</TABLE>
II-6
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<C> <S>
10.17 Agreement and Plan of Merger, dated November 12, 1999, by
and among American Medical Systems, Inc., Persuade Merger
Corp, Influence, Inc., Globerman Engineering Ltd., Urotek
Ltd., Katsumi Oneda and Lewis C. Pell.
10.18 First Amendment to Agreement and Plan of Merger, dated
December 15, 1999, by and among American Medical Systems,
Inc., Persuade Merger Corp, Influence, Inc., Globerman
Engineering Ltd., Urotek Ltd., Katsumi Oneda and Lewis C.
Pell.
10.19 Second Amendment to Agreement and Plan of Merger, dated
April 17, 2000, by and among American Medical Systems, Inc.,
Persuade Merger Corp, Influence, Inc., Globerman Engineering
Ltd., Urotek Ltd., Katsumi Oneda and Lewis C. Pell.
10.20 Exchange Agreement, dated December 16, 1999, between
American Medical Systems, Inc. and Urotek Ltd.
10.21 First Amendment to Exchange Agreement, dated April 17, 2000,
between American Medical Systems Holdings, Inc., American
Medical Systems, Inc. and Urotek Ltd.
10.22 Credit Agreement, dated March 24, 2000, among American
Medical Systems, Inc., American Medical Systems Holdings,
Inc., Bank of America, N.A., as agent for the four lenders,
and Banc of America Securities LLC, as sole lead arranger
and sole book manager.
10.23 Security Agreement, dated March 24, 2000, among American
Medical Systems Holdings, Inc., American Medical Systems,
Inc., Influence, Inc. and Banc of America, N.A.
10.24 Form of Revolving Note issued under Credit Agreement.
10.25 Form of Tranche A Term Note issued under Credit Agreement.
10.26 Form of Tranche B Term Note issued under Credit Agreement.
10.27 Parent Joinder Agreement, dated March 24, 2000, between
American Medical Systems Holdings, Inc. and Bank of America,
N.A.
10.28 Pledge Agreement, dated March 24, 2000, among American
Medical Systems Holdings, Inc., American Medical Systems,
Inc., Influence, Inc. and Banc of America, N.A.
10.29 Guaranty and Investment Agreement, dated March 24, 2000,
among Warburg, Pincus Equity Partners, L.P., other
affiliates of Warburg Pincus and Bank of America, N.A.
10.30 Letter Agreement, dated March 24, 2000, among Warburg,
Pincus Equity Partners, L.P., other affiliates of Warburg
Pincus and Bank of America, N.A.
10.31 Separation Agreement, dated April 23, 1999, between American
Medical Systems, Inc. and Sam B. Humphries.
</TABLE>
II-7
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<C> <S>
10.32 Letter Agreement, dated September 27, 1999, amending the
Separation Agreement between American Medical Systems, Inc.
and Sam B. Humphries.
10.33 Non-Recourse Promissory Note, dated September 25 1998,
executed by Sam B. Humphries in favor of American Medical
Systems, Inc.
10.34 Pledge Agreement, dated September 25, 1998, between Sam B.
Humphries and American Medical Systems, Inc.
10.35 Separation Agreement, dated April 29, 1999, between Helen
Vallerand and American Medical Systems, Inc.
10.36 Separation Agreement, dated July 15, 1999, between William
R. Stein and American Medical Systems, Inc.
10.37 Release Agreement, dated December 3, 1998, by David Booth.
10.38 Release Agreement, dated October 28, 1998, by Roger
Mitchell.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney. (Included on page II-5)
27.1 Financial Data Schedule.
</TABLE>
- ---------------------------------------------
*To be filed by amendment.
II-8
<PAGE> 1
ASSET PURCHASE AGREEMENT
AMONG
PFIZER INC.,
THE
ASSET SELLING CORPORATIONS
(NAMED HEREIN)
AND
WPAMS ACQUISITION CORP.
DATED AS OF JULY 21, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I DEFINITIONS AND TERMS ..........................................................................2
Section 1.1. Definitions ..................................................................2
Section 1.2. Other Definitional Provisions................................................18
ARTICLE II PURCHASE AND SALE .............................................................................18
Section 2.1. Purchase and Sale of Assets of the Asset Selling
Corporations.................................................................18
Section 2.2. Consents ....................................................................22
Section 2.3. Excluded Assets of the Business..............................................24
Section 2.4. Assumption of Liabilities of the Business....................................25
Section 2.5. Retained Liabilities of Business ............................................26
Section 2.6. Purchase Price...............................................................27
Section 2.7. Purchase Price Adjustment....................................................27
Section 2.8. Allocation of the Purchase Price.............................................30
ARTICLE III CLOSING........................................................................................32
Section 3.1. Closing......................................................................32
ARTICLE IV CONDITIONS TO CLOSING..........................................................................33
Section 4.1. Conditions to the Obligations of Purchaser and Pfizer........................33
Section 4.2. Conditions to the Obligations of Purchaser...................................34
Section 4.3. Conditions to the Obligations of the Seller Corporations.....................35
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PFIZER.......................................................36
Section 5.1. Organization.................................................................36
Section 5.2. Authority; Binding Effect....................................................37
Section 5.3. Noncontravention.............................................................37
Section 5.4. Consents and Approvals of Governmental Authorities...........................38
Section 5.5. Financial Information; Books and Records.....................................38
Section 5.6. Absence of Material Changes..................................................39
Section 5.7. No Litigation................................................................40
Section 5.8. Compliance with Laws ........................................................40
Section 5.9. Product Registrations; Regulatory Compliance.................................40
Section 5.10. Environmental Matters........................................................42
Section 5.11. Material Contracts...........................................................43
Section 5.12. Intellectual Property........................................................44
Section 5.13. Real Property................................................................46
Section 5.14. Assets.......................................................................46
Section 5.15. Taxes........................................................................47
Section 5.16. Employee Benefits............................................................47
Section 5.17. Brokers......................................................................49
Section 5.18. Entire Business..............................................................49
Section 5.19. No Undisclosed Liability.....................................................49
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
Section 5.20. Product Recall...............................................................49
Section 5.21. Suppliers....................................................................50
Section 5.22. Customers and Distributors...................................................50
Section 5.23. Foreign Corrupt Practices Act................................................50
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER....................................................52
Section 6.1. Qrganization and Qualification...............................................52
Section 6.2. Corporate Authorization......................................................52
Section 6.3. Binding Effect...............................................................52
Section 6.4. Non-Contravention............................................................52
Section 6.5. Purchaser Consents and Approvals.............................................53
Section 6.6. Financial Capability.........................................................53
Section 6.7. Condition of Conveyed Assets.................................................53
Section 6.8. Brokers......................................................................54
ARTICLE VII COVENANTS......................................................................................54
Section 7.1. Information and Documents....................................................54
Section 7.2. Conduct of Business..........................................................55
Section 7.3. Reasonable Best Efforts; Certain Governmental Matters........................56
Section 7.4. Tax Matters..................................................................60
Section 7.5. Employees and Employee Benefits..............................................62
Section 7.6. Cash Management Matters......................................................75
Section 7.7. Bulk Transfer Laws...........................................................76
Section 7.8. Noncompetition...............................................................76
Section 7.9. Transitional Services........................................................79
Section 7.10. Transitional Intellectual Property License Agreement.........................79
Section 7.11. Compliance with WARN, Etc....................................................79
Section 7.12. Foreign Implementing Agreements..............................................79
Section 7.13. Joint Defense and Cooperation Agreement......................................79
Section 7.14. Insurance....................................................................80
Section 7.15. Confidentiality..............................................................80
Section 7.18. Certain Receivables..........................................................82
ARTICLE VIII INDEMNIFICATION....................................................................................83
Section 8.1. Indemnification by Pfizer....................................................83
Section 8.2. Indemnification by Purchaser.................................................84
Section 8.3. Notice of Claims.............................................................84
Section 8.4. Third Party Claims...........................................................85
Section 8.5. Expiration...................................................................86
Section 8.6. Certain Limitations..........................................................87
Section 8.7. Losses Net of Insurance, Etc.................................................88
Section 8.8. Other Limitations............................................................88
Section 8.9. Sole Remedy/Waiver...........................................................89
Section 8.10. Indemnification Procedures for Remedial Actions on
Conveyed Prqperties..........................................................89
Section 8.11. Limitation on Indemnification for Third Party Claims for
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
Remedial Action..............................................................92
Section 8.12. No Consequential Damages.....................................................93
ARTICLE IX TERMINATION....................................................................................93
Section 9.1. Termination..................................................................93
Section 9.2. Effect of Termination........................................................94
ARTICLE X MISCELLANEOUS..................................................................................95
Section 10.1. Notices......................................................................95
Section 10.2. Amendment: Waiver............................................................96
Section 10.3. Assignment ..................................................................96
Section 10.4. Entire Agreement.............................................................97
Section 10.5. Fulfillment of Obligations...................................................97
Section 10.6. Parties in Interest..........................................................97
Section 10.7. Public Disclosure............................................................98
Section 10.8. Return of Information........................................................98
Section 10.9. Expenses.....................................................................98
Section 10.10. Schedules....................................................................98
Section 10.11. Governing Law................................................................99
Section 10.12. Counterparts.................................................................99
Section 10.13. Headings.....................................................................99
Section 10.14. Severability.................................................................99
</TABLE>
iii
<PAGE> 5
List of Schedules
1.1 Asset Selling Corporations
1.1(a) Facilities
1.1(b) Deal Balance Sheet
2.1(a) Leased Real Property
2.3(h) Specified Excluded Assets
2.8 Allocation of the Purchase Price
4.2(c) Consents and Approvals
5.3 Non-Contravention
5.4 Consents and Approvals of Governmental Authorities
5.5 Financial Statements; Books and Records
5.6 Absence of Material Changes
5.7 No Litigation
5.8 Compliance with Laws
5.9 Product Registrations; Regulatory Compliance
5.10 Environmental Matters
5.11 Material Contracts
5.11(c) Suppliers of Production Materials
5.12(a) Intellectual Property Litigation
5.12(b) Patents and Trademark Registration
5.12(c) Licenses and Sublicenses
5.12(d) Computer Software
5.13(a) Real Property
5.14 Assets: Exceptions to Title
iv
<PAGE> 6
5.15 Taxes
5.18 Entire Business
5.20 Product Recall
5.21 Significant Suppliers
5.22 Customers and Distributors
6.5 Purchaser Consents and Approvals
7.5(a) Employee Benefits (US)
7.5(a)(i) Employee Severance Program
7.5(a)(ii) Employees (US)
7.5(a)(iii) Purchaser Benefit Plans
7.5(a)(iv) Shared Services Employees
7.5(b)(ii) Purchaser Qualified Plans
7.5(e) Employees (non-US)
7.8(a) Noncompetition
v
<PAGE> 7
List of Exhibits
A. List of instruments and documents provided by Asset Selling
Corporations to Purchaser
B. List of instruments and documents provided by Purchaser to Seller
Corporations
C. Form of Transitional Services Agreement
D. Form of Transitional Intellectual Property License Agreement
E. Pfizer Employee Separation Plan
F. Release Agreement (Individual Termination)
G. Release Agreement (Group Termination)
H. Joint Defense and Cooperation Agreement
vi
<PAGE> 8
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is made and entered into as of
the 21st day of July, 1998 among Pfizer Inc., a Delaware corporation ("Pfizer"),
the Asset Selling Corporations (as defined below) (Pfizer and the Asset Selling
Corporations are sometimes referred to, collectively, as the "Seller
Corporations") and WPAMS Acquisition Corp., a Delaware corporation
("Purchaser").
W I T N E S S E T H:
WHEREAS, Pfizer is the record and beneficial owner of all of the issued
and outstanding shares of common stock of American Medical Systems Inc., a
Minnesota corporation, which conducts in the United States the business of
American Medical Systems ("AMS"); and
WHEREAS, Pfizer, through American Medical Systems, Inc. and certain of
its other Subsidiaries, is engaged in the Business (as defined below); and
WHEREAS, the Asset Selling Corporations own the Conveyed Assets (as
defined below); and
WHEREAS, the parties hereto desire that Pfizer shall cause
the Asset Selling Corporations to sell and transfer to Purchaser and Purchaser
shall purchase from the Asset Selling Corporations all of the Conveyed Assets
and assume all of the Assumed Liabilities (as defined below), upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and undertakings contained herein, subject to and on the terms and
conditions herein set forth, and intending to be bound hereby, the parties agree
as follows:
<PAGE> 9
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1. Definitions. As used in this Agreement, the
following terms shall have the meanings set forth or as referenced below:
"Adjusted Allocation" shall have the meaning set forth in Section
2.8(c).
"Affected Employee" shall mean (i) an Employee who shall accept an
offer of employment or offer of continuation of employment by Purchaser on or
prior to the Closing Date pursuant to Section 7.5(a) or 7.5(e) and shall
actively work for Purchaser or any of its Affiliates at least one day, (ii) an
Employee whose employment automatically continues with the Purchaser as a matter
of Law, or (iii) an Employee whose initial offer of employment by the Purchaser
requires a relocation of more than 25 miles from his current work location,
which offer is rejected, resulting in termination of employment, whether or not
such employee worked for Purchaser or any of its Affiliates at least one day.
For purposes of this definition the term "Affected Employee" includes each
Employee whose compensation is subject to individual approval by the Pfizer
Employee Compensation and Management Development Committee.
"Affiliate" shall mean, with respect to any Person, any other
person directly or indirectly controlling, controlled by, or under common
control with, such Person at any time during the period for which the
determination of affiliation is being made.
"Agreement" shall mean this Agreement, as the same may be amended
or supplemented from time to time in accordance with the terms hereof.
"Allocation" shall have the meaning set forth in Section 2.8
hereof.
"Applicable Remedial Action Standard" shall have the meaning set
forth in this Section 8.11.
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<PAGE> 10
"Asset Selling Corporations" shall mean those entities listed on
Schedule 1.1 hereof.
"Assumed Contracts" shall have the meaning set forth in Section
2.1(c) hereof.
"Assumed Liabilities" shall have the meaning set forth in Section
2.4 hereof
"Business" shall mean the worldwide business of AMS, consisting of
developing, manufacturing, distributing and selling medical devices and
autologous tissue engineering products for the surgical and interventional
treatment of disorders and other conditions of the male urogenital system and
female urinary tract and male and female fecal incontinence (but excluding any
business related to the distribution of Cardura), as conducted on the date
hereof by Pfizer through the Asset Selling Corporations.
"Business Day" shall mean any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Cash Equivalents" shall mean cash, checks, money orders,
marketable securities, short-term instruments and other cash equivalents, funds
in time and demand deposits or similar accounts, and any evidence of
indebtedness issued or guaranteed by any United States Governmental Authority.
"Closing" shall mean the closing of the transactions contemplated
by this Agreement.
"Closing Date" shall have the meaning set forth in Section 3.1(a)
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral Source" shall have the meaning set forth in Section 8.7
hereof.
"Competition Laws" shall mean statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines, and other laws that are designed
or intended to prohibit,
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<PAGE> 11
restrict or regulate actions having the purpose or effect of monopolization,
lessening of competition or restraint of trade.
"Competitive Activity" shall have the meaning set forth in Section
7.8(a) hereof.
"Compliance Action" shall have the meaning set forth in this
Section 1.1 under the definition of Excluded Environmental Liabilities.
"Confidentiality Agreement" shall mean the Confidentiality Agreement, dated
April 9, 1998, between Pfizer and Purchaser relating to the Business.
"Consolidated Tax Returns" shall mean any Tax Returns with respect
to Consolidated Taxes.
"Consolidated Taxes" shall mean all federal, state, provincial or
local Income Taxes, domestic or foreign, that are paid on a consolidated,
unitary, combined or similar basis with respect to Tax Returns that include the
Asset Selling Corporations, on the one hand, and Pfizer or any of its
Subsidiaries or Affiliates (other than the Asset Selling Corporations) on the
other.
"Conveyed Assets" shall have the meaning set forth in Section 2.1
hereof, it being understood that the Conveyed Assets do not include the Excluded
Assets.
"Deal Balance Sheet" shall have the meaning set forth in this
Section 1.1 under the definition of Working Capital of the Business.
"Disputed Item" shall have the meaning set forth in Section 2.7(b).
"Employee" shall mean an Employee (US) or an Employee (non-US).
"Employee (non-US)" shall mean any individual who as of the Closing
Date (i) shall be (or, in the case of clause (ii)(D) below, is scheduled to
become) an employee outside the United States of America of an Asset Selling
Corporation or another Affiliate of Pfizer who
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<PAGE> 12
primarily performs (or will, on commencing work, primarily perform) services on
behalf of the Business and (ii) (A) shall have been employed and at work on the
Closing Date excluding any individual hired after the date hereof whose annual
base compensation exceeds $100,000, unless prior written consent has been
received from Purchaser, (B) shall have been absent on the Closing Date because
of illness or on short-term disability (including maternity disability),
workers' compensation, vacation, parental leave of absence, or other absence or
leave of absence consistent with the Seller Corporations' policies, practices
and procedures in effect at the time such absence or leave commenced, (C) shall
have been receiving short-term disability benefits for no more than one hundred
eighty (180) consecutive days as of the Closing Date, or (D) shall have received
a written offer of employment with the Business with an Asset Selling
Corporation or another Affiliate of Pfizer, not to exceed annual base
compensation of $100,000, without the Purchaser's prior written consent, in the
ordinary course of business on or prior to the Closing Date, but shall have not
yet commenced work as of the Closing Date. For the avoidance of doubt, "Employee
(non-US)" shall in no event include any persons listed on Schedule 7.5(a)(iv).
"Employee (US)" shall mean any individual who as of the Closing
Date (i) shall be (or, in the case of clause (ii)(D) below, is scheduled to
become) an employee in the United States of America of an Asset Selling
Corporation or another Affiliate of Pfizer who primarily performs (or will, on
commencing work, primarily perform) services on behalf of the Business and (ii)
(A) shall have been employed and at work on the Closing Date excluding any
individual hired after the date hereof whose annual base compensation exceeds
$100,000, unless prior written consent has been received from Purchaser, (B)
shall have been absent on the Closing Date because of illness or on short-term
disability (including maternity disability), workers' compensation, vacation,
parental leave of absence, or other absence or leave of absence
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<PAGE> 13
consistent with the Seller Corporations' policies, practices and procedures in
effect at the time such absence or leave commenced, (C) shall have been
receiving short-term disability benefits for no more than one hundred eighty
(180) consecutive days as of the Closing Date, or (D) shall have received a
written offer of employment with the Business with an Asset Selling Corporation
or another Affiliate of Pfizer, not to exceed annual base compensation of
$100,000, without the Purchaser's prior written consent, in the ordinary course
of business on or prior to the Closing Date, but shall have not yet commenced
work as of the Closing Date.
"Environmental Law" shall mean any applicable federal, state, local
or foreign law, common law, statute, ordinance, rule, regulation, code, order,
judgment, decree or injunction as in effect at the Closing Date relating
directly or indirectly to the protection of the environment (including, without
limitation, air, water vapor, surface water, groundwater, drinking water supply,
surface or subsurface land), including the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, recycling, release or disposal of Hazardous Substances.
"Environmental Liability" means the Losses resulting from (A)
failure to comply with any requirement of an Environmental Law; (B) failure to
obtain or comply with any required Environmental Permit; (C) a Remedial Action;
or (D) harm or injury to any real property (other than a Remedial Action), to
any person, to public health, or natural resource as a result of exposure to
Hazardous Substances.
"Environmental Permits" shall mean a permit held by an Asset
Selling Corporation pursuant to an Environmental Law.
"Equipment" shall have the meaning set forth in Section 2.1(b)
hereof.
"Equipment Leases" shall have the meaning set forth in Section
2.1(b) hereof.
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<PAGE> 14
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Excluded Assets" shall have the meaning set forth in Section 2.3
hereof
"Excluded Environmental Liabilities" shall mean:
(i) Environmental Liabilities resulting from Third-Party Claims
associated with or arising from all facilities other than those constituting
part of the Conveyed Assets as of the Closing Date;
(ii) Environmental Liabilities resulting from Third-Party Claims
for Remedial Action at any Facility to the extent the underlying environmental
condition resulting in such Environmental Liabilities existed or had occurred as
of the Closing Date;
(iii) Environmental Liabilities constituting fines and penalties
imposed by Governmental Authorities resulting from the pre-Closing failure to
comply with any requirement of Environmental Law or failure to obtain or comply
with any required Environmental Permit where such fines and penalties are
specifically imposed with respect to a time period prior to the Closing Date
("Compliance Action");
(iv) Environmental Liabilities resulting from the off-site
transportation, storage, disposal, treatment or recycling of Hazardous
Substances generated by and taken off-site by or on behalf of the Business prior
to the Closing Date;
(v) Environmental Liabilities resulting from the failure of the
Business prior to the Closing Date to comply with the provisions of the
California Safe Drinking Water and Toxic Enforcement Act of 1986 where there are
specific claims related to the sale of products by the Business prior to the
Closing Date; and
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<PAGE> 15
(vi) Notwithstanding anything to the contrary set forth in this
Agreement, capital and other costs of environmental-related compliance with
Environmental Laws in the ordinary course of operating the Business (including,
without limitation, the operation or closure of regulated units) from and after
the Closing Date shall not be deemed to be Excluded Environmental Liabilities;
provided, however, that such costs may be recovered pursuant to Section
8.l(a)(ii) or (iii) to the extent necessary to remedy any breach of a
representation in Section 5.10.
"Facilities" shall mean the manufacturing and research and
development facilities listed on Schedule 1.1(a).
"Final Working Capital" shall have the meaning set forth in Section
2.7(c) hereof.
"Financial Statements" shall mean the audited consolidated
financial statements of AMS as of, and for the three-year period ended, December
31, 1997 set forth on Schedule 5.5 hereof.
"Foreign Implementing Agreements" shall mean the various agreements
to be executed by the Asset Selling Corporations and any Affiliates of the
Purchaser after the date of this Agreement for the purpose of implementing the
transfer and conveyance by the Asset Selling Corporations on the Closing Date,
or as soon thereafter as can be effected, of Conveyed Assets and Assumed
Liabilities to any Affiliate of Purchaser.
"Foreign Plans" shall mean each pension, profit sharing, savings,
retirement, health, life, disability, deferred compensation, incentive,
severance and fringe benefit plan, program, or arrangement maintained or
contributed to by any Seller Corporation for the benefit of any Employees
(non-US) (including any individual employment, severance or change in control
agreement) other than plans, programs, or arrangements required to be maintained
or
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<PAGE> 16
contributed to by the Laws of the relevant jurisdiction and Plans maintained
for the benefit of Employees (US).
"GAAP" shall mean generally accepted accounting principles and
practices in effect in the United States of America from time to time, as
applied by Pfizer.
"Governmental Antitrust Entity" shall have the meaning set forth in
Section 7.3(c) hereof.
"Governmental Authority" shall mean any supranational, national,
federal, state or local judicial, legislative, executive or regulatory
authority.
"Governmental Authorizations" shall mean all licenses, permits,
certificates and other authorizations and approvals required to carry on the
Business as conducted as of the date of this Agreement under the applicable
laws, ordinances or regulations of any Governmental Authority.
"Governmental Order" shall mean any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with a
Governmental Authority.
"Hazardous Substances" shall mean (i) any hazardous substances
within the meaning of Section 101(14) of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq. ("CERCLA"),
(ii) any pollutant or contaminant within the meaning of Section 101(33) of
CERCLA, or (iii) petroleum, including crude oil or any fraction thereof
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Income Tax" or "Income Taxes" shall mean all Taxes based upon,
measured by, or calculated with respect to (i) gross or net income or gross or
net receipts or profits (including,
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<PAGE> 17
but not limited to, any capital gains, minimum taxes and any Taxes on items of
tax preference, but not including sales, use, goods and services, real or
personal property transfer or other similar Taxes), (ii) multiple bases
(including, but not limited to, corporate franchise, doing business or
occupation Taxes) if one or more of the bases upon which such Tax may be based
upon, measured by, or calculated with respect to, is described in clause (i)
above, or (iii) withholding taxes measured by, or calculated with respect to,
any payments or distributions (other than wages).
"Indemnified Party" shall have the meaning set forth in Section
8.3(a) hereof.
"Indemnifying Party" shall have the meaning set forth in Section
8.3(a) hereof.
"Independent Accountant" shall have the meaning set forth in
Section 2.7(c) hereof.
"Intellectual Property" shall mean Patent Rights, inventions,
discoveries, trade secrets, know-how and ideas, rights in research and
development, and commercially practiced processes and inventions, whether
patentable or not in any jurisdiction, Trademark Rights in any jurisdiction,
copyrights and registrations or applications for registration of copyrights in
any jurisdiction, and any renewals or extensions thereof.
"Intellectual Property Licenses" shall have the meaning set forth
in Section 2.1(e) hereof.
"Inventories" shall mean all inventory, including raw materials,
packaging supplies, work-in-process or finished goods owned by any of the Asset
Selling Corporations and relating to the Business.
"IRS" shall mean the Internal Revenue Service of the United States.
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"Joint Defense and Cooperation Agreement" shall have the meaning
set forth in Section 7.13 hereof.
"Knowledge of Pfizer" shall mean the actual knowledge of (i) a
senior officer of Pfizer or (ii) any of the following individuals: David Booth;
Helen Vallerand; Robin Cleveland; Larry Getlin; Roger Mitchell; Jan Dick; Ash
Keswani; William Stein; John Westrum; Brian Millberg; and Elizabeth Gerardi
Schoen.
"Laws" shall include any federal. state, foreign or local law,
statute, ordinance, rule, regulation, order, injunction, judgment or decree.
"Leased Real Property" shall have the meaning set forth in Section
2.1(a) hereof.
"Liabilities" shall mean any and all debts, liabilities and
obligations, whether accrued or fixed, known or unknown, absolute or contingent,
matured or unmatured or determined or determinable.
"Liens" shall mean any lien, security interest, mortgage, charge or
similar encumbrance.
"Loss" or "Losses" shall have the meaning set forth in Section
8.1(a) hereof.
"Material Adverse Effect" shall mean an effect that is materially
adverse to the business results, operations or financial condition of the
Business taken as a whole, but shall exclude any effect resulting from general
economic conditions.
"Material Contracts" shall have the meaning set forth in Section
5.11(a) hereof.
"Patent Rights" shall mean patents together with any extensions,
reexaminations and reissues of such patents, patents of addition, patent
applications, continuations, continuations-in-part, and any subsequent filings
in any country claiming priority therefrom.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
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<PAGE> 19
"PBO" shall mean the projected benefit obligation calculated using
the Retirement Plan's actuarial assumptions contained in its January 1, 1997
actuarial report prepared in accordance with Financial Accounting Standard
No. 87 and as modified by the change of assumptions effective as of the close of
business on December 31, 1997 as set forth in the pension footnote in Pfizer's
1997 Annual Report to the stockholders, except that the settlement rate shall be
at 7.5 percent.
"Permitted Encumbrances" shall mean (i) all Liens approved in
writing by the Purchaser, (ii) statutory Liens arising out of operation of Law
with respect to a Liability incurred in the ordinary course of business of the
Business and which is not delinquent, (iii) such Liens and other imperfections
of title as do not materially detract from the value or impair the use of the
property subject thereto, (iv) Liens for Taxes not yet subject to penalties for
nonpayment or which are being actively contested in good faith by appropriate
proceedings, or (v) mechanics', materialmen's, carriers', workmen's,
warehousemen's, repairmen's, landlords' or other like Liens and security
obligations that are not delinquent.
"Person" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization.
"Pfizer" shall have the meaning set forth in the heading of this
Agreement.
"Pfizer Non-Qualified Plans" shall have the meaning set forth in
Section 7.5(b)(iv).
"Pfizer Qualified Plans" shall have the meaning set forth in
Section 7.5(b)(i) hereof.
"Plan" shall mean any employee benefit plan as defined in Section
3(3) of ERISA and any other material plan, program, agreement or arrangement,
whether qualified under
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<PAGE> 20
applicable Law or not, maintained (or contributed to or required to be
contributed to) by any Seller Corporation, for the benefit of any Employee (US)
(including any individual employment, change in control or severance agreement).
"Product Claim" shall mean a Third Party Claim for money or other
compensation (other than claims pursuant to any product replacement policy or
limited warranty policy with respect to a product) in respect of injury alleged
as a result of the use, application or malfunction of a product of the Business,
irrespective of the legal theory of liability and in respect of which no lawsuit
has been commenced on or prior to the Closing Date.
"Product Registrations" shall have the meaning set forth in Section
5.9(a) hereof.
"Purchase Price" shall have the meaning set forth in Section 2.6.
"Purchaser" shall have the meaning set forth in the recitals and
its wholly owned Subsidiaries.
"Purchaser Tax Act" shall have the meaning set forth in Section
7.4(e)(i).
"Purchaser's Non-Qualified Plans" shall have the meaning set forth
in Section 7.5(b)(iv).
"Purchaser's Non-Qualified Retirement Plan" shall have the meaning
set forth in Section 7.5(b)(iv).
"Purchaser's Non-Qualified Savings Plan" shall have the meaning set
forth in Section 7.5(b)(iv).
"Purchaser's Qualified Savings Plan" shall have the meaning set
forth in Section 7.5(b)(ii).
"Real Property" shall have the meaning set forth in Section 5.13(a)
hereof.
"Real Property Leases" shall have the meaning set forth in Section
2.1(a) hereof.
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<PAGE> 21
"Release" means any spill, leaking, pumping, injection, deposit,
disposal, discharge, dispersal, or leaching into surface water, soil or
groundwater of any property.
"Relevant Period" shall have the meaning set forth in Section 5.22.
"Remedial Action" shall mean action to clean up soil, surface
water, groundwater or sediments in response to a Release of Hazardous
Substances, including, but not limited to, associated action taken to
investigate, monitor, assess and evaluate the extent and severity of any such
Release; action taken to remediate any such Release; post-remediation monitoring
of any such Release: and preparation of all reports, studies, analyses or other
documents relating to the above. "Remedial Action" shall also refer to any
judicial, administrative or other proceeding relating to any of the above,
including, but not limited to, the negotiation and execution of judicial or
administrative consent decrees; responding to governmental information requests;
or defending claims brought by any Governmental Authority or any other Person,
whether such claims are equitable or legal in nature, relating to the cleanup of
soil, surface water, groundwater, and sediments in response to a Release of
Hazardous Substances and associated actions.
"Required Government Report" shall mean any written notice, report
or other filing that must be made by Purchaser to or with a Governmental
Authority pursuant to Environmental Law as a result of actions taken in the
ordinary course of operating the Business.
"Resolution Period" shall have the meaning set forth in Section
2.7(c) hereof.
"Retained Liabilities" shall have the meaning set forth in Section
2.5 hereof.
"Retirement Plan" shall have the meaning set forth in Section
7.5(b)(i) hereof.
"Savings Plan" shall have the meaning set forth in Section
7.5(b)(i) hereof.
"Seller Corporations" shall have the meaning set forth in the
heading of this Agreement.
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<PAGE> 22
"Shared Services Agreement" shall have the meaning set forth in
Section 7.5(a).
"Shared Services Employees" shall have the meaning set forth in
Section 7.5(a)(iv).
"Specified Sections" shall have the meaning set forth in Section
8.7 hereof.
"Suballocation" shall have the meaning set forth in Section 2.8
hereof.
"Subsidiary" shall mean an entity as to which Pfizer or Purchaser
or any other relevant entity, as the case may be, owns directly or indirectly
50% or more of the voting power or other similar interests. Any Person which
comes within this definition as of the date of this Agreement but thereafter
fails to meet such definition shall from and after such time not be deemed to be
a Subsidiary of Pfizer or Purchaser, as the case may be. Similarly, any Person
which does not come within such definition as of the date of this Agreement but
which thereafter meets such definition shall from and after such time be deemed
to be a Subsidiary of Pfizer or Purchaser, as the case may be.
"Tax" or "Taxes" shall mean any and all federal, state, local,
foreign and other taxes, levies, fees, imposts, duties and charges of whatever
kind (including any interest, penalties or additions to the tax imposed in
connection therewith or with respect thereto), whether or not imposed on a
Seller Corporation, including, without limitation, taxes imposed on, or measured
by, income, franchise, profits or gross receipts, and also ad valorem, value
added, sales, use, service, real or personal property, capital stock, license,
payroll, withholding, employment, social security, workers' compensation.
unemployment compensation, utility, severance, production, excise, stamp,
occupation, premium, windfall profits, transfer and gain taxes.
"Tax Return" or "Tax Returns" shall mean any return, report,
declaration, information return, statement or other document filed or required
to be filed with any
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Governmental Authority, in connection with the determination, assessment or
collection of any Tax or the administration of any Laws relating to any Tax.
"Third Party Claim" shall have the meaning set forth in Section
8.4(a) hereof.
"Trademark Rights" shall mean registered and unregistered
trademarks, service marks, brand names, certification marks, trade dress,
goodwill associated with the foregoing and registrations in any jurisdiction of,
and applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application.
"Transaction Documents" shall mean this Agreement, the Transitional
Services Agreement, the Transitional Intellectual Property License Agreement,
the Joint Defense and Cooperation Agreement and any other agreements signed in
connection herewith.
"Transitional Intellectual Property License Agreement" shall have
the meaning set forth in Section 7.10 hereof.
"Transitional Services Agreement" shall have the meaning set forth
in Section 7.9 hereof.
"WARN" shall mean the Worker Adjustment and Retraining Notification
Act.
"Welfare Type Plans" shall have the meaning set forth in Section
7.5(d).
"Working Capital of the Business" as of any date shall mean the
current assets less the current liabilities of the Business as of such date,
determined in accordance with GAAP applied on a basis consistent with that used
in preparation of the unaudited balance sheet of the Business as of December 31,
1997 as set forth on Schedule 1.1(b) (the "Deal Balance Sheet"); provided that
there shall be excluded therefrom (i) the Excluded Assets and the Retained
Liabilities and (ii) any items prorated under Section 7.4(b)(iii).
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"Working Capital Statement" shall have the meaning set forth in
Section 2.7(a) hereof.
Section 1.2. Other Definitional Provisions.
(a) The words "hereof", "herein", "hereto" and "hereunder" and
words of similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The term "dollars" and the symbol "$" shall mean United States
dollars.
ARTICLE II
PURCHASE AND SALE
Section 2.1. Purchase and Sale of Assets of the Asset Selling
Corporations. Upon the terms and subject to the conditions set forth herein, at
the Closing, Pfizer shall cause each Asset Selling Corporation to sell, convey,
assign and transfer to Purchaser and Purchaser shall purchase, acquire and
accept from each Asset Selling Corporation, free and clear of all Liens, other
than Permitted Encumbrances, all of the respective Asset Selling Corporation's
right, title and interest in and to the assets, properties and rights owned or
held by each such Asset Selling Corporation on the date hereof relating
primarily to the Business or acquired by any of the Asset Selling Corporations
primarily for the Business in the ordinary course of business of the Business
prior to the Closing (subject to any decreases or dispositions thereof as may
occur in the ordinary course of business of the Business prior to the Closing)
(collectively, the "Conveyed Assets"). Without limiting the foregoing, the
Conveyed Assets shall include all assets, properties and rights reflected on the
Deal Balance Sheet (except to the extent acquired or
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disposed of in the ordinary course of business of the Business since the date
thereof but only to the extent permitted by Section 7.2 hereof) and, except as
expressly provided otherwise herein, shall include, without limitation, those
certain assets, properties and rights described in the following clauses (a)
through (m):
(a) the leasehold interests, including any prepaid rent, security
deposits and options to renew or purchase in connection therewith, of the Asset
Selling Corporations in real property (the "Leased Real Property" and the leases
relating to such Leased Real Property, the "Real Property Leases") set forth on
Schedule 2.1(a) and the Real Property set forth on Schedule 5.13(a);
(b) the furniture, equipment, fixtures, machinery, supplies,
vehicles, spare parts, tools, personal property and other tangible property
owned, leased or licensed by the Asset Selling Corporations and primarily used
by the Business (the "Equipment" and leases relating to such Equipment so leased
by the Asset Selling Corporations, the "Equipment Leases");
(c) the contracts, licenses, agreements, warranties or guarantees
on products purchased by Asset Selling Corporations from third parties
(excluding warranties and guarantees made by any Seller Corporations to such
third parties) and commitments relating primarily to the Business (excluding
contracts, licenses, agreements and commitments relating to the Excluded Assets)
("Assumed Contracts");
(d) the Inventories of the Asset Selling Corporations;
(e) all rights to the Intellectual Property owned, utilized or
licensed by the Asset Selling Corporations (the licenses relating to
Intellectual Property so licensed by the Asset Selling Corporations sometimes
referred to as the "Intellectual Property Licenses") relating primarily to the
Business; to the extent any of said Intellectual Property, other than the Pfizer
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name and logo, is owned, utilized or licensed by Pfizer or any Affiliate or
former Affiliate of Pfizer and is used for the Business and is or could be used
by one or more other businesses of Pfizer and its Affiliates or is not
transferable by Pfizer or any Affiliate, then such Intellectual Property will be
retained by Pfizer or one of its Affiliates and, at the Closing, Pfizer and/or
its applicable Affiliate will, subject to Section 2.2 and except to the extent
Pfizer's rights to such Intellectual Property do not allow it to grant such
license, grant to Purchaser and its Affiliates and their respective successors
and assigns a nonexclusive freely assignable and transferable license of such
Intellectual Property for the continuation of use by the Business;
(f) Product Registrations (and applications therefor) owned, utilized or
licensed by the Asset Selling Corporations relating solely to the Business;
(g) transferable Governmental Authorizations and Environmental Permits
owned, utilized or licensed (subject to the terms of such licenses) by the Asset
Selling Corporations relating primarily to the Business;
(h) (i) the databases and software programs, source codes and user manuals
owned, used, leased by or licensed to the Asset Selling Corporations and used
primarily in the operation of the Asset Selling Corporations' computer systems
and (ii) the computer hardware used primarily in the Business;
(i) all customer and vendor lists to the extent relating primarily to the
Business, and all files and documents (including credit information) to the
extent relating primarily to customers and vendors of the Business, and other
business and financial records, files, books and documents (whether in hard copy
or computer format) to the extent relating primarily to the Business;
(j) the accounts receivable of the Business;
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(k) the Seller Corporations' rights under all confidentiality agreements
(it being understood Purchaser will be provided copies thereof at the Closing)
entered into by a Seller Corporation with prospective bidders in connection with
the proposed sale of the Business to the extent such rights relate to
confidential information of the Asset Selling Corporations; provided, however,
the Seller Corporations shall not assign, or provide copies of, any such
confidentiality agreement if doing so would result in a breach thereof;
(l) all business information, management systems (to the extent
transferable), files and records, and related books and archival materials,
whether in hard copy or magnetic format, primarily related to the operation of
the Business, including, without limitation, advertising, print and
radio/television commercials, sales promotion materials, point of sale and shelf
merchandising materials, marketing and sales programs, market research,
technical research, business and strategic plans, consumer communications,
equipment maintenance records and warranty information, plant plans,
specifications and drawings, product and raw material specifications,
manufacturing procedures and processes, files relating to Affected Employees,
correspondence with federal, state and local governmental agencies relating to
the operation of the Business and related files and records of the Asset Selling
Corporations; and
(m) telephone, fax and similar numbers (including toll-free numbers) or
addresses used solely by the Business.
Section 2.2. Consents. (a) There shall be excluded from the transactions
contemplated by this Agreement any Real Property Lease, Equipment Lease,
Intellectual Property License, Assumed Contract, agreement, lease, license or
right which is not assignable or transferable without the consent of any Person
other than the Seller Corporations or any Subsidiary of Pfizer or Purchaser or
any Subsidiary of Purchaser, to the extent that such consent
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shall not have been given prior to the Closing, provided, however, that each of
the Seller Corporations and Purchaser shall have the continuing obligation after
the Closing to use its commercially reasonable efforts to endeavor to obtain all
necessary consents to the assignment thereof (provided that neither the Seller
Corporations nor any of their respective Subsidiaries shall be required to
expend money, commence any litigation or offer or grant any accommodation
(financial or otherwise) to any third party) and, upon obtaining the requisite
third-party consents thereto, such Real Property Leases, Equipment Leases,
Intellectual Property Licenses, Assumed Contracts, agreements, leases, licenses
or rights, if otherwise includable in the Conveyed Assets or the transactions
contemplated hereby, shall be sold and assigned to Purchaser hereunder.
(b) With respect to any Real Property Lease, Equipment Lease, Intellectual
Property License, Assumed Contract, agreement, lease, license or right, which is
not included in the Conveyed Assets at the Closing by reason of Section 2.2(a),
after the Closing, the parties shall cooperate with each other, upon written
request, (i) in endeavoring to obtain the requisite third-party consents(s) to
the assignment thereof to Purchaser, without either party being obligated,
however, to make any payment to any such third party which is not otherwise due
in order to obtain such consent, unless Purchaser shall make such payment or
agree to reimburse the Seller Corporations for such payment, and (ii) if any
such requisite consent cannot be obtained, in endeavoring to obtain for
Purchaser, at no cost to the Seller Corporations, an arrangement which Purchaser
reasonably shall desire designed to provide for Purchaser the benefits thereof
in some other manner.
(c) Purchaser acknowledges that certain consents to the transactions
contemplated by this Agreement may be required from parties to the Real Property
Leases,
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Equipment Leases, Intellectual Property Licenses, Assumed Contracts, agreements,
leases, licenses or rights and that such consents have not been and may not be
obtained. Purchaser agrees that the Seller Corporations, after exercising
commercially reasonable efforts, shall not have any liability whatsoever arising
out of or relating to the failure to obtain any consents that may have been or
may be required in connection with the transactions contemplated by this
Agreement or because of the default under or acceleration or termination of any
Real Property Lease, Equipment Lease, Intellectual Property License, Assumed
Contract, agreement, lease, license or right, as a result thereof. Purchaser
further agrees that no representation, warranty or covenant of the Seller
Corporations contained herein shall be breached or deemed breached, and, except
as provided in Section 4.2(c), no condition to Purchaser's obligations to close
the transactions contemplated by this Agreement shall be deemed not satisfied as
a result of (i) the failure to obtain any such consent or as a result of any
such default, acceleration or termination or (ii) any lawsuit, action, claim,
proceeding or investigation commenced or threatened by or on behalf of any
Person arising out of or relating to the failure to obtain any consent or any
such default, acceleration or termination.
(d) Each of the Seller Corporations may take (or cause one or more of its
Affiliates to take) such action as is necessary or advisable to transfer
effective as of the Closing Date the Excluded Assets from the Business to itself
or one or more of its Affiliates for such consideration or for no consideration,
as may be determined by the Seller Corporations in their sole discretion. After
the Closing Date, Purchaser shall take all commercially reasonable actions (or
shall cause its Affiliates to take all such actions) requested by the Seller
Corporations to effect the provisions of this Section 2.2(d). Any action taken
pursuant to this Section 2.2(d) after the Closing Date shall be deemed for the
purposes of Section 2.7 to have occurred on the Closing
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Date and shall be reflected in the calculation of the Working Capital of the
Business pursuant to such Section 2.7.
Section 2.3. Excluded Assets of the Business. Notwithstanding any provision
in this Agreement, the Seller Corporations shall retain, with respect to the
Business or any Asset Selling Corporation, the following (the "Excluded
Assets"):
(a) Cash Equivalents;
(b) all intercompany receivables;
(c) all losses, loss carry forwards and rights to receive refunds, credits
and credit carry forwards with respect to any and all Taxes, that constitute
Retained Liabilities including, without limitation, interest thereon;
(d) the corporate books and records of the Asset Selling Corporations;
(e) all current and prior insurance policies and all rights of any nature
with respect thereto, including all insurance recoveries thereunder and rights
to assert claims with respect to any such insurance recoveries;
(f) except as expressly set forth herein, all assets of any Plan or Foreign
Plan;
(g) the "Pfizer" name and logo;
(h) the assets in Schedule 2.3(h); and
(i) all assets not related primarily to the Business.
Section 2.4. Assumption of Liabilities of the Business. Upon the terms
(including the representations, warranties, covenants and indemnities) and
subject to the conditions of this Agreement, Purchaser agrees, effective at the
Closing, to assume all Liabilities of the Seller Corporations to the extent
relating to the Conveyed Assets or the Business and to satisfy and discharge
their respective Liabilities, whether arising on, prior to or after the Closing
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Date, and whether accrued or fixed, known or unknown, absolute or contingent,
matured or unmatured or determined or determinable as of the Closing Date, other
than the Retained Liabilities (all of the foregoing liabilities and obligations
being herein collectively called the "Assumed Liabilities"). Subject to the
limitations contained in the immediately preceding sentence, Assumed Liabilities
shall include, without limitation, the following:
(a) all lawsuits and claims commencing after the Closing Date to the extent
resulting from the conduct of the Business or the ownership of the Conveyed
Assets, prior to, on or after the Closing Date;
(b) all Liabilities arising from the manufacture, distribution or sale of
any products of the Business prior to, on, or after the Closing Date, including,
without limitation, warranty and product replacement policy obligations; and
(c) all Liabilities for Taxes as provided in ss. 7.4(b)(ii).
Section 2.5. Retained Liabilities of Business. Notwithstanding any
provision in this Agreement, the Seller Corporations shall retain and be
responsible for the following (the "Retained Liabilities"):
(a) the Excluded Environmental Liabilities;
(b) (i) Liabilities (including legal fees and related costs) resulting from
all lawsuits and Product Claims pending as of the Closing Date solely to the
extent resulting from the conduct of the Business by any Seller Corporation or
their Affiliates prior to the Closing Date, including, without limitation, the
pending lawsuits and Product Claims listed on Schedule 5.7 hereto and (ii)
Liabilities arising from Product Claims asserted and lawsuits commenced after
the Closing Date in respect of products sold by the Business prior to the
Closing Date;
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(c) Liabilities for which Pfizer expressly has responsibility pursuant to
the terms of this Agreement;
(d) Liabilities associated with the Excluded Assets;
(e) intercompany Liabilities;
(f) Liabilities to Employees and Liabilities in respect of any Plan or
Foreign Plan, except, in each case, as expressly provided herein; and
(g) any and all Liabilities related to: (i) Income Taxes of Pfizer, the
Asset Selling Corporations and their Affiliates; (ii) except to the extent
provided under Section 7.4(b)(ii), Taxes attributable to the transfer of the
Conveyed Assets pursuant to this Agreement; (iii) all other Taxes related to the
Conveyed Assets or the Business and attributable to periods ending on or prior
to the Closing Date; (iv) all other Taxes not related to the Conveyed Assets or
the Business; and (v) Taxes of any other person pursuant to an agreement or
otherwise.
Section 2.6. Purchase Price. In consideration of the sale and transfer of
the Conveyed Assets, Purchaser agrees to purchase from each Asset Selling
Corporation the Conveyed Assets owned by it for an aggregate purchase price of
$130,000,000 (the "Purchase Price"), allocated among the Asset Selling
Corporations as described in Section 2.8, and shall pay to Pfizer, as agent for
the Seller Corporations (or to Pfizer's Affiliates as Pfizer may, on behalf of
the Seller Corporations, direct in the written transfer instructions hereinafter
referred to), the amount of the Purchase Price, in immediately available funds,
by wire transfer in accordance with written instructions given by Pfizer to
Purchaser not less than two (2) Business Days prior to the Closing, which
Purchase Price shall be subject to adjustment as provided for in Section 2.7
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Section 2.7. Purchase Price Adjustment.
The Purchase Price shall be adjusted as set forth in this Section 2.7, it
being understood that the adjustment shall not affect or operate as a waiver of
any other rights of Pfizer or Purchaser hereunder.
(a) Within ninety (90) days after the Closing Date, Pfizer shall deliver to
Purchaser a statement of the Working Capital of the Business as of the Closing
Date (the "Working Capital Statement"). The Working Capital Statement shall be
unaudited and shall state the Working Capital of the Business as of the Closing
Date, taking into account (i) any transfers made pursuant to Section 2.2(d) and
(ii) the settlement of any Liabilities referred to in Section 2.5(e) after the
Closing Date, which for the purposes of the Working Capital Statement shall be
deemed to have been settled on the Closing Date at the amount settled. Purchaser
shall provide Pfizer with reasonable access to the books, records, and personnel
of the Business necessary for Pfizer to prepare the Working Capital Statement.
(b) Purchaser may dispute the amounts reflected on the line items of the
Working Capital Statement (each a "Disputed Item"), but only (i) on the basis
that an entry on such Working Capital Statement is based on facts or occurrences
arising solely between December 31, 1997 and the Closing Date and (ii) to the
extent the amount disputed with respect to any one Disputed Item exceeds $25,000
and all such Disputed Items exceed $100,000 in the aggregate; provided, however,
the Purchaser shall notify Pfizer in writing of each Disputed Item, and specify
the amount thereof in dispute and the basis therefor, within forty-five (45)
days after receipt of the Working Capital Statement. The failure by Purchaser to
provide a notice of Disputed Items to Pfizer within such forty-five (45) day
period will constitute Purchaser's acceptance of all the items in the Working
Capital Statement.
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(c) If a notice of Disputed Items shall have been timely delivered pursuant
to subclause (b) above, Pfizer and the Purchaser shall, during the twenty (20)
Business Days following the date of such delivery (the "Resolution Period"),
negotiate in good faith to resolve the Disputed Items. If, during such
Resolution Period, the parties are unable to reach an agreement, Pfizer and the
Purchaser shall refer all unresolved Disputed Items to Deloitte & Touche, LLP,
or any other "big five" independent accounting firm as Pfizer and Purchaser
shall mutually agree upon (the "Independent Accountant"). The Independent
Accountant shall make a determination with respect to each unresolved Disputed
Item within fifteen (15) days after its engagement by Pfizer and Purchaser to
resolve such Disputed Items, which determination shall be made in accordance
with the rules set forth in this Section 2.7. The Independent Accountant shall
deliver to Pfizer and Purchaser, within such fifteen (15) day period, a report
setting forth its adjustments, if any, to the Working Capital Statement and the
calculations supporting such adjustments. Such report shall be final, binding on
the parties and conclusive. Pfizer and Purchaser shall each pay one-half of all
the costs incurred in connection with the engagement of the Independent
Accountant. As used herein, "Final Working Capital" shall mean (i) if no notice
of Disputed Items is delivered by Purchaser within the period provided in
subclause (b) above, Working Capital of the Business as shown in the Working
Capital Statement as prepared by Pfizer, or (ii) if such a notice of Disputed
Items is delivered by Purchaser, either (x) Working Capital of the Business as
agreed to in writing by Pfizer and Purchaser, or (y) Working Capital of the
Business as shown in the Independent Accountant's report delivered pursuant to
this subclause (c).
(d) If the Final Working Capital is less than $17.4 million, then Pfizer,
on behalf of the Seller Corporations, shall, within ten (10) days after the
determination of the Final
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Working Capital, pay to Purchaser, in immediately available funds, by wire
transfer in accordance with written instructions given to Pfizer by Purchaser,
the amount of such shortfall, together with interest on such amount from the
Closing Date to the date of such payment at a rate equal to the ninety (90) day
commercial paper rate for high grade unsecured notes effective for the Closing
Date as published in The Wall Street Journal, Eastern Edition. If the Final
Working Capital is greater than $17.4 million, then Purchaser shall, within ten
(10) days after the determination of the Final Working Capital, pay to Pfizer,
in immediately available funds, by wire transfer in accordance with written
instructions given by Pfizer to Purchaser, the amount of such excess, together
with interest on such amount from the Closing Date to the date of such payment
at a rate equal to the ninety (90) day commercial paper rate for high grade
unsecured notes effective for the Closing Date as published in The Wall Street
Journal, Eastern Edition.
Section 2.8. Allocation of the Purchase Price. Pfizer, on behalf of itself
and the Asset Selling Corporations, and Purchaser have agreed to the allocation
of the Purchase Price among the Asset Selling Corporations as set forth in
Schedule 2.8 (the "Allocation"). Pfizer and the Purchaser shall agree to
allocate the Allocation made to American Medical Systems, Inc. among the
Conveyed Assets of such corporation (the "Suballocation"). As promptly as
practicable following the Closing Date, Purchaser will engage at its own expense
a nationally recognized third-party valuation firm for the purpose of valuing
the assets of American Medical Systems, Inc. Purchaser will prepare a proposed
allocation among the assets of American Medical Systems, Inc. on the basis of
such valuation and will furnish a copy thereof and the valuation to Pfizer for
its review within 60 days following the Closing Date. Pfizer shall have the
right to consent to such allocation, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing,
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(a) Purchase Price adjustments pursuant to Section 2.7 and other
post-Closing adjustments, if any, to the Purchase Price shall be allocated to
the Asset Selling Corporation to which the adjustment relates and shall be
further allocated (if relevant for purposes of any applicable law) to the assets
to which the adjustment relates, and the Purchase Price allocation to such Asset
Selling Corporation shall be correspondingly increased or decreased; and
(b) If, after all other adjustments to the Allocation are made, the
Allocation with respect to any Asset Selling Corporation, when expressed in the
relevant local currency at the rate of exchange used to determine Final Working
Capital, is less than the local currency net book value, determined in
accordance with GAAP, of the Conveyed Assets of such Asset Selling Corporation
as of the Closing Date, then the Allocation with respect to such Asset Selling
Corporation shall be adjusted so that it is equal to such local currency net
book value when converted at the rate of exchange used to determine Final
Working Capital, and a corresponding adjustment shall be made to the Allocation
with respect to American Medical Systems, Inc.
(c) The Allocation as modified (if at all) by the foregoing subparagraphs
(a) and (b) shall be known as the "Adjusted Allocation." Each of Pfizer and the
Asset Selling Corporations on the one hand and Purchaser on the other shall (i)
be bound by the Adjusted Allocation and by the Suballocation for purposes of
determining any Taxes, (ii) prepare and file, and cause its Affiliates to
prepare and file, its Tax Returns on a basis consistent with the Adjusted
Allocation and the Suballocation, and (iii) take no position, and cause its
Affiliates to take no position, inconsistent with the Adjusted Allocation or the
Suballocation on any applicable Tax Return or in any proceeding before any
taxing authority or otherwise. In the event that the Adjusted Allocation or the
Suballocation is disputed by any taxing authority, the party receiving notice of
the dispute shall promptly notify the other party hereto concerning
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resolution of the dispute. Pfizer, each of the Asset Selling Corporations and
Purchaser covenant that the Adjusted Allocation and the Suballocation will be
done at arm's length based upon a good faith estimate of fair market values.
ARTICLE III
CLOSING
Section 3.1. Closing.
(a) The Closing shall take place at the offices of Kaye, Scholer, Fierman,
Hays & Handler, LLP, 425 Park Avenue, New York, New York 10022 at 10:00
A.M., New York time, on the fifth (5th) Business Day following the
satisfaction or waiver of the conditions precedent specified in Article IV
(other than the conditions to be satisfied on the Closing Date, but
subject to the waiver or satisfaction of such conditions), or at such
other time and place as the parties hereto may mutually agree; provided,
however, that the Closing shall not occur later than the date specified in
Section 9.1(c) of this Agreement. The date on which the Closing occurs is
called the "Closing Date." The Closing shall be deemed to occur and be
effective as of the close of business on the Closing Date.
(b) At the Closing, Pfizer shall deliver or cause to be delivered to
Purchaser the instruments and documents set forth in Exhibit A hereto and the
annexes to such Exhibit.
(c) At the Closing, Purchaser shall deliver to Pfizer, as agent for the
Seller Corporations, the following: (i) the Purchase Price, in immediately
available funds, by wire transfer to one or more accounts in accordance with
written instruction given by Pfizer to Purchaser not less than two (2) Business
Days prior to the Closing; and (ii) the instruments and documents set forth in
Exhibit B hereto and the annexes to such Exhibit.
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ARTICLE IV
CONDITIONS TO CLOSING
Section 4.1. Conditions to the Obligations of Purchaser and Pfizer. The
respective obligations of each of the parties to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction of the
following conditions precedent:
(a) there shall not (i) be in effect any statute, regulation, order, decree
or judgment which makes illegal or enjoins or prevents in any respect the
consummation of the transactions contemplated by this Agreement, or (ii) have
been commenced, and shall be continuing or threatened, any action or proceeding
by any Governmental Authority which seeks to prevent or enjoin in any respect
the transactions contemplated by this Agreement;
(b) the waiting period required under the HSR Act, including any extensions
thereof, shall have expired and any investigations relating to the
sale hereunder that may have been opened by either the Department of Justice or
the Federal Trade Commission of the United States of America by means of a
request for additional information or otherwise shall have terminated, subject
to Section 7.3(e), and no other waiting period (including any extensions
thereof) under Competition Laws or investigation by a Governmental Authority
relating to the transactions contemplated hereby shall be unexpired or pending
which, in the reasonable opinion of counsel, is likely to result in an action or
proceeding seeking to enjoin the transactions contemplated herein; and
(c) subject to Section 7.3(e), any approvals or actions of any Governmental
Authority having jurisdiction necessary lawfully to consummate the transactions
contemplated hereby shall have been given or taken.
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Section 4.2. Conditions to the Obligations of Purchaser. The obligations of
Purchaser to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction of the following conditions precedent:
(a) The Seller Corporations, taken as a whole, shall have performed in all
material respects their agreements and obligations contained in this Agreement
required to be performed by them at or before the Closing, and the
representations and warranties of Pfizer contained herein shall (i) have been
true and correct in all material respects when made and (ii) be true and correct
in all material respects as of the Closing, as if made as of the Closing (except
for (x) changes permitted by this Agreement or contemplated by the matters
disclosed by Pfizer in the Schedules hereto, (y) changes that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect, and (z) those representations and warranties that address
matters as of a particular date). Purchaser shall have received a certificate
from Pfizer, dated as of the Closing Date and signed by an officer of Pfizer,
certifying as to the fulfillment of the foregoing.
(b) Purchaser shall have received a favorable opinion, dated as of the
Closing Date, from Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel to the
Seller Corporations, in form and substance reasonably satisfactory to Purchaser.
(c) Notwithstanding anything in this Agreement, the consents, waivers,
authorizations and approvals listed on Schedule 4.2(c) shall have been duly
obtained and shall be in full force and effect on the Closing Date.
(d) All certificates, instruments, opinions and other documents required to
be executed or delivered by or on behalf of the Seller Corporations under the
provisions of this Agreement, and all other actions and proceedings required to
be taken by or on behalf of the
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Seller Corporations in furtherance of the transactions contemplated hereby and
thereby, shall be reasonably satisfactory in form and substance to counsel for
Purchaser.
(e) Pfizer shall have made or caused to be made delivery to Purchaser of
the items required by Section 3.1(b).
Notwithstanding the condition specified in clause (c) above, to the extent
that any consent, waiver, authorization or approval specified on Schedule 4.2(c)
relates to the Purchaser's ability to conduct the Business in Europe or Japan in
substantially the same manner as the Business was conducted by the Asset Selling
Corporations prior to the Closing, Pfizer may satisfy such condition by
obtaining an arrangement for a period of 18 months (or less at the option of
Purchaser) to provide Purchaser substantially comparable benefits to those
Purchaser would have enjoyed if such consent, waiver, authorization or approval
had been obtained.
Section 4.3. Conditions to the Obligations of the Seller Corporations. The
obligations of the Seller Corporations to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction of the
following conditions precedent:
(a) Purchaser shall have performed in all material respects its agreements
and obligations contained in this Agreement required to be performed by it at or
before the Closing, and the representations and warranties of Purchaser
contained herein shall (i) have been true and correct in all material respects
when made and (ii) be true and correct in all material respects as of the
Closing, as if made as of the Closing (except for (x) changes permitted by this
Agreement or contemplated by the matters disclosed by Purchaser in the Schedules
hereto, (y) changes that would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect on Purchaser's ability to
perform its obligations under this Agreement, and (z) those representations and
warranties that address matters as of a particular date). Pfizer shall have
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received a certificate from Purchaser, dated as of the Closing Date and signed
by an officer of Purchaser, certifying as to the fulfillment of the foregoing.
(b) The Seller Corporations shall have received a favorable opinion, dated
as of the Closing Date, from Willkie Farr & Gallagher, counsel to Purchaser, in
form and substance reasonably satisfactory to the Seller Corporations.
(c) All certificates, instruments, opinions and other documents required to
be executed or delivered by or on behalf of the Seller Corporations under the
provisions of this Agreement, and all other actions and proceedings required to
be taken by or on behalf of the Seller Corporations in furtherance of the
transactions contemplated hereby and thereby, shall be reasonably satisfactory
in form and substance to counsel for the Seller Corporations.
(d) Purchaser shall have made or caused to be made delivery to Pfizer of
the items required by Section 3.1(c).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PFIZER
Pfizer hereby represents and warrants to Purchaser as follows:
Section 5.1. Organization. Pfizer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each
Asset Selling Corporation is a corporation duly organized, validly existing and,
where applicable, in good standing under the Laws of the jurisdiction of its
organization. Each Seller Corporation is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its business, in each as related to
the business, makes such licensing or qualification necessary, except where the
failure to be so licensed or qualified would not have a Material Adverse Effect.
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Section 5.2. Authority; Binding Effect.
(a) Each of the Seller Corporations has all requisite corporate power and
authority to carry on its business as it is now being conducted and to execute
and deliver this Agreement and, where applicable, the Transaction Documents, and
to perform its obligations hereunder and thereunder. The execution and delivery
by each of the Seller Corporations of this Agreement and, where applicable, the
Transaction Documents, and the performance by each of the Seller Corporations of
its obligations hereunder and thereunder, have been duly authorized by all
requisite corporate action and no other corporate proceedings are required in
connection with the execution, delivery and performance of this Agreement and,
where applicable, the Transaction Documents.
(b) Each Agreement and, where applicable, the Transaction Documents,
constitutes a valid and binding obligation of each of the Seller Corporations,
enforceable against it in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or law).
Section 5.3. Noncontravention. The execution, delivery and performance of
this Agreement and, where applicable, the Transaction Documents, by each of the
Seller Corporations and the consummation of the transactions contemplated hereby
does not and will not (i) violate any provision of the certificate of
incorporation, bylaws or other comparable organizational documents of Pfizer or
any Asset Selling Corporation, as the case may be, (ii) subject to obtaining the
consents referred to in Schedule 5.3, conflict with, or result in the breach of,
or constitute a default under, or result in the termination, cancellation or
acceleration
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(whether after the giving of notice or the lapse of time or both) of any right
or obligation of Pfizer, or any Asset Selling Corporation under, or to a loss of
any benefit of the Business to which Pfizer or any Asset Selling Corporation is
entitled under, any agreement, contract or other instrument to which any Seller
Corporation is a party or to which its assets are subject, (iii) assuming
compliance with the matters set forth in Sections 5.4 and 6.5, violate or result
in a breach of or constitute a default under any Law or other restriction of any
court or Governmental Authority to which any Seller Corporation is subject,
except, with respect to clauses (ii) and (iii), for any violations, conflicts,
defaults, terminations, cancellations or accelerations as will not, individually
or in the aggregate, have a Material Adverse Effect.
Section 5.4. Consents and Approvals of Governmental Authorities. Other than
as set forth in Schedule 5.4, the execution, delivery and performance of this
Agreement and, where applicable, the Transaction Documents, by each of the
Seller Corporations do not require any consent or approval of any Governmental
Authority.
Section 5.5. Financial Information; Books and Records.
(a) Except as set forth in Schedule 5.5, the Financial Statements and the
Deal Balance Sheet have been prepared in accordance with Pfizer's practices,
which are in accordance with GAAP, and present fairly n accordance with such
practices in all material respects, (i) the financial condition, assets and
liabilities of the Business as of the dates therein specified and (ii) in the
case of the Financial Statements the results of operations of the Business for
the periods then ended. All accounts receivable of the Business reflected in the
Financial Statements arose, and those reflected in the Working Capital Statement
will have arisen, from bona fide transactions and the reserves in respect
thereof reflected on the Financial Statements and to be reflected on the Working
Capital Statement, are and will be, respectively, in accordance with
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GAAP and, to the Knowledge of Pfizer, are and will be, respectively, adequate.
The Inventories of the Business reflected in the Financial Statements are, and
those to be reflected on the Working Capital Statement will be, valued at the
lower of cost or market value with allowance for obsolescence, in accordance
with GAAP.
Section 5.6. Absence of Material Changes. Since December 31, 1997, except
to the extent as set forth in Schedule 5.6, there has not been any:
(a) material adverse change in the Conveyed Assets, Assumed Liabilities or
results of operations of the Business;
(b) damage, destruction, condemnation, loss (whether or not covered by
insurance) or other event that would reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect;
(c) sale, lease, license, abandonment or other disposition by any of the
Seller Corporations of any assets material to the Business, except in the
ordinary course of the business of the Business consistent with prior practices;
or
(d) increase or enhancement of the compensation or benefits of the
Employees, other than in the ordinary course of the business of the Business
consistent with prior practices.
Section 5.7. No Litigation. Except as may be set forth on Schedule 5.7, as
of the date hereof, no litigation, investigation or proceeding by or before any
court or Governmental Authority or arbitrator is pending or, to the Knowledge of
Pfizer, threatened in writing against any Seller Corporation which would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
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Section 5.8. Compliance with Laws. Except with respect to Environmental
Laws (which are the subject of Section 5.10) and Product Registrations (which
are the subject of Section 5.9), and except as to matters otherwise set forth in
the Agreement or set forth in Schedule 5.8:
(a) each Seller Corporation is in compliance in all material respects with
all Laws applicable to the ownership or operation of the Conveyed Assets and the
Business, except to the extent that the failure to comply therewith would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect; and
(b) each Seller Corporation possesses all governmental permits, licenses
and authorizations necessary for the conduct of the Business as it is currently
conducted, except where the failure to possess such permit, license or
authorization would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
Section 5.9. Product Registrations; Regulatory Compliance. Except with
respect to Environmental Permits (which are the subject of Section 5.10):
(a) Schedule 5.9 sets forth, as of the date hereof, a list of all licenses,
permits, approvals and similar authorizations granted to Pfizer or any of its
Affiliates by or pending with any Governmental Authority in any particular
country to market any product of the Business (the "Product Registrations"). All
the Product Registrations are in full force and effect, except where the failure
to have any Product Registration in effect would not result in a Material
Adverse Effect on the Business. To the Knowledge of Pfizer, no Seller
Corporation has received any written notice of revocation of any Product
Registration;
(b) except as set forth in Schedule 5.9, to the Knowledge of Pfizer, all
products sold under the Product Registrations are manufactured and marketed in
accordance with
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the specifications and standards contained in such Product Registrations, except
where the failure to comply therewith would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect;
(c) except as set forth in Schedule 5.9, an Asset Selling Corporation is
the sole and exclusive owner of the Product Registrations and has not granted
any right of reference with respect thereto; and
(d) to the Knowledge of Pfizer (i) there are no open notices, citations, or
decisions by any Governmental Authority that any product designed, produced,
manufactured, sold, marketed or distributed by any Asset Selling Corporation is
defective or fails to meet any applicable standards promulgated by such
Governmental Authority and (ii) no such notices, citations or decisions have
been initiated since January 1, 1998. Since January 1, 1993 the Asset Selling
Corporations have complied in all material respects with the Laws relating to
design, manufacturing or sales of products of the Business except where the
failure to comply therewith would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect.
Section 5.10. Environmental Matters. Except as set forth in Schedule 5.10:
(a) the Facilities (i) are in compliance with all applicable Environmental
Laws and/or Environmental Permits, and (ii) none of the Facilities are
undertaking, nor has any Seller Corporation received notice that they are
subject to, Remedial Action or enforcement action under any or all applicable
Environmental Laws and/or Environmental Permits, except for such non-compliance,
Remedial Actions or enforcement actions that individually or in the aggregate
would not reasonably be expected to have a Material Adverse Effect;
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(b) the Business has obtained all Environmental Permits required under all
applicable Environmental Laws in relation to the Facilities, except for such
failures as individually or in the aggregate would not reasonably be expected to
have a Material Adverse Effect;
(c) no claims have been made or threatened that would reasonably be
expected to result in Environmental Liability with a Material Adverse Effect and
arising from or as a result of: (i) on-site exposures to Hazardous Substances at
the Facilities; (ii) Releases of Hazardous Substances at or from any Facilities;
(iii) off-site treatment, storage or disposal of Hazardous Substances from the
Facilities; (iv) the handling of products by employees of others or by the
release of products into the environment as a result of treatment, storage or
disposal from the Facilities; or (v) non-compliance with any Environmental Law
at any of the Facilities.
Section 5.11. Material Contracts.
(a) Except for agreements entered into after the date hereof in the
ordinary course of business consistent with prior practices, or as set forth on
Schedule 5.11 (the "Material Contracts"), no Asset Selling Corporation is a
party to or bound by:
(i) any contract, agreement or other arrangement for the purchase
of Inventories, or other personal property with any supplier or for the
furnishing of services to the Business other than clinical study agreements (A)
providing for financial commitments in excess of $50,000 and extending beyond
one year from the date hereof or (B) providing for financial commitments in
excess of $100,000;
(ii) any contract, agreement or other arrangement for the sale of
Inventories or other personal property or for the furnishing of services by the
Business with firm commitments in excess of three years from the date hereof;
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(iii) any broker, distributor, dealer, manufacturer's representative,
franchise or agency agreements related to the Business the terms of which
provide for financial commitments in excess of $100,000;
(iv) any contracts or agreements relating to indebtedness for borrowed
money, factoring arrangements, sale and leaseback transactions, deferred
purchase price of property and other similar financing transactions relating to
the Business with respect to which an Asset Selling Corporation is an obligor in
excess of $100,000;
(v) any research and development agreements relating to the Business the
terms of which provide for aggregate commitments to be paid by or to an Asset
Selling Corporation in excess of $100,000; and
(vi) any agreement entered into since March 1, 1995 providing for the
acquisition or disposition of any Conveyed Asset and having an aggregate value
in excess of $1,000,000, other than the sale of Inventories in the ordinary
course of business of the Business consistent with past practice or the sale of
obsolete equipment; and
(vii) any lease or occupancy agreement for any portion of the Real
Property.
(b) Except as disclosed in Schedule 5.11, (i) each Material Contract is
valid and binding on the Asset Selling Corporation that is a party thereto, and
to the Knowledge of Pfizer, the other party thereto, and is in full force and
effect, and (ii) no Asset Selling Corporation is in breach of, or default under,
any such Material Contract, which breach or default would reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect.
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(c) Except for agreements entered into after the date hereof in the
ordinary course of business of the Business consistent with prior practices,
Schedule 5.11(e) identifies all suppliers of production materials related to the
Business.
Section 5.12. Intellectual Property. (a) Each Asset Selling Corporation
owns or has the valid right to use all of the Intellectual Property used by it
in connection with the Business. Except as set forth in Schedule 5.12(a) or
5.12(c), there is no claim in writing, suit, action or proceeding pending or, to
the Knowledge of Pfizer, threatened in writing against any Seller Corporations:
(i) alleging any conflict or infringement with any third party's proprietary
rights in the conduct of the Business; or (ii) challenging the Seller
Corporations' ownership, use, validity or enforceability of the Intellectual
Property used in the conduct of the Business.
(b) Schedule 5.12(b) sets forth a complete list of patents and trademark
registrations or applications therefore pertaining to the Intellectual Property
owned or licensed to any Asset Selling Corporation and used by it in connection
with the Business and the relevant jurisdictions. Except as described in
Schedule 5.12(b), all Intellectual Property listed therein is owned by a Seller
Corporation, free and clear of all liens and other encumbrances or claims of any
nature. All renewal fees and other maintenance fees on the Intellectual Property
listed on Schedule 5.12(b) that have fallen due on or prior to the date of this
Agreement have been paid. Except as listed in Schedule 5.12(b), no listed
application or registration/patent is the subject of any legal or governmental
proceeding before any governmental, regulatory or other authority in any
jurisdiction.
(c) Schedule 5.12(c) sets forth a complete list of all: (i) licenses,
sublicenses, and other agreements in which any Seller Corporation grants rights
to any person to use the Patent Rights or Trademark Rights relating to the
Business; and (ii) consents, indemnifications,
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forebearances to sue, settlement agreements or cross-licensing arrangements
relating to Patent Rights or Trademark Rights relating to the Business of any
third party to which a Seller Corporation is a party. Except as set forth in
Schedule 5.12(c), no Seller Corporation is under any obligation to pay royalties
or similar payments in connection with any license as a result of the execution
and delivery of this Agreement or the performance of its obligations under this
Agreement or in breach of any license, sublicense or other agreement relating to
the Intellectual Property owned or licensed to any Asset Selling Corporation and
used by it in connection with the Business.
(d) Except as set forth on Schedule 5.12(d), each Seller Corporation owns
or has the right to use all computer software, software systems and databases
currently used by it in the Business.
(e) To the Knowledge of Pfizer, no former or present employee, officer or
director of any Seller Corporation holds any material right, title or interest
in or to any Intellectual Property used in connection with the Business.
Section 5.13. Real Property.
(a) Schedule 5.13(a) sets forth all of the real property owned in fee by
any of the Asset Selling Corporations and used primarily in connection with the
Business (collectively, the "Real Property") and prior to Closing will set forth
a description of any title insurance policies and surveys related thereto.
Except as set forth on Schedule 5.13(a), the Real Property is free and clear of
any and all Liens, other than Permitted Encumbrances.
(b) No Taxes or special assessments of any kind are or have been levied
with respect to the Real Property, or any portion thereof, which are outstanding
or unpaid, other than amounts not yet due and payable.
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(c) American Medical Systems, Inc. is not a "foreign person"
within the meaning of Section 1445 of the Code.
(d) Schedule 2.1(a) sets forth all of the Real Property
Leases.
Section 5.14. Assets. Except as set forth on Schedule 5.14 or as
otherwise provided in this Agreement, each Asset Selling Corporation owns,
leases or has the legal right to use all of its Conveyed Assets (other than
Intellectual Property and Real Property, which are the subject of Sections 5.12
and 5.13). Except as disclosed on Schedule 5.14, each Asset Selling Corporation
has good and marketable title to (or in the case of leased Conveyed Assets,
valid leasehold interests in) all its Conveyed Assets (other than Intellectual
Property and Real Property, which are the subject of Sections 5.12 and 5.13,
respectively).
Section 5.15. Taxes. Except as set forth in Schedule 5.15, (a)
all material Tax Returns that are required to be filed on or before the date
hereof by or on behalf of each Asset Selling Corporation have been filed and (b)
all material Taxes due and payable with respect to periods covered by such Tax
Returns have been paid. There are no material Liens for Taxes upon any of the
assets of the Business, except for Permitted Encumbrances. Except as set forth
on Schedule 5.15, no Tax Return that includes any Asset Selling Corporation is
currently being examined by any taxing authority and there are no outstanding
agreements or waivers extending the statute of limitations applicable to any
such Tax Return. Pfizer and each of the Asset Selling Corporations have withheld
and paid all material Taxes related to the Conveyed Assets and the Business that
are required to be withheld with respect to amounts paid or owing to any
employee, creditor, independent contractor or other third party. None of the
Conveyed Assets is "tax-exempt use property" within the meaning of Section
168(h) of the Code.
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Section 5.16. Employee Benefits.
(a) Set forth on Schedule 7.5(a) is a list of each Plan and
Foreign Plan in effect as of the date of this Agreement.
(b) As applicable with respect to each Plan and Foreign Plan,
Pfizer has made available to Purchaser, true, correct and complete copies of (i)
each Plan and Foreign Plan, including all amendments thereto, (ii) the current
summary plan description and each summary of material modifications thereto,
(iii) the most recent IRS determination letter and (iv) the actuarial and
financial reports for the Retirement Plan.
(c) Each Plan has been maintained, operated and administered
in compliance in all respects with its terms and the applicable provisions of
ERISA and the Code except where such noncompliance would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
(d) Each Foreign Plan has been maintained, operated and
administered in compliance in all respects with its terms and the applicable
laws of the relevant jurisdiction except where such noncompliance would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
(e) Each Pfizer Qualified Plan has been determined by the IRS
to be qualified under Section 401 of the Code and exempt from Federal income
taxation under Section 501 of the Code, and nothing has occurred with respect to
the operation of any such plan that could reasonably result in the loss of such
qualification or tax exemption.
(f) All contributions (including all employer contributions
and employee salary reduction contributions) required to have been made under
the Pfizer Qualified Plans or by Law (without regard to any waivers granted
under Section 412 of the Code) to any funds or
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trusts established thereunder or in connection therewith have been made by the
due date thereof (including any valid extension), and all contributions for any
period ending on or before the Closing Date which are not yet due will have been
paid or accrued on or prior to the Closing Date.
(g) There are no material pending actions, claims or lawsuits
which have been asserted or instituted against the Pfizer Qualified Plans, the
assets of any of the trusts under such plans or the plan sponsor or the plan
administrator, or against any fiduciary of such plans with respect to the
operation of such plans (other than routine benefit claims), nor do the Seller
Corporations have knowledge of facts which could reasonably form the basis for
any such claim or lawsuit.
Section 5.17. Brokers. Except for Morgan Stanley & Co.
Incorporated and Lazard Freres & Co. LLC, no broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Seller Corporations. Pfizer is solely responsible
for the fees and expenses of Morgan Stanley & Co. Incorporated and Lazard Freres
& Co. LLC.
Section 5.18. Entire Business. Except as set forth in Schedule
5.18, the Conveyed Assets, together with the rights and services to be made
available in the Transitional Services Agreement and the Transitional
Intellectual Property License Agreement, will constitute as of the Closing Date
sufficient assets, properties and rights necessary to conduct the Business in
all material respects as currently conducted.
Section 5.19. No Undisclosed Liability. There are no Assumed
Liabilities required to be reflected on a balance sheet of the Business included
in the Financial Statements,
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prepared in accordance with GAAP, other than Liabilities (i) reflected or
reserved against on the balance sheet included in the Financial Statements, (ii)
disclosed in a Schedule hereto or (iii) incurred since December 31, 1997 in the
ordinary course of business of the Business consistent with past practice, which
Liabilities, individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect. Reserves required to be reflected on a
balance sheet of the Business as of December 31, 1997 prepared in accordance
with GAAP are reflected in accordance with GAAP on the balance sheet as of
December 31, 1997 included in the Financial Statements and have been established
on a basis consistent with the past practice of the Asset Selling Corporations.
Section 5.20. Product Recall. Except as disclosed in Schedule
5.20, there has not been initiated, since January 1, 1996, any product recall of
any product manufactured, shipped or sold by the Asset Selling Corporations.
Section 5.21. Suppliers. Schedule 5.21 lists the names and
addresses of the ten most significant suppliers by revenue from which the Seller
Corporations ordered raw materials, supplies, merchandise and other goods to
manufacture products of the Business during the period from January 1, 1997
through July 15, 1998, showing, with respect to each such supplier, the
approximate total volume in U.S. dollars for which each such supplier was
invoiced during such period. None of the Seller Corporations has received any
written notice that any such supplier will not sell raw materials, supplies,
merchandise and other goods to the Seller Corporations.
Section 5.22. Customers and Distributors. Schedule 5.22 sets
forth a complete and correct list of (a) all customers whose purchases exceeds
two percent (2%) of the aggregate net sales of the Business during the twelve
month period ending on June 30, 1998 (the "Relevant Period"), and (b) all
distributors whose purchases exceed 2% of the aggregate net sales of the
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Business during the Relevant Period. Except as set forth in Schedule 5.22, none
of such customers or distributors has given written notice to a Seller
Corporation that it intends to terminate its relationship with the Business.
Section 5.23. Foreign Corrupt Practices Act. The Seller
Corporations and their respective directors, officers, employees, agents and
representatives have fully complied with the provisions of the Foreign Corrupt
Practices Act of 1977, as amended. Without limiting the generality of the
foregoing, neither the Seller Corporation nor any of their directors, officers,
employees, agents or representatives has directly or indirectly paid, offered or
promised to pay or authorized the payment of any funds to a political party or
candidate for political office for the purpose of influencing any act or
decision of such official or government to obtain any license, business or other
benefit for the Seller Corporations.
Section 5.24. Labor Matters.
(a) None of the Employees are represented by any labor
organization or covered by any collective bargaining agreement with the Seller
Corporations. No labor organization or group of Employees has made a pending
demand for recognition or certification, and there are no representation or
certification proceedings presently pending or, to the Knowledge of Pfizer,
threatened to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority.
(b) Since January 1, 1997, there have been no strikes, work
stoppages, slowdowns, lockouts, material arbitrations or material grievances or
other material labor disputes or, to the Knowledge of Pfizer, threatened against
or involving the Seller Corporations with respect to the Employees.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Pfizer as follows:
Section 6.1. Organization and Qualification. Purchaser is a
corporation duly organized, validly existing and in good standing under the Laws
of the State of Delaware.
Section 6.2. Corporate Authorization. Purchaser has all requisite
corporate power and authority to execute and deliver this Agreement, and to
perform its obligations hereunder. The execution, delivery and performance by
Purchaser of the Transaction Documents have been duly authorized by all
requisite corporate action on the part of Purchaser and no other corporate
proceedings on the part of Purchaser are required in connection with the
execution, delivery and performance by Purchaser of the Transaction Documents.
Section 6.3. Binding Effect. The Transaction Documents constitute
valid and binding obligations of Purchaser, enforceable against Purchaser in
accordance with their terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar Laws affecting creditors'
rights generally or by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or law).
Section 6.4. Non-Contravention. The execution, delivery and
performance by Purchaser of the Transaction Documents, and the consummation of
the transactions contemplated thereby, do not and will not (i) violate any
provision of the certificate of incorporation, bylaws or other organizational
documents of Purchaser, or (ii) assuming compliance with the matters set forth
in Sections 5.4 and 6.5, violate or result in a breach of or constitute a
default under any Law or other restriction of any court or Governmental
Authority to which Purchaser is subject.
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Section 6.5. Purchaser Consents and Approvals. Except as set
forth in Schedule 6.5, and in reliance on Schedule 5.4, the execution and
delivery of this Agreement by Purchaser do not and will not require any material
consent or approval of any Governmental Authority.
Section 6.6. Financial Capability. On the Closing Date, Purchaser
will have sufficient funds to make the Aggregate Payment on the terms and
conditions contemplated by this Agreement.
Section 6.7. Condition of Conveyed Assets. Purchaser and its
representatives and agents have had and exercised, prior to the date hereof, the
right to enter upon the Real Property and Leased Real Property and to make all
inspections and investigations of the Business and the Conveyed Assets deemed
necessary or desirable by Purchaser. Purchaser is purchasing the Conveyed Assets
on the basis of its inspections and investigations and the terms and provisions
hereof. In light of these inspections and investigations and the representations
and warranties made to Purchaser by Pfizer in Article V hereof, Purchaser is
relinquishing any right to any claim based on any representations and warranties
other than those specifically included in Article V hereof. Any claims Purchaser
may have for breach of representation or warranty shall be based solely on the
representations and warranties of Pfizer set forth in Article V hereof.
Purchaser further represents that neither any of the Seller Corporations nor any
other Person has made any representation or warranty, express or implied, as to
the accuracy or completeness of any information regarding any of the Seller
Corporations, the Business, the Conveyed Assets or the Assumed Liabilities not
expressly set forth in this Agreement, and neither Pfizer nor any other Person
will have or be subject to any liability to Purchaser or any other Person
resulting from the distribution to Purchaser or its representatives or
Purchaser's use of, any such
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information, including, without limitation, the confidential memorandum
distributed by Morgan Stanley & Co. Incorporated, relating to the Business, any
other offering memorandum or other publication provided to Purchaser or its
representatives, or any other document or information provided to Purchaser or
its representatives in connection with the sale of the Business.
Section 6.8. Brokers. No broker, finder or investment banker
other than Piper Jaffray Inc. is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Purchaser. Purchaser
will pay the fees of Piper Jaffray Inc.
ARTICLE VII
COVENANTS
Section 7.1. Information and Documents. From and after the date
hereof and pending Closing, upon reasonable advance notice, the Seller
Corporations shall permit Purchaser and its representatives to have access,
during regular business hours, to the assets, employees, books and records of
the Seller Corporations relating to the Business, and shall furnish, or cause to
be furnished, to Purchaser such financial, Tax and operating data and other
available information with respect to the Business as Purchaser shall from time
to time reasonably request; provided, that no such access shall unreasonably
interfere with the Selling Corporations' operation of their respective
businesses, including, without limitation, the Business; provided further, that
all information received by Purchaser and given by or on behalf of the Seller
Corporations, in connection with this Agreement and the transactions
contemplated hereby will be held by Purchaser and its Affiliates, agents and
representatives as Information, as defined in, and pursuant to the terms of, the
Confidentiality Agreement.
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Section 7.2. Conduct of Business. From and after the date hereof
and to Closing, except as otherwise contemplated by this Agreement or as
Purchaser shall otherwise consent in writing, which consent shall not be
unreasonably withheld, Pfizer agrees that it will conduct the Business, and will
cause the Business to be conducted, in the ordinary and usual course consistent
with past practice and in compliance with all applicable Laws (it being
understood that Schneider G.m.b.H. may transfer assets which may constitute
Conveyed Assets to a Subsidiary of Pfizer which will transfer such Conveyed
Assets to the Purchaser at the Closing), and use its reasonable best efforts to
preserve intact the Business and related relationships with customers, suppliers
and other third parties having a business relationship with it and keep
available the services of the present Employees. From and after the date hereof
and to Closing, except as otherwise contemplated by this Agreement, as Purchaser
shall otherwise consent in writing, which consent shall not be unreasonably
withheld, and except as may be necessary to remove the Excluded Assets, Pfizer
covenants and agrees that it shall cause the Asset Selling Corporations, in each
case with respect to the Business, to:
(a) maintain insurance coverage at levels consistent with
presently existing levels so long as such insurance is available at commercially
reasonable rates;
(b) not incur, create or assume any Lien with respect to any
material Conveyed Asset other than Permitted Encumbrances;
(c) not acquire or dispose of any Conveyed Asset outside of
the ordinary course of business consistent with past practice;
(d) not amend any term of, or waive any right under, any
Material Contract; and
(e) not agree to take any of the foregoing actions.
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Section 7.3. Reasonable Best Efforts; Certain Governmental
Matters.
(a) Upon the terms and subject to the conditions herein
provided (including, without limitation, Section 2.2 hereof), each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary for it to
do under applicable Laws to consummate and make effective the transactions and
to provide to the parties the other benefits contemplated by this Agreement,
including, without limitation, (i) to comply promptly with all legal
requirements which may be imposed on it with respect to this Agreement and the
transactions contemplated hereby (which actions shall include, without
limitation, furnishing all information required by applicable Law in connection
with approvals of or filings with any Governmental Authority), (ii) to satisfy
the conditions precedent to the obligations of such party hereto, (iii) to
obtain any consent, authorization, order or approval of, or any exemption by,
any Governmental Authority or other public or private third-party required to be
obtained or made by Purchaser or a Seller Corporation in connection with the
acquisition of the Conveyed Assets or the taking of any action contemplated by
this Agreement, (iv) to effect all necessary registrations, filings and
notifications including, without limitation, all materials required under
Environmental Laws and Governmental Authorizations and all transfer requests
required for Environmental Permits and Governmental Authorizations, and (v) to
take any action reasonably necessary vigorously to defend, lift, mitigate or
rescind the effect of any litigation or administrative proceeding adversely
affecting the consummation of the acquisition of the Conveyed Assets or the
transactions contemplated by this Agreement, including promptly appealing any
adverse court or administrative decision.
(b) Subject to appropriate confidentiality protections, each
of the parties hereto will furnish to the other party such necessary information
and reasonable assistance as
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such other party may reasonably request in connection with the foregoing and
will provide the other party with copies of all filings made by such party with
any Governmental Authority and, upon request, any other information supplied by
such party to a Governmental Authority in connection with this Agreement and the
transactions contemplated hereby.
(c) Without limiting the generality of the undertakings
pursuant to this Section 7.3, Purchaser and Pfizer agree to take or cause to be
taken the following actions: (i) provide promptly to Governmental Authorities
with regulatory jurisdiction over enforcement of any applicable Competition Laws
("Governmental Antitrust Entity") information and documents requested by any
Government Antitrust Entity or necessary, proper or advisable to permit
consummation of the acquisition of the Conveyed Assets and the transactions
contemplated by this Agreement; (ii) without in any way limiting the other
provisions of this Section 7.3, file any notification and report form and
related material required under the HSR Act as soon as practicable and in any
event not later than five (5) Business Days after the date hereof, and
thereafter use its reasonable efforts to certify as soon as practicable its
substantial compliance with any requests for additional information or
documentary material that may be made under the HSR Act; (iii) the proffer by
Purchaser of its willingness to (A) sell or otherwise dispose of, or hold
separate and agree to sell or otherwise dispose of specific assets or categories
of assets or businesses of the Conveyed Assets or any of Purchaser's other
assets or businesses now owned or presently or hereafter sought to be acquired
by Purchaser, (B) terminate any existing relationships and contractual rights
and obligations, and (C) amend or terminate such existing licenses or other
intellectual property agreements and to enter into such new licenses or other
intellectual property agreements (and, in each case, to enter into agreements
with the relevant Governmental Antitrust Entity giving effect thereto) in each
case with respect to the foregoing
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clause (A), (B) or (C) if such action is necessary or reasonably advisable to
obtain approval or consummation of the transactions contemplated by the
Agreement by any Governmental Antitrust Entity; and (iv) Purchaser shall take
promptly, in the event that any permanent or preliminary injunction or other
order is entered or becomes reasonably foreseeable to be entered in any
proceeding that would make consummation of the acquisition of the Conveyed
Assets and the transactions contemplated hereby in accordance with the terms of
this Agreement unlawful or that would prevent or delay consummation of the
acquisition of the Conveyed Assets or the other transactions contemplated by
this Agreement, any and all steps (including the appeal thereof, the posting of
a bond or the taking of the steps contemplated by clause (iii) of this
subsection (c)) necessary to vacate, modify or suspend such injunction or order
so as to permit such consummation on a schedule as close as possible to that
contemplated by this Agreement. Each of Pfizer and the Purchaser will provide to
the other copies of all correspondence between it (or its advisor) and any
Government Antitrust Entity relating to acquisition of the Conveyed Assets or
any of the matters described in this Section 7.3. Pfizer and the Purchaser agree
that all telephone calls and meetings with a Government Antitrust Entity
regarding the acquisition of the Conveyed Assets or any of the matters described
in this Section 7.3 shall include representatives of Pfizer and the Purchaser.
(d) The parties expressly agree: (i) that any breach by
Purchaser of its obligations under Section 7.3(c) will cause irreparable harm to
the Seller Corporations; (ii) that the Seller Corporations have agreed to this
transaction with Purchaser in specific reliance on Purchaser's obligations under
Section 7.3(c), and would not have otherwise agreed to go forward with
Purchaser; and (iii) therefore, the Seller Corporations are entitled to specific
performance of Purchaser's obligations under Section 7.3(c), and Purchaser
hereby agrees in advance to the
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granting of such specific performance of such obligations without proof of
actual damages or harm.
(e) In the event an approval or action of a Governmental
Authority (other than a Governmental Authority of the United States of America
(or any state or subdivision thereof)) having jurisdiction that is necessary
lawfully to consummate the transactions contemplated hereby is not obtained on
or prior to the Closing Date, Pfizer and the Purchaser agree to effect Closing
(including payment of the Purchase Price), subject to the terms of this
Agreement, with respect to all Conveyed Assets and Assumed Liabilities outside
of the jurisdiction of any such Governmental Authority; provided, however, that
the obligations of the parties hereto set forth in this Section 7.3 shall
continue with respect to any such approval or action until such approval or
action is given or taken, as the case may be, and upon the occurrence of such
approval or action, the parties hereto shall effect transfer of the effected
Conveyed Assets and Assumed Liabilities in accordance with the Foreign
Implementing Agreements for the jurisdiction relating thereto. Each such
transfer, upon occurrence, shall be retroactive to and be deemed to have
occurred on the Closing Date.
Section 7.4. Tax Matters.
(a) Preparation and Filing of Tax Returns. Pfizer shall
prepare and timely file or shall cause to be prepared and timely filed all Tax
Returns in respect of the Asset Selling Corporations, their assets or activities
that (i) are required to be filed (taking into account extensions) on or before
the Closing Date, (ii) are required to be filed (taking into account extensions)
after the Closing Date and (A) are Consolidated Tax Returns of Pfizer and its
Affiliates, or (B) are with respect to Income Taxes and are required to be filed
on a separate Tax Return basis for any tax period ending on or before the
Closing Date, or (C) are to be filed by an
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Asset Selling Corporation, or (iii) to the extent not described in clauses (i)
or (ii) above, otherwise relate to any Retained Liability. Purchaser shall
prepare or cause to be prepared and shall file or cause to be filed all other
Tax Returns required to be filed after the Closing Date with respect to Taxes
that constitute Assumed Liabilities.
(b) Payment of Taxes.
(i) Pfizer shall pay or cause to be paid (A) all Taxes
due with respect to Tax Returns which Pfizer is obligated to prepare and
file or cause to be prepared and filed pursuant to Section 7.4(a) and (B)
to the extent not described in the preceding clause, all Taxes that
constitute Retained Liabilities. Purchaser shall pay or cause to be paid
all Taxes due with respect to separate Tax Returns which Purchaser is
obligated to prepare and file or cause to be prepared and filed pursuant to
Section 7.4(a) other than Taxes which Pfizer shall pay or cause to be paid
in accordance with the preceding sentence.
(ii) All Taxes (including, without limitation, any
value added Taxes but excluding any Income Taxes) and fees relating to the
transfer of the Conveyed Assets shall be paid by the person liable therefor
but the liability for such Taxes as between the Seller Corporations and
Purchaser shall be borne as follows: (x) in respect of any such Taxes
relating to the transfer of Real Property or any interest therein, by
Purchaser; (y) in respect of any such Taxes which are refundable or in
respect of which a credit is or becomes available, by Purchaser; and (z) in
respect of any other such Taxes not falling within subsection (x) or (y)
above, equally by the Seller Corporations on the one hand and Purchaser on
the other hand, provided that if any such Tax or any other Tax from which
there is otherwise an exemption becomes payable as a result of an action by
or
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omission of the Purchaser, including, without limitation, changing the
nature of the Business or part thereof transferred or failing to register
or become liable for value added Tax or causing a significant break in the
conduct of the Business or part thereof transferred, such Tax shall be
borne by the Purchaser solely. The Seller Corporations and Purchaser, as
the case may be, will on demand reimburse the other for its share of any
such Taxes paid by the other in accordance with the foregoing provisions of
this Section.
(iii) Real and personal property Taxes and assessments
on the Conveyed Assets for any taxable period commencing prior to the
Closing Date and ending after the Closing Date shall be prorated on a per
diem basis between Purchaser and the Seller Corporations as of the Closing
Date. All such prorations shall be allocated so that items relating to time
periods ending on or prior to the Closing Date shall be allocated to the
Seller Corporations and items relating to time periods beginning after the
Closing Date shall be allocated to Purchaser. The amount of all such
prorations shall be settled and paid on the Closing Date, provided that
final payments with respect to prorations that are not able to be
calculated as of the Closing Date shall be calculated and paid as soon as
practicable thereafter. If any of the real or personal property tax rates
for the current taxable period are not established by the Closing Date, the
prorations shall be made on the basis of the rate in effect for the
preceding taxable period, and such proration shall be adjusted upon
presentation of written evidence by Purchaser that the actual taxes paid
differ from the amount assumed on the Closing Date. (c) Refunds. Pfizer
shall be entitled to retain, or receive immediate payment from Purchaser or
any of its Subsidiaries or Affiliates of, any refund or credit with respect
to Taxes (including, without limitation, refunds and credits arising by
reason of amended Tax
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Returns filed after the Closing Date or otherwise) with respect to any Tax that
constitutes a Retained Liability.
(d) Tax Cooperation. Each of Purchaser and Pfizer shall
provide the other party with such information and records and make such of its
officers, directors, employees and agents available as may reasonably be
requested by such other party in connection with the preparation of any Tax
Return or any audit or other proceeding that relates to the Asset Selling
Corporations. Purchaser shall within the earlier to occur of sixty (60) days
after Pfizer's year-end, and one hundred twenty (120) days after the Closing
Date, prepare the tax work paper preparation package or packages necessary to
enable Pfizer to prepare Tax Returns Pfizer is obligated to prepare or cause to
be prepared.
Section 7.5. Employees and Employee Benefits.
(a) Employees (US) - Offer of Employment; Continued
Employment; Severance. Purchaser agrees to offer employment as of 12:01 a.m. on
the day immediately following the Closing Date to each Employee (US) in the same
or a comparable position and, for the relevant periods set forth hereafter, at a
rate of pay at least equal to such employee's rate of pay in effect on the
Closing Date and with benefits which shall be substantially comparable, in the
aggregate, to the employee benefits as set forth in Schedule 7.5(a), and
identical to such other benefits as are set forth in the Employee Severance
Program in Schedule 7.5(a)(i). The benefits set forth in Schedule 7.5(a)(iii)
shall be deemed to satisfy the substantial comparability requirement with
respect to benefits for Employees (US). For purposes of this Section 7.5,
references to "rate of pay" for nonexempt employees shall be the rate of pay as
in effect on the Closing Date. For exempt employees on a total compensation,
nonvariable pay arrangement, "rate of pay" shall be, at the election of the
employee, either (i) the rate of pay (base and bonus) as in effect on the
Closing Date; or (ii) an incentive compensation arrangement provided by
Purchaser which provides earnings potential at least equal to or greater than
the employee's rate of pay (base and bonus)
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as in effect on the Closing Date. For exempt employees on the Pfizer Annual
Incentive Plan (variable compensation program) "rate of pay" shall be at the
election of the employee, either (i) the employee's base salary as in effect on
the Closing Date and continuation of the target bonus and bonus range as in
effect on the Closing Date; or (ii) an incentive compensation arrangement
provided by Purchaser which provides earnings potential at least equal to or
greater than the employee's rate of pay (base and bonus) as in effect on the
Closing Date. For exempt employees on a sales commission arrangement, "rate of
pay" shall be the employee's base salary and continuation of a quota arrangement
and commission program which shall provide earnings potential at least equal to
or greater than the employee's total earnings potential on the Closing Date.
Such employment shall be at a location within a twenty-five (25) mile radius of
such employee's location of employment as of the Closing Date (which, in the
case of a sales employee, shall mean such employee's sales territory on the
Closing Date). Schedule 7.5(a)(ii) (which shall be updated by Pfizer on the
Closing Date) shall set forth the name of each Employee (US), and his or her
current rate of pay (as defined above), position and date of hire. Except with
respect to Employees (non-US) as provided for in Section 7.5(e), Purchaser shall
have no obligation whatsoever with regard to (i) former employees of the
Business who are retired or are on long-term disability, or who are not or shall
have ceased to be employees as of or prior to the Closing Date, or (ii)
employees who do not accept the offer of employment given by Purchaser in
accordance with this Section 7.5(a) and do not actively work for Purchaser or
its Affiliates for at least one day, unless such employee is otherwise an
Affected Employee. Purchaser shall be solely responsible for all salaries or
wages (including bonuses,
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incentive payments and commissions) accruing after the Closing Date with respect
to the Affected Employees. Purchaser may, at its discretion, change the
conditions of employment after the Closing Date except for (i) the location
requirement described in this Section 7.5(a), (ii) the pay and benefits
requirements described in this Section 7.5(a), and (iii) the employee separation
plan obligations and other benefits described in Schedule 7.5(a)(i), all of
which matters shall remain unchanged until the date immediately following the
second anniversary of the Closing Date.
Notwithstanding the foregoing sentence, Purchaser may, beginning January 1,
2000, require Employees (U.S.) employed by Purchaser to contribute to the cost
of medical and dental benefits as provided by Purchaser in the following
amounts: for "employee only" coverage, 20% of such cost; for all other coverage
categories (employee and spouse; employee and children; employee and family) 25%
of such cost. Purchaser agrees not to change its cost to retirees of medical or
dental coverage as currently charged by Pfizer.
Moreover, with respect to Purchaser's Qualified Retirement Plan and
Purchaser's Non-Qualified Retirement Plan, Purchaser shall provide such benefits
to Employees (US) for a period of no less than three (3) years following the
Closing Date.
Notwithstanding the foregoing, Purchaser or its Affiliates may terminate an
Employee (US) during the two (2) year period immediately following the Closing
Date due to "Performance-Related Terminations" or "Curtailment or Cessation of
Operations/Reorganization /Position Elimination" (as those terms are described
in Exhibit E, the Pfizer Employee Separation Plan) as long as Purchaser or its
Affiliates (i) first offers such employee the opportunity to sign a release
agreement in substantially the form attached hereto as Exhibit F (individual
termination) or Exhibit G (group termination), as appropriate, (ii) pays or
otherwise
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provides severance benefits to such employee in accordance with the Pfizer
Employee Separation Plan and (iii) provides benefits continuation and other
benefits as set forth in Schedule 7.5(a)(i), provided, however, that Purchaser
or its Affiliates may terminate an Employee (US) without paying or otherwise
providing severance benefits to such employee in accordance with such policy and
practice if such employee is terminated, in the reasonable discretion of
Purchaser or its Affiliates, "for cause," as such term is defined in the
Employee Severance Program contained in Schedule 7.5(a)(i). Except with respect
to the Purchaser's obligation to continue its Qualified Retirement Plan and
Non-Qualified Retirement Plan as provided above, notwithstanding anything
further to the contrary herein, on the date immediately following the second
anniversary of the Closing Date, Purchaser shall provide pay and benefits and
severance plans, programs and policies which are no less favorable than those
provided to other similarly situated employees of Purchaser, as the case may be.
Employees shall also be provided credit by the Purchaser for all service with
Pfizer and its Affiliates, to the same extent as such service was credited for
such purpose by Pfizer and its Affiliates, under (x) all employee benefit plans,
programs, policies and fringe benefits of Purchaser described in Schedule
7.5(a)(iii) for purposes of eligibility, vesting and benefit accrual (with such
benefit accrual for purposes of Purchaser's Qualified Retirement Plan,
Purchaser's Qualified Savings Plan and Purchaser's Non-Qualified Plans being
conditioned on asset transfers as provided in Section 7.5(b)) and (y) severance
plans, programs and policies for purposes of calculating the amount of each such
employee's severance benefits. Schedule 7.5(a)(iii) sets forth the employee
benefit plans, programs and policies to be provided by Purchaser to Employees
(US). The provisions of such employee benefit plans, programs and policies shall
mirror the material provisions of the corresponding Pfizer employee benefit
plans, programs and policies.
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Schedule 7.5(a)(iv) sets forth the names of those Employees (US) ("Shared
Services Employees") who provide services to a Pfizer Affiliate pursuant to a
services agreement between Pfizer and such Pfizer Affiliate. Purchaser agrees to
offer employment to Shared Services Employees during the term of the
Transitional Services Agreement and to allow them to perform services for a
Pfizer Affiliate (whether or not such entity remains a Pfizer Affiliate during
the term of the Transitional Services Agreement) pursuant to the Transitional
Services Agreement. Should any such Shared Services Employee be terminated by
Purchaser up to 30 days after termination of the particular service provided by
such Shared Services Employee pursuant to the Transitional Services Agreement in
accordance with its terms or such earlier date as the parties thereto may agree,
Pfizer shall reimburse Purchaser for the severance costs associated with such
termination. Severance costs associated with any Shared Services Employee
terminated subsequent to such thirty (30) day period shall be paid by Purchaser.
(b) Qualified Plans.
(i) Pfizer sponsors the following plans which are intended to be
qualified under Section 401(a) of the Code (collectively, the "Pfizer
Qualified Plans"): the Pfizer Savings and Investment Plan (the "Savings
Plan") and the Pfizer Retirement Annuity Plan (the "Retirement Plan").
Effective as of the Closing Date, the Seller Corporations shall cause each
Affected Employee who is a participant in one or both Pfizer Qualified
Plans to become one hundred percent (100%) vested in his or her accrued
benefit under each such Plan.
(ii) As of 12:01 a.m. of the day immediately following the Closing
Date, Purchaser or its Affiliates shall establish a qualified defined
contribution plan with, without limitation, a 401(k) feature ("Purchaser's
Qualified Savings Plan") for the
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eligible employees of Purchaser. As of such date, all Affected Employees
employed by Purchaser who were eligible to participate in the Savings Plan
shall be eligible to participate in the Purchaser's Qualified Savings Plan
in accordance with the terms of such plan, and all service with Pfizer and
its Affiliates which is recognized under the Savings Plan shall be credited
for eligibility and vesting and other purposes for which service is taken
into account under the Savings Plan. Pfizer shall provide Purchaser with
all information in its possession required by Purchaser to effect such
recognition. As soon as practicable after the Closing Date, Pfizer shall
cause the assets of the trust under the Savings Plan in respect of the
aggregate benefits accrued by Affected Employees employed by Purchaser to
he valued and transferred to the trust under Purchaser's Qualified Savings
Plan; provided, however, no such transfer shall be made until Purchaser
shall have first provided Pfizer with an IRS determination letter or an
opinion of counsel reasonably satisfaction to Pfizer to the effect that
Purchaser's Qualified Savings Plan is qualified, in form, under Section
401(a) of the Code. Each of Purchaser, on the one hand, and Pfizer, on the
other hand, agrees to use its best efforts and to cooperate with the other
to effect as promptly as possible the transfer of assets contemplated under
this Section 7.5(b)(ii). The assets to be transferred from the trust under
the Savings Plan pursuant to this Section 7.5(b)(ii) shall be in cash and
Pfizer common stock or, to the extent mutually agreed to by Pfizer and
Purchaser, a combination of cash, securities and other property; provided,
however, any outstanding loans attributable to the accounts of any Affected
Employees and Pfizer stock shall be transferred in kind. The actual amount
transferred from the trust under the Savings Plan shall be adjusted to
reflect any normal expenses properly attributable to the accounts of
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all Affected Employees under the Savings Plan during the period following
the Closing Date. At the time the assets that are held in the trust with
respect to Affected Employees under the Savings Plan are paid to the trust
under Purchaser's Qualified Savings Plan, Purchaser's Qualified Savings
Plan shall assume all liabilities of the Savings Plan for the applicable
benefits thereunder, and such transfer shall be in full discharge of all
obligations of the Savings Plan in respect thereof; provided, however,
Purchaser and Purchaser's Qualified Savings Plan shall assume no liability
for the pre-transfer calculation or valuation of the assets that are
transferred from the Savings Plan, any matters relating to the operation or
administration of the Savings Plan or any violation of ERISA or the Code by
the fiduciaries of the Savings Plan. During the period following the
Closing Date and preceding the transfer of assets and liabilities pursuant
to this Section 7.5(b)(ii), Purchaser will cooperate with and assist Pfizer
or its designee in collecting and remitting to the trustee of the Savings
Plan payroll deductions relating to any outstanding loans from the Savings
Plan on behalf of Affected Employees. Notwithstanding the above, the amount
transferred to Purchaser's Qualified Savings Plan shall be in no event less
than the amount necessary to satisfy the requirements of Section 414(1) of
the Code.
(iii) As of 12:01 a.m. of the day immediately following the Closing
Date, Purchaser or its Affiliates shall establish a qualified defined
benefit plan ("Purchaser's Qualified Retirement Plan") for the eligible
employees of Purchaser. As of such effective date, all Affected Employees
employed by Purchaser who were eligible to participate in the Retirement
Plan shall be eligible to participate in Purchaser's Qualified Retirement
Plan in accordance with the terms of such plan, and all service with Pfizer
and
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its Affiliates which is recognized under the Retirement Plan shall be
credited for eligibility, vesting, and, subject to the transfer of assets
described below, benefit accrual and other purposes for which service is
taken into account under the Retirement Plan. Pfizer shall provide
Purchaser with all information in its possession required by Purchaser to
effect such recognition. As soon as practicable after the Closing Date, but
not before Purchaser shall first have provided Pfizer with an IRS
determination letter or an opinion of counsel reasonably satisfactory to
Pfizer to the effect that Purchaser's Qualified Retirement Plan is
qualified, in form, under Section 401(a) of the Code, Pfizer shall cause to
be transferred from the trust under the Retirement Plan to the trust under
Purchaser's Qualified Retirement Plan assets, in the form of cash,
securities or other property or a combination thereof, as determined by
Pfizer subject to approval by Purchaser (which approval will not be
unreasonably withheld), in an amount equal to the value of the PBO as of
the Closing Date in respect of the Affected Employees employed by
Purchaser; provided, however, such amount shall be (A) increased by 7.5%
interest for the period from the Closing Date to the date of such asset
transfer, and (B) decreased by payments made to Affected Employees from the
Retirement Plan during such period. Each of Purchaser, on the one hand, and
Pfizer, on the other hand, agrees to use its best efforts and to cooperate
with the other to effect as promptly as possible the transfer of assets
contemplated under this Section 7.5(b)(iii). Effective as of the date of
transfer of the assets from the trust under the Retirement Plan in respect
of the accrued benefits of the Affected Employees as described herein,
Purchaser's Qualified Retirement Plan shall assume all liability for such
accrued benefits, and Pfizer and the Retirement Plan shall have no further
liability therefor; provided, however, prior to the date of such transfer
of
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assets, Pfizer shall provide Purchaser with (x) a certification, prepared
by the Retirement Plan's enrolled actuary, that all assets and accrued
benefits to be transferred from the trust under the Retirement Plan have
been properly determined in accordance with this Section, and that such
transfer would be in compliance with the provisions of Sections 401(a)(12)
and 414(1) of the Code and rulings and regulations issued under such
sections; and (y) such additional information as Purchaser's enrolled
actuary may reasonably request to verify such calculations. In the event
that, within forty-five (45) days of receiving such information,
Purchaser's enrolled actuary disagrees with calculations of the PBO as
defined herein, Pfizer and Purchaser shall select an independent third
enrolled actuary to settle such disagreement. The determination of such
third actuary shall be binding on Pfizer and Purchaser. The fees, costs and
expenses of said third actuary shall be divided equally between Pfizer and
Purchaser.
(iv) As of 12:01 a.m. of the day immediately following the Closing
Date, Purchaser or its Affiliates shall establish a non-qualified defined
contribution plan ("Purchaser's Non-Qualified Savings Plan") and a
non-qualified defined benefit retirement plan ("Purchaser's Non-Qualified
Retirement Plan" and, together with Purchaser's Non-Qualified Savings Plan,
"Purchaser's Non-Qualified Plans") for the eligible employees of Purchaser.
As of such effective date, all Affected Employees employed by Purchaser who
were eligible to participate in the Pfizer Inc. Nonfunded Deferred
Compensation and Supplemental Savings Plan or the Pfizer Inc. Nonfunded
Supplemental Retirement Plan (collectively, "Pfizer's Non-Qualified Plans")
shall be eligible to participate in Purchaser's Non-Qualified Plans in
accordance with the terms of such plan, and all service with Pfizer and its
Affiliates which is recognized under Pfizer's
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Non-Qualified Plans shall be credited for eligibility, vesting, and,
subject to the transfer of assets described below, benefit accrual and
other purposes for which service is taken into account under Pfizer's
Non-Qualified Plans. Pfizer shall provide Purchaser with all information in
its possession required by Purchaser to effect such recognition. As soon as
practicable after the Closing Date, Pfizer shall cause to be transferred to
a grantor trust under Purchaser's Non-Qualified Plans assets, in the form
of cash, securities or other property or a combination thereof, as
determined by Pfizer subject to approval by Purchaser (which approval will
not be unreasonably withheld), in an amount equal to the value of the
accrued benefits under Pfizer's Non-Qualified Plans determined as of the
Closing Date in respect of the Affected Employees employed by Purchaser.
Purchaser shall provide to Pfizer an opinion of counsel, acceptable to
Pfizer, that the grantor trust is a valid grantor trust that accomplishes
the goals for which it was established. The assets to be transferred to the
grantor trust under Purchaser's Non-Qualified Plans in respect of the
accrued benefits of the Affected Employees under the Pfizer Inc. Nonfunded
Deferred Compensation and Supplemental Savings Plan and the Pfizer Inc.
Nonfunded Supplemental Retirement Plan shall be determined in the same
manner as described in Sections 7.5(b)(ii) and 7.5(b)(iii), respectively.
(c) Accrued Entitlements. To the extent reflected in the Working
Capital Statement Purchaser shall be responsible for all accrued but unused
vacation days, for Affected Employees as of the Closing Date consistent with
Pfizer's policy in respect thereof
(d) Medical and Welfare Plan Obligations. Commencing as of 12:01 a.m.
on the day immediately following the Closing Date, Purchaser shall include the
Affected Employees in its welfare plans and agrees to waive any waiting periods
or limitations for preexisting
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conditions, to the extent satisfied under Pfizer's plans, under its medical,
dental, and short-term and long-term disability plans and shall ensure that such
employees are given credit for any amounts paid toward deductibles,
out-of-pocket limits or other fees on or prior to the Closing Date. Pfizer and
Seller Corporations shall retain responsibility for all hospital, medical, life
insurance, disability and other welfare plan expenses and benefits, and for all
workers' compensation, unemployment compensation and other government mandated
benefits (collectively referred to herein as "Welfare Type Plans") in respect of
claims covered by such plans that are maintained by Pfizer and the Seller
Corporations and which are incurred by the Affected Employees and their
dependents on or prior to the Closing Date. Purchaser shall be responsible for
all claims incurred after the Closing Date by the Affected Employees and their
dependents which are covered by the Welfare Type Plans that are maintained by
Purchaser for such Affected Employees and their dependents. For purposes of this
Section 7.5(d), claims shall be deemed to have been incurred:
(i) with respect to all death or dismemberment claims, on the actual
date of death or dismemberment;
(ii) with respect to all disability claims on the date the claimant
became unable to (i) perform his or her regular duties of employment, in
the case of an employee claimant, or (ii) perform the normal day-to-day
responsibilities that would reasonably be expected of someone of similar
age and lifestyle, in the case of a dependent claimant;
(iii) with respect to all medical, drug or dental claims, on the date
the service was received or the supply was purchased by the claimant;
provided, however, a
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medical claim relating to a claimant's hospitalization shall be deemed to
be incurred on the date the claimant was first hospitalized; and
(iv) with respect to workers' compensation claims, on the date the
incident occurred.
(e) Employees (non-US) - Offer of Employment; Continued Employment;
Severance. Purchaser agrees to offer employment as of 12:01 a.m. on the day
immediately following the Closing Date to each Employee (non-US) in the same or
a comparable position and at a rate of pay at least equal to such employee's
rate of pay in effect on the Closing Date and with benefits which shall be, in
the aggregate, substantially equivalent on an economic basis to such employee's
benefits which are in effect on the Closing Date. Schedule 7.5(e) (which shall
be updated by Pfizer on the Closing Date) shall set forth the name of each
Employee (non-US), and his current rate of pay, position and date of hire. It is
the intention of the parties to this Agreement to deal with employee matters,
including, without limitation, offers of employment, compensation, benefits, and
severance payment and benefit continuation matters for Employees (non-US) in a
manner substantially similar to the manner in which Employees (US) matters have
been dealt with in this Article VII, subject to: such modifications as are
necessary to comply with applicable Laws of the foreign countries and their
political subdivisions; applicable labor agreements; local Pfizer policies,
programs and practices; and established local business custom in similar
transactions.
(f) Employees (US) and Employees (non-US) Absent on Disability or Leaves of
Absence - Offer of Employment; Continued Employment; Severance. When an Employee
who is, on the Closing Date, absent due to illness or on short-term disability
(including maternity disability but expressly excluding long-term disability) or
workers' compensation seeks to return
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to active employment, Purchaser shall offer immediate employment to such
Employee in the same or a comparable position to that which the Employee
occupied before such absence but only at such time that the Employee is
medically capable of performing the essential functions of the position occupied
immediately before such absence and only if the Employee returns to work within
one year of the initial date of absence (or such later date as required by law).
In addition, immediate employment in the same or comparable positions will be
offered to those Employees returning from authorized leaves of absence such as
parental, family and medical, and military leaves or other leaves where return
to work is required by law. Such Employees, returning from disability or leaves
of absence, will be subject to the same pay, benefits, severance and all other
policies, plans, programs and arrangements as stipulated in this Article VII for
similarly situated Employees (US) and Employees (non-US) and, in the case of
Employees (non-US), as otherwise required by applicable local Law as of the date
of such return to active work. Anything in this Section 7.5 to the contrary
notwithstanding, Purchaser shall have no liability to any Employee described in
this Section 7.5(f) who is absent from work on the Closing Date unless and until
such Employee commences active employment with Purchaser.
(g) No Third Part Beneficiaries. Nothing contained herein, expressed or
implied, is intended to confer upon any Employee of Seller Corporations any
benefits under any benefit plans, programs, policies or other arrangements,
including, but not limited to, severance benefits or right to employment or
continued employment with Purchaser or any Affiliate of Purchaser for any period
by reason of this Agreement. In addition, the provisions of this Agreement, in
particular this Article VII, are for the sole benefit of the parties to this
Agreement and are not for the benefit of any third party.
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Section 7.6. Cash Management Matters. Pfizer and its Affiliates shall be
permitted to continue to conduct their activities regarding cash management
matters relating to the Business (including, without limitation, the collection
and transfer of accounts receivable and disbursement of funds by Pfizer) in
accordance with the practice in effect as of the date of this Agreement, except
as may be affected by actions taken pursuant to Section 2.2(d). Any AMS related
receipt by Pfizer or disbursement made by Pfizer pursuant to this Section 7.6
after the Closing Date shall be deemed for purposes of Section 2.7 to have
occurred on the Closing Date and shall be reflected in the calculation of the
Working Capital of the Business pursuant to such Section 2.7.
Section 7.7. Bulk Transfer Laws. Purchaser acknowledges that the Seller
Corporations have not taken, and do not intend to take, any action required to
comply with any applicable bulk sale or bulk transfer laws or similar laws.
Section 7.8. Noncompetition.
(a) Subject to the provisions of this Section 7.8, Pfizer agrees that for a
period of three (3) years from the Closing Date, Pfizer and its Subsidiaries
shall not compete in any material respect with the Business as now conducted
(but excluding any business related to Cardura) ("Competitive Activity");
provided, however, that it shall not be deemed to be a violation of this
subsection for Pfizer or any of its Subsidiaries (i) to engage, directly or
indirectly, in the research, manufacture or sale of Viagra(R) or any other
pharmaceutical product or any medical device for the delivery of pharmaceutical
products, (ii) to invest in or own any non-convertible debt securities or other
similar debt obligations, (iii) to invest in any third Person (including,
without limitation, any corporation or mutual or other fund) which invests in,
manages or operates a Competitive Activity, so long as Pfizer's or any of its
Subsidiary's
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investment is less than 20% of the outstanding ownership interest in such third
Person and Pfizer and its Subsidiaries do not control or conduct such third
Person or Competitive Activity, (iv) to invest in, own an interest in, or
acquire a majority of the stock or assets of any Person which is not engaged
primarily in a Competitive Activity, (v) to invest in securities having less
than five percent (5%) of the outstanding voting power of any Person, the
securities of which are publicly traded or listed on any securities exchange or
automated quotation system, (vi) to invest in any Person after the Closing Date
to the extent that Pfizer or a Subsidiary had, directly or indirectly, acquired,
or had a right to acquire, such interest prior to the date of this Agreement, or
(vii) to own any equity interests through any employee benefit plan or pension
plan. Notwithstanding anything to the contrary, the foregoing covenant shall not
apply with respect to any Person that acquires a majority of the stock or assets
of Pfizer or any of its Subsidiaries and that prior to such acquisition already
was engaged in a Competitive Activity. For purposes of this subsection, "engaged
primarily in a Competitive Activity" shall mean (A) that greater than
thirty-five percent (35%) of the aggregate net revenue derived during the last
complete fiscal year of such Person is derived from the Competitive Activity or
(B) that such Person is, or owns more than 20% of the outstanding ownership
interest or holds more than 5% of the outstanding voting power of, any of the
entities specified on Schedule 7.8(a). Each investment or acquisition made by
Pfizer or its Subsidiaries which is subject to the provisions of this Section
7.8 must be permissible hereunder at the time of such investment, provided,
however, that any such investment which was permissible when made cannot
thereafter be the basis of a claim of violation of this Section 7.8. For a
period of three (3) years after the Closing Date, Pfizer and its Subsidiaries
shall not, directly or indirectly, induce or attempt to induce any officers,
employees, representatives or agents of Purchaser or any of its Affiliates
engaged in the Business to leave the
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employ of Purchaser or any such Affiliate, or violate the terms of their
contracts, or any employment arrangements, with Purchaser or any such Affiliate,
except that nothing in this sentence shall restrict or preclude the rights of
Pfizer and its Subsidiaries to make generalized searches for employees by the
use of advertisements in the media (including trade media) or by engaging search
firms to engage in searches that are not targeted or focused on the employees
employed by the Business.
(b) Notwithstanding anything to the contrary contained in subsection (a) of
this Section 7.8, Pfizer and its Subsidiaries shall not be deemed to have
violated the restrictions contained in this Section 7.8 in the event that Pfizer
or a Subsidiary acquires or invests in any Person engaged primarily in a
Competitive Activity; provided, that Pfizer or such Subsidiary thereafter
divests a portion of such Competitive Activity within 18 months from the date of
purchase of such Person so as to be in compliance with Section 7.8(a) hereof
(c) Prior to Closing, except as otherwise agreed in writing, neither
Purchaser nor any of its Affiliates will offer or provide employment on a
full-time or part-time or consulting basis to any individual employed by Pfizer
or any of its Affiliates in the operation of the Business.
(d) Pfizer and Purchaser acknowledge that this Section 7.8 constitutes an
independent covenant and shall not be affected by performance or nonperformance
of any other provision of this Agreement. Each of Pfizer and Purchaser has
independently consulted with its counsel and after such consultation agrees that
the covenants set forth in this Section 7.8 are reasonable and proper. It is the
desire and intent of the parties that the provisions of this Section 7.8 shall
be enforced to the fullest extent permissible under applicable Law. If all or
part of this Section 7.8 is held invalid, illegal or incapable of being enforced
by any Law or public policy, all
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other terms and provisions of this Agreement shall nevertheless remain in full
force and effect. If any part of this Section 7.8 is held to be excessively
broad as to duration, scope, activity or subject, such part will be construed by
limiting and reducing it so as to be enforceable to the maximum extent
compatible with applicable Law.
Section 7.9. Transitional Services. At the Closing, Purchaser and Pfizer
shall enter into, execute and deliver a transitional services agreement in
substantially the form attached hereto as Exhibit C (the "Transitional Services
Agreement").
Section 7.10. Transitional Intellectual Property License Agreement. At the
Closing, Purchaser and Pfizer shall enter into, execute and deliver a
transitional intellectual property license agreement in substantially the form
attached hereto as Exhibit D (the "Transitional Intellectual Property License
Agreement").
Section 7.11. Compliance with WARN, Etc. With respect to WARN or other
similar statutes or regulations of any jurisdiction, Purchaser will timely give
any notices required to be given thereunder.
Section 7.12. Foreign Implementing Agreements. As promptly as practicable
after the date hereof, Pfizer and Purchaser shall cause the Foreign Implementing
Agreements to be prepared and executed by their applicable Affiliates.
Section 7.13. Joint Defense and Cooperation Agreement. At the Closing,
Purchaser and Pfizer shall enter into, execute and deliver a joint defense and
cooperation agreement in substantially the form attached hereto as Exhibit H
(the "Joint Defense and Cooperation Agreement").
Section 7.14. Insurance. As of the Closing Date, the coverage under all
insurance policies related to the Business shall continue in force only for the
benefit of the Seller
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Corporations and their Affiliates and not for the benefit of Purchaser.
Purchaser agrees to arrange for its own insurance policies with respect to the
Business covering all periods and agrees not to seek, through any means, to
benefit from any of the Seller Corporations' or their Affiliates' insurance
policies which may provide coverage for claims relating in any way to the
Business on or prior to the Closing Date.
Section 7.15. Confidentiality.
(a) Except as specified in paragraph (b) below, the Seller Corporations
agree to, and shall cause their agents, representatives, Affiliates, employees,
officers and directors to: (i) treat and hold as confidential (and not disclose
or provide access to any Person to) all information relating to trade secrets,
processes, patent or trademark applications, product development, price,
customer and supplier lists, pricing and marketing plans, policies and
strategies, operations methods, product development techniques, business
acquisition plans, new personnel acquisition plans and any other confidential
information with respect to the Business or the Conveyed Assets, (ii) in the
event that the Seller Corporations or their agents, representatives, Affiliates,
employees, officers or directors become legally compelled to disclose any such
information, provide Purchaser with prompt written notice of such requirement so
that Purchaser may seek a protective order or other remedy or waive compliance
with this Section 7.15, (iii) in the event that such protective order or other
remedy is not obtained or Purchaser waives compliance with this Section 7.15,
furnish only that portion of such confidential information which is legally
required to be provided; provided, however, that this sentence shall not apply
to any information that, at the time of disclosure, is available publicly and
was not disclosed in breach of this Agreement by the Seller Corporations or any
of their agents, representatives, Affiliates, employees, officers or directors.
The Seller Corporations agree and
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acknowledge that remedies at Law for any breach of their obligations under this
Section 7.15 are inadequate and that, in addition thereto, Purchaser shall be
entitled to seek equitable relief, including injunction and specific
performance, in the event any such breach, without necessity of demonstrating
the inadequacy of money damages.
(b) Notwithstanding anything to the contrary contained in paragraph (a)
above, the Seller Corporations may retain copies of and use the information
specified in clause (i) of paragraph (a) above to the extent, and only to the
extent, the Seller Corporations deem reasonably necessary to discharge any
Retained Liabilities, to comply with any Law, Governmental Order or any
requirement of any Governmental Authority or Governmental Authorization or to
comply with any existing agreement with any third party.
Section 7.16. Non-Solicitation. Each Seller Corporation agrees that,
between the date of this Agreement and the earlier of (1) the Closing and (2)
the termination of this Agreement, neither such Seller Corporation nor any of
its Affiliates, officers, directors, representatives or agents shall solicit,
initiate or encourage any other proposals or offers from any Person relating to
(i) any acquisition or purchase of all or any portion of the capital stock of
the Asset Selling Corporations or their assets (other than Inventory to be sold
in the ordinary course of the business of the Business consistent with past
practice), or (ii) any other transaction which would prevent the Selling
Corporations from consummating the transaction contemplated by this Agreement.
The Seller Corporations immediately shall cease and cause to be terminated all
existing negotiations with any Persons conducted heretofore with respect to any
of the foregoing. Each Seller Corporation agrees not to, without the prior
written consent of Purchaser, release any Person from, or waive any provision
of, any confidentiality or standstill agreement with respect to the Business to
which such Seller Corporation is a party.
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Section 7.17. Post-Closing Financial Assistance. Pfizer agrees to provide
Purchaser for up to one year after the Closing Date, access to personnel,
corporate books and records, and financial information related to the Business
prior to the Closing Date. Such access shall (i) be at times mutually convenient
to Pfizer and Purchaser, (ii) not unreasonably interfere with performance by
such personnel of their other duties and (iii) not subject Pfizer to any cost or
legal exposure, in Pfizer's sole reasonable judgment.
Section 7.18. Certain Receivables. Pfizer agrees that it will purchase from
Purchaser within 30 days after the first anniversary of the Closing any
receivables from Spanish customers which were overdue by their terms on the
Closing Date and not collected in full by Purchaser prior to such first
anniversary. The purchase price to be paid by Pfizer will be the unpaid amount
due on such receivables. Purchaser shall use all commercially reasonable efforts
to collect in full all such receivables. At the Closing, Pfizer shall deliver a
schedule of all such overdue receivables.
ARTICLE VIII
INDEMNIFICATION
Section 8.1. Indemnification by Pfizer.
(a) Pfizer agrees to defend, indemnify and hold harmless Purchaser and its
Affiliates, and, if applicable, its directors, officers, agents, employees,
successors and assigns from and against any and all claims, actions, causes of
action, judgments, awards, liabilities, losses, costs (including reasonable
attorneys' fees) or damages (collectively, a "Loss" or the "Losses") claimed or
arising from (i) any Retained Liability, (ii) any breach by a Seller Corporation
of any of its covenants or agreements contained in this Agreement, (iii) any
breach
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of any warranty or representation of a Seller Corporation contained in this
Agreement, or (iv) any noncompliance with bulk transfer or similar laws.
(b) Purchaser shall take and shall cause its Affiliates to take all
reasonable steps to mitigate any Loss upon becoming aware of any event which
would reasonably be expected to, or does, give rise thereto, including incurring
costs only to the minimum extent necessary to remedy the breach which gives rise
to the Loss.
(c) Notwithstanding the provisions of this Article VIII, Pfizer shall not
be liable to the Purchaser or its Affiliates for any Loss under Section
8.1(a)(i) with respect to clause (ii) of Excluded Environmental Liabilities
except to the extent such Losses exceed $1,000,000, and then further subject to
the limitations set forth in Sections 8.5 and 8.6 (including, without
limitation, clauses (i) and (ii) of the proviso of Section 8.6).
Section 8.2. Indemnification by Purchaser.
(a) Purchaser agrees to defend, indemnify and hold harmless the Seller
Corporations and their Affiliates, and, if applicable, their directors,
officers, agents, employees, successors and assigns from and against any and all
Loss claimed or arising from (i) any Assumed Liability, (ii) any breach by
Purchaser of any of its covenants or agreements in this Agreement, or (iii) any
breach of any warranty or representation of Purchaser contained in this
Agreement.
(b) The Seller Corporations shall take and cause their Affiliates to take
all reasonable steps to mitigate any Loss upon becoming aware of any event which
would reasonably be expected to, or does, give rise thereto, including incurring
costs only to the minimum extent necessary to remedy the breach which gives rise
to the Loss.
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Section 8.3. Notice of Claims.
(a) If any of the Persons to be indemnified under this Article VIII (the
"Indemnified Party") has suffered or incurred any Loss or has received notice of
any actual or potential Third Party Claim, the Indemnified Party shall so notify
the party from whom indemnification is sought (the "Indemnifying Party")
promptly in writing describing such Loss or Third Party Claim, the amount or
estimated amount thereof, if known or reasonably capable of estimation, and the
method of computation of such Loss or Third Party Claim, all with reasonable
particularity and containing a reference to the provisions of this Agreement or
any other agreement, instrument or certificate delivered pursuant hereto in
respect of which such Loss or Third Party Claim shall have occurred. If any
action at law or suit in equity is instituted by or against a third party with
respect to which the Indemnified Party intends to claim any liability or expense
as a Loss or Third Party Claim under this Article VIII, the Indemnified Party
shall promptly notify the Indemnifying Party of such action or suit and tender
the Indemnified Party the defense of such action or suit. A failure to give
notice and to tender the defense of the action or suit in a timely manner
pursuant to this Section 8.3 shall not limit the obligation of the responsible
Person under this Article VIII, except (i) to the extent such Indemnified Party
is prejudiced thereby, (ii) to the extent expenses are incurred during the
period in which notice was not provided, and (iii) as provided by Section 8.5
below,
(b) Except when an immediate notice, report or other filing must be filed
pursuant to Environmental Law, Purchaser will provide notice and an opportunity
to comment to Pfizer before Purchaser files any Required Governmental Report or
any other report, notification or filing with any Governmental Authority or
third party that would be reasonably likely to result in a Loss or Third Party
Claim. In the event Purchaser is required to file an immediate Required
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Governmental Report or any other immediate report, notification or filing,
Purchaser will provide simultaneous notice to Pfizer when it files the report
with the Governmental Authority.
Section 8.4. Third Party Claims.
(a) The Indemnifying Party under this Article VIII shall have the right,
but not the obligation, to conduct and control, through counsel of its choosing
(and reasonably satisfactory to the other party), any third party claim, action
or suit (a "Third Party Claim"), and the Indemnifying Party may compromise or
settle the same, provided that the Indemnifying Party shall give the Indemnified
Party advance notice of any proposed compromise of settlement and shall obtain
the consent of the Indemnified Party to such proposed compromise or settlement,
which consent shall not be unreasonably withheld. The Indemnifying Party shall
permit the Indemnified Party to participate in, but not control, the defense of
any such action or suit through counsel chosen by the Indemnified Party,
provided that the fees and expenses of such counsel shall be borne by the
Indemnified Party. If the Indemnifying Party elects not to control or conduct
the defense or prosecution of a Third Party Claim, the Indemnifying Party shall
have the right to participate in, but not conduct or control, the defense or
prosecution of any Third Party Claim and, at its own expense, to employ counsel
of its own choosing for such purpose.
(b) The parties hereto shall cooperate in the defense or prosecution of any
Third Party Claim, with such cooperation to include (i) the retention of records
and information that are reasonably relevant to such Third Party Claim and
provision of them to the Indemnifying Party, and (ii) the making available of
employees on a mutually convenient basis for providing additional information
and explanation of any material provided hereunder and for acting as witnesses.
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Section 8.5. Expiration. Notwithstanding anything in this Agreement to the
contrary, if the Closing shall have occurred, all covenants, agreements,
warranties and representations made herein or in any certificate delivered
pursuant hereto shall survive the Closing, but all representations and
warranties made herein or in any certificate delivered pursuant hereto, and any
party's right to assert indemnification claims under Sections 8.1 and 8.2 with
respect to any such representation or warranty, shall terminate and expire on,
and no action or proceeding seeking damages or other relief for breach of any
thereof or for any misrepresentation or inaccuracy with respect thereto shall be
commenced after, March 31, 2000 with respect to any claims of any party, and of
any indemnified persons under this Article VIII, which shall not have been
previously asserted, with reasonable specificity, by written notice given under
Section 8.3; provided, however, the right to assert claims under Section
8.l(a)(i) with respect to clause (ii) of Excluded Environmental Liabilities,
shall terminate and expire on, and no action or proceeding seeking damages or
other relief with respect thereto shall be commenced, after the fifth
anniversary of the Closing Date unless Third-Party Claims shall have been made
against the Indemnified Party and written notice thereof previously given to
Pfizer under Section 8.3; and the right to assert claims under Section 8.1(a)(i)
with respect to clause (iii) of Excluded Environmental Liabilities, shall
terminate and expire on, and no action or proceeding seeking damages, relief or
indemnity with respect thereto shall be commenced, after the third anniversary
of the Closing Date unless Third-Party Claims shall have been made against the
Indemnified Party and written notice thereof previously given to Pfizer under
Section 8.3; and the right to assert claims under Section 8.1(a)(i) with respect
to clauses (i), (iv) and (v) of Excluded Environmental Liabilities shall have no
time limit.
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Section 8.6. Certain Limitations. Pfizer shall not have any liability under
clause 8.1(a) for Losses unless the aggregate of all such Losses (other than
Losses under Section 8.1(a) with respect to clause (ii) of Excluded
Environmental Liabilities), for which Pfizer would, but for this provision, be
liable exceeds on a cumulative basis $1,000,000, but if such amount is exceeded,
Pfizer shall be required to pay only the amount of such Loss which exceeds
$1,000,000; provided, however, that Pfizer shall not have any liability for
Losses (i) for any individual item where the Loss relating thereto is less than
$100,000, and (ii) for all Losses (including Losses under Section 8.1(a) with
respect to clause (ii) of Excluded Environmental Liabilities) in excess of
$39,000,000.
Section 8.7. Losses Net of Insurance, Etc. The amount of any Loss for which
indemnification is provided under Section 8.1 or 8.2 (the "Specified Sections")
shall be net of (i) any accruals or reserves on the Financial Statements or the
Working Capital Statement, (ii) any amounts recovered by the Indemnified Party
pursuant to any indemnification by or indemnification agreement with any third
party, (iii) any insurance proceeds or other cash receipts or sources of
reimbursement received as an offset against such Loss (each person named in
clauses (ii) and (iii), a "Collateral Source"), and (iv) an amount equal to the
present value of the tax benefit, if any, attributable to such Loss.
Indemnification under this Article VIII shall not be available to Purchaser or
Pfizer, as the case may be, unless the party seeking indemnification under this
Article VIII first uses all reasonable efforts to seek recovery from all
Collateral Sources. The Indemnifying Party may require an Indemnified Party to
assign the rights to seek recovery pursuant to the preceding sentence; provided,
that the Indemnifying Party will then be responsible for pursuing such claim at
its own expense. If the amount to be netted hereunder from any payment required
under Section 8.1 or 8.2 is determined after payment by the
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Indemnifying Party of any amount otherwise required to be paid to an Indemnified
Party to this Article VIII, the Indemnified Party shall repay to the
Indemnifying Party, promptly after such determination, any amount that the
Indemnifying Party would not have had to pay pursuant to this Article VIII had
such determination been made at the time of such payment.
Section 8.8. Other Limitations. No claim for breach of representation or
warranty shall be made by Purchaser under Section 8.l (a)(iii) if(a) such claim
is based on a fact or an event occurring prior to Closing (whether or not also
occurring prior to the date of this Agreement) constituting a failure of a
condition to Closing under Section 4.2, and (b) such fact or event was disclosed
by Pfizer in writing prior to Closing.
Section 8.9. Sole Remedy/Waiver. The parties hereto acknowledge and agree
that the remedies provided for in this Agreement shall be the parties' sole and
exclusive remedies with respect to the subject matter of this Agreement. In
furtherance of the foregoing, the parties hereby waive, to the fullest extent
permitted by applicable Law, any and all other rights, claims and causes of
action (including rights of contributions, if any) known or unknown, foreseen or
unforeseen, which exist or may arise in the future, that it may have against the
Seller Corporations or any of their Affiliates, or Purchaser or any of its
Affiliates, as the case may be, arising under or based upon any Law (including,
without limitation, such Law relating to environmental matters or arising under
or based upon any securities law, common law or otherwise).
Section 8.10. Indemnification Procedures for Remedial Actions on Conveyed
Properties.
(a) Pfizer shall have the right but not the obligation to conduct and
control the management of a Remedial Action at a property included in the
Conveyed Assets that is subject
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to indemnification pursuant to this Agreement. Pfizer must notify Purchaser,
within thirty (30) days of receipt of notice of Purchaser's claim for
indemnification for such matter, that (i) it intends to undertake said
responsibility or (ii) that more information is needed from Purchaser before
Pfizer can reasonably determine that Purchaser's claim is subject to
indemnification pursuant to this Agreement. Purchaser shall promptly respond to
such requests for information (to the extent such information is reasonably
available to Purchaser) and, within thirty (30) days of receipt of such
information, Pfizer shall notify Purchaser as to whether it shall undertake the
Remedial Action. Prior to a determination by Pfizer that it will undertake a
Remedial Action pursuant to this Section 8.10, Purchaser shall take only those
actions necessary to comply with applicable Environmental Laws or address
conditions that pose an immediate and acute health risk (unless additional
actions are approved by Pfizer).
(b) In undertaking a Remedial Action pursuant to this Section
8.10, Pfizer shall retain a qualified independent environmental consultant,
which consultant shall be subject to Purchaser's approval (such approval not to
be unreasonably delayed or withheld). Pfizer shall undertake such Remedial
Action in a prompt and expeditious fashion in accordance with applicable
Environmental Laws and shall not cause, through its own inaction, any undue
delay in obtaining written notice from the appropriate Governmental Authority
that no further investigation or remediation is necessary with respect to the
matter that is the subject of the indemnification claim to meet the Applicable
Remedial Action Standards, or, if no Governmental Authority is involved in such
matter, a good faith determination from its environmental consultant that no
further investigation or remediation is required to bring a property included in
the Conveyed Assets into conformance with Applicable Remedial Action Standards.
Pfizer shall comply with all applicable Laws, including all applicable
Environmental
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Laws, with respect to its performance pursuant to this Section 8.10. Pfizer
shall promptly provide copies to Purchaser of all written notices,
correspondence, final submissions, final work plans, results of field work, and
final reports and shall give Purchaser a reasonable opportunity given the
circumstances (at Purchaser's own expense) to comment on any submissions Pfizer
intends to deliver or submit to the appropriate Governmental Authority prior to
said submission. Purchaser may, at its own expense, hire its own consultants,
attorneys or other professionals to monitor the Remedial Action, including any
field work undertaken by Pfizer, and Purchaser shall provide Pfizer with the
results of all such monitoring. Notwithstanding the above, Purchaser shall not
take any actions that shall unreasonably interfere with Pfizer's performance of
the Remedial Action. Pfizer shall undertake any such work required herein in a
manner designed to minimize any disruption, to the greatest extent possible,
with the conduct of operations at a property included in the Conveyed Assets.
Purchaser shall allow Pfizer reasonable access to conduct any of the work
contemplated herein and shall fully cooperate with Pfizer in the performance of
the Remedial Action, including, but not limited to, providing Pfizer with
reasonable access to employees and documents as necessary.
(c) If Pfizer declines to undertake the performance of a
Remedial Action as provided in Section 8.10(a), Purchaser shall be entitled to
undertake the Remedial Action to the Applicable Remedial Action Standards.
Purchaser shall promptly provide copies to Pfizer of all notices,
correspondence, draft reports, submissions, work plans, and final reports and
shall give Pfizer a reasonable opportunity (at Pfizer's own expense) to comment
on any submissions Purchaser intends to deliver or submit to the appropriate
Governmental Agency prior to said submission. Pfizer may, at its own expense,
hire its own consultants, attorneys or other professionals to monitor the
Remedial Action, including any field work undertaken by Purchaser,
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and Purchaser shall provide to Pfizer the results of all such field work.
Notwithstanding the above, Pfizer shall not take any actions that shall
unreasonably interfere with Purchaser's performance of the Remedial Action.
Pfizer's decision to allow Purchaser to undertake Remedial Action hereunder
shall not limit or affect Pfizer's obligation to indemnify Purchaser for said
Remedial Action to the Applicable Remedial Action Standards as otherwise
provided in this Agreement.
Section 8.11. Limitation on Indemnification for Third Party
Claims for Remedial Action. Notwithstanding anything to the contrary in this
Agreement, Pfizer's indemnification obligation under Section 8.1 hereof in
respect of clause (ii) of the definition of Excluded Environmental Liabilities
is subject to the provisions of this paragraph. Pfizer shall be responsible for
the cost of Remedial Action only to the extent necessary to meet the least
stringent applicable compliance or remediation standard consistent with the
industrial/commercial use of the property as of the Closing Date, which standard
is acceptable to the Governmental Authorities making the Third Party Claim
through the use of the most cost-effective alternative (the "Applicable Remedial
Action Standard"). Pfizer shall not be responsible for those costs incurred in
connection with a Remedial Action to the extent such costs arise from or are
exacerbated by actions of Purchaser after the Closing Date. Further, Pfizer
shall not be responsible for costs incurred in connection with a Remedial Action
unless such Remedial Action is (i) required by a Governmental Authority acting
pursuant to Environmental Law; (ii) required to respond to a judgment or an
order in a Third Party Claim or action; (iii) required to respond to a condition
discovered in connection with the normal day-to-day operation of a facility or a
facility expansion or demolition actually implemented by Purchaser where such
Remedial Action is necessary to permit such operation, expansion or
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demolition; or (iv) required to respond to a condition which presents a
substantial endangerment to human health.
Section 8.12. No Consequential Damages. Notwithstanding anything
to the contrary contained herein, no party to this agreement shall be liable to
or otherwise responsible to any other party hereto or any affiliate of any other
party hereto for consequential, incidental or punitive damages or for diminution
in value or lost profits that arise out of or relate to this agreement or the
performance or breach thereof or any liability retained or assumed hereunder.
ARTICLE IX
TERMINATION
Section 9.1. Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by written agreement of Purchaser and Pfizer, acting as
agent for the Seller Corporations;
(b) by either Pfizer or Purchaser if a material breach of a
representation, warranty, covenant, obligation or other provision of this
Agreement has been committed by the other party and such breach has not been
waived;
(c) by either Pfizer or Purchaser, by giving written notice
of such termination to the other party, if the Closing shall not have occurred
on or prior to December 31, 1998 (unless the failure to consummate the Closing
by such date shall be due to the failure of the party seeking to terminate this
Agreement to have fulfilled any of its obligations under this Agreement); or
(d) except as set forth in and subject to Section 7.3(e), by
either Pfizer or Purchaser if any court of competent jurisdiction or other
competent Governmental Authority
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shall have issued a statute, rule, regulation, order, decree or injunction or
taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such statute,
rule, regulation, order, decree or injunction or other action shall have become
final and nonappealable.
Section 9.2. Effect of Termination.
(a) In the event of the termination of this Agreement in
accordance with Section 9.1 hereof, this Agreement shall thereafter become void
and have no effect, and no party hereto shall have any liability to the other
party hereto or their respective Affiliates, directors, officers or employees,
except for the obligations of the parties hereto contained in this Section 9.2
and in Sections 7.1, 10.1, 10.7, 10.8, 10.9 and 10.11 hereof, and except that
nothing herein will relieve any party from liability for any breach of any
covenant set forth in this Agreement prior to such termination.
(b) In the event this Agreement shall be terminated as a
result of any party's material breach of any provision hereof, such termination
shall be without prejudice to, and shall not affect, any and all rights to
damages that the other party may have hereunder or otherwise under applicable
law. Upon termination of this Agreement by Pfizer or Purchaser, by reason of a
breach by the other hereunder, the damages recoverable by the party so
terminating this Agreement shall include, without limiting the generality of the
immediately preceding sentence, all attorneys' fees reasonably incurred by such
parties in connection with the transactions contemplated hereby and thereby.
(c) If this Agreement is terminated in accordance with
Section 9.1, Purchaser agrees that the prohibition in the Confidentiality
Agreement restricting Purchaser's ability to
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solicit any Employee to join the employ of Purchaser or any of its Affiliates
shall be extended to a period of three (3) years from the date of this
Agreement.
ARTICLE X
MISCELLANEOUS
Section 10.1. Notices. All notices or other communications
hereunder shall be deemed to have been duly given and made if in writing and
served by personal delivery upon the party for whom it is intended, delivered by
registered or certified mail, return receipt requested, or by a national courier
service, or sent by telecopier, provided that the telecopy is promptly confirmed
by telephone confirmation thereof, to the person at the address set forth below,
or such other address as may be designated in writing hereafter, in the same
manner, by such person:
To any Seller Corporation:
PFIZER INC.
235 East 42nd Street
New York, NY 10017
Telephone: 212-573-3637
Telecopy: 212-573-1445
Attn.: Paul S. Miller, Esq.
Senior Vice President and
General Counsel
With a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Telephone: (212) 836-8433
Telecopy: (212) 836-7152
Attn.: Fred H. Marcusa, Esq.
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<PAGE> 98
To Purchaser:
WPAMS Acquisition Corp.
c/o E.M. Warburg, Pincus & Co., LLC
466 Lexington Avenue
New York, New York 10017
Telephone: (212) 878-0644
Telecopy: (212) 878-9361
Attn.: Elizabeth H. Weatherman
Managing Director
With a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
Telephone: (212) 728-8000
Telecopy: (212) 728-8111
Attn.: Christopher E. Manno, Esq.
Section 10.2. Amendment: Waiver. Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by Purchaser and Pfizer (on behalf of
the Seller Corporation), or in the case of a waiver, by the party against whom
the waiver is to be effective. No failure or delay by any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
Section 10.3. Assignment. Except as otherwise provided herein, no
party to this Agreement may assign any of its rights or obligations under this
Agreement including by sale of stock, operation of law in connection with a
merger or sale of substantially all the assets of Purchaser without the prior
written consent of Pfizer until the third anniversary hereof except that
Purchaser may without such consent assign its rights to purchase the Conveyed
Assets
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<PAGE> 99
hereunder to one or more Purchaser Affiliates, provided that no such assignment
by Purchaser shall relieve Purchaser of any of its obligations hereunder.
Notwithstanding the foregoing, after the Closing, Purchaser may assign its
rights under this Agreement to a subsequent purchaser who undertakes, on terms
reasonably satisfactory to Pfizer, to assume all of Purchaser's obligations
hereunder; provided, however, that any such assignment shall not relieve
Purchaser of any of its obligations hereunder.
Section 10.4. Entire Agreement. This Agreement (including all
Schedules and Exhibits hereto) contains the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral or written, with respect to such matters,
except for the Confidentiality Agreement which will remain in full force and
effect for the term provided for therein and other than any written agreement of
the parties that expressly provides that it is not superseded by this Agreement.
Section 10.5. Fulfillment of Obligations. Any obligation of any
party to any other party under this Agreement, which obligation is performed,
satisfied or fulfilled by an Affiliate of such party, shall be deemed to have
been performed, satisfied or fulfilled by such party.
Section 10.6. Parties in Interest. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than Purchaser, Seller Corporations,
or their successors or permitted assigns, any rights or remedies under or by
reason of this Agreement.
Section 10.7. Public Disclosure. Notwithstanding anything herein
to the contrary, each of the parties to this Agreement hereby agrees with the
other party hereto that,
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except as may be required to comply with the requirements of any applicable
Laws, and the rules and regulations of each stock exchange upon which the
securities of one of the parties is listed, if any, no press release or similar
public announcement or communication shall be made or caused to be made prior to
the Closing concerning the execution or performance of this Agreement unless the
parties shall have consulted in advance with respect thereto.
Section 10.8. Return of Information. If for any reason whatsoever
the transactions contemplated by this Agreement are not consummated, Purchaser
shall promptly return to Pfizer all books and records furnished by Pfizer, any
other Seller Corporation or any of their respective agents, employees, or
representatives (including all copies, summaries and abstracts, if any, thereof)
in accordance with the terms of the Confidentiality Agreement.
Section 10.9. Expenses. Except as otherwise expressly provided in
this Agreement, whether or not the transactions contemplated by this Agreement
are consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the party
incurring such expenses.
Section 10.10. Schedules. The disclosure of any matter in any
Schedule to this Agreement, as may be amended or supplemented prior to the
Closing, shall be deemed to be a disclosure for all purposes of this Agreement,
but shall expressly not be deemed to constitute an admission by any Seller
Corporation or Purchaser, or to otherwise imply, that any such matter is
material for the purposes of this Agreement.
Section 10.11. Governing Law. The agreement shall be governed by
the laws of the state of New York, its rules of conflict of laws
notwithstanding. Pfizer and Purchaser hereby agree and consent to be subject to
the jurisdiction of the United States District Court for the Southern District
of New York and in the absence of such Federal jurisdiction, the parties
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<PAGE> 101
consent to be subject to the jurisdiction of the Supreme Court of the State of
New York, County of New York.
Section 10.12. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, and all of
which shall constitute one and the same agreement.
Section 10.13. Headings. The heading references herein and the
table of contents hereto are for convenience purposes only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof
Section 10.14. Severability. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability of the other
provisions hereof If any provision of this Agreement, or the application thereof
to any person or entity or any circumstance, is invalid or unenforceable, (a) a
suitable and equitable provision shall be substituted therefor in order to carry
out, so far as may be valid and enforceable, the intent and purpose of such
invalid or unenforceable provision and (b) the remainder of this Agreement and
the application of such provision to other persons, entities or circumstances
shall not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of such
provision, or the application thereof, in any other jurisdiction.
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<PAGE> 102
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the date first written above.
PFIZER INC.
By: /s/ David L. Shedlarz
-------------------------------------
Name: David L. Shedlarz
Title: Senior Vice President and CFO
AMERICAN MEDICAL SYSTEMS, INC.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
HOWMEDICA INTERNATIONAL LIMITED
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
PFIZER HOSPITAL PRODUCTS (BELGIUM)
N.V.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
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<PAGE> 103
HOWMEDICA G.m.b.H.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
HOWMEDICA IBERICA, S.A.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
PFIZER CANADA INC.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
PFIZER S.A.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
PFICONPROD PTY. LIMITED
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
96
<PAGE> 104
SCHNEIDER (Europe) G.m.b.H. BY PFIZER,
INC.
By: /s/ David L. Shedlarz
-------------------------------------
Name: David L. Shedlarz
Title: Senior Vice President and CFO
WPAMS ACQUISITION CORP.
By: /s/ Elizabeth H. Weatherman
-------------------------------------
Name: Elizabeth H. Weatherman
Title: President
97
<PAGE> 1
AMENDMENT NO 1 TO
ASSET PURCHASE AGREEMENT
This Agreement is made and entered into as of the 10th day September,
1998 among Pfizer Inc., a Delaware corporation ("Pfizer"), the Asset selling
Corporations (as defined in the Asset Purchase Agreement) and WPAMS Acquisition
Corp., a Delaware corporation ("Purchaser").
WITNESSETH
WHEREAS, Pfizer, the Asset Selling Corporations and Purchaser are
parties to an Asset Purchase Agreement dated as of July 21, 1996 (the "Asset
purchase Agreement"); and
WHEREAS, Pfizer, the Asset Selling Corporations and Purchaser have
agreed to amend the Asset Purchase Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and undertakings contained herein, subject to and on the terms and
conditions herein set forth, and intending to be bound hereby, the parties agree
as follows:
ARTICLE I.
GENERAL
Section 1.1. Defined Terms. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in the Asset
Purchase Agreement.
Section 1.2. Governing Law. This Agreement shall be governed by the
laws of the State of New York, its rules of conflict of laws notwithstanding.
Pfizer and Purchaser hereby agree and consent to be subject to the jurisdiction
of the United States District Court for the Southern District of New York and in
the absence of such Federal jurisdiction, the parties consent to be subject to
the jurisdiction of the Supreme Court of the State of New York, County of New
York.
ARTICLE II.
AMENDMENTS
Section 2.1. Amendments. The Asset Purchase Agreement is amended as
follows:
(i) by deleting Section 7.12 in its entirety and
substituting the following therefor:
"As promptly as practicable after the date hereof,
Pfizer and Purchaser shall cause the Foreign
Implementing Agreements to be prepared and executed
by their applicable Affiliates. In the event of any
inconsistency between this Agreement and the Foreign
Implementing Agreements or between the Transitional
Services Agreement and the Foreign Implementing
Agreements, the provisions of this Agreement or the
Transitional Services Agreement, as the case may be,
shall govern. In no event shall the Foreign
Implementing Agreements
<PAGE> 2
expand any right or obligation of any party hereto,
all such rights and obligations to be as set forth in
and subject to the terms of this Agreement and the
Transitional Services Agreement.
(ii) by adding the following to the end of Sections 3.1(b)
and 3.1(c):
"except for the Foreign Implementing Agreement which
relates to the transfer of the French Conveyed Assets
and French Assumed Liabilities (which Foreign
Implementing Agreement will be delivered as soon
thereafter as permitted under applicable law)."
ARTICLE III.
GENERAL
Section 3.1. Asset Purchase Agreement. Except as expressly amended or
modified herein, the Asset Purchase Agreement (as amended hereby) shall continue
in full force and effect in accordance with the provisions hereof and thereof as
in existence on the date hereof. After the date hereof, any reference to the
Asset Purchase Agreement shall mean the Asset Purchase Agreement as amended by
this Agreement.
Section 3.2. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed or caused this Agreement
to be executed as of the date first written above.
PFIZER INC.
By: /s/ David L. Shedlarz
-------------------------------------
Name: David L. Shedlarz
Title: Senior Vice President and
Chief Financial Officer
AMERICAN MEDICAL SYSTEMS, INC.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
HOWMEDICA INTERNATIONAL LIMITED
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
2
<PAGE> 3
PFIZER HOSPITAL PRODUCTS (BELGIUM)
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title:. Attorney-in-Fact
HOWMEDICA G.M.B.H.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
HOWMEDICA IBERICA, S.A.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
PFIZER CANADA INC.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
PFIZER S.A.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
PFICONPROD PTY. LIMITED
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
SCHNEIDER (EUROPE) G.M.B.H. BY PFIZER INC.
By: /s/ P. Nigel Gray
-------------------------------------
Name: P. Nigel Gray
Title: Attorney-in-Fact
3
<PAGE> 4
WPAMS ACQUISITION CORP.
By: /s/ Elizabeth Weatherman
-------------------------------------
Name: Elizabeth Weatherman
Title: President
4
<PAGE> 1
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
Incorporated Under the Laws of
the State of Delaware
BY-LAWS
ARTICLE I
OFFICES.
The registered office of the Corporation in Delaware shall be at 1209 Orange
Street in the City of Wilmington, County of New Castle, in the State of
Delaware, and The Corporation Trust Company shall be the resident agent of this
Corporation in charge thereof. The Corporation may also have such other offices
at such other places, within or without the State of Delaware, as the Board of
Directors may from time to time designate or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS.
Section 1. Annual Meeting. The annual meeting of stockholders for the
election of directors and the transaction of any other business shall be held on
the 1st day of June each year, or as soon after such date as may be practicable,
in such city and state and at such time and place as may be designated by the
Board of Directors, and set forth in the notice of such meeting. If said day be
a legal holiday, said meeting shall be held on the next succeeding business day.
At the annual meeting any business may be transacted and any corporate action
may be taken, whether stated in the notice of meeting or not, except as
otherwise expressly provided by statute or the Certificate of Incorporation.
Section 2. Special Meetings. Special meetings of the stockholders for
any purpose may be called at any time by the Board of Directors, or by the
President, and shall be called by the President at the request of the holders of
a majority of the outstanding shares of capital stock entitled to vote. Special
meetings shall be held at such place or places within or without the State of
Delaware as shall from time to time be designated by the Board of Directors and
stated in the notice of such meeting. At a special meeting no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting.
Section 3. Notice of Meetings. Written notice of the time and place of
any stockholder's meeting, whether annual or special, shall be given to each
stockholder entitled to vote
<PAGE> 2
thereat, by personal delivery or by mailing the same to him at his address as
the same appears upon the records of the Corporation at least ten (10) days but
not more than sixty (60) days before the day of the meeting. Notice of any
adjourned meeting need not be given except by announcement at the meeting so
adjourned, unless otherwise ordered in connection with such adjournment. Such
further notice, if any, shall be given as may be required by law.
Section 4. Quorum. Any number of stockholders, together holding at
least a majority of the capital stock of the Corporation issued and outstanding
and entitled to vote, who shall be present in person or represented by proxy at
any meeting duly called, shall constitute a quorum for the transaction of all
business, except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws.
Section 5. Adjournment of Meetings. If less than a quorum shall attend
at the time for which a meeting shall have been called, the meeting may adjourn
from time to time by a majority vote of the stockholders present or represented
by proxy and entitled to vote without notice other than by announcement at the
meeting until a quorum shall attend. Any meeting at which a quorum is present
may also be adjourned in like manner and for such time or upon such call as may
be determined by a majority vote of the stockholders present or represented by
proxy and entitled to vote. At any adjourned meeting at which a quorum shall be
present, any business may be transacted and any corporate action may be taken
which might have been transacted at the meeting as originally called.
Section 6. Voting List. The Secretary shall prepare and make, at least
ten days before every election of directors, a complete list of the stockholders
entitled to vote, arranged in alphabetical order and showing the address of each
stockholder and the number of shares of each stockholder. Such list shall be
open at the place where the election is to be held for said ten days, to the
examination of any stockholder, and shall be produced and kept at the time and
place of election during the whole time thereof, and subject to the inspection
of any stockholder who may be present.
Section 7. Voting. Each stockholder entitled to vote at any meeting may
vote either in person or by proxy, but no proxy shall be voted on or after three
years from its date, unless said proxy provides for a longer period. Each
stockholder entitled to vote shall at every meeting of the stockholders be
entitled to one vote for each share of stock registered in his name on the
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<PAGE> 3
record of stockholders. At all meetings of stockholders all matters, except as
otherwise provided by statute, shall be determined by the affirmative vote of
the majority of shares present in person or by proxy and entitled to vote on the
subject matter. Voting at meetings of stockholders need not be by written
ballot.
Section 8. Record Date of Stockholders. The Board of Directors is
authorized to fix in advance a date not exceeding sixty days nor less than ten
days preceding the date of any meeting of stockholders, or the date for the
payment of any dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of capital stock shall go into effect,
or a date in connection with obtaining the consent of stockholders for any
purposes, as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any such meeting, and any adjournment thereof, or
entitled to receive payment of any such dividend, or to any such allotment of
rights, or to exercise the rights in respect of any such change, conversion or
exchange of capital stock, or to give such consent, and, in such case, such
stockholders and only such stockholders as shall be stockholders of record on
the date so fixed shall be entitled to such notice of, and to vote at, such
meeting, and any adjournment thereof, or to receive payment of such dividend, or
to receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation, after such record date fixed as aforesaid.
Section 9. Action Without Meeting. Any action required or permitted to
be taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
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<PAGE> 4
Section 10. Conduct of Meetings. The Chairman of the Board of Directors
or, in his absence the President or any Vice President designated by the
Chairman of the Board, shall preside at all regular or special meetings of
stockholders. To the maximum extent permitted by law, such presiding person
shall have the power to set procedural rules, including but not limited to rules
respecting the time allotted to stockholders to speak, governing all aspects of
the conduct of such meetings.
ARTICLE III
DIRECTORS.
Section 1. Number and Qualifications: The board of directors shall
consist initially of one director, and thereafter shall consist of such number
as may be fixed from time to time by resolution of the Board. The directors need
not be stockholders.
Section 2. Election of Directors: The directors shall be elected by the
stockholders at the annual meeting of stockholders.
Section 3. Duration of Office: The directors chosen at any annual
meeting shall, except as hereinafter provided, hold office until the next annual
election and until their successors are elected and qualify.
Section 4. Removal and Resignation of Directors: Any director may be
removed from the Board of Directors, with or without cause, by the holders of a
majority of the shares of capital stock entitled to vote, either by written
consent or consents or at any special meeting of the stockholders called for
that purpose, and the office of such director shall forthwith become vacant.
Any director may resign at any time. Such resignation shall take effect at the
time specified therein, and if no time be specified, at the time of its receipt
by the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective, unless so specified therein.
Section 5. Filling of Vacancies: Any vacancy among the directors,
occurring from any cause whatsoever, may be filled by a majority of the
remaining directors, though less than a quorum, provided however, that the
stockholders removing any director may at the same meeting fill the vacancy
caused by such removal, and provided further, that if the directors fail to fill
any such vacancy, the stockholders may at any special meeting called for that
purpose fill such vacancy. In case of any increase in the
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<PAGE> 5
number of directors, the additional directors may be elected by the directors in
office before such increase.
Any person elected to fill a vacancy shall hold office, subject to the right of
removal as hereinbefore provided, until the next annual election and until his
successor is elected and qualifies.
Section 6. Regular Meetings: The Board of Directors shall hold an
annual meeting for the purpose of organization and the transaction of any
business immediately after the annual meeting of the stockholders, provided a
quorum of directors is present. Other regular meetings may be held at such times
as may be determined from time to time by resolution of the Board of Directors.
Section 7. Special Meetings: Special meetings of the Board of Directors
may be called by the Chairman of the Board of Directors or by the President.
Section 8. Notice and Place of Meetings: Meetings of the Board of
Directors may be held at the principal office of the Corporation, or at such
other place as shall be stated in the notice of such meeting. Notice of any
special meeting, and, except as the Board of Directors may otherwise determine
by resolution, notice of any regular meeting also, shall be mailed to each
director addressed to him at his residence or usual place of business at least
two days before the day on which the meeting is to be held, or if sent to him at
such place by telegraph or cable, or delivered personally or by telephone, not
later than the day before the day on which the meeting is to be held. No notice
of the annual meeting of the Board of Directors shall be required if it is held
immediately after the annual meeting of the stockholders and if a quorum is
present.
Section 9. Business Transacted at Meetings, etc.: Any business may be
transacted and any corporate action may be taken at any regular or special
meeting of the Board of Directors at which a quorum shall be present, whether
such business or proposed action be stated in the notice of such meeting or not,
unless special notice of such business or proposed action shall be required by
statute.
Section 10. Quorum: A majority of the Board of Directors at any time in
office shall constitute a quorum. At any meeting at which a quorum is present,
the vote of a majority of the members present shall be the act of the Board of
Directors unless the act of a greater number is specifically required by law or
by the Certificate of Incorporation or these By-laws. The
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<PAGE> 6
members of the Board shall act only as the Board and the individual members
thereof shall not have any powers as such.
Section 11. Compensation: The directors shall not receive any stated
salary for their services as directors, but by resolution of the Board of
Directors a fixed fee and expenses of attendance may be allowed for attendance
at each meeting. Nothing herein contained shall preclude any director from
serving the Corporation in any other capacity, as an officer, agent or
otherwise, and receiving compensation therefor.
Section 12. Action Without a Meeting: Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
Section 13. Meetings Through Use of Communications Equipment: Members of
the Board of Directors, or any committee designated by the Board of Directors,
shall, except as otherwise provided by law, the Certificate of Incorporation or
these By-laws, have the power to participate in a meeting of the Board of
Directors, or any committee, by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at the meeting.
ARTICLE IV
COMMITTEES.
Section 1. Executive Committee: The Board of Directors may, by
resolution passed by a majority of the whole Board, designate two or more of
their number to constitute an Executive Committee to hold office at the pleasure
of the Board, which Committee shall, during the intervals between meetings of
the Board of Directors, have and exercise all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
subject only to such restrictions or limitations as the Board of Directors may
from time to time specify, or as limited by the Delaware Corporation Law, and
shall have power to authorize the seal of the Corporation to be affixed to all
papers which may require it.
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<PAGE> 7
Any member of the Executive Committee may be removed at any time, with or
without cause, by a resolution of a majority of the whole Board of Directors.
Any person ceasing to be a director shall ipso facto cease to be a member of the
Executive Committee.
Any vacancy in the Executive Committee occurring from any cause whatsoever may
be filled from among the directors by a resolution of a majority of the whole
Board of Directors.
Section 2. Other Committees: Other committees, whose members need not
be directors, may be appointed by the Board of Directors or the Executive
Committee, which committees shall hold office for such time and have such powers
and perform such duties as may from time to time be assigned to them by the
Board of Directors or the Executive Committee.
Any member of such a committee may be removed at any time, with or without
cause, by the Board of Directors or the Executive Committee. Any vacancy in a
committee occurring from any cause whatsoever may be filled by the Board of
Directors or the Executive Committee.
Section 3. Resignation: Any member of a committee may resign at any
time. Such resignation shall be made in writing and shall take effect at the
time specified therein, or, if no time be specified, at the time of its receipt
by the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective unless so specified therein.
Section 4. Quorum: A majority of the members of a committee shall
constitute a quorum. The act of a majority of the members of a committee present
at any meeting at which a quorum is present shall be the act of such committee.
The members of a committee shall act only as a committee, and the individual
members thereof shall not have any powers as such.
Section 5. Record of Proceedings, etc.: Each committee shall keep a
record of its acts and proceedings, and shall report the same to the Board of
Directors when and as required by the Board of Directors.
Section 6. Organization, Meetings, Notices, etc.: A committee may hold
its meetings at the principal office of the Corporation, or at any other place
which a majority of the committee may at any time agree upon. Each committee may
make such rules as it may deem expedient for the regulation and
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carrying on of its meetings and proceedings. Unless otherwise ordered by the
Executive Committee, any notice of a meeting of such committee may be given by
the Secretary of the Corporation or by the chairman of the committee and shall
be sufficiently given if mailed to each member at his residence or usual place
of business at least two days before the day on which the meeting is to be held,
or if sent to him at such place by telegraph or cable, or delivered personally
or by telephone not later than 24 hours before the time at which the meeting is
to be held.
Section 7. Compensation: The members of any committee shall be entitled
to such compensation as may be allowed them by resolution of the Board of
Directors.
ARTICLE V
OFFICERS.
Section 1. Number: The officers of the Corporation shall be a
President, one or more Vice-Presidents, a Secretary, one or more Assistant
Secretaries, a Treasurer, and one or more Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. The Board of Directors in its discretion may also elect a
Chairman of the Board of Directors.
Section 2. Election, Term of Office and Qualifications: The officers,
except as provided in Section 3 of this Article V, shall be chosen annually by
the Board of Directors. Each such officer shall, except as herein otherwise
provided, hold office until his successor shall have been chosen and shall
qualify. The Chairman of the Board of Directors, if any, and the President shall
be directors of the Corporation, and should any one of them cease to be a
director, he shall ipso facto cease to be such officer. Except as otherwise
provided by law, any number of offices may be held by the same person.
Section 3. Other Officers: Other officers, including one or more
additional vice-presidents, assistant secretaries or assistant treasurers, may
from time to time be appointed by the Board of Directors, which other officers
shall have such powers and perform such duties as may be assigned to them by the
Board of Directors or the officer or committee appointing them.
Section 4. Removal of Officers: Any officer of the Corporation may be
removed from office, with or without cause, by a vote of a majority of the Board
of Directors.
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Section 5. Resignation: Any officer of the Corporation may resign at
any time. Such resignation shall be in writing and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary in order to make it effective, unless so specified therein.
Section 6. Filling of Vacancies: A vacancy in any office shall be
filled by the Board of Directors or by the authority appointing the predecessor
in such office.
Section 7. Compensation: The compensation of the officers shall be
fixed by the Board of Directors, or by any committee upon whom power in that
regard may be conferred by the Board of Directors.
Section 8. Chairman of the Board of Directors: The Chairman of the
Board of Directors shall be a director and shall preside at all meetings of the
Board of Directors at which he shall be present, and shall have such power and
perform such duties as may from time to time be assigned to him by the Board of
Directors.
Section 9. President: The President shall, when present, preside at all
meetings of the stockholders, and, in the absence of the Chairman of the Board
of Directors, at meetings of the Board of Directors. He shall have power to call
special meetings of the stockholders or of the Board of Directors or of the
Executive Committee at any time. He shall be the chief executive officer of the
Corporation, and shall have the general direction of the business, affairs and
property of the Corporation, and of its several officers, and shall have and
exercise all such powers and discharge such duties as usually pertain to the
office of President.
Section 10. Vice-Presidents: The Vice-Presidents, or any of them, shall,
subject to the direction of the Board of Directors, at the request of the
President or in his absence, or in case of his inability to perform his duties
from any cause, perform the duties of the President, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the President.
The Vice-Presidents shall also perform such other duties as may be assigned to
them by the Board of Directors, and the Board of Directors may determine the
order of priority among them.
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Section 11. Secretary: The Secretary shall perform such duties as are
incident to the office of Secretary, or as may from time to time be assigned to
him by the Board of Directors, or as are prescribed by these By-laws.
Section 12. Treasurer: The Treasurer shall perform such duties and have
powers as are usually incident to the office of Treasurer or which may be
assigned to him by the Board of Directors.
ARTICLE VI
CAPITAL STOCK.
Section 1. Issue of Certificates of Stock: Certificates of capital
stock shall be in such form as shall be approved by the Board of Directors. They
shall be numbered in the order of their issue and shall be signed by the
Chairman of the Board of Directors, the President or one of the Vice-Presidents,
and the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and the seal of the Corporation or a facsimile thereof shall be
impressed or affixed or reproduced thereon, provided, however, that where such
certificates are signed by a transfer agent or an assistant transfer agent or by
a transfer clerk acting on behalf of the Corporation and a registrar, the
signature of any such Chairman of the Board of Directors, President,
Vice-President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer
may be facsimile. In case any officer or officers who shall have signed, or
whose facsimile signature or signatures shall have been used on any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates, or whose facsimile signature or signatures shall
have been used thereon have not ceased to be such officer or officers of the
Corporation.
Section 2. Registration and Transfer of Shares: The name of each person
owning a share of the capital stock of the Corporation shall be entered on the
books of the Corporation together with the number of shares held by him, the
numbers of the certificates covering such shares and the dates of issue of such
certificates. The shares of stock of the Corporation shall be transferable on
the books of the Corporation by the holders thereof in person, or by their duly
authorized attorneys or legal representatives, on surrender and cancellation of
certificates
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for a like number of shares, accompanied by an assignment or power of transfer
endorsed thereon or attached thereto, duly executed, and with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require. A record shall be made of each transfer.
The Board of Directors may make other and further rules and regulations
concerning the transfer and registration of certificates for stock and may
appoint a transfer agent or registrar or both and may require all certificates
of stock to bear the signature of either or both.
Section 3. Lost, Destroyed and Mutilated Certificates: The holder of
any stock of the Corporation shall immediately notify the Corporation of any
loss, theft, destruction or mutilation of the certificates therefor. The
Corporation may issue a new certificate of stock in the place of any certificate
theretofore issued by it alleged to have been lost, stolen or destroyed, and the
Board of Directors may, in its discretion, require the owner of the lost, stolen
or destroyed certificate, or his legal representatives, to give the Corporation
a bond, in such sum not exceeding double the value of the stock and with such
surety or sureties as they may require, to indemnify it against any claim that
may be made against it by reason of the issue of such new certificate and
against all other liability in the premises, or may remit such owner to such
remedy or remedies as he may have under the laws of the State of Delaware.
ARTICLE VII
DIVIDENDS, SURPLUS, ETC.
Section 1. General Discretion of Directors: The Board of Directors
shall have power to fix and vary the amount to be set aside or reserved as
working capital of the Corporation, or as reserves, or for other proper purposes
of the Corporation, and, subject to the requirements of the Certificate of
Incorporation, to determine whether any, if any, part of the surplus or net
profits of the Corporation shall be declared as dividends and paid to the
stockholders, and to fix the date or dates for the payment of dividends.
ARTICLE VIII
MISCELLANEOUS PROVISIONS.
Section 1. Fiscal Year: The fiscal year of the Corporation shall
commence on the first day of January and end on the last day of December.
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Section 2. Corporate Seal: The corporate seal shall be in such form as
approved by the Board of Directors and may be altered at their pleasure. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or reproduced or otherwise.
Section 3. Notices: Except as otherwise expressly provided, any notice
required by these By-laws to be given shall be sufficient if given by depositing
the same in a post office or letter box in a sealed postpaid wrapper addressed
to the person entitled thereto at his address, as the same appears upon the
books of the Corporation, or by telegraphing or cabling the same to such person
at such addresses; and such notice shall be deemed to be given at the time it is
mailed, telegraphed or cabled.
Section 4. Waiver of Notice: Any stockholder or director may at any
time, by writing or by telegraph or by cable, waive any notice required to be
given under these By-laws, and if any stockholder or director shall be present
at any meeting his presence shall constitute a waiver of such notice.
Section 5. Checks, Drafts, etc.: All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation, and in such manner, as shall from time to time be
designated by resolution of the Board of Directors.
Section 6. Deposits: All funds of the Corporation shall be deposited
from time to time to the credit of the Corporation in such bank or banks, trust
companies or other depositories as the Board of Directors may select, and, for
the purpose of such deposit, checks, drafts, warrants and other orders for the
payment of money which are payable to the order of the Corporation, may be
endorsed for deposit, assigned and delivered by any officer of the Corporation,
or by such agents of the Corporation as the Board of Directors or the President
may authorize for that purpose.
Section 7. Voting Stock of Other Corporations: Except as otherwise
ordered by the Board of Directors or the Executive Committee, the President or
the Treasurer shall have full power and authority on behalf of the Corporation
to attend and to act and to vote at any meeting of the stockholders of any
corporation of which the Corporation is a stockholder and to execute a proxy to
any other person to represent the Corporation at any such meeting, and at any
such meeting the President or the Treasurer or the holder of any such proxy, as
the case may be, shall
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possess and may exercise any and all rights and powers incident to ownership of
such stock and which, as owner thereof, the Corporation might have possessed and
exercised if present. The Board of Directors or the Executive Committee may from
time to time confer like powers upon any other person or persons.
Section 8. Indemnification of Officers and Directors: The Corporation
shall indemnify any and all of its directors or officers, including former
directors or officers, and any employee, who shall serve as an officer or
director of any corporation at the request of this Corporation, to the fullest
extent permitted under and in accordance with the laws of the State of Delaware.
ARTICLE IX
AMENDMENTS.
The Board of Directors shall have the power to make, rescind, alter, amend
and repeal these By-laws, provided, however, that the stockholders shall have
power to rescind, alter, amend or repeal any by-laws made by the Board of
Directors, and to enact by-laws which if so expressed shall not be rescinded,
altered, amended or repealed by the Board of Directors. No change of the time or
place for the annual meeting of the stockholders for the election of directors
shall be made except in accordance with the laws of the State of Delaware.
Dated: March 17, 2000
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AMERICAN MEDICAL SYSTEMS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into effective
as of April 23, 1999, between American Medical Systems, Inc., a Delaware
corporation (the "Company"), and Douglas W. Kohrs (the "Executive").
R E C I T A L S:
WHEREAS, the Company recognizes that the future growth,
profitability and success of the Company's business will be substantially and
materially enhanced by the employment of the Executive by the Company; and
WHEREAS, the Company desires to employ the Executive and the
Executive has indicated his willingness to provide his services to the Company,
on the terms and conditions set forth herein;
NOW, THEREFORE, on the basis of the foregoing premises and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
Section 1. Employment. The Company hereby agrees to employ the
Executive and the Executive hereby accepts employment with the Company, on the
terms and subject to the conditions hereinafter set forth. The Executive shall
serve as the President and Chief Executive Officer of the Company, and, in such
capacity, shall report directly to the Company's Board of Directors (the "Board
of Directors") and shall have such duties as are typically performed by the
chief executive officer of a corporation, together with such additional duties,
commensurate with the Executive's position as the Chief Executive Officer of the
Company, as may be assigned to the Executive from time to time by the Board of
Directors. The Executive shall also serve as a member of the Board of Directors
and shall have such duties, authority and responsibilities as shall be
consistent therewith. The principal location of the Executive's employment shall
be at the Company's principal executive office located in Minnetonka, Minnesota,
although the Executive understands and agrees that he may be required to travel
from time to time for Company business reasons.
Section 2. Term. Unless terminated pursuant to Section 6
hereof, the Executive's employment hereunder shall commence on the date hereof
and shall continue during the period ending on the second anniversary of the
date hereof (the "Initial Term"). Thereafter, the Executive's employment term
shall extend automatically for consecutive periods of one year unless either
party shall provide notice of termination not less than sixty
<PAGE> 2
(60) days prior to an anniversary date of this Agreement. The Initial Term,
together with any extension pursuant to this Section 2, is referred to herein as
the "Employment Term." The Employment Term shall terminate upon any termination
of the Executive's employment pursuant to Section 6.
Section 3. Compensation. During the Employment Term, the
Executive shall be entitled to the following compensation and benefits:
(a) Salary. As compensation for the performance of the
Executive's services hereunder, the Company shall pay to the Executive a base
salary (the "Salary") of $225,000 per annum with increases, if any, as may be
approved in writing by the Board of Directors. The Salary shall be payable in
accordance with the customary payroll practices of the Company as the same shall
exist from time to time. In no event shall the Salary be decreased during the
Employment Term.
(b) Bonus. During the Employment Term, in addition to Salary,
the Executive shall be eligible to receive an annual performance bonus (the
"Bonus") for each such calendar year ending during the Employment Period;
provided that, unless the Board of Directors determines otherwise, the Executive
must be employed on the last day of such calendar year in order to receive the
Bonus attributable thereto. The Executive's entitlement to the Bonus for any
particular calendar year shall be based on the attainment of performance
objectives established by the Board of Directors and communicated to the
Executive in writing at the beginning of each calendar year, provided that the
performance objectives for 1999 shall be annexed to this Agreement as Exhibit A
within 30 days after the effective date of this Agreement. If the Executive
achieves 100% of the stated performance objectives for any year, the Executive's
Bonus shall equal 40% of the Executive's Salary for such year. For each
percentage by which the Executive has exceeded 100% of the performance
objectives for any given year, the Executive shall receive an additional 1.5% of
the Executive's Salary for such year, provided that in no event shall the
Executive's total Bonus for any year exceed 70% of the Executive's Salary. The
Board of Directors shall determine the Executive's entitlement to the Bonus,
based on the achievement of the performance objectives for such year, as
determined by the Board of Directors and communicated to the Executive, in good
faith within sixty (60) days after the end of each such calendar year, which
shall be paid by the Company no later than ten days following such
determination.
(c) Benefits. Except as otherwise provided in this Agreement,
in addition to the Salary and Bonus, if any, the Executive shall be entitled
during the Employment Term to participate in health, insurance, pension,
retirement, disability, automobile and other benefit programs provided to the
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most senior executives of the Company on terms no less favorable than those
available to such senior executives of the Company. The Executive shall also be
entitled to the same number of vacation days, holidays, sick days and other
benefits as are generally allowed to other senior executives of the Company in
accordance with the Company's policies in effect from time to time, except that
the Executive shall be entitled to no less than four (4) weeks of vacation
during each calendar year.
(d) Stock Options. The Executive shall be granted, on the date
hereof, a stock option (the "Option") to acquire 150,000 shares of common stock,
$.01 par value per share, of the Company (the "Common Stock") at an exercise
price per share equal to five dollars ($5) (which the parties hereto agree is
the fair market value of a share of Common Stock on the date of the grant). All
of the terms and conditions relating to the Option are set forth in the Stock
Option Agreement executed by the Company and the Executive and attached hereto
as Exhibit B.
(e) Co-Investment. On the date hereof and continuing for a
period of ninety (90) days hereafter, the Executive shall be entitled to
purchase from Warburg, Pincus Equity Partners, L.P. ("WPEP") 250 shares of
series A non-convertible preferred stock of the Company (the "Series A Stock")
at a price per share equal to one thousand dollars ($1,000), and 50,000 shares
of series B convertible preferred stock of the Company (the "Series B Stock") at
a price per share equal to five dollars ($5), or such greater number of Series A
Stock and Series B Stock as the parties shall agree (the "Co-Investment"). As a
condition to the Executive's purchase of the Series A Stock and the Series B
Stock as provided in this Section 3(e), the Executive agrees to enter into an
agreement containing substantially the same stock transferability restrictions
as set forth in the Stockholders Agreement attached hereto as Exhibit C.
Section 4. Exclusivity. During the Employment Term, the
Executive shall devote his full time to the business of the Company and its
subsidiaries, shall faithfully serve the Company and its subsidiaries, shall in
all respects conform to and comply with the lawful and reasonable directions and
instructions given to him by the Board of Directors in accordance with the terms
of this Agreement, shall use his best efforts to promote and serve the interests
of the Company and its subsidiaries and shall not engage in any other business
activity, whether or not such activity shall be engaged in for pecuniary profit,
except that the Executive may (i) participate in the activities of professional
trade organizations related to the business of the Company and its subsidiaries,
(ii) engage in personal investing activities and (iii) serve on the board of
directors of not more than two (2) other companies whose businesses are not in
competition with the business interests of the Company, provided that the
activities set forth in these clauses (i), (ii) and (iii), either singly or in
the aggregate, do not interfere in any
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material respect with the services to be provided by the Executive hereunder.
Section 5. Reimbursement for Expenses. During the Employment
Term, the Executive is authorized to incur reasonable expenses in the discharge
of the services to be performed hereunder, including expenses for travel,
entertainment, lodging and similar items in accordance with the Company's
expense reimbursement policy, as the same may be modified by the Company from
time to time. The Company shall reimburse the Executive for all such proper
expenses upon presentation by the Executive of itemized accounts of such
expenditures in accordance with the financial policy of the Company, as in
effect from time to time.
Section 6. Termination and Default.
(a) Death. The Executive's employment shall automatically
terminate upon his death and upon such event, the Executive's estate shall be
entitled to receive the amounts specified in Section 6(e) below.
(b) Disability. If the Executive is unable to perform the
duties required of him under this Agreement because of illness, incapacity, or
physical or mental disability, the Employment Term shall continue and the
Company shall pay all compensation required to be paid to the Executive
hereunder, unless the Executive is disabled such that the Executive would be
entitled to receive disability benefits under the Company's long-term disability
plan, or if no such plan exists, the Executive is unable to perform the duties
required of him under this Agreement for an aggregate of 180 days (whether or
not consecutive) during any 12-month period during the term of this Agreement,
in which event the Executive's employment shall terminate.
(c) Cause. The Company may terminate the Executive's
employment at any time, with or without Cause. In the event of termination
pursuant to this Section 6(c) for Cause (as defined below), the Company shall
deliver to the Executive written notice setting forth the basis for such
termination, which notice shall specifically set forth the nature of the Cause
which is the reason for such termination. Termination of the Executive's
employment hereunder shall be effective upon delivery of such notice of
termination. For purposes of this Agreement, "Cause" shall mean: (i) the
Executive's failure (except where due to a disability contemplated by subsection
(b) hereof), neglect or refusal to perform his duties hereunder which failure,
neglect or refusal shall not have been corrected by the Executive within 30 days
of receipt by the Executive of written notice from the Company of such failure,
neglect or refusal, which notice shall specifically set forth the nature of said
failure, neglect or refusal, (ii) any willful or intentional act of the
Executive that has the effect of injuring the reputation or business of the
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Company or its affiliates in any material respect; (iii) any continued or
repeated absence from the Company, unless such absence is (A) approved or
excused by the Board of Directors or (B) is the result of the Executive's
illness, disability or incapacity (in which event the provisions of Section 6(b)
hereof shall control); (iv) use of illegal drugs by the Executive or repeated
drunkenness; (v) conviction of the Executive for the commission of a felony; or
(vi) the commission by the Executive of an act of fraud or embezzlement against
the Company.
(d) Resignation. The Executive shall have the right to
terminate his employment at any time by giving notice of his resignation.
(e) Payments. In the event that the Executive's employment
terminates for any reason, the Company shall pay to the Executive all amounts
and benefits accrued but unpaid hereunder through the date of termination in
respect of Salary or unreimbursed expenses, including accrued and unused
vacation. In addition, in the event the Executive's employment is terminated by
the Company without Cause, whether during or upon expiration of the current term
of this Agreement, in addition to the amounts specified in the foregoing
sentence, (i) the Executive shall continue to receive the Salary (less any
applicable withholding or similar taxes) at the rate in effect hereunder on the
date of such termination periodically, in accordance with the Company's
prevailing payroll practices, for a period of twelve (12) months following the
date of such termination (the "Severance Term") and (ii) to the extent
permissible under the Company's health and welfare plans, the Executive shall
continue to receive any health and welfare benefits provided to him as of the
date of such termination in accordance with Section 3(c) hereof during the
Severance Term, on the same basis and at the same cost as during the Employment
Term. Following the end of the Severance Term, the Executive shall be entitled
to elect health care continuation coverage permitted under Section 601 through
608 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), as if his employment had then terminated. In the event the Executive
accepts other employment or engages in his own business prior to the last date
of the Severance Term, the Executive shall forthwith notify the Company and the
Company shall be entitled to set off from amounts and benefits due the Executive
under this Section 6(e) (other than in respect of the Bonus) the amounts paid to
and benefits received by the Executive in respect of such other employment or
business activity. Amounts owed by the Company in respect of the Salary, Bonus
or reimbursement for expenses under the provisions of Section 5 hereof shall,
except as otherwise set forth in this Section 6(e), be paid promptly upon any
termination. The payments and benefits to be provided to the Executive as set
forth in this Section 6(e) in the event the Executive's employment is terminated
by the Company without Cause: (i) shall be lieu of any and all benefits
otherwise provided under any severance pay policy, plan or program
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maintained from time to time by the Company for its employees, (ii) shall not be
paid to the extent that Executive's employment is terminated following a Change
in Control under circumstances entitling the Executive to the benefits described
in Section 6(f).
(f) Change of Control Benefit. In the event that the
Executive's employment is terminated by the Company without Cause or by the
Executive for Good Reason, as defined below, during the 12-month period
immediately following a Change of Control, as defined below, whether during or
upon expiration of the current term of this Agreement: (i) the Company shall pay
to the Executive all amounts and benefits accrued but unpaid hereunder through
the date of termination in respect of Salary or unreimbursed expenses, including
accrued and unused vacation (less any applicable withholding or similar taxes),
(ii) all unvested shares that are subject to the Option shall become immediately
vested and exercisable as set forth in the Stock Option Agreement attached as
Exhibit B, (iii) the Company shall pay to Executive a lump sum payment equal to
his Salary at the rate in effect hereunder on the date of such termination, plus
his target Bonus in an amount equal to 40% of his Salary for the year in which
the Change of Control occurs (less any applicable withholding or similar taxes)
and (iv) to the extent permissible under the Company's health and welfare plans,
the Executive shall continue to receive, at the Company's cost, any health and
welfare benefits provided to him as of the date of such termination for the
12-month period following his termination of employment. Following the end of
the 12-month period described in clause (iv) of the preceding sentence, the
Executive shall be entitled to elect health care continuation coverage permitted
under Sections 601 through 608 of ERISA as if his employment with the Company
then terminated.
For purposes of this Agreement, "Change of Control" shall
mean:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or
more (on a fully diluted basis) of either (A) the then outstanding shares of
common stock of the Company, taking into account as outstanding for this purpose
such common stock issuable upon the exercise of options or warrants, the
conversion of convertible stock or debt, and the exercise of any similar right
to acquire such common stock (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change of
Control:
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(x) any acquisition by the Company or any "affiliate" of the Company, within the
meaning of 17 C.F.R. ss. 230.405 (an "Affiliate"), (y) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any Affiliate of the Company, (z) any acquisition by any corporation or
business entity pursuant to a transaction which complies with clauses (A), (B)
and (C) of subsection (ii) of this Section 6(f) (persons and entities described
in clauses (x), (y) and (z) being referred to herein as "Permitted Holders"); or
(ii) The consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, and (B) no Person (excluding any Permitted Holder) beneficially owns,
directly or indirectly, 50% or more (on a fully diluted basis) of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such Business Combination, taking into account as outstanding for this purpose
such common stock issuable upon the exercise of options or warrants, the
conversion of convertible stock or debt, and the exercise of any similar right
to acquire such common stock, or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (C) at least a majority
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the incumbent Board of Directors of the
Company at the time of the execution of the initial agreement providing for such
Business Combination; or
(iii) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company; or
(iv) The sale of at least 80% of the assets of the Company to
an unrelated party, or completion of a transaction having a similar effect; or
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(v) The individuals who on the date of this Agreement
constitute the Board of Directors thereafter cease to constitute at least a
majority thereof; provided that any person becoming a member of the Board of
Directors subsequent to the date of this Agreement and whose election or
nomination was approved by a vote of at least two-thirds of the directors who
then comprised the Board of Directors immediately prior to such vote shall be
considered a member of the Board of Directors on the date of this Agreement.
For purposes of this Agreement, "Good Reason" shall mean,
without the Executive's prior written consent, (i) a substantial diminution in
the Executive's authority, duties or responsibilities as in effect prior to the
Change of Control, (ii) a reduction by the Company in the Executive's base
Salary as in effect immediately prior to the Change of Control or as thereafter
increased, (iii) the failure by the Company to cover the Executive under
employee benefit plans that, in the aggregate, provide substantially similar
benefits to the Executive and/or his family and dependents at a substantially
similar total cost to the Executive (e.g., premiums, deductibles, co-pays, out
of pocket maximums, required contributions, taxes and the like) relative to the
benefits and total costs under such benefit plans in which the Executive (and/or
his family or dependents) was participating at any time during the 90-day period
immediately preceding the Change of Control, or (iv) the Company's requiring the
Executive to be based at any office or location that is more than fifty (50)
miles further from the office or location thereof immediately preceding a Change
in Control; provided, however, Good Reason shall not include any of the
circumstances or events described herein unless the Executive has first provided
written notice of such circumstance or event and the Company has not corrected
such circumstance or event within thirty (30) days of receipt by the Company of
such written notice from the Executive.
(g) Survival of Operative Sections. Upon any termination of
the Executive's employment, the provisions of Sections 6(e) 6(f) and 7 through
18 of this Agreement shall survive to the extent necessary to give effect to the
provisions thereof.
Section 7. Secrecy and Non-Competition.
(a) No Competing Employment. The Executive acknowledges that
the agreements and covenants contained in this Section 7 are essential to
protect the value of the Company's business and assets and by his current
employment with the Company and its subsidiaries, the Executive has obtained and
will obtain such knowledge, contacts, know-how, training and experience and
there is a substantial probability that such knowledge, know-how, contacts,
training and experience could be used to the substantial advantage of a
competitor of the Company
8
<PAGE> 9
and to the Company's substantial detriment. Therefore, the Executive agrees that
for the period commencing on the date of this Agreement and ending on the first
anniversary of the termination of the Executive's employment hereunder (such
period is hereinafter referred to as the "Restricted Period") with respect to
any State in which the Company is engaged in business during the Employment
Term, the Executive shall not participate or engage, directly or indirectly, for
himself or on behalf of or in conjunction with any person, partnership,
corporation or other entity, whether as an employee, agent, officer, director,
shareholder, partner, joint venturer, investor or otherwise, in any business
activities if such activity consists of any activity undertaken or expressly
contemplated to be undertaken by the Company or any of its subsidiaries or by
the Executive at any time during the last three (3) years of the Employment
Term. The foregoing restrictions contained in this Section 7(a) shall not
prevent the Executive from accepting employment with a large diversified
organization with separate and distinct divisions that do not compete, directly
or indirectly, with the Company, so long as prior to accepting such employment
the Company receives separate written assurances from the prospective employer
and from the Executive, satisfactory to the Company, to the effect that the
Executive will not render any services, directly or indirectly, to any division
or business unit that competes, directly or indirectly, with the Company. During
the Restricted Period, the Executive will inform any new employer, prior to
accepting employment, of the existence of this Agreement and provide such
employer with a copy of this Agreement.
(b) Nondisclosure of Confidential Information. The Executive,
except in connection with his employment hereunder, shall not disclose to any
person or entity or use, either during the Employment Term or at any time
thereafter, any information not in the public domain or generally known in the
industry that the Company treats as confidential or proprietary, in any form,
acquired by the Executive while employed by the Company or any predecessor to
the Company's business or, if acquired following the Employment Term, such
information which, to the Executive's knowledge, has been acquired, directly or
indirectly, from any person or entity owing a duty of confidentiality to the
Company or any of its subsidiaries or affiliates, relating to the Company, its
subsidiaries or affiliates, including but not limited to information regarding
customers, vendors, suppliers, trade secrets, training programs, manuals or
materials, technical information, contracts, systems, procedures, mailing lists,
know-how, trade names, improvements, price lists, financial or other data
(including the revenues, costs or profits associated with any of the Company's
products or services), business plans, code books, invoices and other financial
statements, computer programs, software systems, databases, discs and printouts,
plans (business, technical or otherwise), customer and industry lists,
correspondence, internal reports, personnel files, sales and advertising
material, telephone numbers, names, addresses or any
9
<PAGE> 10
other compilation of information, written or unwritten, which is or was used in
the business of the Company or any subsidiaries or affiliates thereof. The
Executive agrees and acknowledges that all of such information, in any form, and
copies and extracts thereof, are and shall remain the sole and exclusive
property of the Company, and upon termination of his employment with the
Company, the Executive shall return to the Company the originals and all copies
of any such information provided to or acquired by the Executive in connection
with the performance of his duties for the Company, and shall return to the
Company all files, correspondence and/or other communications received,
maintained and/or originated by the Executive during the course of his
employment.
(c) No Interference. During the Restricted Period, the
Executive shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization (other
than the Company), directly or indirectly solicit, endeavor to entice away from
the Company or its subsidiaries, or otherwise directly interfere with the
relationship of the Company or its subsidiaries with any person who, to the
knowledge of the Executive, is employed by or otherwise engaged to perform
services for the Company or its subsidiaries (including, but not limited to, any
independent sales representatives or organizations) or who is, or was within the
then most recent twelve-month period, a customer or client of the Company, its
predecessors or any of its subsidiaries. The placement of any general classified
or "help wanted" advertisements and/or general solicitations to the public at
large shall not constitute a violation of this Section 7(c) unless the
Executive's name is contained in such advertisements or solicitations.
(d) Inventions, etc. The Executive hereby sells, transfers and
assigns to the Company or to any person or entity designated by the Company all
of the entire right, title and interest of the Executive in and to all
inventions, ideas, disclosures and improvements, whether patented or unpatented,
and copyrightable material, made or conceived by the Executive, solely or
jointly, during his employment by the Company which relate to methods,
apparatus, designs, products, processes or devices, sold, leased, used or under
consideration or development by the Company, or which otherwise relate to or
pertain to the business, functions or operations of the Company or which arise
from the efforts of the Executive during the course of his employment for the
Company. The Executive shall communicate promptly and disclose to the Company,
in such form as the Company requests, all information, details and data
pertaining to the aforementioned inventions, ideas, disclosures and
improvements; and the Executive shall execute and deliver to the Company such
formal transfers and assignments and such other papers and documents as may be
necessary or required of the Executive to permit the Company or any person or
entity designated by the
10
<PAGE> 11
Company to file and prosecute the patent applications and, as to copyrightable
material, to obtain copyright thereof. Any invention relating to the business of
the Company and disclosed by the Executive within one year following the
termination of his employment with the Company shall be deemed to fall within
the provisions of this paragraph unless proved to have been first conceived and
made following such termination. The foregoing requirements of this Section 7(d)
shall not apply to any invention for which no equipment, supplies, facility or
trade secret information of the Company was used and which was developed
entirely on the Executive's own time, and (i) which does not relate directly to
the Company's business or to the Company's actual or demonstrably anticipated
research or development, or (ii) which does not result from any work the
Executive performed for the Company.
Section 8. Injunctive Relief. Without intending to limit the
remedies available to the Company, the Executive acknowledges that in the event
of a breach of any of the covenants contained in Section 7 hereof may result in
material irreparable injury to the Company or its subsidiaries or affiliates for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of such a
breach or threat thereof, the Company shall be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction, without the
necessity of proving irreparable harm or injury as a result of such breach or
threatened breach of Section 7 hereof, restraining the Executive from engaging
in activities prohibited by Section 7 hereof or such other relief as may be
required specifically to enforce any of the covenants in Section 7 hereof.
Section 9. Representations and Warranties of the Executive.
The Executive represents and warrants to the Company as follows:
(a) This Agreement, upon execution and delivery by the
Executive, will be duly executed and delivered by the Executive and (assuming
due execution and delivery hereof by the Company) will be the valid and binding
obligation of the Executive enforceable against the Executive in accordance with
its terms.
(b) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby nor the performance of this
Agreement in accordance with its terms and conditions by the Executive (i)
requires the approval or consent of any governmental body or of any other person
or (ii) conflicts with or results in any breach or violation of, or constitutes
(or with notice or lapse of time or both would constitute) a default under, any
agreement, instrument, judgment, decree, order, statute, rule, permit or
governmental regulation applicable to the Executive. Without limiting the
generality of the foregoing, the Executive is not a
11
<PAGE> 12
party to any non-competition, non-solicitation, no hire or similar agreement
that restricts in any way the Executive's ability to engage in any business or
to solicit or hire the employees of any person.
The representations and warranties of the Executive contained
in this Section 9 shall survive the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.
Section 10. Representations and Warranties of the Company. The
Company represents and warrants to the Executive as follows:
(a) This Agreement, upon execution and delivery by the
Company, will be duly executed and delivered by the Company and (assuming due
execution and delivery hereof by the Executive) will be the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
(b) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby nor the performance of this
Agreement in accordance with its terms and conditions by the Company (i)
requires the approval or consent of any governmental body or of any other person
or (ii) conflicts with or results in any breach or violation of, or constitutes
(or with notice or lapse of time or both would constitute) a default under, any
agreement, instrument, judgment, decree, order, statute, rule, permit or
governmental regulation applicable to the Company.
The representations and warranties of the Company contained in
this Section 10 shall survive the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.
Section 11. Successors and Assigns; No Third-Party
Beneficiaries. This Agreement shall inure to the benefit of, and be binding
upon, the successors and assigns of each of the parties, including, but not
limited to, the Executive's heirs and the personal representatives of the
Executive's estate; provided, however, that neither party shall assign or
delegate any of the obligations created under this Agreement without the prior
written consent of the other party. Notwithstanding the foregoing, the Company
shall have the unrestricted right to assign this Agreement and to delegate all
or any part of its obligations hereunder to any of its subsidiaries or
affiliates, but in such event such assignee shall expressly assume all
obligations of the Company hereunder and the Company shall remain fully liable
for the performance of all of such obligations in the manner prescribed in this
Agreement. Nothing in this Agreement shall confer upon any person or entity not
a party to this Agreement, or the legal representatives of such person or
12
<PAGE> 13
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
Section 12. Waiver and Amendments. Any waiver, alteration,
amendment or modification of any of the terms of this Agreement shall be valid
only if made in writing and signed by the parties hereto; provided, however,
that any such waiver, alteration, amendment or modification is consented to on
the Company's behalf by the Board of Directors. No waiver by either of the
parties hereto of their rights hereunder shall be deemed to constitute a waiver
with respect to any subsequent occurrences or transactions hereunder unless such
waiver specifically states that it is to be construed as a continuing waiver.
Section 13. Severability and Governing Law. The Executive
acknowledges and agrees that the covenants set forth in Section 7 hereof are
reasonable and valid in geographical and temporal scope and in all other
respects. If any of such covenants or such other provisions of this Agreement
are found to be invalid or unenforceable by a final determination of a court of
competent jurisdiction (a) the remaining terms and provisions hereof shall be
unimpaired and (b) the invalid or unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF MINNESOTA APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED, HOWEVER, THE PROVISIONS OF THIS
AGREEMENT RELATING TO THE OPTION AND THE CO-INVESTMENT UNDER SECTIONS 3(D) AND
3(E) HEREOF SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
Section 14. Notices.
(a) All communications under this Agreement shall be in
writing and shall be delivered by hand or mailed by overnight courier or by
registered or certified mail, postage prepaid:
(i) If to the Executive, at 7432 Hyde Park Drive, Edina, MN
55439, or at such other address as the Executive may have
furnished the Company in writing, and
(ii) If to the Company, at 466 Lexington Avenue, New York, New
York 10017, marked for the attention of the Board of
Directors, or at such other address as it may have furnished
in writing to the Executive.
(b) Any notice so addressed shall be deemed to be given: if
delivered by hand, on the date of such delivery; if
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<PAGE> 14
mailed by courier, on the first business day following the date of such mailing;
and if mailed by registered or certified mail, on the third business day after
the date of such mailing.
Section 15. Section Headings. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof, affect the meaning or interpretation of
this Agreement or of any term or provision hereof.
Section 16. Entire Agreement. This Agreement, including the
Exhibits hereto, constitutes the entire understanding and agreement of the
parties hereto regarding the employment of the Executive. This Agreement
supersedes all prior negotiations, discussions, correspondence, communications,
understandings and agreements between the parties relating to the subject matter
of this Agreement.
Section 17. Severability. In the event that any part or parts
of this Agreement shall be held illegal or unenforceable by any court or
administrative body of competent jurisdiction, such determination shall not
effect the remaining provisions of this Agreement which shall remain in full
force and effect.
Section 18. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original and all of
which together shall be considered one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
AMERICAN MEDICAL SYSTEMS, INC.
By: /s/ Janet L. Dick
--------------------------------
Name: Janet L. Dick
Title: VP Human Resources
/s/ Douglas W. Kohrs
-------------------------------------
Douglas W. Kohrs
14
<PAGE> 1
AMENDMENT TO THE EMPLOYMENT AGREEMENT OF DOUGLAS W. KOHRS
Amendment to the Employment Agreement, dated as of this 17th
day of April 2000 between Douglas W. Kohrs and American Medical Systems, Inc., a
Delaware corporation (the "Company").
R E C I T A L S
WHEREAS, Douglas W. Kohrs and the Company are parties to a
certain Employment Agreement of Douglas W. Kohrs, dated as of April 23, 1999
(the "Employment Agreement");
WHEREAS, the parties hereto have agreed to amend and restate
the Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
A. EMPLOYMENT AGREEMENT AMENDMENTS
1. The parties agree that Section 1 of the Employment
Agreement is hereby amended, effective April 17, 2000, by replacing it with the
following:
"Section 1. Employment. The Company hereby agrees to
employ the Executive and the Executive hereby accepts employment with
the Company, on the terms and subject to the conditions hereinafter set
forth. The Executive shall serve as the President and Chief Executive
Officer of the Company and its holding company, American Medical
Systems Holdings, Inc. ("AMSH"), and, in such capacity, shall report
directly to AMSH's Board of Directors (the "Board of Directors") and
shall have such duties as are typically performed by the chief
executive officer of a corporation, together with such additional
duties, commensurate with the Executive's position as the Chief
Executive Officer of AMSH and the Company, as may be assigned to the
Executive from time to time by the Board of Directors. The Executive
shall also serve as a member of the Board of Directors and shall have
such duties, authority and responsibilities as shall be consistent
therewith. The principal location of the Executive's employment shall
be at the Company's principal executive office located in Minnetonka,
Minnesota, although the Executive understands and agrees that he may be
required to travel from time to time for Company business reasons."
<PAGE> 2
B. MISCELLANEOUS
1. Governing Law. This agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed entirely within such State.
2. Successors and Assigns. This agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
3. Entire Agreement; Amendment and Waiver. This agreement and
the Employment Agreement constitute the entire understanding of the parties
hereto relating to the subject matter hereof and supersede all prior
understandings among such parties. This agreement may be amended, and the
observance of any term of this agreement may be waived, with (and only with) the
written consent of the parties hereto.
4. Severability. In the event that any part or parts of this
agreement shall be held illegal and unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this agreement which shall remain in full force and
effect.
5. Counterparts. This agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the date first above written.
AMERICAN MEDICAL SYSTEMS, INC.
By: /s/ Douglas W. Kohrs
--------------------------------
Name: Douglas W. Kohrs
Title: President and CEO
Douglas W. Kohrs
/s/ Douglas W. Kohrs
--------------------------------
<PAGE> 1
STOCK OPTION AGREEMENT
UNDER THE
AMS 1998 EQUITY INCENTIVE PLAN
THIS AGREEMENT, made as of April 23, 1999 (the "Effective
Date"), by and between American Medical Systems, Inc., a Delaware corporation
(the "Company"), and Douglas W. Kohrs (the "Participant").
W I T N E S S E T H:
WHEREAS, the Company and the Participant have entered into an
employment agreement dated as of April 23, 1999 (the "Employment Agreement"),
pursuant to which the Company is required to afford the Participant the
opportunity to acquire the Company's common stock, par value $.01 per share
("Stock"), so that the Participant may have a direct proprietary interest in the
Company's success.
NOW, THEREFORE, in consideration of the covenants and
agreements herein contained, the parties hereto hereby agree as follows:
1. Grant of Option. (a) Subject to the terms and conditions set forth
herein and in the AMS 1998 Equity Incentive Plan (the "Plan"), the Company
hereby grants to the Participant, during the period commencing on the date of
this Agreement and ending on April 23, 2009 (the "Expiration Date"), the right
and option (the right to purchase any one share of Stock hereunder being an
"Option") to purchase from the Company 69,375 shares of Stock. The Options shall
have an exercise price of $5.00 per share, which represents the Fair Market
Value per share of the Stock as of the date hereof. Each of the Options granted
pursuant to this Section 1(a) shall constitute Incentive Stock Options under the
Plan.
(b) Subject to the terms and conditions set forth herein and
in the Plan, the Company hereby also grants to the Participant, during the
period commencing on the date of this Agreement and ending on the Expiration
Date, Options to purchase from the Company 80,625 additional shares of Stock.
The Options shall have an exercise price of $5.00 per share, which represents
the Fair Market Value per share of the Stock as of the date hereof. Each of the
Options granted pursuant to this Section 1(b) shall constitute Nonqualified
Stock Options under the Plan.
2. Limitations on Exercise of Options. (a) The Incentive Stock Options
shall vest and become exercisable, on a cumulative basis, while the Participant
is employed by the Company as set forth in Exhibit A hereto. The Board may
accelerate the vesting and exercisability of any or all of the then-unvested
Incentive Stock Options at any time; provided, however, all Incentive Stock
<PAGE> 2
Options shall vest and be immediately exercisable in the event of a "Change of
Control" (as defined in the Employment Agreement).
(b) Subject to the terms and conditions set forth herein and
the Plan, the Nonqualified Stock Options shall vest and become exercisable, on a
cumulative basis, while the Participant is employed by the Company as set forth
in Exhibit B hereto. The Board may accelerate the vesting and exercisability of
any or all of the then-unvested Nonqualified Stock Options at any time;
provided, however, all of the Nonqualified Stock Options shall vest and be
immediately exercisable in the event of a Change of Control.
3. Termination of Employment. (a) If prior to the Expiration Date, the
Participant's employment shall be terminated by the Company by reason of a
disability, the Options shall remain exercisable until the earlier of the
Expiration Date or six (6) months after such date of termination (the "Date of
Termination") to the extent the Options were vested and exercisable as of the
Date of Termination.
(b) If the Participant shall cease to be employed by the
Company prior to the Expiration Date by reason of death, or the Participant
shall die while entitled to exercise any of the Options pursuant to paragraph
3(a) or paragraph 3(c), the executor or administrator of the estate of the
Participant or the person or persons to whom the Options shall have been validly
transferred by the executor or administrator pursuant to will or the laws of
descent and distribution shall have the right, until the earlier of the
Expiration Date or twelve (12) months after the date of death, to exercise the
Options to the extent that the Participant was entitled to exercise them on the
date of death.
(c) If, prior to the Expiration Date, the Participant's
employment with the Company is terminated for "Cause" (as defined in the
Employment Agreement), (i) unless otherwise provided by the Board, the Options,
to the extent not exercised as of the Date of Termination, shall lapse and be
canceled, and (ii) all shares of Stock received pursuant to an exercise of the
Options after such termination, in contravention of subsection (i) above, may be
purchased by the Company at its discretion for the exercise price of such shares
paid by the Participant.
(d) If, prior to the Expiration Date, the Company terminates
the Participant's employment without Cause (other than on account of a
disability), the Options, to the extent then vested and exercisable as of the
Date of Termination, shall remain exercisable until the earlier of the
Expiration Date or 90 days after the Date of Termination.
(e) If the Participant voluntarily terminates his employment
with the Company (i) prior to the first anniversary of
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<PAGE> 3
the Effective Date, all Options to the extent not exercised as of the Date of
Termination shall lapse and be canceled, or (ii) on or after the first
anniversary of the Effective Date, the Options shall remain exercisable until
the earlier of the Expiration Date or ninety (90) days after the Date of
Termination to the extent the Options were vested and exercisable as of the Date
of Termination.
(f) After the expiration of any exercise period described in
any of Sections 3(a) - (e) hereof, or otherwise upon the Expiration Date, the
Options shall terminate together with all of the Participant's rights hereunder,
to the extent not previously exercised.
4. Non-Transferable. Except as specifically authorized by the Board,
the Participant may not transfer the Options except by will or the laws of
descent and distribution and the Options shall be exercisable during the
Participant's lifetime only by the Participant or his guardian or legal
representative. Except as so authorized, no purported assignment or transfer of
the Options, or of the rights represented thereby, whether voluntary or
involuntary, by operation of law or otherwise (except by will or the laws of
descent and distribution), shall vest in the assignee or transferee any interest
or right herein whatsoever.
5. Adjustments and Corporate Reorganizations. In accordance with and
subject to the applicable terms of the Plan, the Options shall be subject to
adjustment or substitution, as determined by the Committee, as to the number,
price or kind of Stock or other consideration subject to such Options or as
otherwise determined by the Committee to be equitable (i) in the event of
changes in the outstanding Stock or in the capital structure of the Company by
reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the date
hereof or (ii) in the event of any change in applicable laws or any change in
circumstances which results in or would result in any substantial dilution or
enlargement of the rights granted to, or available for, the Participant. The
Company shall give the Participant written notice of an adjustment hereunder.
6. Exercise: Payment For and Delivery of Stock. The Options shall be
exercised by delivering written notice to the Committee stating the number of
shares of Stock to be purchased, the person or persons in whose name the shares
of Stock are to be registered and each such person's address and social security
number. Such notice shall not be effective unless accompanied by the full
purchase price for all shares to be purchased, and any applicable withholding
(as described below). The purchase price shall be payable in cash or in shares
of Stock or any combination thereof; provided, however, that the Participant may
use Stock in payment of the exercise price only if the shares so used are
considered "mature" for purposes of generally accepted accounting
-3-
<PAGE> 4
principles (i.e., (i) been held by the Participant free and clear for at least
six (6) months prior to the use thereof to pay part of an Option exercise price,
(ii) been purchased by the Participant in other than a compensatory transaction,
or (iii) meet any other requirements for "mature" shares as may exist on the
date of the use thereof to pay part of an Option exercise price). In the event
that all or part of the purchase price is paid in shares of Stock, the shares
used in payment shall be valued at their Fair Market Value on the date of
exercise of the Options. At the time of exercise, the Participant shall pay to
the Company, in cash, or by having the Company withhold upon exercise of the
Option a sufficient number of shares of Stock otherwise deliverable to the
Participant based on the Fair Market Value of the Stock on the date of exercise,
at the election of the Participant, such minimum amount as the Company deems
necessary to satisfy its obligation to withhold Federal, state or local income
or other taxes incurred by reason of the exercise or the transfer of shares
thereupon. Payment in currency or by certified or cashier's check shall be
considered payment in cash.
7. Rights as Stockholder. (a) The Participant or a transferee of the
Options shall have no rights as a stockholder with respect to any shares covered
by the Options until he shall have become the holder of record of such shares
(and the Company shall use its reasonable best efforts to cause the Participant
promptly to become the holder of record of such shares), and, except as provided
in Section 5 hereof, no adjustment shall be made for dividends or distributions
or other rights in respect of such shares for which the record date is prior to
the date upon which he shall become the holder or record thereof.
(b) The Participant acknowledges and agrees that the Stock
shall be "Shares" as such term is used in the Stockholders Agreement annexed to
the Executive's Employment Agreement as Exhibit B and, as such, will be subject
to certain restrictions, including restrictions on resale and such other
transfers.
8. Company; Participant. (a) The term "Company" as used in this
Agreement with reference to employment shall include the Company and its
affiliates.
(b) Whenever the word "Participant" is used in any provision
of this Agreement under circumstances where the provision should logically be
construed to apply to the executors, the administrators, legal representatives
or the person or persons to whom the Options may be transferred by will or by
the laws of descent and distribution, the word "Participant" shall be deemed to
include such person or persons.
9. Repurchase Rights. (a) Repurchase of Stock. At any time within the
90-day period immediately following the Date of Termination for any reason
(including by reason of death or disability), the Company shall have the right,
and not the obligation, to purchase and acquire from the Participant any or
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<PAGE> 5
all of the shares of Stock (the "Repurchased Shares"). The Company may exercise
the right granted to it under this Section 9(a) by delivering written notice to
the Participant during such 90-day period stating that the Company is exercising
the repurchase right granted to it under this Section 9(a). The delivery of such
notice by the Company to the Participant shall constitute a binding commitment
of the Company to purchase and acquire all of the Repurchased Shares. The total
purchase price for the Repurchased Shares shall be delivered to the Participant
against delivery by the Participant of certificates evidencing the Repurchased
Shares no later than 30 days after the delivery of the election notice by the
Company. The price per share of the Repurchased Shares (the "Share Repurchase
Price") shall be the Fair Market Value of each of the Repurchased Shares on the
date of the Company's delivery of its written notice to the Participant;
provided, however, that if the Participant's employment is terminated for Cause,
then the Share Repurchase Price shall be the lesser of such Fair Market Value or
the exercise price of the Option.
(b) Repurchase of Vested Options. At any time within the
90-day period immediately following the Date of Termination for any reason
(including by reason of death or disability), the Company shall have the right,
and not the obligation, to purchase and acquire from the Participant any or all
of the Participant's vested Options to the extent such vested Options are
exercisable (the "Repurchased Options"). The Company may exercise the right
granted to it under this Section 9(b) by delivering a written notice to the
Participant during such 90-day period stating that the Company is exercising the
repurchase right granted to it under this Section 9(b). The delivery of such
notice by the Company to the Participant shall constitute a binding commitment
of the Company to purchase and acquire all of the Repurchased Options. The total
purchase price for the Repurchased Options shall be delivered to the Participant
against delivery by the Participant of this Agreement no later than 30 days
after the delivery of the election notice by the Company. The Option repurchase
price (the "Option Repurchase Price") shall be an amount equal to the Share
Repurchase Price on the date of the Company's delivery of its written notice to
the Participant under Section 9(a), above, less the exercise price then
applicable to each Repurchased Option (such repurchase shall only be made to the
extent such Option is exercisable as set forth above).
(c) Limitation on Repurchase Rights. Anything in this Section
9 to the contrary, the Company shall not be obligated to purchase any Stock or
Options at any time to the extent that the purchase would result in a violation
of any law, statute, rule, regulation, order, writ, injunction, decree or
judgment promulgated or entered by any Federal, state, local or foreign court or
governmental authority applicable to the Company or any of its property.
Anything in this Section 9 to the contrary, the Company's right to purchase any
Stock or Options hereunder shall expire in the event of an IPO
-5-
<PAGE> 6
10. Requirements of Law. (a) By accepting the Options, the Participant
represents and agrees for himself and his transferees (whether by will or the
laws of descent and distribution) that, unless a registration statement under
the Securities Act of 1933, as amended (the "Act"), is in effect as to shares
purchased upon any exercise of the Options, (i) any and all shares so purchased
shall be acquired for his personal account and not with a view to or for sale in
connection with any distribution, and (ii) each notice of the exercise of any
portion of this Option shall be accompanied by a representation and warranty in
writing, signed by the person entitled to exercise the same, that the shares are
being so acquired in good faith for his personal account and not with a view to
or for sale in connection with any distribution.
(b) No certificate or certificates for shares of Stock may be
purchased, issued or transferred if the exercise hereof or the issuance or
transfer of such shares shall constitute a violation by the Company or the
Participant of any (i) provision of any Federal, state or other securities law,
(ii) requirement of any securities exchange listing agreement to which the
Company may be a party, or (iii) other requirement of law or of any regulatory
body having jurisdiction over the Company. Any reasonable determination in this
connection by the Board, upon notice given to the Participant, shall be final,
binding and conclusive.
(c) The certificates representing shares of Stock acquired
pursuant to the exercise of options shall carry such appropriate legend, and
such written instructions shall be given to the Company's transfer agent, as may
be deemed necessary or advisable by counsel to the Company in order to comply
with the requirements of the Act or any state securities laws.
11. Notices. Any notice to be given to either party shall be in writing
and shall be given by hand delivery to such party or by registered or certified
mail, return receipt requested, postage prepaid, addressed to the Company in
care of its Secretary at its principal office, and to the Participant at the
address given beneath his signature hereto, or at such other address as either
party shall have furnished to the other in writing in accordance herewith.
Notice and communications shall be effective when actually received by the
addressee.
12. Disposition of Stock. The Participant agrees to notify the Company,
in writing, within thirty (30) days of any disposition (whether by sale,
exchange, gift or otherwise) of shares of Stock purchased under this Agreement
with respect to an Incentive Stock Option, within two (2) years from the date of
the granting of such Options or within one (1) year of the transfer of such
shares of Stock to the Participant.
-6-
<PAGE> 7
13. Binding Effect. Subject to Section 4 hereof, this Agreement shall
be binding upon the heirs, executors, administrators, successors and permitted
assigns of the parties hereto.
14. Plan. The terms and provisions of the Plan are incorporated herein
by reference and made a part hereof as though fully set forth herein. In the
event of any conflict or inconsistency between discretionary terms and
provisions of this Agreement, this Agreement shall govern and control. In all
other instances of conflicts or inconsistencies or omissions, the terms and
provisions of the Plan shall govern and control. All capitalized terms not
otherwise expressly defined in this Agreement shall have the meaning ascribed to
them in the Plan.
15. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law thereof.
16. Entire Agreement. This Agreement, together with the Plan, the
Employment Agreement and the Stockholders Agreement, contains the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements, written or oral, with respect
thereto.
IN WITNESS WHEREOF, the Company has granted this Option on the
date of grant specified above.
This instrument may be executed in any number of counterparts,
each of which shall be deemed to be an original, and such counterparts together
shall constitute one and the same instrument.
AMERICAN MEDICAL SYSTEMS, INC.
By: /s/ Gregory J. Melsen
---------------------------------
Name: Gregory J. Melsen
Title: Chief Financial Officer
ACCEPTED:
/s/ Douglas W. Kohrs
- -------------------------
Douglas W. Kohrs
7432 Hyde Park Drive
Edina, MN 55439
-7-
<PAGE> 8
EXHIBIT A
AMS 1998 EQUITY INCENTIVE PLAN
INCENTIVE STOCK OPTION VESTING SCHEDULE
FOR DOUGLAS W. KOHRS
<TABLE>
<CAPTION>
ANNIVERSARY OF
YEAR EFFECTIVE DATE 3/31 6/30 9/30 12/31 TOTAL
---- -------------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
2000 20,000 20,000
2001 5,000 5,000 5,000 5,000 20,000
2002 5,000 5,000 5,000 5,000 20,000
2003 9,375 9,375
69,375
</TABLE>
<PAGE> 9
EXHIBIT B
AMS 1998 EQUITY INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION SCHEDULE
FOR DOUGLAS W. KOHRS
<TABLE>
<CAPTION>
ANNIVERSARY OF
YEAR EFFECTIVE DATE 3/31 6/30 9/30 12/31 TOTAL
---- -------------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
2000 17,500 9,375 9,375 9,375 45,625
2001 4,375 4,375 4,375 4,375 17,500
2002 4,375 4,375 4,375 4,375 17,500
2003
80,625
</TABLE>
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into
effective as of March 24, 1999, between American Medical Systems, Inc., a
Delaware corporation (the "Company"), and Greg Melsen (the "Executive").
R E C I T A L S:
WHEREAS, the Company recognizes that the future growth, profitability
and success of the Company's business will be substantially and materially
enhanced by the employment of the Executive by the Company;
WHEREAS, the Company desires to employ the Executive and the Executive
has indicated his willingness to provide his services, on the terms and
conditions set forth herein;
NOW, THEREFORE, on the basis of the foregoing premises and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
Section 1. Employment. The Company hereby agrees to employ the
Executive and the Executive hereby accepts employment with the Company, on the
terms and subject to the conditions hereinafter set forth. The Executive shall
serve as Vice President and Chief Financial Officer of the Company, and, in such
capacity, shall report directly to the Company's President or Chief Executive
Officer and shall have such duties as are typically performed by the chief
financial officer of a corporation, together with such additional duties,
commensurate with the Executive's position as the Chief Financial Officer of the
Company, as may be assigned to the Executive from time to time by the Company's
President or Chief Executive Officer. The principal location of the Executive's
employment shall be at the Company's principal executive office located in
Minnetonka, Minnesota, although the Executive understands and agrees that he may
be required to travel from time to time for Company business reasons.
Section 2. Term. Unless terminated pursuant to Section 6 hereof, the
Executive's employment hereunder shall commence on the date hereof and shall
continue during the period ending on the second anniversary of the date hereof
(the "Initial Term"). Thereafter, the Executive's employment term shall extend
automatically for consecutive periods of one year unless either party shall
provide notice of termination not less than sixty (60) days prior to an
anniversary date of this Agreement. The Initial Term, together with any
extension pursuant to this Section 2, is referred to herein as the "Employment
Term." The Employment Term shall terminate upon any termination of the
Executive's employment pursuant to Section 6.
Section 3. Compensation. During the Employment Term, the Executive
shall be entitled to the following compensation and benefits:
(a) Salary. As compensation for the performance of the Executive's
services hereunder, the Company shall pay to the Executive a salary (the
"Salary") of $155,000 per year with increases, if any, as may be approved in
writing by the Company's, President, Chief Executive Officer or Board of
Directors. The Salary shall be payable in accordance with the payroll practices
of the Company as the same shall exist from time to time. In no event shall the
Salary be decreased during the Employment Term.
<PAGE> 2
(b) Bonus. During the Employment Term, in addition to Salary, the
Executive shall be eligible to participate in such bonus plans as may be adopted
from time by the Board of Directors for other vice presidents of the Company
(the "Bonus"); provided that, unless the Board of Directors determines
otherwise, the Executive must be employed on the last day of such calendar year
in order to receive the Bonus attributable thereto. The Executive's entitlement
to the Bonus for any particular calendar year shall be based on the attainment
of performance objectives established by the Board of Directors in any such
bonus plan.
(c) Benefits. Except as otherwise provided in this Agreement, in
addition to the Salary and Bonus, if any, the Executive shall be entitled during
the Employment Term to participate in health, insurance, pension, retirement,
disability and other benefit programs provided to other vice presidents of the
Company on terms no less favorable than those available to other vice presidents
of the Company. The Executive shall also be entitled to the same number of
vacation days, holidays, sick days and other benefits as are generally allowed
to other vice presidents of the Company in accordance with the Company's
policies in effect from time to time, except that the Executive shall be
entitled to four weeks of vacation or the amount to which the Executive would
otherwise be entitled under the Company's vacation policy, whichever is greater.
(d) Stock Options. The Executive shall be granted, effective the date
hereof, an incentive stock option (the "Option") to purchase 50,000 shares of
common stock, $.0l par value per share, of the Company (the "Common Stock") at
an exercise price per share equal to $5.00 (which the parties hereto agree is
the fair market value of a share of Common Stock on the date of the grant). The
Option shall have a term of ten years from the date of grant and shall vest, on
a cumulative basis, with respect to 12,500 shares on December 31, 1999 and with
respect to 3,125 on the last day of each calendar quarter thereafter while the
Participant is employed by the Company. All of the terms and conditions relating
to the Option are set forth in the Incentive Stock Option Agreement executed by
the Company and the Executive and attached hereto as Exhibit A.
Section 4. Exclusivity. During the Employment Term, the Executive shall
devote his full time to the business of the Company and its subsidiaries, shall
faithfully serve the Company and its subsidiaries, shall in all respects conform
to and comply with the lawful and reasonable directions and instructions given
to him by the President or Chief Executive Officer in accordance with the terms
of this Agreement, shall use his best efforts to promote and serve the interests
of the Company and its subsidiaries and shall not engage in any other business
activity, whether or not such activity shall be engaged in for pecuniary profit,
except that the Executive may (i) participate in the activities of professional
trade organizations related to the business of the Company and its subsidiaries,
(ii) engage in personal investing activities and (iii) serve on the Board of
Directors of Burns Engineering and non-profit organizations, provided that the
activities set forth in these clauses (i), (ii) and (iii), either singly or in
the aggregate, do not interfere in any material respect with the services to be
provided by the Executive hereunder.
Section 5. Reimbursement for Expenses. During the Employment Term, the
Executive is authorized to incur reasonable expenses in the discharge of the
services to be performed hereunder, including expenses for travel,
entertainment, lodging and similar items in accordance with the Company's
expense reimbursement policy, as the same may be modified by the
2
<PAGE> 3
Company from time to time. The Company shall reimburse the Executive for all
such proper expenses upon presentation by the Executive of itemized accounts of
such expenditures in accordance with the financial policy of the Company, as in
effect from time to time.
Section 6. Termination and Default.
(a) Death. The Executive's employment shall automatically terminate
upon his death and upon such event, the Executive's estate shall be entitled to
receive the amounts specified in Section 6(e) below.
(b) Disability. If the Executive is unable to perform the duties
required of him under this Agreement because of illness, incapacity, or physical
or mental disability, the Employment Term shall continue and the Company shall
pay all compensation required to be paid to the Executive hereunder, unless the
Executive is disabled such that the Executive would be entitled to receive
disability benefits under the Company's long-term disability plan, or if no such
plan exists, the Executive is unable to perform the duties required of him under
this Agreement for an aggregate of 180 days (whether or not consecutive) during
any 12-month period during the term of this Agreement, in which event the
Executive's employment shall terminate.
(c) Cause. The Company may terminate the Executive's employment at any
time, with or without Cause. In the event of termination pursuant to this
Section 6(c) for Cause (as defined below), the Company shall deliver to the
Executive written notice setting forth the basis for such termination, which
notice shall specifically set forth the nature of the Cause which is the reason
for such termination. Termination of the Executive's employment hereunder shall
be effective upon delivery of such notice of termination. For purposes of this
Agreement, "Cause" shall mean: (i) the Executive's failure (except where due to
a disability contemplated by subsection (b) hereof), neglect or refusal to
perform his duties hereunder which failure, neglect or refusal shall not have
been corrected by the Executive within 30 days of receipt by the Executive of
written notice from the Company of such failure, neglect or refusal, which
notice shall specifically set forth the nature of said failure, neglect or
refusal, (ii) any willful or intentional act of the Executive that has the
effect of injuring the reputation or business of the Company or its affiliates
in any material respect; (iii) any continued or repeated absence from the
Company, unless such absence is (A) approved or excused by the President or
Chief Executive Officer or (B) is the result of the Executive's illness,
disability or incapacity (in which event the provisions of Section 6(b) hereof
shall control); (iv) use of illegal drugs by the Executive or repeated
drunkenness; (v) conviction of the Executive for the commission of a felony; or
(vi) the commission by the Executive of an act of fraud or embezzlement against
the Company.
(d) Resignation. The Executive shall have the right to terminate his
employment at any time by giving notice of his resignation.
(e) Payments. In the event that the Executive's employment terminates
for any reason, the Company shall pay to the Executive all amounts and benefits
accrued but unpaid hereunder through the date of termination in respect of
Salary or unreimbursed expenses, including accrued and unused vacation. In
addition, in the event the Executive's employment is terminated by the Company
without Cause, whether during or upon expiration of the current term of this
Agreement, in addition to the amounts specified in the foregoing sentence, (i)
the
3
<PAGE> 4
Executive shall continue to receive the Salary (less any applicable withholding
or similar taxes) at the rate in effect hereunder on the date of such
termination periodically, in accordance with the Company's prevailing payroll
practices, for a period of twelve months following the date of such termination
(the "Severance Term") and (ii) to the extent permissible under the Company's
health and welfare plans, the Executive shall continue to receive any health and
welfare benefits provided to him as of the date of such termination in
accordance with Section 3(c) hereof during the Severance Term, on the same basis
and at the same cost as during the Employment Term. Following the end of the
Severance Term, the Executive shall be entitled to elect health care
continuation coverage permitted under Section 601 through 608 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), as if his
employment had then terminated. Further, in the event the Executive's employment
is terminated without Cause by reason of the Company having notified the
Executive that this Agreement will not be extended pursuant to Section 2, the
Executive shall be entitled to receive a pro-rated amount of the Bonus in a lump
sum based on the Executive's period of employment during the calendar year in
which such termination occurs (less any applicable withholding or similar
taxes). In the event the Executive accepts other employment prior to the last
date of the Severance Term, the Executive shall forthwith notify the Company and
the Company shall be entitled to set off from amounts and benefits due the
Executive under this Section 6(e) (other than in respect of the Bonus) the
amounts paid to and benefits received by the Executive in respect of such other
employment. Amounts owed by the Company in respect of the Salary, Bonus or
reimbursement for expenses under the provisions of Section 5 hereof shall,
except as otherwise set forth in this Section 6(e), be paid promptly upon any
termination. The payments and benefits to be provided to the Executive as set
forth in this Section 6(e) in the event the Executive's employment is terminated
by the Company without Cause: (i) shall be lieu of any and all benefits
otherwise provided under any severance pay policy, plan or program maintained
from time to time by the Company for its employees, (ii) shall not be paid to
the extent that Executive's employment is terminated following a Change in
Control under circumstances entitling the Executive to the benefits described in
Section 6(f).
(f) Change of Control Benefit. In the event that the Executive's
employment is terminated by the Company without Cause or by the Executive for
Good Reason, as defined below, during the 12-month period immediately following
a Change of Control, as defined below, whether during or upon expiration of the
current term of this Agreement: (i) the Company shall pay to the Executive all
amounts and benefits accrued but unpaid hereunder through the date of
termination in respect of Salary or unreimbursed expenses, including accrued and
unused vacation (less any applicable withholding or similar taxes), (ii) all
unvested shares that are subject to the Option shall become immediately vested
and exercisable as set forth in the Incentive Stock Option Agreement attached as
Exhibit A, (iii) the Company shall pay to Executive a lump sum payment equal to
his Salary at the rate in effect hereunder on the date of such termination, plus
his maximum target Bonus (up to a maximum of 40% of his then current annual
Salary) for the year in which the Change of Control occurs (less any applicable
withholding or similar taxes) and (iv) to the extent permissible under the
Company's health and welfare plans, the Executive shall continue to receive, at
the Company's cost, any health and welfare benefits provided to him as of the
date of such termination for the 12-month period following his termination of
employment. Any payments due under this Section 6(f) shall be made within five
(5) business days of termination of Executive's employment. Following the end of
the 12-month period described in clause (iv) of the preceding sentence, the
Executive
4
<PAGE> 5
shall be entitled to elect health care continuation coverage permitted under
Sections 601 through 608 of the Employee Retirement Income Security Act of 1974,
as amended, as if his employment with the Company then terminated.
For the purposes of this Agreement, "Change of Control" shall
mean:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or
more (on a fully diluted basis) of either (A) the then outstanding shares of
common stock of the Company, taking into account as outstanding for this purpose
such common stock issuable upon the exercise of options or warrants, the
conversion of convertible stock or debt, and the exercise of any similar right
to acquire such common stock (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change of
Control: (x) any acquisition by the Company or any "affiliate" of the Company,
within the meaning of 17 C.F.R. ss. 230.405 (an "Affiliate"), (y) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Affiliate of the Company, (z) any acquisition
by any corporation pursuant to a transaction which complies with clauses (A),
(B) and (C) of subsection (ii) of this Section 6(f) (persons and entities
described in clauses (x), (y) and (z) being referred to herein as "Permitted
Holders"); or
(ii) The consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, and (B) no Person (excluding any Permitted Holder) beneficially owns,
directly or indirectly, 50% or more (on a fully diluted basis) of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such Business Combination, taking into account as outstanding for this purpose
such common stock issuable upon the exercise of options or warrants, the
conversion of convertible stock or debt, and the exercise of any similar right
to acquire such common stock, or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (C) at least a majority
of the members of the board of directors of the corporation resulting from such
Business Combination were
5
<PAGE> 6
members of the incumbent Board of Directors of the Company at the time of the
execution of the initial agreement providing for such Business Combination; or
(iii) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company; or
(iv) The sale of at least 80% of the assets of the Company to
an unrelated party, or completion of a transaction having a similar effect; or
(v) The individuals who on the date of this Agreement
constitute the Board of Directors thereafter cease to constitute at least a
majority thereof; provided that any person becoming a member of the Board of
Directors subsequent to the date of this Agreement and whose election or
nomination was approved by a vote of at least two-thirds of the directors who
then comprised the Board of Directors immediately prior to such vote shall be
considered a member of the Board of Directors on the date of this Agreement.
For purposes of this Agreement, "Good Reason" shall mean,
without the Executive's prior written consent, (i) a substantial diminution in
the Executive's authority, duties or responsibilities as in effect prior to the
Change in Control, (ii) a reduction by the Company in the Executive's base
salary, or an adverse change in the form or timing of the payment thereof, as in
effect immediately prior to the Change in Control or as thereafter increased,
(iii) the failure by the Company to cover the Executive under employee benefit
plans that, in the aggregate, provide substantially similar benefits to the
Executive and/or his or her family and dependents at a substantially similar
total cost to the Executive (e.g., premiums, deductibles, co-pays, out of pocket
maximums, required contributions, taxes and the like) relative to the benefits
and total costs under such benefit plans in which the Executive (and/or his or
her family or dependents) were participating at any time during the 90-day
period immediately preceding the Change in Control, or (iv) the Company's
requiring the Executive to be based at any office or location that is more than
fifty (50) miles further from the office or location thereof immediately
preceding a Change in Control; provided, however, Good Reason shall not include
any of the circumstances or events described herein unless the Executive has
first provided written notice of such circumstance or event and the Company has
not corrected such circumstance or event within thirty (30) days of receipt by
the Company of such written notice from the Participant.
(g) Survival of Operative Sections. Upon any termination of the
Executive's employment, the provisions of Sections 6(e) 6(f) and 7 through 17 of
this Agreement shall survive to the extent necessary to give effect to the
provisions thereof.
Section 7. Secrecy and Non-Competition. The Executive reaffirms his
obligations under the Secrecy and Non-Competition Agreement, dated March 11,
1999, between the Company and the Executive. The Company agrees that the
restrictions contained in Section 1(a) of the Secrecy and Non-Competition
Agreement shall not prohibit the Executive from owning up to one percent (1.0%)
of the outstanding capital stock of a publicly held entity that competes with
the Company.
Section 8. Representations and Warranties of the Executive. The
Executive represents and warrants to the Company as follows:
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<PAGE> 7
(a) This Agreement, upon execution and delivery by the Executive, will
be duly executed and delivered by the Executive and (assuming due execution and
delivery hereof by the Company) will be the valid and binding obligation of the
Executive enforceable against the Executive in accordance with its terms.
(b) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby nor the performance of this
Agreement in accordance with its terms and conditions by the Executive (i)
requires the approval or consent of any governmental body or of any other person
or (ii) conflicts with or results in any breach or violation of, or constitutes
(or with notice or lapse of time or both would constitute) a default under, any
agreement, instrument, judgment, decree, order, statute, rule, permit or
governmental regulation applicable to the Executive. Without limiting the
generality of the foregoing, the Executive is not a party to any
non-competition, non-solicitation, no hire or similar agreement that restricts
in any way the Executive's ability to engage in any business or to solicit or
hire the employees of any person.
The representations and warranties of the Executive contained in this
Section 8 shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
Section 9. Representations and Warranties of the Company. The Company
represents and warrants to the Executive as follows:
(a) This Agreement, upon execution and delivery by the Company, will be
duly executed and delivered by the Company and (assuming due execution and
delivery hereof by the Executive) will be the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.
(b) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby nor the performance of this
Agreement in accordance with its terms and conditions by the Company (i)
requires the approval or consent of any governmental body or of any other person
or (ii) conflicts with or results in any breach or violation of, or constitutes
(or with notice or lapse of time or both would constitute) a default under, any
agreement, instrument, judgment, decree, order, statute, rule, permit or
governmental regulation applicable to the Company.
The representations and warranties of the Company contained in this
Section 9 shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
Section 10. Successors and Assigns; No Third-Party Beneficiaries. This
Agreement shall inure to the benefit of, and be binding upon, the successors and
assigns of each of the parties, including, but not limited to, the Executive's
heirs and the personal representatives of the Executive's estate; provided,
however, that neither party shall assign or delegate any of the obligations
created under this Agreement without the prior written consent of the other
party. Notwithstanding the foregoing, the Company shall have the unrestricted
right to assign this Agreement and to delegate all or any part of its
obligations hereunder to any of its subsidiaries or
7
<PAGE> 8
affiliates, but in such event such assignee shall expressly assume all
obligations of the Company hereunder and the Company shall remain fully liable
for the performance of all of such obligations in the manner prescribed in this
Agreement. Nothing in this Agreement shall confer upon any person or entity not
a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
Section 11. Waiver and Amendments. Any waiver, alteration, amendment or
modification of any of the terms of this Agreement shall be valid only if made
in writing and signed by the parties hereto. No waiver by either of the parties
hereto of their rights hereunder shall be deemed to constitute a waiver with
respect to any subsequent occurrences or transactions hereunder unless such
waiver specifically states that it is to be construed as a continuing waiver.
Section 12. Severability and Governing Law. If any of such covenants or
such other provisions of this Agreement are found to be invalid or unenforceable
by a final determination of a court of competent jurisdiction (a) the remaining
terms and provisions hereof shall be unimpaired and (b) the invalid or
unenforceable term or provision shall be deemed replaced by a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision. This Agreement shall be
governed by and construed in accordance with the laws of the state of Minnesota
applicable to contracts made and to be performed entirely within such state,
provided, however, that the provisions of this Agreement relating to the Option
shall be governed by and construed in accordance with the laws of the State of
New York.
Section 13. Notices.
(a) All communications under this Agreement shall be in writing and
shall be delivered by hand or mailed by overnight courier or by registered or
certified mail, postage prepaid:
(i) If to the Executive, at 9649 Wyoming Terrace, Bloomington,
Minnesota 55438, or at such other address as the Executive may have furnished
the Company in writing, and
(ii) If to the Company, at 10700 Bren Road West, Minnetonka,
Minnesota 55343, marked for the attention of the Chief Executive Officer, or at
such other address as it may have furnished in writing to the Executive.
(b) Any notice so addressed shall be deemed to be given: if delivered
by hand, on the date of such delivery; if mailed by courier, on the first
business day following the date of such mailing; and if mailed by registered or
certified mail, on the third business day after the date of such mailing.
Section 14. Section Headings. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof, affect the meaning or interpretation of
this Agreement or any term or provision hereof.
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<PAGE> 9
Section 15. Entire Agreement. This Agreement including the exhibits
hereto, constitutes the entire understanding and agreement of the parties hereto
regarding the employment of the Executive. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings and
agreements between the parties relating to the subject matter of this Agreement.
Section 16. Severability. In the event that any part or parts of this
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
Section 17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AMERICAN MEDICAL SYSTEMS, INC.
By: /s/ Sam B. Humphries
-------------------------------------
Sam B. Humphries
President and Chief Executive Officer
/s/ Gregory J. Melsen
-----------------------------------------
Greg Melsen
9
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 1st day of May, 1999, by and between
American Medical Systems, a Delaware Corporation, whose principal place of
business is located at 10700 Bren Road West, Minnetonka, Minnesota 55343,
hereinafter called "AMS", and Johann Neisz, residing at 9951 Egret Boulevard,
N.W., Minneapolis, Minnesota, hereinafter called "Employee", both of whom
understand as follows:
WITNESSETH:
WHEREAS, is it the desire of AMS to: (1) secure and retain the services
of Employee and to provide inducement for him/her to remain in such employment;
(2) to make possible full work productivity by assuring Employee's morale and
peace of mind with respect to future security; and (3) to provide a just means
for terminating Employee's services at such time as he/she may be unable fully
to discharge his/her duties or when AMS may desire to otherwise terminate
his/her/her employ, and;
WHEREAS, it is the desire of AMS to provide certain benefits, establish
certain conditions of employment, set working conditions of Employee and protect
its confidential and proprietary business and technical information that has
been acquired and is being developed by the Company at substantial expense;
WHEREAS, Employee desires to accept employment under this Agreement.
For the reasons set forth above, and in consideration of the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1: EMPLOYMENT
AMS hereby agrees to the employment of the Employee as Vice President
of Research and Development, and Employee hereby accepts the employment of AMS,
subject to the general supervision and pursuant to the orders, advice, and
direction of AMS. Employee shall perform such other duties as are customarily
performed by one holding such position in other, same, or similar businesses or
enterprises as that engaged in by employer, and shall also additionally render
such other related services and duties as may be assigned to him/her from time
to time by AMS.
SECTION 2: BEST EFFORTS OF EMPLOYEE
Employee agrees that he/she will at all times, faithfully,
industriously, and to the best of his/her ability, experience, and talents,
perform all of the duties that may be required of and from him/her pursuant to
the express and implicit terms hereof, to the reasonable satisfaction of AMS.
Such duties shall be performed at the principal place of business of AMS as
stated above, and at such other place or places as AMS shall in good faith
require or as the interest, needs, business, or opportunity of AMS shall
require.
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<PAGE> 2
SECTION 3: EMPLOYMENT AT-WILL
Nothing in this Agreement is intended to establish any minimum period
of Employee's continuing employment, and such employment continues to be on an
"at-will" basis. Employee acknowledges that his or her employment with Company
is terminable at will at any time by either party.
SECTION 4: SALARY
AMS agrees to pay employee for his/her services rendered pursuant
hereto an annual base salary of $150,000, payable in installments at the same
time as other similar employees of AMS are paid. In addition, AMS agrees to
increase said base salary and/or other benefits of Employee in such amounts and
to such an extent as AMS may determine that it is desirable to do so on the
basis of a salary review of Employee made at the same time as similar
consideration is given other employees generally as determined by reference to
the personnel policies of AMS.
SECTION 5: TERMINATION DUE TO DISCONTINUANCE OF BUSINESS
Anything herein contained to the contrary notwithstanding, in the event
that AMS shall discontinue operating its business, or a major part thereof in
which the Employee is engaged, then this Agreement shall terminate as of the
last day of the month on which AMS ceases its operations or part thereof.
SECTION 6: OTHER EMPLOYMENT
Employee shall within normal working hours devote all of his/her time,
attention, knowledge and skills solely to the business and interest of AMS, and
AMS shall be entitled to all of the benefits, profits, or other issues arising
from or incident to all work, services, and advice of Employee during this time.
Employee shall not, during the term hereof, be interested directly or
indirectly, in any manner, as partner, officer, director, stockholder, advisor,
employee or in any other capacity in any Conflicting Organization as that term
is defined in SECTION 12 of this Agreement; provided, however, that nothing
herein contained shall be deemed to prevent or limit the right of Employee to
invest any of his/her surplus funds in the capital stock or other securities of
any corporation whose stock or securities are publicly owned or are regularly
traded on any public exchange, nor shall anything herein contained be deemed to
prevent Employee from investing or limit Employee's right to invest his/her
surplus funds in real estate.
SECTION 7: RECOMMENDATIONS FOR IMPROVING OPERATIONS
Employee shall make available to AMS all information of which Employee
shall have any knowledge and shall make all suggestions and recommendations that
will be of mutual benefit to AMS and himself/herself.
SECTION 8: SEVERANCE PAY
If Employee's employment is terminated by AMS for any reason other than
Cause, as defined below, death or disability (i) Employee shall continue to
receive his/her then base salary (less any applicable withholding or similar
taxes) at the rate in effect hereunder on the date of
2
<PAGE> 3
such termination periodically, in accordance with AMS's prevailing payroll
practices, for a period of six (6) months following the date of such termination
(the "Severance Term"); (ii) Employee shall be entitled to receive, in a lump
sum, any bonus Employee would have been eligible to receive for the year in
which termination occurs, pro-rated based on Employee's period of employment
during such year (less any applicable withholding or similar taxes) and (iii) to
the extent permissible under AMS's health and welfare plans, Employee shall
continue to receive any health and welfare benefits provided to him/her as of
the date of such termination during the Severance Term, on the same basis and at
the same cost as during employment. Following the end of the Severance Term,
Employee shall be entitled to elect health care continuation coverage permitted
under Section 601 through 608 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), as if his employment had then terminated. In the
event Employee accepts other employment prior to the last date of the Severance
Term, Employee shall forthwith notify AMS and AMS shall be entitled to set off
from amounts and benefits due Employee under this Section 8 (other than in
respect of the bonus) the amounts paid to and benefits received by Employee in
respect of such other employment. The payments and benefits to be provided to
Employee as set forth in this Section 8 shall be lieu of any and all benefits
otherwise provided under any severance pay policy, plan or program maintained
from time to time by AMS for its employees. Notwithstanding the March 31, 1999
letter from AMS to Employee, severance payments under this Section 8 shall not
be payable if Employee's employment is terminated due to Employee's death.
For purposes of this Agreement, "Cause" shall mean: (i) Employee's
failure, neglect or refusal to perform his duties hereunder which failure,
neglect or refusal shall not have been corrected by Employee within 30 days of
receipt by Employee of written notice from AMS of such failure, neglect or
refusal, which notice shall specifically set forth the nature of said failure,
neglect or refusal, (ii) any willful or intentional act of Employee that has the
effect of injuring the reputation or business of AMS or its affiliates in any
material respect; (iii) any continued or repeated absence from AMS, unless such
absence is (A) approved or excused by the Chief Executive Officer or (B) is the
result of Employee's illness, disability or incapacity; (iv) use of illegal
drugs by Employee or repeated drunkenness; (v) conviction of Employee for the
commission of a felony; or (vi) the commission by Employee of an act of fraud or
embezzlement against AMS.
SECTION 9: CONFIDENTIAL INFORMATION
A. Unless employee shall first secure AMS's written consent, Employee
shall not disclose or use directly or indirectly at any time either during or
subsequent to his/her employment by AMS, any information, or compilation of
information that the Employee learns or develops during the course of his/her
employment that derives independent economic value from not being generally
known, or readily ascertainable by proper means, by other persons who can obtain
economic value from its disclosure or use. Such information includes, but is not
limited to, trade secrets and may relate to such matters as research and
development, manufacturing processes, management systems, product designs,
customer lists, and sales and marketing plans and information.
3
<PAGE> 4
B. Upon the request of AMS, Employee shall, in addition to agreeing to
be bound by the above provision, execute an "Invention and Confidential
Information Agreement" in such form as set out by AMS.
SECTION 10: EMPLOYEE'S INABILITY TO CONTRACT FOR EMPLOYER
Notwithstanding anything herein contained to the contrary, Employee
shall not have the right to make any contracts or commitments for or on the
behalf of AMS without first obtaining the written consent of AMS.
SECTION 11: DOCUMENTS AND TANGIBLE ITEMS
All documents and tangible items provided to the Employee by AMS or
created by the Employee for use in connection with his/her employment are the
property of AMS and shall be promptly returned to AMS on termination of
employment together with all copies, recordings, abstracts, notes or
reproductions or any kind made from or about the documents and tangible items or
the information they contain.
SECTION 12: NONCOMPETITION
Employee agrees that, for a period of one year after termination of
his/her employment with AMS in any manner, whether with or without cause,
Employee will not:
A. If Employee has been or is employed by AMS in a sales capacity,
Employee will not render services, directly or indirectly, to any CONFLICTING
ORGANIZATION in connection with the sale, merchandising, education, or promotion
of or about CONFLICTING PRODUCTS to any customer of AMS upon whom Employee
called, or whose account Employee supervised on behalf of AMS, at any time
during the last two years of his/her employment with AMS.
B. If Employee has been or is employed by AMS in a non-sales capacity,
Employee will not render services, directly or indirectly, to any CONFLICTING
ORGANIZATION, except that Employee may accept employment with a CONFLICTING
ORGANIZATION that is a large diversified organization with separate and distinct
divisions which would not be a CONFLICTING ORGANIZATION, provided AMS, prior to
Employee accepting such employment, shall receive separate written assurances
from such CONFLICTING ORGANIZATION and from Employee, that he/she will not
render services directly or indirectly to any division that would be a
CONFLICTING ORGANIZATION.
C. Employee will not employ or attempt to employ (by soliciting or
assisting anyone else in the solicitation of) any of AMS's then employees on
behalf of any other entity, whether or not such entity is a CONFLICTING
ORGANIZATION.
D. CONFLICTING PRODUCT means any product or process of any person or
organization other than AMS, in existence or under development, which resembles
or competes with a product or process upon which or with which the Employee
worked in either a Sales or Non-sales capacity during the last two years of
his/her employment by AMS, or about which Employee acquired confidential
information through his/her work with AMS.
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<PAGE> 5
E. CONFLICTING ORGANIZATION means any person or organization which is
engaged in, or about to become engaged in, research on or development,
production, marketing or selling of a CONFLICTING PRODUCT.
F. Employee represents and warrants to AMS that he/she is not currently
subject to a non-competition, confidentiality or other such agreement with a
former employer which prohibits the Employee from working for AMS.
SECTION 13: MODIFICATION OF AGREEMENT
No waiver or modification of this Agreement or of any covenant,
condition or limitation herein contained shall be valid unless in writing and
duly executed by the party to be charged therewith. No evidence of any waiver or
modification shall be offered or received in evidence of any proceeding,
arbitration, or litigation between the parties hereto arising out of or
affecting this Agreement, or the rights or obligations of the parties hereunder,
unless such waiver or modification is in writing, duly executed as set forth
above. The parties further agree that the provisions of this section may not be
waived except as herein set forth.
SECTION 14: SEVERABILITY
If any provision, or any portion thereof, contained in this Agreement
is held to be unconstitutional, invalid, or unenforceable the remainder of this
Agreement, or portion thereof, shall be deemed severable, shall not be affected
and shall remain in full force and effect. To the extent that any provision of
this Agreement is unenforceable because it is overbroad, that provision shall be
limited to the extent required by applicable law and enforced as so limited.
SECTION 15: ENTIRE AGREEMENT
This Agreement, the offer of employment letter, dated March 29, 1999,
from AMS to Employee, the letter dated March 31, 1999, from AMS to Employee and
the Invention and Confidential Information Agreement, dated April 26, 1999,
between AMS and Employee, contain the complete agreement concerning the
employment arrangement between the parties and shall, as of the effective date
hereof, supersede all other agreements between the parties. The parties
stipulate that neither of them has made any representation, with respect to the
subject matter of this Agreement or any representation, including the execution
and delivery hereof except such representation as are specifically set forth
herein and each of the parties hereto acknowledges that he/she or it has relied
on its own judgment in entering into this Agreement. The parties hereto further
acknowledge that any payments or representations that my have heretofore been
made by either of them to the other are of no effect and that neither of them
has relied thereon in connection with his/her or its dealings with the other.
SECTION 16: TRANSFERABILITY
The right and obligations of AMS hereunder may be transferred to its
successors and assigns. Employee may not, however, transfer or assign his/her
rights or obligations in this Agreement.
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<PAGE> 6
SECTION 17: APPLICABLE LAW
The validity, enforceability, construction and interpretation of this
Agreement shall be governed by the laws of the State of Minnesota.
SECTION 18: No Adequate Remedy
Employee understands that if Employee fails to fulfill the Employee's
obligations under this Agreement, the damages to AMS would be very difficult to
determine. Therefore, in addition to any other rights or remedies available to
AMS at law, in equity, or by statute, the Employee hereby consents to the
specific enforcement of this Agreement by AMS through an injunction or
restraining order issued by an appropriate court.
IN WITNESS WHEREOF, American Medical Systems, Inc. has caused this
Agreement to be signed and executed in its behalf by its Vice President, Human
Resources, and the Employee has signed and executed this Agreement, both in
duplicate as of the day and year first written above.
/s/ Jan Dick /s/ Johann Neisz
- ---------------------------------- --------------------------------
Jan Dick Johann Neisz
Vice President of Human Resources
6
<PAGE> 1
EMPLOYMENT CONTRACT
THIS EMPLOYMENT CONTRACT (hereinafter: the "Agreement") has been entered into by
and between:
1. AMERICAN MEDICAL SYSTEMS BENELUX B.V.B.A., whose registered office is in
Zaventem, Belgium and whose place of business is in Zaventem, Belgium
hereinafter to be called the "Company", for these presents lawfully
represented by Ismael Nujurally;
and
2. JAN DANIEL RUYS, born on September 6, 1950 and residing at Kreuzbuchstrasse
88, CH-6045 Meggen, Switzerland, hereinafter to be called "Employee",
WHEREAS the Company wishes to employ the Employee as Vice President,
International, for its International operations and Employee wishes to be
employed by the Company in such position and for such operations;
WHEREAS in the context of implementing the foregoing the parties wish to
record in writing the terms and conditions of employment on which they have
agreed; and
WHEREAS the Company is a subsidiary of American Medical Systems, Inc., a
corporation organized and existing under the laws of Minnesota, United States of
America, hereinafter to be called "AMS".
NOW THEREFORE, in consideration of the mutual promises and other good and
valuable consideration as forth herein, the parties hereto agree as follows:
ARTICLE 1 - COMMENCEMENT AND TERM OF EMPLOYMENT
1.1 As of July 22, 1999, the Employee shall be employed by the Company as a Vice
President, International.
1.2 This Agreement has been entered into for an indefinite period of time. Any
of the parties may terminate this Agreement by written notice observing a
minimum of two months' notice or such longer period as may be required by
applicable law, the term of notice to expire on the last day of a calendar
month. This Agreement shall in any event end on the first day of the month in
which Employee reaches Dutch statutory retirement age, without any prior notice
of termination being required.
ARTICLE 2 - DUTIES AND POWERS
2.1 The Employee's powers, duties and responsibilities as a Vice President of
the Company shall include the following: Responsible for the sales, distribution
and operations activities
<PAGE> 2
of the international business of American Medical Systems and if designated, of
affiliate businesses of the Company. Responsible for leadership activities as a
senior manager of the Company. The Employee shall devote his energy and skill
and furthermore make every effort to execute his powers, duties and
responsibilities to the best of his abilities.
2.2 As a Vice President, International, will be responsible for countries as
follows: France, Spain, Germany, Belgium, Luxembourg, The Netherlands,
United Kingdom, Ireland, Portugal, Australia, Argentina, Algeria, Austria,
Czech Republic, Bahrain, Brasil, Chile, China, Colombia, Denmark, Dominican
Republic, Ecuador, Egypt, Finland, Greece, Hong Kong, India, Iran, Iraq,
Israel, Italy, Japan, Jordan, Kuwait, Lebanon, Mexico, Morocco, New Zealand,
Norway, Oman, Pakistan, Panama, Poland, Portugal, Puerto Rico, Qatar,
Russia, Saudi Arabia, Singapore, South Africa, South Korea, Sweden,
Switzerland, Taiwan, Thailand, Tunesia, Turkey, U.A.E., Uruguay, Venezuela,
West Malaysia, Costa Rica, Croatia, Honduras, Slovenia. This list may be
reduced or expanded in the future by the Company.
2.3 In the performance of his functions the Employee shall also observe and
comply with the guidelines of AMS.
2.4 The Employee shall also perform any and all functions reasonably assigned to
him by the Company, whether directly for the Company or on behalf of a
company directly or indirectly affiliated with the Company. Such functions
shall also be governed by the terms and conditions contained in this
Agreement and shall not entitle the Employee to any further remuneration.
2.5 The Employee shall be based in The Netherlands and perform his functions
from The Netherlands. If so required in the opinion of the Company, the
Employee may be transferred to another location in or outside The
Netherlands, such transfer to be arranged in mutual consultation between the
Company and the Employee. If as a result of such transfer there is a need
for the Employee and his family to relocate, after prior consent, reasonable
costs of relocation will be reimbursed by the Company after submission of
relevant invoices.
ARTICLE 3 - SALARY
3.1 The Employee shall receive a base salary of US $150,000 (one hundred and
fifty thousand United States dollars) gross per annum (the "Base Salary"),
to be paid in Dutch guilders in twelve equal monthly installments upon the
last day of each calendar month according to a conversion rate established
by the Company.
3.2 A holiday allowance of 8% is included in the aforementioned salary.
ARTICLE 4 - BONUS
4.1 Upon termination of the Company's financial year, the Employee shall receive
a bonus to be calculated by the Company in accordance with the Management
Incentive Plan established for that given year. The Schedule for 1999 is
attached which will be applied on a
<PAGE> 3
prorated basis for 1999 performance from the date of hire. The Management
Incentive Plan is subject to change each year by the Company.
4.2 The Employee's bonus will be discounted pro rata for the portion of the
financial year during which the Employee did not actually work (hereinafter: the
"Discounted Period"). For the purpose of this Article the Discounted Period
shall consist of the periods of vacation and periods of incapacity to work on
account of illness or disablement, in so far as the aggregate of such periods
over the relevant financial year does not exceed three (3) months.
4.3 Payment of the bonus shall be made within one month after the date on which
the General Meeting of the Board of Directors of the Company was convened in
which the annual accounts for the preceding financial year were adopted, or
approved.
ARTICLE 5 - STOCK OPTIONS
Conditioned on written approval from the Board of Directors of AMS the
Employee will be granted 40,000 options to purchase AMS Common Stock at an
exercise price of $5.00 per share (the "Options"). The Options will vest over a
period of four years from the date of this Agreement and in accordance with the
draft Option Agreement attached to this Agreement, and provided the Employee
shall still be employed by the Company on the date on which any of the Options
is anticipated to vest. The Employee's right to exercise any of the Options
shall terminate on the date of termination of this Agreement.
ARTICLE 6 - Transportation Allowance
6.1 For the purposes of discharging his duties of office Employee shall be
provided by the Company with a transportation allowance of $1,000 per month. The
Employee shall pay any taxes levied on this amount.
6.2 The Transportation Allowance shall be applied to expenses relating to the
use of a vehicle, however, the Employee will additionally be eligible for
reimbursement for business travel at a customary rate and for tolls.
ARTICLE 7 - PENSION
Employee and his surviving relations shall have the benefit of a pension
plan in accordance with the Company's plan. As with other benefit programs, this
plan is subject to change.
ARTICLE 8 - OTHER INSURANCE
The Company shall provide insurance coverage either directly or through
reimbursement of Employee to provide benefit comparable in the aggregate to the
attached Schedule. Reimbursement shall begin as of August 1, 1999 of applicable
current policies, with
<PAGE> 4
comparable benefits in the aggregate being provided no later than August 31,
1999. These benefits are subject to change from year to year.
ARTICLE 9 - HOLIDAYS
The Employee shall be entitled to 25 working days of vacation on full pay, for
each full calendar year during which his employment under this Agreement
continues. Vacation shall be taken in consultation with the Company.
ARTICLE 10 - ILLNESS AND DISABLEMENT
10.1 In the event of Employee's incapacity to work on account of illness or
disablement the Company shall for a maximum period of twelve months continue to
pay his salary as specified in Article 3 of this Agreement, subject to deduction
of any benefits to be received by the Employee under the applicable social
security laws and/or benefits received under any other relevant insurance
policies taken out by the Company and/or compensation received and/or claimed by
the Employee from third parties on account of loss of earnings in connection
with such incapacity to work. If in the latter event the Employee requires some
time to enforce his claim, the Company shall pay the salary during that period
by way of advance payment. If the Company so desires, the Employee shall assign
to the Company his entitlement to such compensation up to the amount of the loss
of earnings for a consideration equal to any amounts received by him from the
Company as advance payment in that period.
10.2 During the period specified in 10.1 the Company shall continue to pay the
premiums referenced in Articles 7 and 8, and in accordance with the terms
thereof, in so far as said premiums are due and payable.
10.3 For the purposes of this Article and the Articles 4, 5 and 6 of this
Agreement, periods of incapacity to work following each other at intervals of
less than 32 days shall be regarded as one consecutive period of incapacity to
work.
ARTICLE 11 - SIDE ACTIVITIES
11.1 The Employee shall not perform any paid or unpaid side activities without
prior written approval of the Company and AMS This would include such activities
as consultation in the field of medical devices and any related products for
third parties. The Employee is permitted to continue in his role as Vice
President, Treasurer of the Crigler-Najjar Foundation,a non-profit organization
provided that it does not interfere in any material respect with the services to
be provided by the Employee.
11.2 For the duration of this Agreement the Employee shall not be permitted to
have or take in any way, whether directly or indirectly, an interest in
companies pursuing activities in competition with, or similar or related to the
activities of the Company and AMS and/or the companies affiliated with the
Company or AMS, or any interest in companies, other than
<PAGE> 5
AMS, who are suppliers and/or licensers and/or principals and/or buyers and/or
licensees of the Company and/or the companies affiliated with the Company.
11.3 Employee shall not accept any moneys or other remuneration from third
parties in connection with his activities for the Company and AMS and/or
the companies affiliated with the Company or AMS.
ARTICLE 12 - CONFIDENTIALITY AND NON-DISCLOSURE
12.1 For the duration of this Agreement as well as thereafter - irrespective of
the manner in which and the reasons for which the Agreement may be terminated -
the Employee shall treat as strictly confidential and not disclose to third
parties, whether directly or indirectly, in any form or manner whatsoever, any
information which comes to his knowledge regarding the business and interests of
the Company and AMS and/or the companies affiliated with the Company or AMS
and/or their customers and other business relations, all this in the broadest
sense, unless: (i) dissemination of such information has been explicitly
authorized by the Company and/or AMS, or (ii) is compulsory under applicable
law, or (iii) forms part of the public domain.
12.2 In the event that Employee is suspended and upon termination of his
employment hereunder - irrespective of the manner in which and the reasons for
which his employment may be terminated - Employee shall at the Company's or AMS'
first request to that effect surrender to the Company or, as the case may be,
AMS, all property of the Company or AMS in his possession as well as all
documents which in any way whatsoever relate to the Company, AMS and/or the
companies affiliated with the Company or AMS and/or their customers and other
business relations, all this in the broadest sense, as well as all copies of
such documents and property.
ARTICLE 13 - NON-COMPETITION
For eighteen months following the termination of his Agreement -
irrespective of the manner in which and the reasons for which the Agreement has
been terminated - the Employee shall not without prior written approval of the
Company and AMS be permitted:
a. To work for or be employed in any manner by, directly or indirectly,
any CONFLICTING ORGANIZATION, in connection with the sale,
merchandising, education or promotion of or about CONFLICTING
PRODUCTS. Employee may work for or be employed by a CONFLICTING
ORGANIZATION whose business is diversified, and which as to part of
its business is not a CONFLICTING ORGANIZATION, provided AMS, prior
to Employee accepting such employment, shall receive separate written
assurance satisfactory to AMS from such CONFLICTING ORGANIZATION and
from Employee, that he will not render services directly or
indirectly in connection with any CONFLICTING PRODUCT.
For the purposes of this Agreement, CONFLICTING PRODUCT means any
product or process of any person or organization other than AMS, the
Company
<PAGE> 6
and/or any companies affiliated with AMS and/or the Company in
existence or under development, which resembles or competes with a
product or process whether existing or under pursuit upon which or
with which the Employee worked in either a Sales or Non-sales
capacity during the last two years of his employment by AMS, or about
which Employee acquired confidential information through his work
with AMS. Conflicting Products would generally be, but not limited to
the field of urology, including products which treat dsyfunction in
the area of the lower pelvic floor.
CONFLICTING ORGANIZATION means any person or organization which is
engaged in, or about to become engaged in, research on or
development, production marketing or selling of a CONFLICTING
PRODUCT.
b. to maintain in any manner whatsoever, whether directly or indirectly,
business contacts with persons or corporate bodies with whom during the
two years preceding the termination of the Agreement, the Company and/or
any companies affiliated with AMS and/or the Company has had any business
contact;
c. to induce present employees of the Company, AMS and/or companies
affiliated with the Company or AMS, or persons who in the period of two
years preceding the termination of the Employee's employment have been or
were employed by the Company, AMS and/or companies affiliated with the
Company, or AMS to terminate their employment and/or to hire such present
or former employees.
ARTICLE 14 - REMEDY FOR BREACH OF CONTRACT
14.1 In the event that Employee commits any breach of Article 11, Article 12
and/or Article 13 he shall forfeit to the Company a penalty equal to one year's
Base Salary for each such breach and an additional penalty equal to 1/12th of
one year's Base Salary for each day that such breach should continue unremedied,
said penalty or penalties to be payable immediately without prior notice or
judicial intervention being required, entirely without prejudice to the
Company's right to demand full compensation for losses actually suffered by it
and/or to demand specific performance under the applicable laws.
14.2 Payment of the penalty or penalties referred to in 14.1 shall not release
Employee from his obligations specified in Articles 11, 12 and 13.
ARTICLE 15 - TERMINATION
a. Upon termination of this Agreement Employee shall be entitled to the payments
described in this Section 15.
(i) If this Agreement is terminated by the Company or by Employee, Employee
shall be entitled to receive his Base Salary through the date of termination and
any unreimbursed business expenses, payable promptly following the later of the
date of such termination and
<PAGE> 7
the date on which the appropriate documentation is provided. All benefits will
cease as of termination of this Agreement.
(ii) If this Agreement is terminated by the Company without Cause or by Employee
with Good Reason, subject to Employee's continued compliance with the covenants
set forth in Section 12 and 13, Employee shall receive a severance payment equal
to one year's Base Salary, from which amount the Company shall withhold any
applicable taxes, levies and social premiums.
(iii) If this Agreement is terminated by the Company without Cause or by
Employee with Good Reason and such termination occurs after the occurrence of a
Change of Control as defined below, Employee shall receive a severance payment
equal to two year's Base Salary in lieu of the amount described under (ii)
above, from which amount the Company shall withhold any applicable taxes, levies
and premiums.
The amounts described in clause (ii) and (iii) above shall be paid in a
lump sum within 10 days of the date of termination, applying a discount rate
equal to the then current yield on three-year U.S. government securities.
The amounts described under (ii) and (iii) above are in lieu of any
severance payments for which Employee may otherwise be eligible or to which
Employee may otherwise be entitled under any statutory requirements or
applicable case law, any severance policy of the Company or AMS or any of their
affiliated companies or under this Agreement. The Employee irrevocably waives
the right to claim payment of any severance payment other than either of the
amounts described under (ii) and (iii) above.
b. Definitions. For purposes of this section 15, the following terms shall have
the following meanings:
(i) "CAUSE" shall mean:
(A) Employee's willful and continued failure substantially to perform
his duties under this Agreement (other than as a result of total or partial
incapacity due to physical or mental illness or as a result of termination by
Employee for Good Reason) which failure continues for more than 30 days after
receipt by the Employee of written notice setting forth the facts and
circumstances identified by the Company as constituting adequate grounds for
termination under this clause (A),
(B) any willful act or omission by Employee constituting dishonesty,
fraud or other malfeasance, and any act or omission by Employee constituting
immoral conduct, which in any such case is injurious to the financial condition
or business reputation of the Company or any of its affiliates,
(C) Employee's indictment for a conviction under the laws of the United
States or any state thereof, The Netherlands or any other jurisdiction in which
the Company conducts business, or
(D) Employee's breach of the provisions of Section 12 and 13.
<PAGE> 8
(ii) Prior to a Change of Control, "GOOD REASON" shall mean:
(A) Employee's removal from, or the Company's failure to reelect or
reappoint him to, his position as described in Section 2 (other than as a result
of a promotion). For purposes of this clause (A), a mere change of title shall
not constitute removal from, or non reelection to, such position, provided, that
Employee's new title is substantially equivalent to that set forth in Section 2
and his position is otherwise not adversely affected;
(B) a material breach by the Company of any of its obligations under
the Agreement;
(iii) Following a Change of Control, "GOOD REASON" shall mean
(A) any of the events described under clause (ii) above;
(B) a material diminution in Employee's title, position, duties or
responsibilities, (excluding a change or expansion of the list of countries
identified in 2.2) or the assignment to Employee of duties that are
inconsistent, in a material respect, with the scope of duties and
responsibilities associated with the position specified above;
(iv) "CHANGE OF CONTROL" shall mean:
(I) Any "person" or "group" (as such terms are used in Sections 13(d)
and 14 (d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) other than AMS or any of its parent companies, subsidiaries or affiliated
companies, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act as in effect on the date hereof, except that a person shall be
deemed to be the "beneficial owner" of all shares that any such person has the
right to acquire pursuant to any agreement or arrangement or upon exercise of
conversion rights, warrants, options or otherwise, without regard to the sixty
day period referred to in such Rule), directly or indirectly, of securities
representing 50% or more of the combined voting power of the Company's then
outstanding securities, and (II) AMS or any of its parent companies,
subsidiaries or affiliates holds less than 50% of such combined voting power.
ARTICLE 16 - FINAL PROVISIONS
16.1 This Agreement shall be governed by and construed in accordance with the
laws of The Netherlands.
16.2 Any and all disputes which may arise from or in connection with this
Agreement shall be submitted to the competent courts in The Netherlands.
16.3 All income tax and social security contributions which the Company must by
law deduct from Employees' salaries and pay to the Receiver shall be so deducted
from and paid in respect of all amounts to be paid to Employee under this
Agreement, unless it follows from the nature of the payment that it can be made
tax-free.
<PAGE> 9
16.4 If at any time it is determined by the Dutch Inland Revenue and/or the
National Insurance Authority that any of the payments to be made to Employee
under Articles 5 and 6 are (in part) subject to the levy of income tax and/or
social security contributions, the compulsory deductions shall be made and
charged to the debit of Employee. As from such time the amounts of the relevant
future payments under Articles 5 and 6 shall be reduced to the amount after tax.
16.5 The foregoing constitutes the entire agreement between the parties and
supersedes all agreements and undertakings previously made and given by and
between Employee and the (bodies of the) Company and/or companies affiliated
with the Company. Amendments or additions to this Agreement shall be valid only
if recorded in a dated document signed by both parties.
IN WITNESS WHEREOF this Agreement was executed in three and signed by the
parties:
AMERICAN MEDICAL SYSTEMS BENELUX B.V.B.A.
By : /s/ Douglas W. Kohrs
------------------------------------
Name Douglas W. Kohrs
Title President and CEO
Date 7/22/99
------------------------------------
J. DAAN RUYS
By /s/ J. Daan Ruys
------------------------------------
Date 7/22/99
------------------------------------
<PAGE> 1
CONSULTING AGREEMENT
The following contains the terms of MEDICAL GENESIS' (MEDGEN) consulting
agreement with American Medical Systems (the "Company"), which shall be for a
period of one year effective as of September 1, 1999 and supersedes all other
understandings between them:
1. MEDGEN shall perform Services in the Field for and on behalf of the
Company, as directed by the Company, and which are generally described
in Exhibit A.
2. In rendering Services to the Company, MEDGEN shall act as an
independent contractor and not as an employee of the Company. MEDGEN
will pay all taxes and be responsible for all employer obligations.
3. MEDGEN'S compensation for rendering Services to the Company is set
forth in Exhibit B.
4. In consideration of MEDGEN'S retention as a consultant by the Company,
MEDGEN hereby agrees as follows:
a. It understands that the Company possesses or has rights to
information in the Field, including information developed by
MEDGEN in the course of performing Services for the Company
(including, without limitation, know-how, formulas, processes,
product ideas, inventions, and other technical, business and
financial plans, forecasts, strategies and information), including
any information derived therefrom, is referred to as "Proprietary
Information".
b. At all times, MEDGEN agrees: (i) to hold the Proprietary
Information in confidence and to take all necessary precautions to
protect Proprietary Information; and (ii) not to divulge such
Proprietary Information to any employee or other person unless
they have a legitimate "need to know" and have entered into an
appropriate agreement to protect the confidentiality of the
Proprietary Information.
c. The foregoing shall not apply with respect to information MEDGEN
can document (i) is in the public domain through no improper
action or inaction by MEDGEN, or any agent or employee, (ii) was
in MEDGEN'S possession or known by MEDGEN prior to receipt from
the Company; (iii) was rightfully disclosed to MEDGEN by another
person without restriction, or (iv) was previously independently
developed by MEDGEN
d. MEDGEN hereby assigns to the Company any rights MEDGEN may have or
acquire in such Proprietary Information.
e. MEDGEN shall return to the Company all materials and property
containing Proprietary Information when requested by the Company.
f. Any inventions which MEDGEN develops or co-develops in the
performance of Services in whole or in part, shall be the sole
property of the Company, and its successors or assigns shall be
the sole owner of all intellectual property rights in
<PAGE> 2
connection therewith MEDGEN hereby assigns to the Company any
rights MEDGEN may have or acquire in such inventions.
g. MEDGEN will assist the Company in every proper way to obtain and
enforce intellectual property rights in the inventions worldwide,
and will execute all documents reasonably appropriate for this
purpose. This obligation shall survive the termination of this
Agreement. In the event that the Company is unable to secure an
authorizing signature to any document reasonably appropriate for
the foregoing, MEDGEN hereby designates and appoints the Company
and its duly authorized officers and agents, as by agents and
attorneys-in-fact for the purpose of executing and filing any such
document and doing all other lawfully permitted acts to accomplish
the foregoing with the same legal force and effect as if executed
by MEDGEN.
h. During the term of this Agreement and for one year thereafter,
MEDGEN will not engage in any business which competes with the
actual or demonstrably anticipated business of the Company, either
directly or indirectly. During the term of this Agreement and for
a period of one year thereafter, MEDGEN agrees not to solicit or
hire any employees of the Company to work for an employer which
competes with the Company.
5. MEDGEN represents that its performance of the terms of this Agreement
will not violate any agreements or obligations MEDGEN may have to any
third party and MEDGEN further represents that it will not use the
Proprietary Information of any third party in the course of rendering
Services to the Company nor will it disclose any such information to
the Company.
6. The Company or MEDGEN may terminate this Agreement after three months
from the date of signing at any time, with or without cause, upon
thirty (30) days written notice; provided, however, the provisions of
Paragraph 4 shall survive any termination of this Agreement. The
Agreement can be extended month to month with consent of both parties
under the same terms after the initial contract period ends.
7. This Agreement may only be amended or waived in writing. No failure or
delay in enforcing any right will be deemed a waiver.
MEDICAL GENESIS ACCEPTED AND AGREED TO:
19756 N.E. 127TH PLACE
WOODINVILLE, WA 98072 AMERICAN MEDICAL SYSTEMS
/s/ Christopher H. Porter /s/ Douglas W. Kohrs
- -------------------------------- --------------------------------
Christopher H. Porter Douglas W. Kohrs
President President and CEO
Sept 24, 1999 9/24/99
- -------------------------------- --------------------------------
Date Date
2
<PAGE> 3
EXHIBIT A
DESCRIPTION OF SERVICES
During the term of Services for the Company, MEDGEN will agree to consult up to
2.5 days per month. In general, the work that will be performed will include:
- Analysis of business opportunities (including on-site due
diligence)
- Internal review of R&D projects and functions
- Assist in strategic planning
- Personnel interviews and assessment
- General advice and guidance
DESCRIPTION OF FIELD
MEDGEN'S services during this period will be confined to the Field of:
Current AMS products and future AMS products contemplated over the next
year. The Company understands there may be potential conflicts with
products or relationships that MEDGEN has with others and those are
called out below and override section 4(h).
a. Use of focused ultrasound for treatment of incont (Therus)
b. Tools used in suspension procedures (Inlet)
c. Non-invasive urological products (SRS)*
d. Radiation therapy (Proxima)
EXHIBIT B
MEDGEN will be compensated for consulting services as follows:
$3,500 per month as a retainer.
$1,400 per day for days over and above 2.5 days per month.
All reasonable expenses incurred as a result of the assignment.
* E-Stim, Bio-feedback, Uretheral inserts, Bladder Scanner, Software,
Catheters.
3
<PAGE> 1
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
2000 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of the Plan is to provide a means through which the Company
may attract able persons to become and remain directors of the Company and its
subsidiaries and enter and remain in the employ of the Company and its
subsidiaries and to provide a means whereby employees, directors and consultants
of the Company and its subsidiaries can acquire and maintain Common Stock
ownership, or be paid incentive compensation measured by reference to the value
of Common Stock, thereby strengthening their commitment to the welfare of the
Company and its subsidiaries and promoting an identity of interest between
stockholders and these employees, directors and consultants.
So that the appropriate incentive can be provided, the Plan provides
for granting Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards,
Performance Share Unit Awards and Stock Bonus Awards, or any combination of the
foregoing.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan.
(a) "Award" means, individually or collectively, any Incentive Stock
Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock
Award, Phantom Stock Unit Award, Performance Share Unit Award or Stock Bonus
Award.
(b) "Award Period" means a period of time within which performance is
measured for the purpose of determining whether an Award of Performance Share
Units has been earned.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means the Company or any of its subsidiaries having cause
to terminate a Participant's employment or service in accordance with the
provisions of any existing employment, consulting or any other agreement between
the Participant and the Company or any of its subsidiaries or, in the absence of
such an employment, consulting or other agreement, upon (i) the determination by
the Committee that the Participant has ceased to perform his duties to the
Company or any of its subsidiaries (other than as a result of his incapacity due
to physical or mental illness or injury), which failure amounts to intentional
and extended neglect of his duties, (ii) the Committee's determination that the
Participant has engaged or is about to engage in conduct injurious to the
Company or any of its
<PAGE> 2
subsidiaries, or (iii) the Participant having plead no contest to a charge of a
felony or having been convicted of a felony.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.
(f) "Committee" means the full Board, the Compensation Committee of the
Board or such other committee as the Board may appoint to administer the Plan.
(g) "Common Stock" means the common stock par value $0.01 per share, of
the Company.
(h) "Company" means American Medical Systems Holdings, Inc., a Delaware
corporation, and any successor thereto.
(i) "Date of Grant" means the date on which the granting of an Award is
authorized or such other date as may be specified in such authorization.
(j) "Disability" means the complete and permanent inability by reason
of illness or accident to perform the duties of the occupation at which a
Participant was employed or served when such disability commenced or, if the
Participant was retired when such disability commenced, the inability to engage
in any substantial gainful activity, in either case as determined by the
Committee based upon medical evidence acceptable to it.
(k) "Eligible Person" means any (i) person regularly employed by the
Company or any subsidiary of the Company; provided, however, that no such
employee covered by a collective bargaining agreement shall be an Eligible
Person unless and to the extent that such eligibility is set forth in such
collective bargaining agreement or in an agreement or instrument relating
thereto; (ii) director of the Company; or (iii) consultant to the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934.
(m) "Fair Market Value" on a given date means (i) if the Stock is
listed on a national securities exchange, the mean between the highest and
lowest sale prices reported as having occurred on the primary exchange with
which the Stock is listed and traded on the date prior to such date, or, if
there is no such sale on that date, then on the last preceding date on which
such a sale was reported; (ii) if the Stock is not listed on any national
securities exchange but is quoted in the National Market System of the National
Association of Securities Dealers Automated Quotation System on a last sale
basis, the average between the high bid price and low ask price reported on the
date prior to such date, or, if there is no such sale on that date,
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<PAGE> 3
then on the last preceding date on which a sale was reported; (iii) if the Stock
is not listed on a national securities exchange nor quoted in the National
Market System of the National Association of Securities Dealers Automated
Quotation System on a last sale basis, the amount determined by the Committee to
be the fair market value based upon a good faith attempt to value the Stock
accurately; or (iv) notwithstanding clauses (i) - (iii) above, with respect to
Awards granted as of the consummation of an IPO, the price at which Stock is
sold to the public in the IPO.
(n) "Holder" means a Participant who has been granted an Award.
(o) "Incentive Stock Option" means an Option granted by the Committee
to a Participant under the Plan which is designated by the Committee as an
Incentive Stock Option pursuant to Section 422 of the Code.
(p) "IPO" means the initial offering of Common Stock to the public
through an effective registration statement.
(q) "Non-Employee Director" means a "non-employee director" within the
meaning of Rule 16b-3 of the Exchange Act or any successor rule or regulation.
(r) "Nonqualified Stock Option" means an Option granted under the Plan
which is not designated as an Incentive Stock Option.
(s) "Normal Termination" means termination of employment or service
with the Company and all of its subsidiaries:
(i) Upon retirement pursuant to the retirement plan of the
Company or any of its subsidiaries, as may be applicable at
the time to the Participant in question;
(ii) On account of Disability;
(iii) With the written approval of the Committee; or
(iv) By the Company or any of its subsidiaries without Cause.
(t) "Option" means an Award granted under Section 7 of the Plan.
(u) "Option Period" means the period described in Section 7(c).
(v) "Option Price" means the exercise price set for an Option described
in Section 7(a).
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<PAGE> 4
(w) "Participant" means an Eligible Person who has been selected by the
Committee to participate in the Plan and to receive an Award.
(x) "Performance Goals" means the performance objectives of the Company
during an Award Period or Restricted Period established for the purpose of
determining whether, and to what extent, Awards will be earned for an Award
Period or Restricted Period.
(y) "Performance Share Unit" means a hypothetical investment equivalent
equal to one share of Stock granted in connection with an Award made under
Section 9 of the Plan.
(z) "Phantom Stock Unit" means a hypothetical investment equivalent
equal to one share of Stock granted in connection with an Award made under
Section 10 of the Plan.
(aa) "Plan" means the American Medical Systems Holdings, Inc. 2000
Equity Incentive Plan, as may be amended from time to time.
(bb) "Qualified Committee" means a committee composed of at least two
Qualified Directors.
(cc) "Qualified Director" means a person who is (i) an Non-Employee
Director and (ii) an "outside director" within the meaning of Section 162(m) of
the Code.
(dd) "Restricted Period" means, with respect to any share of Restricted
Stock or any Phantom Stock Unit, the period of time determined by the Committee
during which such Award is subject to the restrictions set forth in Section 11.
(ee) "Restricted Stock" means shares of Stock issued or transferred to
a Participant subject to forfeiture and the other restrictions set forth in
Section 11.
(ff) "Restricted Stock Award" means an Award of Restricted Stock
granted under Section 11 of the Plan.
(gg) "Securities Act" means the Securities Act of 1933, as amended.
(hh) "Stock" means the Common Stock or such other authorized shares of
stock of the Company as from time to time may be authorized for use under the
Plan.
(ii) "Stock Appreciation Right" or "SAR" means an Award granted under
Section 8 of the Plan.
(jj) "Stock Bonus" means an Award granted under Section 11 of the Plan.
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<PAGE> 5
(kk) "Stock Option Agreement" means the agreement between the Company
and a Participant who has been granted an Option pursuant to Section 7 which
defines the rights and obligations of the parties as required in Section 7(d).
(ll) "Vested Unit" shall have the meaning ascribed thereto in Section
10(e).
3. EFFECTIVE DATE, DURATION AND SHAREHOLDER APPROVAL
The Plan is effective as of April 17, 2000, the date of adoption of the
Plan by the Board. The effectiveness of the Plan and the validity of any and all
Awards granted pursuant to the Plan is contingent upon approval of the Plan by
the stockholders of the Company in a manner which complies with (i) Section
422(b)(1) and, to the extent provided in Section 16 herein, Section 162(m) of
the Code and (ii) the requirements of the primary national securities exchange
with which the Stock is listed, if so listed, and/or the National Market System
of the National Association of Securities Dealers Automated Quotation System, if
the Stock is quoted thereon. Unless and until the stockholders approve the Plan
in compliance with the applicable requirements, no Award granted under the Plan
shall be effective.
The expiration date of the Plan, after which no Awards may be granted
hereunder, shall be April 17, 2010; provided, however, that the administration
of the Plan shall continue in effect until all matters relating to the payment
of Awards previously granted have been settled.
4. ADMINISTRATION
The Committee shall administer the Plan; provided, however, that as of
and after the date the Company first becomes subject to Section 16 of the
Exchange Act, the Plan shall be administered by the full Board or a committee of
the Board composed of at least two persons, each member of which, at the time he
takes any action with respect to an Award under the Plan, shall be a
Non-Employee Director; and further provided, that as of and after the date that
the exemption for the Plan under Section 162(m) of the Code expires, as set
forth in Section 16 herein, to the extent that the Company determines that an
Award is intended to comply with Section 162(m) of the Code, the Plan shall be
administered by a Qualified Committee. The majority of the members of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present or acts approved in writing
by a majority of the Committee shall be deemed the acts of the Committee.
Subject to the provisions of the Plan, the Committee shall have
exclusive power to:
(a) Select the Eligible Persons to participate in the Plan;
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<PAGE> 6
(b) Determine the nature and extent of the Awards to be made to each
Participant;
(c) Determine the time or times when Awards will be made to
Participants;
(d) Determine the duration of each Award Period and Restricted Period;
(e) Determine the conditions to which the payment of Awards may be
subject;
(f) Establish the Performance Goals for each Award Period;
(g) Prescribe the form of Stock Option Agreement or other form or forms
evidencing Awards; and
(h) Cause records to be established in which there shall be entered,
from time to time as Awards are made to Participants, the date of each Award,
the number of Incentive Stock Options, Nonqualified Stock Options, SARs, Phantom
Stock Units, Performance Share Units, shares of Restricted Stock and Stock
Bonuses awarded by the Committee to each Participant, the expiration date, the
Award Period and the duration of any applicable Restricted Period.
The Committee shall have the authority, subject to the provisions of
the Plan, to establish, adopt, or revise such rules and regulations and to make
all such determinations relating to the Plan as it may deem necessary or
advisable for the administration of the Plan. The Committee's interpretation of
the Plan or any documents evidencing Awards granted pursuant thereto and all
decisions and determinations by the Committee with respect to the Plan shall be
final, binding, and conclusive on all parties unless otherwise determined by the
Board.
5. GRANT OF AWARDS; SHARES SUBJECT TO THE PLAN
The Committee may, from time to time, grant Awards of Options, Stock
Appreciation Rights, Restricted Stock, Phantom Stock Units, Performance Share
Units and/or Stock Bonuses to one or more Eligible Persons; provided, however,
that:
(a) Subject to Section 13, the aggregate number of shares of Stock
made subject to all Awards may not exceed 1,150,000 shares;
(b) Such shares shall be deemed to have been used in payment of Awards
whether they are actually delivered or the Fair Market Value equivalent of
such shares is paid in cash. In the event any Option, SAR not attached to
an Option, Restricted Stock Award, Phantom Stock Unit or Performance
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<PAGE> 7
Share Unit shall be surrendered, terminate, expire, or be forfeited, the
number of shares of Stock no longer subject thereto shall thereupon be
released and shall thereafter be available for new Awards under the Plan;
(c) Stock delivered by the Company in settlement of Awards under the
Plan may be authorized and unissued Stock or Stock held in the treasury of
the Company or may be purchased on the open market or by private purchase;
(d) Following the date that the exemption from the application of
Section 162(m) of the Code described in Section 16 (or any other exemption
having similar effect) ceases to apply to Awards, no Participant may
receive Options or SARs under the Plan with respect to more than 500,000
shares of Stock in any one year; and
(e) The Committee may, in its sole discretion, require a Participant
to pay consideration for an Award in an amount and in a manner as the
Committee deems appropriate.
6. ELIGIBILITY
Participation shall be limited to Eligible Persons who have received
written notification from the Committee, or from a person designated by the
Committee, that they have been selected to participate in the Plan.
7. DISCRETIONARY GRANT OF STOCK OPTIONS
The Committee is authorized to grant one or more Incentive Stock
Options or Nonqualified Stock Options to any Eligible Person; provided, however,
that no Incentive Stock Options shall be granted to any Eligible Person who is
not an employee of the Company. Each Option so granted shall be subject to the
following conditions, or to such other conditions as may be reflected in the
applicable Stock Option Agreement.
(a) OPTION PRICE. The exercise price ("Option Price") per share of
Stock for each Option shall be set by the Committee at the time of grant but
shall not be less than the Fair Market Value of a share of Stock at the Date of
Grant.
(b) MANNER OF EXERCISE AND FORM OF PAYMENT. Options which have become
exercisable may be exercised by delivery of written notice of exercise to the
Committee accompanied by payment of the Option Price. The Option Price shall be
payable in cash and/or shares of Stock valued at the Fair Market Value at the
time the Option is exercised or, in the discretion of the Committee, either (i)
in other property having a fair market value on the date of exercise equal to
the Option Price, or (ii) by delivering to the Committee a copy of irrevocable
instructions to a
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<PAGE> 8
stockbroker to deliver promptly to the Company an amount of sale or loan
proceeds sufficient to pay the Option Price.
(c) OPTION PERIOD AND EXPIRATION. Options shall vest and become
exercisable in such manner and on such date or dates determined by the Committee
and shall expire after such period, not to exceed ten years from the Date of
Grant, as may be determined by the Committee (the "Option Period"); provided,
however, that notwithstanding any vesting dates set by the Committee, the
Committee may in its sole discretion accelerate the exercisability of any
Option, which acceleration shall not affect the terms and conditions of any such
Option other than with respect to exercisability. If an Option is exercisable in
installments, such installments or portions thereof which become exercisable
shall remain exercisable until the Option expires. Unless otherwise stated in
the applicable Option Agreement, the Option shall expire earlier than the end of
the Option Period in the following circumstances:
(i) If prior to the end of the Option Period, the Holder shall
undergo a Normal Termination, the Option shall expire on the
earlier of the last day of the Option Period or the date
that is thirty days after the date of such Normal
Termination. In such event, the Option shall remain
exercisable by the Holder until its expiration, only to the
extent the Option was exercisable at the time of such Normal
Termination.
(ii) If the Holder dies prior to the end of the Option Period and
while still in the employ or service of the Company or
within thirty days of Normal Termination, the Option shall
expire on the earlier of the last day of the Option Period
or the date that is thirty days after the date of death of
the Holder. In such event, the Option shall remain
exercisable by the person or persons to whom the Holder's
rights under the Option pass by will or the applicable laws
of descent and distribution until its expiration, only to
the extent the Option was exercisable by the Holder at the
time of death.
(iii) If the Holder ceases employment or service with the Company
for reasons other than Normal Termination or death, the
Option shall expire immediately upon such cessation of
employment or service.
(d) STOCK OPTION AGREEMENT - OTHER TERMS AND CONDITIONS. Each Option granted
under the Plan shall be evidenced by a Stock Option Agreement, which shall
contain such provisions as may be
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<PAGE> 9
determined by the Committee and, except as may be specifically stated otherwise
in such Stock Option Agreement, which shall be subject to the following terms
and conditions:
(i) Each Option issued pursuant to this Section 7 or portion
thereof that is exercisable shall be exercisable for the
full amount or for any part thereof.
(ii) Each share of Stock purchased through the exercise of an
Option issued pursuant to this Section 7 shall be paid for
in full at the time of the exercise. Each Option shall cease
to be exercisable, as to any share of Stock, when the Holder
purchases the share or exercises a related SAR or when the
Option expires.
(iii)Subject to Section 12(k), Options issued pursuant to this
Section 7 shall not be transferable by the Holder except by
will or the laws of descent and distribution and shall be
exercisable during the Holder's lifetime only by him.
(iv) Each Option issued pursuant to this Section 7 shall vest and
become exercisable by the Holder in accordance with the
vesting schedule established by the Committee and set forth
in the Stock Option Agreement.
(v) Each Stock Option Agreement may contain a provision that,
upon demand by the Committee for such a representation, the
Holder shall deliver to the Committee at the time of any
exercise of an Option issued pursuant to this Section 7 a
written representation that the shares to be acquired upon
such exercise are to be acquired for investment and not for
resale or with a view to the distribution thereof. Upon such
demand, delivery of such representation prior to the
delivery of any shares issued upon exercise of an Option
issued pursuant to this Section 7 shall be a condition
precedent to the right of the Holder or such other person to
purchase any shares. In the event certificates for Stock are
delivered under the Plan with respect to which such
investment representation has been obtained, the Committee
may cause a legend or legends to be placed on such
certificates to make appropriate reference to such
representation and to restrict transfer in the absence of
compliance with applicable federal or state securities laws.
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(vi) Each Incentive Stock Option Agreement shall contain a
provision requiring the Holder to notify the Company in
writing immediately after the Holder makes a disqualifying
disposition of any Stock acquired pursuant to the exercise
of such Incentive Stock Option. A disqualifying disposition
is any disposition (including any sale) of such Stock before
the later of (a) two years after the Date of Grant of the
Incentive Stock Option or (b) one year after the date the
Holder acquired the Stock by exercising the Incentive Stock
Option.
(e) INCENTIVE STOCK OPTION GRANTS TO 10% STOCKHOLDERS. Notwithstanding
anything to the contrary in this Section 7, if an Incentive Stock Option is
granted to a Holder who owns stock representing more than ten percent of the
voting power of all classes of stock of the Company or of a subsidiary (within
the meaning of Section 424(f) of the Code of the Company), the Option Period
shall not exceed five years from the Date of Grant of such Option and the Option
Price shall be at least 110 percent of the Fair Market Value (on the Date of
Grant) of the Stock subject to the Option.
(f) $100,000 PER YEAR LIMITATION FOR INCENTIVE STOCK OPTIONS. To the
extent the aggregate Fair Market Value (determined as of the Date of Grant) of
Stock for which Incentive Stock Options are exercisable for the first time by
any Participant during any calendar year (under all plans of the Company and its
Subsidiaries) exceeds $100,000, such excess Incentive Stock Options shall be
treated as Nonqualified Stock Options.
(g) VOLUNTARY SURRENDER. The Committee may permit the voluntary
surrender of all or any portion of any Nonqualified Stock Option issued pursuant
to this Section 7 and its corresponding SAR, if any, granted under the Plan to
be conditioned upon the granting to the Holder of a new Option for the same or a
different number of shares as the Option surrendered or require such voluntary
surrender as a condition precedent to a grant of a new Option to such
Participant. Such new Option shall be exercisable at an Option Price, during an
Option Period, and in accordance with any other terms or conditions specified by
the Committee at the time the new Option is granted, all determined in
accordance with the provisions of the Plan without regard to the Option Price,
Option Period, or any other terms and conditions of the Nonqualified Stock
Option surrendered.
8. STOCK APPRECIATION RIGHTS
Any Option granted under the Plan may include SARs, either at the Date
of Grant or, except in the case of an Incentive Stock
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Option, by subsequent amendment. The Committee also may award SARs independent
of any Option. An SAR shall confer on the Holder thereof the right to receive in
shares of Stock, cash or a combination thereof the value equal to the excess of
the Fair Market Value of one share of Stock on the date of exercise over the
exercise price for the SAR, with respect to every share of Stock for which the
SAR is granted. An SAR shall be subject to such terms and conditions not
inconsistent with the Plan as the Committee shall impose, including, but not
limited to, the following:
(a) VESTING. SARs granted in connection with an Option shall become
exercisable, be transferable and shall expire according to the same vesting
schedule, transferability rules and expiration provisions as the corresponding
Option. An SAR granted independent of an Option shall become exercisable, be
transferable and shall expire in accordance with a vesting schedule,
transferability rules and expiration provisions as established by the Committee
and reflected in an Award agreement.
(b) AUTOMATIC EXERCISE. If on the last day of the Option Period (or in
the case of an SAR independent of an Option, the period established by the
Committee after which the SAR shall expire), the Fair Market Value of the Stock
exceeds the Option Price (or in the case of an SAR granted independent of an
Option, the Fair Market Value of the Stock on the Date of Grant), the Holder has
not exercised the SAR or the corresponding Option, and neither the SAR nor the
corresponding Option has expired, such SAR shall be deemed to have been
exercised by the Holder on such last day and the Company shall make the
appropriate payment therefor.
(c) PAYMENT. Upon the exercise of an SAR, the Company shall pay to the
Holder an amount equal to the number of shares subject to the SAR multiplied by
the excess, if any, of the Fair Market Value of one share of Stock on the
exercise date over the Option Price, in the case of an SAR granted in connection
with an Option, or the Fair Market Value of one share of Stock on the Date of
Grant, in the case of an SAR granted independent of an Option. The Company shall
pay such excess in cash, in shares of Stock valued at Fair Market Value, or any
combination thereof, as determined by the Committee. Fractional shares shall be
settled in cash.
(d) METHOD OF EXERCISE. A Holder may exercise an SAR after such time as
the SAR vests by filing an irrevocable written notice with the Committee or its
designee, specifying the number of SARs to be exercised, and the date on which
such SARs were awarded.
(e) EXPIRATION. Each SAR shall cease to be exercisable, as to any share
of Stock, when the Holder exercises the SAR or exercises a related Option, with
respect to such share of Stock.
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Except as otherwise provided, in the case of SARs granted in connection with
Options, an SAR shall expire on a date designated by the Committee which is not
later than seven years after the Date of Grant of the SAR.
9. PERFORMANCE SHARES
(a) AWARD GRANTS. The Committee is authorized to establish Performance
Share programs to be effective over designated Award Periods determined by the
Committee. The Committee may grant Awards of Performance Share Units to Eligible
Persons in accordance with such Performance Share programs. At the beginning of
each Award Period, the Committee will establish written Performance Goals based
upon financial objectives for the Company for such Award Period and a schedule
relating the accomplishment of the Performance Goals to the Awards to be earned
by Participants. Performance Goals may include absolute or relative growth in
earnings per share or rate of return on stockholders' equity or other
measurement of corporate performance and may be determined on an individual
basis or by categories of Participants. The Committee shall determine the number
of Performance Share Units to be awarded, if any, to each Eligible Person who is
selected to receive such an Award. The Committee may add new Participants to a
Performance Share program after its commencement by making pro rata grants.
(b) DETERMINATION OF AWARD. At the completion of a Performance Share
Award Period, or at other times as specified by the Committee, the Committee
shall calculate the number of shares of Stock earned with respect to each
Participant's Performance Share Unit Award by multiplying the number of
Performance Share Units granted to the Participant by a performance factor
representing the degree of attainment of the Performance Goals.
(c) PARTIAL AWARDS. A Participant for less than a full Award Period,
whether by reason of commencement or termination of employment or otherwise,
shall receive such portion of an Award, if any, for that Award Period as the
Committee shall determine.
(d) PAYMENT OF PERFORMANCE SHARE UNIT AWARDS. Performance Share Unit
Awards shall be payable in that number of shares of Stock determined in
accordance with Section 9(b); provided, however, that, at its discretion, the
Committee may make payment to any Participant in the form of cash upon the
specific request of such Participant. The amount of any payment made in cash
shall be based upon the Fair Market Value of the Stock on the day prior to
payment. Payments of Performance Share Unit Awards shall be made as soon as
practicable after the completion of an Award Period.
(e) ADJUSTMENT OF PERFORMANCE GOALS. The Committee may, during the
Award Period, make such adjustments to Performance
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Goals as it may deem appropriate, to compensate for, or reflect, (i)
extraordinary or non-recurring events experienced during an Award Period by the
Company or by any other corporation whose performance is relevant to the
determination of whether Performance Goals have been attained; (ii) any
significant changes that may have occurred during such Award Period in
applicable accounting rules or principles or changes in the Company's method of
accounting or in that of any other corporation whose performance is relevant to
the determination of whether an Award has been earned or (iii) any significant
changes that may have occurred during such Award Period in tax laws or other
laws or regulations that alter or affect the computation of the measures of
Performance Goals used for the calculation of Awards; provided, however, that
following the date that the exemption from the application of Section 162(m) of
the Code described in Section 16 herein (or any other exemption having similar
effect) ceases to apply to Performance Share Unit Awards, with respect to such
Awards intended to qualify as "performance-based compensation" under Section
162(m) of the Code, such adjustment shall be made only to the extent that the
Committee determines that such adjustments may be made without a loss of
deductibility of the compensation includible with respect to such Award under
Section 162(m) of the Code.
10. RESTRICTED STOCK AWARDS AND PHANTOM STOCK UNITS
(a) AWARD OF RESTRICTED STOCK AND PHANTOM STOCK UNITS.
(i) The Committee shall have the authority (1) to grant
Restricted Stock and Phantom Stock Unit Awards, (2) to issue
or transfer Restricted Stock to Eligible Persons, and (3) to
establish terms, conditions and restrictions applicable to
such Restricted Stock and Phantom Stock Units, including the
Restricted Period, which may differ with respect to each
grantee, the time or times at which Restricted Stock or
Phantom Stock Units shall be granted or become vested and
the number of shares or units to be covered by each grant.
(ii) The Holder of a Restricted Stock Award shall execute and
deliver to the Company an Award agreement with respect to
the Restricted Stock setting forth the restrictions
applicable to such Restricted Stock. If the Committee
determines that the Restricted Stock shall be held in escrow
rather than delivered to the Holder pending the release of
the applicable restrictions, the Holder additionally shall
execute and deliver to the Company (i) an escrow agreement
satisfactory to the Committee, and (ii) the appropriate
blank stock powers with respect to the Restricted Stock
covered by such agreements. If a Holder shall
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fail to execute a Restricted Stock agreement and, if
applicable, an escrow agreement and stock powers, the Award
shall be null and void. Subject to the restrictions set
forth in Section 10(b), the Holder shall generally have the
rights and privileges of a stockholder as to such Restricted
Stock, including the right to vote such Restricted Stock. At
the discretion of the Committee, cash dividends and stock
dividends with respect to the Restricted Stock may be either
currently paid to the Holder or withheld by the Company for
the Holder's account, and interest may be paid on the amount
of cash dividends withheld at a rate and subject to such
terms as determined by the Committee. Cash dividends or
stock dividends so withheld by the Committee shall not be
subject to forfeiture.
(iii) Upon the Award of Restricted Stock, the Committee shall
cause a stock certificate registered in the name of the
Holder to be issued and, if it so determines, deposited
together with the stock powers with an escrow agent
designated by the Committee. If an escrow arrangement is
used, the Committee shall cause the escrow agent to issue to
the Holder a receipt evidencing any stock certificate held
by it registered in the name of the Holder.
(iv) The terms and conditions of a grant of Phantom Stock Units
shall be reflected in a written Award agreement. No shares
of Stock shall be issued at the time a Phantom Stock Unit
Award is made, and the Company will not be required to set
aside a fund for the payment of any such Award. Holders of
Phantom Stock Units shall receive an amount equal to the
cash dividends paid by the Company upon one share of Stock
for each Phantom Stock Unit then credited to such Holder's
account ("Dividend Equivalents"). The Committee shall, in
its sole discretion, determine whether to credit to the
account of, or to currently pay to, each Holder of an Award
of Phantom Stock Units such Dividend Equivalents. Dividend
Equivalents credited to a Holder's account shall be subject
to forfeiture on the same basis as the related Phantom Stock
Units, and may bear interest at a rate and subject to such
terms as are determined by the Committee.
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(b) RESTRICTIONS.
(i) Restricted Stock awarded to a Participant shall be subject
to the following restrictions until the expiration of the
Restricted Period, and to such other terms and conditions as
may be set forth in the applicable Award agreement: (1) if
an escrow arrangement is used, the Holder shall not be
entitled to delivery of the stock certificate; (2) the
shares shall be subject to the restrictions on
transferability set forth in the Award agreement; (3) the
shares shall be subject to forfeiture to the extent provided
in subparagraph (d) and the Award Agreement and, to the
extent such shares are forfeited, the stock certificates
shall be returned to the Company, and all rights of the
Holder to such shares and as a shareholder shall terminate
without further obligation on the part of the Company.
(ii) Phantom Stock Units awarded to any Participant shall be
subject to (1) forfeiture until the expiration of the
Restricted Period, to the extent provided in subparagraph
(d) and the Award agreement, and to the extent such Awards
are forfeited, all rights of the Holder to such Awards shall
terminate without further obligation on the part of the
Company and (2) such other terms and conditions as may be
set forth in the applicable Award agreement.
(iii) The Committee shall have the authority to remove any or all
of the restrictions on the Restricted Stock and Phantom
Stock Units whenever it may determine that, by reason of
changes in applicable laws or other changes in circumstances
arising after the date of the Restricted Stock Award or
Phantom Stock Award, such action is appropriate.
(c) RESTRICTED PERIOD. The Restricted Period of Restricted Stock and
Phantom Stock Units shall commence on the Date of Grant and shall expire from
time to time as to that part of the Restricted Stock and Phantom Stock Units
indicated in a schedule established by the Committee and set forth in a written
Award agreement.
(d) FORFEITURE PROVISIONS. Except to the extent determined by the
Committee and reflected in the underlying Award agreement, in the event a Holder
terminates employment with the Company during a Restricted Period for any
reason, that portion of the Award with respect to which restrictions have not
expired shall be completely forfeited to the Company.
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(e) DELIVERY OF RESTRICTED STOCK AND SETTLEMENT OF PHANTOM STOCK UNITS.
Upon the expiration of the Restricted Period with respect to any shares of Stock
covered by a Restricted Stock Award, the restrictions set forth in Section 10(b)
and the Award agreement shall be of no further force or effect with respect to
shares of Restricted Stock which have not then been forfeited. If an escrow
arrangement is used, upon such expiration, the Company shall deliver to the
Holder, or his beneficiary, without charge, the stock certificate evidencing the
shares of Restricted Stock which have not then been forfeited and with respect
to which the Restricted Period has expired (to the nearest full share) and any
cash dividends or stock dividends credited to the Holder's account with respect
to such Restricted Stock and the interest thereon, if any.
Upon the expiration of the Restricted Period with respect to any
Phantom Stock Units covered by a Phantom Stock Unit Award, the Company shall
deliver to the Holder, or his beneficiary, without charge, one share of Stock
for each Phantom Stock Unit which has not then been forfeited and with respect
to which the Restricted Period has expired ("Vested Unit") and cash equal to any
Dividend Equivalents credited with respect to each such Vested Unit and the
interest thereon, if any; provided, however, that, if so noted in the applicable
Award agreement, the Committee may, in its sole discretion, elect to pay cash or
part cash and part Stock in lieu of delivering only Stock for Vested Units. If
cash payment is made in lieu of delivering Stock, the amount of such payment
shall be equal to the Fair Market Value of the Stock as of the date on which the
Restricted Period lapsed with respect to such Vested Unit.
(f) STOCK RESTRICTIONS. Each certificate representing Restricted Stock
awarded under the Plan shall bear the following legend until the end of the
Restricted Period with respect to such Stock:
"Transfer of this certificate and the shares represented
hereby is restricted pursuant to the terms of a Stockholders'
Agreement, dated as of April, 2000 between the Company and certain
investors identified therein. A copy of such Agreement has been filed
with the Secretary and is available upon request."
Stop transfer orders shall be entered with the Company's transfer agent and
registrar against the transfer of legended securities.
11. STOCK BONUS AWARDS
The Committee may issue unrestricted Stock under the Plan to Eligible
Persons, alone or in tandem with other Awards, in such amounts and subject to
such terms and conditions as the Committee shall from time to time in its sole
discretion determine. Stock
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Bonus Awards under the Plan shall be granted as, or in payment of, a bonus, or
to provide incentives or recognize special achievements or contributions.
12. GENERAL
(a) ADDITIONAL PROVISIONS OF AN AWARD. Awards under the Plan also may
be subject to such other provisions (whether or not applicable to the benefit
awarded to any other Participant) as the Committee determines appropriate
including, without limitation, provisions to assist the Participant in financing
the purchase of Stock upon the exercise of Options, provisions for the
forfeiture of or restrictions on resale or other disposition of shares of Stock
acquired under any Award, provisions giving the Company the right to repurchase
shares of Stock acquired under any Award in the event the Participant elects to
dispose of such shares, and provisions to comply with Federal and state
securities laws and Federal and state tax withholding requirements. Any such
provisions shall be reflected in the applicable Award agreement.
(b) PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise specifically
provided in the Plan, no person shall be entitled to the privileges of stock
ownership in respect of shares of Stock which are subject to Awards hereunder
until such shares have been issued to that person.
(c) GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to
make payment of Awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by governmental agencies as
may be required. Notwithstanding any terms or conditions of any Award to the
contrary, the Company shall be under no obligation to offer to sell or to sell
and shall be prohibited from offering to sell or selling any shares of Stock
pursuant to an Award unless such shares have been properly registered for sale
pursuant to the Securities Act with the Securities and Exchange Commission or
unless the Company has received an opinion of counsel, satisfactory to the
Company, that such shares may be offered or sold without such registration
pursuant to an available exemption therefrom and the terms and conditions of
such exemption have been fully complied with. The Company shall be under no
obligation to register for sale under the Securities Act any of the shares of
Stock to be offered or sold under the Plan. If the shares of Stock offered for
sale or sold under the Plan are offered or sold pursuant to an exemption from
registration under the Securities Act, the Company may restrict the transfer of
such shares and may legend the Stock certificates representing such shares in
such manner as it deems advisable to ensure the availability of any such
exemption.
(d) TAX WITHHOLDING. Notwithstanding any other provision of the Plan,
the Company or a Subsidiary, as appropriate, shall
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have the right to deduct from all Awards cash and/or Stock, valued at Fair
Market Value on the date of payment, in an amount necessary to satisfy all
Federal, state or local taxes as required by law to be withheld with respect to
such Awards and, in the case of Awards paid in Stock, the Holder or other person
receiving such Stock may be required to pay to the Company prior to delivery of
such Stock, the amount of any such taxes which the Company is required to
withhold, if any, with respect to such Stock. Subject in particular cases to the
disapproval of the Committee, the Company may accept shares of Stock of
equivalent Fair Market Value in payment of such withholding tax obligations if
the Holder of the Award elects to make payment in such manner.
(e) CLAIM TO AWARDS AND EMPLOYMENT RIGHTS. No employee or other person
shall have any claim or right to be granted an Award under the Plan or, having
been selected for the grant of an Award, to be selected for a grant of any other
Award. Neither the Plan nor any action taken hereunder shall be construed as
giving any Participant any right to be retained in the employ or service of the
Company or any of its subsidiaries.
(f) DESIGNATION AND CHANGE OF BENEFICIARY. Each Participant may file
with the Committee a written designation of one or more persons as the
beneficiary who shall be entitled to receive the rights or amounts payable with
respect to an Award due under the Plan upon his death. A Participant may, from
time to time, revoke or change his beneficiary designation without the consent
of any prior beneficiary by filing a new designation with the Committee. The
last such designation received by the Committee shall be controlling; provided,
however, that no designation, or change or revocation thereof, shall be
effective unless received by the Committee prior to the Participant's death, and
in no event shall it be effective as of a date prior to such receipt. If no
beneficiary designation is filed by the Participant, the beneficiary shall be
deemed to be his or her spouse or, if the Participant is unmarried at the time
of death, his or her estate.
(g) PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS. If the Committee shall
find that any person to whom any amount is payable under the Plan is unable to
care for his affairs because of illness or accident, or is a minor, or has died,
then any payment due to such person or his estate (unless a prior claim therefor
has been made by a duly appointed legal representative) may, if the Committee so
directs the Company, be paid to his spouse, child, relative, an institution
maintaining or having custody of such person, or any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise entitled
to payment. Any such payment shall be a complete discharge of the liability of
the Committee and the Company therefor.
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(h) NO LIABILITY OF COMMITTEE MEMBERS. No member of the Committee shall
be personally liable by reason of any contract or other instrument executed by
such member or on his behalf in his capacity as a member of the Committee nor
for any mistake of judgment made in good faith, and the Company shall indemnify
and hold harmless each member of the Committee and each other employee, officer
or director of the Company to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or delegated,
against any cost or expense (including counsel fees) or liability (including any
sum paid in settlement of a claim) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud or
willful bad faith; provided, however, that approval of the Board shall be
required for the payment of any amount in settlement of a claim against any such
person. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Company's Articles of Incorporation or By-Laws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
(i) GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof.
(j) FUNDING. No provision of the Plan shall require the Company, for
the purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes. Holders shall have
no rights under the Plan other than as unsecured general creditors of the
Company, except that insofar as they may have become entitled to payment of
additional compensation by performance of services, they shall have the same
rights as other employees under general law.
(k) NONTRANSFERABILITY. A person's rights and interest under the Plan,
including amounts payable, may not be sold, assigned, donated, or transferred or
otherwise disposed of, mortgaged, pledged or encumbered except, in the event of
a Holder's death, to a designated beneficiary to the extent permitted by the
Plan, or in the absence of such designation, by will or the laws of descent and
distribution; provided, however, the Committee may, in its sole discretion,
allow for transfer of Awards other than Incentive Stock Options to other persons
or entities.
(l) RELIANCE ON REPORTS. Each member of the Committee and each member
of the Board shall be fully justified in relying, acting or failing to act, and
shall not be liable for having so
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relied, acted or failed to act in good faith, upon any report made by the
independent public accountant of the Company and its Subsidiaries and upon any
other information furnished in connection with the Plan by any person or persons
other than himself.
(m) RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
profit sharing, group insurance or other benefit plan of the Company except as
otherwise specifically provided in such other plan.
(n) EXPENSES. The expenses of administering the Plan shall be borne by
the Company.
(o) PRONOUNS. Masculine pronouns and other words of masculine gender
shall refer to both men and women.
(p) TITLES AND HEADINGS. The titles and headings of the sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings shall control.
(q) SHAREHOLDERS AGREEMENT. As a condition to receiving an Award under
the Plan each Participant receiving Stock or rights to acquire Stock under the
Plan shall agree to enter into a shareholders agreement to be approved by the
Board at such time as the Board deems appropriate.
13. CHANGES IN CAPITAL STRUCTURE
Awards granted under the Plan and any agreements evidencing such
Awards, the maximum number of shares of Stock subject to all Awards and the
maximum number of shares of Stock with respect to which any one person may be
granted Options or SARs during any year, if applicable, shall be subject to
equitable adjustment or substitution, as determined by the Committee in its sole
discretion, as to the number, price or kind of a share of Stock or other
consideration subject to such Awards (i) in the event of changes in the
outstanding Stock or in the capital structure of the Company by reason of stock
dividends, stock splits, reverse stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges, or other
relevant changes in capitalization occurring after the Date of Grant of any such
Award or (ii) in the event of any change in applicable laws or any change in
circumstances which results in or would result in any substantial dilution or
enlargement of the rights granted to, or available for, Participants in the
Plan, or which otherwise warrants equitable adjustment because it interferes
with the intended operation of the Plan. In addition, in the event of any such
adjustment or substitution, the aggregate number of shares of Stock available
under the Plan shall be
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appropriately adjusted by the Committee, whose determination shall be
conclusive. Following the date that the exemption from the application of
Section 162(m) of the Code described in Section 16 (or any other exemption
having similar effect) ceases to apply to Awards, with respect to Awards
intended to qualify as "performance-based compensation" under Section 162(m) of
the Code, such adjustments or substitutions shall be made only to the extent
that the Committee determines that such adjustments or substitutions may be made
without a loss of deductibility for such Awards under Section 162(m) of the
Code. The Company shall give each Participant notice of an adjustment hereunder
and, upon notice, such adjustment shall be conclusive and binding for all
purposes.
Notwithstanding the above, in the event of any of the following:
A. The Company is merged or consolidated with another
corporation or entity and, in connection therewith,
consideration is received by shareholders of the Company in a
form other than stock or other equity interests of the
surviving entity;
B. All or substantially all of the assets of the
Company are acquired by another person;
C. The reorganization or liquidation of the Company;
or
D. The Company shall enter into a written agreement
to undergo an event described in clauses A, B or C above,
then the Committee may, in its discretion and upon at least 10 days advance
notice to the affected persons, cancel any outstanding Awards and pay to the
Holders thereof, in cash, the value of such Awards based upon the price per
share of Stock received or to be received by other shareholders of the Company
in the event. The terms of this Section 13 may be varied by the Committee in any
particular Award agreement.
14. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of this Plan by the Board nor the submission of
this Plan to the stockholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either applicable generally or only in specific cases.
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15. AMENDMENTS AND TERMINATION
The Board may at any time terminate the Plan. Subject to Section 13,
with the express written consent of an individual Participant, the Board or the
Committee may cancel or reduce or otherwise alter outstanding Awards if, in its
judgment, the tax, accounting, or other effects of the Plan or potential payouts
thereunder would not be in the best interest of the Company. The Board or the
Committee may, at any time, or from time to time, amend or suspend and, if
suspended, reinstate, the Plan in whole or in part.
16. EFFECT OF SECTION 162(M) OF THE CODE
The Plan, and all Awards issued thereunder, are intended to be exempt
from the application of Section 162(m) of the Code, which restricts under
certain circumstances the Federal income tax deduction for compensation paid by
a public company to named executives in excess of $1 million per year. The
exemption is based on Treasury Regulation Section 1.162-27(f), in the form
existing on the effective date of the Plan, with the understanding that such
regulation generally exempts from the application of Section 162(m) of the Code
compensation paid pursuant to a plan that existed before a company becomes
publicly held. Under such Treasury Regulation, this exemption is available to
the Plan for the duration of the period that lasts until the earlier of (i) the
expiration or material modification of the Plan, (ii) the exhaustion of the
maximum number of shares of Stock available for Awards under the Plan, as set
forth in Section 5(a), or (iii) the first meeting of shareholders at which
directors are to be elected that occurs after the close of the third calendar
year following the calendar year in which the Company first becomes subject to
the reporting obligations of Section 12 of the Exchange Act. The Committee may,
without shareholder approval, amend the Plan retroactively and/or prospectively
to the extent it determines necessary in order to comply with any subsequent
clarification of Section 162(m) of the Code required to preserve the Company's
Federal income tax deduction for compensation paid pursuant to the Plan. To the
extent that the Committee determines as of the Date of Grant of an Award that
(i) the Award is intended to comply with Section 162(m) of the Code and (ii) the
exemption described above is no longer available with respect to such Award,
such Award shall not be effective until any stockholder approval required under
Section 162(m) of the Code has been obtained.
* * *
-22-
<PAGE> 23
As adopted by the Board of Directors of
American Medical Systems Holdings, Inc.
as of April 17, 2000
By: /s/ Douglas W. Kohrs
----------------------
Title: President
-------------------
-23-
<PAGE> 1
FORM OF INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of , (the "Effective
Date"), by and between American Medical Systems Holdings, Inc., a Delaware
corporation (the "Company"), and (the "Participant").
W I T N E S S E T H
WHEREAS, The Company has adopted the American Medical Systems Holdings,
Inc. 2000 Equity Incentive Plan (the "Plan") authorizing the Board of Directors
of the Company, or a committee as provided for in the Plan (the Board or such a
committee to be referred to as the "Committee"), to grant incentive stock
options to employees of the Company.
WHEREAS, the Company desires to afford the Participant the opportunity
to acquire an ownership of the Company's common stock, par value $.0l per share
("Stock"), so that he or she may have a direct proprietary interest in the
Company's success.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
herein and in the Plan, the Company hereby grants to the Participant, during the
period commencing on the date of this Agreement and ending on ,
[Insert date 10 years after Effective Date] (the "Expiration Date"), the
right and option (the right to purchase any one share of Stock hereunder being
an "Option") to purchase from the Company shares of Stock. The
Options shall have an exercise price of $ per share, which represents the
Fair Market Value per share of the Stock as of the date hereof. Each of the
Options granted pursuant to this Agreement shall constitute Incentive Stock
Options under the Plan.
2. Limitations on Exercise of Options.
(a) The Options shall vest and become exercisable, on a
cumulative basis, with respect to [25% of total] shares on December
31, 1999 and with respect to [6.25% of total] on the last day of
each calendar quarter thereafter while the Participant is employed by the
Company. The Board may accelerate the vesting and exercisability of any or all
of the then-unvested Options at any time. If a Change in Control (as defined
below) occurs and (a) the Company terminates the Participant's employment for
any reason other than death, Disability or Cause within nine (9) months after
the Change in Control or (b) the Participant terminates employment with the
Company for Good Reason (as defined below) within nine (9) months after the
Change in Control, then all Options shall vest and be immediately exercisable in
full as of the date of such termination and shall remain exercisable for the
periods set forth in Section 3, subject to the Committee's right to cancel the
Options under Section 13 of the Plan.
(b) For the purposes of this Agreement, "Change of Control"
shall mean:
(i) The acquisition by any individual, entity or group
(within the
<PAGE> 2
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more (on
a fully diluted basis) of either (A) the then outstanding shares of Stock,
taking into account as outstanding for this purpose shares of Stock issuable
upon the exercise of options or warrants, the conversion of convertible stock or
debt, and the exercise of any similar right to acquire shares of Stock (the
"Outstanding Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (x) any acquisition by the Company or
any "affiliate" of the Company, within the meaning of 17 C.F.R. ss. 230.405 (an
"Affiliate"), (y) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any Affiliate of the Company,
(z) any acquisition by any corporation pursuant to a transaction which complies
with clauses (A), (B) and (C) of subsection (ii) of this Section 2(b) (persons
and entities described in clauses (x), (y) and (z) being referred to herein as
"Permitted Holders"); or
(ii) The consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of Stock
and the combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, and (B) no Person (excluding any Permitted Holder) beneficially owns,
directly or indirectly, 50% or more (on a fully diluted basis) of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such Business Combination, taking into account as outstanding for this purpose
such common stock issuable upon the exercise of options or warrants, the
conversion of convertible stock or debt, and the exercise of any similar right
to acquire such common stock, or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (C) at least a majority
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the incumbent Board of Directors of the
Company at the time of the execution of the initial agreement providing for such
Business Combination; or
(iii) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company; or
(iv) The sale of at least 80% of the assets of the
Company to an unrelated party, or completion of a transaction having a similar
effect; or
2
<PAGE> 3
(v) The individuals who on the date of this Agreement
constitute the Board of Directors thereafter cease to constitute at least a
majority thereof; provided that any person becoming a member of the Board of
Directors subsequent to the date of this Agreement and whose election or
nomination was approved by a vote of at least two-thirds of the directors who
then comprised the Board of Directors immediately prior to such vote shall be
considered a member of the Board of Directors on the date of this Agreement.
(c) For purposes of this Agreement, "Good Reason" shall mean,
without the Participant's prior written consent, (i) a substantial diminution in
the Participant's authority, duties or responsibilities as in effect prior to
the Change in Control, (ii) a reduction by the Company in the Participant's base
salary, or an adverse change in the form or timing of the payment thereof, as in
effect immediately prior to the Change in Control or as thereafter increased, or
(iii) the Company's requiring the Participant to be based at any office or
location that is more than fifty (50) miles further from the office or location
thereof immediately preceding a Change in Control; provided, however, Good
Reason shall not include any of the circumstances or events described herein
unless the Participant has first provided written notice of such circumstance or
event and the Company has not corrected such circumstance or event within thirty
(30) days of receipt by the Company of such written notice from the Participant.
(d) Notwithstanding anything in this Section 2 to the
contrary, if, with respect to the Participant, acceleration of the vesting of
the Options or the payment of cash in exchange for all or part of the Options as
provided above (which acceleration or payment could be deemed a "payment" within
the meaning of Section 280G(b)(2) of the Code), together with any other payments
which the Participant has the right to receive from the Company or any
corporation which is a member of an "affiliated group" (as defined in Section
1504(a) of the Code without regard to Section 1504(b) of the Code) of which the
Company is a member, would constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Code), the payments to the Participant as set forth
herein will be reduced to the largest amount as will result in no portion of
such payments being subject to the excise tax imposed by Section 4999 of the
Code; provided, that such reduction shall be made only if the aggregate amount
of the payments after such reduction exceeds the difference between (A) the
amount of such payments absent such reduction minus (B) the aggregate amount of
the excise tax imposed under Section 4999 of the Code attributable to any such
excess parachute payments arising in connection with a change in control.
Notwithstanding the foregoing sentence, if the Participant is subject to a
separate agreement with the Company that expressly addresses the potential
application of Sections 280G or 4999 of the Code (including, without limitation,
that "payments" under such agreement or otherwise will be reduced, that the
Participant will have the discretion to determine which "payments" will be
reduced, that such "payments" will not be reduced or that such "payments" will
be "grossed up" for tax purposes), then this Section 2(c) will not apply, and
any "payments" to the Participant pursuant to Section 2(a) of this Agreement
will be treated as "payments" arising under such separate agreement.
3. Termination of Employment.
(a) If prior to the Expiration Date, the Participant's
employment shall be terminated by the Company by reason of a Disability, the
Options shall remain exercisable until the earlier of the Expiration Date or six
(6) months after such date of termination (the "Date of
3
<PAGE> 4
Termination") to the extent the Options were vested and exercisable as of the
Date of Termination.
(b) If the Participant shall cease to be employed by the
Company prior to the Expiration Date by reason of death, the executor or
administrator of the estate of the Participant or the person or persons to whom
the Options shall have been validly transferred by the executor or administrator
pursuant to will or the laws of descent and distribution shall have the right,
until the earlier of the Expiration Date or twelve (12) months after the date of
death, to exercise the Options to the extent that the Participant was entitled
to exercise them on the date of death.
(c) If, prior to the Expiration Date, the Participant's
employment with the Company is terminated for Cause, (i) unless otherwise
provided by the Board, the Options, to the extent not exercised as of the Date
of Termination, shall lapse and be canceled, and (ii) all shares of Stock
received pursuant to an exercise of the Options after such termination, in
contravention of subsection (i) above, may be purchased by the Company at its
discretion for the exercise price of such shares paid by the Participant.
(d) If, prior to the Expiration Date, the Company terminates
the Participant's employment without Cause (other than on account of a
Disability), the Options, to the extent then vested and exercisable as of the
Date of Termination, shall remain exercisable until the earlier of the
Expiration Date or 90 days after the Date of Termination.
(e) If the Participant voluntarily terminates his employment
with the Company, the Options shall remain exercisable until the earlier of the
Expiration Date or ninety (90) days after the Date of Termination to the extent
the Options were vested and exercisable as of the Date of Termination.
(f) After the expiration of any exercise period described in
any of Sections 3(a) through (e), or otherwise upon the Expiration Date, the
Options shall terminate together with all of the Participant's rights hereunder,
to the extent not previously exercised.
(g) Notwithstanding anything in this Agreement or the Plan to
the contrary, in the event that the Participant materially breaches the terms of
any confidentiality or non-compete agreement entered into with the Company,
whether such breach occurs before or after termination of the Participant's
employment with the Company, the Committee in its sole discretion may
immediately terminate all rights of the Participant under the Plan and this
Agreement without notice of any kind and may require the Participant to disgorge
any profits (however defined by the Committee) made by the Participant relating
to the Options.
4. Non-Transferable. Except as specifically authorized by the
Committee, the Participant may not transfer the Options except by will or the
laws of descent and distribution and the Options shall be exercisable during the
Participant's lifetime only by the Participant or his guardian or legal
representative. Except as so authorized, no purported assignment or transfer of
the Options, or of the rights represented thereby, whether voluntary or
involuntary, by operation of law or otherwise (except by will or the laws of
descent and distribution), shall vest in the assignee or transferee any interest
or right herein whatsoever.
4
<PAGE> 5
5. Adjustments and Corporate Reorganizations. In accordance with
and subject to the applicable terms of the Plan, the Options shall be subject to
adjustment or substitution, as determined by the Committee, as to the number,
price or kind of Stock or other consideration subject to such Options or as
otherwise determined by the Committee to be equitable (i) in the event of
changes in the outstanding Stock or in the capital structure of the Company by
reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the date
hereof or (ii) in the event of any change in applicable laws or any change in
circumstances which results in or would result in any substantial dilution or
enlargement of the rights granted to, or available for, the Participant. The
Company shall give the Participant written notice of an adjustment hereunder.
6. Exercise: Payment For and Delivery of Stock. The Options
shall be exercised by delivering written notice to the Company's Chief Financial
Officer stating the number of shares of Stock to be purchased, the person or
persons in whose name the shares of Stock are to be registered and each such
person's address and social security number. Such notice shall not be effective
unless accompanied by the full purchase price for all shares to be purchased,
and any applicable withholding (as described below). The purchase price shall be
payable in cash and/or shares of Stock valued at the Fair Market Value at the
time the Option is exercised or, in the discretion of the Committee, either (a)
in other property having a fair market value on the date of exercise equal to
the option price, or (b) by delivering to the Committee a copy of irrevocable
instructions to a stockbroker to deliver promptly to the Company an amount of
sale or loan proceeds sufficient to pay the exercise price. The Participant may
use Stock in payment of the exercise price only if the shares so used are
considered "mature" for purposes of generally accepted accounting principles
(i.e., (i) been held by the Participant free and clear for at least six (6)
months prior to the use thereof to pay part of an Option exercise price, (ii)
been purchased by the Participant in other than a compensatory transaction, or
(iii) meet any other requirements for "mature" shares as may exist on the date
of the use thereof to pay part of an Option exercise price). At the time of
exercise, the Participant shall pay to the Company, in cash, or by having the
Company withhold upon exercise of the option a sufficient number of shares of
Stock otherwise deliverable to the Participant based on the Fair Market Value of
the Stock on the date of exercise, at the election of the Participant, such
minimum amount as the Company deems necessary to satisfy its obligation to
withhold Federal, state or local income or other taxes incurred by reason of the
exercise or the transfer of shares thereupon. Payment in currency or by
certified or cashier's check shall be considered payment in cash.
7. Rights as Stockholder. The Participant or a transferee of
the Options shall have no rights as a stockholder with respect to any shares
covered by the Options until he shall have become the holder of record of such
shares (and the Company shall use its reasonable best efforts to cause the
Participant promptly to become the holder of record of such shares), and, except
as provided in Section 5 hereof, no adjustment shall be made for dividends or
distributions or other rights in respect of such shares for which the record
date is prior to the date upon which he shall become the holder or record
thereof.
5
<PAGE> 6
8. Company; Participant.
(a) The term "Company" as used in this Agreement with
reference to employment shall include the Company and its affiliates.
(b) Whenever the word "Participant" is used in any provision
of this Agreement under circumstances where the provision should logically be
construed to apply to the executors, the administrators, legal representatives
or the person or persons to whom the Options may be transferred by will or by
the laws of descent and distribution, the word "Participant" shall be deemed to
include such person or persons.
9. Right of First Refusal.
(a) If the Participant receives an offer to purchase any of
the Participant's Stock and the Participant wishes to accept such offer, the
Participant will offer to sell such shares of Stock to the Company at the same
price and upon the same terms and conditions as are contained in the offer.
Promptly upon receiving such offer, the Participant will provide the Company
with written notice of the offer, which must identify the terms and conditions
of such offer, including a true and complete copy of any writing by which the
offer was made, the identity, business and residence address of the offeror, the
number of shares of Stock the offeror wishes to purchase (the "Offered Shares"),
and the price and terms offered. The Company will have the right, exercisable by
giving written notice to the Participant within forty-five (45) days of receipt
of the written notice of such offer from the Participant, to purchase, to the
extent it is legally able to do so, any or all of the Offered Shares at the same
price and upon the same terms and conditions as are contained in the offer. The
delivery of such notice by the Company to the Participant shall constitute a
binding commitment of the Company to purchase and acquire such number of Offered
Shares as are specified in the Company's notice. The total purchase price for
the Offered Shares shall be delivered to the Participant against delivery by the
Participant of certificates evidencing the Offered Shares no later than 30 days
after the delivery of the election notice by the Company. If the Company fails
to purchase or give notice of its intent to purchase all of the Offered Shares
within such 45-day period, the Participant will have the right to accept the
offer and sell the Offered Shares in strict accordance with all of the
provisions of the offer, provided that the sale is consummated within ninety
(90) days of the date of the first written notice to the Company of such offer.
If the sale is not consummated within such 90-day period or if the terms of the
offer change in any material way, then the provisions of this Section 9(a) will
once again apply to any sale by the Participant of the Offered Shares. Any
purported transfer of Stock in violation of this Section 9(a) shall be null and
void.
(b) Anything in this Section 9 to the contrary, the Company
shall not be obligated to purchase any Stock at any time to the extent that the
purchase would result in a violation of any law, statute, rule, regulation,
order, writ, injunction, decree or judgment promulgated or entered by any
Federal, state, local or foreign court or governmental authority applicable to
the Company or any of its property. Anything in this Section 9 to the contrary,
the Company's right to purchase any Stock hereunder shall expire upon completion
of an IPO.
6
<PAGE> 7
10. Requirements of Law.
(a) By accepting the Options, the Participant represents and
agrees for himself and his transferees (whether by will or the laws of descent
and distribution) that, unless a registration statement under the Securities Act
of 1933, as amended (the "Act"), is in effect as to shares purchased upon any
exercise of the Options, (i) any and all shares so purchased shall be acquired
for his personal account and not with a view to or for sale in connection with
any distribution, and (ii) each notice of the exercise of any portion of this
Option shall be accompanied by a representation and warranty in writing, signed
by the person entitled to exercise the same, that the shares are being so
acquired in good faith for his personal account and not with a view to or for
sale in connection with any distribution.
(b) No certificate or certificates for shares of Stock may be
purchased, issued or transferred if the exercise hereof or the issuance or
transfer of such shares shall constitute a violation by the Company or the
Participant of any (i) provision of any Federal, state or other securities law,
(ii) requirement of any securities exchange listing agreement to which the
Company may be a party, or (iii) other requirement of law or of any regulatory
body having jurisdiction over the Company. Any reasonable determination in this
connection by the Board, upon notice given to the Participant, shall be final,
binding and conclusive.
(c) The certificates representing shares of Stock acquired
pursuant to the exercise of options shall carry such appropriate legend, and
such written instructions shall be given to the Company's transfer agent, as may
be deemed necessary or advisable by counsel to the Company in order to comply
with the requirements of the Act or any state securities laws.
11. Notices. Any notice to be given to either party shall be
in writing and shall be given by hand delivery to such party or by registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Company in care of its Chief Financial Officer at its principal office, and to
the Participant at the address given beneath his signature hereto, or at such
other address as either party shall have furnished to the other in writing in
accordance herewith. Notice and communications shall be effective when actually
received by the addressee.
12. Disposition of Stock. The Participant agrees to notify the
Company, in writing, within thirty (30) days of any disposition (whether by
sale, exchange, gift or otherwise) of shares of Stock purchased under this
Agreement, within two (2) years from the date of the granting of such Options or
within one (1) year of the exercise of such Options.
13. Binding Effect. Subject to Section 4 hereof, this Agreement
shall be binding upon the heirs, executors, administrators, successors and
permitted assigns of the parties hereto.
14. Plan. The terms and provisions of the Plan are incorporated
herein by reference and made a part hereof as though fully set forth herein. In
the event of any conflict or inconsistency between discretionary terms and
provisions of the Plan and this Agreement, this Agreement shall govern and
control. In all other instances of conflicts or inconsistencies or omissions,
the terms and provisions of the Plan shall govern and control. All capitalized
terms not otherwise expressly defined in this Agreement shall have the meaning
ascribed to them in the Plan.
7
<PAGE> 8
15. Governing Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law thereof.
16. Entire Agreement. This Agreement, together with the Plan,
contains the entire agreement and understanding between the parties with respect
to the subject matter hereof and supersedes all prior agreements, written or
oral, with respect thereto.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and such
counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has granted this Option on the date of
grant specified above.
AMERICAN MEDICAL SYSTEMS
HOLDINGS, INC.
By:
-------------------------------------
Douglas W. Kohrs
President and Chief Executive Officer
ACCEPTED:
- -------------------------------------
[Name of Participant]
8
<PAGE> 1
FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of ______________, ______ (the "Effective
Date"), by and between American Medical Systems Holdings, Inc., a Delaware
corporation (the "Company"), and _________________ (the "Participant").
WITNESSETH
WHEREAS, The Company has adopted the American Medical Systems Holdings,
Inc. 2000 Equity Incentive Plan (the "Plan") authorizing the Board of Directors
of the Company, or a committee as provided for in the Plan (the Board or such a
committee to be referred to as the "Committee"), to grant nonqualified stock
options to employees and non-employee directors, consultants and independent
contractors of the Company.
WHEREAS, the Company desires to afford the Participant the opportunity
to acquire an ownership of the Company's common stock, par value $.0l per share
("Stock"), so that he or she may have a direct proprietary interest in the
Company's success.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
herein and in the Plan, the Company hereby grants to the Participant, during the
period commencing on the date of this Agreement and ending on _____________,
_______ [Insert date 10 years after Effective Date] (the "Expiration Date"), the
right and option (the right to purchase any one share of Stock hereunder being
an "Option") to purchase from the Company 25,000 shares of Stock. The Options
shall have an exercise price of $____ per share, which represents the Fair
Market Value per share of the Stock as of the date hereof. Each of the Options
granted pursuant to this Agreement shall constitute Nonqualified Stock Options
under the Plan.
2. Limitations on Exercise of Options.
(a) The Options shall vest and become exercisable, on a
cumulative basis, with respect to ____________ [25% of total] shares on December
31, 1999 and with respect to ____________ [6.25% of total] on the last day of
each calendar quarter thereafter while the Participant serves on the Board of
Directors of the Company (the "Board of Directors"). The Board may accelerate
the vesting and exercisability of any or all of the then-unvested Options at any
time. If a Change in Control (as defined below) occurs and the Company
terminates the Participant's service as a member of the Board of Directors for
any reason other than death, Disability or Cause within nine (9) months after
the Change in Control, then all Options shall vest and be immediately
exercisable in full as of the date of such termination and shall remain
exercisable for the periods set forth in Section 3, subject to the Committee's
right to cancel the Options under Section 13 of the Plan.
<PAGE> 2
(b) For the purposes of this Agreement, "Change of Control"
shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 50% or more (on a fully diluted basis) of either (A) the then outstanding
shares of Stock, taking into account as outstanding for this purpose shares of
Stock issuable upon the exercise of options or warrants, the conversion of
convertible stock or debt, and the exercise of any similar right to acquire
shares of Stock (the "Outstanding Company Common Stock") or (B) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change of Control: (x) any
acquisition by the Company or any "affiliate" of the Company, within the meaning
of 17 C.F.R. ss. 230.405 (an "Affiliate"), (y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
Affiliate of the Company, (z) any acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B) and (C) of subsection (ii) of
this Section 2(b) (persons and entities described in clauses (x), (y) and (z)
being referred to herein as "Permitted Holders"); or
(ii) The consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of Stock
and the combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, and (B) no Person (excluding any Permitted Holder) beneficially owns,
directly or indirectly, 50% or more (on a fully diluted basis) of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such Business Combination, taking into account as outstanding for this purpose
such common stock issuable upon the exercise of options or warrants, the
conversion of convertible stock or debt, and the exercise of any similar right
to acquire such common stock, or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (C) at least a majority
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the incumbent Board of Directors of the
Company at the time of the execution of the initial agreement providing for such
Business Combination; or
(iii) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company; or
2
<PAGE> 3
(iv) The sale of at least 80% of the assets of the Company
to an unrelated party, or completion of a transaction having a similar effect;
or
(v) The individuals who on the date of this Agreement
constitute the Board of Directors thereafter cease to constitute at least a
majority thereof; provided that any person becoming a member of the Board of
Directors subsequent to the date of this Agreement and whose election or
nomination was approved by a vote of at least two-thirds of the directors who
then comprised the Board of Directors immediately prior to such vote shall be
considered a member of the Board of Directors on the date of this Agreement.
(c) Notwithstanding anything in this Section 2 to the
contrary, if, with respect to the Participant, acceleration of the vesting of
the Options or the payment of cash in exchange for all or part of the Options as
provided above (which acceleration or payment could be deemed a "payment" within
the meaning of Section 280G(b)(2) of the Code), together with any other payments
which the Participant has the right to receive from the Company or any
corporation which is a member of an "affiliated group" (as defined in Section
1504(a) of the Code without regard to Section 1504(b) of the Code) of which the
Company is a member, would constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Code), the payments to the Participant as set forth
herein will be reduced to the largest amount as will result in no portion of
such payments being subject to the excise tax imposed by Section 4999 of the
Code; provided, that such reduction shall be made only if the aggregate amount
of the payments after such reduction exceeds the difference between (A) the
amount of such payments absent such reduction minus (B) the aggregate amount of
the excise tax imposed under Section 4999 of the Code attributable to any such
excess parachute payments arising in connection with a change in control.
Notwithstanding the foregoing sentence, if the Participant is subject to a
separate agreement with the Company that expressly addresses the potential
application of Sections 280G or 4999 of the Code (including, without limitation,
that "payments" under such agreement or otherwise will be reduced, that the
Participant will have the discretion to determine which "payments" will be
reduced, that such "payments" will not be reduced or that such "payments" will
be "grossed up" for tax purposes), then this Section 2(c) will not apply, and
any "payments" to the Participant pursuant to Section 2(a) of this Agreement
will be treated as "payments" arising under such separate agreement.
3. Termination of Service.
(a) If, prior to the Expiration Date, the Participant's
service as a member of the Board of Directors is terminated for any reason other
than Cause, the Options shall remain exercisable until the earlier of the
Expiration Date five (5) years after such date of termination (the "Date of
Termination") to the extent the Options were vested and exercisable as of the
Date of Termination.
(b) If, prior to the Expiration Date, the Participant's
service as a member of the Board of Directors is terminated for Cause, (i)
unless otherwise provided by the Board, the Options, to the extent not exercised
as of the Date of Termination, shall lapse and be canceled, and (ii) all shares
of Stock received pursuant to an exercise of the Options after such termination,
in contravention of subsection (i) above, may be purchased by the Company at its
discretion for the exercise price of such shares paid by the Participant.
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<PAGE> 4
(c) After the expiration of any exercise period described in
any of Sections 3(a) and (b) hereof, or otherwise upon the Expiration Date, the
Options shall terminate together with all of the Participant's rights hereunder,
to the extent not previously exercised.
(d) Notwithstanding anything in this Agreement or the Plan to
the contrary, in the event that the Participant materially breaches the terms of
any confidentiality or non-compete agreement entered into with the Company,
whether such breach occurs before or after termination of the Participant's
service as a member of the Board of Directors, the Committee in its sole
discretion may immediately terminate all rights of the Participant under the
Plan and this Agreement without notice of any kind and may require the
Participant to disgorge any profits (however defined by the Committee) made by
the Participant relating to the Options.
4. Non-Transferable. Except as specifically authorized by the
Committee, the Participant may not transfer the Options except by will or the
laws of descent and distribution and the Options shall be exercisable during the
Participant's lifetime only by the Participant or his guardian or legal
representative. Except as so authorized, no purported assignment or transfer of
the Options, or of the rights represented thereby, whether voluntary or
involuntary, by operation of law or otherwise (except by will or the laws of
descent and distribution), shall vest in the assignee or transferee any interest
or right herein whatsoever.
5. Adjustments and Corporate Reorganizations. In accordance with and
subject to the applicable terms of the Plan, the Options shall be subject to
adjustment or substitution, as determined by the Committee, as to the number,
price or kind of Stock or other consideration subject to such Options or as
otherwise determined by the Committee to be equitable (i) in the event of
changes in the outstanding Stock or in the capital structure of the Company by
reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the date
hereof or (ii) in the event of any change in applicable laws or any change in
circumstances which results in or would result in any substantial dilution or
enlargement of the rights granted to, or available for, the Participant. The
Company shall give the Participant written notice of an adjustment hereunder.
6. Exercise: Payment For and Delivery of Stock. The Options shall be
exercised by delivering written notice to the Company's Chief Financial Officer
stating the number of shares of Stock to be purchased, the person or persons in
whose name the shares of Stock are to be registered and each such person's
address and social security number. Such notice shall not be effective unless
accompanied by the full purchase price for all shares to be purchased, and any
applicable withholding (as described below). The purchase price shall be payable
in cash and/or shares of Stock valued at the Fair Market Value at the time the
Option is exercised or, in the discretion of the Committee, either (a) in other
property having a fair market value on the date of exercise equal to the option
price, or (b) by delivering to the Committee a copy of irrevocable instructions
to a stockbroker to deliver promptly to the Company an amount of sale or loan
proceeds sufficient to pay the exercise price. The Participant may use Stock in
payment of the exercise price only if the shares so used are considered "mature"
for purposes of generally accepted accounting principles (i.e., (i) been held by
the Participant free and clear for at least six (6) months prior to the use
thereof to pay part of an Option exercise price, (ii) been purchased by the
Participant in other than a compensatory transaction, or (iii) meet any other
requirements for
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<PAGE> 5
"mature" shares as may exist on the date of the use thereof to pay part of an
Option exercise price). At the time of exercise, the Participant shall pay to
the Company, in cash, or by having the Company withhold upon exercise of the
option a sufficient number of shares of Stock otherwise deliverable to the
Participant based on the Fair Market Value of the Stock on the date of exercise,
at the election of the Participant, such minimum amount as the Company deems
necessary to satisfy its obligation to withhold Federal, state or local income
or other taxes incurred by reason of the exercise or the transfer of shares
thereupon. Payment in currency or by certified or cashier's check shall be
considered payment in cash.
7. Rights as Stockholder. The Participant or a transferee of the
Options shall have no rights as a stockholder with respect to any shares covered
by the Options until he shall have become the holder of record of such shares
(and the Company shall use its reasonable best efforts to cause the Participant
promptly to become the holder of record of such shares), and, except as provided
in Section 5 hereof, no adjustment shall be made for dividends or distributions
or other rights in respect of such shares for which the record date is prior to
the date upon which he shall become the holder or record thereof.
8. Company; Participant.
(a) The term "Company" as used in this Agreement with
reference to service shall include the Company and its affiliates.
(b) Whenever the word "Participant" is used in any provision
of this Agreement under circumstances where the provision should logically be
construed to apply to the executors, the administrators, legal representatives
or the person or persons to whom the Options may be transferred by will or by
the laws of descent and distribution, the word "Participant" shall be deemed to
include such person or persons.
9. Right of First Refusal.
(a) If the Participant receives an offer to purchase any of
the Participant's Stock and the Participant wishes to accept such offer, the
Participant will offer to sell such shares of Stock to the Company at the same
price and upon the same terms and conditions as are contained in the offer.
Promptly upon receiving such offer, the Participant will provide the Company
with written notice of the offer, which must identify the terms and conditions
of such offer, including a true and complete copy of any writing by which the
offer was made, the identity, business and residence address of the offeror, the
number of shares of Stock the offeror wishes to purchase (the "Offered Shares"),
and the price and terms offered. The Company will have the right, exercisable by
giving written notice to the Participant within forty-five (45) days of receipt
of the written notice of such offer from the Participant, to purchase, to the
extent it is legally able to do so, any or all of the Offered Shares at the same
price and upon the same terms and conditions as are contained in the offer. The
delivery of such notice by the Company to the Participant shall constitute a
binding commitment of the Company to purchase and acquire such number of Offered
Shares as are specified in the Company's notice. The total purchase price for
the Offered Shares shall be delivered to the Participant against delivery by the
Participant of certificates evidencing the Offered Shares no later than 30 days
after the delivery of the election notice by the Company. If the Company fails
to purchase or give notice of its intent to purchase
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<PAGE> 6
all of the Offered Shares within such 45-day period, the Participant will have
the right to accept the offer and sell the Offered Shares in strict accordance
with all of the provisions of the offer, provided that the sale is consummated
within ninety (90) days of the date of the first written notice to the Company
of such offer. If the sale is not consummated within such 90-day period or if
the terms of the offer change in any material way, then the provisions of this
Section 9(a) will once again apply to any sale by the Participant of the Offered
Shares. Any purported transfer of Stock in violation of this Section 9(a) shall
be null and void.
(b) Anything in this Section 9 to the contrary, the Company
shall not be obligated to purchase any Stock at any time to the extent that the
purchase would result in a violation of any law, statute, rule, regulation,
order, writ, injunction, decree or judgment promulgated or entered by any
Federal, state, local or foreign court or governmental authority applicable to
the Company or any of its property. Anything in this Section 9 to the contrary,
the Company's right to purchase any Stock hereunder shall expire upon completion
of an IPO.
10. Requirements of Law.
(a) By accepting the Options, the Participant represents and
agrees for himself and his transferees (whether by will or the laws of descent
and distribution) that, unless a registration statement under the Securities Act
of 1933, as amended (the "Act"), is in effect as to shares purchased upon any
exercise of the Options, (i) any and all shares so purchased shall be acquired
for his personal account and not with a view to or for sale in connection with
any distribution, and (ii) each notice of the exercise of any portion of this
Option shall be accompanied by a representation and warranty in writing, signed
by the person entitled to exercise the same, that the shares are being so
acquired in good faith for his personal account and not with a view to or for
sale in connection with any distribution.
(b) No certificate or certificates for shares of Stock may be
purchased, issued or transferred if the exercise hereof or the issuance or
transfer of such shares shall constitute a violation by the Company or the
Participant of any (i) provision of any Federal, state or other securities law,
(ii) requirement of any securities exchange listing agreement to which the
Company may be a party, or (iii) other requirement of law or of any regulatory
body having jurisdiction over the Company. Any reasonable determination in this
connection by the Board, upon notice given to the Participant, shall be final,
binding and conclusive.
(c) The certificates representing shares of Stock acquired
pursuant to the exercise of options shall carry such appropriate legend, and
such written instructions shall be given to the Company's transfer agent, as may
be deemed necessary or advisable by counsel to the Company in order to comply
with the requirements of the Act or any state securities laws.
11. Notices. Any notice to be given to either party shall be in writing
and shall be given by hand delivery to such party or by registered or certified
mail, return receipt requested, postage prepaid, addressed to the Company in
care of its Chief Financial Officer at its principal office, and to the
Participant at the address given beneath his signature hereto, or at such other
address as either party shall have furnished to the other in writing in
accordance herewith. Notice and communications shall be effective when actually
received by the addressee.
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12. Binding Effect. Subject to Section 4 hereof, this Agreement shall
be binding upon the heirs, executors, administrators, successors and permitted
assigns of the parties hereto.
13. Plan. The terms and provisions of the Plan are incorporated herein
by reference and made a part hereof as though fully set forth herein. In the
event of any conflict or inconsistency between discretionary terms and
provisions of the Plan and this Agreement, this Agreement shall govern and
control. In all other instances of conflicts or inconsistencies or omissions,
the terms and provisions of the Plan shall govern and control. All capitalized
terms not otherwise expressly defined in this Agreement shall have the meaning
ascribed to them in the Plan.
14. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law thereof.
15. Entire Agreement. This Agreement, together with the Plan, contains
the entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior agreements, written or oral, with
respect thereto.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and such
counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has granted this Option on the date of
grant specified above.
AMERICAN MEDICAL SYSTEMS HODLINGS, INC.
By:
--------------------------------------
Douglas W. Kohrs
President and Chief Executive Officer
ACCEPTED:
- ----------------------------
[Name of Participant]
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<PAGE> 1
AMS NONFUNDED DEFERRED
COMPENSATION AND
SUPPLEMENTAL
SAVINGS PLAN
<PAGE> 2
AMS NONFUNDED DEFERRED COMPENSATION AND
SUPPLEMENTAL SAVINGS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Purpose 1
ARTICLE II Definitions 1
ARTICLE III Eligibility 3
ARTICLE IV Deferred Compensation Account Allocations 3
ARTICLE V Company Contribution Account Allocations 3
ARTICLE VI Investment of Accounts 4
ARTICLE VII Vesting 4
ARTICLE VIII Distributions and Withdrawals 5
ARTICLE IX Source of Payment of Benefits 5
ARTICLE X Designation of Beneficiaries 6
ARTICLE XI Administration of the Plan 6
ARTICLE XII Amendment and Termination 7
ARTICLE XIII General Provisions 7
</TABLE>
<PAGE> 3
AMS NONFUNDED DEFERRED COMPENSATION AND
SUPPLEMENTAL SAVINGS PLAN
ARTICLE I
PURPOSE
1.1 American Medical Systems, Inc. established this NonFunded Deferred
Compensation and Supplemental Savings Plan effective as of September 10, 1998
for the purposes of providing to its eligible employees (a) benefits which would
have been payable from the tax-exempt trust under the tax-qualified benefit plan
known as the AMS Savings and Investment Plan ("SIP") but for the limitations
placed by the Code on contributions with respect to such employees under such
plan and (b) an opportunity to defer all or a portion of their eligible
compensation.
The portions of the Plan providing (a) benefits without regard
to the limitation on "compensation" under Section 401(a)(17) of the Code, the
limitation applicable to the SIP under Section 402(g) of the Code and (b) an
opportunity to defer all or a portion of an eligible employee's compensation,
constitute an unfunded plan maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees. The portion of the Plan providing benefits above the limitations
prescribed under Section 415 of the Code constitutes an "excess benefit plan" as
defined in Section 3(36) of the Act.
ARTICLE II
DEFINITIONS
When used herein, the following terms shall have the following meanings:
2.1 "Account" means an Employee's Deferred Compensation Account and
Company Contribution Account under the Plan.
2.2 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
2.3 "Beneficiary" means the beneficiary or beneficiaries designated in
accordance with Article X of the Plan to receive the amount, if any, payable
upon the death of an Employee who participates in the Plan.
2.4 "Benefit Limitations" means (a) the maximum aggregate amount of
"annual additions" which could have been made to an Employee's accounts under
the SIP
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in accordance with Section 415 of the Code, (b) the limitation prescribed under
Section 401(a)(17) of the Code on the amount of annual compensation that can be
taken into account under the SIP, and (c) the limitation applicable to the SIP
under Section 402(g) of the Code.
2.5 "Board of Directors" means the Board of Directors of the Company.
2.6 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.7 "Committee" means the members of the American Medical Systems, Inc.
Employee Benefits Committee appointed by the Board of Directors to administer
the Plan in accordance with Article XI.
2.8 "Company" means American Medical Systems, Inc., and its successors
or assigns.
2.9 "Company Contribution Account" means a Participant's Account
attributable to allocations pursuant to Section 5.1 as adjusted for earnings and
losses pursuant to Article VI.
2.10 "Compensation" means the total cash compensation, including
commissions, bonuses and any payments received pursuant to any management
incentive program maintained by the Company, determined without regard to the
limitation prescribed under Section 401(a)(17) of the Code on the amount of
annual compensation that can be taken into account under the SIP.
2.11 "Deferred Compensation Account" means a Participant's Account
attributable to allocations pursuant to Section 4.1 as adjusted for earnings and
losses pursuant to Article VI.
2.12 "Employee" means any employee of the Employer who has been
specifically designated by the Committee as eligible to participate in the Plan.
2.13 "Employer" means the Company and each subsidiary thereof that
adopts the Plan, with the consent of the Committee.
2.14 "Matching Contribution" means an Employer matching contribution
under the SIP.
2.15 "Participant" means an Employee who has an Account under the Plan.
2.16 "Plan" means the AMS NonFunded Deferred Compensation and
Supplemental Savings Plan as set forth herein and as amended and restated from
time to time.
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<PAGE> 5
2.17 "Retirement" means the Employee's separation from service with the
Employer on or after the attainment of age 55.
2.18 "SIP" means the AMS Savings and Investment Plan, as amended and
restated from time to time.
2.19 "Tax Deferred Contribution" means a contribution as defined in the
Section 402(e)(3) of the Code which is made by an Employee to the SIP.
ARTICLE III
ELIGIBILITY
3.1 Each Employee who has been specifically designated by the Committee
as eligible to participate in the Plan may participate effective as of the first
day of the calendar month coinciding with or next following such designation.
ARTICLE IV
DEFERRED COMPENSATION ACCOUNT ALLOCATIONS
4.1 Each Employee designated by the Committee as eligible to
participate in the Plan and who is prevented from making additional Tax Deferred
Contributions to the SIP by reason of the Benefit Limitations, may elect to
reduce such Employee's Compensation by an amount designated by the Employee in
1% increments, and to have such amount credited to such Employee's Deferred
Compensation Account under the Plan. Eligible Employees will make separate
deferral elections with respect to base compensation and bonus payments. Any
such election shall be in writing and must be made no later than December 31 of
the calendar year preceding the year in which such Compensation is earned except
for the first year in which an Employee is eligible to participate in the Plan,
in which case he may, within thirty (30) days following the date such initial
eligibility, elect to defer Compensation otherwise payable following his initial
election. Any election made pursuant to the foregoing sentence, may not be
revoked or changed thereafter except as to Compensation to be earned in
subsequent calendar years. Allocations pursuant to this Section 4.1 shall be
credited to the eligible Employee's Deferred Compensation Account at the same
time as the Employee's Tax Deferred Contributions are credited under the SIP.
ARTICLE V
COMPANY CONTRIBUTIONS ACCOUNT ALLOCATIONS
5.1 With respect to each Participant, there shall be credited to the
Participant's Company Contribution Account under the Plan the sum of (a) the
additional Matching
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<PAGE> 6
Contributions that would have been allocated to the Participant's account under
the SIP to match actual contributions made to the SIP if the Benefit Limitations
were not applicable, and (b) if the Participant elects to reduce such
Participant's Compensation pursuant to Section 4.1, the Matching Contributions
that would have been made to the Participant's account under the SIP if the
amounts allocated to such Participant's Deferred Compensation Account pursuant
to Section 4.1 were Tax Deferred Contributions to the SIP and the Benefit
Limitations did not apply. Allocations pursuant to this Section 5.1 shall be
credited to the Company Contribution Account at the same time as the
Participant's Matching Contributions are credited under the SIP.
ARTICLE VI
INVESTMENTS OF ACCOUNTS
6.1 Any amounts credited to a Participant's Deferred Compensation
Account pursuant to Section 4.1 or to a Participant's Company Contribution
Account pursuant to Section 5.1 shall be credited to the investment vehicles
designated by the Committee. Once each calendar month, a Participant may make an
investment election to reallocate his Account among the investment vehicles
and/or with respect to future Deferred Compensation and Company Contributions to
be made on the Participant's behalf. Such investment elections shall be
implemented as soon as administratively feasible subject to the Committee's
overriding discretion. The Committee shall retain overriding discretion over the
selection of investment vehicles and may change, alter or modify its investment
policy as it deems appropriate.
6.2 The value of each Account as from time to time determined (but
determined at least quarterly) shall be the fair market value, based on an
accrual basis of accounting, of the investments or other assets then credited to
such Account taking into consideration any investment income or gains thereon as
well as any transaction expenses or losses with respect thereto. At the time
that a Participant receives a distribution from his Account pursuant to Article
VIII, he shall be entitled to receive, and such Account shall be credited with
any applicable gains or losses up until the date of final distribution.
6.3 A Participant's Account shall be reduced by the amount of any
benefits distributed to or on behalf of a Participant. Furthermore, a
Participant's Account shall be reduced for any penalties, withdrawal charges or
similar assessments or charges actually assessed against the value of any
investment held in such Account as a result of early withdrawal or payment of
such investment.
ARTICLE VII
VESTING
7.1 A Participant shall at all times be 100% vested in the allocations
credited to such Participant's Deferred Compensation Account pursuant to Section
4.1.
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<PAGE> 7
7.2 A Participant shall at all times be 100% vested in the allocations
credited to such Participant's Company Contribution Account pursuant to Section
5.1.
ARTICLE VIII
DISTRIBUTIONS AND WITHDRAWALS
8.1 The Participant shall receive the vested portion of his Account in
one lump sum as soon as practicable following the Participant's separation from
service whether due to the Participant's Retirement, death, or termination from
employment (voluntary or involuntary). Anything herein to the contrary
notwithstanding, the Committee reserves the right (a) to designate a form of
payment other than a lump sum payment or (b) to limit payments in any given year
to such amount as would not cause a loss of deductibility pursuant to Section
162(m) of the Code.
8.2 Distributions or withdrawals from a Participant's Account shall not
be permitted prior to the date of distribution pursuant to Section 8.1, except
that a withdrawal may be made from a Participant's Account by reason of an
unforeseeable emergency. For this purpose, an unforeseeable emergency shall be
an unanticipated emergency that is caused by an event beyond the control of the
Participant and that would result in severe financial hardship if early
withdrawal were not permitted. Any early withdrawal approved by the Committee
pursuant to this Section 8.2 shall be limited to the amount necessary to meet
the emergency.
ARTICLE IX
SOURCE OF PAYMENT OF BENEFITS
9.1 All payments provided for under the Plan shall be paid in cash from
the general funds of the Company; provided, however, that such payments shall be
reduced by the amount of any payments made to the Participant or such
Participant's dependents, beneficiaries or estate from any trust or special or
separate fund established by the Company to assure such payments. If the Company
shall make any investments to aid it in meeting its obligations hereunder, a
Participant shall have no right, title, or interest whatever in or to any such
investments except as may otherwise be expressly provided in a separate written
instrument relating to such investments. Nothing contained in this Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind between the Company and any Participant. To the extent that
any Participant acquires a right to receive payments from the Company hereunder,
such right shall be no greater than the right of an unsecured creditor of the
Company.
9.2 The Company may establish a grantor trust with a third party
institutional trustee for the benefit of Participants in the Plan. The powers,
duties and responsibilities of the trustee shall be as set forth in the trust
agreement and nothing contained in the
5
<PAGE> 8
Plan, either expressly or by implication, shall impose any additional powers,
duties or responsibilities upon the trustee. The assets of said trust will be
held separate and apart from other Company funds and shall be used exclusively
for the purposes set forth in the Plan and the applicable trust agreement,
subject to the following conditions:
(a) the creation of said trust shall not cause the Plan to be
other than "unfunded" for purposes of Title I of the Act;
(b) the Company shall be treated as the "grantor" of said trust
for purposes of Sections 671 and 677 of the Code; and
(c) said trust agreement shall provide that its assets may be used
to satisfy claims of the Company's general creditors, provided
that the rights of such general creditors are enforceable
under federal and state law.
ARTICLE X
DESIGNATION OF BENEFICIARIES
10.1 Unless a Participant otherwise files with the Company a written
designation of one or more persons as the Beneficiary who shall be entitled to
receive the amount, if any, payable under this Plan upon such Participant's
death, the Participant's beneficiary under the SIP shall be deemed to have been
designated such Participant's Beneficiary for benefits under this Plan. In the
event that no election has been made either under the terms of the Plan or the
terms of the SIP, then upon the Participant's death, any amount payable under
the Plan shall be paid to the Participant's estate. If a Participant wishes to
change a Beneficiary designation under the Plan, he may do so at any time and
from time to time without the consent of any Beneficiary. If the Committee is in
doubt as to the right of any person to receive such amount, the Company may
retain such amount, without liability for any interest thereon, until the rights
thereto are determined, or the Company may pay such amount into any court of
appropriate jurisdiction, and such payment shall be a complete discharge of the
liability of the Plan and the Company therefor.
ARTICLE XI
ADMINISTRATION OF THE PLAN
11.1 The Plan shall be administered by the Committee, which shall have
full power and authority to interpret, construe and administer the Plan, and
review claims for benefits under the Plan, and the Committee's interpretations
and constructions of the Plan and actions thereunder shall be binding and
conclusive on all persons and for all purposes.
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<PAGE> 9
11.2 If any claim for benefits under the Plan is wholly or partially
denied, the Committee shall give written notice by registered or certified mail
of such denial to the claimant within 90 days after receipt of the written claim
by the Committee. Notice must be written in a manner calculated to be understood
by the claimant, setting forth the specific reasons for such denial, specific
reference to pertinent Plan provisions on which the denial is based, a
description of any additional material or information necessary for the claimant
to perfect the claim and an explanation of why such material or information is
necessary, and an explanation of the Plan's claim review procedure. The
Committee shall also advise the claimant that the claimant or the claimant's
duly authorized representative may request a review by the Committee of the
decision to deny the claim by filing with the Committee, within 60 days after
such notice has been received by the claimant, a written request for such
review. The claimant may review pertinent documents and submit issues and
comments in writing within the same 60 day period. If such request is so filed,
such review shall be made by the Committee with 60 days after receipt of such
request, unless special circumstances (including, but not limited to, a need to
hold a hearing) require an extension of time for processing, in which case a
decision shall be rendered not later than 120 days after receipt of the request
for review. The claimant shall be given written notice within such 60 day period
of the decision resulting from such review, which shall include specific reasons
for the decision, written in a manner calculated to be understood by the
claimant, and specific references to the provisions on which the decision was
based.
ARTICLE XII
AMENDMENT AND TERMINATION
12.1 The Plan may be amended, suspended or terminated, in whole or in
part, by the Board of Directors, but no such action shall retroactively impair
or otherwise adversely affect the rights of any person to benefits under the
Plan which have accrued prior to the date of such action, as determined by the
Committee. The Committee may adopt amendments to the Plan which it deems
necessary or appropriate to comply with applicable laws or government
regulations or which do not materially increase the annual cost of the Plan.
ARTICLE XIII
GENERAL PROVISIONS
13.1 This Plan shall be binding upon and inure to the benefit of the
Company and its successors and assigns and the Participant, and the designees
and the estate of the Participant. Nothing in this Plan shall preclude the
Company from consolidating or merging into or with, or transferring all or
substantially all of its assets to, another corporation which assumes this Plan
and all obligations of the Company hereunder. Upon such a consolidation, merger
or transfer of assets and assumption, the term
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<PAGE> 10
"Company" shall refer to such other corporation and this Plan shall continue in
full force and effect.
13.2 Neither the Plan nor any action taken hereunder shall be construed
as giving to a Participant the right to be retained in the employ of the
Employer or as affecting the right of the Employer to dismiss any Participant.
13.3 The Company may withhold from any benefits payable under this Plan
all Federal, state, city or other taxes as shall be required pursuant to any law
or governmental regulation or ruling.
13.4 Except insofar as may otherwise be required by law, no amount
payable at any time under the Plan shall be subject in any manner to alienation
by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment,
charge or encumbrance of any kind nor in any manner be subject to the debts or
liabilities of any person and any attempt to so alienate or subject any such
amount, whether presently or thereafter payable, shall be void. If any person
shall attempt to, or shall alienate, sell, transfer, assign, pledge, attach,
charge or otherwise encumber any amount payable under the Plan, or any part
thereof, or if by reasons of such person's bankruptcy or other event happening
at any such time such amount would be made subject to such person's debts or
liabilities or would otherwise not be enjoyed by such person, then the
Committee, if it so elects, may direct that such amount be withheld and that the
same or any part thereof be paid or applied to or for the benefit of such
person, such person's spouse, children or other dependents, or any of them, in
such manner and proportion as the Committee may deem proper.
13.5 If the Committee shall find that any person to whom any amount is
or was payable hereunder is unable to care for such person's affairs because of
illness or accident, or has died, then the Committee, if it so elects, may
direct that any payment due such person or such person's estate (unless a prior
claim therefor has been made by a duly appointed legal representative) or any
part thereof be paid or applied for the benefit of such person or to or for the
benefit of such person's spouse, children or other dependents, an institution
maintaining or having custody of such person, any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise entitled
to payment, or any of them, in such manner and proportion as the Committee may
deem proper. Any such payment shall be in complete discharge of the liability of
the Company therefor.
13.6 All elections, designations, requests, notices, instructions, and
other communications from a Participant, Beneficiary or other person to the
Committee required or permitted under the Plan shall be in such form as is
prescribed from time to time by the Committee, shall be mailed by first-class
mail or delivered to such location as shall be specified by the Committee, and
shall be deemed to have been given and delivered only upon actual receipt
thereof at such location.
8
<PAGE> 11
13.7 The benefits payable under this Plan shall be in addition to all
other benefits provided for Employees of the Company.
13.8 The captions preceding the sections and articles hereof have been
inserted solely as a matter of convenience and in no way define or limit the
scope or intent of any provisions of the Plan.
13.9 This Plan shall be governed by the laws of the State of Minnesota
from time to time in effect.
IN WITNESS WHEREOF, the undersigned has executed this Plan as of the 5th day
of March, 1999.
AMERICAN MEDICAL SYSTEMS, INC.
BY: /s/ Jan Dick
---------------------------------
TITLE: Vice President-Human Resources
------------------------------
9
<PAGE> 1
AMS NONFUNDED
SUPPLEMENTAL RETIREMENT PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I ESTABLISHMENT OF THE PLAN.............................................1
1.1 Establishment.....................................................1
1.2 Purpose...........................................................1
1.3 Status of Plan Under ERISA........................................1
ARTICLE II DEFINITIONS...........................................................1
2.1 Actuarial Equivalent..............................................1
2.2 Board.............................................................2
2.3 Code..............................................................2
2.4 Compensation......................................................2
2.5 Corporation.......................................................2
2.6 Employee..........................................................2
2.7 ERISA.............................................................2
2.8 Participant ......................................................2
2.9 Plan..............................................................2
2.10 Plan Administrator...............................................2
2.11 Retirement Benefit...............................................3
2.12 Retirement Plan..................................................3
2.13 Single Life Annuity..............................................3
2.14 Statutory Limit..................................................3
ARTICLE III PARTICIPATION.........................................................3
3.1 Eligibility for Participation.....................................3
3.2 Termination of Active Participation...............................3
ARTICLE IV BENEFITS..............................................................4
4.1 Eligibility.......................................................4
4.2 Amount of Benefit.................................................4
4.3 Payment...........................................................4
4.4 Tax Withholding...................................................4
ARTICLE V OTHER TERMINATION OF EMPLOYMENT.......................................5
5.1 Other Termination of Employment...................................5
5.2 Termination of Employment for Just Cause..........................5
ARTICLE VI ADMINISTRATION........................................................5
6.1 Plan Administration...............................................5
6.2 Powers of Plan Administrator......................................6
6.3 Standard of Care..................................................6
6.4 Claims Procedure..................................................6
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C> <C>
ARTICLE VII MISCELLANEOUS.........................................................7
7.1 Funding of Benefits...............................................7
7.2 Assignment........................................................7
7.3 Employment Rights.................................................7
7.4 Amendment or Termination..........................................7
7.5 Corporate Successors..............................................8
7.6 Construction......................................................8
7.7 Governing Law.....................................................8
</TABLE>
<PAGE> 4
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.1 Establishment.
American Medical Systems, Inc., (the "Corporation") hereby establishes
a retirement benefit plan to be known as the AMS NonFunded Supplemental
Retirement Plan (the "Plan"). The Plan shall be effective as of September 10,
1998.
1.2 Purpose.
The Corporation is adopting the Plan to provide additional retirement
income to the executives who participate in the Plan. The Plan provides certain
executives with benefits necessary to establish a competitive executive
retirement program including benefits which would otherwise be provided under
the qualified defined benefit pension plan sponsored by the Corporation but for
certain limitations on such benefits required by federal law.
1.3 Status of Plan Under ERISA.
The Plan is intended to be "unfunded" and maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees for purposes of ERISA. Accordingly, the Plan is not
intended to be covered by Parts 2 through 4 of Subtitle B of Title I of ERISA.
ARTICLE II
DEFINITIONS
The following terms shall have the meanings described in this Article.
All references in the Plan to specific Articles or Sections shall refer to
Articles or Sections of the Plan unless otherwise indicated.
2.1 Actuarial Equivalent.
"Actuarial Equivalent" means equivalent in value of the aggregate
amount of benefits to be received under different forms of payment. Actuarially
Equivalent benefits shall be determined using the actuarial assumptions used for
determining equivalent benefits under the Retirement Plan.
1
<PAGE> 5
2.2 Board.
"Board" means the Board of Directors of American Medical Systems, Inc..
2.3 Code.
"Code" means the Internal Revenue Code of 1986, as amended.
2.4 Compensation.
"Compensation" means total Earnings of the Participant as defined in
the Retirement Plan provided, however, the limitations of Section 401(a)(17) of
the Code shall not apply.
2.5 Corporation.
"Corporation" means American Medical Systems, Inc. or to the extent
provided in Section 7.5 below, any successor corporation or entity resulting
from a merger or consolidation into or with the Corporation or a transfer or
sale of substantially all of the assets of the Corporation.
2.6 Employee.
"Employee" means any person in the regular direct employ of the
Corporation, excluding consultants or self-employed individuals providing
services under contract to the Corporation.
2.7 ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
2.8 Participant.
"Participant" means an Employee or former Employee of the Corporation
who has met the requirements for participation under Article III, and who is or
may become eligible to receive a benefit from the Plan.
2.9 Plan.
"Plan" means the AMS NonFunded Supplemental Retirement Plan.
2.10 Plan Administrator.
"Plan Administrator" means the American Medical Systems, Inc. Employee
Benefit Committee, which, shall be the named fiduciary responsible for the
operation and administration of the Plan as provided in Article VI.
2
<PAGE> 6
2.11 Retirement Benefit.
"Retirement Benefit" means the monthly pension benefit payable to a
Participant from the Retirement PLAN, assuming payment is made in the form of a
Single Life Annuity commencing at age 65.
2.12 Retirement Plan.
"Retirement Plan" means the AMS Retirement Plan, as in effect on
September 10, 1998 and as may be amended in the future.
2.13 Single Life Annuity.
"Single Life Annuity" means a monthly pension for the life of the
Participant.
2.14 Statutory Limit.
"Statutory Limit" means the limits imposed by Code Sections 415 and
401(a)(17).
ARTICLE III
PARTICIPATION
3.1 Eligibility for Participation.
It is intended that participation be limited to Employees who will
qualify as members of a "select group of management or other highly compensated
employees" under Title I of ERISA. An Employee shall begin to participate in the
Plan effective as of the date specified by the Plan Administrator. The Plan
Administration shall provide written notice of each Employee's eligibility for
participation in the Plan.
3.2 Termination of Active Participation.
The Plan Administrator may remove a Participant from further active
participation in the Plan. If this occurs, the Participant shall not earn any
additional benefits under the Plan. The amount of the Participant's benefits, if
any, under the Plan shall be determined as of the date the Participant ceases
active participation. The former Participant's benefits shall be paid only if
the Participant satisfies all other requirements of the Plan.
3
<PAGE> 7
ARTICLE IV
BENEFITS
4.1 Eligibility.
Except as otherwise provided in Article V, a Participant shall be
eligible for a benefit under the Plan if he terminates employment with the
Corporation and, at the time of the termination, is 100% vested under the
Retirement Plan and eligible for an immediate or deferred Retirement Benefit.
4.2 Amount of Benefit.
The benefits payable to an eligible Participant shall be equal to the
amount by which (a) exceeds (b):
(a) The Retirement Benefit that would be payable to the
Participant under the Retirement Plan without regard to
the Statutory Limits and by treating amounts deferred by
the Participant under the AMS NonFunded Deferred
Compensation and Supplemental Savings Plan as though they
were a part of the Participant's Earnings, as defined
under the Retirement Plan.
(b) The Retirement Benefit payable to the Participant from the
Retirement Plan.
4.3 Payment.
Benefits under the Plan that are payable to a Participant shall be paid
in ten substantially equal annual installments commencing on the January 1 next
following the Participant's termination from employment. For purposes of making
this calculation the installments shall be the Actuarial Equivalent of a Single
Life Annuity payable at normal retirement age under the Retirement Plan. Upon
the death of a Participant prior to receipt of any or all of the benefits due to
him under the Plan, any remaining balance of installment payments shall be paid
to the beneficiary designated by the Participant under the Retirement Plan. If
the Participant has not designated a beneficiary under the Retirement Plan, or
if no such beneficiary is living at the time of the Participant's death, the
amount in the Participant's account that is distributable upon his death shall
be distributed to the same person or persons who would otherwise be entitled to
receive a distribution of the Participant's benefits under the Retirement Plan.
4.4 Tax Withholding.
Benefit payments from the Plan shall be subject to all applicable tax
withholdings.
4
<PAGE> 8
ARTICLE V
OTHER TERMINATION OF EMPLOYMENT
5.1 Other Termination of Employment.
Notwithstanding any other provisions of the Plan, no benefits shall be
payable to the Participant or his surviving spouse under the Plan in either of
the following situations:
(a) If the Participant terminates employment before becoming
eligible for benefits under Section 4.1 of the Plan; or
(b) If the Participant's employment with the Corporation is
terminated by the the Corporation for "just cause", as
defined in Section 5.2.
5.2 Termination of Employment for Just Cause.
For purposes of Section 5.1, a Participant is terminated for "just
cause" if the Participant's employment is ended because of:
(a) Gross negligence, fraud, dishonesty or willful violation
of any law or significant policy of the Corporation,
committed in connection with his employment and resulting
in a material adverse effect on the Corporation; or
(b) Failure to substantially perform (for reasons other than
disability) the duties reasonably assigned to the
Participant in a manner consistent with prior practice.
The definition of "just cause" in this Section is relevant only for
purposes of eligibility for benefits under the Plan.
ARTICLE VI
ADMINISTRATION
6.1 Plan Administration.
The Plan shall be administered by the American Medical Systems, Inc.
Employee Benefits Committee whose members shall consist of three (3) or more
persons appointed by the Board.
5
<PAGE> 9
6.2 Powers of Plan Administrator.
The Plan Administrator shall have all discretionary powers necessary to
administer and satisfy its obligations under the Plan, including, but not
limited to, the following:
(a) Maintain records pertaining to the Plan.
(b) Interpret the terms and provisions of the Plan.
(c) Establish procedures by which Participants may apply for
benefits under the Plan and appeal a denial of benefits.
(d) Determine the rights under the Plan of any Participant
applying for or receiving benefits.
(e) Administer the claims procedure provided in this Article.
(f) Perform all acts necessary to meet the reporting and
disclosure obligations imposed by ERISA.
(g) Delegate specific responsibilities for the operation and
administration of the Plan to such employees or agents as
it deems advisable and necessary.
6.3 Standard of Care.
The Plan Administrator shall administer the Plan solely in the interest
of Participants and for the exclusive purposes of providing benefits to such
Participants and their beneficiaries. The Plan Administrator shall administer
the Plan with the care, skill, prudence and diligence under the circumstances
then prevailing that a prudent person, acting in a like capacity and familiar
with such matters, would use in the conduct of an enterprise of a like character
and with like aims.
The Plan Administrator shall not be liable for any act or omission
relating to its duties under the Plan, unless the act or omission was due to
gross negligence or willful misconduct.
6.4 Claims Procedure.
Any Participant whose application for benefits under the Plan has been
denied, in whole or in part, shall be given written notice of the denial of
benefits by the Plan Administrator. The notice shall be written in easily
understood language and shall indicate the reasons for denial and the specific
Plan provisions on which the denial is based. The notice shall explain that the
Participant may request a review of the denial and state the procedure for
requesting a review. The notice shall describe any additional information
necessary to perfect the Participant's claim and explain why such information is
necessary.
6
<PAGE> 10
A Participant may make a written request to the Plan Administrator for
a review of any denial of benefits under the Plan. The request for review must
be in writing and must be made within ninety (90) days after the postmark of the
notice of denial. The request shall refer to the provisions of the Plan on which
it is based and shall set forth the facts relied upon as justifying a reversal
or modification of the determination being appealed.
A Participant who requests a review of a denial of benefits in
accordance with this claims procedure may examine pertinent documents and submit
pertinent issues and comments in writing. The Plan Administrator shall provide a
review of the decision denying the claim for benefits within sixty (60) days
after receiving the written request for review.
ARTICLE VII
MISCELLANEOUS
7.1 Funding of Benefits.
All payments provided for under the Plan shall be paid in cash from the
general funds of the Company; provided, however, that such payments shall be
reduced by the amount of any payments made to the Participant or such
Participant's dependents, beneficiaries or estate from any trust or special or
separate fund established by the Company to assure such payments. If the Company
shall make any investments to aid it in meeting its obligations hereunder, a
Participant shall have no right, title, or interest whatever in or to any such
investments except as may otherwise be expressly provided in a separate written
instrument relating to such investments. Nothing contained in this Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind between the Company and any Participant. To the extent that
any Participant acquires a right to receive payments from the Company hereunder,
such right shall be no greater than the right of an unsecured creditor of the
Company.
7.2 Assignment.
No benefit or interest under the Plan is subject to assignment or
alienation, whether voluntary or involuntary. Any assignment or alienation of
benefits shall be void.
7.3 Employment Rights.
The existence of the Plan shall not grant a Participant any legal right
to continue as an Employee nor shall it affect the right of the Corporation to
discharge a Participant.
7.4 Amendment or Termination.
The Corporation shall have the right to amend or terminate the Plan at
any time by action of the Board or by a duly authorized officer or committee.
The Plan Administrator shall also have the right to amend this Plan to comply
with applicable law or for any other reason if such
7
<PAGE> 11
amendment does not materially increase the benefits provided hereunder or the
cost of administering the Plan. However, no amendment or termination shall
reduce a Participant's benefit to an amount less than the benefit the
Participant would be entitled under the Plan if the Participant had terminated
employment as of the date immediately preceding the date of the amendment or
termination.
7.5 Corporate Successors.
The Plan shall not be automatically terminated by a transfer or sale of
assets of the Corporation or by the merger or consolidation of the Corporation
into or with any other Corporation or entity, but the Plan shall be continued
after such sale, merger or consolidation only if and to the extent that the
transferee, purchaser or successor entity agrees to continue the Plan. In the
event that the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall terminate subject to the provisions of Section 7.4.
7.6 Construction.
Words in the masculine shall apply to the feminine where applicable;
and wherever the context of the Plan dictates, the plural shall be read as the
singular and the singular as plural.
7.7 Governing Law.
To the extent that Minnesota law is not preempted by ERISA, the
provisions of this Plan shall be governed by the laws of the State of Minnesota.
* * * * * * * * * * * * *
IN WITNESS WHEREOF, the undersigned has executed this Plan as of the
5th day of March, 1999.
AMERICAN MEDICAL SYSTEMS, INC.
BY: /s/ Jan Dick
-------------------------------------
TITLE: Vice President-Human Resources
----------------------------------
8
<PAGE> 1
AMERICAN MEDICAL SYSTEMS, INC.
MANAGEMENT INCENTIVE COMPENSATION PLAN
For 2000
I. PURPOSE
AMERICAN MEDICAL SYSTEMS, INC. (AMS) IS DEDICATED TO EXCELLENCE IN PERFORMANCE
AND IN CREATING A STRONG LINK BETWEEN PERFORMANCE AND COMPENSATION. THIS PLAN IS
DESIGNED TO REWARD DESIGNATED MANAGEMENT TEAM MEMBERS OF AMS WITH
PERFORMANCE-BASED COMPENSATION FOR ACHIEVING AND SURPASSING SPECIFIED COMPANY
GOALS. THESE GOALS WILL REINFORCE CONTRIBUTING ELEMENTS TO THE GROWTH AND
FINANCIAL VIABILITY OF AMS. THE PLAN IS DESIGNED TO REWARD OVERALL RESULTS,
REQUIRING A HIGH LEVEL OF INDIVIDUAL CONTRIBUTION AND CROSS-FUNCTIONAL
EFFECTIVENESS ACROSS THE SENIOR LEVELS OF COMPANY MANAGEMENT.
II. BONUS POTENTIAL
THE PARTICIPANT IS ELIGIBLE TO RECEIVE A PERCENT OF HIS/HER BASE SALARY BASED ON
THE SCHEDULES SET FORTH IN ATTACHMENTS I AND II. NEW ENTRANTS TO THE PLAN MAY
HAVE THEIR TOTAL COMPENSATION BASE/BONUS MIX RECONFIGURED TO POSITION THEM FOR
THEIR BONUS SCHEDULE.
III. PERFORMANCE MEASURES - COMPANY RESULTS
PERFORMANCE MEASURES MAY VARY SOMEWHAT FROM YEAR TO YEAR; HOWEVER, THEY WILL
TYPICALLY BE ESTABLISHED TO ACHIEVE THE END GOAL OF INCREASED GLOBAL SALES AND
PROFITABILITY. COMPANY RESULTS WILL RECEIVE THE HIGHEST WEIGHT VERSUS INDIVIDUAL
PERFORMANCE.
PERFORMANCE MEASURES WILL BE AS OBJECTIVE AS POSSIBLE AND INCLUDE SPECIFIC TIME
FRAMES AND NUMERICAL MEASURES.
COMPANY RESULTS MEASURES WILL GENERALLY BE CONSISTENT FOR PLAN PARTICIPANTS IN
ANY GIVEN YEAR TO ENSURE COMMON GOALS, ALIGNMENT AND INTERDEPENDENCE AMONG
SENIOR-LEVEL MANAGERS AND THE ORGANIZATION.
SALES RESULTS WILL BE BASED ON GLOBAL SHIPPED SALES FOR THE YEAR PER THE
FORECAST UNLESS OTHERWISE NOTED FOR THE INDIVIDUAL. COMPANY PROFITABILITY WILL
BE BASED ON OPERATING INCOME.
ATTACHMENT I INDICATES THE CURRENT WEIGHTING BY POSITION.
<PAGE> 2
INDIVIDUAL OBJECTIVES WILL BE CUSTOMIZED BY INDIVIDUAL TO EVALUATE STRATEGIC AND
MANAGERIAL INITIATIVES. GENERALLY THEY ARE DEPARTMENT-SPECIFIC OR ARE DEDICATED
TO A CROSS-FUNCTION INITIATIVE FOR WHICH THE INDIVIDUAL IS THE LEADER. THESE
AREAS OF INDIVIDUAL CONTRIBUTION WILL BE EVALUATED AND REWARDED THROUGH THE BASE
SALARY MERIT INCREASE PROCESS.
IV. PARTICIPATION
PARTICIPANTS IN THIS PLAN EFFECTIVE JANUARY 1, 2000 WILL BE THE VICE PRESIDENTS,
DIRECTORS, AND SELECTED INDIVIDUALS OF THE COMPANY. ANY ADDITIONAL PARTICIPANTS
WILL REQUIRE THE APPROVAL OF THE PRESIDENT AND CEO AND THE BOARD OF DIRECTORS.
EXCEPTIONS OUTSIDE OF THE VICE PRESIDENT LEVEL WOULD NEED TO BE JUSTIFIED
ACCORDING TO RESPONSIBILITY IN THE COMPANY AND DEGREE OF INFLUENCE ON COMPANY
PERFORMANCE.
NEW HIRES AFTER THE FIRST OF THE YEAR MAY BE ABLE TO PARTICIPATE FOR 2000 ON A
PRO-RATED BASIS, PARTICULARLY IF THE START DATE IS BEFORE 10/1/00. IF EMPLOYMENT
OF A PARTICIPANT IS TERMINATED DUE TO HIS/HER PERFORMANCE OR THE INDIVIDUAL
VOLUNTARILY LEAVES THE COMPANY, THE INCENTIVE AWARD IS FORFEITED FOR THAT PLAN
YEAR.
V. APPROVAL, AUTHORIZATION, AND TERMS
THE MANAGEMENT INCENTIVE PLAN, ITS TERMS, POLICIES, REVISIONS AND MEASURES ARE
UNDER THE FULL APPROVAL OF THE PRESIDENT AND CEO AND THE BOARD OF DIRECTORS. ANY
MODIFICATIONS OR ADJUSTMENTS TO THE PLAN AND PERFORMANCE MEASURES OR
CONSIDERATION OF UNUSUAL TRANSACTIONS MUST BE APPROVED BY THE BOARD OF
DIRECTORS.
PARTICIPATION IN THE PLAN IS NOT AN EMPLOYMENT CONTRACT OR ANY IMPLIED ASSURANCE
OF CONTINUED EMPLOYMENT.
VI. BONUS PAYMENT
BONUS PAYMENT WILL BE ISSUED AS SOON AS FEASIBLE AFTER THE CLOSE OF THE YEARS'
FINANCIAL STATEMENTS (FIRST QUARTER FOLLOWING THE PLAN YEAR). PAYMENT WILL BE IN
LUMP SUM.
IF AN INDIVIDUAL'S BASE SALARY CHANGES DURING THE YEAR, THE AWARD WOULD BE
PRORATED BASED ON THE NUMBER OF MONTHS IN EACH POSITION.
<PAGE> 1
LEASING CONTRACT
Unprotected
Drawn up and signed in Tel Aviv on:
Between: 1. Oil and Energy Infrastructures, Ltd. Public Company 52-002729-3
2. Fuel Products Line, Ltd., Private Company 51-023448-7
Their address for the sake of this agreement is 3 Tvuot
Ha-aretz Street, Shikun Dan, Tel Aviv
(Both jointly and severally will henceforth be called: "the LESSOR")
Party of the first part;
And: Influence Medical Technologies, Ltd.
Private Company 51-205328-1
14 Abba Hillel Street, Ramat Gan
(Henceforth: "THE LESSEE")
Party of the second part;
Whereas: The Lessor has possession rights and the right to be registered as
the owners of the building located on Ha-Sadnaot street in Herzliya known as
"Beyt Yosef Hermelin" (henceforth, "THE BUILDING") which is built on plot 92,
Block 6592 (henceforth: "THE PLOT");
And whereas: the building is in the final stages of construction
And whereas: the Lessee wishes to rent from the Lessor, and the Lessor agrees to
lease to the Lessee an area of approximately 1603 meters in gross (including the
Lessee's share of the public areas), on the upper office floor of the building
(store 10.89+) and two rooms covering an area of 62 meters in gross (including
the Lessee's share in public areas) on the roof floor as delimited in the
blueprint attached herewith to the agreement as Annex A (henceforth "THE
BLUEPRINT"), (henceforth "THE PROPERTY UNDER LEASE") leased on the free market,
to which the Tenant's Protection Laws (combined version) 1972 (henceforth, "THE
LAW") will not apply, and will not apply to the Property under lease, and the
Lessee will not become a protected tenant in accordance with the law and/or any
judgment and/or any other legislation likely to provide him with this status,
and all this is subject to the directives of this agreement.
THEREFORE IT IS AGREED AND STIPULATED BETWEEN THE PARTIES AS FOLLOWS:
<PAGE> 2
The preamble to this agreement, along with the facts and declarations included
herewith, is an integral part of the body of this agreement.
2. NON-APPLICATION OF THE TENANTS PROTECTION LAW
The Parties declare that they are aware that:
A. the Property under lease is located in a new building which is in the
stages of completion, and the Lessee has been notified that he is the first
tenant in the Property under lease.
B. The Property under lease will be leased being empty of any person or
objects.
C. No key money was paid or shall be paid by the Lessee to the Lessor, only
lease payments as specified in this agreement, and the sums that will be
invested by him as aforesaid in this agreement shall not be considered in any
way as key money.
D. In light of the facts and details stated above, the aforementioned Tenants
Protection Law and/or other legislation likely to provide the Lessee with the
status of a protected tenant, shall not be applied.
3. THE LEASEHOLD AND ITS PURPOSE
The Lessor is herewith letting to the Lessee, and the Lessee is herewith leasing
the Property under lease from the Lessor under the terms set out in this
agreement.
4. The Lessor is letting the Property under lease to the Lessee only, and
only for the purpose, destination and use as defined in the following articles:
A. The purpose of the lease in the Property under lease is for industrial
floors, laboratories, offices and extra services which are needed and/or allowed
ex lege for the Lessee's business and for the Lessee's office administration
purposes, and whose business is in the field of medical engineering. The Lessee
shall not be permitted to use the Property under lease for any other purpose
except for the aforementioned purposes (henceforth, "THE PURPOSE OF THE LEASE").
B. The Lessee undertakes to maintain, operate and manage his offices in the
Property under lease on a level and in a manner which are suitable for the
standard of the building and for the satisfaction of the Lessor.
The Lessee undertakes to obey the orders and directives of the Lessor and/or the
management company for all matters concerning the building premises outside the
Property under lease and will act in accordance with the orders and directives
which may be given to him.
C. Any other use of the Property under lease, in all or in part, with
whatever frequency, will be considered as a deviation from and/or modification
of the purpose of the lease and as a fundamental violation of the agreement.
D. The Lessee declares that he is aware of the Work Implementation Program
(Local Project Outline Number HR/1825, which gives authorization for the upper
office floor for the building
<PAGE> 3
(floor 10.89+) and for additional changes in the authorized plans concerning the
plot and the building, which has been approved, and that a permit for building
the floor has been granted by the local committee for building and planning.
E. The Lessee undertakes to obtain and will be solely responsible for
obtaining whatever license and whatever permit may be necessary for managing his
offices in the Property under lease, to the extent such may be required.
F. The Lessee is aware that and is in agreement that he will not be entitled
to use any part of the building except for the Property under lease, for any
purpose whatsoever except for the use of access to the Property under lease and
for the use of access to trash removal areas; for the use of the roof for the
installation of filter devices and air conditioning of the clean room, as will
be authorized by the engineer of the installation; for loading and unloading and
use of parking which will be available in accordance with what is stated below
in Article 16.
G. To remove all doubt, it has been declared and agreed hereby that the
Lessor, other tenants, the management company or their proxies will have the
right of passage and free access in the public area and on the roof store at
whatever time and for whatever purpose.
5. BAN ON TRANSFER OF RIGHTS
A. The Lessee undertakes not to hand over, not to lease, not to transfer, and
not to destroy the Property under lease, in whole or in part, by whatever means,
or any part of it, and not to transfer, in any manner whatsoever, his rights in
the Property under lease or any part of it for the entire period of the lease or
part of it, and not to allow anyone else except for himself to use the Property
under lease or a part of it in any manner whatsoever and not to associate anyone
else in the maintenance of the Property under lease or in using it or in
deriving any pleasure from it, whether for compensation or not.
The Lessee undertakes not to mortgage this agreement or the rights deriving from
the agreement, in any way whatsoever, for the benefit of any other person, agent
or body whatsoever.
In spite of what was mentioned above, the Lessee will be permitted, starting
from 15.8.99 on, to sublet parts of the Property under lease in accordance with
the conditions detailed in Annexes D and D-l of this contract which constitute
an integral part of it. Subletting shall not release and shall not reduce the
Lessor's obligations towards the Lessee in accordance with this contract, and
any violation by the sub-lessee of any directive of this leasing agreement's
directives will be considered, with all that it implies, as a violation by the
Lessee towards the Lessor.
B. In the case where the Lessee is a corporation, then any transfer of shares
or rights in the corporation, or any change in them which may cause the control
of the corporation not to be in the hands of the share owners and/or the present
holders of the rights, in their present composition on the day of the signing of
this agreement, then proof will be required of the ability of the new
controlling owner to fulfill the terms of payment and the guarantees in
accordance with this agreement. Lack of the aforementioned proof will constitute
a violation of this agreement by the Lessee and shall provide the Lessor with
the right to cancel this agreement and to receive all the relief he is entitled
to in accordance with this agreement or in accordance with the law, due to the
violation.
<PAGE> 4
"Control" as regards this article means holding at least 51% of the capital in
all types of shares of the corporation as well as the right to appoint the
majority of its directors.
The prohibition which is set forth in this minor clause shall not apply as to
the transfer of control to the firm, Medtronic, which is traded on the New York
Stock Exchange in the United States, nor to the transfer of control to a firm
controlled by Medtronic nor to the transfer of control to another American
company which is traded on the U.S. Stock market and whose yearly turnover is
not less than a billion United States dollars.
C. Any act of commission or omission which is contrary to the obligations of
the Lessee as detailed in articles 5 (A) and (B) above, will be considered, if
done, as commission of a basic violation of the agreement.
6. SUITABILITY OF THE PROPERTY UNDER LEASE
The Lessee declares that he has seen and examined the plot, the building and the
Property under lease and has found them suitable and appropriate for his needs
and uses within the bounds of the purpose of the lease, and hereby waives any
claim due to lack of suitability, or any claim connected with the quality of the
Property under lease and/or the extent of enjoyment which he wishes to derive
from it, subordinate to the aforementioned article 4 (D) of this agreement
above.
7. DELIVERY OF THE PROPERTY UNDER LEASE
A. The Lessor undertakes that it will be possible, starting 15.5.97, to carry
out the work which is detailed in the specification in Annex E which is attached
to this agreement and which constitutes an integral part of it.
To the extent that the Lessee requests to carry out changes and/or to make other
renovations in the Property under lease, he undertakes to submit, in advance,
for approval by the Lessor, any plans for carrying out the aforesaid changes
and/or renovations. Implementation of the changes and/or renovations to the
Property under lease require approval from the Lessor, in advance and in
writing, and will be done in coordination with the Lessor and/or the management
company representing it.
As for the work which is detailed in the specifications, Annex E of this
agreement, the directives in Annex F of this agreement will apply. Annex F is
attached to this agreement and constitutes an integral part of it.
B. The Lessee declares that he is aware that (he agrees that) the Lessor will
be entitled to introduce changes into the building plans, at his sole
discretion, and without any need for the Lessee's agreement, as well as building
additions and additional floors to the building at any time, including after the
time of delivery, to make any use of and/or any changes in existing use and/or
change in the purpose and any construction work in the building, any changes and
expansion, in the building or parts of it or the plot, at his absolute
discretion, and without any restriction and/or need for the Lessee's agreement,
provided that the Lessee's rights shall not be affected, according to this
agreement.
C. The Lessee declares that he is aware that completion of the building
construction, completion of the finishing of the interior, within the boundary
of the other areas of the building,
<PAGE> 5
and work on development of the plot, will continue beyond the date set for
handing over the Property under lease to the Lessee, and he will have no claims
and/or demands and/or suits against the Lessor because of this.
The Lessor undertakes to see to it that the aforementioned construction work
will be done while making every effort to cause the least possible nuisance and
disturbance to the Lessee.
D. At the time of handing over possession of the Property under lease by the
Lessor, the parties will draw up a protocol of the transfer, and representatives
of the two parties will sign it. The Lessee will abstain from making any claims,
of any sort, in connection with the Property under lease or with any defects
which have been discovered in it, beyond the claim about the defects which will
be specified in the transfer protocol, excluding any hidden defect.
E. To the extent that additional areas for rental in the building will become
vacant to the Lessor, the Lessee will be given preference for renting these
areas as aforesaid.
In the case that the Lessee is interested in renting the aforementioned areas,
the two parties will negotiate for 30 days. If they do not reach an agreement
within the 30 day period as aforesaid, the Lessor will be entitled to let these
areas to another Lessee.
8. THE LEASE PERIOD AND WORK ON MAKING THE PROPERTY UNDER LEASE SUITABLE
A. (1) the Property under lease will be rented out to the Lessee for a period
of five years which will begin (subordinate to the aforesaid in Annex F) on
15.8.97 and will end on 14.8.2002 (henceforth: "THE LEASE PERIOD").
(2) If the Lessor is late in delivering the property, so that the Lessee is
unable to operate it for his purposes after 15.8.97, the Lessor will pay the
Lessee compensation for a month's amount, in accordance with the proportion of
the delay: a delay per diem = 1/30 x the monthly rental.
(3) To remove all doubt, a delay of up to two weeks in the delivery will not be
considered as a delay for the purpose of compensation as mentioned in the
aforementioned sub-section (2) above.
(4) It is emphasized that the conditions for payment of compensation as
aforesaid in articles (2) and (3) will be carried out on the condition that,
starting with the day of submission of all the work plans required for carrying
out making the building suitable (15.8.97), no changes will be made by the
Lessee. If changes are submitted (in accordance with article 7A above) by the
Lessee, and all this not being in contradiction with Annex F, Article 5b, the
Lessor shall not be obliged to pay compensation to the Lessee, for the
additional time period deriving as a result of the requested change. The
determination of time schedules for the delays and for the compensation deriving
from this matter, will be carried out by Shay Arad and Raffi Regev, and their
decision shall obligate the parties without challenge.
(5) To remove all doubt, a change in the appointed time for the beginning of the
lease period as aforesaid in Annex F, will not cause any change in the appointed
time for the end of the leasing, that is, the 14.8.2002, and the lease will end
(subordinate to the option mentioned below), in any case, at that time.
<PAGE> 6
(6) The Lessee has the option to extend the lease period for an additional
period of four years and eleven months, that is, starting 15.8.2002 and up to
14.6.2007, provided that he give notification in writing about this to the
Lessor at least six months before the end of the original lease period. In the
case where the option is exercised, all the directives in this agreement shall
also apply in the extended lease period, and the extended lease period will be
regarded, with all its implications, as part of the lease period.
B. The Lessee will be entitled to set up a "clean room" in the Property under
lease in accordance with the plans which will be submitted and will be approved
in advance and in writing by the Lessor's engineer (henceforth, MAKING THE
PROPERTY SUITABLE). The Lessor's engineer shall be authorized to approve the
work for making the property suitable, in all or in part, and to request that
the Lessee make changes in the work, and all this according to his discretion.
C. Before starting to make the property suitable, the Lessee shall submit
detailed and complete plans to the Lessor for carrying out making the property
suitable, including specifying the equipment and the facilities the Lessee
intends to introduce into the Property under lease. Without detracting from the
overall meaning of the aforesaid, the plans shall include architectural plans,
electricity plans, air-conditioning and evaporation plans, plumbing and piping
plans, plans for the ceilings, plans for the kitchen, etc., (including
indication of electrical outlets, installation of telephones, stationing of
computer communications, etc.) All the plans which will be prepared by the
Lessee, shall be prepared at his expense and on his account, and the Lessee
shall bear the expenses and fees of the various consultants, such as
air-conditioning consultants, electricity consultants, and the contractors who
implement the work.
D. The aforementioned plans shall be subject to the approval of the Lessor,
as specified below, with written approval concerning the plans. The Lessee
undertakes to repair and/or to change the said plans in accordance with the
Lessor's directives.
It is hereby made clear that no plans whatsoever shall be approved, as long as
they may damage the construction and/or the appearance of the building and its
systems or cause any change in them or do not suit the building and the
customary technical specifications; or if they are unlawful, including being
contrary to the standards, as, for example, safety standards or fire safety
standards; or if they require changes in building permits or if they change the
appearance of the building on the outside; or if they limit the activities of
other tenants in the building and/or the Lessor and/or the management company.
To remove all doubt, it is hereby made clear that approval of the plans by the
Lessor and the professional consultants is for the matter of carrying out work
on making the property suitable, and does not constitute approval of suitability
for building construction standards or the licensing requirements of the local
authority.
E. The Lessee undertakes to carry out making the property suitable in
accordance with the plans which shall be approved by the Lessor.
F. The Lessee undertakes to carry out making the property suitable during
regular work hours, to be meticulous about cleanliness of the Property under
lease, the building and its
<PAGE> 7
environs, and the Lessee also undertakes not to cause any nuisance or damage to
the Property under lease, to the building and/or to the others possessing the
building and/or to the Lessor and/or to the management company and/or to any
third party whatsoever.
Making the property suitable shall be carried out in coordination with and in
accordance with the directives of the supervisor working on behalf of the Lessor
or the management company. The Lessee shall appoint a representative on his
behalf for the purpose of carrying out the work and shall notify the Lessor in
writing as to the identity of the representative before starting to make the
property suitable.
9. LEASING PAYMENTS
A. Lease payments shall be paid to the Lessor during the lease period as
follows:
(1) The lease payments shall be calculated on the basis of 79,575 Israeli
Shekels per month (henceforth: "BASIC LEASE PAYMENTS")
The lease payments are based on $15 per square meter, for the area of 62 square
meters in gross on the penthouse floor and for 1475 square meters from the area
on the upper office floor and based on $10 per square meter for the area of 128
square meters which makes up the open area on the upper office floor, which is
marked in Annex A with the letter A.
(2) In addition to the above lease payments, the Lessee shall make a payment to
the Lessor for management service which the company has decided to carry out by
itself in lieu of a management company. These services, guarding, security,
insurance coverage, intelligence and guarding the parking facility, shall be
shared proportionately among the clients in the building.
These payments will be open for perusal by the Lessee, but in any case, the
Lessor's decision shall be required in regards to the above services.
(3) The basic lease payments will be made in payments which are linked to the
consumer price index which is published by the Central Bureau of Statistics and
which is based on the index for the month of November, 1996 which was published
on 15.12.96, that is, 142 points (henceforth: "THE BASIC INDEX"), and they will
change in proportion to the rate of the known rise in the index at the time any
payment is made, in proportion to the basic index.
"The Consumer Price Index" and/or "The Index: - the price index which is known
as "The Consumer Price Index", which includes fruits and vegetables, and which
is published by the Central Bureau of Statistics and Economic Research and
includes the said index even if it is published by any other official body or
institution, including any official index which may replace it, even if it is
based upon the same data, whether or not it is based upon the existing index.
In the case where another index may replace it, and the Bureau, the body or the
institution as aforesaid, do not set the proportion between it and the index
which has been replaced; or to the extent that no other index is published, the
proportion between the other index and the replaced index shall be fixed upon
consultation with economic experts who will be decided upon by an agreement
between the Lessor and the Lessee.
<PAGE> 8
B. The lease payments shall be paid (subject to the aforesaid in Annex F) for
a period of time, starting from the beginning of the lease and onward, in the
course of the lease period, in quarterly payments, on the first of the beginning
of each quarter (January, April, July, October) as follows:
(1) At the time of signing of the agreement, the Lessee shall pay the first
three months of rent.
(2) On the first of the month at the start of the next quarter, which is after
the start of the payment period for lease payments, the Lessee shall make the
lease payments which are due for the said quarter.
(3) On the first of the month at the start of each quarter, starting with the
next quarter after the quarter mentioned in minor article (2) above - for each
quarter in advance.
C. To remove all doubt, the Lessee shall be obliged to make a payment of the
lease payments in accordance with the aforesaid minor article B above. And this
is so even if the Lessee does not appear and/or refuses to appear in order to
receive the Property under lease at the time of delivery which has been proposed
by the Lessor, or at a later date.
D. The Lessee shall pay the Lessor the Value Added Tax. at its rate at the
time of the execution of the payment, in return for an invoice, at the time of
the execution of any payment of lease payments, in addition to the lease
payments specified above.
E. If there is any delay in payment of more than five days by the Lessee for
any sum whatsoever which he must pay the Lessor in accordance with this
agreement, the Lessee shall pay the Lessor for the delayed payment as shall be
determined on the date on which the Lessee was supposed to pay it (henceforth:
"THE DEBITING DATE"), maximum interest in arrears (henceforth "MAXIMUM INTEREST
IN ARREARS") according to which is the higher of the two:
Interest and exceptional interest, at the customary rate of Bank Leumi of
Israel, Ltd. for exceptional withdrawals from regular current accounts - or -
linkage differentials to the index as defined in article 9 (A) above, with
additional linked interest at the rate of 0.75% per month or a part of it, on
the sum which is linked, in arrears.
The maximum interest in arrears shall be calculated for the period beginning
with the debiting date and up to the day on which it is actually paid. If the
delay in payment had to do with as a sum paid by the Lessor to a third party,
including to the management company as defined in article 12 (A) below, and
which the Lessee was obliged to pay to the said third party, the maximum
interest in arrears for the time period will be calculated from the day on which
the Lessor paid the sum in arrears to a third party, until it was returned by
the Lessee. If the Lessor has paid to a third party, including the management
company, maximum interest in arrears due to a delay in payment by the Lessee,
the maximum interest in arrears will be calculated as aforesaid as a part of the
debt which the Lessee must return to the Lessor.
For all the payments which the Lessee pays the Lessor as aforesaid, the Lessee
will pay Value Added Tax as required by law. A tax invoice shall be submitted by
the Lessor close to the date of payment.
<PAGE> 9
F. The payment of interest in accordance with paragraph E above shall not
detract from the Lessor's right to any other relief as set out in this agreement
or as set out by law and shall not be interpreted as waiving, on the part of the
Lessor, any other relief as aforementioned.
G. A delay of more than ten days in the execution of any payment whatsoever,
in whole or in part, on the account of the lease payments, from the time when a
warning in writing of this has been given by the Lessor to the Lessee, will be a
basic violation of this agreement by the Lessee.
H. The two sides agree that to the extent that a permit may be given to the
designated party for dividing up the open area which is marked with the letter A
in Annex A which is attached, and for using it for the purpose of leasing, the
payments for lease payments and for management fees will be revised from that
point in time in accordance with the payment distribution schedule per square
meter in gross for the main office area on the floor, and the same basic payment
per square meter will apply in regard to the office area on the floor.
I. After five years from the start of the lease period and to the extent that
the Lessee may exercise the option to extend the lease period as mentioned in
article 8 A above, the parties will hold negotiations regarding the basis for
lease payments. As regards the remainder of the lease period, if the parties do
not reach an agreement among themselves within 30 days, the negotiations will be
held with an appraiser's assistance, on behalf of each one of the parties, and
if the two appraisers do not reach an agreement among themselves within 30 days,
they will appoint a third appraiser who will decide what will constitute the
basis for lease payments for the period of time which is beyond the five years
of the first lease period.
As long as the lease payments have not been decided as aforesaid, the set rate
of lease payments shall continue to apply and to oblige lease payments as in
this lease contract.
10. TAXES AND PAYMENTS
A. The Lessee will be subject to the payment of taxes, fees, the payments and
expenses connected with the Property under lease and with using it for the whole
lease period. They will be paid by the Lessee immediately upon request for
payment, and they are:
(1) The cost of installation of electric meters, using the meters which will
measure electricity consumption in the Property under lease, and also fees for
electricity consumption for the heating and cooling system in the Property under
lease.
(2) General property tax, water fees and signs tax for the city of Herzliya, for
the Property under lease, starting from the beginning of the lease period.
(3) Fees and telephone bills for the Bezeq Company for the Lessee's telephone
lines, and fees for the use of water and gas.
(4) Payments to the management company, as they will be fixed by the management
company from time to time, or payments to any person and/or entity --as they
will be fixed by it-- that will provide maintenance services for the building,
until the beginning of operations by the management company, or in the absence
of a management company, starting from the beginning
<PAGE> 10
day of the lease period, and all this according to the area of the Property
under lease in gross, and in accordance with what is stated in Article 12 E
below.
The Lessee will directly bear the responsibility for all the aforesaid payments
whether they are paid, in accordance with the Lessor's determining the price, to
the Lessor and/or to the management company and/or to somebody else, which apply
to the Property under lease for all its parts, its systems and all the
building's common facilities.
(5) Half of the expenses for stamps for this agreement.
(6) Any compulsory payment which applies and which may apply according to law to
the possessor of the property as a lessee and/or to management of a business in
the Property under lease and/or to the operation of a business in the Property
under lease.
Even when the lease period has terminated, the Lessee will be considered as the
one who is obliged to make the payments which have been specified in the above
articles, if the cause for the charges which are debited is as a consequence of
use and/or consumption in the course of the lease period, and in which the
payment and/or charge was requested and/or arrived after the end of the lease
period into the hands of the Lessor.
B. It is hereby agreed that if at the start of the lease period or in the
course of the lease period there are not yet separate meters for water or
electricity for the Property under lease, the Lessee will pay the Lessor for
supply of a proportion of the overall payment which will be paid by the Lessor,
in accordance with the proportion which will be determined by the Lessor's
accountant.
C. The Lessor will be subject to payment of taxes and compulsory payments
which apply to property owners.
D. To remove all doubt, it is hereby determined that the Lessee shall be
registered in the Municipality and with the Electric Company and anywhere else
possible as the possessor of the Property under lease and will see to it that
the charges made by the aforementioned bodies are debited directly to his name,
and he will contact Bezeq directly in order to receive Bezeq's services, if and
as long as he is interested in them.
E. The Lessee undertakes to deliver to the Lessor from time to time,
immediately upon his request, all the bills and receipts for all the payments
which he is subject to, as specified in this article in this agreement.
11. MAINTENANCE OF THE PROPERTY UNDER LEASE
A. The Lessee undertakes to maintain the Property under lease in good and
proper condition, to refrain from causing damage or deterioration to it or any
one of its facilities, to repair at his expense any damage that might be caused
to the Property under lease by him and/or by his visitors and/or by his clients
and/or by his employees and/or by any third party and/or by anyone on behalf of
the Lessee and/or due to use of the Property under lease, except for reasonable
wear.
<PAGE> 11
In order to carry out the repairs, the Lessee will first of all have to apply to
the management company (or to whoever is taking care of the building's
maintenance), and get a bid; but if a bid cheaper, but identical on a
professional level and in the quality of its performance to the management
company's bid, is received, or if the company refuses to carry out the repairs,
the Lessee will be entitled to make use of the services of other parties.
B. The Lessee undertakes not to carry out and/or to allow to be carried out
any internal and/or external change in the Property under lease and not to add
on any addition and not to destroy any part of the Property under lease and/or
facility of the facilities, without receiving the Lessor's agreement in writing,
and in advance. The Lessor will be entitled, at his absolute and sole
discretion, to refuse to give his consent to the aforementioned without any need
to give reasons or to justify his refusal; the Lessor shall be entitled to
prevent the implementation of any action as aforesaid which is in contradiction
with what is stated in the agreement, at any time, and to remove and to destroy
any change or addition which has been attached in permanent manner to the
building, and which has been carried out in contradiction with what was stated
in this article, and at the Lessee's expense. All the additions, repairs and
changes that may be done, whether in accordance with what is stated in the
agreement or whether in violation of the agreement, shall belong to the Lessor
if he so desires, without his being obliged to pay for them.
C. The Lessee undertakes to allow the Lessor and/or his proxy and/or the
representative of the management company to enter "the Property under lease,"
after advance coordination with the Lessee, during regular work hours and at a
reasonable time, in order to check the condition of the Property under lease and
also in order to carry out repairs and maintenance work on the Property under
lease and/or on other parts of the building. Upon implementation of the
aforementioned work, the Lessor will do his best so that the damage and/or
inconvenience which may be caused to the Lessee, if indeed such are caused,
shall be as little as possible.
However, it is hereby agreed that the Lessor and/or his proxy and/or the
management company and/or its proxy shall be entitled to enter the Property
under lease at non-regular hours in emergency situations or after coordination
in advance with the Lessee.
In the last six months of the lease period, the Lessor shall be entitled to show
the Property under lease to new tenants, and the Lessee undertakes to allow the
Lessor to do so, during the Lessee's regular hours of operation.
D. The Lessee undertakes to fulfill and implement any provision of the law,
any regulation, order or by-law dealing with the Property under lease or its
maintenance or its usage, or not to carry out, or allow to be carried out on the
Property under lease and/or in connection with it, any thing which might
constitute a nuisance or bother or cause damage or inconvenience to the Property
under lease or to the building or to other property holders in the building, or
to the public using it, and the Lessee is liable for all the consequences of a
violation of this obligation.
E. The Lessee undertakes to be meticulous about cleanliness in the Property
under lease and about its immediate surroundings and to impart to the Property
under lease a pleasant and esthetic appearance which is suitable to the standard
and character of the building, and to maintain it in this condition during the
whole lease period, and to conduct the business exclusively on the premises of
the Property under lease, and not to cause [illegible]... to the
<PAGE> 12
people who are there or the visitors in the building, to be liable as regards
the government and municipal institutions and authorities and/or the Lessor
and/or the management company for the payment of all fines and/or compensation
according to the law as a result of non-fulfillment of the directives of this
article.
F. The Lessee undertakes to compensate and indemnify the Lessor, immediately
upon his request, for any damage or expense caused to the Lessor due to a suit
which is filed against the Lessor, whether a criminal or civil suit, for the
need to defend himself against the aforementioned suit, provided that the
aforesaid suit derives from non-fulfillment or from a violation of the Lessee's
obligation according to the agreement.
The Lessor, for his part, undertakes to present the Lessee with any request
and/or suit which is submitted to him, immediately upon receiving it, and to
allow the Lessee to defend himself, together with him, in the aforementioned
suits.
G. The Lessee shall not be entitled to put up any signs whatsoever on the
Property under lease without approval, in advance and in writing ,of the Lessor
and of the management company.
The signs on the building and the signs on "the Property under lease," whether
they are signs on the outside walls, or whether they are signs which go beyond
the area of the building, or whether they are signs which are placed inside the
Property under lease and which face outward, these signs' location, shape and
nature shall be solely determined by the Lessor at his absolute discretion. This
is in order to preserve the appearance and unique character of the building. The
Lessor shall be entitled to obligate the Lessee to install the aforesaid signs
at his expense and in accordance with the Lessor's directives, or to have the
signs installed by the Lessor and to charge the Lessee for the expenses
connected with manufacture and installation.
The Lessee undertakes that the signs, to the extent that they are beyond the
aforesaid, or any notices whatsoever, shall not be hung up by him on the facade
of the Property under lease nor in the elevator lobby, including the floor
elevator lobbies or on any outside wall of the Property under lease or any other
outside part of the building and/or the Property under lease.
H. It is hereby agreed that the Lessor shall not permit any advertisement
signs to be hung on the outside walls of the building.
I. It is hereby agreed that the Lessor shall not permit operation of
restaurants in the building. The Lessor shall be entitled to allow operation of
a snack bar in the building in order to serve the tenants of the building.
J. Violation of Paragraph A and B of this Article shall constitute a basic
violation of this agreement.
12. THE MANAGEMENT COMPANY
A. The Lessee will sign a management contract with the company in accordance
with its first demand. The management contract will be in the version which is
attached to this agreement as Annex G, or in a similar version, including
changes and corrections which will be
<PAGE> 13
agreed upon between the Lessor and the management company, which will be
selected by the company to provide management service.
The aforesaid shall not detract from the Lessee's obligation to make all the
payments which appertain to what is stipulated in this leasing contract, in
their order and on time, whether a management contract has been signed or
whether one has not been signed.
B. The Lessee undertakes to meticulously fulfill all the obligations of the
possessor as indicated in the management contract, which shall be signed with
the company.
A violation of the management contract's directives by the Lessee, shall
constitute a violation on his part of the directives of this lease agreement.
C. It is hereby made clear that a violation of the management contract by the
management company, for any reason whatsoever, shall not be any pretext
whatsoever for the Lessee to sue the Lessor. Any kind of claim the Lessee shall
have against the management company shall not be a pretext for the Lessee to sue
the Lessor.
D. The Lessee shall not be entitled to set sums off that are to go from him
to the Lessor against sums that are to come to him in accordance with the
management contract, if they are to come.
E. Maintenance fees and/or management fees which the Lessee must pay shall be
based upon payment for one square meter in gross times the total area rented in
gross. The rate of maintenance fees and/or management fees for the Property
under lease and the manner and dates on which they are to be paid shall be
identical to what the Lessor pays for his office area in the building, except as
regards the area indicated in Annex A (and subject to what is stipulated in the
aforementioned article 9 H) for which maintenance and/or management fees will be
paid in the amount of $1 for each square meter in gross, and subject to the
possibility of fixing the differential payment for certain services, to the
extent that there is relevant justification for this.
13. INSURANCE
A. Without detracting from the Lessee's liability, or his legal
representative's, and/or in accordance with what is stipulated in this contract,
before taking possession of the Property under lease, and/or before the time any
work whatsoever on the Property under lease has begun to be implemented by the
Lessee and/or his representative, and/or on his behalf at the earlier of the two
dates, the Lessee undertakes to arrange for and implement insurance for setting
up work, at his expense and/or at the expense of others who represent him (as
specified further on in this article). In regard to any work carried out by him
and/or his representative for the operation of the Property under lease and/or
their representative and/or on his behalf in the Property under lease, and for
any investment in "the Property under lease," including equipment, systems, and
machines which may service the Lessee's business, and also for all repairs,
improvements, changes, and additions which may be carried out in "the Property
under lease."
Insurance for setting up work shall be arranged so that the policyholders will
be the Lessee, his representative, contractors or sub-contractors, the Lessor
and the management company, and shall continue until the work has been fully
completed, with an additional maintenance period of
<PAGE> 14
12 months. The cost of insurance for setting up work will apply to the Lessor
until the time of delivery, and be subject to meeting the specifications, as
aforesaid in Annex E, and the aforesaid insurance will appertain to the Lessee
to the extent that the aforesaid insurance applies, the insurance shall apply
starting from the time of delivery.
The insurance for setting up work shall include the following:
1. SECTION ONE:
ALL RISK INSURANCE, which covers at full value, all work which is carried out by
the Lessee and all repairs, renovations, improvements, changes and additions
which may be carried out by the Lessee in the Property under lease. This section
will include a clause regarding waiver of substitution concerning all the
lessees and tenants in Beyt Yosef Hermelin in Herzliyah, and in whose insurance
policies a parallel clause is included regarding waiver of substitution as
regards the tenant, because of any damage caused by them, provided that the
aforesaid concerning the waiver of the right of substitution shall not apply to
a person who has caused damage with malicious intent.
This section includes an explicit amplification regarding property being worked
on and/or regarding near-by property with a liability limit of no less than
$50,000 (fifty thousand United States dollars) in this event.
To remove all doubt, it is explicitly indicated that this amplification shall
not detract from the insurer's obligation to compensate the individual
policyholders in accordance with third party liability insurance as aforesaid in
Paragraph 2 as follows, on account of liability for damage caused to property on
which work is being carried out or on adjacent property as aforesaid.
2. SECTION 2
THIRD PARTY LIABILITY INSURANCE concerning liability deriving from work with a
liability limit which is no less than the sum of $500,000 (five hundred thousand
American dollars) in this occurrence - when the insurance does not include any
limitation as to liability deriving from fire, explosion, panic, lifting
equipment, unloading and loading, defective sanitary installations, poisoning,
anything harmful in food or beverages, shaking or weakening of a support,
adjacent property, property on which work is being carried out, strikes and
shut-downs and also claims made by the National Insurance Institute. This
section will include a cross liability clause according to which the insurance
is calculated as if it were prepared separately for each one of the insured
individuals. It will also be explicitly indicated, to remove all doubt, that the
Lessor's property and/or that of the management company shall be considered as
third party property as far as this section is concerned.
3. SECTION 3
EMPLOYERS' LIABILITY INSURANCE as regards liability for employees carrying out
work at the maximum standard liability limit which is customary in Israel at the
time the insurance is arranged for. This section shall not include any
limitation as to work done at heights or at depths, work hours, contractors,
sub-contractors and their employees, and also as for employment of young people,
provided that they appear on the lists of the Lessee's payments.
<PAGE> 15
Insurance for setting up work shall include an explicit condition under which it
shall take precedence over any insurance arranged by the Lessor and/or the
management company, and that the insurers waive any demand or claim as to
insurance coverage participation by the Lessor and/or the management company,
and the insurance shall not be reduced or canceled, unless the insurer gives
notification of this by registered mail, at least 30 days in advance.
C. (1) Without need for any request or entreaty on the part of the Lessor,
and no later than the day of transfer of possession of the Property under lease
or from the day any work whatsoever is carried out in the Property under lease
(the earlier of the two dates), the Lessee undertakes to deliver confirmation
certification of having taken out insurance for setting up work in accordance
with the text - "confirmation of taking out insurance coverage for setting up"
which is attached to this agreement and is marked in Annex C-1 and which has
been legally signed by the insurer. The Lessee declares that he is aware that
delivery of "Confirmation of taking out insurance for setting up" as aforesaid
is a prior and overriding condition for carrying out work in the Property under
lease and/or transfer of possession in the Property under lease.
2) Without detracting from the Lessee's legal liability and/or in accordance
with the aforesaid in this contract, from the time the Lessee opens his business
in the Property under lease or from the time any chattels whatsoever are
introduced into the Property under lease (except for chattels included in the
insured work in accordance with Article 2 above), the earlier of the two dates,
the Lessee undertakes, for the whole lease period (including any extension of
the lease period), to arrange for and to carry out, at his expense, the
insurance coverage which are detailed below (which shall be called henceforth
"insurance coverage for the Property under lease"), with a legally authorized
insurance company.
D. INSURANCE OF THE CONTENTS OF THE PROPERTY UNDER LEASE
Equipment servicing the Property under lease, in the possession of the Lessee or
in his charge, which is in the Property under lease and/or outside the Property
under lease within the area of the building structure, and any change,
improvement, renovation or addition to the Property under lease which are
carried out or may be carried out by the Lessee and/or by his representative
and/or on their behalf, - and also furniture, equipment, facilities and stock of
every sort and kind, all the above mentioned at the full value of setting them
up, against loss or damage as a result of fire, smoke, lightening, explosion,
earthquake, riots, strikes, intentional damage, storm, windstorm, flood, water
damage, impact from a vehicle, impact from an aircraft, and burglary
(henceforth: "extended fire risk")
The Lessee undertakes to bring the insurance sums up to date from time to time
so that they always reflect the full cost of setting up the property insured by
him, including additions and improvements.
Despite the aforesaid, it is hereby agreed that the Lessee is entitled not to
arrange for insurance of the contents of the Property under lease. However, in
any event, the liability for the damage to the contents of the Property under
lease is the Lessee's alone, and the Lessee hereby releases the Lessor from any
liability and/or any future claim.
<PAGE> 16
E. CONSEQUENTIAL LOSS INSURANCE for loss that might be caused to the Lessee
and/or to his representative as a consequence of damage to the structure of the
Property under lease and/or to the contents and/or to Beyt Yosef Hermelin along
with its installations, as a result of extended fire risk, and this, in suitable
amounts of insurance coverage for a reasonable indemnity period which shall be
no less than 12 months.
Despite the aforesaid it is hereby agreed that the Lessee is entitled not to
arrange for Consequential Loss Insurance as aforesaid. However, the exemption
which is mentioned in sub-section J as follows shall apply as if the insurance
were arranged for as aforesaid.
F. The stipulated insurance coverage in the aforementioned Articles D and E
shall include an express condition according to which the insurer waives any
right of substitution as regards the Lessor, the management company and those
representing them, and also as regards other lessees and/or tenants of the
structure whose insurance coverage contains a parallel clause regarding waiver
of substitution as regards the Lessee, and provided that the aforesaid
concerning the waiver of the right of substitution will not be valid for the
benefit of whoever caused the damage out of malicious intent.
G. LIABILITY INSURANCE TOWARDS A THIRD PARTY for any injury or damage which
might be caused to the person or property of any person and/or legal entity, and
without detracting from what has been said in general, including injury or harm
to the Lessor, to the management company, to their employees, to the other
lessees and tenants of the building and to the guests of the aforesaid building,
within the liability limit which shall be no less than the amount of $500,000
(five hundred thousand United States dollars) in this occurrence. This insurance
will not be subject to any restriction as to liability resulting from fire,
explosion, panic; lifting, unloading and loading equipment; defective sanitary
installations, poisoning, anything harmful in food or beverages, a strike or
shut-down, or claims made by the National Insurance Institute.
The name of the insured party of the insurance coverage shall be extended to
include the Lessor and the management company because of their liability for
bodily injury which might occur in the Property under lease, and this is
subordinate to the cross liability clause, according to which the insurance will
be calculated as if it were taken out separately for each one of the individual
policy holders.
The aforesaid concerning tenants and other occupants in Beyt Yosef Hermelin, is
subordinate to the other lessees and tenants having exercised their rights in
accordance with their policies.
H. EMPLOYERS' LIABILITY INSURANCE for the Lessee's or his representative's
liability towards all those employed by them and on their behalf, within the
maximum standard liability limit which is customary in Israel, at the time of
taking out the insurance and/or renewing it.
This insurance shall not include any restriction as to work at a height or at a
depth, work hours, contractors, sub-contractors and their employees - to the
extent that they are included in the payment list of the Lessee, baits and
poisons, and as regards employment of youths. The insurance shall be extended to
indemnify the Lessor and/or the management company if they are considered as
employers of employees of the Lessee, or any one of them.
<PAGE> 17
The Lessee's insurance shall include an express condition according to which
these conditions take precedence over any insurance which was taken out by the
Lessor and/or the management company, and the insurer waives any claim and/or
demand concerning insurance coverage of the Lessor and/or the management
company. Likewise, the insurer undertakes that the policies of the insurance
coverage of the Property under lease will not be reduced nor canceled, unless
notification of the matter is given in writing by the insurer and sent by
registered mail to the Lessor at least 45 days in advance.
1) The Lessee declares that he will not make any claim and/or demand and/or suit
against the Lessor and/or the management company and/or other lessees and/or
tenants in Beyt Yosef Hermelin on account of damage that the Lessee will be
entitled to indemnity for (or that he would be entitled to indemnity for if it
were not for the deductible part of his insurance policy), according to the
insurance policies that were taken out in accord with Articles A to I above.
2) In every insurance coverage mentioned in Articles A to I, it will be
indicated that the term "Lessor" will include the share owners of the Lessor, as
well as their subsidiary companies.
11. Without the need for any demand on the part of the Lessor, the Lessee
commits himself to provide for the Lessor, within 14 days of the date of opening
the Lessee's business on the Property under lease, or before the date of
bringing any chattels into the Property under lease (except for chattels
included in the work insured according to Articles B and C above), on the
earlier of the two dates, a confirmation certificate as to his having taken out
insurance on the Property under lease in accord with the formula "Confirmation
Certificate of Insurance on the Property under lease" which is attached to this
agreement and marked as Insurance Annex 2C, properly signed by the Insurer.
The Lessee declares that he is aware that providing a "Confirmation Certificate
of Insurance on the Property under Lease" as stipulated, is an overriding, prior
condition for opening the Lessee's business on the Property under lease and/or
bringing any chattels into the Property under lease (except for chattels
included in the work insured according to Articles B and C above), and the
Lessor will be entitled to prevent the Lessee from opening his business on the
Property under lease and/or bringing in chattels as stipulated, in the event
that the aforementioned confirmation certificate has not been provided on time.
12. In order to dispel doubt, it is made clear that non-production of
insurance confirmation certificates on time, as stipulated in this Article
above, will not detract from the Lessee's obligations according to this
contract, including and without detracting from the totality of all obligations
to make payment that pertain to the Lessee, and the Lessee undertakes to fulfill
his obligation according to this contract, even if he is prevented from carrying
out work and/or receiving possession of the Property under lease and/or bringing
chattels into the Property under lease and/or opening his business on the
Property under lease, due to non-presentation of the confirmation certificates
on time.
13. The Lessee undertakes to fulfill the terms of the insurance policies -- for
work for setting up and insuring the Property under lease, to pay the premiums
in full and on time, and to take
<PAGE> 18
care to ascertain that the insurance policies of the Property under lease are
renewed from time to time as needed, and that they be valid for the whole period
of lease.
14. Immediately after the termination date of the term of insurance on the
Property under lease, the Lessee undertakes to deposit with the Lessor a
certificate of having taken out insurance -as stipulated in Article 11 above-
for the purpose of renewing the policies' validity for an additional year. The
Lessee undertakes to deposit the certificate of taking out insurance again on
the dates specified for every insurance year for the whole term of the lease.
15. The Lessor is entitled to examine the insurance confirmation certificates
that are produced by the Lessee as said above, and the Lessee undertakes to
carry out any change or amendment demanded in order to make the certificates
correspond to the Lessee's obligations. The Lessee declares and undertakes that
the Lessor's right of review over the insurance confirmation certificates and
his right to order amendment of the insurance policies as stipulated above and
likewise the Lessor's intervention in everything connected to the Lessee's
taking out of the various policies, does not impose on the Lessor or on his
representative any obligation or responsibility in regard to the insurance
confirmation certificates and in regard to insurance policies as said, their
nature, scope, and validity, or in regard to their absence, and this does not
detract from any obligation imposed on the Lessee according to this agreement.
16. The Lessee is entitled to take out additional/supplementary insurance
policies besides those detailed in this agreement, according to his judgment.
17. In addition to and without detracting from what is said anywhere above in
this agreement, in all the stages of performance of the contract, the Lessee
undertakes to fulfill all demands and instructions of the National Insurance law
and all orders, regulations and the like that may be instituted according to the
above mentioned law, and especially, but without detracting from the totality of
what is said above, in such a manner that all his employees and representatives,
including those that may be employed casually or temporarily, will be at all
times and during the whole period of this contract entitled to all the rights
according to the above mentioned law.
18. Without detracting from the Lessor's liability according to this contract
and according to every law, the Lessor himself undertakes to take out and
maintain throughout the whole period of lease the following kinds of insurance
coverage detailed below (below: "insurance coverage of Beyt Yosef Hermelin"),
with a legally authorized insurance company.
19. Insurance of the structure of Beyt Yosef Hermelin in Herzliyah with its
outbuildings, explicitly without any change, improvement, renovation, or
addition to the Property under lease that may have been made and/or will be made
by the Lessee and/or for him, by way of protection against loss or damage due to
fire, smoke, lightning, explosion, earthquake, disturbances, strikes, malicious
damage, storm, tempest, flood, water damage, damage by vehicles (impact), damage
by aircraft and break in. The insurance will include an explicit condition
according to which the insurer renounces any right of substitution concerning
the Lessee and the licensee on his behalf for operation of the Property under
lease and all the workers on their behalf, provided that the concession of the
right of substitution not apply in favor of a person who has caused damage out
of malice.
<PAGE> 19
20. Liability insurance towards third parties due to indebtedness of the
Lessor and the management company and the Lessee on account of any damage or
wreckage that may be caused to the person and/or property of any person and/or
entity in the structure, within the limits of liability of not less than
$1,000,000 (one million US dollars). This insurance will not be subject to any
limitation as to indebtedness deriving from fire, explosion, panic, lifting
equipment, loading and unloading equipment, defective sanitary installations,
poisoning, any harmful thing in food or drink, strike or shutdown, as well as
claims for reimbursement for damage payments on the part of the National
Insurance Institute. The insurance will be subject to the clause of cross
liability according to which it will be calculated as if it were made separately
for each one of the insured individuals. This insurance will be broadened to
include the Lessee as an additional insured party for his indebtedness for all
damage and/or wreckage that may be caused to the person and/or property of every
person and/or entity in the public areas in Beyt Yosef Hermelin (in order to
dispel doubt, the public areas as said, do not include, among others, leased
areas).
21. Liability insurance of employers for the Lessor and the management
company, towards their employees and/or whomever is employed in the structure,
within the normal, maximal limits of liability accepted in Israel on the date of
taking out the insurance policy and/or renewing it. This insurance will not
include any limitation as to work at a height or at a depth, working hours,
contractors, sub-contractors and their employees.
22. Insurance for loss of leasing payments and management fees at their full
value, because of damage caused to the Property under lease or due to the
destruction of the Property under lease as a result of the risks mentioned in
Article 11, for a 12-month period of indemnification. The insurance as said will
include an explicit condition according to which the insurer gives up on any
right towards the Lessee or any of his representatives, provided that what
concerns concession of the right of substitution will not apply in favor of a
person who has caused damage out of malice.
23. 1) Upon the written request of the Lessee, the Lessor will produce for him
a confirmation certificate from his insurers as to the insurance for Beyt Yosef
Hermelin having been granted by him.
2) The Lessor declares that he will have no claims or demands against the
Lessee on account of damage that is covered in full by the insurance company.
24. The Lessor declares that he will make no claim and/or suit against the
Lessee and/or on account of damage that the Lessor is entitled to indemnity for,
or that he would be entitled to indemnity for were it not for the deductible
coverage specified in the policy, according to the insurance that was taken out,
as stipulated above, and he hereby exempts the Lessee from any liability for the
damage as said.
25. The Lessee undertakes to pay to the Lessor the proportional part of the
insurance fees for the purpose of insuring Beyt Yosef Hermelin within 30 days
from the day that the Lessor demands it. The rate of the Lessee's proportional
part of the insurance fees is as follows:
<PAGE> 20
1) The insurance mentioned in Articles 19, 20, and 21, corresponding to the
relation between the area of the Property under lease and the total area of Beyt
Yosef Hermelin.
2) The insurance mentioned in Article 22. In accord with the relation between
the yearly leasing payments and management fees paid by the Lessee and the total
yearly leasing payments and management fees paid by the totality of Lessees in
Beyt Yosef Hermelin. All the above is in accord with the insurance rates of the
insurance policies for Beyt Yosef Hermelin that will be available for study by
the Lessee in the offices of the Lessor and/or the management company.
3) The maximal sum that the Lessee will bear on account of his relative part
in the insurance mentioned in Paragraphs 1 and 2 above, will not amount to more
than shekels at a yearly rate (linked to the index from the date of
signing the agreement), for every square meter of the Property under lease, and
this subject to the insurance rates as they may apply from time to time.
26. The Lessor will be entitled, according to his exclusive judgment, to
enlarge the scope of the said coverage and/or to add coverage and/or insurance
that is not mentioned above and in such event the insurance fees that will be
collected from the Lessee, as detailed in Article 25 above for the purpose of
insurance to be taken out by the Lessor, will be changed accordingly.
14. Liability of the Lessee and Release of the Lessor from Liability
A. The Lessee will be liable for all damage to property and/or person on the
Property under lease, of any kind or sort, and/or to the contents and/or
the property of the Lessee and/or the building and/or its tenants and/or to
those visiting the Property under lease and/or to any third party and/or his
employees and/or to any person who is on his way to the Property under lease and
from it, and that derives from or is connected in any way to his use of the
Property under lease and/or to any activity of the Lessee and/or to an act of
commission or omission of the Lessee or of any representative of his -- except
for damage to the Property under lease as a result of natural wear.
The Lessor will not bear any liability on account of loss or damage or any
monetary expenditure that may be caused in connection with the liability of the
Lessee according to this agreement, and the Lessee undertakes to indemnify the
Lessor for any expenditure or compensation that the Lessor may demand that he
pay and that derives from loss or damage in the area of liability of the Lessee
according to this agreement.
B. Neither the Lessor nor any representative of his or on his behalf, will be
liable in any way for any damage or wreckage that may be caused to the Lessee or
his property or any injury to person and/or loss and/or damage of any kind to
property that may be caused to the Lessee and/or his workers and/or employees
and/or his agents and/or his customers and/or his visitors and/or any other
person who may be found on the Property under lease or on another area which is
possessed by the Lessee by permission of the Lessor, and the Lessee takes upon
himself the full liability for any damage of this kind and undertakes to
compensate and indemnify the Lessor immediately upon receipt of such demand for
monetary damages that the Lessor might be
<PAGE> 21
obliged to pay or be forced to pay as a result of damage of this kind and for
any expenditure in connection with any damage as said above, unless the damage
was caused as a result of a negligent act by the Lessor or his workers.
C. The Lessor and/or his workers and/or his representatives or those acting
in his behalf, will not be liable in any form for any damage of any kind that
may be caused to the Lessee as a result of entry of the Lessor or his
representatives into the Property under lease as needed for one of the
objectives mentioned in this agreement, unless the damage was caused as a result
of negligence by the Lessor or his workers.
15. Vacation
A. At the term of the period of lease or if and when the lease comes to its
conclusion before the term of the lease period, the Lessee undertakes to deliver
to the Lessor and/or his proxy, the Property under lease, which will be
absolutely empty of any person or object, and in good, proper condition just as
he received it, except for reasonable wear and with all the systems working
properly and in a normal manner.
The Lessor will have the right to demand from the Lessee that the changes and/or
the additions that have been connected in permanent fashion to the Property
under lease, all of them or some of them, that may be made on the Property under
lease by the Lessee in addition to what is said in Annex E, whether with
permission or without permission, will be removed or remain as they were and
will become the property of the Lessor as the Lessor may choose, without the
Lessor being obliged to make any compensation for them.
B. Vacation of the Property under lease at the appointed term and as said in
Paragraph (A) above, constitutes a principal condition of the agreement, and
violation of it constitutes a fundamental violation of the agreement.
C. In the event that the Lessee does not vacate the Property under lease as
stipulated in this agreement, at the term of the period of lease or when it
concludes ahead of the term on account of circumstances stipulated in this
agreement (below: "Time of Vacation"), then without harming alternate and/or
additional relief for the Lessor, the Lessee will pay the Lessor, within 7 days
from the day that he is asked to do so by the Lessor, for every day after the
appointed date of vacation until the actual date of vacation, a sum constituting
double the amount of the per diem lease payments together with VAT as provided
by law, linked by the rules of linkage in Article 9, and this will be without
the Lessor having to prove damage and/or loss of anticipated profit because of
non-vacation by the Lessee on time, and this sum will be designated in advance
by the parties, during the signing of this agreement as a proper, fixed
compensation, among the parties, due to delay in vacating the Property under
lease on time, and this will be in addition to lease payments and other monetary
obligations that appertain to the Lessee according to this agreement.
D. The payment of the anticipated usage pay and/or monetary damages as said
above, will not release the Lessee from his obligation to vacate the Property
under lease.
E. If and when this agreement is annulled before its term, as a result of
violation of the agreement by the Lessee, the Lessee will not be entitled to a
return of the same rate of lease
<PAGE> 22
payment on account of the period of time that he did not use, and he will be
obliged to make lease payments until the end of the lease period with deduction
of the lease payments that may be made, if they are made, for the period up to
the end of the lease period, by another Lessee who may be found for the Property
under lease after nullification of the agreement. The Lessor will act to find
another Lessee for the Property under lease by acceptable ways and with pure
intentions and in the framework of his duty to minimize the damage.
F. Starting from the 60th day before the date of vacation, an inspection will
be made of the Property under lease by an engineer on behalf of the Lessor, who
will draw up a list of repairs and work that the Lessee must make according to
the directives of this agreement, including repairs to damage and deterioration
and work to restore the situation to what it was before. The engineer on behalf
of the Lessor will also determine the cost of repairs.
The Lessee undertakes to carry out all repairs and work according to the list of
repairs and work drawn up by the engineer on behalf of the Lessor and to get
confirmation from the Lessor's engineer that the repairs have been carried out
to his satisfaction, no later than the date of vacation to the Lessor. If the
Lessee has not performed the repairs, or some of them, by the date of vacation,
the Lessor will be entitled to perform the repairs himself on the account of the
Lessee, and to debit the Lessee for the cost of carrying out the repairs and for
all expenses involved in carrying them out, as well as lease payments and
compensation (including agreed upon compensation) that are due on account of
non-vacation of the Property under lease on time because of the period that may
be required to perform the repairs, if the repairs, or some of them, are carried
out by the Lessor after the time of vacation.
In order to remove doubt, the Lessee will not be released from his obligation in
regard to making repairs on the Property under lease, and in regard to
preserving and returning the Property under lease in good, proper condition, as
stipulated in this agreement, whether the Lessor and/or the engineer in his
behalf has performed the inspection as stipulated at the beginning of this
Article, or whether neither one nor the other has made an inspection as said,
and in the list of repairs there is no concession of the demand to repair
defects that were not included on the list.
Without detracting from what has been said above, the Lessee must dismantle the
"clean room" that was installed by him on the Property under lease, with all its
systems, and this no later than the date of vacation of the Property under
lease, and restoring the situation as it was when he received the Property under
lease. When possession of the Property under lease is returned by the Lessee to
the Lessor, the parties will draw up a protocol of transfer and representatives
of both parties will sign it. The Lessor will abstain from making any claim, of
any sort or kind, concerning the Property under lease or concerning
non-restoration of the situation to what it was before, or concerning flaws that
may be discovered beyond what has been detailed on the protocol of transfer,
except for hidden flaws or defects.
Without detracting from the Lessee's obligation to perform the repairs and work
as detailed in this minor clause, if the Lessee has objections about the
determinations of the engineer in behalf of the Lessor as to the list of repairs
and work, the controversy will be brought before an arbitrator who will be named
by the chairman of the Chamber of Engineers who will decide the
<PAGE> 23
issue of the distribution of expenses between the Lessor and the Lessee as to
the above mentioned repairs and work that will be performed by the Lessee.
G. Without detracting from any right and/or relief granted to the Lessor
according to this agreement and/or according to law, to the extent that the
Lessee does not vacate the Property under lease by the date that he is required
to do so, the Lessor will be entitled, after giving seven-days warning in
advance to the Lessee in writing, to enter the Property under lease, to take
possession of it, to change the locks and prevent the Lessee and those acting in
his behalf from entering the Property under lease, and he will be authorized to
evacuate from it all objects belonging to the Lessee to any place as the Lessor
may find proper, and all the expenses and/or payments and/or damage caused as a
result of the aforementioned evacuation will appertain to the Lessee alone.
16. The Parking Facility
A. The Lessor undertakes to bring about that the Lessor or the factor
operating the Lessor's parking facility in the building at the time (below: "The
Parking Facility"), will place at the disposal of the Lessee, starting from the
date of the beginning of leasing according to this agreement, 30 (thirty)
parking places as demarcated on the diagram of parking places attached to this
agreement as Annex B, attached.
B. For each parking place, the Lessee will pay a monthly rental fee in the
amount of 234.90 new shekels, in a total amount of 8,829 new shekels per month
with the addition of VAT as required by law. The rental fee for the parking
places will be linked to the consumer price index in the same manner as the
lease payments for the Property under lease, they will be paid in the same
manner and the same rules will apply to them for all purposes.
C. 1) In order to dispel doubt, the Lessee will be subject to the
instructions and/or directives of the Lessor and/or the entity that operates the
parking facility at the time in all that has to do with arrangements of entry,
parking, exit, security, operation, times of operation, and arrangement of the
parking facility.
2) The Lessor will see to it that the Lessee's vehicles will be able to exit the
parking facility on work days even after it is closed and until midnight.
3) If the Lessee asks to use the parking facility beyond the hours of operation,
he will receive this service in exchange for the costs involved in this service.
17. Surety Guarantees
A. On the occasion of signing this agreement, the Lessee will deposit with
Attorney Dr Yoav Ben-Dror of the S. Horovitz and Associates office, as trustees
for the Lessor, a sum equal in shekels to the basic lease payment for three
months, together with differentials for linkage to the index as stipulated in
Article 9 A (2) above until the date of deposit, plus VAT. This is to ensure the
payment of lease payments and/or any debt and/or other indebtedness of the
Lessee according to this agreement.
On the occasion of making the seventh payment on the account of the lease
payments, the Lessee will deposit with Attorney Dr Yoav Ben-Dror and under the
same conditions, an additional sum
<PAGE> 24
in an amount equal in shekels to the basic lease payment for three months
together with linkage differentials as stipulated above in Article 9 A (2),
until the date of performance of the additional deposit mentioned above, plus
VAT, with the purpose being to ensure payment of lease money and/or any debt
and/or other indebtedness of the Lessee according to this agreement.
The above sum will be deposited as said above for up to 90 days after the end of
the leasing period.
If for any reason it is too difficult for Attorney Ben-Dror to continue to hold
the deposit, then, without any further agreement, the balance of the deposit
will be transferred, in the state that it is in at that time and in the same
conditions, to another partner in the office of S. Horovitz and Associates
Attorneys, as Attorney Ben-Dror will inform the Lessor.
The deposit money will be invested by the trustee only in liquid investments
according to instructions that will be given from time to time by the Lessee.
The trustee will update the Lessor upon his demand and at any time in regard to
the monetary balance in the deposit. The balance will not diminish in any event
below a sum equal to the lease payments for six months, linked to the basic
index, plus VAT.
The trustee will transfer to the Lessor any sum that he may require from time to
time from the deposit money, provided that a letter from the General Manager of
the Lessor is attached to the demand. Such a letter is to state that the Lessee
has violated the lease contract and that the sum demanded is rightly deserved by
the Lessor on account of the violation.
The trustee will be obliged to transfer the sum demanded by the Lessor as
stipulated, no later than three business days after receipt of the demand and he
will make no judgment in the matter and he will not be entitled to delay
execution of the payment for any reason.
Attorney Ben-Dror will confirm in writing on the occasion of signing this
agreement that the deposit has been deposited in his hands and that he will act
in regard to it according to what has been stipulated in this Article.
The text of the aforementioned letter will be attached as Annex H of this
contract.
B. The role of the trustee according to this contract will not prevent him from
representing the Lessee in any matter related to this lease contract, including
the matter of the deposit, after it has been transferred to the Lessor as
stipulated above.
18. Remedies for Violations
A. Without detracting from what is stated in the continuation of this Article
and from specific remedies that appear in this contract and in addition to the
aforesaid, the directives of the Law of Contracts-1970 (Remedies for Violation
of a Contract) shall apply to violation of this agreement.
B. If the Lessor annuls the agreement on the basis of his right as detailed in
this agreement, the Lessee will not be entitled to receive payment or any
compensation from the Lessor on account of his investments and/or on account of
any payments that he made or paid to the Lessor and/or on account of damages of
any kind that were caused or might be caused to him as a result of vacation of
the Property under lease according to this agreement, and these sums will be
<PAGE> 25
foreclosed by the Lessor as compensation and this will be without detracting
from his rights to demand full compensation from the Lessee for all damages,
expenses, losses, and loss of profit that have been caused to him.
C. If the Lessee does not return the Property under lease in proper condition
except for reasonable wear and/or will not repair what needs repair on the
Property under lease and/or will not return the Property under lease to the
Lessor at the end of the lease period in proper condition as stipulated in the
agreement and/or if any damage is caused to the Property under lease in the
lease period that has not been repaired by the Lessee;
then in addition to any other right that the Lessor may have in such a ease in
accord with the directives of this agreement and/or in accord with any law, the
Lessor will be entitled to carry out any repair and/or to do any action
whatsoever that may seem proper in his view to repair the damage and/or to
restore the situation to what it was before (that is, to the situation detailed
in Annex A of this agreement), and this will be on the account of the Lessee.
D. The Lessor will be entitled to annul this agreement and the lease rights
according to the agreement, if a decision is made as to bankruptcy,
receivership, or liquidation, or as to appointment of a liquidator, receiver, or
manager or bankruptcy trustee, whether temporary or permanent, for the Lessee,
or if an order is made as to attachment of the Lessee's assets --in whole or in
part-- and the decision or the order aforesaid is not annulled within 60 (sixty)
days from the date that the order or decision is given.
E. If this agreement has not been violated in a fundamental manner by the Lessee
and the violation has not been corrected within 14 days from reception of
advance warning in writing on the matter from the Lessor with details of the
alleged violations, the Lessor will be authorized to annul the agreement by
notice in writing about the matter to the Lessee, and this in addition to any
other remedy according to this agreement or according to any law.
If the agreement has been violated by the Lessee in a fundamental manner, the
Lessor will be authorized to annul it by notice in writing, after advanced
warning in writing in which the Lessee will be given an extension of seven days
to correct the violation, and this will be in addition to any other remedy at
the disposal of the Lessor according to this agreement or according to any law.
19. Non-Response, Avoidance of Taking Action -- and Changes and Additions to
the Agreement
A. Non-response and/or avoidance of taking any action and/or of exercising any
right and/or giving any extension will not be considered and will not be
interpreted as an implied concession and/or as implied agreement and/or as a new
agreement and/or as facts creating against either of the parties a hindrance
and/or estoppel because of conduct or by another way in the mutual relations
between Lessor and Lessee.
B. The conditions of the agreement reflect what has been agreed and what is
contingent between the parties. The parties will not be bound by any promises,
publications, declarations, presentations, agreements, influences, and
commitments, oral or written, that are not included in the agreement and that
were made, if at all, before it was signed.
<PAGE> 26
C. Any change and/or addition to this agreement will be made explicitly and in
writing and will be signed by the parties and as long as this has not been done,
it will have no binding validity in respect of the parties.
D. This agreement, with its annexes, cancels any previous agreement between the
parties, and there will be no validity to any previous agreement and/or
presentation, if such has been made, and that has not been included in this
agreement with its annexes.
20. Payment by One Party Instead of the Other Party
Any sum paid by one party to this agreement, whereas in accord with this
agreement the duty of payment appertains to the other party, will be returned to
the party that has paid as soon as the paying party demands it, with linkage to
the Consumer Price Index as defined in Article 9 A (2) above, with the basic
Index for this matter being the last Index known on the day of payment by the
payer, and up till the day of actual reimbursement according to the Index that
will be known on the day of the actual reimbursement.
21. Transfer of Rights by the Lessor
The Lessor and/or anyone [from individual????] the Lessor will be entitled to
transfer and/or subordinate his rights to the Property under lease, all or some
of them, and/or his rights according to this agreement, all or some of them, to
someone else and/or to transfer and/or subordinate his rights to receive
payments according to this agreement, and the Lessee will cooperate with any
transfer of rights as said, and will sign any document that will be required
according to the opinion of the Lessor's attorneys for that purpose, and all
this provided that the rights of the Lessee according to this agreement will not
be harmed.
22. Differences of Opinion
Differences of opinion between the parties will be brought before the general
managers of the parties who will act to reach an agreed solution among
themselves.
23. Stamping Expenses
Each party will bear half of the expenses of stamping this agreement.
24. Annexes
All annexes to this agreement will constitute an inseparable part of it.
25. Interpretation
The headings of the Articles of this agreement are for the purpose of
convenience alone and do not constitute a part of this agreement.
<PAGE> 27
26. Offsetting
A. The Lessee is not entitled to set off lease payments or management fees
against any sum --for any reason-- whether the sum is fixed or not. All this
does not detract from the right of the Lessee to sue the Lessor on account of
that reason. All this holds except for offsetting of the Lessee's payments to
the Lessor for the purpose of financing construction as indicated in Annex 6,
Article 6.
Likewise, the Lessee concedes any right to a lien on the Property under lease or
to rental fees, as long as the above mentioned right exists and this is without
detracting from his right to sue the Lessor on account of the same reason.
B. The Lessor is not entitled to set off from the compensation determined in
Article 4D above, to the extent that the Lessee deserves compensation as a
result of delay in delivering the Property under lease by the Lessor to the
Lessee, any sum for any reason whatsoever, whether the sum is fixed or whether
it is not, and all this is without detracting from the Lessor's right to sue the
Lessee on account of that same reason.
27. Jurisdiction
The parties hereby agree that the courts in Tel Aviv-Jaffa have the sole
authority of jurisdiction in all matters deriving from this agreement.
28. Addresses and Announcements
The addresses of the parties for the purposes of this agreement are as they
appear at the top of the agreement. Each party which changes its address shall
announce in writing about its new address in Israel to the other party and this
address shall serve from then on as its address for purposes of the agreement.
After the beginning of the lease period, the address of the Lessee will be at
the Property under lease.
B. Every announcement that is sent by one party to the other in accord with the
agreement will be sent by registered mail or by facsimile, or will be delivered
by hand with a copy to the attorney of the parties, Dr Yoav Ben-Dror, the Office
of S. Horovitz and Associates (attorneys of the Lessee) and Attorney David
Shuaka of the Office of Dan Cohen, Shpigelman, and Associates (attorneys of the
Lessor), or to whoever may take their place and it will be considered to have
been delivered three days after the time of sending at the post office and/or
immediately upon delivery by hand, or by facsimile in such a way that can be
proven, according to the case.
29. Denial of Representation by the Lessee
Nothing said in this agreement and/or nothing in the conduct of the parties by
virtue of this agreement will be interpreted as authorizing the Lessee to appear
in the name of the Lessor or on his behalf, or as granting the Lessee the status
of representative of the Lessor in any matter, and the Lessee will not have any
authority or status in the aforesaid.
<PAGE> 28
AND AS PROOF THE PARTIES HAVE SIGNED:
INFLUENCE MEDICAL TECHNOLOGIES, INC. TASHTIYOT NEFT
V'ENERGIYAH
ABBA HILLEL 14, RAMAT GAN 52-22
LESSEE LESSOR
Certification of the Lessee's signature
I the undersigned, Dr Yoav Ben-Dror, Esq., of 31 Street, Tel Aviv, hereby
certify that the authorized persons in behalf of the Lessee have signed the
lease agreement and that their signature with the stamp of the company is
binding on the Lessee for all purposes and matters related to this lease
agreement and the leasing.
Dr Yoav Ben-Dror, Esq.
S. Horovitz and Associates, Attorneys
Tel Aviv
May 1, 1997
Attorney's signature date
Certification of the Lessor's signature
I the undersigned, David Shuaka, Esq., of 105 HaHashmona'im Street, Tel Aviv,
hereby certify that the authorized persons in behalf of the Lessor have signed
the lease agreement and that their signature with the stamp of the company is
binding on the Lessor for all purposes and matters related to this lease
agreement and the leasing.
David Shuaka, Esq.
103 HaHashmona'im Street
Tel Aviv 67133
May 22, 1997
Attorney's signature date
<PAGE> 1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AMERICAN MEDICAL SYSTEMS, INC.
PERSUADE MERGER CORP.
INFLUENCE, INC.
GLOBERMAN ENGINEERING LTD.
UROTEK LTD.
KATSUMI ONEDA
AND
LEWIS C. PELL
DATED AS OF NOVEMBER 12, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1...................................................................................................1
1.1 Definitions.........................................................................................1
ARTICLE 2...................................................................................................7
2.1 The Merger..........................................................................................7
2.2 Effective Time......................................................................................7
2.3 Closing of the Merger...............................................................................8
2.4 Effects of the Merger...............................................................................8
2.5 Certificate of Incorporation and Bylaws.............................................................8
2.6 Directors...........................................................................................8
2.7 Officers............................................................................................8
2.8 Merger Consideration................................................................................8
2.9 Cancellation and Conversion of Company Securities at the Effective Time............................10
2.10 Contingent Merger Consideration....................................................................11
2.11 Dissenting Shares..................................................................................16
2.12 Escrow Procedure; Exchange of Certificates.........................................................17
2.13 Contributions at Closing...........................................................................19
ARTICLE 3..................................................................................................19
3.1 Corporate Organization and Power...................................................................20
3.2 Authorization......................................................................................20
3.3 Capitalization of the Company......................................................................21
3.4 Non-Contravention..................................................................................22
3.5 Consents and Approvals.............................................................................22
3.6 Financial Statements; Undisclosed Liabilities......................................................23
3.7 Absence of Certain Changes.........................................................................24
3.8 Assets and Properties..............................................................................25
3.9 Manufacturing Compliance...........................................................................25
3.10 Inventories........................................................................................25
3.11 Receivables and Payables...........................................................................26
3.12 Litigation.........................................................................................27
3.13 Contracts..........................................................................................27
3.14 Permits............................................................................................29
3.15 Compliance with Applicable Laws....................................................................29
3.16 Benefit Plans......................................................................................29
3.17 Labor and Employment Matters.......................................................................32
3.18 Israeli Labor Matters..............................................................................33
3.19 Intellectual Property..............................................................................34
3.20 Environmental Compliance...........................................................................35
3.21 Insurance..........................................................................................37
3.22 Tax Matters........................................................................................37
3.23 Grants, Incentives and Subsidies...................................................................39
3.24 Year 2000..........................................................................................40
3.25 Bank Accounts; Powers of Attorney..................................................................40
3.26 Orders, Commitments and Returns....................................................................40
3.27 Product Liability Claims...........................................................................40
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.28 Warranties.........................................................................................41
3.29 Relations with Suppliers and Customers.............................................................41
3.30 Absence of Certain Business Practices..............................................................41
3.31 Brokers............................................................................................42
3.32 Minute Books.......................................................................................42
3.33 Business Generally.................................................................................42
3.34 Irrevocable Proxies................................................................................42
3.35 Voting Agreement...................................................................................42
ARTICLE 4..................................................................................................43
4.1 Corporate Existence and Power......................................................................43
4.2 Authorization......................................................................................43
4.3 Consents and Approvals.............................................................................43
4.4 Acquisition of Company Common Stock for Investment.................................................44
4.5 Available Capital Resources........................................................................44
4.6 No Additional Representations or Warranties........................................................44
4.7 Disclosure.........................................................................................44
4.8 Non-Contravention..................................................................................45
4.9 Brokers............................................................................................45
ARTICLE 5..................................................................................................45
5.1 Conduct of the Business............................................................................45
5.2 Company's Agreements as to Specified Matters.......................................................45
5.3 Full Access to Parent..............................................................................47
5.4 Confidentiality....................................................................................47
5.5 Filings; Consents; Removal of Objections...........................................................48
5.6 Further Assurances; Cooperation; Notification......................................................48
5.7 Approval of Stockholders...........................................................................49
5.8 No Solicitation....................................................................................49
5.9 Supplements to Disclosure Schedule.................................................................49
5.10 Sale of Certain Assets of ENT Business and German Subsidiary......................................49
5.11 Public Announcements...............................................................................50
5.12 Preparation of Tax Returns; Tax Matters............................................................50
5.13 Severance Benefits.................................................................................53
5.14 Exchange of Stock..................................................................................53
ARTICLE 6..................................................................................................53
6.1 Representations and Warranties True................................................................53
6.2 Performance........................................................................................53
6.3 Required Approvals and Consents....................................................................54
6.4 No Proceeding or Litigation........................................................................54
6.5 Legislation........................................................................................54
6.6 Certificates.......................................................................................54
6.7 Opinions of Company Counsel........................................................................54
6.8 Escrow Agreement...................................................................................54
6.9 Employment Agreements..............................................................................54
6.10 Bick Consulting Agreement..........................................................................54
6.11 Machek Consulting Agreement........................................................................54
6.12 Sale of ENT Business and German Subsidiary.........................................................55
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
6.13 Dissenting Shares..................................................................................55
6.14 Resignation and Release............................................................................55
6.15 Voting Agreement...................................................................................55
6.16 J & J Agreements...................................................................................55
6.17 Cancellation of Options............................................................................55
6.18 1998 and 1999 Financial Statements.................................................................55
6.19 Interim Financial Statements.......................................................................55
6.20 Jessco Agreement...................................................................................55
6.21 Yozma Agreement....................................................................................55
6.22 SLP Agreement......................................................................................55
6.23 Service Agreements.................................................................................56
6.24 Employee Loan......................................................................................56
6.25 1998 Tax Return....................................................................................56
6.26 Transfer of IMT Subsidiary Stock...................................................................56
6.27 Intellectual Property Transfer Agreement...........................................................56
ARTICLE 7..................................................................................................56
7.1 Representations and Warranties True................................................................56
7.2 Performance........................................................................................57
7.3 Corporate Approvals................................................................................57
7.4 No Proceeding or Litigation........................................................................57
7.5 Legislation........................................................................................57
7.6 Certificates.......................................................................................57
7.7 Opinion of Parent Counsel..........................................................................57
7.8 Escrow Agreement...................................................................................57
7.9 Dissenting Shares..................................................................................57
ARTICLE 8..................................................................................................58
8.1 Methods of Termination.............................................................................58
8.2 Procedure Upon Termination.........................................................................58
8.3 Effect of Termination..............................................................................59
8.4 Reimbursement of Expenses..........................................................................59
ARTICLE 9..................................................................................................59
9.1 Survival...........................................................................................59
9.2 Indemnification by Parent..........................................................................60
9.3 Indemnification by Principal Stockholders..........................................................60
9.4 Claims for Indemnification.........................................................................61
9.5 Indemnification Limits.............................................................................62
9.6 Right of Off-Set...................................................................................63
9.7 Release of Prior Claims............................................................................63
9.8 Principal Stockholder's Right of Contribution......................................................63
ARTICLE 10.................................................................................................63
10.1 Dispute............................................................................................63
10.2 Mediation..........................................................................................64
10.3 Arbitration........................................................................................64
ARTICLE 11.................................................................................................65
11.1 Notices............................................................................................65
11.2 Amendments; No Waivers.............................................................................66
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
11.3 Expenses...........................................................................................66
11.4 Successors and Assigns.............................................................................67
11.5 Governing Law......................................................................................67
11.6 Counterparts; Effectiveness........................................................................67
11.7 Entire Agreement...................................................................................67
11.8 Captions...........................................................................................67
11.9 Severability.......................................................................................67
11.10 Construction.......................................................................................67
11.11 Cumulative Remedies................................................................................68
11.12 Third Party Beneficiaries..........................................................................68
11.13 Appointment of Stockholders'Representatives; Enforcement of Rights, Benefits and Remedies..........68
</TABLE>
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
November 12, 1999, is by and among American Medical Systems, Inc., a Delaware
corporation ("Parent"), Persuade Merger Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Subsidiary"), and Influence, Inc., a
Delaware corporation ("Company"), and Globerman Engineering Ltd., an Israeli
company, Urotek Ltd., an Israeli company, Katsumi Oneda, an individual residing
in the State of New Jersey, and Lewis C. Pell, an individual residing in the
State of New York (collectively referred to herein as the "Principal
Stockholders").
WHEREAS, the Board of Directors of each of the Company, Parent and
Merger Subsidiary have (i) determined that the Merger (as defined below) is fair
and in the best interests of their respective stockholders and (ii) approved the
Merger of Merger Subsidiary with and into the Company, with the Company
surviving, in accordance with the terms and conditions of this Agreement.
WHEREAS, the parties hereto desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent, Merger Subsidiary and
the Principal Stockholders hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings:
"Affiliate" means, with respect to any Person, (a) any Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with such other Person, through the ownership of all or part of any
Person, or (b) any Person who may be deemed to be an "affiliate" under Rule 145
of the Securities Act of 1933, as amended.
"Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local common law or duty, caselaw or ruling, statute,
law, ordinance, policy, guidance, rule, administrative interpretation,
regulation, code, order, writ, injunction, directive, judgment, decree or other
requirement of any Governmental Authority (including any Environmental, Safety
and Health Laws) applicable to such Person or any of its Affiliates or Plan
Affiliates or any of their respective properties, assets, officers, directors,
employees, consultants or agents (in connection with such officer's, director's,
employee's, consultant's or agent's activities on behalf of such Person or any
of its Affiliates or Plan Affiliates).
"Benefit Plan" means all Pension Plans, Welfare Plans and Compensation
Plans.
<PAGE> 7
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Minneapolis, Minnesota are authorized or required
by law to close.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, as set forth in Section 4980B of the Code, part 6 of Title I
of ERISA and applicable regulations issued thereunder.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"Company" means, unless the context otherwise specifically requires,
the Company and its consolidated Subsidiaries.
"Company Common Stock" means the common stock, par value $0.001 per
share, of the Company.
"Company Preferred Stock" means the Series A Convertible Preferred
Stock, par value $0.01 per share, of the Company.
"Company Stock Option Plans" means the Company's 1998 Long-Term
Incentive Plan and the Company's 1995 Stock Option Plan.
"Compensation Plan" means any material benefit or arrangement that is
not either a Pension Plan or a Welfare Plan, including, without limitation, (a)
each employment or consulting agreement, (b) each arrangement providing for
insurance coverage or workers' compensation benefits, (c) each bonus, incentive
bonus or deferred bonus arrangement, (d) each arrangement providing termination
allowance, severance or similar benefits, (e) each equity compensation plan, (f)
each current or deferred compensation agreement, arrangement or policy, and (g)
each compensation policy and practice maintained by the Company or any ERISA
Affiliate of the Company covering the employees, former employees, directors and
former directors of the Company and the beneficiaries of any of them.
"Contingent Merger Consideration" shall have the meaning set forth in
Section 2.8(c).
"Contracts" means all contracts, agreements, options, leases, licenses,
sales and accepted purchase orders, commitments and other instruments of any
kind, whether written or oral, to which the Company is a party on the Closing
Date, including the Scheduled Contracts.
"Damages" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement (net of
insurance proceeds actually received or accrued and net of any tax effect
arising out of any of the foregoing), including, but not limited to, (a)
interest on cash disbursements in respect of any of the foregoing at the
Reference Rate in effect from time to time from the date each such cash
disbursement is made until the Person incurring the same shall have been
indemnified in respect thereof, and (b) reasonable costs, fees and expenses of
attorneys, accountants, bankers and other agents of the Person incurring such
expenses.
2
<PAGE> 8
"Environmental, Safety and Health Laws" means all Applicable Laws in
any way relating to Environmentally Regulated Materials, toxic torts,
occupational health and safety, or the environment, including, without
limitation, the Safe Drinking Water and Toxic Enforcement Act ("Proposition
65"), the Federal Resource Conservation and Recovery Act ("RCRA"), the Federal
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"),
the Federal Clean Air Act, the Federal Water Pollution Control Act, the Federal
Safe Drinking Water Act, the Federal Toxic Substances Control Act ("TSCA"), the
Federal National Environmental Policy Act, the Federal Insecticide Fungicide and
Rodenticide Act, the Federal Emergency Planning and Community Right to Know Act,
the Federal Hazard Communication Act, the Federal Occupational Safety and Health
Act, any requirements promulgated pursuant to these Applicable Laws, amendments,
or restatements thereof or similar enactments thereof, as is now or at any time
hereafter may be in effect, or any analogous foreign, state or local Applicable
Laws.
"Environmental Liabilities" means all Liabilities of a Person (whether
such Liabilities are owed by such Person to Governmental Authorities, third
parties, or otherwise) whether currently in existence or arising hereafter which
arise under or relate to any Environmental Law.
"Environmentally Regulated Material" means any element, compound,
waste, pollutant, contaminant, substance, material or any mixture thereof: (a)
the presence of which requires investigation or remediation under any Applicable
Law; (b) that is defined as a "hazardous waste" or "hazardous substance," or
chemicals known to cause cancer or reproductive toxicity under any Applicable
Law; (c) that is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic or mutagenic or otherwise hazardous and is regulated
by any Governmental Authority having or asserting jurisdiction over the Company;
(d) the presence of which causes a nuisance, trespass or other tortious
condition; (e) the presence of which poses a hazard to the health or safety of
Persons; (f) without limitation, that contains gasoline, diesel fuel or other
petroleum hydrocarbons, polychlorinated biphenols (PCBs) or asbestos, (g) that
gives rise to any exposure prohibition or warning requirement under any
Environmental Law; or (h) that is otherwise regulated in any way under any
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" of any Person means any other Person that, together
with such Person as of the relevant measuring date under ERISA or the Code, was
or is required to be treated as a single employer under Section 414 of the Code
or Section 4001(b)(1) of ERISA.
"Escrow Agent" shall have the meaning set forth in Section 2.12.
"Escrow Agreement" means the agreement to be entered into by and among
Parent, the Company, the Principal Stockholders and the Escrow Agent, pursuant
to which a portion of the Initial Merger Consideration will be held in escrow in
accordance with Section 2.10(e).
"Exchange Agent" shall have the meaning set forth in Section 2.12.
"FDA" means the United States Food and Drug Administration.
"GAAP" means generally accepted accounting principles in the United
States.
3
<PAGE> 9
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"Group Health Plan" means any group health plan, as defined in Section
5000(b)(1) of the Code.
"Holdback Merger Consideration" shall have the meaning set forth in
Section 2.8(b).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"IRS" means the Internal Revenue Service.
"IMT Subsidiary" means Influence Medical Technologies Ltd., a company
organized under the laws of the State of Israel and a wholly owned subsidiary of
the Company.
"Initial Merger Consideration" shall have the meaning set forth in
Section 2.8(a).
"Knowledge" shall mean, with respect to the Company or any of its
Subsidiaries, the knowledge of the members of the Board of Directors and the
knowledge after due inquiry of the senior officers of the Company.
"Liability" or "Liabilities" means any liabilities, obligations or
claims of any kind whatsoever whether absolute, accrued or unaccrued, fixed or
contingent, matured or unmatured, asserted or unasserted, known or unknown,
direct or indirect, contingent or otherwise and whether due or to become due,
including without limitation any foreign or domestic tax liabilities or deferred
tax liabilities incurred in respect of or measured by the Company's or any
Subsidiary's income, or any other debts, liabilities or obligations relating to
or arising out of any act, omission, transaction, circumstance, sale of goods or
services, state of facts or other condition which occurred or existed on or
before the date hereof, whether or not known, due or payable, whether or not the
same is required to be accrued on the financial statements or is disclosed on
the Disclosure Schedule.
"Lien" means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance, adverse claim or charge of any kind in respect of such asset.
"Loans" means all indebtedness to third parties for borrowed money owed
by the Company or any of its Subsidiaries, together with any accrued and unpaid
interest thereon.
"Material Adverse Effect" means an individual or cumulative adverse
change in or effect on the business, customers, customer relations, operations,
properties, working capital condition (financial or otherwise), assets,
properties or liabilities of the Company or any of its
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<PAGE> 10
Subsidiaries which (a) is reasonably expected to be materially adverse to the
business, properties, working capital condition (financial or otherwise),
assets, or liabilities of the Company or any of its Subsidiaries taken as a
whole or (b) would prevent the Company, any of its Subsidiaries or any of the
Principal Stockholders from consummating the transactions contemplated hereby.
"Merger Consideration" means the aggregate consideration that becomes
payable to the Stockholders under this Agreement.
"No-Tac" means the product which is designed by the Company to create
an arc-like cavity in the pubic bone passing the suture through the bone cavity
as part of a transvaginal delivery system in a minimally invasive procedure, as
generally described in Israeli Patent Application Serial No. 130307, filed June
4, 1999, entitled "Bone Suturing Device."
"Pension Plan" means an "employee pension benefit plan" as such term is
defined in Section 3(2) of ERISA.
"Permitted Liens" means (a) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for Taxes
the validity of which are being contested in good faith by appropriate
proceedings; (b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; (c) Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other similar agreements;
(d) Liens and Encumbrances specifically identified in the Latest Audited Balance
Sheet; (e) Liens securing executory obligations under any lease that constitutes
an "operating lease" under GAAP; and (f) other Liens set forth on the Disclosure
Schedule; provided, however, that, with respect to each of clauses (a) through
(e), to the extent that any such Lien on any of the Company's or its
Subsidiaries' assets arose prior to the date of the Latest Audited Balance Sheet
and relates to, or secures the payment of, a Liability that is required to be
accrued for under GAAP, such Lien shall not be a Permitted Lien unless all such
Liabilities have been fully accrued or otherwise reflected on the Latest Audited
Balance Sheet. Notwithstanding the foregoing, no Lien arising under the Code or
ERISA with respect to the operation, termination, restoration or funding of any
Benefit Plan sponsored by, maintained by or contributed to by the Company or any
of its ERISA Affiliates or arising in connection with any excise tax or penalty
tax with respect to such Benefit Plan shall be a Permitted Lien.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, estate or other entity or organization,
including a Governmental Authority.
"Plan Affiliate" means, with respect to any Person, any Benefit Plan
sponsored by, maintained by or contributed to by such Person, and with respect
to any Benefit Plan, any Person sponsoring, maintaining or contributing to such
plan or arrangement.
"Pro Rata Share," with respect to each share of Company Common Stock
and Company Preferred Stock, shall mean a portion of the Merger Consideration or
Stockholder Expenses determined as follows:
(A) when used in reference to a share of Company Common Stock
shall mean:
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<PAGE> 11
(1) with respect to Initial Merger Consideration and
the Contingent Consideration, a fraction equal to one divided
by the total number of shares of Company Common Stock
outstanding immediately prior to the Effective Time
("Outstanding Common Stock"); and
(2) with respect to Holdback Consideration, a
fraction equal to the quotient of (x) one divided by (y) the
sum of Outstanding Common Stock and the total number of shares
of Company Common Stock issuable upon conversion of all
outstanding shares of Preferred Stock into Company Common
Stock ("Total Outstanding Shares"); and
(B) when used in reference to a share of Company Preferred
Stock shall mean, with respect to Holdback Consideration, a fraction
equal to the quotient of one divided by Total Outstanding Shares; and
(C) when used in reference to a portion of Stockholder
Expenses attributable to a share of Company Common Stock or Company
Preferred Stock, a fraction equal to the quotient of one divided by
Total Outstanding Shares.
"Reference Rate" means the London Interbank Offered Rate for three
month deposits in United States dollars publicly announced from time to time by
Chase Manhattan Bank. Any change in the Reference Rate shall take effect at the
opening of business on the day specified in the public announcement of such
change. Notwithstanding the foregoing, in no event shall the rate of interest
payable by any party hereto under this Agreement exceed the maximum rate
permitted by Applicable Law with respect to such payments under this Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Scheduled Contracts" shall have the meaning set forth in Section
3.13(a).
"Shares" means shares of Company Common Stock and Company Preferred
Stock.
"Staple-Tac" means the product which is designed by the Company to
place an anchor in the pubic bone which is used to attach a sling material with
a fixation of the sling to the anchor without the use of sutures using a
transvaginal delivery system in a minimally invasive procedure, as generally
described in the 510(k) application number K992277 filed with the FDA and in
Israeli Patent Application Serial No. 127,978, filed January 8, 1999, entitled
"Incontinence Device."
"Stockholders" means the Persons who hold of record immediately prior
to the Effective Time the Company Common Stock and Company Preferred Stock.
"Stockholder Expenses" mean expenses to be borne by the Stockholders
pursuant to Section 11.3 or otherwise as authorized and approved by the
Stockholders' Representatives.
"Stockholders' Representatives" has the meaning set forth in Section
11.13.
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"Subsidiary" or "Subsidiaries" mean each corporation or other legal
entity as to which more than fifty percent (50%) of the outstanding equity
securities having ordinary voting rights or power at the time of determination
is being made is owned or controlled, directly or indirectly, by the Company.
"Tax" or "Taxes" means all taxes imposed of any nature including
federal, state, local or foreign net income tax, alternative or add-on minimum
tax, profits or excess profits tax, franchise tax, gross income, adjusted gross
income or gross receipts tax, employment related tax (including employee
withholding or employer payroll tax, FICA or FUTA), real or personal property
tax or ad valorem tax, sales or use tax, excise tax, stamp tax or duty, any
withholding or back up withholding tax, value added tax, severance tax,
prohibited transaction tax, premiums tax, environmental tax, intangibles tax or
occupation tax, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Authority (domestic or foreign)
responsible for the imposition of any such tax. The term Tax shall also include
any Liability of the Company or the Subsidiaries for the Taxes of any other
Person under U.S. Treasury Regulations Section 1.1502-6 (or similar provisions
of state, local or foreign law), as a transferee or successor by contract or
otherwise.
"Tax Return" means all returns, declarations, reports, estimates,
forms, information returns and statements or other information required to be
filed with respect to any Tax.
"U.S. Government" means the United States Government, including any
agencies, commissions, branches, instrumentalities and departments thereof.
"Welfare Plan" means an "employee welfare benefit plan" as such term is
defined in Section 3(1) of ERISA (including without limitation a plan excluded
from coverage by Section 4 of ERISA).
ARTICLE 2
THE MERGER; CONVERSION OF SHARES
2.1 The Merger. At the Effective Time (as defined below) and upon the terms
and subject to the conditions of this Agreement and in accordance with
the Delaware General Corporation Law (the "DGCL"), Merger Subsidiary
shall be merged with and into the Company, and following the merger,
the Company shall continue as the surviving corporation (the "Surviving
Corporation"), the separate corporate existence of Merger Subsidiary
shall cease and the Surviving Corporation shall continue to be governed
by the laws of the State of Delaware (the "Merger").
2.2 Effective Time. Subject to the terms and conditions set forth in this
Agreement, on the Closing Date (as defined below) the Company and
Merger Subsidiary will file, or cause to be filed, with the Secretary
of State of the State of Delaware a Certificate of Merger (the
"Certificate of Merger"), in the form as required by, and executed and
acknowledged in accordance with, the applicable provisions of the DGCL,
and will be substantially in the form attached hereto as Exhibit A. The
Merger shall become effective at the date and time the Certificate of
Merger is filed or, if agreed to by the Parent and the Company, such
later date or time set forth in the Certificate of Merger (the
"Effective Time").
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2.3 Closing of the Merger. Unless this Agreement shall have been terminated
and the transactions contemplated herein abandoned pursuant to Article
8 hereof, the closing of the Merger (the "Closing") will take place on
December 9, 1999 (the "Closing Date"), provided that all of the
conditions to closing set forth in Articles 6 and 7 have been satisfied
or waived by the party or parties entitled to waive the same, at 10:00
a.m., local time, at the offices of Oppenheimer, Wolff & Donnelly LLP,
45 South Seventh Street, Suite 3400, Minneapolis, Minnesota 55402,
unless another time, date, place or manner (e.g., by telecopy exchange
of signature pages with originals to follow by overnight delivery) is
agreed to in writing by the parties hereto; provided, however, that
that in no event shall the Closing occur later than January 31, 2000
(the "Termination Date").
2.4 Effects of the Merger. The Merger shall have the effects set forth in
the DGCL. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time all the properties, rights, privileges,
powers and franchises of the Company and Merger Subsidiary shall vest
in the Surviving Corporation and all debts, liabilities and duties of
the Company and Merger Subsidiary shall become the debts, liabilities
and duties of the Surviving Corporation.
2.5 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation set forth in the Certificate of Merger shall be the
Certificate of Incorporation of the Surviving Corporation after the
Effective Time until thereafter amended in accordance with Applicable
Law. The bylaws of Merger Subsidiary in effect at the Effective Time
shall be the bylaws of the Surviving Corporation until thereafter
amended in accordance with Applicable Law.
2.6 Directors. The directors of Merger Subsidiary at the Effective Time
shall be the initial directors of the Surviving Corporation, each to
hold office in accordance with the Certificate of Incorporation and
bylaws of the Surviving Corporation until such director's successor is
duly elected or appointed and qualified.
2.7 Officers. The officers of Merger Subsidiary at the Effective Time shall
be the initial officers of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and bylaws
of the Surviving Corporation until such officer's successor is duly
elected or appointed and qualified.
2.8 Merger Consideration. Subject to adjustment pursuant to Section 2.8(a),
the Side Letter, as defined in Section 2.8(b), Section 2.10 (Contingent
Merger Consideration), Section 2.12 (Dissenting Shares) and Section 9.6
(Right of Off-Set), the consideration to be paid for all of the Company
Common Stock and Company Preferred Stock issued and outstanding
immediately prior to the Effective Time will consist of Forty-Six
Million U.S. Dollars ($46,000,000), which shall be payable as follows:
(a) Twenty-Five Million U.S. Dollars ($25,000,000), less the sum
of (A) all Loans outstanding at the Effective Time, (B) an
amount equal to fifty percent (50%) of all outstanding and
unpaid accounts payable that are as of five (5) Business Days
prior to the Closing Date more than 60 days past due or that
relate to services that were performed more than 90 days prior
to the Closing Date, all of which are, or
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<PAGE> 14
will be, listed on Schedule 3.11(b) of the Disclosure
Schedule; provided, however, if that such accounts payable are
greater than $400,000, then an amount equal to the positive
difference of (x) all outstanding and unpaid accounts payable
that are as of five (5) Business Days prior to the Closing
Date more than 60 days past due or that relate to services
that were performed more than 90 days prior to the Closing
Date minus (y) $200,000, (C) all fees and expenses associated
with terminating the Investment Agreement, dated August 17,
1998, between the Company and Johnson & Johnson Development
Corporation and the Distribution Agreement, dated August 17,
1998, among the Company, IMT Subsidiary, and Indigo Medical,
Incorporated (collectively, the "J & J Agreements") and (D)
the consideration that would have been payable to Dissenting
Shareholders (as defined below) if they had not perfected
their rights as Dissenting Shareholders will be payable at the
Effective Time (the "Initial Merger Consideration") to the
Exchange Agent for distribution to the Stockholders in
accordance with the terms of the Escrow Agreement.
(b) Up to Eleven Million U.S. Dollars ($11,000,000) will be
payable to the extent, but only to the extent, set forth in
the letter agreement, dated the date hereof (the "Side
Letter"), among the parties, and in accordance with the terms
of the Escrow Agreement (the "Holdback Merger Consideration").
(c) Up to Ten Million U.S. Dollars ($10,000,000) will be payable
to the extent, but only to the extent, set forth in Section
2.10 and will be payable to the holders of Company Common
Stock and former Optionholders (as defined below) in
accordance with the terms of Section 2.9 and the Escrow
Agreement (the "Contingent Merger Consideration").
(d) Assuming an aggregate adjustment to the Initial Merger
Consideration and Stockholder Expenses of $3,000,000 and based
on the number of shares of Company Common Stock and Company
Preferred Stock outstanding on the date hereof (and the number
of shares of Company Common Stock estimated by the Company to
be issued immediately prior to the Effective Time of the
Merger in connection with the exercise or cancellation of
Company Stock Options (as defined below): (i) the maximum
aggregate per share amount that could be paid to the holders
of Company Common Stock and holders of Company Stock Options
is $4.49 per share of Company Common Stock, consisting of
Initial Merger Consideration of $2.16 per share of Company
Common Stock, Holdback Merger Consideration of up to $1.15 per
share of Company Common Stock and Contingent Merger
Consideration of up to $1.18 per share of Company Common
Stock; and (ii) the maximum aggregate per share amount that
could be paid to the holders of Company Preferred Stock is
$7.00 per share of Company Preferred Stock, consisting of
Initial Merger Consideration of $5.21 per share of Company
Preferred Stock and Holdback Merger Consideration of up to
$1.79 per share of Company Preferred Stock. If, however, the
number of shares of Company Common Stock or Company Preferred
Stock changes or is inaccurate in any way, the per share
merger consideration amount will be adjusted, but in no event
will
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<PAGE> 15
the aggregate merger consideration be increased to more than
Forty-Six Million U.S. Dollars ($46,000,000).
2.9 Cancellation and Conversion of Company Securities at the Effective
Time. As of the Effective Time, by virtue of the Merger and without any
action on the part of any holder of any share of capital stock of the
Company or Merger Subsidiary:
(a) Subject to the terms and conditions of Section 2.12, each
share of Company Common Stock, issued and outstanding
immediately prior to the Effective Time (other than (1)
Company Common Stock held in the Company's treasury or by any
of the Company's Subsidiaries, (2) Company Common Stock held
by Parent, Merger Subsidiary or any other Subsidiary of
Parent, and (3) Dissenting Shares) shall automatically be
converted into the right to receive (x) a Pro Rata Share of
the Initial Merger Consideration, (less the amount of such
Initial Merger Consideration payable, before expenses, to
holders of Company Preferred Stock pursuant to Section 2.9(b)
below) and (y) a Pro Rata Share of any Holdback Merger
Consideration and Contingent Merger Consideration, if any,
which becomes payable under this Agreement, less any portion
of the Contingent Merger Consideration off-set by Parent
pursuant to Section 9.6, and, in each case, less a Pro Rata
Share of any Stockholder Expenses;
(b) Subject to the terms and conditions of Section 2.12, each
share of Company Preferred Stock, issued and outstanding
immediately prior to the Effective Time (other than (1)
Preferred Stock held in the Company's treasury or by any of
the Company's Subsidiaries, (2) Company Preferred Stock held
by Parent, Merger Subsidiary or any other Subsidiary of
Parent, and (3) Dissenting Shares) shall automatically be
converted into the right to receive (x) a portion of the
Initial Merger Consideration equal to the greater of (I)
$5.00, or (II) an amount equal to the product of (a) 1.56
multiplied by (b) an amount equal to (1) the sum of the
Initial Merger Consideration plus the Contingent Merger
Consideration (assuming that 100% of the Contingent Merger
Consideration is earned), multiplied by (2) a fraction, the
numerator of which is one and the denominator of which is the
number of Total Outstanding Shares, and (y) a Pro Rata Share
of any Holdback Merger Consideration, if any, which becomes
payable in accordance with this Agreement, and, in each case,
less a Pro Rata Share of any Stockholder Expenses;
(c) Each outstanding option evidencing the right to purchase
Company Common Stock immediately prior to the Effective Time
as set forth in the Capitalization Certificate (as defined
below) (a "Company Stock Option" or collectively "Company
Stock Options") issued pursuant to any Company Stock Option
Plan shall be cancelled and shall be validly exercised by the
holder of such Company Stock Option or shall be converted into
and exchanged for the number of shares of Company Common Stock
that would be issuable to the holder of such Company Stock
Option upon a cashless exercise of such Company Stock Option
calculated on a basis determined by the Board of Directors of
the Company to be fair to such holders of Company Stock
Options. Except as otherwise agreed to in writing by the
parties hereto, the Company Stock Option Plans and any other
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<PAGE> 16
plan, program or arrangement providing for the issuance or
grant of any interest in respect of the capital stock of the
Company shall terminate as of the Effective Time, and the
Company shall ensure that following the Effective Time no
holder of a Company Stock Option (an "Optionholder or
collectively "Optionholders") shall have any right thereunder
to acquire any equity securities of the Company, Parent or
Merger Subsidiary.
(d) Each share of the common stock, par value $.01 per share, of
Merger Subsidiary ("Merger Subsidiary Common Stock"), issued
and outstanding at the Effective Time of the Merger shall be
converted into one share of common stock, par value $.001 per
share, of the Surviving Corporation ("Surviving Corporation
Common Stock").
(e) Each share of Company Common Stock and Company Preferred Stock
held in the treasury of the Company and each share of Company
Common Stock and Company Preferred Stock held by Parent,
Merger Subsidiary or any Subsidiary of Parent, Merger
Subsidiary or the Company immediately prior to the Effective
Time will, by virtue of the Merger and without any action on
the part of Merger Subsidiary, the Company or the holder
thereof, be canceled, retired and cease to exist without
payment of any consideration therefore and without any
conversion thereof.
2.10 Contingent Merger Consideration. Subject to the Parent's and Surviving
Corporation's right to offset, if any, pursuant to Section 9.6, against
any Contingent Merger Consideration amounts otherwise due and owing the
holders of Company Common Stock (other than Dissenting Shares) under
this Section 2.10, the Parent shall pay, at the times set forth below,
to the Exchange Agent or the Escrow Agent, as the case may be, for
distribution to the Stockholders in accordance with the terms and
conditions of the Escrow Agreement the amounts set forth in this
Section 2.10, less any amount that would have been payable to
Dissenting Shareholders if they had not perfected their rights as
Dissenting Shareholders (the "Contingent Purchase Price Amount"),
following completion, to the Principal Stockholder's and Parent's
reasonable satisfaction, of the milestones (the "Milestones") set forth
in this Section 2.10. The Parent, the Company and the IMT Subsidiary
shall at all relevant times use reasonable efforts to cooperate with
and assist the Company, the IMT Subsidiary, the Principal Stockholders,
the Stockholders' Representatives or the listed individual, as
applicable, to enable such person to achieve the Milestones in a timely
manner, and each of the Parent, the Company and the IMT Subsidiary
shall use reasonable efforts to take such actions, including actively
pursuing regulatory exemptions, clearances and approvals. Parent shall
provide the Stockholders' Representatives with reasonable notice as
soon as practicable but in any event no later than ten (10) Business
Days prior to the determination date or deadline for the satisfaction
of any Milestone described in this Section 2.10 of any deficiency known
to Parent in the satisfaction of such milestone.
(a) One Million U.S. Dollars ($1,000,000) upon (i) completion of
the Staple-Tac product design which shall be capable of being
manufactured in commercial quantities and sold as a
commercially viable product including, but not limited to,
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<PAGE> 17
commercialization free of claims for infringement of third
party intellectual property rights, (ii) receipt of feedback
from at least three (3) key physicians, who shall be mutually
selected by Parent and either Mordechay Beyar, M.D., ("Beyar")
or Oren Globerman, ("Globerman"), after testing the Staple-Tac
product on an aggregate of at least ten (10) patients to the
effect that that product is satisfactory for its intended use
without further material design changes and (iii) receipt by
Parent or Company of FDA clearance or approval to market the
Staple-Tac product in the U.S. All of the foregoing shall be
completed within six (6) months of the Closing Date, provided
that if Parent requests additional design changes, such
completion date may be extended by the Stockholders'
Representatives for a reasonable period of time in order to
complete requested design changes, but in no event shall such
completion date be extended beyond January 31, 2001.
(b) One Million U.S. Dollars ($1,000,000) upon (i) completion of
the No-Tac product design which shall be capable of being
manufactured in commercial quantities and sold as a
commercially viable product including, but not limited to,
commercialization free of claims for infringement of third
party intellectual property rights, (ii) receipt of feedback
from at least three (3) key physicians, who shall be mutually
selected by Parent and either Beyar or Globerman, after
testing the No-Tac product on an aggregate of at least ten
(10) patients to the effect that that product is satisfactory
for its intended use without further material design changes
and (iii) receipt by Parent or Company of FDA exemption
status, clearance or approval to market the No-Tac product in
the U.S. All of the foregoing shall be completed within six
(6) months of the Closing Date, provided that if Parent
requests additional design changes, such completion date may
be extended by the Stockholders' Representatives for a
reasonable period of time in order to complete requested
design changes, but in no event shall such completion date be
extended beyond January 31, 2001.
(c) For each of the following Milestones successfully completed,
to the Principal Stockholders' Representatives and Parent's
reasonable satisfaction, by the respective completion date set
forth below, the Parent will pay to the Exchange Agent or the
Escrow Agent, as the case may be, for distribution to the
Stockholders in accordance with the terms and conditions of
the Escrow Agreement, Five Hundred Thousand U.S. Dollars
($500,000) (an aggregate of $4,000,000 if all of the following
Milestones are successfully completed by their respective
completion dates) within 30 days of completion of each such
Milestone; provided, however, in no event will a payment be
due with respect to a Milestone under this Section 2.10(c)
that is not completed by its respective completion date:
(i) On or before December 31, 1999, Parent shall have
received from the Company's current research and
development staff design history files, design
documentation and regulatory filings, correspondence
and approvals (to the extent received) on all of the
Company's current products, whether commercially
available or under development.
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(ii) On or before December 31, 1999, Parent shall have
received from the Company's current research and
development staff documentation of all of its current
intellectual property ideas including, but not
limited to, patents granted, pending and/or in
process of submission.
(iii) Following completion of the Milestones in (i) and
(ii) above and on or before March 31, 2000, Beyar and
Globerman, will have cross-trained the Parent's
research and development personnel on all of the
Company's research and development projects and
current products through a five-day visit to the
Parent's headquarters in Minnetonka, Minnesota, all
reasonable expenses of such visit to be paid by
Parent.
(iv) Prior to the Closing Date, the Company shall have
provided to Parent in writing a list of all
salespersons, regional managers, and clinical
specialists and technicians currently involved with
selling the Company's products and shall provide the
Parent with an indication of which of those persons
the Company believes Parent should retain and suggest
methods to retain such persons. Such list shall also
provide Parent reasonable detail on all such persons'
capabilities and sensitivities.
(v) Prior to or within forty-five (45) days after the
Closing Date, Peter A. Bick, M.D., the Chief
Executive Officer and President of the Company
("Bick") or Ric Cote, the Company's Director of Sales
("Cote") shall have completed in person meetings with
each of the Company's salespersons, regional
managers, and clinical specialists and technicians
(collectively, the "Sales Personnel") identified by
the Parent on Exhibit B attached to this Agreement
(the "Parent Retention List") and, subject to prior
review by the Company, deliver the Parent's
"retention message" resulting in the retention of at
least 50% of the Sales Personnel identified on the
Parent Retention List six months after the Effective
Time. If Parent terminates for performance reasons
any of the Sales Personnel on the Parent Retention
List, the percentage retained shall be calculated as
if such person was not initially included on the
Parent Retention List. However, there will be no
obligation to retain Sales Personnel as of six months
after the Effective Time who are not offered
reasonably obtainable target compensation goals of
approximately $100,000 - $110,000 for the year 2000.
(vi) The Company's personnel will be actively involved in
planning and conducting, at Parent's expense, two
domestic and one international training seminars of
the Parent's sales force on the Company's current
products. Such training seminars must be completed by
January 31, 2000, if Parent holds sales meeting by
such date, or by such later date as Parent holds
sales meetings, but no later than March 31, 2000. In
order to complete this Milestone, however, Beyar must
attend, at Parent's request, at least one United
States and one international training seminar.
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(vii) Beyar will be available to travel, at Parent's
expense, in the United States and internationally to
meet with key customers, for such number of days, not
to exceed ten (10) business days, as Parent may
reasonably request with reasonable prior notice
during the period beginning on the Closing Date and
ending on January 31, 2001.
(viii) The Parent or the Company will have filed U.S.
patents for the Staple-Tac and No-Tac products with
material claims that are reasonably satisfactory to
Parent's patent counsel and Globerman. The Parent or
the Company shall file these patents at a mutually
agreed upon time, but not later than December 31,
1999.
(d) For each of the following Milestones successfully completed,
to the Principal Stockholder's and Parent's reasonable
satisfaction, by January 31, 2001, the Parent will pay to the
Exchange Agent or the Escrow Agent, as the case may be, for
distribution to the Stockholders in accordance with the terms
and conditions of the Escrow Agreement, Five Hundred Seventy
One Thousand Four Hundred Twenty Eight Dollars ($571,428) (an
aggregate of $4,000,000 if all of the following Milestones are
successfully completed by January 31, 2001) within 30 days of
completion of each such Milestone; provided, however, in no
event will a payment be due with respect to a Milestone under
this Section 2.10(d) that is not completed by January 31,
2001:
(i) Parent shall have received from Beyar and Globerman
all written documentation of all new gynecology and
urology product ideas conceived prior to January 31,
2001. In order to satisfy this Milestone, all such
ideas must be accompanied by reasonable concept
descriptions, a description of the strategic fit of
the idea, and concept drawings. In addition, if
Parent decides to pursue any such ideas, Beyar and
Globerman shall have assisted and cooperated with
Parent in developing prototypes and generating animal
or human data reasonably substantiating the
functionality of such ideas during the period prior
to January 31, 2001.
(ii) At least 75% of Israeli personnel listed on the
Parent Retention List must be retained through
January 31, 2001. However, if Parent or IMT
Subsidiary, with Parent's prior consent, terminates
for performance reasons any person on the Parent
Retention List and is able to replace such person at
no additional compensation cost to Parent or if any
person is terminated by Parent for non-performance
reasons, such replacement will be counted toward the
75% requirement.
(iii) At a minimum, either Beyar or Globerman must attend,
at Parent's expense, and be involved in the Parent's
booth at one annual meeting of each of American
Urological Association, European Association of
Urology, and International Continence Society between
the Effective Time and January 31, 2001.
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(iv) Production of the Company's In-Fast product, as it is
produced on the date hereof, at Parent's facility is
operating in substantial compliance with all Applicable Laws
pertaining to medical devices including, but not limited to,
the United States Food, Drug and Cosmetic Act (the "FDC
Act") and the regulations promulgated thereunder, and the
Good Manufacturing Practices/Quality System Regulations
("GMP/QSR Regulations") promulgated under the FDC Act and
ISO 9001, 9002, EN 29001, 46001 requirements in order to
manufacture the Company's In-Fast product. Prior to transfer
of production of the Company's products to Parent's
facility, the Company shall have continued to manufacture
products in quantities sufficient to meet demand (based on
three month rolling projections of expected demand) without
any material backorders. Notwithstanding the foregoing, this
Milestone shall be deemed to have been achieved if (A)
Parent decides not to transfer production of the Company's
products to Parent's facility by January 31, 2001, (B) the
Company has not had any material backorders prior to January
31, 2001, and (C) Parent's decision not to transfer
manufacturing is not based on the inability to obtain the
foregoing regulatory approvals.
(v) During the two (2) years following the Effective Time, none
of the officers or directors of the Company or any of its
Subsidiaries shall have alone, or in any capacity with
another firm or entity, employed, attempted to employ (by
soliciting or assisting anyone else in the solicitation of)
or engaged as an independent contractor or otherwise any
person who was an employee of the Company or any Subsidiary
on and immediately following the Closing Date. The foregoing
restriction shall not prevent (A) the hiring of any such
employees who are terminated by Parent or by the Company or
the IMT Subsidiary, with the prior written consent of
Parent, after the Closing Date or (B) the hiring of an
employee who voluntarily leaves Parent, the Company or the
IMT Subsidiary, provided that such employees who voluntarily
leave are not hired for a period of nine (9) months, unless
Parent agrees to a shorter period with respect to any
particular employee who voluntarily leaves.
(vi) Beyar, Globerman and Bick, shall be available at the
Parent's prior reasonable request to attend meetings in the
United States, at Parent's expense, and by telephone for the
purpose of resolving any litigation involving Boston
Scientific Corporation ("BSC Litigation"), including
planning and negotiating settlement, until such BSC
Litigation is finally resolved. The Parent will not require
more than ten (10) business days of travel time in the
United States from each such person, and the Parent will pay
all reasonable travel expenses for such persons.
(vii) Beyar, Globerman, Bick and Howard Machek, the Chief
Financial Officer of the Company ("Machek") shall be
available at the Parent's prior reasonable request to attend
meetings or court proceedings in the United States, at
Parent's expense, and by telephone for the purpose of
planning
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and defending any BSC Litigation. Such persons must attend
any and all court proceedings involving any BSC Litigation,
as requested by Parent, including, without limitation, any
depositions of any person, arbitrations, mediations,
settlement conferences, hearings and trials; provided,
however, that Parent will not require more than ten (10)
business days of time in the United States from each such
person (in addition to any days of travel time pursuant to
sub-paragraph (vi) above) to prepare and plan for such court
proceedings. Parent will pay all reasonable travel expenses
for such persons.
(e) Except as described below, any Contingent Purchase Price Amounts
that become payable under this Section 2.10 shall be paid by the
Parent to the Exchange Agent and distributed to the Stockholders
in accordance with the terms and conditions of the Escrow
Agreement. One hundred percent (100%) of the first Two Million
Dollars ($2,000,000) of the Contingent Merger Consideration
earned pursuant to Sections 2.10(c) and (d) and fifty percent
(50%) any additional Contingent Merger Consideration earned
pursuant to Sections 2.10(c) and (d) (the "Escrow Funds") shall
be paid to the Escrow Agent and held in escrow as a nonexclusive
(except as otherwise provided in this Agreement) means to secure
any obligation of the Principal Stockholders or the Stockholders
in respect of any Indemnification Liability, as defined in
Section 9.3; provided that during the term of the Escrow
Agreement, any indemnification or other claim by Parent hereunder
shall be satisfied out of the Escrow Funds in accordance with the
Escrow Agreement before any such claim is made directly against
any Principal Stockholder. The Escrow Funds shall not be
distributed to the Stockholders until eighteen (18) months after
the Effective Time and shall only be distributed in accordance
with the terms and conditions of the Escrow Agreement. In the
event that Parent shall have perfected, prior to the expiration
of such 18 month period, a claim for indemnification pursuant to
Section 9.4, the Stockholders' Representatives and the Parent
shall endeavor in good faith to determine a reasonable estimate
of the maximum amount of such claim and shall instruct the Escrow
Agent to deliver any excess amount of Escrow Funds to the
Exchange Agent for distribution to the Stockholder in accordance
with the Escrow Agreement.
(f) Nothing contained in this Section 2.10 shall be deemed to require
that any individual named in this Section perform any services
except in accordance with all Applicable Laws, including those
related to the transfer of technology from any jurisdiction.
2.11 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any Shares issued and outstanding immediately prior to the
Effective Time that are held by any holder of Shares who has not
voted in favor of the Merger (if entitled to vote) and has
properly exercised and perfected appraisal rights in accordance
with Section 262 of the DGCL (such holders are referred to as
"Dissenting
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<PAGE> 22
Stockholders" and such shares are referred to as "Dissenting
Shares") will not be converted into the right to receive the
Merger Consideration, but will become entitled to the right to
receive such consideration as may be determined to be due to the
holders of such Dissenting Shares pursuant to the DGCL; provided,
however, that any holder of Dissenting Shares who will have
failed to perfect or who effectively will have withdrawn or lost
such rights of appraisal under the DGCL will forfeit the right to
appraisal of such Shares, and such Shares will no longer be
Dissenting Shares and, as of the Effective Time, will be deemed
to have been converted into the right to receive the Merger
Consideration.
(b) The Company will give Parent and Merger Subsidiary prompt notice
of any written demands for appraisal, withdrawals of demands for
appraisal and any other related instruments received by the
Company and, Parent will have the right to participate in all
negotiations and proceedings with respect to such demands. Prior
to the Effective Time, the Company will not, except with the
prior written consent of Parent, make any payment with respect
to, or settle or offer to settle, any such demands.
Notwithstanding anything to the contrary in this Section 2.11 if
(i) the Merger is terminated, rescinded or abandoned or (ii) if
the Stockholders revoke the authority to effect the Merger, then
the right of any Stockholder to be paid the fair value of such
Stockholder's Shares will cease. The Surviving Corporation will
comply with all obligations of the DGCL with respect to
Dissenting Stockholders.
(c) The holders of shares of Parent Common Stock shall not be
entitled to appraisal rights.
2.12 Escrow Procedure; Exchange of Certificates.
(a) Wells Fargo Bank or such other bank as the parties may agree
shall act as the exchange agent (in such capacity, the "Exchange
Agent") and escrow agent (in such capacity, the "Escrow Agent")
pursuant to the Escrow Agreement, for the benefit of the holders
of Company Common Stock and Company Preferred Stock for the
purpose of exchanging certificates which immediately prior to the
Effective Time represented Company Common Stock or Company
Preferred Stock (the "Certificates") for the Merger
Consideration.
(b) At the Closing, Parent shall deposit, or shall cause to be
deposited, with the Exchange Agent pursuant to the Escrow
Agreement, for the benefit of the Stockholders, cash in U.S.
dollars in an amount equal to the Initial Merger Consideration
plus any Contingent Merger Consideration earned by Closing.
(c) To the extent that sums are released by the Exchange Agent to the
Stockholders or the Parent in accordance with this Agreement or
the Escrow Agreement, the pro-rata portion of any accumulated
interest shall be distributed therewith.
(d) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of
Certificates: (i) a letter of transmittal
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<PAGE> 23
(which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery
of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Merger Subsidiary and the
Company may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for a
cash payment of the proper Merger Consideration when and if it
becomes payable under this Agreement. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Merger Subsidiary,
together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in
exchange therefor by check an amount equal to the proper Merger
Consideration when and if it becomes payable under this
Agreement, and the Certificate so surrendered shall forthwith be
canceled. No interest shall be paid or accrued on any Merger
Consideration upon the surrender of any Certificates. In the
event of a transfer of ownership of Company Common Stock or
Company Preferred Stock which is not registered in the transfer
records of the Company, payment of the proper Merger
Consideration when and if it becomes payable under this Agreement
may be paid to a transferee if the Certificate representing such
Company Common Stock or Company Preferred Stock, as applicable,
is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence
that any applicable stock transfer or other taxes required as a
result of such payment to a Person other than the registered
holder of such shares have been paid. Until surrendered and
exchanged as contemplated by this Section 2.12, each Certificate
shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender an amount equal to
the proper Merger Consideration when and if it becomes payable
under this Agreement.
(e) In the event that any Certificate shall have been lost, stolen or
destroyed, the Exchange Agent will, upon the making of an
affidavit of that fact by the holder claiming such Certificate to
have been lost, stolen or destroyed, pay the proper Merger
Consideration as may be required pursuant to this Agreement, but
for the failure to deliver such Certificate to the Exchange
Agent; provided, however, that the Surviving Corporation may, in
its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed
Certificate to deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against
the Surviving Corporation with respect to the Certificate alleged
to have been lost, stolen or destroyed.
(f) The Merger Consideration paid upon the surrender of Certificates
for exchange of Company Common Stock and Company Preferred Stock
in accordance with the terms hereof shall be deemed to have been
paid in full satisfaction of all rights pertaining to such
Company Common Stock and Company Preferred Stock. After the
Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving
Corporation of the Company Common Stock or Company Preferred
Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to
the
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<PAGE> 24
Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article 2, except as otherwise
provided by Applicable Law.
(g) Any portion of the Merger Consideration set aside for
distribution pursuant to this Section 2.12 to any holder of
Company Common Stock or Company Preferred Stock that remains
undistributed to any such holder for four years after the
Effective Time shall be delivered to the Parent, upon demand, and
any such holders who have not theretofore complied with this
Article 2 shall thereafter look only to the Parent for payment of
their claim for any Merger Consideration.
(h) Notwithstanding Section 2.12(e), neither the Surviving
Corporation nor Parent shall be liable to any holder of Company
Common Stock or Company Preferred Stock for any Merger
Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(i) Any amounts of Merger Consideration remaining unclaimed by any
holder of Company Common Stock or Company Preferred Stock four
years after the Effective Time (or such earlier date immediately
prior to such time as such amounts would otherwise escheat to or
become property of any governmental entity) shall to the extent
permitted by Applicable Law, become the property of the Parent
free and clear of any claim or interest of any Person previously
entitled thereto.
2.13 Contributions at Closing. On the Closing Date, Parent shall contribute
an amount to the Company equal to the amount of outstanding Loans and
shall cause the Company to repay the Loans at the Closing. Within 30
days of the Closing Date, Parent shall pay or cause the Company to pay
all accounts payable in respect of which an adjustment to the Initial
Merger Consideration is made pursuant to Section 2.8(a), except for
those accounts with respect to which Parent has a good faith objection,
in which case the amount to be deducted pursuant to Section 2.8(a)
shall be appropriately adjusted.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY and the principal stockholders
As an inducement to Parent and Merger Subsidiary to enter into this
Agreement and to consummate the transactions contemplated herein, the Company
represents and warrants to Parent and Merger Subsidiary, as of the date of this
Agreement and as of the Closing Date, that the statements contained in this
Article 3 are true and correct, and the Principal Stockholders, jointly and
severally, represent and warrant to Parent and Merger Subsidiary, as of the date
of this Agreement and as of the Closing Date, that the statements contained in
Section 3.2(b) are true and correct, in each case except as set forth in (a) the
disclosure schedule attached hereto as Exhibit C which the Company has prepared
and delivered to Parent and Merger Subsidiary prior to the date of this
Agreement (the "Disclosure Schedule") or (b) with respect to Section 3.3 a
certificate of an officer of the Company delivered to Parent (the
"Capitalization Certificate"). The Disclosure Schedule is arranged in sections
corresponding to the sections and subsections of this Article 3, and disclosure
in one section of the Disclosure Schedule shall constitute disclosure
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<PAGE> 25
for all sections of the Disclosure Schedule only to the extent to which the
applicability of such disclosure is reasonably apparent.
3.1 Corporate Organization and Power. The Company and each Subsidiary is a
corporation duly organized, validly existing and in good standing under
the laws of its respective jurisdiction of incorporation, and has all
requisite corporate power and authority, and all governmental licenses,
governmental authorizations, governmental consents and governmental
approvals, required to carry on its business as now conducted and to
own, lease and operate the assets and properties of the Company and
each Subsidiary as now owned, leased and operated. The Company and each
Subsidiary is duly qualified or licensed to do business as a foreign
corporation and is in good standing in every jurisdiction in which the
character or location of its properties and assets owned, leased or
operated by the Company or any Subsidiary or the nature of the business
conducted by the Company or any Subsidiary requires such qualification
or licensing, except where the failure to be so qualified, licensed or
in good standing in such other jurisdiction could not, individually or
in the aggregate, have a Material Adverse Effect on the Company or its
Subsidiaries. The Company has heretofore delivered to Parent complete
and accurate copies of its Certificate of Incorporation and bylaws and
the organizational and governing documents for each Subsidiary, as
currently in effect. Except as set forth in the Disclosure Schedule,
neither the Company nor any Subsidiary, directly or indirectly, owns or
controls or has any capital, equity, partnership, participation or
other ownership interest in any corporation, partnership, joint venture
or other business association or entity, except for the Company's
ownership of its Subsidiaries. The Disclosure Schedule contains a list
of the name and jurisdiction of incorporation of each Subsidiary and
all jurisdictions in which the Company and each Subsidiary is qualified
or licensed to do business. Except as set forth in the Disclosure
Schedule, in the case of each Subsidiary: (i) all outstanding capital
stock and other equity securities are owned or controlled directly or
indirectly by Company free and clear of all Liens; (ii) there are no
contractual or consensual limitations on Company's ability to vote or
alienate such securities; (iii) there are no outstanding options,
warrants or other rights to purchase or acquire securities of such
Subsidiary; (iv) there are no other contractual or consensual charges
or impediments which would materially limit or impair the ownership of
such equity interests or the ability effectively to exercise the full
rights of ownership or control of such equity interests, including
without limitation, any voting trusts, voting agreements, or rights of
first refusal or first option; (v) there are no contracts, commitments,
understandings, arrangements or restrictions by which any such
corporation is bound to issue, sell, transfer or to purchase or acquire
any shares of its capital stock or other equity securities or options,
warrants or rights; and (vi) all of the outstanding capital stock of
such corporation is duly authorized, validly issued, fully paid,
nonassessable and was not issued in violation of preemptive rights.
3.2 Authorization.
(a) The Company has the full corporate power and authority to enter
into this Agreement and to carry out the transactions
contemplated herein. The Board of Directors of the Company have
taken, and prior to the Closing the Stockholders will have taken,
all action required by law, the Company's Certificate of
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<PAGE> 26
Incorporation and bylaws and otherwise to duly and validly
authorize and approve the execution, delivery and performance by
the Company of this Agreement and the consummation by the Company
of the transactions contemplated herein and no other corporate
proceedings on the part of the Company or any Subsidiary are, or
will be, necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. The affirmative vote of a
majority of the holders of Company Common Stock is the only vote
of the holders of any class or series of the Company's capital
stock necessary to approve and adopt this Agreement and to
consummate the Merger. This Agreement has been, and the
agreements, if any, required by Article 6 will be, duly and
validly executed and delivered by the Company and constitutes the
legal, valid and binding obligations of the Company, enforceable
against it in accordance with their terms, subject to laws of
general application relating to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights generally and rules of law governing specific
performance, injunctive relief or other equitable remedies.
(b) The Principal Stockholders, and each of them, have the legal
capacity to enter into this Agreement and to carry out the
transactions contemplated herein, including without limitation
the legal capacity to execute, deliver and perform the agreements
or contracts, if any, required by Article 6 to be executed and
delivered by each of them as a condition to Closing. This
Agreement has been, and the agreements, if any, required by
Article 6 will be, duly and validly executed and delivered by the
Principal Stockholders and constitute the legal, valid and
binding obligations of the Principal Stockholders, enforceable
against them in accordance with their terms, subject to laws of
general application relating to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights generally and rules of law governing specific
performance, injunctive relief or other equitable remedies. All
issued and outstanding Shares owned by the Principal Stockholders
are owned (of record and beneficially) solely by each respective
Principal Stockholder in the exact amounts as shown on stock
ledger of the Company previously made available to Parent.
3.3 Capitalization of the Company. The authorized capital stock of the
Company consists of (i) 30,000,000 shares of Company Common Stock,
7,286,679 shares of which are issued and outstanding, and (ii) 850,000
shares of preferred stock, 100,000 shares of which are undesignated,
and 750,000 shares of which are designated as Company Preferred Stock,
713,000 shares of which are issued and outstanding and convertible into
1,112,280 shares of Company Common Stock. All of the issued and
outstanding Shares are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. All issued and outstanding
Shares are owned (of record) solely by the Stockholders in the exact
amounts as shown on the Capitalization Certificate. There are 1,675,963
shares of Company Common Stock issuable upon or otherwise deliverable
in connection with the exercise of outstanding Company Stock Options.
Except as set forth on the Disclosure Schedule, there are outstanding
(i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company or the Subsidiaries
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, (iii) no options, warrants, conversion
privileges, contracts, understandings, agreements or other
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<PAGE> 27
rights to purchase or acquire from the Company, the Subsidiaries or the
Principal Stockholders, and, no obligations of the Company or the
Subsidiaries to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company, and (iv) no equity equivalent interests in
the ownership or earnings of the Company or the Subsidiaries or other
similar rights (collectively, "Company Securities"). Except as set
forth on the Disclosure Schedule, there are no outstanding obligations
of the Company to repurchase, redeem or otherwise acquire any Company
Securities. Except as set forth in the Disclosure Schedule, there are
no stockholder agreements, voting trusts or other agreements or
understandings to which the Company or any Principal Stockholder is a
party or by which they are bound relating to the voting or registration
of any shares of capital stock of the Company.
3.4 Non-Contravention. Except as set forth in the Disclosure Schedule,
neither the execution, delivery and performance by the Company or
Principal Stockholders of this Agreement nor the consummation of the
transactions contemplated herein will (i) contravene or conflict with
the Certificate of Incorporation or bylaws of the Company or any
charter documents or bylaws of any Subsidiary, (ii) except as would not
have a Material Adverse Effect, contravene or conflict with or
constitute a violation of any provision of any Applicable Law binding
upon or applicable to the Company, any Subsidiary, the Principal
Stockholders, or any of the Company's or Subsidiary's assets; (iii)
result in the creation or imposition of any Lien on any of the
Company's or Subsidiary's assets, other than Permitted Liens or (iv) be
in conflict with, constitute (with or without due notice or lapse of
time or both) a default under, result in the loss of any material
benefit under, or give rise to any right of termination, cancellation,
increased payments or acceleration under any terms, conditions or
provisions of any note, bond, lease, mortgage, indenture, license,
contract, franchise, permit, instrument or other agreement or
obligation to which the Company, any Subsidiary or any Principal
Stockholders is a party, or by which any of their respective properties
or assets may be bound.
3.5 Consents and Approvals. Except as set forth in the Disclosure Schedule
and subject to the approval of the Stockholders, no consent, approval,
order or authorization of or from, or registration, notification,
declaration or filing with (hereinafter sometimes separately referred
to as a "Consent" and sometimes collectively as "Consents") any
individual or entity, including without limitation any Governmental
Authority or Person, is required in connection with the execution,
delivery or performance of this Agreement by the Company or any
Principal Stockholder or the consummation by the Company or any
Principal Stockholder of the transactions contemplated herein. The
Company is the "acquired person" within the meaning of Rule 801.2(b)
promulgated pursuant to the HSR Act and does not within the meaning of
Rule 801.1 of the HSR Act directly or indirectly control (as defined in
Rule 801.1(b)) any entities, trusts, partnerships or other business
organizations. The Company had total assets as of the date of its last
regularly prepared balance sheet (as determined in accordance with Rule
801.11 of the HSR Act) of less than Ten Million Dollars ($10,000,000)
and annual net sales for its most recent fiscal year (as determined in
accordance with Rule 801.11 of the HSR Act) of less than Ten Million
Dollars ($10,000,000). To the knowledge of the Company, there are no
facts
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relating to the identity or circumstances of the Company that would
prevent or materially delay obtaining any of the Consents.
3.6 Financial Statements; Undisclosed Liabilities
(a) The Company has previously provided Parent with, or Parent has
otherwise obtained, true and complete copies of the audited
balance sheets and related statements of operations and cash
flows for the Company and the Subsidiaries as of and for the
fiscal years ended December 31, 1996 and 1997 (collectively, the
"1996 and 1997 Financial Statements"). At least five (5) days
prior to the Closing Date, the Company shall deliver to Parent
(i) the audited balance sheets and related statements of
operations and cash flows for the Company and the Subsidiaries as
of and for the for fiscal year ended December 31, 1998 and the
six (6) month period ended June 30, 1999 (collectively, the "1998
and 1999 Financial Statements") and (ii) unaudited balance sheets
and related statements of operations and cash flows for the
Company and the Subsidiaries as of and for the quarter ended
September 30, 1999 (the "Interim Financial Statements"). All of
the foregoing audited financial statements are collectively
referred to as the "Financial Statements" and, the June 30, 1999
audited balance sheet is referred to herein as the "Latest
Audited Balance Sheet."
(b) Each of the 1996 and 1997 Financial Statements (i) has been
prepared based on the books and records of the Company and the
Subsidiaries in accordance with GAAP and the Company's normal
accounting practices, consistent with past practice and with each
other, and present fairly the financial condition, results of
operations of the Company as of the dates indicated or for the
periods indicated; (ii) contains and reflects all necessary
adjustments, accruals, provisions and allowances for a fair
presentation of its financial condition and the results of its
operations for the periods covered by 1996 and 1997 Financial
Statements; (iii) to the extent applicable, contains and
reflects, if and to the extent required by GAAP, adequate
provisions for all reasonably anticipated liabilities for all
Taxes with respect to the periods then ended and all prior
periods; and (iv) with respect to contracts and commitments for
the sale of goods or the provision of services by the Company,
contains and reflects, if and to the extent required by GAAP,
adequate reserves for all reasonably anticipated losses and costs
and expenses in excess of expected receipts.
(c) The 1998 and 1999 Financial Statements and the Interim Financial
Statements (i) will be prepared based on the books and records of
the Company and the Subsidiaries in accordance with GAAP and the
Company's normal accounting practices, consistent with past
practice and with each other, and will present fairly the
financial condition, results of operations of the Company as of
the dates indicated or for the periods indicated; (ii) will
contain and reflect all necessary adjustments, accruals,
provisions and allowances for a fair presentation of its
financial condition and the results of its operations for the
periods covered by the 1998 and 1999 Financial Statements and the
Interim Financial Statements; (iii) to the extent applicable,
will contain and reflect, if and to the extent required by
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<PAGE> 29
GAAP, adequate provisions for all reasonably anticipated
liabilities for all Taxes with respect to the periods then ended
and all prior periods; and (iv) with respect to contracts and
commitments for the sale of goods or the provision of services by
the Company, will contain and reflect, if and to the extent
required by GAAP, adequate reserves for all reasonably
anticipated losses and costs and expenses in excess of expected
receipts.
(d) There are no Liabilities of the Company or any Subsidiary
including Liabilities which may become known or which arise only
after the Closing and which result from acts, omissions or
occurrences of the Company or any Subsidiary prior to the Closing
other than: (i) Liabilities and obligations which are fully
reflected or reserved for in the Latest Audited Balance Sheet;
(ii) Liabilities for express executory obligations to be
performed after the Closing (other than any express executory
obligations that might arise due to any default or other failure
of performance by the Company or any Subsidiary prior to the
Closing Date) under the Scheduled Contracts (as defined below);
(iii) Liabilities incurred by the Company or any Subsidiary in
the ordinary course of business since the Latest Audited Balance
Sheet (none of which results from, arises out of, relates to, is
in the nature of, or was caused by any breach of contract, breach
of warranty, tort, infringement, or violation of Applicable Law);
and (iv) Liabilities disclosed on the Disclosure Schedule.
3.7 Absence of Certain Changes. Except as set forth in the Disclosure
Schedule or as otherwise authorized by this Agreement, since the date
of the Latest Audited Balance Sheet, the Company and each Subsidiary
has owned and operated its assets, properties and businesses in the
ordinary course of business and consistent with past practice. Without
limiting the generality of the foregoing:
(a) neither Company nor any Subsidiary has experienced any change
since the date of the Latest Audited Balance Sheet which has had
a Material Adverse Effect or experienced any event or failed to
take any action which reasonably could be expected to result in a
Material Adverse Effect;
(b) neither Company nor any Subsidiary has suffered any material
loss, damage, destruction of property or assets or other casualty
to property or assets (whether or not covered by insurance);
(c) neither Company nor any Subsidiary has suffered any loss of
officers, directors, employees, dealers, distributors,
independent contractors, customers or suppliers which had or may
reasonably be expected to result in a Material Adverse Effect;
and
(d) no event has taken place which if consummated following the date
hereof would constitute a violation of Section 5.2 of this
Agreement.
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3.8 Assets and Properties.
(a) The Company and each Subsidiary has good and valid right, title
and interest in and to or, in the case of leased properties or
properties held under license, good and valid leasehold or
license interests in, all of its assets and properties,
including, but not limited to, all of the machinery, equipment,
terminals, computers, vehicles, and all other assets and
properties (real, personal or mixed, tangible or intangible)
reflected in the Latest Audited Balance Sheet and all of the
assets purchased or otherwise acquired since the date of the
Latest Audited Balance Sheet, except those assets and properties
disposed of in the ordinary course of business after the date of
the Latest Audited Balance Sheet. Except as disclosed in the
Disclosure Schedule, the Company or each Subsidiary holds title
to each such property and asset free and clear of all Liens,
except Permitted Liens.
(b) Except as disclosed in the Disclosure Schedule, (i) to the
Company's knowledge, the current use and operation of all real
property is in compliance with all Applicable Laws (including
without limitation laws relating to parking, zoning and land use)
and public and private covenants and restrictions, (ii) the
Company has not received notice of non-compliance with any
Applicable Laws and (iii) to the Company's knowledge, the
utilities, access and parking, if any, for each such real
property are adequate for the current use and operation of each
such real property. Except as disclosed in the Disclosure
Schedule, there are no zoning, building code, occupancy
restriction or other land-use regulation proceedings or, to the
knowledge of the Company, any proposed change in any Applicable
Laws, which could materially detrimentally affect the use or
operation of any real property, nor has the Company received any
notice of any special assessment proceedings affecting the real
property, or applied for any change to the zoning or land use
status of the real property. The Company has obtained all
licenses, permits, approvals, easements and rights of way (and
all such items are currently in full force and effect) required
from any Governmental Authority having jurisdiction over each
real property or from private parties for the current use and
operation of each real property. Except as set forth in the
Disclosure Schedule, neither the Company, any Subsidiary nor any
Principal Stockholder is a foreign person, as the term foreign
person is defined in Section 1445(f)(3) of the Code.
3.9 Manufacturing Compliance. All products manufactured and sold by the
Company or any Subsidiary were designed, manufactured, labeled,
packaged and sold in accordance with all Applicable Laws pertaining to
medical devices including, but not limited to, the FDC Act and the
regulations promulgated thereunder, and the GMP/QSR Regulations
promulgated under the FDC Act. Except as set forth in the Disclosure
Schedule, (i) all of the manufacturing facilities of the Company and
the Subsidiaries are in compliance with all GMP/QSR Regulations and ISO
9001, 9002, EN 29001, 46001 requirements and (ii) the Company and each
Subsidiary has obtained all approvals and consents required to mark the
Company's products with the "CE" mark.
3.10 Inventories. Except as set forth in the Disclosure Schedule, all
inventories of the Company and each Subsidiary reflected in the Latest
Audited Balance Sheet (i) consist of
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items of merchantable quality and quantity usable and salable in the
ordinary course of business, (ii) are salable at prevailing market
prices that are not less than the book value amounts thereof or the
price customarily charged by the Company or the applicable Subsidiary
therefor, (iii) conform to the specifications established therefor, and
(iv) have been manufactured in accordance with all Applicable Laws. The
quantities of all inventories, materials and supplies of the Company
and each Subsidiary are not obsolete, damaged, slow-moving, defective
or excessive and the present quantities of all inventory, materials and
supplies of the Company and each Subsidiary are reasonable in the
present circumstances of the business of the Company, as a whole, as
currently conducted, except for items that are obsolete or below
standard quality, all of which are immaterial to the overall financial
condition of the Company, taken as a whole, and have been adequately
reserved for in the Financial Statements.
3.11 Receivables and Payables.
(a) The Disclosure Schedule contains a summary of the receivables
(including an aging schedule of accounts receivables) of the
Company and each Subsidiary and such summary is complete and
accurate as of October 31, 1999, and the listing of all of the
receivables (including an aging schedule of accounts receivables)
of the Company and each Subsidiary as of September 30, 1999
previously provided to the Parent is complete and accurate as of
such date. The Disclosure Schedule will be supplemented pursuant
to Section 5.9 to contain a list of all of the receivables
(including an aging schedule of accounts receivables) of the
Company and each Subsidiary as of the last day of the month
preceding the Closing. Except as set forth in the Disclosure
Schedule, (i) the Company and each Subsidiary has good right,
title and interest in and to all its accounts receivables of any
kind or nature whatsoever whether reflected on the Latest Audited
Balance Sheet or acquired or generated since the date of the
Latest Audited Balance Sheet (except those paid since the date of
the Latest Audited Balance Sheet), (ii) none of such receivables
is subject to any Lien (whether or not of record), except
Permitted Liens, (iii) all of the receivables owing to the
Company and each Subsidiary constitute valid and enforceable
claims arising from bona fide transactions in the ordinary course
of business, and neither the Company nor any Subsidiary has
received any written or oral claims or refusals to pay (as
opposed to ability to pay), or granted any rights of set-off,
against any thereof, (iv) to the knowledge of the Company there
is no reason why any receivable will not be collected in
accordance with its terms, other than for receivables which are
not in excess of the reserves established therefor and reflected
in the Latest Audited Balance Sheet; and (v) no account or note
debtor is delinquent in payment by more than 60 days.
(b) The Disclosure Schedule contains a listing of Loans and all
outstanding and unpaid accounts payable that are as of September
30, 1999 more than 60 days past due or that relate to services
that were performed more than 90 days prior to September 30,
1999. The Disclosure Schedule will be supplemented pursuant to
Section 5.9 to contain a listing of Loans and all such
outstanding and unpaid accounts payable that are as of five (5)
Business Days prior to the Closing Date more than 60 days past
due or that relate to services that were performed more
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than 90 days prior to the Closing Date. All such payables arose
from bona fide transactions in the ordinary course of the
Company's business.
3.12 Litigation. Except as set forth in the Disclosure Schedule, (i) there
are no actions, suits, claims, hearings, arbitrations, proceedings
(public or private) or governmental investigations that have been
brought by or against any Governmental Authority or any other Person
(collectively, "Proceedings"), nor any investigations or reviews by any
Governmental Authority against or affecting the Company or any
Subsidiary, pending or, to the knowledge of the Company, threatened,
against or by the Company or any Subsidiary or any of their assets or
which seek to enjoin or rescind the transactions contemplated by this
Agreement; and (ii) to the knowledge of the Company or any Subsidiary,
there are no existing orders, judgments or decrees of any Governmental
Authority naming the Company or any Subsidiary as an affected party or
otherwise affecting any of the assets or the business of the Company or
any Subsidiary.
3.13 Contracts.
(a) The Disclosure Schedule sets forth a complete list of all
existing Contracts of the Company and the Subsidiaries, including
without limitation the following (collectively, the "Scheduled
Contracts"):
(i) Each Contract relating to all real property in which the
Company or any Subsidiary has a leasehold or other interest
or which is used by Company or any Subsidiary in connection
with the operation of their respective businesses, together
with a description of each lease, sublease, license, or any
other instrument under which the Company or such Subsidiary
claims or holds such leasehold or other interest or right to
the use thereof or pursuant to which the Company or such
Subsidiary has assigned, sublet or granted any rights
therein, such description to be limited to identifying the
parties thereto, the rental or other payment terms,
expiration date and cancellation and renewal terms thereof.
(ii) Each Contract relating to all machinery, tools, equipment,
motor vehicles, rolling stock and other tangible personal
property (other than inventory and supplies) owned, leased
or used by the Company or a Subsidiary, except for items
having a value of less than $10,000 which do not, in the
aggregate, have a total value of more than $25,000, setting
forth with respect to all such listed property a summary
description of all leases, Liens, restrictions, covenants
and conditions relating thereto, identifying the parties
thereto, the rental or other payment terms, expiration date
and cancellation and renewal terms thereof.
(iii) Each Contract to which the Company or any Subsidiary is a
party that could reasonably be expected to involve payments
by or to the Company or any Subsidiary in excess of $25,000,
or would have a Material Adverse Effect, or that was not
made in the ordinary course of business.
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(iv) All Contracts relating to, or evidences of, or guarantees
of, or providing security for, indebtedness or the deferred
purchase price of property (whether incurred, assumed,
guaranteed or secured by any asset).
(v) Every independent sales representative, buy-sell, letter of
credit, OEM, supply, sales, distribution, commission,
manufacturers' representative, dealer, agency, lease,
licensing, franchise, marketing, technical assistance or
similar agreements relating to or providing for the
marketing and/or sale of the products or services,
development, joint development, research and development or
similar Contracts.
(vi) All acquisition, partnership, joint venture, teaming
arrangements or other similar Contracts.
(vii) Each Contract restricting or otherwise affecting the
ability of the Company or any Subsidiary to conduct its
business.
(viii) All Benefit Plans.
(ix) All Contracts with any "disqualified individual" (as defined
in Section 280G(c) of the Code) which contains any severance
or termination pay liabilities which would result in a
disallowance of the deduction for any "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code)
under Section 280G of the Code.
(x) Every Contract between the Company or any Subsidiary and any
of the Company's officers, directors or more than 5%
stockholders, or any entity in which any of the Company's
officers, directors or more than 5% stockholders has a
greater than 2% equity interest.
(xi) All Contract with surgeons, inventors, trainers,
consultants, educators, advisory and clinical agents who
performed or are performing any services related to the
products of the Company and the Subsidiaries, excluding any
such Contracts that are limited to non-disclosure of
confidential information.
(b) The Company has delivered to Parent true and correct copies (or
summaries, in the case of any oral Contracts) of all such
Scheduled Contracts. Except as otherwise specified in the
Disclosure Schedule, none of the Scheduled Contracts contain a
provision requiring the consent of any party with respect to the
consummation of the transaction contemplated herein. No notice of
material default arising under any Scheduled Contract has been
delivered to or by the Company or the Subsidiaries. Each
Scheduled Contract is a legal, valid and binding obligation of
the Company or a Subsidiary, as applicable, and each other party
thereto, enforceable against each such party thereto in
accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally
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and subject to general principles of equity, and neither the
Company, the Subsidiaries or the other party thereto is in
breach, violation or default thereunder.
3.14 Permits. The Disclosure Schedule sets forth all approvals,
authorizations, certificates, consents, licenses, orders and permits
and other similar authorizations of all Governmental Authorities (and
all other Persons) materially necessary for the Company and each
Subsidiary to conduct their respective businesses and own and operate
their respective properties (the "Permits"). Except as set forth in the
Disclosure Schedule, each Permit is valid and in full force and effect
and none of the Permits will be terminated, revoked, modified or become
terminable or impaired in any respect for any reason, except as would
not have a Material Adverse Effect. The Company and each Subsidiary has
conducted its business in compliance with all material terms and
conditions of the Permits.
3.15 Compliance with Applicable Laws. Except as set forth in the Disclosure
Schedule, neither the Company nor any Subsidiary has violated or
infringed, nor is it in violation or infringement of, any Applicable
Law or any order, writ, injunction or decree of any Governmental
Authority in connection with its activities and the activities of each
of its Subsidiaries, except for such violations or infringements which
would not have a Material Adverse Effect. The Company and each
Subsidiary, and each of their respective officers, directors, agents
and employees have complied with all Applicable Laws, including, but
not limited to, Applicable Laws of Israel relating to the design,
development, manufacture, marketing or sale of the products of the
Company except where such failure to comply would not have a Material
Adverse Effect. No claims have been filed against the Company or any
Subsidiary alleging a violation of any Applicable Law.
3.16 Benefit Plans. Except as set forth in the Disclosure Schedule:
(a) Neither the Company nor any Subsidiary sponsors, maintains or
contributes to, or has at any time ever sponsored, maintained,
contributed to or been required to contribute to any Pension
Plan, including, without limitation, solely for purposes of this
subsection, a plan excluded from coverage by Section 4 of ERISA
and, including without limitation any such Pension Plan which is
a "Multiemployer Plan" within the meaning of Section 4001(a)(3)
of ERISA. Each such Pension Plan is in compliance in all material
respects with the applicable provisions of ERISA for which
deadlines for compliance have passed, the applicable provisions
of the Code for which deadlines of compliance have passed and all
other Applicable Law. No Pension Plan is subject to Title IV of
ERISA or to Section 412 of the Code.
(b) Neither the Company nor any Subsidiary has ceased operations at
any facility or withdrawn from any Pension Plan or otherwise
acted or omitted to act in a manner which could subject it to
liability under Section 4062, Section 4063, Section 4064 or
Section 4069 of ERISA and there are no facts of circumstances
which present a material risk of giving rise to any liability of
the Company or any Subsidiary to the Pension Benefit Guaranty
Corporation ("PBGC") under Title IV of ERISA or
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which could reasonably be anticipated to result in any claims
being made against Parent, a Subsidiary or the Company by the
PBGC. Neither the Company nor any Subsidiary has incurred any
withdrawal liability (including without limitation any contingent
or secondary withdrawal liability) within the meaning of Section
4201 and Section 4204 of ERISA to any Multiemployer Plan. Neither
the Company nor any Subsidiary has, with respect to any Pension
Plan which is a Multiemployer Plan, suffered or otherwise caused
a "complete withdrawal" or a "partial withdrawal," as such terms
are defined respectively in Sections 4201, 4203, 4204 and 4205 of
ERISA. The Company and the Subsidiaries, collectively and
individually, had no liability to any such Multiemployer Plan in
the event of a complete or partial withdrawal therefrom as of the
close of the most recent fiscal year of any such Multi-employer
Plan ended prior to the date hereof.
(c) Neither the Company nor any Subsidiary sponsors, maintains,
contributes to, or has at any time ever sponsored, maintained,
contributed to, or been required to contribute to any Welfare
Plan, whether insured or otherwise, and any such Welfare Plan
maintained by the Company is in compliance in all material
respects with the provisions of ERISA and all other Applicable
Laws, including without limitation Code Section 4980B. Neither
the Company nor any Subsidiary has established or contributed to
any "voluntary employees' beneficiary association" within the
meaning of Section 501(c)(9) of the Code.
(d) Except as set forth on the Disclosure Schedule, neither the
Company nor any Subsidiary maintains or contributes to any
Benefit Plans.
(e) Neither any Benefit Plan nor any trust created or insurance
contract issued thereunder nor any trustee or administrator
thereof nor any officer, director or employee of the Company or
any Subsidiary, custodian or any other "disqualified person"
within the meaning of Section 4975(e)(2) of the Code, or "party
in interest" within the meaning of Section 3(14) of ERISA, with
respect to any such Benefit Plans or any such trust or insurance
contract or any trustee, custodian or administrator thereof, or
any disqualified person, party in interest or person or entity
dealing with such Benefit Plans or any such trust, insurance
contract or any trustee has engaged in any conduct that could
reasonably be expected to subject the Company or any Subsidiary
to a tax or penalty on prohibited transactions imposed by Section
4975 of the Code or to a civil penalty imposed by Section 502 of
ERISA. There are no facts or circumstances which could subject
the Company or any Subsidiary to any excise tax under Section
4972 or Sections 4976 through 4980, both inclusive, of the Code.
The Company has complied in all material respects with the
requirements of COBRA with respect to each Welfare Plan which is
a Group Health Plan and there are no facts or circumstances which
could subject the Company or any Subsidiary to any excise tax
under Section 4980B of the Code.
(f) Full payment has been made of all amounts which the Company or
any Subsidiary is required, under Applicable Law, with respect to
any Benefit Plan, or any agreement relating to any Benefit Plan,
to have paid as a contribution thereto.
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No accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, exists
with respect to any Pension Plan. Neither the Company nor any
Subsidiary sponsors, maintains or contributes to, or has ever
sponsored, maintained or contributed to or been required to
contribute to, any Pension Plan subject to Part 3 of Title I of
ERISA or Section 412(n) of the Code. The Company and each
Subsidiary has made adequate provisions for reserves, to the
extent required by GAAP, to meet contributions which have not
been made because they are not yet due under the terms of any
Benefit Plan or related agreements. All Pension Plans which the
Company or a Subsidiary operates as plans that are qualified
under the provisions of Section 401(a) of the Code satisfy in all
material respects the requirements of Section 401(a) and all
other sections of the Code incorporated therein, including
without limitation Section 401(k) of the Code; and the IRS has
issued favorable determination letters with respect to all
Pension Plans and, to the Company's knowledge, nothing has
occurred since the issuance of any such letters that present a
material risk of adversely affecting such favorable
determination. There will be no change on or before Closing in
the operation of any Benefit Plan or any documents with respect
thereto which will result in a material increase in the benefit
liabilities under such plans, except as may be required by
Applicable Law or the terms of the Benefits Plan.
(g) The Company and each Subsidiary has complied with the reporting
and disclosure obligations with respect to the Benefit Plans
imposed by Title I of ERISA or other Applicable Law.
(h) There are no pending or, to the Company's knowledge, threatened
claims, suits or other proceedings against the Company or any
Subsidiary or any other party by present or former employees of
the Company or any Subsidiary, plan participants, beneficiaries
or spouses of any of the above, including without limitation
claims against the assets of any trust, involving any Benefit
Plan, or any rights or benefits thereunder, other than the
ordinary and usual claims for benefits by participants or
beneficiaries.
(i) The transactions contemplated by this Agreement do not, by
themselves, result in, and are not a condition to, the
acceleration or accrual, vesting, funding or payment of any
contribution or benefit under any Benefit Plan.
(j) No action or omission of the Company or any Subsidiary or any
director, officer, employee, or agent thereof in any way
restricts, impairs or prohibits Parent or the Company or any
Subsidiary or any successor from amending, merging, or
terminating any Benefit Plan in accordance with the express terms
of any such plan and Applicable Law.
(k) The Disclosure Schedule lists, and the Company has delivered to
Parent, true and complete copies of: (i) all Benefit Plans and
related trust agreements or other agreements or contracts
evidencing any funding vehicle with respect thereto; (ii) the
most recent annual reports on Treasury Form 5500, including all
schedules
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and attachments thereto, with respect to any Benefit Plan for
which such a report is required; (iii) the most recent actuarial
reports with respect to any Pension Plan that is a "defined
benefit plan" within the meaning of Section 414(j) of the Code;
(iv) the form of summary plan description, including any summary
of material modifications thereto or other modifications
communicated to participants, currently in effect with respect to
each Benefit Plan; (v) the most recent determination letter with
respect to each Pension Plan intended to qualify under Section
401(a) of the Code and the full and complete application therefor
submitted to the IRS; and (vi) all professional opinions,
material internal memoranda, material correspondence with
regulatory authorities and administrative policies, manuals,
interpretations and the like with respect to each Benefit Plan.
3.17 Labor and Employment Matters.
(a) The Disclosure Schedule sets forth a list of the current
employees, officers and directors of the Company and IMT
Subsidiary, separated by entity, and identifies for each such
employee, officer and director all compensation and benefits paid
or payable by the Company or IMT Subsidiary, as applicable, and
the terms and conditions of employment for such employees and
officers of the Company and IMT Subsidiary. The Disclosure
Schedule identifies all employees who are currently on leave for
any reason or receiving disability or workers' compensation or
any other similar type of benefit from the Company or IMT
Subsidiary.
(b) Except as set forth in the Disclosure Schedule, the Company and
each Subsidiary is and has been in compliance in all material
respects with all Applicable Laws respecting employment and
employment practices, terms and conditions of employment and
wages and hours, including without limitation any such Applicable
Laws respecting employment discrimination and occupational safety
and health requirements, and has not and is not engaged in any
unfair labor practice. There is no unfair labor practice
complaint against the Company or any Subsidiary pending or, to
Company's knowledge, threatened before the National Labor
Relations Board or any other comparable Governmental Authority.
There is no labor strike, dispute, slowdown or stoppage actually
pending or, to the Company's knowledge, threatened against or
directly affecting the Company or any Subsidiary. No labor
representation question exists respecting the employees of the
Company or any Subsidiary and there is not pending or, to the
Company's knowledge, threatened any activity intended or likely
to result in a labor representation vote respecting the employees
of the Company or any Subsidiary. No grievance or any arbitration
proceeding arising out of or under collective bargaining
agreements is pending and no claims therefor exist or, to the
Company's knowledge, have been threatened. No collective
bargaining agreement is binding and in force against the Company
or any Subsidiary or currently being negotiated by the Company or
any Subsidiary. The Company and its Subsidiaries have not
experienced any significant work stoppage or other significant
labor difficult. The Company and its Subsidiaries are not
delinquent in payments to any persons for any wages, salaries,
commissions, bonuses or other
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direct or indirect compensation for any services performed by
them or amounts required to be reimbursed to such persons,
including without limitation any amounts due under any Benefit
Plan. Upon termination of the employment of any person, neither
the Company, any Subsidiary, Parent or any subsidiary of Parent
will, by reason of any agreement or understanding to which the
Company or any Subsidiary is a party, be liable to any of such
persons for so-called "severance pay" or any other payments,
except as may be set forth in the Disclosure Schedule. Within the
twelve-month period prior to the date hereof there has not been
any expression of intention to the Company or any Subsidiary by
any officer or key employee to terminate such employment.
(c) All individuals who are performing or have performed services for
the Company or any of its Affiliates and who are or were
classified by the Company or any of its Affiliates as
"independent contractors" qualify for such classification under
Section 530 of the Revenue Act of 1978 or Section 1706 of the Tax
Reform Act of 1986, as applicable, except for such instances
which would not, in the aggregate, have a Material Adverse
Effect, and such individuals are not entitled to any benefits
under the Benefit Plans maintained by the Company or any
Subsidiary.
3.18 Israeli Labor Matters.
(a) All the personal employment agreements of the employees of each
of the IMT Subsidiary are substantially in the form attached to
the Disclosure Schedule. Other than as listed in Disclosure
Schedule, there is no person or entity (including, without
limitation, "agents", "distributors", "independent contractors",
"consultants" or employees of manpower companies or other service
providers) that may be deemed to be an employee of the IMT
Subsidiary.
(b) The IMT Subsidiary is not a party to any collective labor
agreement and does not have any other agreement or arrangement
with any trade union or other body representing any of its
employees. The IMT Subsidiary has not recognized or received a
demand for recognition from any collective bargaining
representative with respect to any of its or their employees.
Other than as set forth in the Disclosure Schedule, or pursuant
to applicable employment laws and regulations and extension
orders ("zavei harhav"), the IMT Subsidiary is not subject to,
nor do employees of any such corporation benefit from any
agreement, arrangement, understanding or custom with respect to
employment. Other than as expressly set forth in the Disclosure
Schedule, the IMT Subsidiary does not have any custom with
respect to termination of employment.
(c) Except for the employment agreements listed on the Disclosure
Schedule hereto, there are no agreements between the IMT
Subsidiary and any of its directors, officers, executives or
employees which cannot be terminated by the IMT Subsidiary on
three months notice or less without giving rise to a claim for
damages or compensation (except for statutory severance pay or
other statutory payments).
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(d) Other than as set forth in the Disclosure Schedule, there is no
outstanding claim or complaint (including, without limitation,
any claim resulting from a bonus arrangement), against the IMT
Subsidiary by any person who is now or has been an officer or
employee of the IMT Subsidiary. Without limiting the generality
of the above, there are no unfair labor practice claims or
charges pending, or to the knowledge of the IMT Subsidiary,
threatened against the IMT Subsidiary. With respect to the
employees of the IMT Subsidiary, individually and in the
aggregate, no event has occurred and, to the best knowledge of
the Company, there exists no condition or set of circumstances,
in connection with which the IMT Subsidiary could be subject to
any liability that is reasonably likely to have a Material
Adverse Effect.
(e) The severance pay due to the employees of the IMT Subsidiary is
fully funded or provided for in accordance with GAAP,
consistently applied, all liabilities of the IMT Subsidiary in
connection with its respective employees (excluding illness pay)
were adequately accrued in the Financial Statements (in
accordance with GAAP), and the Company is not aware of any
circumstance whereby any employee of the IMT Subsidiary might
demand (whether legally entitled to or not) any claim for
compensation on termination of employment beyond the statutory
severance pay or other statutory payments to which such employee
is entitled.
(f) All amounts which the IMT Subsidiary is legally or contractually
required to deduct from its employees' salaries and/or transfer
to such employees' pension or provident, life insurance,
incapacity insurance, continuing education fund or otherwise have
been duly paid into the appropriate fund or funds, and the IMT
Subsidiary does not have any outstanding obligation to make any
such transfer or provision.
(g) Except as disclosed in Disclosure Schedule, the consummation of
the Merger and the other transactions contemplated by this
Agreement will not, either alone or in connection with an
employee's termination of employment or other event, result in an
increase in the amount of compensation or benefits or accelerate
the vesting or timing of payment of any benefits or compensation
payable to or in respect of any employee of the IMT Subsidiary.
3.19 Intellectual Property. Except as set forth in the Disclosure Schedule:
(a) The Company and each Subsidiary of the Company owns or has the
unrestricted right to use all intellectual property rights,
including without limitation the patents, patent applications,
patent rights, registered and unregistered trademarks, trademark
applications, trade names, service marks, service mark
applications, copyrights, brand mark or brand name or any pending
application related thereto, computer programs and other computer
software, inventions, know-how, trade secrets, technology,
proprietary processes and formulae used in connection with the
business of the Company and its Subsidiaries or for the design,
development, manufacture, marketing, importing, offering for
sale, sale or other disposition of
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the Company's products (collectively, "Intellectual Property
Rights"), free and clear of all Liens, except Permitted Liens.
(b) All of the Intellectual Property Rights owned or used by the
Company or its Subsidiaries are subsisting, unexpired, have not
been abandoned and have been properly and validly filed,
submitted or maintained to the applicable government agency if
such filing, submission or maintenance is necessary in order to
perfect such rights. Neither the Company nor any of its
Subsidiaries has knowingly misappropriated the trade secrets,
technology, know-how, inventions or the like of any third party.
No judgment, decree, injunction, rule or order, directly or
indirectly relating to the Company's or its Subsidiaries' rights
in and to the Intellectual Property Rights has been rendered by
any governmental entity which would limit, cancel or question the
validity of or their respective rights in and to, any of the
Intellectual Property Rights. Neither the Company nor any of its
Subsidiaries has received written notice, and do not otherwise
have knowledge, of any pending or threatened suit, action or
proceeding that either does or would limit, cancel or question
the validity of, or the Company's or its Subsidiaries' rights in
and to, any of the Intellectual Property Rights. Neither the
Company nor any of its Subsidiaries has received notice, and do
not otherwise have knowledge, of any allegations, assertions or
other indications that the manufacturing, marketing or selling of
any of the products of the Company or its Subsidiaries infringe
the intellectual property rights of a third party.
(c) The Company and its Subsidiaries have taken all reasonable
measures to maintain the confidentiality of all of the
Intellectual Property Rights the value of which is contingent, in
whole or in part, upon maintenance of the confidentiality
thereof. Except as described in the Disclosure Schedule, neither
the Company nor its Subsidiaries (i) own or use any Intellectual
Property Rights pursuant to any written license agreement; and
(ii) has granted any person or entity any rights, pursuant to
written license agreement or otherwise, to use the Intellectual
Property Rights.
(d) Neither the Company nor any of its Subsidiaries has entered into
any agreements or understandings, written or oral, with any third
party permitting the sale or distribution of any of their
products anywhere in the world, except for such agreements and
understanding that have been validly terminated. The Company and
each Subsidiary has the sole exclusive right to market and sell
their products anywhere in the world and no third party has any
rights or claims to prevent such activities of the Company and
the Subsidiaries.
(e) The Disclosure Schedule sets forth a complete and correct list of
all patents, patent applications, trademarks, trademark
applications and licenses (other than licenses for commercially
available software) that are a part of the Intellectual Property
Rights of the Company and each Subsidiary.
3.20 Environmental Compliance. Except as set forth in the Disclosure
Schedule:
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(a) Neither the Company or any Subsidiary, nor any previous owner,
tenant, occupant or user of any property owned or leased by or
to the Company or a Subsidiary (the "Properties") engaged in
or permitted, direct or indirect, operations or activities
upon, or any use or occupancy of the Properties, or any
portion thereof, for the purpose of or in any way involving
the handling, manufacture, treatment, storage, use,
generation, emission, release, discharge, refining, dumping or
disposal of any Environmentally Regulated Materials (whether
legal or illegal, accidental or intentional, direct or
indirect) on, under, in or about the Properties, or
transported any Environmentally Regulated Materials to, from
or across the Properties, nor are any Environmentally
Regulated Materials presently constructed, deposited, stored,
placed or otherwise located on, under, in or about the
Properties, nor have any Environmentally Regulated Materials
migrated from the Properties upon or beneath other properties,
nor have any Environmentally Regulated Materials migrated or
threatened to migrate from other properties upon, about or
beneath the Properties. The Properties do not contain any: (i)
underground or aboveground storage tanks; (ii) asbestos; (iii)
equipment containing polychlorinated biphenyls ("PCBs"); (iv)
underground injection wells; or (v) septic tanks in which
process waste water or any Environmentally Regulated Materials
have been disposed.
(b) No violation or noncompliance with any Environmental Law has
occurred with respect to the Properties or to the operations
conducted on the Properties by the Company or any Subsidiary;
the Company and each Subsidiary has obtained all required
Permits, and the Company, the Subsidiaries, and the Properties
are in compliance with all Environmental, Safety and Health
Laws including, without limitation, all applicable
restrictions, conditions, standards, limitations,
prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental, Safety and Health
Laws or contained in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder.
(c) No enforcement, investigation, cleanup, removal, remediation
or response or other governmental or regulatory actions have
been, asserted or threatened with respect to operations
conducted on the Properties by the Company or any Subsidiary
or against the Company or the Subsidiaries with respect to or
in any way regarding the Properties pursuant to any
Environmental Law;
(d) There are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or
in any way affecting the Company or any Subsidiary or their
business or assets that violate, or may violate after the
Closing, any Environmental Law, or that may give rise to any
Environmental Liability, or otherwise form the basis of any
claim, action, demand, suit, Proceeding, hearing, study or
investigation (i) under any Environmental Law, (ii) based on
or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the
emission, discharge, release or threatened release of any
Environmentally Regulated Material, (iii) resulting exposure
to workplace hazards or (iv) resulting
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from any alleged exposure of any kind to any Environmentally
Regulated Material and/or relating to any warning or asserted
failure to warn of any exposure or potential exposure to any
Environmentally Regulated Material.
(e) With regard to the Company, the Subsidiaries and the
Properties, there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or
plans which may interfere with or prevent compliance or
continued compliance with Environmental, Safety and Health
Laws.
(f) All machinery, tools, devices and equipment of any kind
operated by the Company or any Subsidiary on the Properties
have been operated in compliance with all Environmental,
Safety and Health Laws, and all such equipment currently is
operational, nondefective and in the condition required that
will allow for continued operation in compliance with all
Environmental, Safety and Health Laws.
(g) The Company has delivered to Parent all environmental
documents, studies and reports in its possession or under its
control relating to: (i) any facilities or real property ever
owned, operated or leased by the Company; or (ii) any actual
or potential Environmental Liability of the Company or any
Subsidiary.
3.21 Insurance. The Disclosure Schedule contains an accurate and complete
list of all insurance policies owned or held by the Company and the
Subsidiaries, including, but not limited to, fire and other casualty,
general liability, theft, life, workers' compensation, health,
directors and officers, business interruption and other forms of
insurance owned or held by the Company and the Subsidiaries, specifying
the insurer the policy number, and the term of the coverage. All
present policies are in full force and effect and all premiums with
respect thereto have been paid. The Company has not been denied any
form of insurance and no policy of insurance has been revoked or
rescinded during the past five years, except as described on the
Disclosure Schedule.
3.22 Tax Matters.
(a) Except as set forth in the Disclosure Schedule, the Company
and each Subsidiary, combined or unitary group of which the
Company or any Subsidiary is or was a member of, has prepared
and timely filed all Tax Returns it is required to have filed
on or prior to the Closing Date. As of the time of filing,
such Tax Returns were accurate and correct in all respects and
did not contain a disclosure statement under Section 6662 of
the Code (or any predecessor provision or comparable provision
of state, local or foreign law). Any Tax Returns filed after
the date hereof, but on or before the Closing Date, will
conform with the provisions of this Section 3.22.
(b) The Company and each Subsidiary has paid or adequately
provided for (on its Latest Audited Balance Sheet in
accordance with GAAP) all Taxes (whether or not shown on any
Tax Return) they are required to have paid or to pay with
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respect to all taxable periods (or portions thereof ) ending
on or before the Closing Date.
(c) Except as set forth in the Disclosure Schedule, no claim for
assessment or collection of Taxes is presently being asserted
against the Company or any Subsidiary, and neither the Company
nor any Subsidiary is a party to any pending action,
proceeding, or investigation by any governmental taxing
authority, nor does the Company have knowledge of any such
threatened action, proceeding or investigation. No claim has
been made in any jurisdiction where the Company and the
Subsidiaries do not file Tax Returns that the Company or
Subsidiaries may be subject to Tax by that jurisdiction
(d) Except as set forth in the Disclosure Schedule, neither the
Company, nor any Subsidiary is a party to any agreement,
contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in connection with
this Agreement or any change of control of the Company or any
Subsidiary, in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code.
(e) All deficiencies and assessments of Taxes of the Company and a
Subsidiary resulting from an examination of any Tax Returns by
any Governmental Authority have been paid and there are no
pending examinations currently being made by any Governmental
Authority nor has there been any written or oral notification
to the Company or any Subsidiary of any intention to make an
examination of any Taxes by any Governmental Authority. There
are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any Tax Return
for any period.
(f) For purposes of computing Taxes and the filing of Tax Returns,
neither the Company nor any Subsidiary of the Company has
failed to treat as "employees" any individual providing
services to the Company or a Subsidiary who would be
classified as an "employee" under the applicable rules or
regulations of any Governmental Authority with respect to such
classification.
(g) The Company and each Subsidiary complied with all Applicable
Laws relating to the withholding of Taxes and the payment
thereof (including, without limitation, withholding of Taxes
under Sections 1441 and 1442 of the Code, or similar
provisions under any foreign laws), and timely and properly
withheld from individual employee wages and paid over to the
proper Governmental Authority all amounts required to be so
withheld and paid over under all Applicable Laws.
(h) Neither the Company nor any Subsidiary is a party to any Tax
allocation or sharing agreement.
(i) Except as set forth in the Disclosure Schedule, neither the
Company nor any Subsidiary has requested any extension of time
within which to file any Tax Return, which Tax Return has not
since been filed.
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(j) No property of the Company or any Subsidiary is property that
the Company or any Subsidiary is required to treat as being
owned by another person under the provisions of Section
168(f)(8) of the Code (as in effect prior to amendment by the
Tax Reform Act of 1986) or is "tax-exempt use property" within
the meaning of Section 168 of the Code.
(k) Neither the Company nor any Subsidiary is required to include
in income any adjustment under Section 481(a) of the Code by
reason of a voluntary change in accounting method initiated by
the Company or any Subsidiary.
(l) Neither the Company nor any Subsidiary made an election under
Section 341(f) of the Code for any taxable years not yet
closed for statute of limitation purposes.
(m) The Company and the Subsidiaries are, and at all times have
been, corporations or associations taxable as corporations for
United States income tax purposes.
(n) Neither the Company nor any Subsidiary is, or has been at any
time, a United States real property holding company within the
meaning of Section 897(c) of the Code.
(o) The Disclosure Schedule lists each tax incentive to which the
IMT Subsidiary is entitled under the laws of the State of
Israel, and the nature of such tax incentive. The IMT
Subsidiary has complied with all requirements of Israeli law
necessary to be entitled to claim the tax incentive. Except as
disclosed in the Disclosure Schedule no consent or approval of
any governmental authority is required prior to consummation
of the Merger in order to preserve the entitlement of the IMT
Subsidiary to any such incentive.
3.23 Grants, Incentives and Subsidies. The Disclosure Schedule sets forth a
complete list of all pending and outstanding grants, incentives and
subsidies (collectively, "Grants") from the Government of the State of
Israel or any agency thereof, or from any foreign governmental or
administrative agency, to the Company or any Subsidiary including,
without limitation, (i) Approved Enterprise Status from the Investment
Center of the Israeli Ministry of Industry and Trade and (ii) grants
from the Office of Chief Scientist of the Israeli Ministry of Industry
and Trade (the "OCS"). The Company has delivered to the Parent correct
copies of all applications for Grants submitted by the Company or any
Subsidiary and of all letters of approval, and supplements thereto,
granted to the Company or any Subsidiary. The Disclosure Schedule also
details all material undertakings of the Company or any Subsidiary
given in connection with the Grants, and includes the aggregate amounts
of each Grant, and the aggregate outstanding obligations thereunder of
the Company or any Subsidiary with respect to royalties, or the
outstanding amounts to be paid by the OCS to the Company or any
Subsidiary and the composition of such obligations or amount by product
or product family to which it relates. The Company and each Subsidiary
are in compliance, in all material respects, with the terms and
conditions of their respective Grants and, except as disclosed in the
Disclosure Schedule, have duly fulfilled, in all material respects, all
the undertakings relating thereto. Neither the Company nor any
Subsidiary is aware of any event or other set of
39
<PAGE> 45
circumstances which might lead to the revocation or material
modification of any of the Grants.
3.24 Year 2000. The Company is aware of the millennium rollover event, also
known as the Year 2000 ("Y2K") issue, and its potential impact on the
Company as a whole, its products and its customers. Except as set forth
in the Disclosure Schedule, all internal computer of the Company and
the Subsidiaries are Y2K compliant or are scheduled for replacement
and/or upgrade prior to the year 2000 without any additional material
costs to the Company. The Company has delivered to each of its material
suppliers a request for confirmation that the supply of goods and
services will not be interrupted due to Y2K non-compliance, the form of
which has been previously provided to Parent, and no supplier has
responded to the effect that the supply of goods and services would be
interrupted due to Y2K non-compliance. Except as set forth in the
Disclosure Schedule, the Company has not made any representations in
contracts for services or equipment regarding Y2K compliance. The
Disclosure Schedule sets forth (i) a description of any significant
non-compliant internal computer systems, and (ii) an estimate of the
capital expenditures necessary to make such systems Y2K compliant.
3.25 Bank Accounts; Powers of Attorney. The Disclosure Schedule sets forth:
(i) the names of all financial institutions, investment banking and
brokerage houses, and other similar institutions at which the Company
or its Subsidiaries maintain accounts, deposits, safe deposit boxes of
any nature, and the names of all persons authorized to draw thereon or
make withdrawals therefrom and a description of such accounts; and (ii)
the names of all persons or entities holding general or special powers
of attorney from the Company or any of its Subsidiaries and copies
thereof.
3.26 Orders, Commitments and Returns. Except as set forth in the Disclosure
Schedule, all accepted and unfulfilled orders for the sale of products
and the performance of services entered into by the Company or any of
its Subsidiaries and all outstanding contracts or commitments for the
purchase of supplies, materials and services by or from the Company or
any of its Subsidiaries were made in bona fide transactions in the
ordinary course of business. Except as set forth in the Disclosure
Schedule, there are no material claims against the Company or any of
its Subsidiaries to return products by reason of alleged
over-shipments, defective products or otherwise, or of products in the
hands of customers, retailers or distributors under an understanding
that such products would be returnable.
3.27 Product Liability Claims. Neither the Company nor any Subsidiary has
ever received a claim, or incurred any uninsured or insured liability,
for or based upon failure to warn, Proposition 65, breach of product
warranty (other than warranty service and repair claims incurred in the
ordinary course of business and expensed as warranty expense on the
Financial Statements for the period in which incurred), strict
liability in tort, general negligence, negligent manufacture of
product, negligent provision of services or any other allegation of
liability, including or resulting in, but not limited to, product
recalls, arising from the materials, design, testing, manufacture,
packaging, labeling (including instructions for use) or sale of its
products or from the provision of services ("Product
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<PAGE> 46
Liability Claim"). The Company has disclosed to Parent each Product
Liability Claim received by the Company or any Subsidiary.
3.28 Warranties. All products manufactured or sold, and all services
provided, by the Company or any Subsidiary have materially complied,
and are in material compliance with all contractual requirements,
warranties or covenants, express or implied, applicable thereto, and
with all applicable governmental, trade association or regulatory
specifications therefor or applicable thereto, except to the extent
that the failure to so comply would not have a Material Adverse Effect
on the Company taken as a whole. No product or service manufactured,
sold, delivered or performed by the Company or any Subsidiary is
subject to any guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions set forth in the Disclosure
Schedule. The terms of all standard and all material non-standard
product and service warranties and product return, sales credit,
discount, warehouse allowance, advertising allowance, demo sales and
credit policies of the Company and each Subsidiary are specifically set
forth in the Disclosure Schedule. The Company has delivered to Parent
prior to the date hereof complete and accurate copies of all such
warranties and policies.
3.29 Relations with Suppliers and Customers. No material current supplier of
the Company or any Subsidiary has canceled any contract or order for
provision of, and, to the knowledge of the Company, there has been no
threat by any such supplier not to provide, raw materials, products,
supplies or services to the businesses of the Company and its
Subsidiaries either prior to or following the Effective Time. Except as
specifically set forth in the Disclosure Schedule, neither the Company
nor any Subsidiary has, to the knowledge of the Company, received any
information from any customer that accounted for more than 5% of the
consolidated revenues of the Company and its Subsidiaries during the
last full fiscal year to the effect that such customer intends to
materially decrease the amount of business it does with the businesses
of the Company and its Subsidiaries either prior to or following the
Effective Time. The Disclosure Schedule lists each supplier to the
Company or any Subsidiary that is the sole source of a particular raw
material, product, supply or service with respect to which locating and
qualifying a replacement source would involve significant cost or
delay.
3.30 Absence of Certain Business Practices. Neither the Company, the
Subsidiaries nor any director, officer, employee or agent of the
Company or the Subsidiaries, nor any other person acting on behalf of
the Company or the Subsidiaries, has, directly or indirectly, within
the past five (5) years given or agreed to give any gift or similar
benefit or agreed to make or made any payment to any customer,
supplier, governmental employee or other person who is or may be in a
position to help or hinder the business of the Company, taken as a
whole (or assist it in connection with any actual or proposed
transaction) which (i) might subject the Company, the Subsidiaries,
Parent or Merger Subsidiary to any damage or penalty in any civil,
criminal or governmental litigation proceeding, (ii) if not given in
the past, might have had a Material Adverse Effect on the assets,
business or operations of the Company, taken as a whole, as reflected
in the Financial Statements, (iii) if not continued in the future,
might adversely affect the assets, business, operations or prospects of
the Company and the Subsidiaries or which might subject the Company,
the Subsidiaries, Parent or Merger Subsidiary to suit or penalty in any
private or
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governmental litigation or proceeding or (iv) materially violated or
violates any Applicable Law.
3.31 Brokers. Except as set forth in the Disclosure Schedule, neither the
Company nor its Subsidiaries, nor any of their directors, officers or
employees has employed any broker, finder, or financial advisor or
incurred any liability for any brokerage fee or commission, finder's
fee or financial advisory fee, in connection with the transactions
contemplated hereby, nor is there any basis known to Company for any
such fee or commission to be claimed by any person or entity. Any such
fees and expenses shall be paid by the Stockholders pursuant to Section
11.3 and the Escrow Agreement.
3.32 Minute Books. The minute books of the Company and each Subsidiary, as
previously made available to Parent and its representatives, contain,
in all material respects, complete and accurate records of all meetings
of and corporate actions or written consents by the stockholders,
Boards of Directors, and committees of the Boards of Directors of the
Company and each Subsidiary.
3.33 Business Generally. To Company's knowledge, except as set forth in the
Disclosure Schedule, there has been no event, transaction or
information which has come to the attention of the Company which, as it
relates directly to the businesses of Company and the Subsidiaries,
could, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect on the Company taken as a whole.
3.34 Irrevocable Proxies. Concurrently with the execution and delivery of
this Agreement, the Company has delivered to Parent irrevocable proxies
(in substantially the form attached hereto as Exhibit D) (the
"Irrevocable Proxies") from Stockholders holding a number of shares of
Company Common Stock sufficient to adopt and approve this Agreement and
the Merger under the DGCL as of the record date established for holders
of Company Common Stock entitled to consider and vote on the adoption
and approval of this Agreement and the Merger (the "Record Date"), and
the Irrevocable Proxies grant Lewis C. Pell ("Pell"), Beyar and
Globerman the right to vote such shares of Company Common Stock (i) in
favor of approval of this Agreement and the Merger, (ii) against
approval of any proposal made in opposition to or competition with the
consummation of the Merger and (iii) against, or to abstain with regard
to, any merger, consolidation, sale of assets, reorganization or
recapitalization of the Company with any party other than Parent or its
Affiliates.
3.35 Voting Agreement. Concurrently with the execution and delivery of this
Agreement, the Company, Pell, Beyar and Globerman have delivered to
Parent a voting agreement (in substantially the form of Exhibit E)
agreeing to vote all Irrevocable Proxies, as well as any shares of
Company Common Stock owned (of record or beneficially) by the Company,
Pell, Beyar and Globerman, as set forth in the Irrevocable Proxies (the
"Voting Agreement").
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUBSIDIARY
As an inducement to the Company and the Principal Stockholders to enter
into this Agreement and to consummate the transactions contemplated herein,
Parent and Merger Subsidiary hereby represent and warrant, as of the date of
this Agreement and as of the Closing Date, to the Company and the Principal
Stockholders that:
4.1 Corporate Existence and Power. Parent and Merger Subsidiary are
corporations duly organized, validly existing and in good standing
under the laws of their respective states of incorporation and each has
all requisite corporate power and authority to own, operate and lease
their respective properties and to carry on their respective businesses
as now being conducted and are duly qualified or licensed to do
business and are in good standing in each jurisdiction in which their
ownership or leasing of property or the conduct of their business
require such licensing or qualification, except where the failure to be
so qualified could not reasonably be expected to have a Material
Adverse Effect on Parent or Merger Subsidiary. Merger Subsidiary is a
recently-formed Delaware corporation that has not conducted, and prior
to the Effective Time will not conduct, any activities other than those
incident to its formation and in connection with the consummation of
the Merger.
4.2 Authorization. Parent and Merger Subsidiary have the requisite
corporate power and authority to enter into this Agreement and to carry
out their respective obligations hereunder. The execution and delivery
by Parent and Merger Subsidiary of this Agreement and the performance
by each of them of their respective obligations hereunder and the
consummation by each of them of the transactions contemplated hereby
are within their respective corporate powers and have been duly
authorized by their respective Boards of Directors and by Parent, as
the sole shareholder of Merger Subsidiary, and no other corporate
proceeding on their part is necessary for the execution and delivery of
this Agreement, and the performance of their respective obligations
hereunder, and the consummation by each of them of the transactions
contemplated hereby. This Agreement has been duly and validly executed
and delivered by each of them and it is a legal, valid and binding
obligation of Parent and Merger Subsidiary enforceable against each of
them in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally
and rules of law governing specific performance, injunctive relief or
other equitable remedies.
4.3 Consents and Approvals. No Consent by any individual or entity,
including without limitation any Governmental Authority or Person, is
required in connection with the execution, delivery or performance of
this Agreement by Parent and Merger Subsidiary or the consummation by
Parent and Merger Subsidiary of the transactions contemplated herein,
other than (i) requirements of the DGCL for filing of appropriate
documents to effect the Merger, or (ii) where the failure to make any
such filing, or to obtain such permit, authorization, consent or
approval, would not prevent or delay consummation of
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<PAGE> 49
the Merger or would not otherwise prevent Parent or Merger Subsidiary
from performing their obligations under this Agreement.
4.4 Acquisition of Company Common Stock for Investment.
(a) The Company Common Stock being purchased by the Parent
pursuant to Article 2 is being acquired for investment only
and not with a view to any public distribution thereof.
Without limiting, modifying, qualifying or in any other manner
affecting the representations and warranties of the Company
set forth in Article 3, the Parent acknowledges that the
Parent has had access to all documentation and information
referenced in the Disclosure Schedule and has had the
opportunity to interview and discuss such documentation and
information with employees of the Company and its
Subsidiaries. The Parent is an "Accredited Investor" within
the meaning of Rule 501 of Regulation D under the Securities
Act.
(b) The Parent understands that the Company Common Stock being
purchased by the Parent pursuant to Article 2 constitute
"restricted securities" under the Securities Act and have not
been registered under the Securities Act or the laws of any
other jurisdiction requiring any filing, listing or
registration, satisfaction of any prospectus or similar
document, information, or delivery requirement in connection
with any offer or sale of securities.
4.5 Available Capital Resources. The Parent has existing cash reserves,
borrowing capacity under existing credit facilities and commitments
from existing shareholders necessary to pay the Merger Consideration
and satisfy the obligations of Parent and Merger Subsidiary hereunder.
4.6 No Additional Representations or Warranties. The Parent acknowledges
that neither the Company nor any other Person has made any
representation or warranty, express or implied, as to the accuracy or
completeness of any information regarding the Company and its
Subsidiaries, except as expressly set forth in this Agreement or the
Disclosure Schedule. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
EXPRESSLY SET FORTH IN ARTICLE 3, THE COMPANY AND THE PRINCIPAL
STOCKHOLDERS MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT
LAW OR IN EQUITY, IN RESPECT OF THE COMPANY AND ITS SUBSIDIARIES OR ANY
OF THEIR RESPECTIVE ASSETS, LIABILITIES OR OPERATIONS, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED REPRESENTATION OR WARRANTY AS TO THE
CONDITION, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, AND THE COMPANY AND THE PRINCIPAL STOCKHOLDERS DISCLAIM ANY
SUCH REPRESENTATION OR WARRANTY.
4.7 Disclosure. No representation or warranty by Parent or Merger
Subsidiary in this Agreement and no statement contained or to be
contained in any document, certificate or other writing furnished or to
be furnished by either Parent or Merger Subsidiary to the Company,
contains or will contain any untrue statement of a material fact or
omits or will
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omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
4.8 Non-Contravention. The execution, delivery and performance by Parent
and Merger Subsidiary of this Agreement does not and will not (i)
contravene or conflict with the respective Certificate of Incorporation
or Bylaws of Parent and Merger Subsidiary; or (ii) contravene or
conflict with or constitute a violation of any provision of any
Applicable Law binding upon or applicable to Parent or Merger
Subsidiary.
4.9 Brokers. Except for the engagement of US Bancorp Piper Jaffray, whose
fees and expenses shall be paid by Parent pursuant to Section 11.3,
neither Parent nor Merger Subsidiary, nor any of their directors,
officers or employees has employed any broker, finder, or financial
advisor or incurred any liability for any brokerage fee or commission,
finder's fee or financial advisory fee, in connection with the
transactions contemplated hereby, nor is there any basis known to
Parent or Merger Subsidiary for any such fee or commission to be
claimed by any person or entity.
ARTICLE 5
COVENANTS
5.1 Conduct of the Business. The Company shall maintain and cause each
Subsidiary to maintain its assets and properties and carry on its
businesses and operations only in ordinary course in substantially the
same manner as planned and previously operated; and the Company shall
use and cause each Subsidiary to use its best efforts to preserve
intact its business organizations, existing business relationships
(including without limitation its relationships with officers,
employees, dealers, distributors, independent contractors, customers
and suppliers), good will and going concern value. The Company shall be
entitled to dispose of the ENT Business as contemplated by Section
5.10.
5.2 Company's Agreements as to Specified Matters. Except (i) as
specifically set forth on the Disclosure Schedule, (ii) in the ordinary
course of business and consistent with past practice, and (iii) as may
be otherwise agreed in writing by Parent, from the date hereof until
the Closing, neither the Company nor any of its Subsidiaries shall:
(a) Amend its articles or certificate of incorporation or bylaws
(or other similar governing instruments);
(b) Borrow or agree to borrow any funds other than Loans;
(c) Incur, assume, suffer or become subject to, whether directly
or by way of guarantee or otherwise, any claims, obligations,
liabilities or loss contingencies which, individually or in
the aggregate, are material to the conduct of the businesses
of Company and its Subsidiaries or have or would have a
Material Adverse Effect on the financial condition of Company
and its Subsidiaries;
(d) Pay, discharge or satisfy any claims, liabilities or
obligations other than the repayment of Loans;
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(e) Permit or allow any of its properties or assets which are
material to the operation of their businesses to be subjected
to any Lien, except Permitted Liens;
(f) Write down the value of any inventory or write off as
uncollectible any notes or accounts receivable or any trade
accounts or trade notes;
(g) Cancel or amend any debts, waive any claims or rights or sell,
transfer or otherwise dispose of any properties or assets,
other than for such debts, claims, rights, properties or
assets which, individually or in the aggregate, are not
material to the conduct of their businesses;
(h) License, sell, transfer, pledge, modify, disclose, dispose of
or permit to lapse any right to the use of any Intellectual
Property Rights other than for such Intellectual Property
Rights which, individually or in the aggregate, are not
material to the conduct of their businesses, except as
contemplated by Section 5.10;
(i) Sell, assign, lease, license, transfer or otherwise dispose
of, or mortgage, pledge or encumber (other than with Permitted
Liens), any of their respective assets except as contemplated
by Section 5.10;
(j) (A) Terminate, enter into, adopt, institute or otherwise
become subject to or amend in any material respect any
collective bargaining agreement or employment or similar
agreement or arrangement with any of its directors, officers
or employees; (B) terminate, enter into, adopt, institute or
otherwise become subject to or amend in any material respect
any Benefit Plan; (C) contribute, set aside for contribution
or authorize the contribution of any amounts for any such
Benefit Plan except as required (and not discretionary) by the
terms of such Benefit Plan; or (D) grant or become obligated
to grant any bonus or general increase in the compensation of
any directors, officers or employees (including without
limitation any such increase pursuant to any Benefit Plan);
(k) Make or enter into any commitment for capital expenditures for
additions to property, plant or equipment individually in
excess of $25,000.00;
(l) Except as contemplated by this Agreement, (A) declare, pay or
set aside for payment any dividend or other distribution in
respect of its capital stock or other securities (including
without limitation distributions in redemption or liquidation)
or redeem, purchase or otherwise acquire any shares of its
capital stock or other securities; (B) issue, grant or sell
any shares of its capital stock or equity securities of any
class, or any options, warrants, conversion or other rights to
purchase or acquire any such shares or equity securities or
any securities convertible into or exchangeable for such
shares or equity securities, except issuance of Company Common
Stock pursuant to the exercise of Company Stock Options
outstanding on the date hereof; (C) become a party to any
merger, exchange, reorganization, recapitalization,
liquidation, dissolution or other similar corporate
transaction; or (D) organize any new subsidiary, acquire any
capital
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stock or other equity securities or other ownership
interest in, or assets of, any person or entity or otherwise
make any investment by purchase of stock or securities,
contributions to capital, property transfer or purchase of any
properties or assets of any person or entity;
(m) Pay, lend or advance any amounts to, or sell, transfer or
lease any properties or assets to, or enter into any agreement
or arrangement with, any director, officer, employee or
shareholder;
(n) Terminate, enter into or amend in any material respect any
Scheduled Contract, or take any action or omit to take any
action which will cause a breach, violation or default
(however defined) under any Scheduled Contract; or
(o) Agree, whether in writing or otherwise, to take any action
described in this subsection.
5.3 Full Access to Parent. The Company shall afford to Parent and its
directors, officers, employees, counsel, accountants, investment
advisors and other authorized representatives and agents at Parent's
expense, reasonable access to the facilities, properties, books and
records of the Company and its Subsidiaries in order that Parent may
have full opportunity to make such investigations as it shall desire to
make of the affairs of the Company and its Subsidiaries; provided,
however, that any such investigation shall be conducted in such a
manner as not to interfere unreasonably with business operations; and
the Company and its Subsidiaries shall furnish such additional
financial and operating data and other information as Parent shall,
from time to time, reasonably request, including without limitation
access to the working papers of their independent certified public
accountants; and, provided, further, that any such investigation shall
not affect or otherwise diminish or obviate in any respect any of the
representations and warranties of the Company or Principal Stockholders
herein.
5.4 Confidentiality. Each of the parties hereto agrees that it will not
use, or permit the use of, any of the information relating to any other
party hereto furnished to it in connection with the transactions
contemplated herein ("Information") in a manner or for a purpose
detrimental to such other party or otherwise than in connection with
the transaction, and that they will not disclose, divulge, provide or
make accessible (collectively, "Disclose"), or permit the Disclosure
of, any of the Information to any person or entity, other than their
responsible directors, officers, employees, investment advisors,
accountants, counsel and other authorized representatives and agents,
except as may be required by judicial or administrative process or, in
the opinion of such party's regular counsel, by other requirements of
Applicable Law; provided, however, that prior to any Disclosure of any
Information permitted hereunder, the disclosing party shall first
obtain the recipients' undertaking to comply with the provisions of
this subsection with respect to such information. The term
"Information" as used herein shall not include any information relating
to a party which the party disclosing such information can show: (i) to
have been in its possession prior to its receipt from another party
hereto; (ii) to be now or to later become generally available to the
public through no fault of the disclosing party; (iii) to have been
available to the public at the time of its receipt by the disclosing
party;
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(iv) to have been received separately by the disclosing party in
an unrestricted manner from a person entitled to disclose such
information; or (v) to have been developed independently by the
disclosing party without regard to any information received in
connection with this transaction. Each party hereto also agrees to
promptly return to the party from whom originally received all original
and duplicate copies of written materials containing Information should
the transactions contemplated herein not occur. A party hereto shall be
deemed to have satisfied its obligations to hold the Information
confidential if it exercises the same care as it takes with respect to
its own similar information.
5.5 Filings; Consents; Removal of Objections. Subject to the terms and
conditions herein, the parties hereto shall use their best efforts to
take or cause to be taken all actions and do or cause to be done all
things necessary, proper or advisable under Applicable Laws to
consummate and make effective, as soon as reasonably practicable, the
transactions contemplated hereby, including without limitation
obtaining all Consents of any person or entity, whether private or
governmental, required in connection with the consummation of the
transactions contemplated herein. In furtherance, and not in limitation
of the foregoing, it is the intent of the parties to consummate the
transactions contemplated herein at the earliest practicable time, and
they respectively agree to exert their best efforts to that end,
including without limitation: (i) the removal or satisfaction, if
possible, of any objections to the validity or legality of the
transactions contemplated herein; and (ii) the satisfaction of the
conditions to consummation of the transactions contemplated hereby.
5.6 Further Assurances; Cooperation; Notification.
(a) Each party hereto shall, before, at and after Closing, execute
and deliver such instruments and take such other actions as
the other party or parties, as the case may be, may reasonably
require in order to carry out the intent of this Agreement
including the satisfaction of all conditions contained in
Articles 6 and 7 of this Agreement.
(b) The Company shall cooperate with Parent to promptly develop
plans for the management of the businesses after the Closing,
including without limitation plans relating to productivity,
marketing, operations and improvements, and the Company shall
further cooperate with Parent to provide for the
implementation of such plans as soon as practicable after the
Closing. Subject to Applicable Law, Company shall confer on a
regular and reasonable basis with one or more representatives
of Parent to report on material operational matters and the
general status of ongoing operations.
(c) At all times from the date hereof until the Closing, each
party shall promptly notify the other in writing of the
occurrence of any event which it reasonably believes will or
may result in a failure by such party to satisfy the
conditions specified in Article 6 and Article 7 hereof.
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5.7 Approval of Stockholders. As promptly as practicable after the
execution of this Agreement, the Company will take all action necessary
in accordance with the DGCL and its Certificate of Incorporation and
Bylaws to convene a meeting of the Stockholders to consider and vote
upon or to solicit consent in writing and the adoption and approval of
this Agreement and the consummation of the transactions contemplated
hereby. The Company shall not mail proxy materials to the Stockholders
until the conditions set forth in Sections 6.16 and 6.27 have been
satisfied or waived by Parent. The Board of Directors of the Company
has on the date of this Agreement adopted a resolution recommending
that the Stockholders vote to adopt and approve the Merger and this
Agreement and the consummation of the transactions contemplated herein.
The Company will use its best efforts to have the Stockholders adopt
and approve the Merger and this Agreement and will take all other
action reasonably necessary or, in the reasonable opinion of Parent,
helpful to secure a vote in favor of the Merger and the adoption and
approval of this Agreement.
5.8 No Solicitation. The Company agrees (i) it will negotiate exclusively
with Parent and its authorized representatives regarding the
transaction contemplated hereby and will not, directly or indirectly,
encourage or solicit the submission of, entertain inquiries, proposals
or offers from, or enter into any agreement or negotiate with any
person or entity (other than Parent) for the acquisition of the Company
(whether by merger, combination, sale of assets, sale of stock or
otherwise) or other disposition of assets or technology other than in
the ordinary course of business, and (ii) it will not furnish to any
person any information with respect to any transaction prohibited by
this Section 5.8. The Company and the Principals Stockholders agree to
take the necessary steps to promptly inform any such third party of the
obligations undertaken in this Section 5.8 and this Agreement. The
Company and the Principals Stockholders agree to immediately inform
Parent of any such inquiry from any such third party, including the
terms thereof and the identity of the Person making such inquiry, and
to keep the Parent informed, on a current basis, of the status and
terms of any such proposals or offers.
5.9 Supplements to Disclosure Schedule. Prior to the Closing, the Company
shall supplement or amend the Disclosure Schedule with respect to any
event or development which is necessary to correct any information on
the Disclosure Schedule or in any representation and warranty of the
Company or Principal Stockholders which has been rendered inaccurate by
reason of such event or development. No such supplement or amendment
will be deemed to cure any inaccuracy in any representation and
warranty of the Company or Principal Stockholders for purposes of
Section 6.1. If, however, the Closing occurs, all such supplements or
amendments will cure for all purposes any inaccuracy in any
representation and warranty of the Company or Principal Stockholders
which would have existed without such amendment or supplement.
5.10 Sale of Certain Assets of ENT Business and German Subsidiary. On or
before the Closing Date, each of the Company, the IMT Subsidiary and
Discotech Medical Technologies Ltd. shall have entered into the
Purchase and Sale Agreement in the form attached as Exhibit F to this
Agreement, with an effective date of November 1, 1999, and shall have
consummated the transactions contemplated thereby and executed the
other agreements referred to therein. In connection therewith, the
Orthopaedic License
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Agreement and the ENT License Agreement attached as exhibits to the
Purchase and Sale Agreement shall have been executed and delivered by
the parties thereto. Except as specifically contemplated by the
Purchase and Sale Agreement, the transactions contemplated therein
shall not create any additional Liabilities to the Company or any
Subsidiary, including, but not limited to, Liabilities for Taxes.
5.11 Public Announcements. None of the parties hereto shall make any public
announcement with respect to the transactions contemplated herein
without the prior written consent of the other parties, which consent
shall not be unreasonably withheld or delayed. The parties shall
maintain this Agreement and the terms hereof in strict confidence, and
neither party shall disclose this Agreement or any of its terms to any
third party unless specifically ordered to do so by a court of
competent jurisdiction after consulting with the other party.
Notwithstanding the foregoing, the parties may, on a confidential
basis, advise and release information regarding the existence and
content of this Agreement or the transactions contemplated hereby to
their respective Affiliates or any of their agents, accountants,
attorneys and prospective lenders or investors in connection with or
related to the transactions contemplated by this Agreement.
5.12 Preparation of Tax Returns; Tax Matters.
(a) The Company shall file at Parent's expense, on or prior to the
due date thereof, all Tax Returns required to be filed by the
Company or any Subsidiary for all Tax periods ending on or
before the Closing Date; provided, however, that the Company
shall not file any such Tax Returns, or other returns,
elections, claims for refund or information statements with
respect to any liabilities for Taxes (other than federal,
state or local sales, use, property, withholding or employment
tax returns or statements) for any Tax period without prior
written consent from Parent. Such Tax Returns shall be
prepared by Ernst & Young LLP at the direction of the
Stockholders' Representatives and shall be signed by Peter
Bick.
(b) Parent will file (or cause to be filed) all Tax Returns of the
Company and any Subsidiary for all Tax periods ending after
the Closing Date. After the Closing Date, Parent, to the
extent permitted by Applicable Laws, shall have the right to
amend, modify or otherwise change all Tax Returns of the
Company and Subsidiaries for all Tax periods. In the event,
Parent amends, modifies or changes any Tax Returns of the
Company or any Subsidiary for any Tax period that includes a
day prior to, or including, the Closing Date, Parent shall
give written notice thereof to the Stockholders'
Representatives. In the event, such amendment, modification or
changes results in a Tax refund, Parent shall cooperate with
the Stockholders' Representatives in determining whether such
Tax Refund, or any such part, relates to the days prior to, or
including the Closing Date. In the event, it is determined
that the Tax refund or any such part is attributable to days
prior to, or including the Closing Date, the Parent shall pay
such Tax Refund to the Exchange Agent for distribution to the
Stockholders in accordance with the Escrow Agreement. Neither
Parent nor its Affiliates or representatives shall take any
action (i) inconsistent with the tax treatment of the Merger
as a sale of stock by the Stockholders or (ii) which has the
direct or
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indirect effect of treating the Merger as a purchase
of assets by Parent or the Merger Subsidiary.
(c) Promptly after receipt by Parent of a written notice of a
proposed audit, claim, assessment or other dispute which would
or might give rise to a claim or the commencement (or
threatened commencement) of any action, proceeding or
investigation with respect to which indemnification is or will
be sought by Parent or its Affiliates in respect of any matter
concerning Taxes, but not including the receipt of a request
for information ("Asserted Tax Liability"), Parent shall give
written notice thereof (the "Tax Claim Notice") to the
Stockholders' Representatives.
(i) A Tax Claim Notice shall contain factual information
(to the extent known to Parent) generally describing
the Asserted Tax Liability in question and shall
include copies of any notice or other document
received from any taxing Governmental Authority in
respect of such Asserted Tax Liability. Failure by
Parent to give the Stockholders' Representatives
prompt notice of an Asserted Tax Liability shall not
reduce or otherwise affect Parent's right to seek
indemnification hereunder; provided, however, that if
such failure to give prompt notice results in a
material detriment to the Stockholders, then any
amount that Parent otherwise may be entitled to as
indemnification hereunder with respect to such
Asserted Tax Liability shall be reduced by the amount
that is solely and directly attributable to such
failure to give prompt notice.
(ii) In the event that the Stockholders' Representatives
shall have furnished Parent with an opinion of
independent tax counsel satisfactory to Parent to the
effect that there is a reasonable basis for
contesting an Asserted Tax Liability, then the
Stockholders' Representatives may elect to direct
through counsel of their own choosing, and at their
own expense, a compromise or contest, either
administratively or in the courts, of any Asserted
Tax Liability; provided, however, that the foregoing
shall apply only if the Stockholders' Representatives
have, notwithstanding any other provision hereof to
the contrary, acknowledged in writing an obligation
to indemnify Parent in accordance with this Agreement
with respect to such an Asserted Tax Liability, and
provided further that Parent, in its sole and
absolute discretion, may notify the Stockholders'
Representatives at any time that any such compromise
or contest must be immediately terminated, in which
case the foregoing obligation to make indemnity
payments hereunder with respect to such Asserted Tax
Liability shall thereupon terminate.
(iii) If, in accordance with the foregoing, the
Stockholders' Representatives elect to direct the
compromise or contest of any Asserted Tax Liability,
they shall, within 30 calendar days after receiving
the Tax Claim Notice with respect to such Asserted
Tax Liability (or sooner if the nature of the
Asserted Tax Liability so requires) notify Parent of
their intent to do so,
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and Parent shall cooperate, at the Stockholders'
Representatives' sole expense, in the compromise or
contest of such Asserted Tax Liability.
(iv) The Stockholders' Representatives may enter into a
settlement agreement with respect to or otherwise
resolve any Asserted Tax Liability but only with the
prior written consent of Parent, which consent may
not unreasonably be withheld.
(v) In the event that, and in accordance with the
foregoing, the Stockholders' Representatives attempt
to compromise or contest any Asserted Tax Liability,
Parent may participate at its own expense in all
proceedings, either administratively or in the
courts. For all purposes hereof, the right to
participate in all proceedings, either
administratively or in the courts, relating to an
Asserted Tax Liability shall include the right to
attend and be kept fully informed of all such
proceedings.
(vi) Parent and Stockholders' Representatives shall
cooperate with each other and with each other's
agents, in connection with compromise or contests of
any Asserted Tax Liability. Any information or
documents provided by the parties shall be kept
confidential by the party receiving such information
or documents, except as may otherwise be necessary in
connection with administrative or judicial
proceedings relating to Taxes.
(vii) The procedures set forth in this Section with respect
to matters concerning Taxes shall apply in the event
of any conflict between the provisions of this
Section and those of Article 9.
(viii) Following the Merger, Parent and the Company shall,
upon reasonable request, afford to the Stockholders'
Representatives and their authorized representatives
reasonable access during normal business hours to the
books, records and other data of or relating to the
Company and Subsidiaries, and permit the
Stockholders' Representatives and their authorized
representatives to make copies thereof at their own
expense, with respect to periods or portions thereof
ending prior to the Merger, to the extent that such
access may be reasonably required to prepare federal,
state, local and foreign tax returns referred to in
Section 5.12(a) or by the Stockholders'
Representatives to defend an Asserted Tax Liability.
(ix) The Company and Parent agree to retain all books and
records with respect to Tax matters pertinent to the
Company and its Subsidiaries until 90 days after the
expiration of the relevant statute of limitations
(and any extensions thereof) of the respective
taxable periods or portions thereof ending on or
prior to the Closing Date, and to abide by all record
retention agreements entered into with any taxing
authority.
(x) Notwithstanding any provision in this Section 5.12 to
the contrary, the terms and conditions of Sections
9.3, 9.4, 9.5 and 9.6 (to the extent not
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inconsistent with this Section 5.12) shall apply to
any indemnification obligation of the Shares with
respect to the Tax matters described in this Section
5.12.
5.13 Severance Benefits. Parent will provide to all employees of the Company
based in its San Francisco, California office (a) whose employment is
terminated by the Company within six (6) months after the Closing Date
due to elimination of positions or the closing of the Company's San
Francisco office, (b) who do not have a contractual right to receive
severance benefits, and (c) who sign a release reasonably acceptable to
Parent, cash severance equal to four (4) weeks base pay if such
employee does not terminate his or her employment within thirty (30)
days after the Closing Date and an additional four (4) weeks base pay
if such employee does not terminate his or her employment prior to
closing of the Company's San Francisco office.
5.14 Exchange of Stock. Prior to mailing proxy materials to the
Stockholders, as contemplated by Section 5.7, Parent and Beyar shall
have reached agreement in principle regarding the terms and conditions
under which Beyar shall retain following the Merger up to 340,000
shares of the Company Common Stock owned by Beyar, and Parent or Beyar
would have the right to require under specified circumstances that such
shares of Company Common Stock be exchanged for shares of capital stock
of Parent. Notwithstanding any other provision of this Agreement, this
Section 5.14 shall not be a condition to Closing for any party.
ARTICLE 6
CONDITIONS TO PARENT'S AND
MERGER SUBSIDIARY'S OBLIGATIONS
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of Parent and Merger Subsidiary to effect the transactions
contemplated herein shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions:
6.1 Representations and Warranties True. The representations and warranties
of the Company and the Principal Stockholders contained in this
Agreement, including without limitation in the Disclosure Schedule
initially delivered to Parent (and not including any changes or
additions delivered to Parent pursuant to Section 5.9), shall be in all
material respects true and correct as of the date when made and at and
as of the Closing as though such representations and warranties were
made at and as of such time, except for changes specifically permitted
or contemplated by this Agreement, and except insofar as the
representations and warranties relate expressly and solely to a
particular date or period, in which case they shall be true and correct
in all material respects at the Closing with respect to such date or
period.
6.2 Performance. The Company and Principal Stockholders shall have
performed and complied in all material respects with all agreements,
covenants, obligations and conditions required by this Agreement to be
performed or complied with by the Company and the Principal
Stockholders on or prior to the Closing.
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6.3 Required Approvals and Consents.
(a) All action required by law and otherwise to be taken by the
Board of Directors of the Company and the Stockholders to
authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly taken.
(b) All Consents of or from all Governmental Authorities required
hereunder to consummate the transactions contemplated herein,
and all Consents of or from all persons and entities other
than Governmental Authorities that are identified in the
Disclosure Schedule shall have been delivered, made or
obtained, and Parent shall have received copies thereof.
6.4 No Proceeding or Litigation. No suit, action, investigation, inquiry or
other proceeding by any Governmental Authority or other person or
entity shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby or which
is reasonably expected either individually or in the aggregate, to have
a Material Adverse Effect on the Company and its Subsidiaries taken as
a whole.
6.5 Legislation. No Applicable Law shall have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated
hereby or any of the conditions to the consummation of such
transaction.
6.6 Certificates. Parent shall have received such certificates of the
Company's officers and of the Principal Stockholders, in a form and
substance reasonably satisfactory to Parent, dated the Closing Date, to
evidence compliance with the conditions set forth in this Article 6 and
such other matters as may be reasonably requested by Parent.
6.7 Opinions of Company Counsel. Parent shall have received an opinion from
Arnold & Porter, counsel to the Company and the Principal Stockholders
dated the Closing Date, in form and substance reasonably satisfactory
to Parent. Parent shall have received an opinion from S. Horowitz,
counsel to the IMT Subsidiary, dated the Closing Date, in form and
substance reasonably satisfactory to Parent.
6.8 Escrow Agreement. The parties thereto shall have executed and delivered
the Escrow Agreement.
6.9 Employment Agreements. Parent shall have received executed Employment
Agreements in substantially the form of Exhibit G from Beyar and
Globerman.
6.10 Bick Consulting Agreement. Parent shall have received an executed
Consulting Agreement in substantially the form of Exhibit H from Bick.
6.11 Machek Consulting Agreement. Parent shall have received an executed
Consulting Agreement in substantially the form of Exhibit I from
Machek.
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6.12 Sale of ENT Business and German Subsidiary. The Company shall have
completed the sale of the ENT Business pursuant to Section 5.10, on
terms reasonably acceptable to Parent.
6.13 Dissenting Shares. Not more than five percent (5.0%) of the issued and
outstanding shares of Company Common Stock as of the Closing Date shall
be Dissenting Shares.
6.14 Resignation and Release. Parent shall have received Letters of
Resignation and Release of Claims, dated effective as of the Effective
Time, in substantially the form of Exhibit J from the officers and
directors of the Company and its Subsidiaries.
6.15 Voting Agreement. Parent shall have received the Voting Agreement
executed by Pell, Beyar and Globerman.
6.16 J & J Agreements. The J & J Agreements shall have been terminated and
the Company and the IMT Subsidiary shall have been released from any
claims or further obligations thereunder.
6.17 Cancellation of Options. All Company Stock Options shall have been
cancelled or exercised in accordance with Section 2.9(c).
6.18 1998 and 1999 Financial Statements. Parent shall have received the 1998
and 1999 Financial Statements, including an unqualified opinion of
Ernst & Young LLP, with the exception of footnote disclosure regarding
stock options.
6.19 Interim Financial Statements. Parent shall have received the Interim
Financial Statements reflecting that the Company revenues, excluding
revenues generated by the ENT Business, for the third quarter of 1999
were at least $2.7 million, operating expenses for the third quarter of
1999 were not more than $3.3 million, total assets did not decrease by
more than five percent (5.0%) from June 30, 1999 and total liabilities
did not increase by more than five percent (5.0%) from June 30, 1999,
excluding from the June 30, 1999 balance sheet and the September
30,1999 balance sheet all Loans and expenses incurred in connection
with the transactions contemplated hereby.
6.20 Jessco Agreement. The Consulting Agreement, dated April 1, 1996,
between the Company and Jessco Medical Supply shall have been
terminated and the Company shall have been released from any claims or
further obligations thereunder.
6.21 Yozma Agreement. The Agreement, dated September 8, 1999, among Yozma
Venture Capital Ltd., the Company and the IMT Subsidiary shall have
been terminated and the Company and IMT Subsidiary shall have been
released from any claims or further obligations thereunder.
6.22 SLP Agreement. The Investment and Share Purchase Agreement, dated April
18, 1999, between SLP Scientific Laboratory Products Ltd. ("SLP") and
the Company shall have been assigned with the written consent of SLP,
and the Company shall have been released from any claims or further
obligations thereunder including any contingent
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obligation to issue any shares of capital stock or options to purchase
shares of capital stock.
6.23 Service Agreements. The Service Agreement, dated March 1, 1998, between
the IMT Subsidiary and Discotech Medical Technologies Ltd. shall have
been terminated and the parties thereto shall have entered into a
replacement service agreement on terms reasonably satisfactory to
Parent. The Service Agreement, dated December 1, 1998, between the IMT
Subsidiary and Bypass Ltd. shall have been terminated and the parties
thereto shall have entered into a replacement service agreement on
terms reasonably satisfactory to Parent.
6.24 Employee Loan. The loan from the IMT Subsidiary to Ari DeRowe in the
amount of NIS 515,000 shall have been repaid.
6.25 1998 Tax Return. The Company shall have filed with the Internal Revenue
Service its tax return for 1998 and paid all taxes, interest and
penalties due therewith.
6.26 Transfer of IMT Subsidiary Stock. Beyar shall have entered into a
letter agreement, in form and content reasonably satisfactory to
Parent, pursuant to which Beyar agrees to transfer to Parent or its
designee, upon Parent's request, the one (1) share of stock of the IMT
Subsidiary held by Beyar as nominee.
6.27 Intellectual Property Transfer Agreement. Parent and S. Robert Kovac,
M.D. ("Kovac") shall have entered into definitive agreements which
shall contain substantially the terms and conditions set forth in the
term sheet executed on November 8, 1999 between Parent and Kovac,
pursuant to which Kovac shall transfer all of his right, title and
interest in certain intellectual property rights involving sling
products and technology for treating urinary incontinence to Parent.
ARTICLE 7
CONDITIONS TO COMPANY'S AND
PRINCIPAL STOCKHOLDERS OBLIGATIONS
Notwithstanding anything in this Agreement to the contrary, the
obligation of the Company and the Principal Stockholders to effect the
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Closing of each of the following conditions:
7.1 Representations and Warranties True. The representations and warranties
of Parent and Merger Subsidiary contained in this Agreement shall be in
all material respects true and correct as of the date when made and at
and as of the Closing, as though such representations and warranties
were made at and as of such time, except for changes permitted or
contemplated in this Agreement, and except insofar as the
representations and warranties relate expressly and solely to a
particular date or period, in which case they shall be true and correct
in all material respects at the Closing with respect to such date or
period.
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7.2 Performance. Parent shall have performed and complied in all material
respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by Parent
at or prior to the Closing.
7.3 Corporate Approvals. The Board of Directors of the Company and Merger
Subsidiary shall have approved the transactions contemplated hereby.
All action required to be taken by Parent to authorize the execution,
delivery and performance of this Agreement by Parent and the
consummation of the transactions contemplated hereby shall have been
duly and validly taken.
7.4 No Proceeding or Litigation. No suit, action, investigation, inquiry or
other proceeding by any Authority or other person or entity shall have
been instituted or threatened which questions the validity or legality
of the transactions contemplated hereby.
7.5 Legislation. No Applicable Law shall have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated
hereby or any of the conditions to the consummation of such
transaction.
7.6 Certificates. Parent shall have furnished the Company and the Principal
Stockholders with such certificates of Company officers, in a form and
substance reasonably acceptable to Company and Principal Stockholders,
dated the Closing Date, to evidence compliance with the conditions set
forth in this Article 7 and such other matters as may be reasonably
requested by the Company.
7.7 Opinion of Parent Counsel. Parent shall have delivered to Company an
opinion from Oppenheimer Wolff & Donnelly LLP, counsel to Parent, dated
the Closing Date, in form and substance reasonably satisfactory to the
Company.
7.8 Escrow Agreement. The parties thereto shall have executed and delivered
the Escrow Agreement and the appropriate funding obligations with
respect thereto shall have been satisfied.
7.9 Dissenting Shares. Not more than five percent (5.0%) of the issued and
outstanding shares of Company Common Stock as of the Closing Date shall
be Dissenting Shares.
7.10 OEM Agreement. IMT Subsidiary and Influ-ENT Ltd. shall have entered
into an OEM agreement, pursuant to which IMT agrees to manufacture and
sell to Influ-ENT Ltd. the Company's Repose product on terms and
conditions that are reasonably satisfactory to Parent and Influ-ENT
Ltd.
7.11 1998 and 1999 Financial Statements. The Company shall have received the
1998 and 1999 Financial Statements, including an unqualified opinion of
Ernst & Young LLP, with the exception of footnote disclosure regarding
stock options.
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ARTICLE 8
TERMINATION
8.1 Methods of Termination. Subject to the other provisions of this Article
8, this Agreement may be terminated and the transactions contemplated
herein may be abandoned at any time notwithstanding approval thereof by
the Stockholders, but not later than the Termination Date:
(a) By mutual written consent of Parent, Merger Subsidiary, the
Company and the Principal Stockholders; or
(b) By Parent and Merger Subsidiary on or after the Termination
Date, or such later date as may be established pursuant to
Section 2.3, if any of the conditions provided for in Article
6 of this Agreement have not been satisfied or waived in
writing by Parent prior to such date; or
(c) By the Company and the Principal Stockholders on or after the
Termination Date, or such later date as may be established
pursuant to Section 2.3, if any of the conditions provided for
in Article 7 of this Agreement have not been satisfied or
waived in writing by the Company and the Principal
Stockholders prior to such date; or
(d) By the Parent and Merger Subsidiary if there has been a
material breach of any representation, warranty, covenant or
agreement on the part of Company, any Subsidiary or Principal
Stockholder set forth in this Agreement; or
(e) By Company and the Principal Stockholders if there has been a
material breach of any representation, warranty, covenant or
agreement on the part of Parent or Merger Subsidiary set forth
in this Agreement; or
(f) By either party if any court of competent jurisdiction or any
other governmental body has issued an order, decree or ruling
or taken any other action permanently enjoining, restraining
or otherwise prohibiting the transactions contemplated hereby
and such order, decree, ruling or other action has become
final and nonappealable; or
(g) By Parent, Merger Subsidiary, the Company or the Principal
Stockholders if the condition set forth in Section 6.27 has
not been satisfied or waived on or before November 24, 1999.
8.2 Procedure Upon Termination. In the event of termination and abandonment
pursuant to Section 8.1, written notice thereof will forthwith be given
to the other party or parties, and the provisions of this Agreement
(except for Sections 5.4, 8.3, 8.4 11.3 and Article 10 which shall
survive termination of this Agreement) will terminate, and the
transactions contemplated herein will be abandoned, without further
action by any party hereto.
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8.3 Effect of Termination. If this Agreement is terminated as provided
herein:
(a) each party will, upon request, return all documents, work
papers and other material of any other party (and all copies
thereof) relating to the transactions contemplated herein,
whether so obtained before or after the execution hereof, to
the party furnishing the same; and
(b) the confidentiality obligations of Section 5.4 will continue
to be applicable.
8.4 Reimbursement of Expenses.
(a) Reimbursement by Parent. In the event that Parent and Merger
Subsidiary fail or refuse to consummate the transactions
contemplated by this Agreement in violation of this Agreement,
or this Agreement is terminated by Company pursuant to Section
8.1(e), then, in addition to any other rights or remedies
which may be available to the Company in law or in equity,
Parent shall reimburse the Company within five (5) business
days after written request its reasonable and documented
out-of-pocket costs (including legal and accounting fees and
costs, and travel expenses) incurred by Company in connection
with this Agreement, not to exceed an aggregate of One Million
U.S. Dollars ($1,000,000).
(b) Reimbursement by Company. In the event that Company fails or
refuses to consummate the transactions contemplated by this
Agreement in violation of this Agreement, or this Agreement is
terminated by Parent pursuant to Section 8.1(d), then, in
addition to any other rights or remedies which may be
available to the Parent in law or in equity, the Company shall
reimburse Parent within five (5) business days after written
request its reasonable and documented out-of-pocket costs
(including legal and accounting fees and costs, and travel
expenses) incurred by Parent connection with this Agreement,
not to exceed an aggregate of One Million U.S. Dollars
($1,000,000).
ARTICLE 9
SURVIVAL AND INDEMNIFICATION
9.1 Survival. The representations, warranties, covenants, agreements and
obligations of each party contained in this Agreement, and all claims
in respect of any breach of any representation, warranty, covenant,
agreement or obligation of party contained in this Agreement, will
survive the Closing and shall expire eighteen (18) months after the
Closing Date, except that representations and warranties set forth in
Sections 3.16 (Benefit Plans), 3.20 (Environmental Compliance) and 3.22
(Tax Matters) shall survive until six (6) months after the expiration
of the applicable statute of limitations. The right to indemnification
or any other remedy based on representations, warranties, covenants and
obligations in this Agreement will not be affected by any investigation
conducted with respect to, or any knowledge acquired (or capable of
being acquired) at any time, whether before or after the execution and
delivery of this Agreement or the Closing Date, with respect to the
accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant or obligation. The waiver of any condition based on
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the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not affect the
right to indemnification or any other remedy based on such
representations, warranties, covenants and obligations.
9.2 Indemnification by Parent. Subject to Section 9.5, Parent agrees to
indemnify, defend and hold harmless each of the Principal Stockholders
from and against any and all Damages asserted against, relating to,
imposed upon, suffered or incurred by the Principal Stockholders in
connection with enforcing their indemnification rights pursuant to this
Section 9.2 by reason of or resulting from (i) any untrue
representation of, or breach of warranty by, Parent or Merger
Subsidiary in any part of this Agreement, (ii) any nonfulfillment of
any covenant, agreement or undertaking of Parent or Merger Subsidiary
in any part of this Agreement which by its terms is to remain in effect
after the Closing and has not been specifically waived in writing at
the Closing by the party or parties hereof entitled to the benefits
thereof; (iii) any liability of the Company arising out of the
operation of the Company or the IMT Subsidiary or any of their
respective businesses after the Closing Date; (iv) any Liabilities for
Taxes of the Company, the IMT Subsidiary or any respective predecessor
in interest with respect to any tax period or part thereof beginning
after the Closing Date; and (v) any Product Liability Claim or other
third party claim relating to the Company or the IMT Subsidiary,
arising from acts, events, conditions or circumstances existing or
occurring after the Effective Time.
9.3 Indemnification by Principal Stockholders. Subject to Section 9.5, the
Principal Stockholders, jointly and severally, agree to indemnify,
defend and hold harmless Parent, its directors, officers, employees and
agents, from and against any and all Damages asserted against, relating
to, imposed upon, suffered or incurred by Parent, Merger Subsidiary,
its officers, directors, employees, agents and Affiliates, in
connection with enforcing their indemnification rights pursuant to this
Section 9.3 by reason of or resulting from (i) any untrue
representation of, or breach of warranty by, the Company, its
Subsidiaries or the Principal Stockholders in any part of this
Agreement, (ii) any nonfulfillment of any covenant, agreement or
undertaking of the Company, its Subsidiaries or the Principal
Stockholders in any part of this Agreement which by its terms is to
remain in effect after the Closing and has not been specifically waived
in writing at the Closing by the party or parties hereof entitled to
the benefits thereof, (iii) any Liabilities for Taxes of the Company,
the Subsidiaries or any respective predecessor in interest with respect
to any tax period or part thereof prior to the Closing Date in excess
of amounts accrued for Taxes on the Financial Statements, regardless of
whether such Liabilities for Taxes arise out of or constitute a breach
of any representation, warranty or covenant in this Agreement, (iv) any
Product Liability Claim or other third party claim relating to the
Company or its Subsidiaries, whether presently in existence or arising
hereafter from acts, events, conditions or circumstances existing or
occurring on or before the Effective Time, regardless of whether such
Product Liability Claim or third party claim arises out of or
constitutes a breach of any representation, warranty or covenant in
this Agreement, (v) any payments made to Dissenting Shareholders
pursuant to the DGCL in excess of the Merger Consideration per share of
Company Common Stock or Company Preferred Stock held by Dissenting
Shareholders; (vi) any liability to holders of Company Preferred Stock
arising out of the transactions contemplated by this Agreement; and
(vii) any use of the name "In-Fast" by the
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Company prior to the Closing Date or by Parent or the Company during
the six (6) month period following the Closing Date (each of the above
shall be referred to herein as an "Indemnification Liability").
Notwithstanding any other provision of this Agreement, the Principal
Stockholders shall have no personal liability and the Escrow Fund shall
be Parent's sole and exclusive source of recourse for any claims made
pursuant to clauses (iii), (iv) and (v) of this Section 9.3; provided,
however, that the foregoing shall not limit the personal liability of
the Principal Stockholders for any claims made pursuant to clauses (i)
and (ii) of this Section 9.3.
9.4 Claims for Indemnification.
(a) Subject to Section 9.4(c) and Section 9.1, whenever any claim
arises for indemnification hereunder the party seeking
indemnification (the "Indemnified Party"), will promptly
notify the party from whom indemnification is sought (the
"Indemnifying Party") of the claim and, when known, the facts
constituting the basis for such claim. In the case of any such
claim for indemnification hereunder resulting from or in
connection with any claim or legal proceedings of a third
party (a "Third Party Claim"), the notice to the Indemnifying
Party will specify, if known, the amount or an estimate of the
amount of the liability arising therefrom. The Indemnifying
Party shall have the right to dispute and defend all Third
Party Claims and thereafter so defend and pay any adverse
final judgment or award or settlement amount in regard
thereto. Such defense shall be controlled by the Indemnifying
Party, and the cost of such defense shall be borne by the
Indemnifying Party, except that the Indemnified Party shall
have the right to participate in such defense at its own
expense, and provided, however that the Indemnifying Party
must first acknowledge that the claim is a bona fide
indemnification claim under this Agreement. The Indemnified
Party shall cooperate in all reasonable respects in the
defense of any such claim, including making personnel, books,
and records relevant to the claim available to the
Indemnifying Party, without charge, except for reasonable
out-of-pocket expenses. If the Indemnifying Party fails to
take action within thirty (30) days as set forth above, then
the Indemnified Party shall have the right to pay, compromise
or defend any Third Party Claim and to assert the amount of
any payment on the Third Party Claim plus the reasonable
expenses of defense or settlement as the claim. The
Indemnified Party shall also have the right, exercisable in
good faith, to take such action as may be necessary to avoid a
default prior to the assumption of the defense of the Third
Party Claim by the Indemnifying Party, and any reasonable
expenses incurred by Indemnified Party so acting shall be paid
by the Indemnifying Party. Except as otherwise provided
herein, the Indemnified Party will not settle or compromise
any Third Party Claim for which it is entitled to
indemnification hereunder without the prior written consent of
the Indemnifying Party, which will not be unreasonably
withheld. The parties intend that all indemnification claims
be made as promptly as practicable.
(b) If the Indemnifying Party is of the opinion that the
Indemnified Party is not entitled to indemnification, or is
not entitled to indemnification in the amount claimed in such
notice, the Indemnifying Party will deliver, within ten (10)
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business days after the receipt of such notice, a written
objection to such claim and written specifications in
reasonable detail of the aspects or details objected to, and
the grounds for such objection. If the Indemnifying Party
filed timely written notice of objection to any claim for
indemnification, the validity and amount of such claim will be
determined by arbitration pursuant to Article 10. If timely
notice of objection is not delivered or if a claim by an
Indemnified Party is admitted in writing by an Indemnifying
Party or if an arbitration award is made in favor of an
Indemnified Party, the Indemnified Party, as a non-exclusive
remedy, will have the right to set-off the amount of such
claim or award against any amount yet owed, whether due or to
become due, by the Indemnified Party or any subsidiary thereof
to any Indemnifying Party by reason of this Agreement or any
agreement or arrangement or contract to be entered into at the
Closing.
(c) The remedies provided herein are cumulative and will not
preclude assertion by any party of any rights or the seeking
of any other remedies against any other party.
9.5 Indemnification Limits.
(a) Except as expressly provided otherwise herein, and subject to
the provisions of Section 9.4, neither of the Principal
Stockholders nor the Parent, as the case may be, will be
entitled to indemnification for any Damages under this Article
9 unless the aggregate of all Damages is more than Two Hundred
Fifty Thousand U.S. Dollars ($250,000) (the "Basket Amount").
When the aggregate amount of all such Damages hereunder equals
or exceeds the Basket Amount, the Parent or the Principal
Stockholders, as the case may be, will be entitled to full
indemnification of all claims, including the Two Hundred Fifty
Thousand U.S. Dollars ($250,000) that amounted to the Basket
Amount. The parties hereto agree that the Basket Amount is not
a deductible amount, nor that the Basket Amount will be deemed
to be a definition of "material" for any purpose in this
Agreement.
(b) Except as set forth in section 9.5(c), each Principal
Stockholder's liability under Section 9.3 shall be limited to
the portion of the Merger Consideration that such Principal
Stockholder is entitled to receive determined pursuant to the
terms of this Agreement (the "Maximum Amount").
(c) If any of the Principal Stockholders or the Company have
breached a representation, warranty, covenant or agreement,
and such breaching party had actual knowledge of the breach of
the representation, warranty, covenant or agreement herein, or
had actual knowledge of the potential or probable loss,
liability or damage (based on actual knowledge of the facts
and circumstances giving rise to such loss, liability or
damage) without disclosing such in the Disclosure Schedule on
or prior to the Closing Date, the Principal Stockholders will
jointly and severally promptly pay Parent the full
indemnification claim without regard to the Basket Amount or
the Maximum Amount set forth in this Section 9.5.
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9.6 Right of Off-Set. All payments of Contingent Merger Consideration and
Holdback Merger Consideration shall be made without set-off or
deduction of any kind, except that the Parent shall be entitled to
set-off against any such amounts owing by the Parent to the
Stockholders, any amounts that have been determined by a final decision
or judgement of an arbitrator to be due and owing by the Principal
Stockholders based on a claim for indemnification by the Parent under
this Article 9. Neither the exercise of, nor the failure to exercise,
such right of set-off will constitute an election of remedies nor limit
Parent in any manner in the enforcement of any other remedies that may
be available to it.
9.7 Release of Prior Claims. The Principal Stockholders hereby release the
Parent, Merger Subsidiary and the Company and their respective
subsidiaries, officers, directors, stockholders, employees and
Affiliates (collectively, the "Released Parties") of and from any and
all claims, complaints, causes of action or demands of whatever kind,
known or unknown (collectively, the "Claims"), which any of the
Principal Stockholders has or may have against the Released Parties for
any actions, conduct, decisions, behavior or events relating to or
arising out of either of the Principal Stockholders' status or
relationship as an employee, officer, director or shareholder of the
Company, except for claims arising under this Agreement. The Principal
Stockholders understand that this release extends to, but is not
limited to, Claims for breach of contract, breach of any express or
implied promise, retaliation, breach of public policy, negligence,
intentional infliction of emotional distress, defamation or any other
tortious conduct or any Claims under the federal or state securities
laws.
9.8 Principal Stockholder's Right of Contribution. In the event that any
Principal Stockholder shall make any cash payment in respect of a claim
for indemnification by the Parent pursuant to Section 9.3, such
Principal Stockholder shall be entitled to contribution from the other
Stockholders in an amount equal to such Stockholder's Pro Rata Share of
the cash amount so paid to the Parent; provided that any contribution
obligation by a Stockholder (other than a Principal Stockholder) shall
be satisfied solely and exclusively out of the Escrow Fund and any
other amounts, if any, held by the Exchange Agent for distribution to
such contributing Stockholder.
ARTICLE 10
ARBITRATION
10.1 Dispute. Except for any controversy, claim or dispute arising out of
the failure by any party to this Agreement to consummate the Merger and
the transactions contemplated by this Agreement and subject to the last
sentence of this Section 10.1, any controversy, claim or dispute of
whatever nature arising between the parties under this Agreement or in
connection with the transactions contemplated hereunder, including
those arising out of or relating to the breach, termination,
enforceability, scope or validity hereof, whether such claim existed
prior to or arises on or after the Effective Time (a "Dispute"), shall
be resolved by mediation or, failing mediation, by binding arbitration.
The agreement to mediate and arbitrate contained in this Article 10
shall continue in full force and effect despite the expiration,
rescission or termination of this Agreement. Notwithstanding the
foregoing, either party may seek injunctive relief with respect to any
controversy or claim
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arising out of or relating to any provision of this Agreement in any
court of competent jurisdiction.
10.2 Mediation. No party shall commence an arbitration proceeding pursuant
to the provisions set forth below unless such party shall first give a
written notice (a "Dispute Notice") to the other parties setting forth
the nature of the Dispute. The parties shall attempt in good faith to
resolve the Dispute by mediation under the CPR Institute for Dispute
Resolution ("CPR") Model Mediation Procedure for Business Disputes (the
"CPR Procedure") in effect at the time of the Dispute. If the parties
cannot agree on the selection of a mediator within 20 days after
receipt of the Dispute Notice, the mediator will be selected in
accordance with the CPR Procedure.
10.3 Arbitration.
(a) If the Dispute has not been resolved by mediation as provided
in Sections 10.1 and 10.2 within 60 days after receipt of the
Dispute Notice or such greater period as the parties may agree
upon in writing, or if a party fails to participate in a
mediation, then the Dispute shall be determined by binding
arbitration in Minneapolis, Minnesota. The arbitration shall
be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA") in
effect on the date on which the Dispute Notice is sent,
subject to any modifications contained in this Agreement. The
Dispute shall be determined by one arbitrator, except that if
the Dispute involves an amount in excess of $250,000
(exclusive of interest and costs), three arbitrators shall be
appointed. Persons eligible to serve as arbitrators shall be
members of the AAA Large, Complex Case Panel or a CPR Panel of
Distinguished Neutrals, or persons who have professional
credentials similar to those persons listed on such AAA or CPR
panels. The arbitrator(s) shall have the right to appoint an
independent expert (including an independent accounting firm)
and the costs and expenses of such expert, together with the
costs and expenses of the arbitrator(s), shall be born
one-half by the Principal Stockholders and one-half by Parent.
The award shall be in writing and include the findings of fact
and conclusions of law upon which it is based.
(b) The arbitration shall be governed by the substantive laws of
the State of Minnesota, without regard to conflicts-of-law
rules, and by the arbitration law of the Federal Arbitration
Act (Title 9, U.S. Code). Judgment upon the award rendered may
be entered in any court having jurisdiction.
(c) Except as otherwise required by law, the parties and the
arbitrator(s) agree to keep confidential and not disclose to
third parties any information or documents obtained in
connection with the arbitration process, including the
resolution of the Dispute. If a party fails to proceed with
arbitration as provided in this Agreement, or unsuccessfully
seeks to stay the arbitration, or fails to comply with the
arbitration award, or is unsuccessful in vacating or modifying
the award pursuant to a petition or application for judicial
review, the other party or parties, as applicable, shall be
entitled to be awarded costs, including reasonable attorneys'
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fees, paid or incurred in successfully compelling such
arbitration or defending against the attempt to stay, vacate
or modify such arbitration award and/or successfully defending
or enforcing the award.
ARTICLE 11
MISCELLANEOUS
11.1 Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
given (i) if personally delivered, when so delivered, (ii) if mailed,
two Business Days after having been sent by registered or certified
mail, return receipt requested, postage prepaid and addressed to the
intended recipient as set forth below, (iii) if given by facsimile,
once such notice or other communication is transmitted to the facsimile
number specified below and electronic confirmation is received,
provided that such notice or other communication is promptly thereafter
mailed in accordance with the provisions of clause (ii) above or (iv)
if sent through an overnight delivery service in circumstances to which
such service guarantees next day delivery, the day following being so
sent:
If to Company prior to Closing or to the Principal Stockholders:
To: Lewis C. Pell, Chairman
Influence, Inc.
40 Ramland Road
Orangeburg, New York
Fax: (914) 359-2251
With a copy to:
Arnold & Porter
399 Park Avenue
New York, NY 1002
Attn: Paul I. Rachlin, Esq.
Fax: (212) 715-1399
If to the Company after Closing
or to the Parent or Merger Subsidiary:
To: American Medical Systems, Inc.
10700 Bren Road West
Minnetonka, Minnesota 55343
Attn: Chief Executive Officer
Fax: (612) 930-6695
With a copy to:
Oppenheimer Wolff & Donnelly LLP
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Plaza VII
45 South Seventh Street, Suite 3400
Minneapolis, Minnesota 55402
Attn: Thomas A. Letscher, Esq.
Fax: (612) 607-7100
Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
11.2 Amendments; No Waivers.
(a) Subject to Applicable Law, any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver
is in writing and signed, in the case of an amendment, by all
parties hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No waiver by a party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional
or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of
any prior or subsequent occurrence. No failure or delay by a
party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies
provided by law.
11.3 Expenses. All costs, fees and expenses incurred in connection with the
negotiation, preparation, execution, delivery and performance of this
Agreement and in closing and carrying out the transactions contemplated
hereby shall be paid by the party incurring such cost or expense.
Without limiting the generality of the first sentence of this Section
11.3, the fees, costs and expenses of the accountants, attorneys and
other financial advisors (including, without limitation, Company's
attorneys, bankers and accountants) to the Company in connection with
the preparation or negotiation of, or consummation of the transactions
contemplated by, this Agreement shall be borne by the Stockholders and
paid in accordance with the Escrow Agreement; none of such fees, costs
or expenses shall be paid or assumed by Parent or the Company. Without
limiting the generality of the first sentence of this Section 11.3, the
fees, costs and expenses of the accountants, attorneys and other
financial advisors (including, without limitation, attorneys, bankers
and accountants) to Parent in connection with the preparation or
negotiation of, or consummation of the transactions contemplated by,
this Agreement shall be borne by Parent and none of such fees, costs or
expenses shall be paid by the Company or the
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Principal Stockholders. This Section 11.3 shall survive the termination
of this Agreement.
11.4 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors
and permitted assigns. No party hereto may assign either this Agreement
or any of its rights, interests or obligations hereunder without the
prior written approval of each other party.
11.5 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the internal laws of the State of Minnesota
(regardless of the laws that might otherwise govern under applicable
principles of conflicts of law).
11.6 Counterparts; Effectiveness. This Agreement may be signed in any number
of counterparts and the signatures delivered by facsimile, each of
which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received a
counterpart hereof signed by the other parties hereto.
11.7 Entire Agreement. This Agreement (including the Disclosure Schedule,
the Side Letter and all Exhibits referred to herein which are hereby
incorporated by reference and the other agreements executed
simultaneously herewith) constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all
prior agreements, understandings and negotiations, both written and
oral, between the parties with respect to the subject matter of this
Agreement. This Agreement supersedes all prior and contemporaneous oral
and written agreements and understandings between the parties with
respect to the transaction or transactions contemplated by this
Agreement (including without limitation the letter of intent dated
September 2, 1999 between Parent and the Company and all amendments and
extensions thereof). Neither this Agreement nor any provision hereof is
intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
11.8 Captions. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
All references to an Article or Section include all subparts thereof.
11.9 Severability. If any provision of this Agreement, or the application
thereof to any Person, place or circumstance, shall be held by a court
of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other
Persons, places and circumstances shall remain in full force and effect
only if, after excluding the portion deemed to be unenforceable, the
remaining terms shall provide for the consummation of the transactions
contemplated hereby in substantially the same manner as originally set
forth at the later of the date this Agreement was executed or last
amended.
11.10 Construction. The parties hereto intend that each representation,
warranty and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or
covenant contained herein in any respect, the fact that there
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exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity)
that the party has not breached shall not detract from or mitigate the
fact that the party is in breach of the first representation, warranty
or covenant.
11.11 Cumulative Remedies. The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by law.
11.12 Third Party Beneficiaries. No provision of this Agreement shall create
any third party beneficiary rights in any Person, including any
employee of Parent or Merger Subsidiary or employee or former employee
of the Company or any Affiliate thereof (including any beneficiary or
dependent thereof).
11.13 Appointment of Stockholders' Representatives; Enforcement of Rights,
Benefits and Remedies.
(a) By adopting this Agreement, the Stockholders hereby
irrevocably constitute and appoint each of Lewis Pell, Oren
Globerman, and Motti Beyar as the Stockholders'
Representatives (the "Stockholders' Representatives") for the
purpose of performing and consummating the transactions
contemplated by this Agreement and the Escrow Agreement. The
appointment of each of such Stockholders' Representatives is
coupled with an interest and all authority hereby conferred
shall be irrevocable and such Stockholders' Representatives is
hereby authorized and directed to perform and consummate all
of the transactions contemplated by this Agreement. Not by way
of limiting the authority of the Stockholders'
Representatives, each and all of the Stockholders, by their
adoption of this Agreement, for themselves and their
respective heirs, executors, administrators, successors and
assigns hereby authorize the Stockholders' Representatives to:
(i) effect any amendment to this Agreement or the Escrow
Agreement which the Stockholders' Representatives
deems necessary or desirable,
(ii) execute and deliver on their behalf all documents and
instruments which may be executed and delivered
pursuant to this Agreement or the Escrow Agreement,
except that all stock powers and letters of
transmittal with respect to the transfer of the
Company Common Stock or Company Preferred Stock shall
be personally executed by the Stockholders,
(iii) make and receive notices and other communications
pursuant to this Agreement or the Escrow Agreement
and service of process in any legal action or other
proceeding arising out of or related to this
Agreement or the Escrow Agreement or any of the
transactions hereunder,
(iv) settle any dispute, claim, action, suit or proceeding
arising out of or related to this Agreement or the
Escrow Agreement or any of the transactions
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hereunder, including, without limitation, the
calculation of the Merger Consideration,
(v) receive and distribute the Contingent Merger
Consideration and Holdback Merger Consideration,
(vi) appoint or provide for successor agents, and
(vii) pay expenses incurred or which may be incurred by or
on behalf of the Stockholders (and to be reimbursed
by the Stockholders for their Pro Rata Share of such
expenses out of the sums held by the Exchange Agent
pursuant to the Escrow Agreement) in connection with
this Agreement and the Escrow Agreement.
In the event of the death or disability of any Stockholders'
Representative, a majority of the remaining Stockholders'
Representatives shall promptly appoint one of the other
Principal Stockholders as a replacement. No person serving as
the Stockholders' Representatives under this Agreement shall
have any personal liability to any Stockholder or its
permitted assigns in respect of any claim arising under or
based upon this Agreement or the transactions hereunder except
to the extent that such person may have liability as a
Stockholder hereunder.
(b) Any claim, action, suit, or other proceeding, whether in law
or equity, to enforce any right, benefit or remedy granted to
Stockholders under this Agreement or the Escrow Agreement
shall be asserted, brought, prosecuted or maintained only by
the Stockholders' Representatives. With respect to any matter
contemplated by this Section 11.13, the Stockholders shall be
bound by any determination in favor of or against the
Stockholders' Representatives or the terms of any settlement
or release to which the Stockholders' Representatives shall
become a party.
(c) All actions to be taken by the Stockholders' Representatives
may be taken by any two Stockholders' Representatives acting
together.
(Following Page is the Signature Page)
69
<PAGE> 75
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
AMERICAN MEDICAL SYSTEMS, INC. INFLUENCE, INC.
a Delaware corporation a Delaware corporation
By: /s/ Douglas W. Kohrs By: /s/ Peter A. Bick
---------------------------- -------------------------------------------
Name: Douglas W. Kohrs Name: Peter A. Bick, M.D.
-------------------------- -----------------------------------------
Title: President and CEO Title: President and Chief Executive Officer
------------------------- ----------------------------------------
PERSUADE MERGER CORP. GLOBERMAN ENGINEERING LTD.
a Delaware corporation an Israeli company
By: /s/ Douglas W. Kohrs By: /s/ Oren Globerman
---------------------------- -------------------------------------------
Name: Douglas W. Kohrs Name: Oren Globerman
-------------------------- -----------------------------------------
Title: President and CEO Title: Manager
------------------------- ----------------------------------------
UROTEK LTD.
an Israeli company
By: Mordechay Beyar
-------------------------------------------
Name: Mordechay Beyar, M.D.
-----------------------------------------
Title: Director
----------------------------------------
KATSUMI ONEDA
/s/ Katsumi Oneda
----------------------------------------------
LEWIS C. PELL
/s/ Lewis C. Pell
----------------------------------------------
70
<PAGE> 76
GUARANTIES
American Medical Systems, Inc. hereby absolutely and unconditionally guarantees
the prompt payment and performance of all of the agreements, covenants and
indemnification obligations of Persuade Merger Corp. under the foregoing
Agreement and Plan of Merger, among American Medical Systems, Inc., Persuade
Merger Corp., Influence, Inc., Globerman Engineering Ltd., Urotek Ltd., Katsumi
Oneda and Lewis C. Pell.
AMERICAN MEDICAL SYSTEMS, INC.
a Delaware corporation
By: /s/ Douglas W. Kohrs
-----------------------------
Name: Douglas W. Kohrs
---------------------------
Title: President and CEO
--------------------------
Oren Globerman hereby absolutely and unconditionally guarantees the prompt
payment and performance of all of the agreements, covenants and indemnification
obligations of Globerman Engineering Ltd. under the foregoing Agreement and Plan
of Merger, among American Medical Systems, Inc., Persuade Merger Corp.,
Influence, Inc., Globerman Engineering Ltd., Urotek Ltd., Katsumi Oneda and
Lewis C. Pell.
/s/ Oren Globerman
- --------------------------------
OREN GLOBERMAN
Mordechay Beyar, M.D. hereby absolutely and unconditionally guarantees the
prompt payment and performance of all of the agreements, covenants and
indemnification obligations of Urotek Ltd. under the foregoing Agreement and
Plan of Merger, among American Medical Systems, Inc., Persuade Merger Corp.,
Influence, Inc., Globerman Engineering Ltd., Urotek Ltd., Katsumi Oneda and
Lewis C. Pell.
/s/ Mordechay Beyar
- --------------------------------
MORDECHAY BEYAR, M.D.
71
<PAGE> 77
EXHIBIT INDEX
EXHIBIT A Form of Certificate of Merger
EXHIBIT B Parent Retention List
EXHIBIT C Disclosure Schedule
EXHIBIT D Form of Irrevocable Proxy
EXHIBIT E Form of Voting Agreement
EXHIBIT F Form of ENT Purchase and Sale Agreement
EXHIBIT G Form of Beyar/Globerman Employment Agreement
EXHIBIT H Form of Bick Consulting Agreement
EXHIBIT I Form of Machek Consulting Agreement
EXHIBIT J Form of Resignation and Release
<PAGE> 1
EXECUTION COPY
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this
"Amendment"), dated as of December 15, 1999, is by and among (i) American
Medical Systems, Inc., a Delaware corporation ("Parent"), (ii) Persuade Merger
Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger
Subsidiary"), (iii) Influence, Inc., a Delaware corporation ("Company"), (iv)
Globerman Engineering Ltd., an Israeli company, Urotek Ltd., an Israeli company,
Katsumi Oneda, an individual residing in the State of New Jersey, and Lewis C.
Pell, an individual residing in the State of New York (collectively referred to
herein as the "Principal Stockholders") and (v) the Stockholders Representatives
(as defined in the Merger Agreement).
WHEREAS, the parties have entered into an Agreement and Plan of Merger,
dated as of November 12, 1999 (the "Merger Agreement").
WHEREAS, the parties, together with the Stockholders Representatives,
desire to amend the Merger Agreement as set forth herein.
ACCORDINGLY, the parties and the Stockholders Representatives hereby
agree as follows:
1. Reduction of Merger Consideration. As a result of the proposed
execution of the Exchange Agreement, dated as of December 15, 1999,
between Parent and Urotek Ltd., (the "Exchange Agreement") the parties
agree that Section 2.8 is hereby amended as follows:
A. By deleting the first part of Section 2.8, before paragraph
(a) of Section 2.8, and inserting in lieu thereof the
following:
"Subject to adjustment pursuant to Sections 2.8(a) and 2.8(e),
the Side Letter, as defined in Section 2.8(b), Section 2.10
(Contingent Merger Consideration), Section 2.12 (Dissenting
Shares) and Section 9.6 (Right of Off-Set), the consideration
to be paid for all of the Company Common Stock and Company
Preferred Stock issued and outstanding immediately prior to
the Effective Time will consist of Forty-Six Million U.S.
Dollars ($46,000,000), which shall be payable as follows:"
and;
B. By adding a new subparagraph (e), as follows:
(e) The amount of Merger Consideration to be paid by
Parent in connection with the Merger consisting of the Initial
Merger Consideration, Contingent Merger Consideration and
Holdback Merger Consideration shall be
<PAGE> 2
reduced and retained by Parent by an amount equal to the
product of (x) the amount of the Merger Consideration payable
pursuant to this Agreement, multiplied by (y) the Retained
Percentage. The "Retained Percentage" for purposes of this
Section 2.8(d) shall mean: (i) with respect to the Initial
Merger Consideration, a fraction equal to 0.022507 or such
other amount as AMS and the Stockholders Representative shall
agree represents that portion of the Initial Merger
Consideration that would have been distributable pursuant to
the Escrow Agreement to Urotek Ltd. ("Urotek") in respect of
the 225,000 shares of Company Common Stock owned by Urotek
that is subject to the Exchange Agreement (the "Urotek
Retained Shares"); (ii) with respect to the Contingent Merger
Consideration, a fraction equal to 0.025797; and (iii) with
respect to the Holdback Merger Consideration, a fraction equal
to 0.022879.
and;
C. Section 2.8(a) of the Merger Agreement is hereby amended to
the extent necessary to provide that, in addition to the
deductions set forth therein, an aggregate of $560.590.70
shall be deducted from the initial payment of Twenty-Five
Million U.S. Dollars ($25,000,000) to satisfy withholding
obligations for federal, state and local income and
employment-related taxes ("Withholding Obligations") arising
from the exercise or conversion of Company Stock Options held
by U.S. employees into shares of Company Common Stock and the
subsequent conversion thereof into the right to receive Merger
Consideration. Parent shall cause such amounts to be paid to
the appropriate taxing authorities through Company's payroll
service.
2. Cancellation and Conversion of Company Common Stock. Sections 2.9(a)
and 2.9(d) of the Merger Agreement are hereby amended in their entirety
to read as follows:
(a) Subject to the terms and conditions of Section 2.12, each
share of Company Common Stock, issued and outstanding
immediately prior to the Effective Time (other than (1)
Company Common Stock held in the Company's treasury or by any
of the Company's Subsidiaries, (2) Company Common Stock held
by Parent, Merger Subsidiary or any other Subsidiary of
Parent, (3) Dissenting Shares and (4) the Urotek Retained
Shares) shall automatically be converted into the right to
receive (x) a Pro Rata Share of the Initial Merger
Consideration, (less the amount of such Initial Merger
Consideration payable, before expenses, to holders of Company
Preferred Stock pursuant to Section 2.9(b) below) and (y) a
Pro Rata Share of any Holdback Merger Consideration and
Contingent Merger Consideration, if any, which becomes payable
under this Agreement, less any portion of the Contingent
Merger Consideration off-set by Parent pursuant to Section
9.6, and, in each case, less a Pro Rata Share of any
Stockholder Expenses;
2
<PAGE> 3
(d) Each share of the common stock, par value $.01 per share, of
Merger Subsidiary ("Merger Subsidiary Common Stock"), issued
and outstanding at the Effective Time of the Merger shall be
converted into Ten Thousand (10,000) shares of common stock,
par value $.001 per share, of the Surviving Corporation
("Surviving Corporation Common Stock").
3. Exchange Agreement. Section 2.9 of the Merger Agreement is hereby
amended by adding a new Section 2.9(f) at the end thereof as follows:
(f) The Urotek Retained Shares shall be exchangeable into shares
of Series A Non-Voting Preferred Stock, par value $.01 per
share, of Parent and Series D Convertible Voting Preferred
Stock, par value $.01 per share, of Parent pursuant to the
Exchange Agreement.
4. Tax Matters.
(a) Section 5.12(b) of the Merger Agreement is hereby amended to
the extent necessary to provide that notwithstanding any other
provision of Section 5.12(b), Parent shall be entitled to
retain any Tax refund or Tax benefit arising from amendments
to any Tax Return for the years ended December 31, 1997 and
1998 and the Tax period ending on the Closing Date.
(b) Section 5.12(c)(x) is hereby amended in its entirety to read
as follows: "Notwithstanding any provision in this Section
5.12 to the contrary, the terms and conditions of Sections
9.3, 9.4, 9.5 and 9.6 (to the extent not inconsistent with
this Section 5.12) shall apply to any indemnification
obligation of the Principal Stockholders with respect to the
Tax Matters described in this Section 5.12."
(c) The parties acknowledge and agree that for purposes of
calculating the cashless exercise of Company Stock Options and
the amount of Withholding Obligations, the fair market value
of the Merger Consideration payable for the outstanding shares
of Company Common Stock and Company Preferred Stock is equal
to Thirty-Five Million U.S. Dollars ($35,000,000). Such fair
market value shall also be used for calculating the
compensation deduction related to the cashless exercise of
Company Stock Options and subsequent conversion into a Pro
Rata Share of Merger Consideration to which the Company will
be entitled for the Tax period ending on Closing Date. An
aggregate of 1,210,257 shares of Company Common Stock will be
issued in connection with the cashless exercise of all
outstanding Company Stock Options.
5. Indemnification by Principal Stockholders. Section 9.3 of the Merger
Agreement is hereby amended to the extent necessary to provide that,
notwithstanding any other provision of the Merger Agreement, the
Principal Stockholders shall not be subject to any claim for
indemnification by the Parent under Section 9.3(iii) or arising out of
or based upon any Tax Liability arising from the amendments prior to
the Closing as reflected in
3
<PAGE> 4
that certain Amendment No. 1 to Services Agreement, dated effective
January 1, 1998, between the Company and IMT.
6. Parent Loans. Parent will offer to provide loans ("Loans") to the U.S.
employees of Company that Parent intends to retain to cover the
estimated Tax Liability (assuming a combined federal and state income
tax rate of 35%) incurred by such employees in connection with the
cashless exercise of Company Stock Options into shares of Company
Common Stock and the subsequent conversion thereof into the right to
receive a Pro Rata Share of Merger Consideration, but only to the
extent that such liability relates to the difference between the fair
market value of Merger Consideration established pursuant to Section
4(c) above and the Initial Merger Consideration paid at Closing.
7. Milestones. The parties agree that due to the need for additional time
by the parties to determine whether or not the Milestone described in
Section 2.10(c)(iv) has been satisfied, the parties agree that the
completion date for the satisfaction of such Milestone shall be
extended to December 23, 1999; provided that AMS shall provide prompt
notice of any deficiency in such Milestone after the date hereof.
8. Defined Terms. Capitalized words that are not defined herein shall have
the meaning given to them in the Merger Agreement.
9. No Other Amendments. Except as amended herein, the Merger Agreement
shall remain in full force and effect in accordance with its original
terms.
10. Counterparts. This Amendment may be signed in any number of
counterparts and the signatures delivered by facsimile, each of which
shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(Following Page is the Signature Page)
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and
year first above written.
AMERICAN MEDICAL SYSTEMS, INC. INFLUENCE, INC.
a Delaware corporation a Delaware corporation
By: /s/ Douglas W. Kohrs By: /s/ Peter Bick
-------------------------- --------------------------
Name: Douglas W. Kohrs Name: Peter Bick
------------------------ ------------------------
Title: President and CEO Title: President and CEO
----------------------- -----------------------
PERSUADE MERGER CORP. GLOBERMAN ENGINEERING LTD.
a Delaware corporation an Israeli company
By: /s/ Douglas W. Kohrs By: /s/ Oren Globerman
-------------------------- --------------------------
Name: Douglas W. Kohrs Name: Oren Globerman
------------------------ ------------------------
Title: President and CEO Title: Director
----------------------- -----------------------
UROTEK LTD.
an Israeli company
/s/ Katsumi Oneda
-----------------------------
By: /s/ Mordechay Beyar Katsumi Oneda
-------------------------
Name: Mordechay Beyar
------------------------
Title: Director /s/ Lewis C. Pell
----------------------- -----------------------------
Lewis C. Pell
STOCKHOLDERS REPRESENTATIVES:
The Stockholder's Representatives consent to and
adopt the foregoing Amendment to the Merger Agreement
on and as of the date first above written
/s/ Lewis C. Pell
- ------------------------------------
Lewis C. Pell,
as Stockholders Representative
/s/ Mordechay Beyar
- ------------------------------------
Mordechay Beyar,
as Stockholders Representative
/s/ Oren Globerman
- ------------------------------------
Oren Globerman,
as a Stockholders' Representative
5
<PAGE> 1
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Second
Amendment"), dated as of April 17, 2000, is by and among American Medical
Systems, Inc., a Delaware corporation ("Parent"), Influence, Inc., a Delaware
corporation ("Company"), on and behalf of itself and Persuade Merger Corp., a
wholly owned subsidiary of AMS ("PMC") which has been merged with and into the
Company, Globerman Engineering Ltd., an Israeli company, Urotek Ltd., an Israeli
company, Katsumi Oneda, an individual residing in the State of New Jersey, and
Lewis C. Pell, an individual residing in the State of New York (collectively
referred to herein as the "Principal Stockholders") and Lewis C. Pell, Oren
Globerman and Mordechay Beyar, M.D. (collectively referred to herein as the
"Stockholders' Representatives").
WHEREAS, the parties have entered into an Agreement and Plan of Merger,
dated as of November 12, 1999 (the "Merger Agreement").
WHEREAS, the parties have amended the Merger Agreement as set forth in
the First Amendment to the Agreement and Plan of Merger, dated December 16, 1999
(the "First Amendment").
WHEREAS, the parties desire to further amend the Merger Agreement to
correct certain calculations and to make certain adjustments as set forth
herein.
ACCORDINGLY, the parties hereby agree as follows:
1. Reduction of Merger Consideration. Section 2.8(e) of the Merger
Agreement, is hereby amended to read in its entirety as follows:
(e) The amount of Merger Consideration to be paid by Parent in
connection with the Merger consisting of the Initial Merger
Consideration, Contingent Merger Consideration and Holdback Merger
Consideration shall be reduced and retained by Parent by an amount
equal to the product of (x) the amount of the Merger Consideration
payable pursuant to this Agreement, multiplied by (y) the Retained
Percentage. The Retained Percentage for purposes of this Section 2.8(e)
shall mean: (i) with respect to the Initial Merger Consideration, a
fraction equal to .025577, or $490,632.88, representing that portion of
the Initial Merger Consideration that would have been distributable
pursuant to the Escrow and Exchange Agency Agreement to Urotek Ltd.
("Urotek") in respect of the 225,000 shares of Company Common Stock
owned by Urotek that is subject to the Exchange Agreement (the "Urotek
Retained Shares"); (ii) with respect to the Contingent Merger
Consideration, a fraction equal to .023415; and (iii) with respect to
the Holdback Merger Consideration, a fraction equal to .026480.
2. Adjustment to Reduction of Initial Merger Consideration. Based on
actual Initial Merger Consideration (taking account of adjustments made
at the closing), post-closing adjustments and refund/adjustment
payments by AMS to the Exchange Agent, the actual amount of Initial
Merger Consideration otherwise payable in respect of 225,000 shares
<PAGE> 2
should have been $490,632.88. The amount of the Urotek Retained Amount
in the Funds Flow Memorandum was stated as $530,306. AMS shall
therefore pay $39,673.12 (the difference between the Urotek Retained
Amount and the actual amount of Initial Merger Consideration payable in
respect of 225,000 shares) to the Exchange Agent as additional Initial
Merger Consideration.
3. Defined Terms. Capitalized words that are not defined herein shall have
the meaning given to them in the Merger Agreement.
4. No Other Amendments. Except as amended herein, the Merger Agreement
shall remain in full force and effect in accordance with its original
terms.
5. Counterparts. This Second Amendment may be signed in any number of
counterparts and the signatures delivered by facsimile, each of which
shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(Following Page is the Signature Page)
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed by their respective authorized officers as of the
day and year first above written.
AMERICAN MEDICAL SYSTEMS, INC. INFLUENCE, INC.
a Delaware corporation a Delaware corporation
By: /s/ Douglas W. Kohrs By: /s/ Peter Bick
-------------------------- ---------------------------
Name: Douglas W. Kohrs Name: Peter Bick
------------------------ -------------------------
Title: President and CEO Title: President and CEO
----------------------- ------------------------
GLOBERMAN ENGINEERING LTD.
an Israeli company
By: /s/ Oren Globerman
--------------------------
Name: Oren Globerman
------------------------
Title: Director
-----------------------
UROTEK LTD. KATSUMI ONEDA
an Israeli company /s/ Katsumi Oneda
--------------------------
By: /s/ Mordechay Beyar
-------------------------
Name: Mordechay Beyar LEWIS C. PELL
-----------------------
Title: Director /s/ Lewis C. Pell
---------------------- --------------------------
STOCKHOLDERS' REPRESENTATIVES
The Stockholders' Representatives consent to and adopt
the foregoing Second Amendment to the Merger Agreement
on and as of the date first above written
/s/ Lewis C. Pell
- -------------------------------------------
Lewis C. Pell
as Stockholders' Representative
/s/ Mordechay Beyar
- -------------------------------------------
Mordechay Beyar, M.D.
as Stockholders' Representative
/s/ Oren Globerman
- -------------------------------------------
Oren Globerman
as Stockholders' Representative
3
<PAGE> 1
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement"), dated as of December 15, 1999,
is by and between American Medical Systems, Inc., a Delaware corporation
("Parent") and Urotek Ltd., an Israeli company ("Urotek").
W I T N E S S E T H:
WHEREAS, the parties hereto entered into the Agreement and Plan Merger
dated as of November 12, 1999, as amended (the "Merger Agreement") by and among
Parent, Persuade Merger Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent, and Influence, Inc., a Delaware corporation ("Influence"),
Urotek and certain other principal stockholders of Influence, pursuant to which
Influence merged with Merger Subsidiary resulting in Influence as the surviving
entity; and
WHEREAS, Dr. Mordechay Beyar, through his personal holding company Urotek,
has agreed to retain pursuant to the terms of the Merger and as contemplated in
the Merger Agreement 225,000 shares of the common stock, par value $0.001 per
share, of Influence (the "Retained Common Stock"), which Retained Common Stock
shall not be converted into the right to receive Merger Consideration (as
defined in the Merger Agreement), and Parent agrees that Dr. Beyar, through
Urotek, will retain such Retained Common Stock, on the terms and conditions set
forth in this Agreement.
NOW THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01 Definitions. Unless otherwise defined herein, the capitalized
terms used herein shall have the respective meanings attributed to them in the
Merger Agreement. The following terms, as used herein, have the following
meanings:
"Additional Retained Merger Consideration" shall have the meaning ascribed
to it in Section 2.03(b) hereof.
"Additional Retained Series A Consideration" shall have the meaning
ascribed to it in Section 2.03(b)(i) hereof.
"Additional Retained Series D Consideration" shall have the meaning
ascribed to it in Section 2.03(b)(ii) hereof.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in Minneapolis, Minnesota are authorized or required by
law to close.
<PAGE> 2
"Change in Control" shall have the meaning ascribed to it in Section
2.02(b) hereof.
"Charter" shall mean the Fourth Amended and Restated Certificate of
Incorporation of Parent as in effect as of the date hereof.
"Determination Date" shall have the meaning ascribed to it in Section
2.03(b) hereof.
"$" or "Dollar" shall mean and refer to United States dollars.
"Exchange Date" shall mean the date specified in the Parent Notice or
Urotek Notice, as the case may be, on which Urotek shall transfer, assign and
deliver the number of shares of Retained Common Stock to Parent as specified in
such Notice in exchange for Parent's transfer, assignment and delivery of the
Parent Shares to Urotek or its assigns; provided that the Exchange Date
specified in the Parent Notice or Urotek Notice, as the case may be, shall be
not less than 10 or more than 60 calendar days after the date when such Notice
is given, unless the parties shall otherwise agree.
"GAAP" shall have the meaning set forth in section 4.01(h) hereof.
"Governmental Authority" means any foreign, domestic, federal, territorial,
state or local governmental authority, quasi-governmental authority,
instrumentality, court, government or self-regulatory organization, commission,
tribunal or organization or any regulatory, administrative or other agency, or
any political or other subdivision, department or branch of any of the
foregoing.
"Material Adverse Effect" shall have the meaning ascribed to it in Section
4.01 hereof.
"Parent Shares" shall mean the shares of Series A Preferred Stock and
Series D Preferred Stock which shall be exchanged for the Retained Common Stock
in respect of the Retained Merger Consideration and Additional Retained Merger
Consideration, as the case may be, upon Urotek's transfer, assignment and
delivery to Parent of shares of Retained Common Stock, together with all
dividends and interest accrued or otherwise paid in accordance with the terms of
the Charter, whether or not declared, from the date that any Merger
Consideration in respect of which such Retained Merger Consideration or
Additional Merger Consideration becomes payable or is paid (as though such
Parent Shares were issued on the date of such reduction of Merger Consideration
pursuant to Section 2.01) through the Exchange Date or any Determination Date,
as the case may be.
"Parent Notice" shall mean the written notice given by Parent to Urotek of
Parent's election pursuant to Section 2.02(a) hereof to cause Urotek to
transfer, assign and deliver the number of shares of the Retained Common Stock
specified therein to Parent in exchange for Parent Shares.
2
<PAGE> 3
"Person" means an individual, corporation, partnership, limited liability
company, association, trust, estate or other entity or organization, including a
Governmental Authority.
"Retained Percentage" shall have the meaning set forth in Section 2.01(b)
hereof.
"Retained Common Stock" shall have the meaning set forth in the recitals
hereto.
"Retained Merger Consideration" shall have the meaning ascribed to it in
Section 2.01(a) hereof.
"Retained Series A Merger Consideration" shall have the meaning ascribed to
it in Section 2.03(a)(ii) hereof.
"Retained Series D Merger Consideration" shall have the meaning ascribed to
it in Section 2.03(a)(i) hereof.
"SEC" shall have the meaning ascribed to it in Section 4.02(i) hereof.
"Series A Exchange Price" shall have the meaning ascribed to it in Section
2.03(a)(ii) hereof.
"Series A Preferred Stock" shall mean the Series A Non-Voting Preferred
Stock, par value $.01 per share, of Parent, together with the rights and terms
associated with such preferred stock as set forth in the Charter.
"Series D Exchange Price" shall have the meaning ascribed to it in Section
2.03(a)(i) hereof.
"Series D Preferred Stock " shall mean the Series D Convertible Voting
Preferred Stock, par value $.01 per share, of Parent, together with the rights
and terms associated with such preferred stock as set forth in the Charter.
"Stockholders Agreement" shall mean the Stockholders Agreement, dated as of
September 25, 1998, among Warburg, Pincus Equity Partners, L.P. ("Warburg"),
Parent and certain other investors of the Parent identified therein (the
"Investors"), as amended by Amendment No. 1 to the Stockholders Agreement, dated
as of July 27, 1999, among Warburg, Parent, the Investors and New Investors (as
defined therein). A copy of the Stockholders Agreement, as amended, is attached
hereto as Exhibit A.
"Transfer" shall have the meaning ascribed to it in Section 5.01(d) hereof.
"Urotek Notice" shall mean the written notice given by Urotek to Parent of
Urotek's election pursuant to Section 2.02(b) hereof to transfer, assign and
deliver the number of shares of Retained Common Stock specified therein to
Parent in exchange for Parent Shares.
3
<PAGE> 4
ARTICLE II. THE EXCHANGE
Section 2.01 Reduction of Merger Consideration.
(a) The amount of Merger Consideration to be paid by Parent in connection
with the Merger consisting of the Initial Merger Consideration,
Contingent Merger Consideration and Holdback Merger Consideration
shall be reduced and retained by Parent by an amount equal to the
product of (x) the amount of the Merger Consideration payable pursuant
to Article 2 of the Merger Agreement, multiplied by (y) the Retained
Percentage. The total Dollar value of the reductions to the payment of
the Merger Consideration made pursuant to this paragraph (a) as of the
Exchange Date shall be referred to herein as the "Retained Merger
Consideration."
(b) The "Retained Percentage" for purposes of this Section 2.01 shall
mean:
(i) with respect to the Initial Merger Consideration, a fraction
equal to 0.022507 (or such other fraction that AMS and the
Stockholders Representative shall agree in writing represents the
portion of the total Initial Merger Consideration that would have
been distributable pursuant to the Escrow and Exchange Agency
Agreement, dated the date hereof, between the Stockholders
Representatives, AMS and Norwest Bank Minnesota, National
Association to Urotek in respect of the Retained Common Stock);
(ii) with respect to the Contingent Merger Consideration, a fraction
equal to 0.025797; and
(ii) with respect to the Holdback Merger Consideration, a fraction
equal to 0.022879
Section 2.02 Optional Exchange.
(a) At any time after the date hereof, if Parent determines in its sole
discretion that it is necessary or advisable or in the best interests
of Parent to acquire the outstanding shares of Retained Common Stock,
Parent may upon delivery of the Parent Notice require and cause,
without further act, Urotek to transfer, assign and deliver to Parent
the number of shares of Retained Common Stock specified in the Parent
Notice in exchange for Parent Shares.
(b) At any time after (or in the case of clauses (ii) or (iii) below,
immediately prior to or after) (i) December 31, 2001, (ii) the
effective date of a registration statement registering Parent's
capital stock under the Securities Act for public distribution or
(iii) a Change in Control of Parent, Urotek may upon delivery of the
Urotek Notice cause, without further act, Parent to exchange the
number of shares of Retained Common Stock specified therein, which
shares Urotek shall transfer, assign and deliver to Parent, for Parent
Shares. As used herein, a "Change in Control" shall mean the
occurrence after the Effective Time of any of the following: (x) the
acquisition of voting securities (other than upon the exchange of any
class of preferred stock) of Person by any person or group of persons
that
4
<PAGE> 5
results in such person or group, together with its affiliates,
becoming, directly or indirectly, the beneficial owner of in excess of
50% of the outstanding voting securities of Parent; (y) a merger or
consolidation of Parent with any other corporation or legal entity
regardless of which entity is the survivor, other than a merger or
consolidation which would result in the voting securities (or
preferred stock convertible into voting securities) of Parent
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or being converted into voting securities of
the surviving entity) in excess of 50% of the voting securities of
Parent or such surviving entity outstanding immediately after such
merger or consolidation; or (z) the sale or disposition of all or
substantially all of Parent's assets other than in a transaction in
which holders of the voting securities of Parent immediately prior to
such transaction receive voting securities of the acquiror of such
assets or its affiliate that represent in excess of 50% of the voting
securities of such entity after consummation of such transaction.
Section 2.03 Exchange. The outstanding shares of Retained Common Stock shall
be exchanged for Parent Shares as follows:
(a) On the Exchange Date, in exchange for Urotek's transfer, assignment
and delivery of shares of Retained Common Stock to Parent, Parent
shall:
(i) convert 67% of the Retained Merger Consideration (the "Retained
Series D Consideration") into the number of shares of Series D
Preferred Stock which results from dividing the amount of the
Retained Series D Consideration as of the Exchange Date by the
exchange price that is in effect for such share at the time of
exchange computed as provided herein (the "Series D Exchange
Price"); and
(ii) convert 33% of the Retained Merger Consideration (the "Retained
Series A Consideration") into the number of shares of Series A
Preferred Stock which results from dividing the amount of the
Retained Series A Consideration as of the Exchange Date by the
exchange price that is in effect for such share at the time of
exchange computed as provided herein (the "Series A Exchange
Price", together with the Series D Exchange Price, the "Exchange
Prices").
(b) In consideration for Urotek's transfer, assignment and delivery of
shares of Retained Common Stock to Parent on the Exchange Date, if on
any day after the Exchange Date, Parent reduces and retains additional
Merger Consideration pursuant to Section 2.01 hereof ("Additional
Retained Merger Consideration") that becomes due and payable by Parent
after the Exchange Date to the former holders of the Company Common
Stock or Company Preferred Stock pursuant to the Merger Agreement (a
"Determination Date"), Parent immediately upon payment of such Merger
Consideration to such holders shall:
(i) convert 67% of the Additional Retained Merger Consideration (the
"Additional Retained Series D Consideration") into the number of
shares of Series D Preferred Stock which results from dividing
the amount of the Additional
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Retained Series D Consideration as of the applicable
Determination Date by the Series D Exchange Price; and
(ii) convert 33% of the Additional Retained Merger Consideration (the
"Additional Retained Series A Consideration") into the number of
shares of Series A Preferred Stock which results from dividing
the amount of the Additional Retained Series A Consideration as
of the applicable Determination Date by the Series A Exchange
Price.
(c) The initial Series D Exchange Price shall be Ten Dollars ($10) and the
initial Series A Exchange Price shall be One Thousand Dollars
($1,000). These Exchange Prices shall be adjusted from time to time as
provided in Article 3 hereof.
Section 2.04 Mechanics of Exchange. On the Exchange Date, Urotek shall
surrender the certificate or certificates for the number of shares of Retained
Common Stock to be exchanged for Parent Shares as specified in the Parent Notice
or Urotek Notice, as the case may be, duly endorsed, at the office of Parent or
any transfer agent thereof, or notify Parent or its transfer agent that such
certificates have been lost, stolen or destroyed and execute an agreement
reasonably satisfactory to Parent to indemnify Parent from any loss incurred by
it in connection with such certificates. Thereupon, and on any Determination
Date thereafter, Parent shall promptly issue and deliver to Urotek a certificate
or certificates for the number of shares of Series A Preferred Stock and Series
D Preferred Stock to which Urotek is entitled. Such exchange shall be deemed to
have been made immediately prior to the close of business on the Exchange Date,
and (a) the shares of Retained Common Stock to be exchanged shall be converted
into the right to receive Retained Merger Consideration and Additional Retained
Merger Consideration and (b) Urotek shall be treated for all purposes as the
record holder of such shares of Series A Preferred Stock and Series D Preferred
Stock on such date.
Section 2.05 Fractional Shares. Fractional shares of Series A Preferred Stock
or Series D Preferred Stock may be issued upon exchange of the Retained Common
Stock. In lieu of any fractional share to which Urotek would otherwise be
entitled, the Parent may pay cash equal to the product (rounded to the nearest
cent) of such fraction multiplied by the per share fair market value of Series A
Preferred Stock or Series D Preferred Stock, as the case may be, as determined
in good faith by the Board of Directors of Parent as of the Exchange Date.
ARTICLE III. ADJUSTMENTS TO THE EXCHANGE PRICES
Section 3.01 Adjustment for Stock Splits and Combinations. If Parent shall at
any time or from time to time after the Effective Time effect a stock split or
subdivision of the outstanding shares of Series A Preferred Stock or Series D
Preferred Stock, as the case may be, the Series A Exchange Price or Series D
Exchange Price, as the case may be, in effect immediately before that
subdivision shall be proportionately decreased, and, conversely, if Parent shall
at any time or from time to time after the Effective Time combine the
outstanding shares of Series A Preferred Stock or Series D Preferred Stock,
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as the case may be, into a smaller number of shares, the Series A Exchange Price
or Series D Exchange Price, as the case may be, in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 3 shall become effective at the close of business on the date the stock
split, subdivision or combination becomes effective.
Section 3.02 Adjustment for Dividends and Distributions. If Parent at any time
or from time to time after the Effective Time issues, or fixes a record date for
the determination of holders of Series A Preferred Stock or Series D Preferred
Stock, as the case may be, entitled to receive, a dividend or other distribution
payable solely in additional shares of (x) Series A Preferred Stock, to holders
of Series A Preferred Stock or (y) Series D Preferred Stock, to holders of
Series D Preferred Stock, in each such event the Series A Exchange Price or
Series D Exchange Price, as the case may be, that is then in effect shall be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by:
(i) in the event that Parent distributes a dividend to holders of Series
A Preferred payable solely in Series A Preferred Stock, multiplying
the Series A Exchange Price then in effect by a fraction (A) the
numerator of which is the total number of shares of Series A
Preferred Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(B) the denominator of which is the sum of the total number of shares
of Series A Preferred Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record
date; or
(ii) in the event that Parent distributes a dividend to holders of Series
D Preferred payable solely in Series D Preferred Stock, multiplying
the Series D Exchange Price then in effect by a fraction (A) the
numerator of which is the total number of shares of Series D
Preferred Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(B) the denominator of which is the sum of the total number of shares
of Series D Preferred Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record
date; plus
(iii) the number of shares of Series A Preferred Stock or Series D
Preferred Stock, as the case may be, issuable in payment of such
dividend or distribution; provided, however, that if such record date
is fixed and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Exchange Price for
such stock shall be recomputed accordingly as of the close of
business on such record date and thereafter the Exchange Price for
such stock shall be adjusted pursuant to this Section 3.02 to reflect
the actual payment of such dividend or distribution.
Section 3.03 Adjustments for Other Dividends and Distributions. If Parent at
any time or from time to time after the Effective Time issues, or fixes a record
date for the determination of holders of Series A Preferred Stock or Series D
Preferred Stock entitled to receive, a dividend or other distribution payable in
securities of Parent (other than (i)
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shares of Series A Preferred Stock, to holders of Series A Preferred Stock or
(ii) shares of Series D Preferred Stock, to holders of Series D Preferred Stock)
or other property, in each such event provision shall be made so that Urotek
shall receive upon exchange of the Retained Common Stock as contemplated herein,
in addition to the number of Parent Shares receivable thereupon, the amount of
securities of Parent or other property which it would have received had its
Retained Common Stock been exchanged into Series A Preferred Stock or Series D
Preferred Stock, as the case may be, on the date of such event and had it
thereafter, during the period from the date of such event to and including the
Exchange Date or Determination Date, as the case may be, retained such
securities or other property receivable by it as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 3 with respect to the rights of Urotek or with respect to such other
securities or other property by their terms. As used herein, the term "other
property" does not include cash.
Section 3.04 Adjustment for Reclassification, Exchange and Substitution. If at
any time or from time to time after the Effective Time, the Series A Preferred
Stock or Series D Preferred Stock, as the case may be, issuable upon the
exchange of the Retained Common Stock as contemplated herein is changed into the
same or a different number of shares of any class or series of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 3), then
in any such event Urotek shall have the right thereafter to exchange such stock
into the kind and amount of stock and other securities and property receivable
upon such recapitalization, reclassification or other change by holders of the
number of shares of Series A Preferred Stock or Series D Preferred Stock, as the
case may be, into which such shares of Retained Common Stock could have been
exchanged into immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.
Section 3.05 Reorganization. If at any time or from time to time after the
Effective Time there is a capital reorganization of the Series A Preferred Stock
or Series D Preferred Stock (other than a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 3), as a part of such capital reorganization provision
shall be made so that Urotek shall thereafter be entitled to receive upon
exchange of the Retained Common Stock as contemplated herein the number of
shares of stock or other securities or property of the company to which a holder
of the number of shares of Series A Preferred Stock or Series D Preferred Stock,
as the case may be, deliverable upon exchange thereof would have been entitled
in such capital reorganization, subject to adjustment in respect of such stock
or securities by the terms thereof. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 3.05 with
respect to the rights of Urotek after such capital reorganization to the end
that the provisions of this Section 3 (including adjustment either of the Series
A Exchange Price or Series D Exchange Price then in effect and the number of
shares issuable upon exchange of the Retained Common Stock) shall be applicable
after that event and be as nearly equivalent as practicable.
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Section 3.06 Certificate of Adjustment. In each case of an adjustment or
readjustment of either of the Exchange Prices for the number of shares of Series
A Preferred Stock or Series D Preferred Stock or other securities issuable upon
exchange of the Retained Common Stock, Parent, at its own expense, shall cause
its chief financial officer to compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to Urotek. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based. No adjustment in either Series A Exchange
Price or Series D Exchange Price shall be required to be made unless such
adjustment thereto would result in an increase or decrease of at least one cent,
but any adjustments not made because of this sentence shall be carried forward
and taken into account in any subsequent adjustment otherwise required
hereunder.
Section 3.07 Notices of Record Date. Upon (i) the establishment by Parent of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any capital reorganization of Parent, any reclassification
or recapitalization of the capital stock of Parent, any merger or consolidation
of Parent with or into any other corporation, or any transfer of all or
substantially all the assets of Parent to any other person or any voluntary or
involuntary dissolution, liquidation or winding up of Parent, Parent shall mail
to Urotek at least 20 days prior to the record date specified therein a notice
specifying (x) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (y) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (z) the date, if any, that is to be fixed as
to when the holders of record of Series A Preferred Stock or Series D Preferred
Stock, as the case may be, (or other securities) shall be entitled to exchange
their shares of Series A Preferred Stock or Series D Preferred Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification transfer, consolidation, merger, dissolution,
liquidation or winding up.
Section 3.08 Reservation of Stock Issuable upon Exchange. Parent shall at all
times reserve and keep available out of its authorized but unissued shares of
Series A Preferred Stock and Series D Preferred Stock, solely for the purpose of
effecting the exchange of the shares of the Retained Common Stock, such number
of its shares of Series A Preferred Stock and Series D Preferred Stock as shall
from time to time be sufficient to effect the exchange of all outstanding shares
of the Retained Common Stock; and if at any time the number of authorized but
unissued shares of Series A Preferred Stock or Series D Preferred Stock shall
not be sufficient to effect the exchange of all then outstanding shares of the
Retained Common Stock, Parent will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Series A Preferred Stock and/or Series D Preferred Stock to such
number of shares as shall be sufficient for such purpose.
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Section 3.09 Payment of Taxes. Parent will pay all transfer taxes or charges
that may be imposed with respect to the issue or delivery of shares of Series A
Preferred Stock or Series D Preferred Stock to Urotek pursuant to this
Agreement.
Section 3.10 No Impairment. Parent shall not amend its Certificate of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action for the purpose of avoiding or seeking to avoid the observance
or performance of any of the terms to be observed or performed hereunder by
Parent, but shall at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order to protect the
exchange rights of Urotek against dilution or other impairment as provided
herein.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of Parent. Parent hereby
represents and warrants to Urotek:
(a) Organization and Good Standing: Certificate of Incorporation and
Bylaws. Parent is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to carry on its business as
now conducted and proposed to be conducted. Parent is duly qualified
to conduct business as a foreign corporation and is in good standing
as a foreign corporation in all jurisdictions where the properties
owned, leased or operated by it are located or where its business is
conducted, except where the failure to so qualify or be in good
standing is not reasonably likely to have a material adverse effect on
Parent's consolidated business, financial condition, results of
operations, assets, liabilities or prospects (a "Material Adverse
Effect").
(b) Corporate Power. Parent has all requisite legal and corporate power to
enter into, execute, deliver and perform its obligations under this
Agreement. This Agreement is a valid and binding obligations of
Parent, enforceable in accordance with its terms, except as
enforcement may be limited by bankruptcy laws or other laws affecting
creditors' remedies generally or by equitable principles.
(c) Authorization, Etc.
(i) Corporate Action. All corporate action on the part of Parent
necessary for the execution and delivery of this Agreement, the
issuance of the shares of Series A Preferred Stock and Series D
Preferred Stock upon exchange of the shares of Retained Common
Stock, and the performance of Parent's obligations hereunder,
has been taken.
(ii) Valid Issuance. Any shares of Series A Preferred Stock and
Series D Preferred Stock issued upon exchange of the Retained
Common Stock, when issued in compliance with the provisions of
this Agreement, will be validly issued, and fully-paid and
non-assessable.
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(iii) No Preemptive Rights. No Person has any right of first refusal
or any preemptive or similar rights in connection with the
issuance of the shares of Series A Preferred Stock or Series D
Preferred Stock upon exchange of the shares of Retained Common
Stock or the issuance of any other securities by Parent.
(d) Noncontravention. The execution, delivery and performance of and
compliance with this Agreement and the issuance of the shares of
Series A Preferred Stock and Series D Preferred Stock upon exchange of
the Retained Common Stock will not result in nor constitute any
breach, default or violation of (i) any agreement, contract, lease,
license, instrument or commitment (oral or written) to which Parent is
a party or is bound or (ii) any law, rule, regulation, statute or
order applicable to Parent or its properties, nor result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any
of the properties or assets of Parent or any of its subsidiaries, any
of which breach, default or violation under clause (i) or (ii),
preceding, would have a Material Adverse Effect.
(e) Consents, Etc. Assuming the accuracy of the representations and
warranties of Urotek in Section 4.02 hereof on the date hereof and on
each Exchange Date and Determination Date, no consent, approval, order
or authorization of, or designation, registration, declaration or
filing with, any federal, state, local or provincial or other
governmental authority or other person on the part of Parent is
required in connection with the valid execution and delivery of this
Agreement or the issuance of the shares of Series A Preferred Stock or
the Series D Preferred Stock upon exchange of the Retained Common
Stock; other than, if required, filings or qualifications under
applicable state securities laws, which filings or qualifications, if
required, will be timely filed or obtained by Parent.
(f) Offering. Assuming the accuracy of the representations and warranties
of Urotek in Section 4.02 hereof on the date hereof and on each
Exchange Date and Determination Date, the issuance of shares of Series
A Preferred Stock and Series D Preferred Stock issued upon exchange of
the shares of Retained Common Stock will not result in a violation of
the requirements of Section 5 of the Securities Act or the
qualification or registration requirements of any applicable state
securities laws.
(g) Capitalization. The capitalization of Parent consists of 32,282,116
shares, currently consisting of (i) 8,000,000 shares of common stock,
$.01 par value per share ("Common Stock"), (ii) 6,000,000 shares of
non-voting common stock, $.01 par value per share ("Non-Voting Common
Stock"), (iii) 32,116 shares of Series A Preferred Stock, (iv)
4,050,0000 shares of Series B Convertible Voting Preferred Stock, $.01
par value per share (the "Series B Preferred Stock"), (v) 6,000,000
shares of Series C Convertible Non-Voting Preferred Stock, $.01 par
value per share (the "Series C Preferred Stock"), (vi) 4,800,000
shares of Series D Convertible Voting Preferred Stock, $.01 par value
per share (the "Series D Preferred Stock"), and (vii) 3,400,000 shares
of Series E Convertible Non-Voting Preferred Stock, $.01 par value per
share (the "Series E Preferred Stock"). On the
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date hereof, (i) no shares of Common Stock, (ii) no shares of
Non-Voting Common Stock, (iii) 28,115 shares of Series A Preferred
Stock, (iv) 680,000 shares of Series B Preferred Stock, (v) 3,370,000
shares of Series C Preferred Stock, (vi) 336,144 shares of Series D
Preferred Stock and (vii) 1,163,856 shares of Series E Preferred Stock
were issued and outstanding.
(h) Financial Statements. The Parent has previously furnished to Urotek
true and complete copies of the following financial statements for the
Parent: (i) statements of financial condition as of December 31, 1998,
and the related statements of operations and statements of changes in
financial position for the period from September 10, 1998 through
December 31, 1998, all certified by Ernst & Young LLP, independent
accountants, and (ii)(A) unaudited statements of financial condition
as of October 2, 1999, (B) unaudited statements of operations for the
three and nine month periods ended October 2, 1999 and October 3, 1998
and (C) unaudited statements of cash flows for the three and nine
month periods ended October 2, 1999. All such financial statements
have been prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a basis consistent with prior
periods (except for the omission of notes to the unaudited financial
statements), fairly present the consolidated financial condition of
the Parent as of dates thereof, and the results of operations of the
Parent for the periods indicated, and, in the case of unaudited
statements, subject to normal and recurring year-end adjustments.
Specifically, without limitation, such financial statements reflect,
as of their respective dates, all material accrued liabilities and
adequate reserves for all material un-accrued liabilities and for all
reasonably anticipated material losses of the Parent. The books of
account of the Parent fully and fairly reflect all of the transactions
of such companies and are complete and accurate. The Parent is not
subject to any undisclosed material liability not (i) reflected in its
October 2, 1999 unaudited financial statements referred to above or in
the notes to the December 31, 1998 financial statements or (ii)
incurred in the ordinary course of business since October 2, 1999. For
purposes of this Agreement, all financial statements of the Parent
shall be deemed to include any notes to such financial statements.
(i) Compliance with Laws. The Parent is not (i) subject to the terms or
provisions of any material judgment, decree, order, writ or injunction
or (ii) in violation of any terms or provisions of any laws, rules, or
regulations, except where such violations do not and are not likely to
have a Material Adverse Effect.
(j) Title to Property and Assets. Parent owns and possesses its properties
and assets free and clear of all mortgages, deeds of trust, liens,
encumbrances, security interests and claims except as reflected in the
financial statements and except for statutory liens for the payment of
current taxes that are not yet delinquent and liens, encumbrances and
security interests which arise in the ordinary course of business and
which do not affect material properties and assets of Parent and its
subsidiaries. With respect to the property and assets it leases, each
of Parent and each of its subsidiaries is in compliance with such
leases in all material respects.
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Section 4.02. Representations and Warranties by Urotek. Urotek represents and
warrants to Parent as follows:
(a) Organization and Good Standing: Certificate of Incorporation and
Bylaws. Urotek is a corporation duly organized, validly existing and
in good standing under the corporate laws of Israel. Urotek is a
non-U.S. Person within the meaning of Regulation S promulgated
pursuant to the Securities Act of 1933, as amended.
(b) Corporate Power. Urotek has all requisite legal and corporate power to
enter into, execute, deliver and perform its obligations under this
Agreement. This Agreement is a valid and binding obligations of
Urotek, enforceable in accordance with its terms, except as
enforcement may be limited by bankruptcy laws or other laws affecting
creditors' remedies generally or by equitable principles.
(c) Authorization. All corporate and legal action on the part of Urotek,
its officers, directors and stockholders necessary for the execution
and delivery of this Agreement and the performance of Urotek's
obligations hereunder has been taken.
(d) Noncontravention. The execution, delivery and performance of and
compliance with this Agreement will not result in nor constitute any
breach, default or violation of (i) any agreement, contract, lease,
license, instrument or commitment (oral or written) to which Urotek is
a party or is bound or (ii) any law, rule, regulation, statute or
order applicable to Urotek or its properties.
(e) Consents, Etc. No consent, approval, order or authorization of, or
designation, registration, declaration or filing with, any federal,
state, local or provincial or other governmental authority or other
person on the part of Urotek is required in connection with the valid
execution and delivery of this Agreement.
(f) Investment Intent; Authority. Urotek is acquiring the shares of Series
A Preferred Stock and Series D Preferred Stock issuable upon exchange
of the shares of Retained Common Stock for investment for Urotek's own
account, and not as nominee or agent for investment and not with a
view to or for resale in connection with any distribution or public
offering thereof within the meaning of the Securities Act.
(g) Shares Not Registered. Urotek understands and acknowledges that
neither the shares of Series A Preferred Stock nor the shares of
Series D Preferred Stock issuable upon exchange of the shares of
Retained Common Stock will be registered under the Securities Act or
qualified under any state securities laws in reliance upon one or more
exemptions from registration or qualification under the Securities Act
and such state securities laws, and that Parent's reliance upon such
exemption is predicated upon Urotek's representations set forth in
this Agreement. Urotek understands and acknowledges that resale of the
shares of
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Series A Preferred Stock and Series D Preferred Stock issuable upon
exchange of the shares of Retained Common Stock may be restricted
indefinitely unless they are subsequently registered under the
Securities Act and qualified under state law or an exemption from such
registration and such qualification is available.
(h) Disposition. In no event will Urotek make a disposition of any of the
shares of Series A Preferred Stock or Series D Preferred Stock
issuable upon exchange of the shares of Retained Common Stock, unless
such preferred stock shall have been registered under the Securities
Act, unless and until (i) it shall have notified Parent with a
statement of the circumstances surrounding the proposed disposition
and (ii) it shall have furnished Parent with an opinion of counsel
reasonably satisfactory to Parent to the effect that (A) such
disposition will not require registration of such securities under the
Securities Act, and (B) that appropriate action necessary for
compliance with the Securities Act has been taken.
(i) Accredited Investor. Urotek is an "accredited investor" within the
meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
ARTICLE V. ADDITIONAL COVENANTS
Section 5.01 Covenants.
(a) The parties hereto shall each take all such action within their
reasonable control as may be necessary or appropriate from time to
time to cause the exchange of the Retained Common Stock for shares of
Series A Preferred Stock and Series D Preferred Stock as contemplated
herein to be effected on the Exchange Date and any Determination Date.
(b) The parties hereto hereby acknowledge and consent to the provisions of
this Agreement, and covenant and agree to execute and deliver, or
cause to be executed and delivered, such documents or instruments, and
to take, or cause to be taken, such actions, as may be necessary or
desirable to effect the purposes of this Agreement, including, without
limitation, to effect or evidence the transfer, assignment and
delivery of (i) the shares of Retained Common Stock to Parent and (ii)
shares of Series A Preferred Stock and Series D Preferred Stock to
Urotek, each as acquired by Parent or Urotek, as the case may be,
pursuant to this Agreement.
(c) On the Exchange Date, Urotek shall execute and deliver to Parent the
counterpart signature page to the Stockholders Agreement attached
hereto as Exhibit B, and upon such execution and delivery Urotek shall
become a party to the Stockholders Agreement, and be subject to all of
the obligations and entitled to all of the rights of an Investor (as
such term is defined therein).
(d) Urotek shall not sell, transfer, assign, pledge or otherwise dispose
of ("Transfer") the Retained Common Stock, or any portion
thereof, (except to Dr. Beyar provided that Dr. Beyar agrees in
writing to be bound by the terms and conditions
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of this Agreement), without the prior written consent of Parent, which
consent shall not be unreasonably withheld. Urotek shall notify Parent
of any proposed Transfer of the Retained Common Stock, or any portion
thereof, in writing 30 days prior to the date of such proposed
Transfer. Urotek acknowledges and agrees that any attempted Transfer
in violation of this Section 5.01(d) shall result in the automatic
exchange of the Retained Common Stock for the right to receive Parent
Shares as contemplated by and in accordance with Article II hereof.
(e) The certificate for the shares of Retained Common Stock shall be
stamped or otherwise imprinted with a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF THE EXCHANGE AGREEMENT, DATED AS OF DECEMBER
15, 1999, BY AND BETWEEN AMERICAN MEDICAL SYSTEMS, INC. AND UROTEK
LTD. ("EXCHANGE AGREEMENT") AND CANNOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED OR OTHERWISE DISPOSED OF IN VIOLATION THEREOF."
(f) Urotek hereby acknowledges and agrees that other than as specifically
required by the terms of the Charter, neither Parent nor Influence is
at any time obligated to make, pay or declare any dividends or other
distributions to any holders of shares of their respective capital
stock, including, without limitation, Urotek.
ARTICLE VI. MISCELLANEOUS
Section 6.01. Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) if
personally delivered, when so delivered, (ii) if mailed, two Business Days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid and addressed to the intended recipient as set forth below,
(iii) if given by facsimile, once such notice or other communication is
transmitted to the facsimile number specified below and electronic confirmation
is received, provided that such notice or other communication is promptly
thereafter mailed in accordance with the provisions of clause (ii) above or (iv)
if sent through an overnight delivery service in circumstances to which such
service guarantees next day delivery, the day following being so sent:
15
<PAGE> 16
If to Urotek:
To: Urotek Ltd.
3 Hasadnoat St.
Herzelia B
ISRAEL 46728
Attn: Dr. Mordechay Beyar
Fax: 972-9-970-4355
With a copy to:
Arnold & Porter
399 Park Avenue
New York, NY 1002
Attn: Paul I. Rachlin, Esq.
Fax: (212) 715-1399
If to Parent:
To: American Medical Systems, Inc.
10700 Bren Road West
Minnetonka, Minnesota 55343
Attn: Chief Executive Officer
Fax: (612) 930-6695
With a copy to:
Oppenheimer Wolff & Donnelly LLP
Plaza VII
45 South Seventh Street, Suite 3400
Minneapolis, Minnesota 55402
Attn: Thomas A. Letscher, Esq.
Fax: (612) 607-7100
and
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attn: Christopher E. Manno
Fax: (212) 728-8111
Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims
16
<PAGE> 17
and other communications hereunder are to be delivered by giving the other
parties notice in the manner herein set forth.
Section 6.02 Amendments; No Waivers. Any provision of this Agreement may be
amended, waived or modified upon the written consent of the Urotek and the
Purchaser to be bound by such amendment, waiver or modification.
Section 6.03 Expenses. All costs, fees and expenses incurred in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement and in closing and carrying out the transactions contemplated hereby
shall be paid by the party incurring such cost or expense.
Section 6.04 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Except as expressly set forth herein, no party hereto may
assign either this Agreement or any of its rights, interests or obligations
hereunder without the prior written approval of each other party.
Section 6.05 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the internal laws of the State of Minnesota
(regardless of the laws that might otherwise govern under applicable principles
of conflicts of law).
Section 6.06 Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts and the signatures delivered by facsimile, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement shall become effective when
each party hereto shall have received a counterpart hereof signed by the other
parties hereto.
Section 6.07 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, understandings and negotiations, both written and oral,
between the parties with respect to the subject matter of this Agreement. This
Agreement supersedes all prior and contemporaneous oral and written agreements
and understandings between the parties with respect to the transaction or
transactions contemplated by this Agreement. Neither this Agreement nor any
provision hereof is intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
Section 6.08 Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof. All references to an Article or Section include all subparts thereof.
Section 6.09 Severability. If any provision of this Agreement, or the
application thereof to any Person, place or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other Persons,
places and circumstances shall remain in full force and effect only if, after
excluding the portion deemed to be unenforceable, the remaining terms shall
provide for the consummation of the transactions contemplated
17
<PAGE> 18
hereby in substantially the same manner as originally set forth at the later of
the date this Agreement was executed or last amended.
Section 6.10 Construction. The parties hereto intend that each representation,
warranty and covenant contained herein shall have independent significance. If
any party has breached any representation, warranty or covenant contained herein
in any respect, the fact that there exists another representation, warranty or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) that the party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty or covenant.
Section 6.11 Cumulative Remedies. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
Section 6.12 Third Party Beneficiaries. No provision of this Agreement shall
create any third party beneficiary rights in any Person not a party hereto
(Following Page is the Signature Page)
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
AMERICAN MEDICAL SYSTEMS, INC. UROTEK LTD. INC.
a Delaware corporation an Israeli corporation
By: /s/ Douglas W. Kohrs By: /s/ Mordechay Beyar
--------------------------- ----------------------------
Name: Douglas W. Kohrs Name: Mordechay Beyar
------------------------- --------------------------
Title: President and CEO Title: Director
------------------------ -------------------------
Mordechay Beyar, M.D. hereby absolutely and unconditionally guarantees the
prompt payment and performance of all of the agreements, covenants and
obligations of Urotek Ltd. under the foregoing Agreement between American
Medical Systems, Inc. and Urotek Ltd.
/s/ Mordechay Beyar
- ------------------------------
MORDECHAY BEYAR, M.D.
19
<PAGE> 1
FIRST AMENDMENT TO THE EXCHANGE AGREEMENT
THIS FIRST AMENDMENT TO THE EXCHANGE AGREEMENT (this "Amendment"),
dated as of April 17, 2000, is by and among, American Medical Systems, Inc., a
Delaware corporation ("AMS"), American Medical Systems Holdings, Inc., a
Delaware corporation ("Holdings") and Urotek Ltd., an Israeli company
("Urotek").
W I T N E S S E T H:
WHEREAS, AMS and Urotek were parties to the Agreement and Plan of
Merger dated as of November 12, 1999, as amended (the "Merger Agreement") by and
among AMS, Persuade Merger Corp., a Delaware corporation and a wholly-owned
subsidiary of AMS ("Merger Subsidiary"), and Influence, Inc., a Delaware
corporation ("Influence"), Urotek and certain other principal stockholders of
Influence, pursuant to which Influence merged with Merger Subsidiary resulting
in Influence as the surviving entity; and
WHEREAS, Dr. Mordechay Beyar, through his personal holding company
Urotek, agreed to retain, pursuant to the terms of the Merger and as
contemplated in the Merger Agreement, 225,000 shares of the common stock, par
value $0.001 per share, of Influence (the "Retained Common Stock"), which
Retained Common Stock was not be converted into the right to receive Merger
Consideration (as defined in the Merger Agreement), and AMS agreed that Dr.
Beyar, through Urotek, could retain such Retained Common Stock, on the terms and
conditions set forth in the Exchange Agreement (the "Exchange Agreement") dated
December 16, 1999 by and between Urotek and AMS.
WHEREAS, Holdings has been formed to hold 100% of the issued and
outstanding capital stock of AMS, and the shareholders of AMS have agreed to
exchange all of their shares of outstanding capital stock of AMS for shares of
the same class of capital stock of Holdings.
WHEREAS, the parties desire to amend the Exchange Agreement to correct
certain calculations and make certain adjustments and to acknowledge the
formation of Holdings and the exchange of capital stock contemplated therewith,
as set forth in this Amendment.
ACCORDINGLY, the parties hereto hereby agree as follows:
1. Section 2.01 (b). Section 2.01(b) of the Exchange Agreement is hereby amended
in its entirety to read as follows:
(b) The "Retained Percentage" for purposes of this Section 2.01 shall mean:
(i) with respect to the Initial Merger Consideration, a fraction equal to
.025577 (which percentage represents $490,632.88 out of the Initial
Merger Consideration);
<PAGE> 2
(ii) with respect to the Contingent Merger Consideration, a fraction equal
to .023415; and
(iii) with respect to the Holdback Merger Consideration, a fraction equal
to .026480.
2. Adjustment to Reduction of Initial Merger Consideration. Based on actual
Initial Merger Consideration (taking account of adjustments made at the
closing), post-closing adjustments and refund/adjustment payments by AMS to the
Exchange Agent, the actual amount of Initial Merger Consideration payable in
respect of 225,000 shares should have been $490,632.88. The amount of the Urotek
Retained Amount in the Funds Flow Memorandum was $530,306. AMS shall therefore
pay $39,673.12 (the difference between the Urotek Retained Amount in the Funds
Flow Memorandum and the actual amount of Initial Merger Consideration payable in
respect of 225,000 shares) to the Exchange Agent as additional Initial Merger
Consideration.
3. Section 2.02(b). Section 2.02(b) of the Exchange Agreement is hereby amended
in its entirety to read as follows:
(b) At any time after (or in the case of clauses (ii) or (iii) below,
immediately prior to or after) (i) December 31, 2001, (ii) the effective date of
a registration statement registering Parent's capital stock under the Securities
Act for public distribution or (iii) a Change in Control of Parent or Holdings,
Urotek may upon delivery of the Urotek Notice cause, without further act, Parent
to exchange the number of shares of Retained Common Stock specified therein,
which shares Urotek shall transfer, assign and deliver to Parent, for Parent
Shares. As used herein, a "Change in Control" shall mean the occurrence after
the Effective Time of any of the following: (x) the acquisition of voting
securities (other than upon the exchange of any class of preferred stock) of
Person by any person or group of persons that results in such person or group,
together with its affiliates, becoming, directly or indirectly, the beneficial
owner of in excess of 50% of the outstanding voting securities of Parent or
Holdings; (y) a merger or consolidation of Parent or Holdings with any other
corporation or legal entity regardless of which entity is the survivor, other
than a merger or consolidation which would result in the voting securities (or
preferred stock convertible into voting securities) of Parent or Holdings
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or being converted into voting securities of the surviving
entity) in excess of 50% of the voting securities of Parent or Holdings or such
surviving entity outstanding immediately after such merger or consolidation; or
(z) the sale or disposition of all or substantially all of Parent's or Holdings'
assets other than in a transaction in which holders of the voting securities of
Parent or Holdings immediately prior to such transaction receive voting
securities of the acquiror of such assets or its affiliate that represent in
excess of 50% of the voting securities of such entity after consummation of such
transaction.
4. Charter. The definition of "Charter" in Section 1.01 of the Exchange
Agreement is hereby amended to mean the Certificate of Incorporation of
Holdings, as in effect as of the date of this Amendment.
2
<PAGE> 3
5. Parent. All references in the Exchange Agreement to Parent shall mean
American Medical Systems Holdings, Inc., except that the references in Sections
2.01(a), 2.02(b) and 4.01(h), (i) and (j) of the Exchange Agreement to Parent
shall mean American Medical Systems, Inc. and any reference in the Exchange
Agreement with respect to the acquisition by Parent of the Retained Common Stock
shall be deemed to be a reference to American Medical Systems, Inc. By executing
this Amendment, Holdings agrees to be bound by all of the provisions of the
Exchange Agreement binding on Parent as if Holdings were an original party to
the Exchange Agreement.
6. Amendment to the Definition of "Stockholders Agreement". The term
Stockholders Agreement is hereby amended in its entirety to read as follows:
"Stockholders Agreement" shall mean the Stockholders Agreement, dated as of
March 21, 2000, among Warburg, Pincus Equity Partners, L.P. ("Warburg"),
Holdings and certain other investors of Holdings identified therein
("Investors"). A copy of the Stockholders Agreement is attached to this
Amendment as Exhibit A.
7. Defined Terms. Capitalized words that are not defined herein shall have the
meaning given to them in the Exchange Agreement.
8. No Other Amendments. Except as amended herein, the Exchange Agreement shall
remain in full force and effect in accordance with its original terms.
9. Counterparts. This Amendment may be signed in any number of counterparts and
the signatures delivered by facsimile, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
(Following Page is the Signature Page)
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective authorized officers as of the day and year first
above written.
AMERICAN MEDICAL SYSTEMS, INC. UROTEK LTD. INC.
a Delaware corporation an Israeli corporation
By: /s/ Gregory J. Melsen By: /s/ Mordechay Beyar
----------------------------------------- ------------------------------
Name: Gregory J. Melsen Name: Mordechay Beyar
--------------------------------------- ----------------------------
Title: Vice President - Finance, Treasurer Title: Director
-------------------------------------- ---------------------------
and Chief Financial Officer
--------------------------------------
AMERICAN MEDICAL SYSTEMS
HOLDINGS, INC.
a Delaware corporation
By: /s/ Gregory J. Melsen
-----------------------------------------
Name: Gregory J. Melsen
---------------------------------------
Title: Secretary
--------------------------------------
Mordechay Beyar, M.D. hereby absolutely and unconditionally guarantees the
prompt payment and performance of all of the agreements, covenants and
obligations of Urotek Ltd. under the Exchange Agreement and the foregoing
Amendment between American Medical Systems, Inc. and Urotek Ltd.
/s/ Mordechay Beyar
- --------------------------------------------
MORDECHAY BEYAR, M.D.
4
<PAGE> 1
[EXECUTION COPY]
CREDIT AGREEMENT
Dated as of March 24, 2000
among
AMERICAN MEDICAL SYSTEMS, INC.,
as Borrower,
and
THE SUBSIDIARIES OF THE BORROWER
FROM TIME TO TIME PARTY HERETO,
as Guarantors,
THE LENDERS
FROM TIME TO TIME PARTY HERETO,
BANK OF AMERICA, N. A.,
as Agent
and
BANC OF AMERICA SECURITIES LLC,
as Sole Lead Arranger and Sole Book Manager
<PAGE> 2
TABLE OF CONTENTS
SECTION 1 DEFINITIONS.......................................................1
1.1 DEFINITIONS.........................................................1
1.2 COMPUTATION OF TIME PERIODS........................................28
1.3 ACCOUNTING TERMS...................................................28
SECTION 2 CREDIT FACILITIES................................................29
2.1 REVOLVING LOANS....................................................29
2.2 LETTER OF CREDIT SUBFACILITY.......................................31
2.3 TRANCHE A TERM LOAN................................................36
2.4 TRANCHE B TERM LOAN................................................38
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES...................40
3.1 DEFAULT RATE.......................................................40
3.2 EXTENSION AND CONVERSION...........................................40
3.3 PREPAYMENTS........................................................41
3.4 TERMINATION AND REDUCTION OF COMMITMENTS...........................44
3.5 FEES...............................................................45
3.6 CAPITAL ADEQUACY...................................................46
3.7 LIMITATION ON EURODOLLAR LOANS.....................................46
3.8 ILLEGALITY.........................................................46
3.9 REQUIREMENTS OF LAW................................................47
3.10 TREATMENT OF AFFECTED LOANS........................................48
3.11 TAXES..............................................................48
3.12 COMPENSATION.......................................................50
3.13 PRO RATA TREATMENT.................................................51
3.14 SHARING OF PAYMENTS................................................51
3.15 PAYMENTS, COMPUTATIONS, ETC........................................52
3.16 EVIDENCE OF DEBT...................................................54
3.17 REPLACEMENT OF AFFECTED LENDERS....................................55
SECTION 4 GUARANTY.........................................................55
4.1 THE GUARANTY.......................................................55
4.2 OBLIGATIONS UNCONDITIONAL..........................................56
4.3 REINSTATEMENT......................................................57
4.4 CERTAIN ADDITIONAL WAIVERS.........................................57
4.5 REMEDIES...........................................................57
4.6 RIGHTS OF CONTRIBUTION.............................................58
4.7 GUARANTEE OF PAYMENT; CONTINUING GUARANTEE.........................59
SECTION 5 CONDITIONS.......................................................59
5.1 CLOSING CONDITIONS.................................................59
5.2 CONDITIONS TO INITIAL EXTENSIONS OF CREDIT.........................59
5.3 CONDITIONS TO ALL EXTENSIONS OF CREDIT.............................65
SECTION 6 REPRESENTATIONS AND WARRANTIES...................................66
6.1 FINANCIAL CONDITION................................................66
6.2 NO MATERIAL CHANGE.................................................68
6.3 ORGANIZATION AND GOOD STANDING.....................................68
6.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS......................68
6.5 NO CONFLICTS.......................................................68
6.6 NO DEFAULT.........................................................69
i
<PAGE> 3
6.7 OWNERSHIP..........................................................69
6.8 INDEBTEDNESS.......................................................69
6.9 LITIGATION.........................................................69
6.10 TAXES..............................................................69
6.11 COMPLIANCE WITH LAW................................................70
6.12 ERISA..............................................................70
6.13 CORPORATE STRUCTURE; CAPITAL STOCK, ETC............................71
6.14 GOVERNMENTAL REGULATIONS, ETC......................................72
6.15 PURPOSE OF LOANS AND LETTERS OF CREDIT.............................72
6.16 ENVIRONMENTAL MATTERS..............................................72
6.17 INTELLECTUAL PROPERTY..............................................73
6.18 SOLVENCY...........................................................74
6.19 INVESTMENTS........................................................74
6.20 BUSINESS LOCATIONS.................................................74
6.21 DISCLOSURE.........................................................74
6.22 NO BURDENSOME RESTRICTIONS.........................................74
6.23 BROKERS' FEES......................................................74
6.24 LABOR MATTERS......................................................74
6.25 NATURE OF BUSINESS.................................................75
6.26 YEAR 2000 COMPLIANCE...............................................75
SECTION 7 AFFIRMATIVE COVENANTS............................................75
7.1 INFORMATION COVENANTS..............................................75
7.2 PRESERVATION OF EXISTENCE AND FRANCHISES...........................78
7.3 BOOKS AND RECORDS..................................................79
7.4 COMPLIANCE WITH LAW................................................79
7.5 PAYMENT OF TAXES AND OTHER INDEBTEDNESS............................79
7.6 INSURANCE..........................................................79
7.7 MAINTENANCE OF PROPERTY............................................80
7.8 PERFORMANCE OF OBLIGATIONS.........................................80
7.9 USE OF PROCEEDS....................................................80
7.10 AUDITS/INSPECTIONS.................................................81
7.11 FINANCIAL COVENANTS................................................81
7.12 NEW SUBSIDIARIES...................................................82
7.13 PLEDGED ASSETS.....................................................82
7.14 INTEREST RATE PROTECTION...........................................83
7.15 YEAR 2000 COMPLIANCE...............................................83
SECTION 8 NEGATIVE COVENANTS...............................................83
8.1 INDEBTEDNESS.......................................................84
8.2 LIENS..............................................................85
8.3 NATURE OF BUSINESS.................................................87
8.4 CONSOLIDATION, MERGER, DISSOLUTION, ETC............................87
8.5 ASSET DISPOSITIONS.................................................87
8.6 INVESTMENTS........................................................88
8.7 RESTRICTED PAYMENTS................................................90
8.8 OTHER INDEBTEDNESS.................................................90
8.9 TRANSACTIONS WITH AFFILIATES.......................................91
8.10 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS..............................91
8.11 LIMITATION ON RESTRICTED ACTIONS...................................91
8.12 OWNERSHIP OF SUBSIDIARIES; LIMITATIONS ON PARENT...................92
8.13 SALE LEASEBACKS....................................................92
8.14 CAPITAL EXPENDITURES...............................................92
8.15 NO FURTHER NEGATIVE PLEDGES........................................92
8.16 OPERATING LEASE OBLIGATIONS........................................93
8.17 LIMITATION ON FOREIGN OPERATIONS...................................93
ii
<PAGE> 4
SECTION 9 EVENTS OF DEFAULT................................................93
9.1 EVENTS OF DEFAULT...............................................93
9.2 ACCELERATION; REMEDIES..........................................96
SECTION 10 AGENCY PROVISIONS...............................................97
10.1 APPOINTMENT, POWERS AND IMMUNITIES..............................97
10.2 RELIANCE BY AGENT...............................................97
10.3 DEFAULTS........................................................98
10.4 RIGHTS AS A LENDER..............................................98
10.5 INDEMNIFICATION.................................................98
10.6 NON-RELIANCE ON AGENT AND OTHER LENDERS.........................99
10.7 SUCCESSOR AGENT.................................................99
SECTION 11 MISCELLANEOUS..................................................100
11.1 NOTICES........................................................100
11.2 RIGHT OF SET-OFF; ADJUSTMENTS..................................101
11.3 BENEFIT OF AGREEMENT...........................................101
11.4 NO WAIVER; REMEDIES CUMULATIVE.................................103
11.5 EXPENSES; INDEMNIFICATION......................................104
11.6 AMENDMENTS, WAIVERS AND CONSENTS...............................105
11.7 COUNTERPARTS...................................................107
11.8 HEADINGS.......................................................107
11.9 SURVIVAL.......................................................107
11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE...............107
11.11 SEVERABILITY...................................................108
11.12 ENTIRETY.......................................................108
11.13 TERMINATION....................................................108
11.14 CONFIDENTIALITY................................................108
11.15 SOURCE OF FUNDS................................................109
11.16 REGULATION D...................................................110
11.17 CONFLICT.......................................................110
iii
<PAGE> 5
SCHEDULES
Schedule 2.1(a) Lenders
Schedule 6.1(a) Disclosed Liabilities
Schedule 6.4 Required Consents, Authorizations, Notices
and Filings
Schedule 6.9 Litigation
Schedule 6.12 ERISA
Schedule 6.13A Corporate Structure
Schedule 6.13B Subsidiaries
Schedule 6.16 Environmental Disclosures
Schedule 6.17 Intellectual Property
Schedule 6.20(a) Mortgaged Properties
Schedule 6.20(b) Collateral Locations
Schedule 6.20(c) Chief Executive Offices/Principal Places
of Business
Schedule 7.6 Insurance
Schedule 8.1(b) Indebtedness
Schedule 8.1(m) Terms of Subordination
Schedule 8.2 Liens
Schedule 8.6 Investments
EXHIBITS
Exhibit 1.1A Form of Pledge Agreement
Exhibit 1.1B Form of Security Agreement
Exhibit 1.1C Form of Warburg Guaranty
Exhibit 2.1(b)(i) Form of Notice of Borrowing
Exhibit 2.1(e) Form of Revolving Note
Exhibit 2.3(f) Form of Tranche A Term Note
Exhibit 2.4(f) Form of Tranche B Term Note
Exhibit 3.2 Form of Notice of Extension/Conversion
Exhibit 5.2 Form of Parent Joinder Agreement
Exhibit 7.1(c) Form of Officer's Compliance Certificate
Exhibit 7.12 Form of Joinder Agreement
Exhibit 11.3(b) Form of Assignment and Acceptance
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC. WILL FILE A COPY OF THE EXHIBITS (TO THE
EXTENT NOT PREVIOUSLY FILED) AND THE SCHEDULES SUPPLEMENTALLY WITH THE
SECURITIES EXCHANGE COMMISSION UPON THEIR REQUEST.
iv
<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of March 24, 2000 (as amended,
modified, restated or supplemented from time to time, the "Credit Agreement"),
is by and among AMERICAN MEDICAL SYSTEMS, INC., a Delaware corporation (the
"Borrower"), the Subsidiary Guarantors (as defined herein), the Lenders (as
defined herein) and BANK OF AMERICA, N. A., as Agent for the Lenders (in such
capacity, the "Agent").
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide credit
facilities in an aggregate amount of up to $115,000,000 (the "Credit
Facilities") for the purposes hereinafter set forth; and
WHEREAS, the Lenders have agreed to make the requested Credit
Facilities available to the Borrower on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 DEFINITIONS.
As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires:
"Acquisition", by any Person, means the acquisition by such
Person of (a) all of the Capital Stock, (b) all or substantially all of
the Property of another Person or (c) all or substantially all of a
line of business of another Person, in each case whether or not
involving a merger or consolidation with such other Person.
"Adjusted Base Rate" means the Base Rate plus the Applicable
Percentage.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
Applicable Percentage.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person. For purposes of
this definition, "control" when used with respect to any Person means
the power (i) to vote 10% or more of the securities having ordinary
voting power for the
<PAGE> 7
election of directors of such corporation or (ii) to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative
to the foregoing.
"Agency Services Address" means Bank of America, N. A.,
NC1-001-15-04, 101 North Tryon Street, Charlotte, North Carolina 28255,
Attn: Agency Services, or such other address as may be identified by
written notice from the Agent to the Borrower.
"Agent" shall have the meaning assigned to such term in the
heading hereof, together with any successors or assigns.
"Agent's Fee Letter" means that certain letter agreement,
dated as of December 22, 1999, between the Agent and the Borrower, as
amended, modified, restated or supplemented from time to time.
"Applicable Lending Office" means, for each Lender, the office
of such Lender (or of an Affiliate of such Lender) as such Lender may
from time to time specify to the Agent and the Borrower by written
notice as the office by which its Eurodollar Loans are made and
maintained.
"Applicable Percentage" means, for purposes of calculating the
applicable interest rate for any day for any Loan, the applicable rate
of the Unused Fee for any day for purposes of Section 3.5(a), the
applicable rate of the Standby Letter of Credit Fee for any day for
purposes of Section 3.5(b)(i) or the applicable rate of the Trade
Letter of Credit Fee for any day for purposes of Section 3.5(b)(ii),
the appropriate applicable percentage corresponding to the Leverage
Ratio in effect as of the most recent Calculation Date:
<TABLE>
<CAPTION>
APPLICABLE PERCENTAGES
-------------------------------------------------------------------------------------------------
FOR TRANCHE A TERM FOR REVOLVING LOANS
LOANS AND TRANCHE B TERM
LOANS
---------------------------- -------------------------
FOR STANDBY FOR TRADE FOR UNUSED
PRICING LEVERAGE RATIO EURODOLLAR BASE RATE EURODOLLAR BASE RATE LETTER OF LETTER OF FEE
LEVEL LOANS LOANS LOANS LOANS CREDIT FEE CREDIT FEE
-------------- ---------------- -------------- ------------- -------------- ---------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I > 3.0 to 1.0 3.00% 2.00% 0.875% 0% 0.875% 0.4375% 0.125%
-------------- ---------------- -------------- ------------- -------------- ---------- ------------- -------------- -------------
< 3.0 to 1.0
-
II but > 2.5 to 2.50% 1.50% 0.875% 0% 0.875% 0.4375% 0.125%
1.0
-------------- ---------------- -------------- ------------- -------------- ---------- ------------- -------------- -------------
III < 2.5 to 1.0 2.00% 1.00% 0.875% 0% 0.875% 0.4375% 0.125%
-
</TABLE>
The Applicable Percentages shall be determined and adjusted quarterly
on the date (each a "Calculation Date") five Business Days after the
date by which the Credit Parties are required to provide the officer's
certificate in accordance with the provisions of
2
<PAGE> 8
Section 7.1(c) for the most recently ended fiscal quarter of the
Consolidated Parties; provided, however, that (i) the initial
Applicable Percentages shall be based on Pricing Level I (as shown
above) and shall remain at Pricing Level I until the Calculation Date
for the fiscal quarter of the Consolidated Parties ending on September
30, 2000, on and after which time the Pricing Level shall be determined
by the Leverage Ratio as of the last day of the most recently ended
fiscal quarter of the Consolidated Parties preceding the applicable
Calculation Date and (ii) if the Credit Parties fail to provide the
officer's certificate to the Agency Services Address as required by
Section 7.1(c) for the last day of the most recently ended fiscal
quarter of the Consolidated Parties preceding the applicable
Calculation Date, the Applicable Percentage from such Calculation Date
shall be based on Pricing Level I until such time as an appropriate
officer's certificate is provided, whereupon the Pricing Level shall be
determined by the Leverage Ratio as of the last day of the most
recently ended fiscal quarter of the Consolidated Parties preceding
such Calculation Date. Each Applicable Percentage shall be effective
from one Calculation Date until the next Calculation Date. Any
adjustment in the Applicable Percentages shall be applicable to all
existing Loans and Letters of Credit as well as any new Loans and
Letters of Credit made or issued.
"Application Period", in respect of any Asset Disposition,
shall have the meaning assigned to such term in Section 8.5.
"Asset Disposition" means any disposition (including pursuant
to a Sale and Leaseback Transaction) of any or all of the Property
(including without limitation the Capital Stock of a Subsidiary) of any
Consolidated Party whether by sale, lease, transfer or otherwise, but
other than pursuant to any casualty or condemnation event.
"Asset Disposition Prepayment Event" means, with respect to
any Asset Disposition other than an Excluded Asset Disposition, the
failure of the Credit Parties to apply (or cause to be applied) the Net
Cash Proceeds of such Asset Disposition to Eligible Reinvestments
during the Application Period for such Asset Disposition.
"Assignment and Acceptance" shall have the meaning to such
term in Section 11.3(b).
"Bank of America" means Bank of America, N. A. and its
successors.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from
time to time.
"Bankruptcy Event" means, with respect to any Person, the
occurrence of any of the following with respect to such Person: (i) the
entry of a decree or order for relief in respect of such Person by a
court or governmental agency having jurisdiction in the premises in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or the appointment by a court
or governmental agency having jurisdiction in the premises of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of such Person or for any substantial part of its
Property or ordering the winding up
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<PAGE> 9
or liquidation of its affairs; or (ii) the commencement against such
Person of an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or of any
case, proceeding or other action for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
for the winding up or liquidation of its affairs, and such involuntary
case or other case, proceeding or other action shall remain undismissed
for a period of sixty (60) consecutive days; or (iii) such Person shall
commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or consent to the
entry of an order for relief in an involuntary case under any such law,
or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
make any general assignment for the benefit of creditors; or (iv) such
Person shall be unable to, or shall admit in writing its inability to,
pay its debts generally as they become due.
"Base Rate" means, for any day, the rate per annum equal to
the higher of (a) the Federal Funds Rate for such day plus one-half of
one percent (0.5%) and (b) the Prime Rate for such day. Any change in
the Base Rate due to a change in the Prime Rate or the Federal Funds
Rate shall be effective on the effective date of such change in the
Prime Rate or Federal Funds Rate.
"Base Rate Loan" means any Loan bearing interest at a rate
determined by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading
hereof, together with any permitted successors and assigns.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in Charlotte, North Carolina or New
York, New York are authorized or required by law to close, except that,
when used in connection with a Eurodollar Loan, such day shall also be
a day on which dealings between banks are carried on in Dollar deposits
in London, England.
"Businesses" means, at any time, a collective reference to the
businesses operated by the Consolidated Parties at such time.
"Calculation Date" shall have the meaning assigned to such
term in the definition of "Applicable Percentage" set forth in this
Section 1.1.
"Capital Lease" means, as applied to any Person, any lease of
any Property (whether real, personal or mixed) by that Person as lessee
which, in accordance with GAAP, is required to be accounted for as a
capital lease on the balance sheet of that Person.
"Capital Stock" means (i) in the case of a corporation,
capital stock, (ii) in the case of an association or business entity,
any and all shares, interests, participations, rights or other
equivalents (however designated) of capital stock, (iii) in the case of
a
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<PAGE> 10
partnership, partnership interests (whether general or limited), (iv)
in the case of a limited liability company, membership interests and
(v) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions
of assets of, the issuing Person.
"Cash Equivalents" means, as at any date, (a) securities
issued or directly and fully guaranteed or insured by the United States
or any agency or instrumentality thereof (provided that the full faith
and credit of the United States is pledged in support thereof) having
maturities of not more than twelve months from the date of acquisition,
(b) Dollar denominated time deposits and certificates of deposit of (i)
any Lender, (ii) any domestic commercial bank of recognized standing
having capital and surplus in excess of $500,000,000 or (iii) any bank
whose short-term commercial paper rating from S&P is at least A-1 or
the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "Approved Bank"), in each
case with maturities of not more than 270 days from the date of
acquisition, (c) commercial paper and variable or fixed rate notes
issued by any Approved Bank (or by the parent company thereof) or any
variable rate notes issued by, or guaranteed by, any domestic
corporation rated A-1 (or the equivalent thereof) or better by S&P or
P-1 (or the equivalent thereof) or better by Moody's and maturing
within six months of the date of acquisition, (d) repurchase agreements
entered into by any Person with a bank or trust company (including any
of the Lenders) or recognized securities dealer having capital and
surplus in excess of $500,000,000 for direct obligations issued by or
fully guaranteed by the United States in which such Person shall have a
perfected first priority security interest (subject to no other Liens)
and having, on the date of purchase thereof, a fair market value of at
least 100% of the amount of the repurchase obligations and (e)
Investments, classified in accordance with GAAP as current assets, in
money market investment programs registered under the Investment
Company Act of 1940, as amended, which are administered by reputable
financial institutions having capital of at least $500,000,000 and the
portfolios of which are limited to Investments of the character
described in the foregoing subdivisions (a) through (d).
"Change of Control" means any of the following events: (a) the
sale, lease, transfer or other disposition (other than by way of merger
or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Borrower and its Subsidiaries
taken as a whole to any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act) other than
the WPEP Entities, (b) prior to a Qualifying IPO, the WPEP Entities
shall fail to own beneficially, directly or indirectly, at least 50% of
the outstanding Voting Stock of the Parent, (c) after a Qualifying IPO,
the WPEP Entities shall fail to own beneficially, directly or
indirectly, (1) at least 30% of the outstanding Voting Stock of the
Parent and (2) a greater percentage of the outstanding Voting Stock of
the Parent than the percentage of such outstanding Voting Stock which
any other "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act) other than the WPEP Entities
(A) shall have acquired beneficial ownership, directly or indirectly,
of or (B) shall have acquired by contract or otherwise, or shall have
entered into a contract or arrangement that, upon consummation, will
result in its or their acquisition of, control over, (d) the failure of
the WPEP Entities and the Co-Investor to control, whether through
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<PAGE> 11
ownership of Voting Stock, by contract or otherwise, a majority of the
seats (excluding vacant seats) on the Parent's Board of Directors. As
used herein, "beneficial ownership" shall have the meaning provided in
Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act, or (e) the Parent shall fail to own directly
100% of the outstanding Capital Stock of the Borrower.
"Closing Date" means the date hereof.
"Co-Investor" means the Vertical Fund Associates, L.P., a
Delaware limited partnership.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute thereto, as interpreted by the rules and
regulations issued thereunder, in each case as in effect from time to
time. References to sections of the Code shall be construed also to
refer to any successor sections.
"Collateral" means a collective reference to all real and
personal Property (other than Excluded Property) with respect to which
Liens in favor of the Agent are purported to be granted pursuant to and
in accordance with the terms of the Collateral Documents.
"Collateral Documents" means a collective reference to the
Security Agreement, the Pledge Agreement and the Mortgage Instruments.
"Commitment" means (i) with respect to each Lender, the
Revolving Commitment of such Lender, the Tranche A Term Loan Commitment
and the Tranche B Term Loan Commitment of such Lender and (ii) with
respect to the Issuing Lender, the LOC Commitment.
"Commitment Percentage" means, for any Lender, the percentage
identified as its Commitment Percentage on Schedule 2.1(a), as such
percentage may be modified in connection with any assignment made in
accordance with the provisions of Section 11.3.
"Consolidated Capital Expenditures" means, as of any date for
the four fiscal quarter period ending on such date with respect to the
Consolidated Parties on a consolidated basis, all capital expenditures,
as determined in accordance with GAAP, but in any event excluding (i)
Eligible Reinvestments made with proceeds of any Involuntary
Disposition and (ii) any capital expenditures to the extent financed
with the proceeds of (a) Investor Subordinated Debt or (b) any Equity
Issuance by any member of the Initial Investor Group; provided,
however, that (1) Consolidated Capital Expenditures for the four fiscal
quarter period ending as of June 30, 2000 shall be based on
Consolidated Capital Expenditures for the one fiscal-quarter period
then ended multiplied by 4, (2) Consolidated Capital Expenditures for
the four fiscal quarter period ending as of September 30, 2000 shall be
based on Consolidated Capital Expenditures for the two fiscal-quarter
period then ended multiplied by 2 and (3) Consolidated Capital
Expenditures for the four fiscal quarter period ending as of December
31, 2000 shall be based on Consolidated Capital Expenditures for the
three fiscal-quarter period then ended
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<PAGE> 12
multiplied by 1.33. Notwithstanding any other provisions of this Credit
Agreement to the contrary, Consolidated Capital Expenditures shall not
include any payments of Holdback Merger Consideration or Contingent
Merger Consideration by or on behalf of the Borrower.
"Consolidated Cash Taxes" means, as of any date for the four
fiscal quarter period ending on such date with respect to the
Consolidated Parties on a consolidated basis, the aggregate of all
taxes, as determined in accordance with GAAP, to the extent the same
are paid in cash during such period; provided, however, that (i)
Consolidated Cash Taxes for the four fiscal quarter period ending as of
June 30, 2000 shall be based on Consolidated Cash Taxes for the one
fiscal-quarter period then ended multiplied by 4, (ii) Consolidated
Cash Taxes for the four fiscal quarter period ending as of September
30, 2000 shall be based on Consolidated Cash Taxes for the two
fiscal-quarter period then ended multiplied by 2 and (iii) Consolidated
Cash Taxes for the four fiscal quarter period ending as of December 31,
2000 shall be based on Consolidated Cash Taxes for the three
fiscal-quarter period then ended multiplied by 1.33.
"Consolidated EBITDA" means, as of any date for the four
fiscal quarter period ending on such date with respect to the
Consolidated Parties on a consolidated basis, the sum of (i)
Consolidated Net Income, plus (ii) an amount which, in the
determination of Consolidated Net Income, has been deducted for (A)
Consolidated Interest Expense, (B) total Federal, state, local and
foreign income, value added and similar taxes, (C) depreciation and
amortization expense, (D) recognition of accruals for pension plan
obligations which did not require cash funding during such period, (E)
to the extent incurred during fiscal year 2000 of the Consolidated
Parties, one-time expenses in an aggregate amount not to exceed
$1,000,000 associated with the restructuring of the business acquired
under the Purchase Agreement, including, but not limited to severance
obligations incurred as a result of such restructuring, (F) one-time
expenses associated with the restructuring of the business acquired
under that certain Asset Purchase Agreement dated as of July 21, 1998
among Pfizer Inc. and the Borrower, including, but not limited to
severance obligations incurred as a result of such restructuring, in an
aggregate amount of up to (1) to the extent incurred during the first
fiscal quarter of 1999, $3,000,000, (2) to the extent incurred during
the second fiscal quarter of 1999, $400,000 and (3) to the extent
incurred during the third fiscal quarter of 1999, $200,000 and (G) the
recognition of expense for the write-off of purchased research and
development, all as determined in accordance with GAAP.
"Consolidated Interest Expense" means, as of any date for the
four fiscal quarter period ending on such date with respect to the
Consolidated Parties on a consolidated basis, interest expense
(including the amortization of debt discount and premium, the interest
component under Capital Leases and the implied interest component under
Synthetic Leases), as determined in accordance with GAAP; provided,
however, that (i) Consolidated Interest Expense for the four
fiscal-quarter period ending as of March 31, 2000 shall be calculated
on a pro forma basis assuming that (a) the Indebtedness of the
Consolidated Parties outstanding on March 31, 2000 was the only
Indebtedness outstanding during such four fiscal-quarter period and (b)
all Indebtedness of the Consolidated Parties outstanding on March 31,
2000 was outstanding on every day
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<PAGE> 13
of such four fiscal-quarter period and was bearing interest for each
such day at the rate which is in effect with respect to such
Indebtedness on March 31, 2000, (ii) Consolidated Interest Expense for
the four fiscal quarter period ending as of June 30, 2000 shall be
based on Consolidated Interest Expense for the one fiscal-quarter
period then ended multiplied by 4, (iii) Consolidated Interest Expense
for the four fiscal quarter period ending as of September 30, 2000
shall be based on Consolidated Interest Expense for the two
fiscal-quarter period then ended multiplied by 2 and (iv) Consolidated
Interest Expense for the four fiscal quarter period ending as of
December 31, 2000 shall be based on Consolidated Interest Expense for
the three fiscal-quarter period then ended multiplied by 1.33.
"Consolidated Net Income" means, as of any date for the four
fiscal quarter period ending on such date with respect to the
Consolidated Parties on a consolidated basis, net income (excluding
extraordinary items) after interest expense, income taxes and
depreciation and amortization, all as determined in accordance with
GAAP.
"Consolidated Parties" means a collective reference to the
Parent and its Subsidiaries, and "Consolidated Party" means any one of
them.
"Consolidated Scheduled Funded Debt Payments" means, as of any
date for the four fiscal quarter period ending on such date with
respect to the Consolidated Parties on a consolidated basis, the sum of
all scheduled payments of principal on Funded Indebtedness (including
the implied principal component of payments due on Capital Leases and
Synthetic Leases, but excluding voluntary prepayments or mandatory
prepayments required pursuant to Section 3.3), as determined in
accordance with GAAP.
"Contingent Merger Consideration" shall have the meaning
assigned to such term in Section 2.8(c) of the Purchase Agreement.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 3.2 hereof of a Eurodollar Loan from
one Interest Period to the next Interest Period.
"Convert", "Conversion" and "Converted" shall refer to a
conversion pursuant to Section 3.2 or Sections 3.7 through 3.12,
inclusive, of a Base Rate Loan into a Eurodollar Loan.
"Credit Documents" means a collective reference to this Credit
Agreement, the Notes, the LOC Documents, each Joinder Agreement, the
Agent's Fee Letter and the Collateral Documents (in each case as the
same may be amended, modified, restated, supplemented, extended,
renewed or replaced from time to time), and "Credit Document" means any
one of them.
"Credit Facilities" shall have the meaning assigned to such
term in the recitals hereto.
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"Credit Parties" means a collective reference to the Borrower
and the Guarantors, and "Credit Party" means any one of them.
"Credit Party Obligations" means, without duplication, (i) all
of the obligations of the Credit Parties to the Lenders (including the
Issuing Lender) and the Agent, whenever arising, under this Credit
Agreement, the Notes, the Collateral Documents or any of the other
Credit Documents (including, but not limited to, any interest accruing
after the occurrence of a Bankruptcy Event with respect to any Credit
Party, regardless of whether such interest is an allowed claim under
the Bankruptcy Code) and (ii) unless otherwise agreed to by a Credit
Party in the documentation evidencing same, all liabilities and
obligations, whenever arising, owing from any Credit Party to any
Lender, or any Affiliate of a Lender, arising under any Hedging
Agreement.
"Debt Issuance" means the issuance of any Indebtedness for
borrowed money by any Consolidated Party other than Indebtedness
permitted under Section 8.1.
"Default" means any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that (a)
has failed to make a Loan or purchase a Participation Interest required
pursuant to the term of this Credit Agreement within one Business Day
of when due, (b) other than as set forth in (a) above, has failed to
pay to the Agent or any Lender an amount owed by such Lender pursuant
to the terms of this Credit Agreement within one Business Day of when
due, unless such amount is subject to a good faith dispute or (c) has
been deemed insolvent or has become subject to a bankruptcy or
insolvency proceeding or with respect to which (or with respect to any
of the assets of which) a receiver, trustee or similar official has
been appointed.
"Dollar Equivalent" means, on any date, (i) with respect to an
amount denominated in Dollars, such amount, and (ii) with respect to an
amount denominated in any currency other than Dollars, the amount of
Dollars into which such amount could be converted at its spot rate of
exchange in the interbank foreign exchange market applicable to the
relevant transaction on such date.
"Dollars" and "$" means dollars in lawful currency of the
United States.
"Domestic Subsidiary" means any direct or indirect Subsidiary
of the Borrower which is incorporated or organized under the laws of
any State of the United States or the District of Columbia.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender or any fund that invests in bank loans and is managed by an
investment advisor to a Lender; and (iii) any commercial bank,
financial institution or any institutional "accredited investor" (as
defined in Regulation D) approved by the Agent and, unless an Event of
Default has occurred and is continuing at the time any assignment is
effected in accordance with Section 11.3, the Borrower (such approval
by the Agent or the Borrower not to be
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unreasonably withheld or delayed and such approval to be deemed given
by the Borrower if no objection is received by the assigning Lender and
the Agent from the Borrower within two (2) Business Days after
confirmation (such confirmation not to be unreasonably withheld or
delayed) by an Executive Officer of the Borrower of receipt of notice
of such proposed assignment by the assigning Lender); provided,
however, that neither the Borrower nor an Affiliate of the Borrower
shall qualify as an Eligible Assignee.
"Eligible Prepayment Proceeds" means, (i) at any time after
the Agent has received the Required Financial Information for any
fiscal year end, the portion of Excess Cash Flow for such fiscal year
not required to be applied to prepay the Loans pursuant to the terms of
Section 3.3(b)(ii), (ii) the cash proceeds from any Equity Issuance by
any Consolidated Party to any member of the Initial Investor Group,
(iii) the cash proceeds from a Qualifying IPO, (iv) the portion of Net
Cash Proceeds from an Equity Issuance (other than an Excluded Equity
Issuance) not required to be applied to prepay the Loans pursuant to
the terms of Section 3.3(b)(v) and (v) the cash proceeds of Investor
Subordinated Debt.
"Eligible Reinvestment" means (i) any acquisition (whether or
not constituting a capital expenditure, but not constituting an
Acquisition) of assets or any business (or any substantial part
thereof) used or useful in the same or a similar line of business as
the Borrower and its Subsidiaries were engaged in on the Closing Date
(or any reasonable extensions or expansions thereof) and (ii) any
Permitted Acquisition.
"Environmental Laws" means any and all lawful and applicable
Federal, state, local and foreign statutes, laws (including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act of
1976, the Toxic Substances Control Act, the Water Pollution Control
Act, the Clean Air Act and the Hazardous Materials Transportation Act),
regulations, ordinances, rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances
or wastes into the environment including, without limitation, ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes.
"Equity Issuance" means any issuance by any Consolidated Party
to any Person of (a) shares of its Capital Stock, (b) any shares of its
Capital Stock pursuant to the exercise of options or warrants, (c) any
shares of its Capital Stock pursuant to the conversion of any debt
securities to equity or (d) any options or warrants relating to its
Capital Stock. The term "Equity Issuance" shall not include any Asset
Disposition.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, as interpreted by
the rules and regulations
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thereunder, all as the same may be in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.
"ERISA Affiliate" means an entity which is under common
control with any Consolidated Party within the meaning of Section
4001(a)(14) of ERISA, or is a member of a group which includes any
Consolidated Party and which is treated as a single employer under
Sections 414(b) or (c) of the Code.
"ERISA Event" means (i) with respect to any Plan, the
occurrence of a Reportable Event or the substantial cessation of
operations (within the meaning of Section 4062(e) of ERISA); (ii) the
withdrawal by any Consolidated Party or any ERISA Affiliate from a
Multiple Employer Plan during a plan year in which it was a substantial
employer (as such term is defined in Section 4001(a)(2) of ERISA), or
the termination of a Multiple Employer Plan; (iii) the distribution of
a notice of intent to terminate or the actual termination of a Plan
pursuant to Section 4041(a)(2) or 4041A of ERISA; (iv) the institution
of proceedings to terminate or the actual termination of a Plan by the
PBGC under Section 4042 of ERISA; (v) any event or condition which
might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any
Plan; (vi) the complete or partial withdrawal of any Consolidated Party
or any ERISA Affiliate from a Multiemployer Plan; (vii) the conditions
for imposition of a lien under Section 302(f) of ERISA exist with
respect to any Plan; or (viii) the adoption of an amendment to any Plan
requiring the provision of security to such Plan pursuant to Section
307 of ERISA.
"Eurodollar Loan" means any Loan that bears interest at a rate
based upon the Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined by the Agent to be
equal to the quotient obtained by dividing (a) the Interbank Offered
Rate for such Eurodollar Loan for such Interest Period by (b) 1 minus
the Eurodollar Reserve Requirement for such Eurodollar Loan for such
Interest Period.
"Eurodollar Reserve Requirement" means, at any time, the
maximum rate at which reserves (including, without limitation, any
marginal, special, supplemental, or emergency reserves) are required to
be maintained under regulations issued from time to time by the Board
of Governors of the Federal Reserve System (or any successor) by member
banks of the Federal Reserve System against "Eurocurrency liabilities"
(as such term is used in Regulation D). Without limiting the effect of
the foregoing, the Eurodollar Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks with
respect to (i) any category of liabilities which includes deposits by
reference to which the Adjusted Eurodollar Rate is to be determined, or
(ii) any category of extensions of credit or other assets which include
Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Requirement.
"Event of Default" shall have the meaning assigned to such
term in Section 9.1.
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"Excess Cash Flow" means, with respect to any fiscal year
period of the Consolidated Parties on a consolidated basis, an amount
equal to (a) Consolidated EBITDA minus (b) Consolidated Capital
Expenditures minus (c) Consolidated Interest Expense minus (d) Federal,
state and other income taxes payable by the Consolidated Parties on a
consolidated basis minus (e) Consolidated Scheduled Funded Debt
Payments minus (f) the amount of any voluntary prepayments of the
Tranche A Term Loan or (to the extent accompanied by a reduction in the
Revolving Committed Amount) the Revolving Loans.
"Excess Proceeds" shall have the meaning assigned to such term
in Section 7.6(b).
"Excluded Asset Disposition" means, with respect to any
Consolidated Party, (i) the disposition of inventory or other assets
sold, leased, licensed or disposed of or replaced in the ordinary
course of such Consolidated Party's business, (ii) the disposition of
machinery and equipment no longer used or useful in the conduct of such
Consolidated Party's business, (iii) any Equity Issuance by such
Consolidated Party, (iv) any Involuntary Disposition by such
Consolidated Party, (v) any sale, lease, transfer or other disposition
of Property by such Consolidated Party to any Credit Party, provided
that the Credit Parties shall cause to be executed and delivered such
documents, instruments and certificates as the Agent may request so as
to cause the Credit Parties to be in compliance with the terms of
Section 7.13 after giving effect to such transaction and (vi) if such
Consolidated Party is not a Credit Party, any sale, lease, transfer or
other disposition of Property by such Consolidated Party to any
Consolidated Party that is not a Credit Party.
"Excluded Equity Issuance" means (i) any Equity Issuance by
any Consolidated Party to any Credit Party or any member of the Initial
Investor Group, (ii) any Equity Issuance by the Parent in connection
with a Permitted Acquisition, (iii) any Equity Issuance by the Parent
the proceeds of which are used to finance a Permitted Acquisition, (iv)
any Equity Issuance pursuant to the exercise of options issued to
management of the Parent or the Borrower and (v) any Equity Issuance
constituting a Qualifying IPO.
"Excluded Property" means, with respect to any Consolidated
Party, including any Person that becomes a Consolidated Party after the
Closing Date as contemplated by Section 7.12, (i) any owned or leased
real or personal Property of such Consolidated Party which is located
outside of the United States, (ii) any owned real Property of such
Consolidated Party which has a net book value of less than $100,000,
provided that the aggregate net book value of all real Property of all
of the Consolidated Parties excluded pursuant to this clause (ii) shall
not exceed $500,000, (iii) any leased real Property of such Credit
Party which, at the written request of the Borrower, the Agent has
agreed in writing in its sole reasonable discretion is not material,
(iv) any leased personal Property of such Consolidated Party, (v) any
personal Property of such Consolidated Party (including, without
limitation, motor vehicles) in respect of which perfection of a Lien is
not either (A) governed by the Uniform Commercial Code or (B) effected
by appropriate evidence of the Lien being filed in either the United
States Copyright Office or the United States Patent and Trademark
Office and (vi) any Property of such Consolidated Party which, subject
to the terms of Section 8.11 and Section 8.15, is subject to a Lien of
the
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type described in Section 8.2(g) pursuant to documents which prohibit
such Consolidated Party from granting any other Liens in such Property.
"Executive Officer" of any Person means any of the chief
executive officer, chief operating officer, president, vice president,
chief financial officer or treasurer of such Person.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day; provided
that (a) if such day is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and
(b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate
charged to the Agent (in its individual capacity) on such day on such
transactions as determined by the Agent.
"Fees" means all fees payable pursuant to Section 3.5.
"Fixed Charge Coverage Ratio" means, as of the end of any
fiscal quarter of the Consolidated Parties for the four fiscal quarter
period ending on such date with respect to the Consolidated Parties on
a consolidated basis, the ratio of (a) the sum of (i) Consolidated
EBITDA for such period minus (ii) Consolidated Capital Expenditures for
such period minus (iii) Consolidated Cash Taxes for such period to (b)
the sum of (i) Consolidated Interest Expense for such period plus (ii)
Consolidated Scheduled Funded Debt Payments for such period.
"Foreign Subsidiary" means any direct or indirect Subsidiary
of the Borrower which is not a Domestic Subsidiary.
"Fully Satisfied" means, with respect to the Credit Party
Obligations as of any date, that, as of such date, (a) all principal of
and interest accrued to such date which constitute Credit Party
Obligations shall have been paid in full in cash, (b) all fees,
expenses and other amounts then due and payable which constitute Credit
Party Obligations shall have been paid in cash, (c) all outstanding
Letters of Credit shall have been (i) terminated, (ii) fully cash
collateralized or (iii) secured by one or more letters of credit on
terms and conditions, and with one or more financial institutions,
reasonably satisfactory to the Issuing Lender and (d) the Commitments
shall have been expired or terminated in full.
"Funded Indebtedness" means, with respect to any Person,
without duplication, (i) all Indebtedness of such Person other than
Indebtedness of the types referred to in clauses (e), (f), (g), (i) and
(n) of the definition of "Indebtedness" set forth in this Section 1.1,
(ii) all Funded Indebtedness of others of the type referred to in
clause (i) above secured by (or for which the holder of such Funded
Indebtedness has an existing right,
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contingent or otherwise, to be secured by) any Lien on, or payable out
of the proceeds of production from, Property owned or acquired by such
Person, whether or not the obligations secured thereby have been
assumed (or, if less, the aggregate net book value of all Property
securing such Funded Indebtedness of others), (iii) all Guaranty
Obligations of such Person with respect to Funded Indebtedness of the
type referred to in clause (i) above of another Person and (iv) Funded
Indebtedness of the type referred to in clause (i) above of any
partnership or unincorporated joint venture in which such Person is a
general partner or a joint venturer to the extent such Funded
Indebtedness is recourse to such Person. Notwithstanding any other
provisions of this Credit Agreement to the contrary, the Funded
Indebtedness of the Consolidated Parties shall not include the
obligations of the Borrower in respect of Holdback Merger Consideration
or Contingent Merger Consideration.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis and subject to the terms of
Section 1.3 (except, in respect of Synthetic Leases, as otherwise
treated herein).
"General Partner" means Warburg, Pincus & Co., a New York
general partnership, as general partner of each of the WPEP Entities.
"Governmental Authority" means any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guaranteed Lenders" means, at any time, Lenders holding any
of (i) the Revolving Commitments (and Participation Interests therein)
(or, if the Revolving Commitments have been terminated, the outstanding
Revolving Loans, LOC Obligations and Participation Interests (including
the Participation Interests of the Issuing Lender in any Letters of
Credit) or (ii) the outstanding Tranche B Term Loans (and Participation
Interests therein).
"Guarantors" means a collective reference to the Parent and
each of the Subsidiary Guarantors, together with their successors and
permitted assigns, and "Guarantor " means any one of them.
"Guaranty Obligations" means, with respect to any Person,
without duplication, any obligations of such Person (other than
endorsements in the ordinary course of business of negotiable
instruments for deposit or collection) guaranteeing or intended to
guarantee any Indebtedness of any other Person in any manner, whether
direct or indirect, and including without limitation any obligation,
whether or not contingent, (i) to purchase any such Indebtedness or any
Property constituting security therefor, (ii) to advance or provide
funds or other support for the payment or purchase of any such
Indebtedness or to maintain working capital, solvency or other balance
sheet condition of such other Person (including without limitation keep
well agreements, maintenance agreements, comfort letters or similar
agreements or arrangements) for the benefit of any holder of
Indebtedness of such other Person, (iii) to lease or purchase Property,
securities or services primarily for the purpose of assuring the holder
of such Indebtedness, or (iv) to otherwise assure or hold harmless the
holder of such Indebtedness against loss in respect thereof. The amount
of any Guaranty Obligation hereunder shall (subject to any limitations
set forth therein) be deemed to be an
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<PAGE> 20
amount equal to the outstanding principal amount (or maximum principal
amount, if larger) of the Indebtedness in respect of which such
Guaranty Obligation is made. Notwithstanding any other provisions of
this Credit Agreement to the contrary, the Guaranty Obligations of the
Consolidated Parties shall not include the obligations of the Borrower
in respect of Holdback Merger Consideration or Contingent Merger
Consideration.
"Hedging Agreements" means any interest rate protection
agreement, foreign currency exchange agreement or commodity price
hedging agreement or, in each case, other similar agreement.
"Holdback Merger Consideration" shall have the meaning
assigned to such term in Section 2.8(b) of the Purchase Agreement.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all obligations of such Person for borrowed money, (b)
all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, (c) all obligations of such Person under
conditional sale or other title retention agreements relating to
Property purchased by such Person (other than customary reservations or
retentions of title under agreements with suppliers entered into in the
ordinary course of business), (d) all obligations of such Person issued
or assumed as the deferred purchase price of Property or services
purchased by such Person (other than trade debt incurred in the
ordinary course of business and due within six months of the incurrence
thereof) which would appear as liabilities on a balance sheet of such
Person, (e) all obligations of such Person under take-or-pay or similar
arrangements or under commodities agreements, (f) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien on,
or payable out of the proceeds of production from, Property owned or
acquired by such Person, whether or not the obligations secured thereby
have been assumed, (g) all Guaranty Obligations of such Person with
respect to Indebtedness of another Person, (h) the implied principal
component of all obligations of such Person under Capital Leases, (i)
all obligations of such Person under Hedging Agreements, (j) the
maximum amount of all performance and standby letters of credit issued
or bankers' acceptances facilities created for the account of such
Person and, without duplication, all drafts drawn thereunder (to the
extent unreimbursed), (k) all preferred Capital Stock issued by such
Person and which by the terms thereof could be (at the request of the
holders thereof or otherwise) subject to mandatory sinking fund
payments, redemption or other acceleration (other than as a result of a
Change of Control or an Asset Disposition that does not in fact result
in a redemption of such preferred Capital Stock) at any time prior to
the Maturity Date, (l) the principal portion of all obligations of such
Person under Synthetic Leases, (m) all obligations of such Person to
repurchase any securities issued by such Person at any time prior to
the Maturity Date which repurchase obligations are related to the
issuance thereof, including, without limitation, obligations commonly
known as residual equity appreciation potential shares, (n) the
Indebtedness of any partnership or unincorporated joint venture in
which such Person is a general partner or a joint venturer to the
extent such Funded Indebtedness is recourse to such Person and (o) the
aggregate amount of uncollected accounts receivable of such Person
subject at such time to a sale of receivables (or similar transaction)
to the extent such transaction is effected with recourse to such Person
(whether or not such transaction would
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<PAGE> 21
be reflected on the balance sheet of such Person in accordance with
GAAP). Notwithstanding any other provisions of this Credit Agreement to
the contrary, the Indebtedness of the Consolidated Parties shall not
include the obligations of the Borrower in respect of Holdback Merger
Consideration or Contingent Merger Consideration.
"Indemnified Party" shall have the meaning assigned to such
term in Section 11.5(b).
"Influence" means Influence, Inc., a Delaware corporation.
"Initial Funding Date" means the date on which the conditions
set forth in Section 5.2 to the making of the initial Loans and/or the
issuance of the initial Letter of Credit, as applicable, shall have
been fulfilled (or waived in the sole discretion of the Lenders) and on
which the initial Loans shall have been made and/or the initial Letters
of Credit shall have been issued.
"Initial Investor Group" means the WPEP Entities and their
Affiliates, the Management Investors and the Co-Investor.
"Interbank Offered Rate" means, for any Eurodollar Loan for
any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Page 3750 (or any
successor page) of the Dow Jones Market Service as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason
such rate is not available, the term "Interbank Offered Rate" shall
mean, for any Eurodollar Loan for any Interest Period therefor, the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) appearing on Reuters Screen LIBO Page as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such
rates (rounded upwards, if necessary, to the nearest 1/100 of 1%).
"Interest Coverage Ratio" means, as of the end of any fiscal
quarter of the Consolidated Parties for the four fiscal quarter period
ending on such date with respect to the Consolidated Parties on a
consolidated basis, the ratio of (a) Consolidated EBITDA for such
period to (b) Consolidated Interest Expense for such period.
"Interest Payment Date" means (a) as to Base Rate Loans, the
last Business Day of each March, June, September and December, the date
of repayment of principal of such Loan and the Maturity Date, and (b)
as to Eurodollar Loans, the last day of each applicable Interest
Period, the date of repayment of principal of such Loan and the
Maturity Date, and in addition where the applicable Interest Period for
a Eurodollar Loan is greater than three months, then also the date
three months from the beginning of the Interest Period and each three
months thereafter.
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"Interest Period" means, as to Eurodollar Loans, a period of
one, two, three or six months' duration, as the Borrower may elect,
commencing, in each case, on the date of the borrowing (including
continuations and conversions thereof); provided, however, (a) if any
Interest Period would end on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
(except that where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day),
(b) no Interest Period shall extend beyond the Maturity Date and (c)
where an Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall end on the last
Business Day of such calendar month.
"Investment" in any Person means (a) the acquisition (whether
for cash, property, services, assumption of Indebtedness, securities or
otherwise) of assets (other than equipment, inventory, supplies and
general intangibles in the ordinary course of business and other than
any acquisition of assets constituting a Consolidated Capital
Expenditure), Capital Stock, bonds, notes, debentures, partnership,
joint ventures or other ownership interests or other securities of such
other Person, (b) any deposit with, or advance, loan or other extension
of credit to, such Person (other than deposits made in connection with
the purchase of equipment inventory, supplies and general intangibles
in the ordinary course of business) or (c) any other capital
contribution to or investment in such Person, including, without
limitation, any Guaranty Obligations (including any support for a
letter of credit issued on behalf of such Person) incurred for the
benefit of such Person and any Asset Disposition to such Person for
consideration less than the fair market value of the Property disposed
in such transaction, but excluding any Restricted Payment to such
Person. Investments which are capital contributions or purchases of
Capital Stock which have a right to participate in the profits of the
issuer thereof shall be valued at the amount actually contributed or
paid to purchase such Capital Stock as of the date of such contribution
or payment. Investments which are loans, advances, extensions of credit
or Guaranty Obligations shall be valued at the principal amount of such
loan, advance or extension of credit outstanding as of the date of
determination or, as applicable, the principal amount of the loan or
advance outstanding as of the date of determination actually guaranteed
by such Guaranty Obligation.
"Investor Subordinated Debt" means any Indebtedness of the
Parent or the Borrower incurred pursuant to, and in accordance with the
terms of, Section 8.1(m).
"Involuntary Disposition" shall have the meaning assigned to
such term in Section 7.6(b).
"Issuing Lender" means Bank of America.
"Joinder Agreement" means a Joinder Agreement substantially in
the form of Exhibit 7.12 hereto, executed and delivered by a new
Guarantor in accordance with the provisions of Section 7.12.
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"Lender" means any of the Persons identified as a "Lender" on
the signature pages hereto, and any Person which may become a Lender by
way of assignment in accordance with the terms hereof, together with
their successors and permitted assigns.
"Lending Party" shall have the meaning assigned to such term
in Section 11.14.
"Letter of Credit" means any letter of credit issued by the
Issuing Lender for the account of the Borrower in accordance with the
terms of Section 2.2.
"Leverage Ratio" means, as of the end of any fiscal quarter of
the Consolidated Parties for the four fiscal quarter period ending on
such date with respect to the Consolidated Parties on a consolidated
basis, the ratio of (a) Funded Indebtedness of the Consolidated Parties
on a consolidated basis on the last day of such period less Revolving
Loans and Tranche B Term Loans to (b) Consolidated EBITDA for such
period.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory or
otherwise), preference, priority or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other
title retention agreement, any financing or similar statement or notice
filed under the Uniform Commercial Code as adopted and in effect in the
relevant jurisdiction or other similar recording or notice statute, and
any lease in the nature thereof).
"Loan" or "Loans" means the Revolving Loans, the Tranche A
Term Loans and/or the Tranche B Term Loans (or a portion of any
Revolving Loan, any Tranche A Term Loan or Tranche B Term Loan bearing
interest at the Adjusted Base Rate or the Adjusted Eurodollar Rate and
referred to as a Base Rate Loan or a Eurodollar Loan), individually or
collectively, as appropriate.
"LOC Commitment" means the commitment of the Issuing Lender to
issue Letters of Credit in an aggregate face amount at any time
outstanding (together with the amounts of any unreimbursed drawings
thereon) of up to the LOC Committed Amount.
"LOC Committed Amount" shall have the meaning assigned to such
term in Section 2.2.
"LOC Documents" means, with respect to any Letter of Credit,
such Letter of Credit, any amendments thereto, any documents delivered
in connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or
providing for (i) the rights and obligations of the parties concerned
or at risk or (ii) any collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (i) the
maximum amount which is, or at any time thereafter may become,
available to be drawn under Letters of Credit then outstanding,
assuming compliance with all requirements for drawings referred to in
such
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Letters of Credit plus (ii) the aggregate amount of all drawings under
Letters of Credit honored by the Issuing Lender but not theretofore
reimbursed by the Borrower.
"Management Agreement" means that certain management agreement
between U.S. Warburg and the Manager dated as of June 11, 1998.
"Management Investors" means each of Douglas W. Kohrs and
Samuel B. Humphries.
"Manager" means E.M. Warburg, Pincus & Co., LLC, a New York
limited liability company, as manager of each of the WPEP Entities.
"Material Adverse Effect" means a material adverse effect on
(i) after taking into account any applicable insurance and any
applicable indemnification (to the extent the provider of such
insurance or indemnification has the financial ability to support is
obligations with respect thereto and is not disputing or refusing to
acknowledge the same), the operations, financial condition or business
of the Consolidated Parties taken as a whole, (ii) the ability of any
Credit Party to perform any material obligation under the Credit
Documents to which it is a party or (iii) the material rights and
remedies of the Agent and the Lenders under the Credit Documents.
"Material Foreign Subsidiary" means, at any time, any direct
Foreign Subsidiary of the Borrower or any Domestic Subsidiary having
(i) 5% or more of Consolidated Total Assets at such time or (ii) 5% or
more of Consolidated EBITDA for the most recently ended four fiscal
quarters; provided, however, Influence Medical Technologies Ltd. shall
not be eligible for classification as a Material Foreign Subsidiary
prior to July 31, 2000.
"Materials of Environmental Concern" means any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Laws,
including, without limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.
"Maturity Date" means the earlier of (a) if the audited
financial statements described in Section 5.2(q) are not delivered to
the Agent prior to April 30, 2000, April 30, 2000 or (b) March 24,
2006.
"Moody's" means Moody's Investors Service, Inc., or any
successor or assignee of the business of such company in the business
of rating securities.
"Mortgage Instruments" shall have the meaning assigned such
term in Section 5.2(f).
"Mortgage Policies" shall have the meaning assigned such term
in Section 5.2(f).
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"Mortgaged Properties" shall have the meaning assigned such
term in Section 5.2(f).
"Multiemployer Plan" means a Plan which is a "multiemployer
plan" as defined in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan (other than a
Multiemployer Plan) which any Consolidated Party or any ERISA Affiliate
and at least one employer other than the Consolidated Parties or any
ERISA Affiliate are contributing sponsors.
"Net Cash Proceeds" means the aggregate proceeds paid in cash
or Cash Equivalents received by any Consolidated Party in respect of
any Asset Disposition, Equity Issuance, Debt Issuance or Involuntary
Disposition, net of (a) direct costs (including, without limitation,
legal, accounting and investment banking fees, and sales commissions)
and (b) a good faith estimate of the taxes payable with respect to such
proceeds, including, without duplication, withholding taxes and any
taxes payable to a third party in connection with a distribution of
such proceeds from a Subsidiary of the Borrower to the Borrower,
directly or indirectly, (c) with respect to an Asset Disposition, any
reserve for adjustment in respect of the sale price of such asset or
assets established in accordance with the terms of the applicable
agreements governing such Asset Disposition so long as such reserve
amounts are placed in escrow with a third party and reserves
established by the Borrower to fund contingent liabilities reasonably
estimated to be payable during the year that such Asset Disposition
occurred or the next succeeding year and that are directly attributable
to such Asset Disposition (as determined reasonably and in good faith
by the chief financial officer of the Borrower) (d) with respect to an
Asset Disposition, any payments to be made by the Borrower or any of
its Subsidiaries, as agreed to between the Borrower or such Subsidiary
and the purchaser of such asset or assets, in connection with such sale
or disposition; it being understood that "Net Cash Proceeds" shall
include, without limitation, any cash or Cash Equivalents received upon
the sale or other disposition of any non-cash consideration received by
any such Consolidated Party in any Asset Disposition, Equity Issuance,
Debt Issuance or Involuntary Disposition.
"Note" or "Notes" means the Revolving Notes, the Tranche A
Term Notes and/or the Tranche B Term Notes, individually or
collectively, as appropriate.
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Exhibit 2.1(b)(i), as required by Section
2.1(b)(i), Section 2.3(b) or Section 2.4(b).
"Notice of Extension/Conversion" means the written notice of
extension or conversion in substantially the form of Exhibit 3.2, as
required by Section 3.2.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property (whether real, personal or mixed)
which is not a Capital Lease other than any such lease in which that
Person is the lessor.
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"Other Taxes" shall have the meaning assigned to such term in
Section 3.11(b).
"Parent" means American Medical Systems Holdings, Inc., a
Delaware corporation, together with any permitted successors and
assigns.
"Parent Joinder Agreement" means a Joinder Agreement
substantially in the form of Exhibit 5.2 hereto, executed and delivered
by the Parent.
"Participation Interest" means a purchase by a Lender of a
participation in Letters of Credit or LOC Obligations as provided in
Section 2.2 or in any Loans as provided in Section 3.14.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any
successor thereof.
"Permitted Acquisition" means an Acquisition by the Borrower
or any Subsidiary of the Borrower permitted pursuant to the terms of
Section 8.6(j).
"Permitted Asset Disposition" means (i) any Asset Disposition
permitted by Section 8.5 and (ii) any Excluded Asset Disposition.
"Permitted Investments" means, at any time, Investments by the
Consolidated Parties permitted to exist at such time pursuant to the
terms of Section 8.6.
"Permitted Liens" means, at any time, Liens in respect of
Property of the Consolidated Parties permitted to exist at such time
pursuant to the terms of Section 8.2.
"Person" means any individual, partnership, joint venture,
firm, corporation, limited liability company, association, trust or
other enterprise (whether or not incorporated) or any Governmental
Authority.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which any
Consolidated Party or any ERISA Affiliate is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to
be) an "employer" within the meaning of Section 3(5) of ERISA.
"Pledge Agreement" means the pledge agreement dated as of the
Initial Funding Date in the form of Exhibit 1.1A to be executed in
favor of the Agent by each of the Credit Parties, as amended, modified,
restated or supplemented from time to time.
"Prime Rate" means the per annum rate of interest established
from time to time by Bank of America as its prime rate, which rate may
not be the lowest rate of interest charged by Bank of America to its
customers.
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"Principal Amortization Payment" means a principal payment on
the Tranche A Term Loans as set forth in Section 2.3(d) or on the
Tranche B Term Loans as set forth in Section 2.4(d).
"Principal Amortization Payment Date" means the date a
Principal Amortization Payment is due.
"Principal Office" means the principal office of Bank of
America, presently located at Charlotte, North Carolina.
"Pro Forma Basis" means, for purposes of calculating
(utilizing the principles set forth in the second paragraph of Section
1.3) compliance with each of the financial covenants set forth in
Section 7.11(a) and (b) in respect of a proposed transaction, that such
transaction shall be deemed to have occurred as of the first day of the
four fiscal-quarter period ending as of the most recent fiscal quarter
end preceding the date of such transaction with respect to which the
Agent has received the Required Financial Information. As used herein,
"transaction" shall mean (i) any Asset Disposition as referred to in
Section 8.5 or (ii) any Acquisition as referred to in Section 8.6(j).
In connection with any calculation of the financial covenants set forth
in 7.11(a) and (b) upon giving effect to a transaction on a Pro Forma
Basis:
(A) for purposes of any such calculation in respect of any Asset
Disposition as referred to in Section 8.5, (1) income
statement items (whether positive or negative) and capital
expenditures attributable to the Property disposed of shall be
excluded and (2) any Indebtedness which is retired in
connection with such transaction shall be excluded and deemed
to have been retired as of the first day of the applicable
period; and
(B) for purposes of any such calculation in respect of any
Acquisition as referred to in Section 8.6(j), (1) any
Indebtedness incurred by any Consolidated Party in connection
with such transaction (x) shall be deemed to have been
incurred as of the first day of the applicable period and (y)
if such Indebtedness has a floating or formula rate, shall
have an implied rate of interest for the applicable period for
purposes of this definition determined by utilizing the rate
which is or would be in effect with respect to such
Indebtedness as at the relevant date of determination, (2)
income statement items (whether positive or negative) and
capital expenditures attributable to the Person or Property
acquired shall be included beginning as of the first day of
the applicable period and (3) pro forma adjustments may be
included to the extent that such adjustments would be
permitted under GAAP and give effect to events that are (x)
directly attributable to such transaction, (y) expected to
have a continuing impact on the Consolidated Parties and (z)
factually supportable.
"Pro Forma Compliance Certificate" means a certificate of an
Executive Officer of the Borrower delivered to the Agent in connection
with (i) any Asset Disposition as referred to in Section 8.5 or (ii)
any Acquisition as referred to in Section 8.6(j), as
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applicable, and containing reasonably detailed calculations, upon
giving effect to the applicable transaction on a Pro Forma Basis, of
the Leverage Ratio and the Interest Coverage Ratio as of the most
recent fiscal quarter end preceding the date of the applicable
transaction with respect to which the Agent shall have received the
Required Financial Information.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Purchase Agreement" means Agreement and Plan of Merger, dated
as of November 12, 1999, by and among the Borrower, Persuade Merger
Corp., a Delaware corporation, Influence, Globerman Engineering Ltd.,
an Israeli company, Urotek Ltd., an Israeli company, Katsumi Oneda and
Lewis C. Pell, as the same may be amended, modified, restated or
supplemented prior to the Closing Date.
"Qualifying IPO" means an Equity Issuance by the Parent
consisting of an underwritten primary public offering (other than a
public offering pursuant to a registration statement on Form S-8) of
the common Capital Stock of the Parent (i) pursuant to an effective
registration statement filed with the Securities and Exchange
Commission in accordance with the Securities Act (whether alone or in
connection with a secondary public offering) and (ii) resulting in
proceeds to the Parent of at least $30,000,000.
"Real Properties" means, at any time, a collective reference
to each of the facilities and real properties owned, leased or operated
by the Consolidated Parties at such time.
"Refinancing" means the refinancing on the Initial Funding
Date of certain existing Funded Indebtedness of the Borrower and its
Subsidiaries.
"Register" shall have the meaning assigned to such term in
Section 11.3(c).
"Regulation D, T, U, or X" means Regulation D, T, U or X,
respectively, of the Board of Governors of the Federal Reserve System
as from time to time in effect and any successor to all or a portion
thereof.
"Reportable Event" means any of the events set forth in
Section 4043(c) of ERISA, other than those events as to which the
notice requirement has been waived by regulation.
"Required Financial Information" means, with respect to the
applicable Calculation Date, (i) the financial statements of the
Consolidated Parties required to be delivered pursuant to Section
7.1(a) or (b) for the fiscal period or quarter ending as of such
Calculation Date, and (ii) the certificate of an Executive Officer of
the Borrower required by Section 7.1(c) to be delivered with the
financial statements described in clause (i) above.
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"Required Guaranteed Lenders" means, at any time, Lenders
(other than Defaulting Lenders) holding in the aggregate at least a
majority of (i) the Revolving Commitments (and Participation Interests
therein) and the outstanding Tranche B Term Loans (and Participation
Interests therein) or (ii) if the Revolving Commitments have been
terminated, the outstanding Loans, LOC Obligations and Participation
Interests (including the Participation Interests of the Issuing Lender
in any Letters of Credit).
"Required Lenders" means, at any time, Lenders (other than
Defaulting Lenders) holding in the aggregate at least a majority of (i)
the Revolving Commitments (and Participation Interests therein), the
outstanding Tranche A Term Loans (and Participation Interests therein)
and the outstanding Tranche B Term Loans (and Participation Interests
therein) or (ii) if the Revolving Commitments have been terminated, the
outstanding Loans, LOC Obligations and Participation Interests
(including the Participation Interests of the Issuing Lender in any
Letters of Credit).
"Required Tranche A Term Lenders" means, at any time, Lenders
(other than Defaulting Lenders) holding in the aggregate at least a
majority of the outstanding Tranche A Term Loans (and Participation
Interests therein).
"Requirement of Law" means, as to any Person, the certificate
of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
final, non-appealable determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding
upon such Person or to which any of its material property is subject.
"Restricted Payment" means (i) any dividend or other payment
or distribution, direct or indirect, on account of any shares of any
class of Capital Stock of any Consolidated Party, now or hereafter
outstanding (including without limitation any payment in connection
with any dissolution, merger, consolidation or disposition involving
any Consolidated Party), or to the holders, in their capacity as such,
of any shares of any class of Capital Stock of any Consolidated Party,
now or hereafter outstanding (other than dividends or distributions
payable in Capital Stock of the applicable Person and dividends or
distributions payable (directly or indirectly through Subsidiaries) to
any Credit Party other than the Parent), (ii) any redemption,
retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class
of Capital Stock of any Consolidated Party, now or hereafter
outstanding, (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to
acquire shares of any class of Capital Stock of any Consolidated Party,
now or hereafter outstanding, (iv) any payment or prepayment of
principal of, premium, if any, or interest on, including any
redemption, purchase, retirement, defeasance, sinking fund or similar
payment with respect to, any Investor Subordinated Debt and (v) any
loan or advance to the Parent.
"Revolving Commitment" means, with respect to each Lender, the
commitment of such Lender in an aggregate principal amount at any time
outstanding of up to such Lender's Commitment Percentage of the
Revolving Committed Amount, (i) to make Revolving
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Loans in accordance with the provisions of Section 2.1(a) and (ii) to
purchase Participation Interests in Letters of Credit in accordance
with the provisions of Section 2.2(c).
"Revolving Committed Amount" shall have the meaning assigned
to such term in Section 2.1(a).
"Revolving Loans" shall have the meaning assigned to such term
in Section 2.1(a).
"Revolving Note" or "Revolving Notes" means the promissory
notes of the Borrower in favor of each Lender provided pursuant to
Section 2.1(e) and evidencing the Revolving Loans of such Lender,
individually or collectively, as appropriate, as such promissory notes
may be amended, modified, restated, supplemented, extended, renewed or
replaced from time to time.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw Hill Companies, Inc., or any successor or assignee of the
business of such division in the business of rating securities.
"Sale and Leaseback Transaction" means any arrangement
pursuant to which any Consolidated Party, directly or indirectly,
becomes liable as lessee, guarantor or other surety with respect to any
lease, whether an Operating Lease or a Capital Lease, of any Property
(a) which such Consolidated Party has sold or transferred (or is to
sell or transfer) to a Person which is not a Consolidated Party or (b)
which such Consolidated Party intends to use for substantially the same
purpose as any other Property which has been sold or transferred (or is
to be sold or transferred) by such Consolidated Party to another Person
which is not a Consolidated Party in connection with such lease.
"Securities Act" means the Securities Act of 1933, as amended,
and all regulations issued pursuant thereto.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, and all regulations issued pursuant thereto.
"Security Agreement" means the security agreement dated as of
the Initial Funding Date in the form of Exhibit 1.1B to be executed in
favor of the Agent by each of the Credit Parties, as amended, modified,
restated or supplemented from time to time.
"Single Employer Plan" means any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple
Employer Plan.
"Solvent" or "Solvency" means, with respect to any Person as
of a particular date, that on such date (i) such Person is able to pay
its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (ii) such
Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person's ability to pay as such debts
and liabilities mature in their ordinary course, (iii) such Person is
not engaged in a business or a transaction, and is not about to
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engage in a business or a transaction, for which such Person's Property
would constitute unreasonably small capital after giving due
consideration to the prevailing practice in the industry in which such
Person is engaged or is to engage, (iv) the fair value of the Property
of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person
and (v) the present fair salable value of the assets of such Person is
not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and
matured. In computing the amount of contingent liabilities at any time,
it is intended that such liabilities will be computed at the amount
which, in light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become
an actual or matured liability.
"Standby Letter of Credit Fee" shall have the meaning assigned
to such term in Section 3.5(b)(i).
"Subsidiary" means, as to any Person at any time, (a) any
corporation more than 50% of whose Capital Stock of any class or
classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether
or not at such time, any class or classes of such corporation shall
have or might have voting power by reason of the happening of any
contingency) is at such time owned by such Person directly or
indirectly through Subsidiaries, and (b) any partnership, association,
joint venture or other entity of which such Person directly or
indirectly through Subsidiaries owns at such time more than 50% of the
Capital Stock.
"Subsidiary Guarantor" means each of the Persons identified as
a "Subsidiary Guarantor" on the signature pages hereto and each Person
which may hereafter execute a Joinder Agreement pursuant to Section
7.12, together with their successors and permitted assigns, and
"Subsidiary Guarantor" means any one of them.
"Synthetic Lease" means any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an Operating Lease
under GAAP.
"Taxes" shall have the meaning assigned to such term in
Section 3.11(a).
"Trade Letter of Credit Fee" shall have the meaning assigned
to such term in Section 3.5(b)(ii).
"Tranche A Obligations" all of the obligations of the Credit
Parties to the Lenders and the Agent, whenever arising, with respect to
the Tranche A Term Loans made pursuant to Section 2.3 of this Credit
Agreement and the Tranche A Term Notes (including, but not limited to,
any interest accruing after the occurrence of a Bankruptcy Event with
respect to any Credit Party, regardless of whether such interest is an
allowed claim under the Bankruptcy Code).
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"Tranche A Term Lenders" means, at any time, Lenders holding
any of the outstanding Tranche A Term Loans (or Participation Interests
therein).
"Tranche A Term Loan" shall have the meaning assigned to such
term in Section 2.3(a).
"Tranche A Term Loan Commitment" means, with respect to each
Lender, the commitment of such Lender to make its portion of the
Tranche A Term Loan in a principal amount equal to such Lender's
Commitment Percentage of the Tranche A Term Loan Committed Amount.
"Tranche A Term Loan Committed Amount" shall have the meaning
assigned to such term in Section 2.3(a).
"Tranche A Term Note" or "Tranche A Term Notes" means the
promissory notes of the Borrower in favor of each Lender provided
pursuant to Section 2.3(f) and evidencing the Tranche A Term Loans of
such Lender, individually or collectively, as appropriate, as such
promissory notes may be amended, modified, restated, supplemented,
extended, renewed or replaced from time to time.
"Tranche B Term Loan" shall have the meaning assigned to such
term in Section 2.4(a).
"Tranche B Term Loan Commitment" means, with respect to each
Lender, the commitment of such Lender to make its portion of the
Tranche B Term Loan in a principal amount equal to such Lender's
Commitment Percentage of the Tranche B Term Loan Committed Amount.
"Tranche B Term Loan Committed Amount" shall have the meaning
assigned to such term in Section 2.4(a).
"Tranche B Term Note" or "Tranche B Term Notes" means the
promissory notes of the Borrower in favor of each Lender provided
pursuant to Section 2.4(f) and evidencing the Tranche B Term Loans of
such Lender, individually or collectively, as appropriate, as such
promissory notes may be amended, modified, restated, supplemented,
extended, renewed or replaced from time to time.
"Unused Fee" shall have the meaning assigned to such term in
Section 3.5(a).
"Unused Fee Calculation Period" shall have the meaning
assigned to such term in Section 3.5(a).
"Unused Revolving Committed Amount" means, for any period, the
amount by which (a) the then applicable Revolving Committed Amount
exceeds (b) the daily average sum for such period of (i) the
outstanding aggregate principal amount of all Revolving Loans plus (ii)
the outstanding aggregate principal amount of all LOC Obligations.
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"US Warburg" means Warburg, Pincus Equity Partners, L.P., a
Delaware limited partnership.
"Voting Stock" means, with respect to any Person, Capital
Stock issued by such Person the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of
directors (or persons performing similar functions) of such Person,
even though the right so to vote has been suspended by the happening of
such a contingency.
"Warburg Guaranty" means that certain Guaranty and Investment
Agreement as of the Initial Funding Date in the form of Exhibit 1.1C
hereof to be executed in favor of the Agent by each of the WPEP
Entities, as guarantors, as amended, modified, restated or supplemented
from time to time.
"Wholly Owned Subsidiary" means any Person 100% of whose
Voting Stock (other than director's qualifying shares) is at the time
owned by the Borrower directly or indirectly through other Persons 100%
of whose Voting Stock (other than director's qualifying shares) is at
the time owned, directly or indirectly, by the Borrower.
"WPEP Entities" means US Warburg, Warburg, Pincus Netherlands
Equity Partners I, C.V., a commanditaire vennootschap, Warburg, Pincus
Netherlands Equity Partners II, C.V., a commanditaire vennootschap, and
Warburg, Pincus Netherlands Equity Partners III, C.V., a commanditaire
vennootschap.
"Year 2000 Problem" shall have the meaning assigned to such
term in Section 6.27.
1.2 COMPUTATION OF TIME PERIODS.
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding."
1.3 ACCOUNTING TERMS.
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis; provided, however, that calculations of the implied principal component
of all obligations under any Synthetic Lease or the implied interest component
of any rent paid under any Synthetic Lease shall be made by the Borrower in
accordance with accepted financial practice and consistent with the terms of
such Synthetic Lease. All calculations made for the purposes of determining
compliance with this Credit Agreement shall (except as otherwise expressly
provided herein) be made by application of GAAP applied on a basis consistent
with the most recent annual or quarterly financial statements delivered pursuant
to Section 7.1 (or, prior to the delivery of the first financial statements
pursuant to Section 7.1, consistent with the financial statements as at December
31, 1998), but, in any event, after elimination for minority interests;
provided, however, if (a) the Borrower shall object to determining such
compliance on such basis at the time of delivery
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of such financial statements due to any change in GAAP or the rules promulgated
with respect thereto or (b) the Agent or the Required Lenders shall so object in
writing within 60 days after delivery of such financial statements, then such
calculations shall be made on a basis consistent with the most recent financial
statements delivered by the Credit Parties to the Lenders as to which no such
objection shall have been made.
Notwithstanding the above, the parties hereto acknowledge and agree
that, for purposes of all calculations made under the financial covenants set
forth in Section 7.11 (including without limitation for purposes of the
definitions of "Applicable Percentage" and "Pro Forma Basis" set forth in
Section 1.1), (i) after consummation of any Asset Disposition occurring after
the Closing Date (A) income statement items (whether positive or negative) and
capital expenditures attributable to the Property disposed of shall be excluded
to the extent relating to any period occurring prior to the date of such
transaction and (B) Indebtedness which is retired shall be excluded and deemed
to have been retired as of the first day of the applicable period and (ii) after
consummation of any Acquisition occurring after the Closing Date (A) income
statement items (whether positive or negative) and capital expenditures
attributable to the Person or Property acquired shall, to the extent not
otherwise included in such income statement items for the Consolidated Parties
in accordance with GAAP or in accordance with any defined terms set forth in
Section 1.1, be included to the extent relating to any period applicable in such
calculations, (B) to the extent not retired in connection with such Acquisition,
Indebtedness of the Person or Property acquired shall be deemed to have been
incurred as of the first day of the applicable period and (C) pro forma
adjustments may be included to the extent that such adjustments would be
permitted under GAAP and give effect to items that are (x) directly attributable
to such transaction, (y) expected to have a continuing impact on the
Consolidated Parties and (z) factually supportable.
SECTION 2
CREDIT FACILITIES
2.1 REVOLVING LOANS.
(a) Revolving Commitment. Subject to the terms and conditions
hereof and in reliance upon the representations and warranties set
forth herein, each Lender severally agrees to make available to the
Borrower such Lender's Commitment Percentage of revolving credit loans
requested by the Borrower in Dollars ("Revolving Loans") from time to
time from the Initial Funding Date until the Maturity Date, or such
earlier date as the Revolving Commitments shall have been terminated as
provided herein; provided, however, that the sum of the aggregate
outstanding principal amount of Revolving Loans shall not exceed
FIFTEEN MILLION DOLLARS ($15,000,000) (as such aggregate maximum amount
may be reduced from time to time as provided in Section 3.4, the
"Revolving Committed Amount"); provided, further, (A) with regard to
each Lender individually, such Lender's outstanding Revolving Loans
shall not exceed such Lender's Commitment Percentage of the Revolving
Committed Amount, and (B) the sum of the aggregate outstanding
principal amount of Revolving Loans plus LOC Obligations shall not
exceed
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the Revolving Committed Amount. Revolving Loans may consist of Base
Rate Loans or Eurodollar Loans, or a combination thereof, as the
Borrower may request; provided, however, that no more than 5 Eurodollar
Loans which are Revolving Loans shall be outstanding hereunder at any
time (it being understood that, for purposes hereof, Eurodollar Loans
with different Interest Periods shall be considered as separate
Eurodollar Loans, even if they begin on the same date, although
borrowings, extensions and conversions may, in accordance with the
provisions hereof, be combined at the end of existing Interest Periods
to constitute a new Eurodollar Loan with a single Interest Period).
Revolving Loans hereunder may be repaid and reborrowed in accordance
with the provisions hereof.
(b) Revolving Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall request a
Revolving Loan borrowing by written notice (or telephonic
notice promptly confirmed in writing) to the Agent not later
than 10:00 A.M. (Charlotte, North Carolina time) on the
Business Day of the requested borrowing in the case of Base
Rate Loans, and on the third Business Day prior to the date of
the requested borrowing in the case of Eurodollar Loans. Each
such request for borrowing shall be irrevocable and shall
specify (A) that a Revolving Loan is requested, (B) the date
of the requested borrowing (which shall be a Business Day),
(C) the aggregate principal amount to be borrowed, and (D)
whether the borrowing shall be comprised of Base Rate Loans,
Eurodollar Loans or a combination thereof, and if Eurodollar
Loans are requested, the Interest Period(s) therefor. If the
Borrower shall fail to specify in any such Notice of Borrowing
(I) an applicable Interest Period in the case of a Eurodollar
Loan, then such notice shall be deemed to be a request for an
Interest Period of one month, or (II) the type of Revolving
Loan requested, then such notice shall be deemed to be a
request for a Base Rate Loan hereunder. The Agent shall give
notice to each affected Lender promptly upon receipt of each
Notice of Borrowing pursuant to this Section 2.1(b)(i), the
contents thereof and each such Lender's share of any borrowing
to be made pursuant thereto.
(ii) Minimum Amounts. Each Eurodollar Loan or Base
Rate Loan that is a Revolving Loan shall be in a minimum
aggregate principal amount of $1,000,000 and integral
multiples of $100,000 in excess thereof (or the remaining
amount of the Revolving Committed Amount, if less).
(iii) Advances. Each Lender will make its Commitment
Percentage of each Revolving Loan borrowing available to the
Agent for the account of the Borrower as specified in Section
3.15(a), or in such other manner as the Agent may specify in
writing, by 1:00 P.M. (Charlotte, North Carolina time) on the
date specified in the applicable Notice of Borrowing in
Dollars and in funds immediately available to the Agent. Such
borrowing will then be made available to the Borrower by the
Agent by crediting the account of the Borrower on the books of
such office with the aggregate of the amounts made available
to the Agent by the Lenders and in like funds as received by
the Agent.
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(c) Repayment. The principal amount of all Revolving Loans
shall be due and payable in full on the Maturity Date, unless
accelerated sooner pursuant to Section 9.2.
(d) Interest. Subject to the provisions of Section 3.1,
(i) Base Rate Loans. During such periods as Revolving
Loans shall be comprised in whole or in part of Base Rate
Loans, such Base Rate Loans shall bear interest at a per annum
rate equal to the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as
Revolving Loans shall be comprised in whole or in part of
Eurodollar Loans, such Eurodollar Loans shall bear interest at
a per annum rate equal to the Adjusted Eurodollar Rate.
Interest on Revolving Loans shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(e) Revolving Notes. The Revolving Loans made by each Lender
shall be evidenced by a duly executed promissory note of the Borrower
to such Lender in an original principal amount equal to such Lender's
Commitment Percentage of the Revolving Committed Amount and in
substantially the form of Exhibit 2.1(e).
2.2 LETTER OF CREDIT SUBFACILITY.
(a) Issuance. Subject to the terms and conditions hereof and
in reliance upon the representations and warranties set forth herein,
the Issuing Lender agrees to issue, and each Lender severally agrees to
participate in the issuance by the Issuing Lender of, standby and trade
Letters of Credit in Dollars from time to time from the Initial Funding
Date until the date thirty (30) days prior to the Maturity Date as the
Borrower may request, in a form reasonably acceptable to the Issuing
Lender; provided, however, that (i) the LOC Obligations outstanding
shall not at any time exceed FIVE MILLION DOLLARS ($5,000,000) (the
"LOC Committed Amount") and (ii) the sum of the aggregate outstanding
principal amount of Revolving Loans plus LOC Obligations shall not at
any time exceed the Revolving Committed Amount. No Letter of Credit
shall (x) have an original expiry date more than one year from the date
of issuance (provided that any such Letter of Credit may contain
customary "evergreen" provisions pursuant to which the expiry date is
automatically extended by a specific time period unless the Issuing
Lender gives notice to the beneficiary of such Letter of Credit at
least a specified time period prior to the expiry date then in effect)
or (y) as originally issued or as extended, have an expiry date
extending beyond the date thirty (30) days prior to the Maturity Date.
Each Letter of Credit shall comply with the related LOC Documents. The
issuance and expiry dates of each Letter of Credit shall be a Business
Day.
(b) Notice and Reports. The request for the issuance of a
Letter of Credit shall be submitted by the Borrower to the Issuing
Lender at least three (3) Business Days prior to the requested date of
issuance. The Issuing Lender will, at least quarterly and more
frequently upon request, disseminate to each of the Lenders a detailed
report specifying the
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Letters of Credit which are then issued and outstanding and any
activity with respect thereto which may have occurred since the date of
the prior report, and including therein, among other things, the
beneficiary, the face amount and the expiry date, as well as any
payment or expirations which may have occurred.
(c) Participation. Each Lender, upon issuance of a Letter of
Credit, shall be deemed to have purchased without recourse a
Participation Interest from the Issuing Lender in such Letter of Credit
and the obligations arising thereunder and any collateral relating
thereto, in each case in an amount equal to its pro rata share of the
obligations under such Letter of Credit (based on the respective
Commitment Percentages of the Lenders) and shall absolutely,
unconditionally and irrevocably assume and be obligated to pay to the
Issuing Lender and discharge when due, its pro rata share of the
obligations arising under such Letter of Credit. Without limiting the
scope and nature of each Lender's Participation Interest in any Letter
of Credit, to the extent that the Issuing Lender has not been
reimbursed as required hereunder or under any such Letter of Credit,
each such Lender shall pay to the Issuing Lender its pro rata share of
such unreimbursed drawing in same day funds on the day of notification
by the Issuing Lender of an unreimbursed drawing pursuant to the
provisions of subsection (d) below. The obligation of each Lender to so
reimburse the Issuing Lender shall be absolute and unconditional and
shall not be affected by the occurrence of a Default, an Event of
Default or any other occurrence or event. Any such reimbursement shall
not relieve or otherwise impair the obligation of the Borrower to
reimburse the Issuing Lender under any Letter of Credit, together with
interest as hereinafter provided.
(d) Reimbursement. In the event of any drawing under any
Letter of Credit, the Issuing Lender will promptly notify the Borrower.
Unless the Borrower shall immediately notify the Issuing Lender that
the Borrower intends to otherwise reimburse the Issuing Lender for such
drawing, the Borrower shall be deemed to have requested that the
Lenders make a Revolving Loan in the amount of the drawing as provided
in subsection (e) below on the related Letter of Credit, the proceeds
of which will be used to satisfy the related reimbursement obligations.
The Borrower promises to reimburse the Issuing Lender on the day of
drawing under any Letter of Credit (either with the proceeds of a
Revolving Loan obtained hereunder or otherwise) in same day funds. If
the Borrower shall fail to reimburse the Issuing Lender as provided
hereinabove, the unreimbursed amount of such drawing shall bear
interest at a per annum rate equal to the Adjusted Base Rate plus 2%.
The Borrower's reimbursement obligations hereunder shall be absolute
and unconditional under all circumstances irrespective of (but without
waiver of) any rights of setoff, counterclaim or defense to payment
that the applicable account party or the Borrower may claim or have
against the Issuing Lender, the Agent, the Lenders, the beneficiary of
the Letter of Credit drawn upon or any other Person, including without
limitation any defense based on any failure of the applicable account
party or the Borrower or any other Credit Party to receive
consideration or the legality, validity, regularity or unenforceability
of the Letter of Credit. The Issuing Lender will promptly notify the
other Lenders of the amount of any unreimbursed drawing and each Lender
shall promptly pay to the Agent for the account of the Issuing Lender
in Dollars and in immediately available funds, the amount of such
Lender's pro rata share of such unreimbursed drawing. Such payment
shall be made on the
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day such notice is received by such Lender from the Issuing Lender if
such notice is received at or before 2:00 P.M. (Charlotte, North
Carolina time), and otherwise such payment shall be made at or before
12:00 Noon (Charlotte, North Carolina time) on the Business Day next
succeeding the day such notice is received. If such Lender does not pay
such amount to the Issuing Lender in full upon such request, such
Lender shall, on demand, pay to the Agent for the account of the
Issuing Lender interest on the unpaid amount during the period from the
date of such drawing until such Lender pays such amount to the Issuing
Lender in full at a rate per annum equal to, if paid within two (2)
Business Days of the date that such Lender is required to make payments
of such amount pursuant to the preceding sentence, the Federal Funds
Rate and thereafter at a rate equal to the Base Rate. Each Lender's
obligation to make such payment to the Issuing Lender, and the right of
the Issuing Lender to receive the same, shall be absolute and
unconditional, shall not be affected by any circumstance whatsoever and
without regard to the termination of this Credit Agreement or the
Commitments hereunder, the existence of a Default or Event of Default
or the acceleration of the obligations of the Borrower hereunder and
shall be made without any offset, abatement, withholding or reduction
whatsoever. Simultaneously with the making of each such payment by a
Lender to the Issuing Lender, such Lender shall, automatically and
without any further action on the part of the Issuing Lender or such
Lender, acquire a Participation Interest in an amount equal to such
payment (excluding the portion of such payment constituting interest
owing to the Issuing Lender) in the related unreimbursed drawing
portion of the LOC Obligation and in the interest thereon and in the
related LOC Documents, and shall have a claim against the Borrower with
respect thereto.
(e) Repayment with Revolving Loans. On any day on which the
Borrower shall have requested, or been deemed to have requested, a
Revolving Loan advance to reimburse a drawing under a Letter of Credit,
the Agent shall give notice to the Lenders that a Revolving Loan has
been requested or deemed requested by the Borrower to be made in
connection with a drawing under a Letter of Credit, in which case a
Revolving Loan advance comprised of Base Rate Loans (or Eurodollar
Loans to the extent the Borrower has complied with the procedures of
Section 2.1(b)(i) with respect thereto) shall be immediately made to
the Borrower by all Lenders (notwithstanding any termination of the
Commitments pursuant to Section 9.2) pro rata based on the respective
Commitment Percentages of the Lenders (determined before giving effect
to any termination of the Commitments pursuant to Section 9.2) and the
proceeds thereof shall be paid directly to the Issuing Lender for
application to the respective LOC Obligations. Each such Lender hereby
irrevocably agrees to make its pro rata share of each such Revolving
Loan immediately upon any such request or deemed request in the amount,
in the manner and on the date specified in the preceding sentence
notwithstanding (i) the amount of such borrowing may not comply with
the minimum amount for advances of Revolving Loans otherwise required
hereunder, (ii) whether any conditions specified in Section 5.3 are
then satisfied, (iii) whether a Default or an Event of Default then
exists, (iv) failure for any such request or deemed request for
Revolving Loan to be made by the time otherwise required hereunder, (v)
whether the date of such borrowing is a date on which Revolving Loans
are otherwise permitted to be made hereunder or (vi) any termination of
the Commitments relating thereto immediately prior to or
contemporaneously with such borrowing. In the event that any Revolving
Loan cannot for any reason be made on the date otherwise required above
(including, without limitation,
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as a result of the commencement of a proceeding under the Bankruptcy
Code with respect to the Borrower or any other Credit Party), then each
such Lender hereby agrees that it shall forthwith purchase (as of the
date such borrowing would otherwise have occurred, but adjusted for any
payments received from the Borrower on or after such date and prior to
such purchase) from the Issuing Lender such Participation Interests in
the outstanding LOC Obligations as shall be necessary to cause each
such Lender to share in such LOC Obligations ratably (based upon the
respective Commitment Percentages of the Lenders (determined before
giving effect to any termination of the Commitments pursuant to Section
9.2)), provided that at the time any purchase of Participation
Interests pursuant to this sentence is actually made, the purchasing
Lender shall be required to pay to the Issuing Lender, to the extent
not paid to the Issuing Lender by the Borrower in accordance with the
terms of subsection (d) above, interest on the principal amount of
Participation Interests purchased for each day from and including the
day upon which such borrowing would otherwise have occurred to but
excluding the date of payment for such Participation Interests, at the
rate equal to, if paid within two (2) Business Days of the date of the
Revolving Loan advance, the Federal Funds Rate, and thereafter at a
rate equal to the Base Rate.
(f) Designation of Consolidated Parties as Account Parties.
Notwithstanding anything to the contrary set forth in this Credit
Agreement, including without limitation Section 2.2(a), a Letter of
Credit issued hereunder may contain a statement to the effect that such
Letter of Credit is issued for the account of any Subsidiary of the
Borrower, provided that notwithstanding such statement, the Borrower
shall be the actual account party for all purposes of this Credit
Agreement for such Letter of Credit and such statement shall not affect
the Borrower's reimbursement obligations hereunder with respect to such
Letter of Credit.
(g) Renewal, Extension. The renewal or extension of any Letter
of Credit shall, for purposes hereof, be treated in all respects the
same as the issuance of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The Issuing Lender may have
the Letters of Credit be subject to The Uniform Customs and Practice
for Documentary Credits (the "UCP") or the International Standby
Practices 1998 (the "ISP98"), in either case as published as of the
date of issue by the International Chamber of Commerce, in which case
the UCP or the ISP98, as applicable, may be incorporated therein and
deemed in all respects to be a part thereof.
(i) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under this
Section 2.2, the Borrower hereby agrees to pay, and protect,
indemnify and save each Lender harmless from and against, any
and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees)
that such Lender may incur or be subject to as a consequence,
direct or indirect, of (A) the issuance of any Letter of
Credit or (B) the failure of such Lender to honor a drawing
under a
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<PAGE> 40
Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de
facto government or Governmental Authority (all such acts or
omissions, herein called "Government Acts").
(ii) As between the Borrower and the Lenders
(including the Issuing Lender), the Borrower shall assume all
risks of the acts, omissions or misuse of any Letter of Credit
by the beneficiary thereof. No Lender (including the Issuing
Lender) shall be responsible: (A) for the form, validity,
sufficiency, accuracy, genuineness or legal effect of any
document submitted by any party in connection with the
application for and issuance of any Letter of Credit, even if
it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) for the
validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, that may prove to be invalid or
ineffective for any reason; (C) for errors, omissions,
interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (D) for any loss or delay in
the transmission or otherwise of any document required in
order to make a drawing under a Letter of Credit or of the
proceeds thereof; and (E) for any consequences arising from
causes beyond the control of such Lender, including, without
limitation, any Government Acts. None of the above shall
affect, impair, or prevent the vesting of the Issuing Lender's
rights or powers hereunder.
(iii) In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth,
any action taken or omitted by any Lender (including the
Issuing Lender), under or in connection with any Letter of
Credit or the related certificates, if taken or omitted in
good faith, shall not put such Lender under any resulting
liability to the Borrower or any other Credit Party. It is the
intention of the parties that this Credit Agreement shall be
construed and applied to protect and indemnify each Lender
(including the Issuing Lender) against any and all risks
involved in the issuance of the Letters of Credit, all of
which risks are hereby assumed by the Borrower (on behalf of
itself and each of the other Credit Parties), including,
without limitation, any and all Government Acts. No Lender
(including the Issuing Lender) shall, in any way, be liable
for any failure by such Lender or anyone else to pay any
drawing under any Letter of Credit as a result of any
Government Acts or any other cause beyond the control of such
Lender.
(iv) Nothing in this subsection (i) is intended to
limit the reimbursement obligations of the Borrower contained
in subsection (d) above. The obligations of the Borrower under
this subsection (i) shall survive the termination of this
Credit Agreement. No act or omission of any current or prior
beneficiary of a Letter of Credit shall in any way affect or
impair the rights of the Lenders (including the Issuing
Lender) to enforce any right, power or benefit under this
Credit Agreement.
(v) Notwithstanding anything to the contrary
contained in this subsection (i), the Borrower shall have no
obligation to indemnify any Lender
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<PAGE> 41
(including the Issuing Lender) in respect of any liability
incurred by such Lender (A) arising solely out of the gross
negligence or willful misconduct of such Lender, as determined
by a court of competent jurisdiction, or (B) caused by such
Lender's failure to pay under any Letter of Credit after
presentation to it of a request strictly complying with the
terms and conditions of such Letter of Credit, as determined
by a court of competent jurisdiction, unless such payment is
prohibited by any law, regulation, court order or decree.
Nothing in this Credit Agreement shall relieve the Issuing
Lender of any liability to the Borrower in respect of any
action taken by the Issuing Lender which action constitutes
gross negligence or willful misconduct of the Issuing Lender
or a violation of the UCP, ISP98 or Uniform Commercial Code
(as applicable), as determined by a court of competent
jurisdiction.
(j) Responsibility of Issuing Lender. It is expressly
understood and agreed that the obligations of the Issuing Lender
hereunder to the Lenders are only those expressly set forth in this
Credit Agreement and that the Issuing Lender shall be entitled to
assume that the conditions precedent set forth in Section 5.3 have been
satisfied unless it shall have acquired actual knowledge that any such
condition precedent has not been satisfied; provided, however, that
nothing set forth in this Section 2.2 shall be deemed to prejudice the
right of any Lender to recover from the Issuing Lender any amounts made
available by such Lender to the Issuing Lender pursuant to this Section
2.2 in the event that it is determined by a court of competent
jurisdiction that the payment with respect to a Letter of Credit
constituted gross negligence or willful misconduct on the part of the
Issuing Lender.
(k) Conflict with LOC Documents. In the event of any conflict
between this Credit Agreement and any LOC Document (including any
letter of credit application), this Credit Agreement shall control.
2.3 TRANCHE A TERM LOAN.
(a) Tranche A Term Commitment. Subject to the terms and
conditions hereof and in reliance upon the representations and
warranties set forth herein each Lender severally agrees to make
available to the Borrower on the Initial Funding Date such Lender's
Commitment Percentage of a term loan in Dollars (the "Tranche A Term
Loan") in the aggregate principal amount of SIXTY-FIVE MILLION DOLLARS
($65,000,000) (the "Tranche A Term Loan Committed Amount"). The Tranche
A Term Loan may consist of Base Rate Loans or Eurodollar Loans, or a
combination thereof, as the Borrower may request; provided, however,
that no more than 5 Eurodollar Loans which are Tranche A Term Loans
shall be outstanding hereunder at any time (it being understood that,
for purposes hereof, Eurodollar Loans with different Interest Periods
shall be considered as separate Eurodollar Loans, even if they begin on
the same date, although borrowings, extensions and conversions may, in
accordance with the provisions hereof, be combined at the end of
existing Interest Periods to constitute a new Eurodollar Loan with a
single Interest Period). Amounts repaid on the Tranche A Term Loan may
not be reborrowed.
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<PAGE> 42
(b) Borrowing Procedures. The Borrower shall submit an
appropriate Notice of Borrowing to the Agent not later than 11:00 A.M.
(Charlotte, North Carolina time) on the Initial Funding Date, with
respect to the portion of the Tranche A Term Loan initially consisting
of a Base Rate Loan, or on the third Business Day prior to the Initial
Funding Date, with respect to the portion of the Tranche A Term Loan
initially consisting of one or more Eurodollar Loans. Such Notice of
Borrowing shall be irrevocable and shall specify (i) that the funding
of a Tranche A Term Loan is requested and (ii) whether the funding of
the Tranche A Term Loan shall be comprised of Base Rate Loans,
Eurodollar Loans or a combination thereof, and if Eurodollar Loans are
requested, the Interest Period(s) therefor. If the Borrower shall fail
to deliver such Notice of Borrowing to the Agent by 11:00 A.M.
(Charlotte, North Carolina time) on the third Business Day prior to the
Initial Funding Date, then the full amount of the Tranche A Term Loan
shall be disbursed on the Initial Funding Date as a Base Rate Loan.
Each Lender shall make its Commitment Percentage of the Tranche A Term
Loan available to the Agent for the account of the Borrower at the
office of the Agent specified in Schedule 2.1(a), or at such other
office as the Agent may designate in writing, by 1:00 P.M. (Charlotte,
North Carolina time) on the Initial Funding Date in Dollars and in
funds immediately available to the Agent.
(c) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan
that is part of the Tranche A Term Loan shall be in an aggregate
principal amount that is not less than $1,000,000 and integral
multiples of $25,000 (or the then remaining principal balance of the
Tranche A Term Loan, if less).
(d) Repayment of Tranche A Term Loan. The principal amount of
the Tranche A Term Loan shall be repaid in twenty-four (24) consecutive
quarterly installments as follows unless accelerated sooner pursuant to
Section 9.2:
<TABLE>
<CAPTION>
================================ ==============================
TRANCHE A TERM
PRINCIPAL LOAN PRINCIPAL
AMORTIZATION AMORTIZATION
PAYMENT DATES PAYMENT
================================ ==============================
<S> <C>
June 30, 2000,
September 30, 2000,
December 31,2000 and $2,000,000
March 31, 2001
================================ ==============================
June 30, 2001,
September 30, 2001,
December 31,2001 and
March 31, 2002 $2,000,000
================================ ==============================
June 30, 2002,
September 30, 2002,
December 31,2002 and
March 31, 2003 $2,500,000
</TABLE>
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<PAGE> 43
<TABLE>
<S> <C>
================================ ==============================
June 30, 2003,
September 30, 2003,
December 31,2003 and
March 31, 2004 $3,000,000
================================ ==============================
June 30, 2004,
September 30, 2004,
December 31,2004 and
March 31, 2005 $3,375,000
================================ ==============================
June 30, 2005,
September 30, 2005,
December 31,2005 and
Maturity Date $3,375,000
================================ ==============================
</TABLE>
(e) Interest. Subject to the provisions of Section 3.1, the
Tranche A Term Loan shall bear interest at a per annum rate equal to:
(i) Base Rate Loans. During such periods as the Tranche A
Term Loan shall be comprised in whole or in part of Base Rate
Loans, such Base Rate Loans shall bear interest at a per annum
rate equal to the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as the Tranche
A Term Loan shall be comprised in whole or in part of
Eurodollar Loans, such Eurodollar Loans shall bear interest at
a per annum rate equal to the Adjusted Eurodollar Rate.
Interest on the Tranche A Term Loan shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(f) Tranche A Term Notes. The portion of the Tranche A Term
Loan made by each Lender shall be evidenced by a duly executed
promissory note of the Borrower to such Lender in an original principal
amount equal to such Lender's Commitment Percentage of the Tranche A
Term Loan and substantially in the form of Exhibit 2.3(f).
2.4 TRANCHE B TERM LOAN.
(a) Tranche B Term Commitment. Subject to the terms and
conditions hereof and in reliance upon the representations and
warranties set forth herein, each Lender severally agrees to make
available to the Borrower on the Initial Funding Date such Lender's
Commitment Percentage of a term loan in Dollars (the "Tranche B Term
Loan") in the aggregate principal amount of THIRTY-FIVE MILLION DOLLARS
($35,000,000) (the "Tranche B Term Loan Committed Amount"). The Tranche
B Term Loan may consist of Base Rate Loans or Eurodollar Loans, or a
combination thereof, as the Borrower may request; provided, however,
that no more than 5 Eurodollar Loans which are Tranche B Term Loans
shall be outstanding hereunder at any time (it being understood that,
for purposes hereof, Eurodollar Loans with different Interest Periods
shall be considered as separate Eurodollar Loans, even if they begin on
the same date, although borrowings,
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<PAGE> 44
extensions and conversions may, in accordance with the provisions
hereof, be combined at the end of existing Interest Periods to
constitute a new Eurodollar Loan with a single Interest Period).
Amounts repaid on the Tranche B Term Loan may not be reborrowed.
(b) Borrowing Procedures. The Borrower shall submit an
appropriate Notice of Borrowing to the Agent not later than 11:00 A.M.
(Charlotte, North Carolina time) on the Initial Funding Date, with
respect to the portion of the Tranche B Term Loan initially consisting
of a Base Rate Loan, or on the third Business Day prior to the Initial
Funding Date, with respect to the portion of the Tranche B Term Loan
initially consisting of one or more Eurodollar Loans. Such Notice of
Borrowing shall be irrevocable and shall specify (i) that the funding
of a Tranche B Term Loan is requested and (ii) whether the funding of
the Tranche B Term Loan shall be comprised of Base Rate Loans,
Eurodollar Loans or a combination thereof, and if Eurodollar Loans are
requested, the Interest Period(s) therefor. If the Borrower shall fail
to deliver such Notice of Borrowing to the Agent by 11:00 A.M.
(Charlotte, North Carolina time) on the third Business Day prior to the
Initial Funding Date, then the full amount of the Tranche B Term Loan
shall be disbursed on the Initial Funding Date as a Base Rate Loan.
Each Lender shall make its Commitment Percentage of the Tranche B Term
Loan available to the Agent for the account of the Borrower at the
office of the Agent specified in Schedule 2.1(a), or at such other
office as the Agent may designate in writing, by 1:00 P.M. (Charlotte,
North Carolina time) on the Initial Funding Date in Dollars and in
funds immediately available to the Agent.
(c) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan
that is part of the Tranche B Term Loan shall be in an aggregate
principal amount that is not less than $1,000,000 and integral
multiples of $25,000 (or the then remaining principal balance of the
Tranche B Term Loan, if less).
(d) Repayment of Tranche B Term Loan. The principal amount of
the Tranche B Term Loan shall be repaid in four (4) consecutive
quarterly installments as follows unless accelerated sooner pursuant to
Section 9.2:
<TABLE>
<CAPTION>
================================ ==============================
TRANCHE B TERM LOAN
PRINCIPAL AMORTIZATION PAYMENT PRINCIPAL AMORTIZATION
DATES PAYMENT
================================ ==============================
<S> <C>
June 30, 2005, September 30,
2005, December 31,2005 and
Maturity Date $8,750,000
================================ ==============================
</TABLE>
(e) Interest. Subject to the provisions of Section 3.1, the
Tranche B Term Loan shall bear interest at a per annum rate equal to:
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<PAGE> 45
(i) Base Rate Loans. During such periods as the Tranche B
Term Loan shall be comprised in whole or in part of Base Rate
Loans, such Base Rate Loans shall bear interest at a per annum
rate equal to the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as the Tranche
B Term Loan shall be comprised in whole or in part of
Eurodollar Loans, such Eurodollar Loans shall bear interest at
a per annum rate equal to the Adjusted Eurodollar Rate.
Interest on the Tranche B Term Loan shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(f) Tranche B Term Notes. The portion of the Tranche B Term
Loan made by each Lender shall be evidenced by a duly executed
promissory note of the Borrower to such Lender in an original principal
amount equal to such Lender's Commitment Percentage of the Tranche B
Term Loan and substantially in the form of Exhibit 2.4(f).
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
3.1 DEFAULT RATE.
Upon the occurrence, and during the continuance, of an Event of
Default, (i) the principal of and, to the extent permitted by law, interest on
the Loans and any other amounts owing hereunder or under the other Credit
Documents shall bear interest, payable on demand, at a per annum rate 2% greater
than the rate which would otherwise be applicable (or if no rate is applicable,
whether in respect of interest, fees or other amounts, then the Adjusted Base
Rate plus 2%) and (ii) the Standby Letter of Credit Fee and the Trade Letter of
Credit shall accrue at a per annum rate 2% greater than the rate which would
otherwise be applicable.
3.2 EXTENSION AND CONVERSION.
The Borrower shall have the option, on any Business Day, to extend
existing Loans into a subsequent permissible Interest Period or to convert Loans
into Loans of another interest rate type; provided, however, that (i) except as
provided in Section 3.8, Eurodollar Loans may be converted into Base Rate Loans
or extended as Eurodollar Loans for new Interest Periods only on the last day of
the Interest Period applicable thereto, (ii) Loans extended as, or converted
into, Eurodollar Loans shall be subject to the terms of the definition of
"Interest Period" set forth in Section 1.1 and shall be in such minimum amounts
as provided in, with respect to Revolving Loans, Section 2.1(b)(ii), with
respect to the Tranche A Term Loan, Section 2.3(c), or, with respect to the
Tranche B Term Loan, Section 2.4(c), (iii) no more than 5 Eurodollar Loans which
are Revolving Loans, 5 Eurodollar Loans which are Tranche A Term Loans and 5
Eurodollar Loans which are Tranche B Term Loans shall be outstanding hereunder
at any time (it being understood that, for purposes hereof, Eurodollar Loans
with different Interest Periods shall be considered as separate Eurodollar
Loans, even if they begin on the same date, although borrowings, extensions and
conversions may, in accordance with
40
<PAGE> 46
the provisions hereof, be combined at the end of existing Interest Periods to
constitute a new Eurodollar Loan with a single Interest Period) and (iv) any
request for extension or conversion of a Eurodollar Loan which shall fail to
specify an Interest Period shall be deemed to be a request for an Interest
Period of one month. Each such extension or conversion shall be effected by the
Borrower by giving a Notice of Extension/Conversion (or telephonic notice
promptly confirmed in writing) to the office of the Agent specified in Schedule
2.1(a), or at such other office as the Agent may designate in writing, prior to
11:00 A.M. (Charlotte, North Carolina time) on the Business Day of, in the case
of the conversion of a Eurodollar Loan into a Base Rate Loan, and on the third
Business Day prior to, in the case of the extension of a Eurodollar Loan as, or
conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed
extension or conversion, specifying the date of the proposed extension or
conversion, the Loans to be so extended or converted, the types of Loans into
which such Loans are to be converted and, if appropriate, the applicable
Interest Periods with respect thereto. Each request for extension or conversion
shall be irrevocable and shall constitute a representation and warranty by the
Borrower of the matters specified in subsections (b), (c), (d) and (e) of
Section 5.3. In the event the Borrower fails to request extension or conversion
of any Eurodollar Loan in accordance with this Section 3.2, or any such
conversion or extension is not permitted or required by this Section 3.2, then
such Eurodollar Loan shall be automatically converted into a Base Rate Loan at
the end of the Interest Period applicable thereto. The Agent shall give each
Lender notice as promptly as practicable of any such proposed extension or
conversion affecting any Loan.
3.3 PREPAYMENTS.
(a) Voluntary Prepayments.
(i) Revolving Loans and Tranche A Term Loan.
The Borrower shall have the right to prepay Revolving
Loans and the Tranche A Term Loan in whole or in part
from time to time; provided, however, that each
partial prepayment of Revolving Loans or the Tranche
A Term Loan shall be in an integral multiple of
$500,000 (or the then remaining principal balance of
the Revolving Loans or the Tranche A Term Loan, as
applicable, if less). Prepayments of the Tranche A
Term Loan shall be applied pro rata to remaining
Principal Amortization Payments. Subject to the
foregoing terms, amounts prepaid under this Section
3.3(a)(i) shall be applied as the Borrower may elect;
provided that if the Borrower shall fail to specify
with respect to any voluntary prepayment, such
voluntary prepayment shall be applied first to
Revolving Loans and then to the Tranche A Term Loan
(pro rata to remaining Principal Amortization
Payments), in each case first to Base Rate Loans and
then to Eurodollar Loans in direct order of Interest
Period maturities. All prepayments under this Section
3.3(a)(i) shall be subject to Section 3.12, but
otherwise without premium or penalty, and shall be
accompanied by interest on the principal amount
prepaid through the date of prepayment.
(ii) Tranche B Term Loan. The Borrower shall
not have the right to prepay the Tranche B Term Loan
unless all amounts outstanding
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<PAGE> 47
hereunder in respect of the Tranche A Term Loan shall have
been paid in full and the Revolving Commitments shall have
been terminated; provided, however, that, so long as there
are no outstanding Revolving Loans or LOC Obligations at the
time of such prepayment, the Borrower shall have the right
to prepay the Tranche B Term Loan in whole or in part from
time to time with Eligible Prepayment Proceeds. Each partial
prepayment of the Tranche B Term Loan shall be in an
integral multiple of $500,000 (or the then remaining
principal balance of the Tranche B Term Loan, if less) and
shall be applied pro rata to remaining Principal
Amortization Payments. Subject to the foregoing terms,
amounts prepaid under this Section 3.3(a)(ii) shall be
applied as the Borrower may elect; provided that if the
Borrower shall fail to specify with respect to any voluntary
prepayment, such voluntary prepayment shall be applied first
to Base Rate Loans and then to Eurodollar Loans in direct
order of Interest Period maturities. All prepayments under
this Section 3.3(a)(ii) shall be subject to Section 3.12,
but otherwise without premium or penalty, and shall be
accompanied by interest on the principal amount prepaid
through the date of prepayment.
(b) Mandatory Prepayments.
(i) (A) Revolving Committed Amount. If at any time, the sum
of the aggregate outstanding principal amount of Revolving
Loans plus LOC Obligations shall exceed the Revolving
Committed Amount, the Borrower immediately shall prepay the
Revolving Loans and (after all Revolving Loans have been
repaid) cash collateralize the LOC Obligations, in an amount
sufficient to eliminate such excess.
(B) LOC Committed Amount. If at any time, the sum of the
aggregate principal amount of LOC Obligations shall exceed
the LOC Committed Amount, the Borrower immediately shall
cash collateralize the LOC Obligations in an amount
sufficient to eliminate such excess.
(ii) Excess Cash Flow. Within 90 days after the end of each
fiscal year (commencing with the fiscal year ending December 31,
2000), the Borrower shall prepay the Loans in an amount equal to
75% (if the Leverage Ratio as of the end of such fiscal year is
greater than 3.0 to 1.0), 50% (if the Leverage Ratio as of the end
of such fiscal year is less than or equal to 3.0 to 1.0 but
greater than 2.5 to 1.0) or 25% (if the Leverage Ratio as of the
end of such fiscal year is less than or equal to 2.5 to 1.0 but
greater than 2.0 to 1.0) of Excess Cash Flow for such prior fiscal
year (such prepayment to be applied as set forth in clause (vi)
below).
(iii) (A) Asset Dispositions. Immediately upon the
occurrence of any Asset Disposition Prepayment Event, the
Borrower shall prepay the Loans in an aggregate amount equal
to 100% of the Net Cash Proceeds of the related Asset
Disposition not applied (or caused to be applied) by the
Credit Parties during the related Application Period to make
Eligible Reinvestments as
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<PAGE> 48
contemplated by the terms of Section 8.5(g) (such prepayment
to be applied as set forth in clause (vi) below).
(B) Casualty and Condemnation Events. Immediately upon
the occurrence of any event requiring application of any
insurance proceeds to the prepayment of Loans (and cash
collateralization of LOC Obligations) pursuant to Section
7.6(b), the Borrower shall prepay the Loans in the amount
required by such Section 7.6(b) (such prepayment to be
applied as set forth in clause (vi) below).
(iv) Debt Issuances. Immediately upon receipt by any
Consolidated Party of proceeds from any Debt Issuance, the
Borrower shall prepay the Loans in an aggregate amount equal to
100% of the Net Cash Proceeds of such Debt Issuance (such
prepayment to be applied as set forth in clause (vi) below).
(v) Equity Issuances. Immediately upon receipt by a
Consolidated Party of proceeds from any Equity Issuance other than
an Excluded Equity Issuance, the Borrower shall prepay the Loans
in an aggregate amount equal to 50% of the Net Cash Proceeds of
such Equity Issuance (such prepayment to be applied as set forth
in clause (vi) below).
(vi) Application of Mandatory Prepayments. All amounts
required to be paid pursuant to this Section 3.3(b) shall be
applied as follows: (A) with respect to all amounts prepaid
pursuant to Section 3.3(b)(i)(A), to Revolving Loans and (after
all Revolving Loans have been repaid) to a cash collateral account
in respect of LOC Obligations, (B) with respect to all amounts
prepaid pursuant to Section 3.3(b)(i)(B), to a cash collateral
account in respect of LOC Obligations and (C) with respect to all
amounts prepaid pursuant to Section 3.3(b)(ii), (iii), (iv) and
(v), to the Tranche A Term Loan (pro rata to remaining Principal
Amortization Payments). Within the parameters of the applications
set forth above, prepayments shall be applied first to Base Rate
Loans and then to Eurodollar Loans unless otherwise directed by
the Borrower. No prepayments under Sections 3.3(b)(ii) through (v)
shall be required after the Tranche A Term Loan has been repaid in
full. All prepayments under this Section 3.3(b) shall be subject
to Section 3.12, but otherwise without premium or penalty, and
shall be accompanied by interest on the principal amount prepaid
through the date of prepayment.
(vii) Prepayment Account. If the Borrower is required to
make a mandatory prepayment of Eurodollar Loans under this Section
3.3(b), the Borrower shall have the right, in lieu of making such
prepayment in full, to deposit an amount equal to such mandatory
prepayment with the Agent in a cash collateral account maintained
(pursuant to documentation reasonably satisfactory to the Agent)
by and in the sole dominion and control of the Agent. Any amounts
so deposited shall be held by the Agent as collateral for the
prepayment of such Eurodollar Loans and shall be applied to the
prepayment of the applicable Eurodollar Loans at the end of the
current Interest Periods applicable thereto. At
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<PAGE> 49
the request of the Borrower, amounts so deposited shall be
invested by the Agent in Cash Equivalents maturing prior to
the date or dates on which it is anticipated that such
amounts will be applied to prepay such Eurodollar Loans; any
interest earned on such Cash Equivalents will be for the
account of the Borrower and the Borrower will deposit with
the Agent the amount of any loss on any such Cash
Equivalents to the extent necessary in order that the amount
of the prepayment to be made with the deposited amounts may
not be reduced.
3.4 TERMINATION AND REDUCTION OF COMMITMENTS.
(a) Voluntary Reductions. The Borrower may from time to time
permanently reduce or terminate the Revolving Committed Amount in whole
or in part (in minimum aggregate amounts of $1,000,000 or in integral
multiples of $100,000 in excess thereof (or, if less, the full
remaining amount of the then applicable Revolving Committed Amount))
upon five Business Days' prior written notice to the Agent; provided,
however, (i) prior to payment in full of all amounts outstanding
hereunder in respect of the Tranche A Term Loan, no such termination or
reduction shall be made which would cause the Revolving Committed
Amount to be less than $10,000,000 and (ii) no such termination or
reduction shall be made which would cause the sum of the aggregate
outstanding principal amount of Revolving Loans plus LOC Obligations to
exceed the Revolving Committed Amount, unless, concurrently with such
termination or reduction, the Revolving Loans are repaid to the extent
necessary to eliminate such excess. The Agent shall promptly notify
each affected Lender of receipt by the Agent of any notice from the
Borrower pursuant to this Section 3.4(a).
(b) Term Loan Commitments. The Tranche A Term Loan
Commitment of each Lender shall automatically terminate at such time as
such Lender shall have made available to the Borrower such Lender's
share of the Tranche A Term Loan, and the Tranche B Term Loan
Commitment of each Lender shall automatically terminate at such time as
such Lender shall have made available to the Borrower such Lender's
share of the Tranche B Term Loan.
(c) Mandatory Reductions. The Revolving Committed Amount
automatically shall be permanently reduced from time to time in
accordance with the terms of Section 3.3(b)(vi).
(d) Maturity Date. The Revolving Commitments of the Lenders
and the LOC Commitment of the Issuing Lender shall automatically
terminate on the Maturity Date.
(e) General. The Borrower shall pay to the Agent for the
account of the Lenders in accordance with the terms of Section 3.5(a),
on the date of each termination or reduction of the Revolving Committed
Amount, the Unused Fee accrued through the date of such termination or
reduction on the amount of the Revolving Committed Amount so terminated
or reduced.
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3.5 FEES.
(a) Unused Fee. In consideration of the Revolving
Commitments of the Lenders hereunder, the Borrower promises to pay to
the Agent for the account of each Lender a fee (the "Unused Fee") on
the Unused Revolving Committed Amount computed at a per annum rate for
each day during the applicable Unused Fee Calculation Period
(hereinafter defined) at a rate equal to the Applicable Percentage in
effect from time to time. The Unused Fee shall commence to accrue on
the Initial Funding Date and shall be due and payable in arrears on the
last Business Day of each March, June, September and December (and on
any date that the Revolving Committed Amount is reduced and on the
Maturity Date) for the immediately preceding quarter (or portion
thereof) (each such quarter or portion thereof for which the Unused Fee
is payable hereunder being herein referred to as an "Unused Fee
Calculation Period"), beginning with the first of such dates to occur
after the Initial Funding Date.
(b) Letter of Credit Fees.
(i) Standby Letter of Credit Issuance Fee. In
consideration of the issuance of standby Letters of Credit
hereunder, the Borrower promises to pay to the Agent for the
account of each Lender a fee (the "Standby Letter of Credit
Fee") on such Lender's Commitment Percentage of the average
daily maximum amount available to be drawn under each such
standby Letter of Credit computed at a per annum rate for each
day from the date of issuance to the date of expiration equal
to the Applicable Percentage. The Standby Letter of Credit Fee
will be payable quarterly in arrears on the last Business Day
of each March, June, September and December for the
immediately preceding quarter (or a portion thereof).
(ii) Trade Letter of Credit Drawing Fee. In
consideration of the issuance of trade Letters of Credit
hereunder, the Borrower promises to pay to the Agent for the
account of each Lender a fee (the "Trade Letter of Credit
Fee") on such Lender's Commitment Percentage of the average
daily maximum amount available to be drawn under each such
trade Letter of Credit computed at a per annum rate for each
day from the date of issuance to the date of expiration equal
to the Applicable Percentage. The Trade Letter of Credit Fee
will be payable quarterly in arrears on the last Business Day
of each March, June, September and December for the
immediately preceding quarter (or a portion thereof).
(iii) Issuing Lender Fees. In addition to the Standby
Letter of Credit Fee payable pursuant to clause (i) above and
the Trade Letter of Credit Fee payable pursuant to clause (ii)
above, the Borrower promises to pay to the Agent for the
account of the Issuing Lender without sharing by the other
Lenders (i) a letter of credit fronting fee of 0.125% on the
average daily maximum amount available to be drawn under each
Letter of Credit computed at a per annum rate for each day
from the date of issuance to the date of expiration (which
fronting fee shall be payable quarterly in arrears on the last
Business Day of each March, June, September and December for
the immediately preceding quarter (or a portion thereof)) and
(ii) the
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customary charges from time to time of the Issuing Lender with
respect to the issuance, amendment, transfer, administration,
cancellation and conversion of, and drawings under, such
Letters of Credit.
(c) Agent's Fees. The Borrower promises to pay to the Agent,
for its own account, for the account of the Issuing Lender and for the
account of Banc of America Securities LLC, as applicable, the fees
referred to in the Agent's Fee Letter; provided that no such fees shall
be payable prior to the Initial Funding Date.
3.6 CAPITAL ADEQUACY.
If any Lender has determined, after the date hereof, that the adoption
or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance by such Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lender's capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy), then,
upon notice from such Lender to the Borrower, the Borrower shall be obligated to
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction. Each determination by any such Lender of amounts
owing under this Section shall, absent manifest error, be conclusive and binding
on the parties hereto. No Lender shall be entitled to receive compensation
pursuant to this Section 3.6 for such amounts incurred more than 180 days prior
to delivery of a certificate requesting compensation and providing a reasonably
detailed explanation of the calculation thereof.
3.7 LIMITATION ON EURODOLLAR LOANS.
If on or prior to the first day of any Interest Period for any
Eurodollar Loan the Agent determines (which determination shall be conclusive)
that by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, then the Agent shall give the Borrower prompt notice thereof,
and so long as such condition remains in effect, the Lenders shall be under no
obligation to make additional Eurodollar Loans, Continue Eurodollar Loans, or to
Convert Base Rate Loans into Eurodollar Loans and the Borrower shall, on the
last day(s) of the then current Interest Period(s) for the outstanding
Eurodollar Loans, either prepay such Eurodollar Loans or Convert such Eurodollar
Loans into Base Rate Loans in accordance with the terms of this Credit
Agreement.
3.8 ILLEGALITY.
Notwithstanding any other provision of this Credit Agreement, in the
event that it becomes unlawful for any Lender or its Applicable Lending Office
to make, maintain, or fund Eurodollar Loans hereunder, then such Lender shall
promptly notify the Borrower thereof and such Lender's obligation to make or
Continue Eurodollar Loans and to Convert Base Rate Loans into Eurodollar
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Loans shall be suspended until such time as such Lender may again make,
maintain, and fund Eurodollar Loans (in which case the provisions of Section
3.10 shall be applicable).
3.9 REQUIREMENTS OF LAW.
If, after the date hereof, the adoption of any applicable law, rule, or
regulation, or any change in any applicable law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such Governmental Authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable Lending
Office) to any tax, duty, or other charge with respect to any
Eurodollar Loans, its Notes, or its obligation to make Eurodollar
Loans, or change the basis of taxation of any amounts payable to such
Lender (or its Applicable Lending Office) under this Credit Agreement
or its Notes in respect of any Eurodollar Loans (other than taxes
imposed on the overall net income of such Lender by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office);
(ii) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, or similar requirement (other than the
Eurodollar Reserve Requirement utilized in the determination of the
Adjusted Eurodollar Rate) relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or commitments of,
such Lender (or its Applicable Lending Office), including the
Commitment of such Lender hereunder; or
(iii) shall impose on such Lender (or its Applicable Lending
Office) or the London interbank market any other condition affecting
this Credit Agreement or its Notes or any of such extensions of credit
or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable by
such Lender (or its Applicable Lending Office) under this Credit Agreement or
its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to
such Lender on demand such amount or amounts as will compensate such Lender for
such increased cost or reduction. If any Lender requests compensation by the
Borrower under this Section 3.9, the Borrower may, by notice to such Lender
(with a copy to the Agent), suspend the obligation of such Lender to make or
Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans,
until the event or condition giving rise to such request ceases to be in effect
(in which case the provisions of Section 3.10 shall be applicable); provided
that such suspension shall not affect the right of such Lender to receive the
compensation so requested. Each Lender shall promptly notify the Borrower and
the Agent of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Lender to compensation pursuant to this Section
3.9 and will designate a different Applicable Lending Office if such designation
will avoid the need for, or reduce the amount of, such compensation and will
not, in the judgment of such Lender, be otherwise disadvantageous to it. Any
Lender claiming compensation under this Section 3.9 shall
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furnish to the Borrower and the Agent a statement setting forth the additional
amount or amounts to be paid to it hereunder which shall be conclusive in the
absence of manifest error. In determining such amount, such Lender may use any
reasonable averaging and attribution methods.
3.10 TREATMENT OF AFFECTED LOANS.
If the obligation of any Lender to make any Eurodollar Loan or to
Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be
suspended pursuant to Section 3.7, 3.8 or 3.9 hereof, such Lender's Eurodollar
Loans shall be automatically Converted into Base Rate Loans on the last day(s)
of the then current Interest Period(s) for such Eurodollar Loans (or, in the
case of a Conversion, on such earlier date as such Lender may specify to the
Borrower with a copy to the Agent) and, unless and until such Lender gives
notice as provided below that the circumstances specified in Section 3.7, 3.8 or
3.9 hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have
been so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Eurodollar Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by
such Lender as Eurodollar Loans shall be made or Continued instead as
Base Rate Loans, and all Base Rate Loans of such Lender that would
otherwise be Converted into Eurodollar Loans shall remain as Base Rate
Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 3.7, 3.8 or 3.9 hereof that gave rise to the
Conversion of such Lender's Eurodollar Loans pursuant to this Section 3.10 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Lenders holding Eurodollar Loans and by such Lender are
held pro rata (as to principal amounts, interest rate basis, and Interest
Periods) in accordance with their respective Commitments.
3.11 TAXES.
(a) Any and all payments by any Credit Party to or for the
account of any Lender or the Agent hereunder or under any other Credit
Document shall be made free and clear of and without deduction for any
and all present or future taxes, duties, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Lender and the Agent, taxes imposed on
its income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which such Lender (or its Applicable Lending Office)
or the Agent (as the case may be) is organized or any political
subdivision thereof (all such non-excluded taxes, duties, levies,
imposts, deductions, charges, withholdings, and liabilities being
hereinafter referred to as "Taxes"). If any Credit Party shall be
required by law to deduct any Taxes from or in respect of any sum
payable under this Credit Agreement or any other Credit Document to any
Lender or the Agent, (i) the sum
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payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums
payable under this Section 3.11) such Lender or the Agent receives an
amount equal to the sum it would have received had no such deductions
been made, (ii) such Credit Party shall make such deductions, (iii)
such Credit Party shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable
law, and (iv) such Credit Party shall furnish to the Agent, at its
address referred to in Section 11.1, the original or a certified copy
of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all
present or future stamp or documentary taxes and any other excise or
property taxes or charges or similar levies which arise from any
payment made under this Credit Agreement or any other Credit Document
or from the execution or delivery of, or otherwise with respect to,
this Credit Agreement or any other Credit Document (hereinafter
referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the Agent
for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section 3.11) paid by such
Lender or the Agent (as the case may be) and any liability (including
penalties, interest, and expenses) arising therefrom or with respect
thereto.
(d) Each Lender that is not a United States person under
Section 7701(a)(30) of the Code, on or prior to the date of its
execution and delivery of this Credit Agreement in the case of each
Lender listed on the signature pages hereof and on or prior to the date
on which it becomes a Lender in the case of each other Lender, and from
time to time thereafter if requested in writing by the Borrower or the
Agent (but only so long as such Lender remains lawfully able to do so),
shall provide the Borrower and the Agent with (i) Internal Revenue
Service Form W-8 BEN or W-8 ECI, as appropriate, or any successor form
prescribed by the Internal Revenue Service, certifying that such Lender
is entitled to benefits under an income tax treaty to which the United
States is a party which reduces to zero the rate of withholding tax on
payments of interest or certifying that the income receivable pursuant
to this Credit Agreement is effectively connected with the conduct of a
trade or business in the United States, (ii) Internal Revenue Service
Form W-8 or W-9, as appropriate, or any successor form prescribed by
the Internal Revenue Service, and/or (iii) any other form or
certificate required by any taxing authority (including any certificate
required by Sections 871(h) and 881(c) of the Internal Revenue Code),
certifying that such Lender is entitled to an exemption from tax on
payments pursuant to this Credit Agreement or any of the other Credit
Documents.
(e) For any period with respect to which a Lender has failed
to provide the Borrower and the Agent with the appropriate form
pursuant to Section 3.11(d) (unless such failure is due to a change in
treaty, law, or regulation occurring subsequent to the date on which a
form originally was required to be provided), such Lender shall not be
entitled to indemnification under Section 3.11(a) or 3.11(b) with
respect to Taxes imposed by the United States; provided, however, that
should a Lender, which is otherwise exempt from withholding tax, become
subject to Taxes because of its failure to
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deliver a form required hereunder, the Borrower shall take such steps
as such Lender shall reasonably request to assist such Lender to
recover such Taxes.
(f) If any Credit Party is required to pay additional amounts
to or for the account of any Lender pursuant to this Section 3.11, then
such Lender will agree to use reasonable efforts to change the
jurisdiction of its Applicable Lending Office so as to eliminate or
reduce any such additional payment which may thereafter accrue if such
change, in the judgment of such Lender, is not otherwise
disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment of
Taxes, the applicable Credit Party shall furnish to the Agent the
original or a certified copy of a receipt evidencing such payment.
(h) Without prejudice to the survival of any other agreement
of the Credit Parties hereunder, the agreements and obligations of the
Credit Parties contained in this Section 3.11 shall survive the
repayment of the Loans, LOC Obligations and other obligations under the
Credit Documents and the termination of the Commitments hereunder.
3.12 COMPENSATION.
Upon the request of any Lender, the Borrower shall pay to such Lender
such amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost, or expense (excluding loss of
anticipated profits (including loss of Applicable Margin)) incurred by it as a
result of:
(a) any payment, prepayment, or Conversion of a Eurodollar
Loan for any reason (including, without limitation, (i) in connection
with any assignment by Bank of America pursuant to Section 11.3(b) as
part of the primary syndication of the Loans during the 180-day period
immediately following the Initial Funding Date and (ii) the
acceleration of the Loans pursuant to Section 9.2) on a date other than
the last day of the Interest Period for such Loan; or
(b) any failure by the Borrower for any reason (including,
without limitation, the failure of any condition precedent specified in
Section 5 to be satisfied) to borrow, Convert, Continue, or prepay a
Eurodollar Loan on the date for such borrowing, Conversion,
Continuation, or prepayment specified in the relevant notice of
borrowing, prepayment, Continuation, or Conversion under this Credit
Agreement.
With respect to Eurodollar Loans, such indemnification may include an amount
equal to the excess, if any, of (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, Converted or Continued,
for the period from the date of such prepayment or of such failure to borrow,
Convert or Continue to the last day of the applicable Interest Period (or, in
the case of a failure to borrow, Convert or Continue, the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest for such Eurodollar Loans provided for herein (excluding,
however, the Applicable Percentage included therein, if any) over (b) the amount
of interest (as reasonably determined by such Lender) which would have accrued
to
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such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank Eurodollar market. The covenants of
the Borrower set forth in this Section 3.12 shall survive the repayment of the
Loans, LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
3.13 PRO RATA TREATMENT.
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or (subject to the terms
of Section 3.3) prepayment of principal of any Loan or reimbursement
obligations arising from drawings under Letters of Credit, each payment
of interest on the Loans or reimbursement obligations arising from
drawings under Letters of Credit, each payment of Unused Fees, each
payment of the Standby Letter of Credit Fee, each payment of the Trade
Letter of Credit Fee, each reduction of the Revolving Committed Amount
and each conversion or extension of any Loan, shall be allocated pro
rata among the Lenders in accordance with the respective principal
amounts of their outstanding Loans of the applicable type and
Participation Interests in Loans of the applicable type and Letters of
Credit.
(b) Advances. No Lender shall be responsible for the failure
or delay by any other Lender in its obligation to make its ratable
share of a borrowing hereunder; provided, however, that the failure of
any Lender to fulfill its obligations hereunder shall not relieve any
other Lender of its obligations hereunder. Unless the Agent shall have
been notified by any Lender prior to the date of any requested
borrowing that such Lender does not intend to make available to the
Agent its ratable share of such borrowing to be made on such date, the
Agent may assume that such Lender has made such amount available to the
Agent on the date of such borrowing, and the Agent in reliance upon
such assumption, may (in its sole discretion but without any obligation
to do so) make available to the Borrower a corresponding amount. If
such corresponding amount is not in fact made available to the Agent,
the Agent shall be able to recover such corresponding amount from such
Lender. If such Lender does not pay such corresponding amount forthwith
upon the Agent's demand therefor, the Agent will promptly notify the
Borrower, and the Borrower shall immediately pay such corresponding
amount to the Agent. The Agent shall also be entitled to recover from
the Lender or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such
corresponding amount was made available by the Agent to the Borrower to
the date such corresponding amount is recovered by the Agent at a per
annum rate equal to (i) from the Borrower at the applicable rate for
the applicable borrowing pursuant to the Notice of Borrowing and (ii)
from a Lender at the Federal Funds Rate.
3.14 SHARING OF PAYMENTS.
The Lenders agree among themselves that, in the event that any Lender
shall obtain payment in respect of any Loan, LOC Obligations or any other
obligation owing to such Lender under this Credit Agreement through the exercise
of a right of setoff, banker's lien or counterclaim, or pursuant to a secured
claim under Section 506 of Title 11 of the United States Code or other
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security or interest arising from, or in lieu of, such secured claim, received
by such Lender under any applicable bankruptcy, insolvency or other similar law
or otherwise, or by any other means, in excess of its pro rata share of such
payment as provided for in this Credit Agreement, such Lender shall promptly
purchase from the other Lenders a Participation Interest in such Loans, LOC
Obligations and other obligations in such amounts, and make such other
adjustments from time to time, as shall be equitable to the end that all Lenders
share such payment in accordance with their respective ratable shares as
provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by repurchase of a
Participation Interest theretofore sold, return its share of that benefit
(together with its share of any accrued interest payable with respect thereto)
to each Lender whose payment shall have been rescinded or otherwise restored.
The Borrower agrees that any Lender so purchasing such a Participation Interest
may, to the fullest extent permitted by law, exercise all rights of payment,
including setoff, banker's lien or counterclaim, with respect to such
Participation Interest as fully as if such Lender were a holder of such Loan,
LOC Obligations or other obligation in the amount of such Participation
Interest. Except as otherwise expressly provided in this Credit Agreement, if
any Lender shall fail to remit to the Agent or any other Lender an amount
payable by such Lender to the Agent or such other Lender pursuant to this Credit
Agreement on the date when such amount is due, such payments shall be made
together with interest thereon for each date from the date such amount is due
until the date such amount is paid to the Agent or such other Lender at a rate
per annum equal to the Federal Funds Rate. If under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured claim in lieu of
a setoff to which this Section 3.14 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders under this Section 3.14 to share in
the benefits of any recovery on such secured claim.
3.15 PAYMENTS, COMPUTATIONS, ETC.
(a) Generally. Except as otherwise specifically provided
herein, all payments hereunder shall be made to the Agent in Dollars in
immediately available funds, without setoff, deduction, counterclaim or
withholding of any kind, at the Agent's office specified in Schedule
2.1(a) not later than 2:00 P.M. (Charlotte, North Carolina time) on the
date when due. Payments received after such time shall be deemed to
have been received on the next succeeding Business Day. The Agent may
(but shall not be obligated to) debit the amount of any such payment
which is not made by such time to any ordinary deposit account of the
Borrower or any other Credit Party maintained with the Agent (with
notice to the Borrower or such other Credit Party). The Borrower shall,
at the time it makes any payment under this Credit Agreement, specify
to the Agent the Loans, LOC Obligations, Fees, interest or other
amounts payable by the Borrower hereunder to which such payment is to
be applied (and in the event that it fails so to specify, or if such
application would be inconsistent with the terms hereof, the Agent
shall distribute such payment to the Lenders in such manner as the
Agent may determine to be appropriate in respect of obligations owing
by the Borrower hereunder, subject to the terms of Section 3.13(a)).
The Agent will distribute such payments to such Lenders, if any such
payment is received prior to 2:00 P.M. (Charlotte, North Carolina time)
on a Business Day in like funds as received prior to the end of such
Business
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Day and otherwise the Agent will distribute such payment to such
Lenders on the next succeeding Business Day. Whenever any payment
hereunder shall be stated to be due on a day which is not a Business
Day, the due date thereof shall be extended to the next succeeding
Business Day (subject to accrual of interest and Fees for the period of
such extension), except that in the case of Eurodollar Loans, if the
extension would cause the payment to be made in the next following
calendar month, then such payment shall instead be made on the next
preceding Business Day. Except as expressly provided otherwise herein,
all computations of interest and fees shall be made on the basis of
actual number of days elapsed over a year of 360 days, except with
respect to computation of interest on Base Rate Loans which shall be
calculated based on a year of 365 or 366 days, as appropriate. Interest
shall accrue from and include the date of borrowing, but exclude the
date of payment.
(b) Allocation of Payments After Event of Default.
Notwithstanding any other provisions of this Credit Agreement to the
contrary, after the occurrence and during the continuance of an Event
of Default (but subject to the terms of Section 3.3(b)(vi)), all
amounts collected or received by the Agent or any Lender on account of
the Credit Party Obligations or any other amounts outstanding under any
of the Credit Documents or in respect of the Collateral shall be paid
over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket
costs and expenses (including without limitation reasonable
attorneys' fees) of the Agent in connection with enforcing the
rights of the Lenders under the Credit Documents and any
protective advances made by the Agent with respect to the
Collateral under or pursuant to the terms of the Collateral
Documents;
SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all of the Tranche A Obligations
consisting of accrued fees and interest;
FOURTH, to the payment of the outstanding principal
amount of the Tranche A Obligations;
FIFTH, to the payment of all of the other Credit Party
Obligations consisting of accrued fees and interest;
SIXTH, to the payment of the outstanding principal amount
of the other Credit Party Obligations (including the payment
or cash collateralization of the outstanding LOC Obligations);
SEVENTH, to the payment of all reasonable out-of-pocket
costs and expenses (including without limitation, reasonable
attorneys' fees) of each of the Lenders in connection with
enforcing its rights under the Credit Documents or otherwise
with respect to the Credit Party Obligations owing to such
Lender;
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EIGHTH, to all other Credit Party Obligations and
other obligations which shall have become due and payable
under the Credit Documents or otherwise and not repaid
pursuant to clauses "FIRST" through "SEVENTH" above; and
NINTH, to the payment of the surplus, if any, to
whomever may be lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in
the numerical order provided until exhausted prior to application to
the next succeeding category; (ii) each of the Lenders shall receive an
amount equal to its pro rata share (based on the proportion that the
then outstanding Loans and LOC Obligations held by such Lender bears to
the aggregate then outstanding Loans and LOC Obligations) of amounts
available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH",
"SIXTH", "SEVENTH" and "EIGHTH" above; and (iii) to the extent that any
amounts available for distribution pursuant to clause "SEVENTH" above
are attributable to the issued but undrawn amount of outstanding
Letters of Credit, such amounts shall be held by the Agent in a cash
collateral account and applied (A) first, to reimburse the Issuing
Lender from time to time for any drawings under such Letters of Credit
and (B) then, following the expiration of all Letters of Credit, to all
other obligations of the types described in clauses "SEVENTH" and
"EIGHTH" above in the manner provided in this Section 3.15(b).
3.16 EVIDENCE OF DEBT.
(a) Each Lender shall maintain an account or accounts
evidencing each Loan made by such Lender to the Borrower from time to
time, including the amounts of principal and interest payable and paid
to such Lender from time to time under this Credit Agreement. Each
Lender will make reasonable efforts to maintain the accuracy of its
account or accounts and to promptly update its account or accounts from
time to time, as necessary.
(b) The Agent shall maintain the Register pursuant to Section
11.3(c), and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount, type and
Interest Period of each such Loan hereunder, (ii) the amount of any
principal or interest due and payable or to become due and payable to
each Lender hereunder and (iii) the amount of any sum received by the
Agent hereunder from or for the account of any Credit Party and each
Lender's share thereof. The Agent will make reasonable efforts to
maintain the accuracy of the subaccounts referred to in the preceding
sentence and to promptly update such subaccounts from time to time, as
necessary.
(c) The entries made in the accounts, Register and
subaccounts maintained pursuant to clause (b) of this Section 3.16
(and, if consistent with the entries of the Agent, clause (a)) shall be
prima facie evidence of the existence and amounts of the obligations of
the Credit Parties therein recorded; provided, however, that the
failure of any Lender or the Agent to maintain any such account, such
Register or such subaccount, as applicable, or any error therein, shall
not in any manner affect the obligation of the Credit Parties to repay
the Credit Party Obligations owing to such Lender.
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3.17 REPLACEMENT OF AFFECTED LENDERS.
If (i) any Lender having a Revolving Commitment becomes a Defaulting
Lender or (ii) any Credit Party is required to make any payments to any Lender
under Section 3.6, Section 3.8, Section 3.9 or Section 3.11 in an amount
reasonably deemed material by the Borrower, the Borrower shall have the right,
if no Event of Default then exists, to replace such Lender (the "Replaced
Lender") with one or more other Eligible Assignee or Eligible Assignees, none of
whom shall constitute a Defaulting Lender at the time of such replacement
(collectively, the "Replacement Lender"), provided that (a) at the time of any
replacement pursuant to this Section 3.17, the Replaced Lender and Replacement
Lender shall enter into an Assignment and Acceptance pursuant to which the
Replacement Lender shall acquire all or a portion, as the case may be, of the
Commitments and outstanding Loans of, and participation in Letters of Credit by,
the Replaced Lender and (b) all obligations of the Borrower owing to the
Replaced Lender relating to the Loans so replaced (including, without
limitation, such increased costs and excluding those specifically described in
clause (a) above in respect of which the assignment purchase price has been, or
is concurrently being paid) shall be paid in full to such Replaced Lender
concurrently with such replacement. Upon the execution of the appropriate
Assignment and Acceptance, the payment of amounts referred to in clauses (a) and
(b) above and, if so requested by the Replacement Lender, delivery to the
Replacement Lender of the appropriate Note or Notes executed by the Borrower,
the Replacement Lender shall become a Lender hereunder and the Replaced Lender
shall cease to constitute a Lender hereunder with respect to such replaced
Loans, except with respect to indemnification provisions under this Agreement,
which shall survive as to such Replaced Lender. Notwithstanding anything to the
contrary contained above, (1) the Lender that acts as the Issuing Lender may not
be replaced hereunder at any time that it has Letters of Credit outstanding
hereunder unless arrangements satisfactory to the Issuing Lender (including the
furnishing of a back-up standby letter of credit in form and substance, and
issued by an issuer satisfactory to such Issuing Lender or the depositing of
cash collateral into a cash collateral account maintained with the Agent in
amounts and pursuant to arrangements satisfactory to such Issuing Lender) have
been made with respect to such outstanding Letters of Credit and (2) the Lender
that acts as the Agent may not be replaced hereunder except in accordance with
the terms of Section 10.7. The Replaced Lender shall be required to deliver for
cancellation its applicable Notes to be canceled on the date of replacement, or
if any such Note is lost or unavailable, such other assurances or
indemnification therefor as the Borrower may reasonably request.
SECTION 4
GUARANTY
4.1 THE GUARANTY.
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, each Affiliate of a Lender that enters into a Hedging Agreement, and the
Agent as hereinafter provided, as primary obligor and not as surety, the prompt
payment of the Credit Party Obligations in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration, as a mandatory
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cash collateralization or otherwise) strictly in accordance with the terms
thereof. The Guarantors hereby further agree that if any of the Credit Party
Obligations are not paid in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration, as a mandatory cash collateralization or
otherwise), the Guarantors will, jointly and severally, promptly pay the same,
without any demand or notice whatsoever, and that in the case of any extension
of time of payment or renewal of any of the Credit Party Obligations, the same
will be promptly paid in full when due (whether at extended maturity, as a
mandatory prepayment, by acceleration, as a mandatory cash collateralization or
otherwise) in accordance with the terms of such extension or renewal.
Notwithstanding any provision to the contrary contained herein or in
any other of the Credit Documents or Hedging Agreements, the obligations of each
Guarantor under this Credit Agreement and the other Credit Documents shall be
limited to an aggregate amount equal to the largest amount that would not render
such obligations subject to avoidance under Section 548 of the Bankruptcy Code
or any comparable provisions of any applicable state law.
4.2 OBLIGATIONS UNCONDITIONAL.
The obligations of the Guarantors under Section 4.1 are joint and
several, absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of any of the Credit Documents or Hedging
Agreements, or any other agreement or instrument referred to therein, or any
substitution, release, impairment or exchange of any other guarantee of or
security for any of the Credit Party Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
which might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section 4.2 that the
obligations of the Guarantors hereunder shall be absolute and unconditional
under any and all circumstances. Each Guarantor agrees that such Guarantor shall
have no right of subrogation, indemnity, reimbursement or contribution against
the Borrower or any other Guarantor for amounts paid under this Section 4 until
such time as the Credit Party Obligations have been Fully Satisfied. Without
limiting the generality of the foregoing, it is agreed that, to the fullest
extent permitted by law, the occurrence of any one or more of the following
shall not alter or impair the liability of any Guarantor hereunder which shall
remain absolute and unconditional as described above:
(a) at any time or from time to time, without notice to any
Guarantor, the time for any performance of or compliance with any of
the Credit Party Obligations shall be extended, or such performance or
compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of any
of the Credit Documents, any Hedging Agreement between any Consolidated
Party and any Lender, or any Affiliate of a Lender, or any other
agreement or instrument referred to in the Credit Documents or such
Hedging Agreements shall be done or omitted;
(c) the maturity of any of the Credit Party Obligations shall
be accelerated, or any of the Credit Party Obligations shall be
modified, supplemented or amended in any respect, or any right under
any of the Credit Documents, any Hedging Agreement between any
Consolidated Party and any Lender, or any Affiliate of a Lender, or any
other agreement or instrument referred to in the Credit Documents or
such Hedging Agreements shall be
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waived or any other guarantee of any of the Credit Party Obligations or
any security therefor shall be released, impaired or exchanged in whole
or in part or otherwise dealt with;
(d) any Lien granted to, or in favor of, the Agent or any
Lender or Lenders as security for any of the Credit Party Obligations
shall fail to attach or be perfected; or
(e) any of the Credit Party Obligations shall be determined to
be void or voidable (including, without limitation, for the benefit of
any creditor of any Guarantor) or shall be subordinated to the claims
of any Person (including, without limitation, any creditor of any
Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Agent or any Lender exhaust any right,
power or remedy or proceed against any Person under any of the Credit Documents,
any Hedging Agreement between any Consolidated Party and any Lender, or any
Affiliate of a Lender, or any other agreement or instrument referred to in the
Credit Documents or such Hedging Agreements, or against any other Person under
any other guarantee of, or security for, any of the Credit Party Obligations.
4.3 REINSTATEMENT.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit Party
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, fees and expenses of counsel) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
4.4 CERTAIN ADDITIONAL WAIVERS.
Without limiting the generality of the provisions of this Section 4,
each Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. ss.ss.
26-7 through 26-9, inclusive, to the extent applicable. Each Guarantor further
agrees that such Guarantor shall have no right of recourse to security for the
Credit Party Obligations, except through the exercise of rights of subrogation
pursuant to Section 4.2 and through the exercise of rights of contribution
pursuant to Section 4.6.
4.5 REMEDIES.
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Agent and the Lenders, on the
other hand, the Credit Party Obligations may be declared to be forthwith due and
payable as provided in Section 9.2 (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section 9.2)
for
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purposes of Section 4.1 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or preventing the Credit Party
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or the Credit Party
Obligations being deemed to have become automatically due and payable), the
Credit Party Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors for purposes of Section
4.1. The Guarantors acknowledge and agree that their obligations hereunder are
secured in accordance with the terms of the Collateral Documents and that the
Lenders may exercise their remedies thereunder in accordance with the terms
thereof.
4.6 RIGHTS OF CONTRIBUTION.
The Guarantors hereby agree as among themselves that, if any Guarantor
shall make an Excess Payment (as defined below), such Guarantor shall have a
right of contribution from each other Guarantor in an amount equal to such other
Guarantor's Contribution Share (as defined below) of such Excess Payment. The
payment obligations of any Guarantor under this Section 4.6 shall be subordinate
and subject in right of payment to the Credit Party Obligations until such time
as the Credit Party Obligations have been Fully Satisfied, and none of the
Guarantors shall exercise any right or remedy under this Section 4.6 against any
other Guarantor until such Credit Party Obligations have been Fully Satisfied.
For purposes of this Section 4.6, (a) "Excess Payment" shall mean the amount
paid by any Guarantor in excess of its Pro Rata Share of any Guaranteed
Obligations; (b) "Pro Rata Share" shall mean, for any Guarantor in respect of
any payment of Credit Party Obligations, the ratio (expressed as a percentage)
as of the date of such payment of Guaranteed Obligations of (i) the amount by
which the aggregate present fair salable value of all of its assets and
properties exceeds the amount of all debts and liabilities of such Guarantor
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of such Guarantor hereunder) to (ii) the amount by
which the aggregate present fair salable value of all assets and other
properties of all of the Credit Parties exceeds the amount of all of the debts
and liabilities (including contingent, subordinated, unmatured, and unliquidated
liabilities, but excluding the obligations of the Credit Parties hereunder) of
the Credit Parties; provided, however, that, for purposes of calculating the Pro
Rata Shares of the Guarantors in respect of any payment of Credit Party
Obligations, any Guarantor that became a Guarantor subsequent to the date of any
such payment shall be deemed to have been a Guarantor on the date of such
payment and the financial information for such Guarantor as of the date such
Guarantor became a Guarantor shall be utilized for such Guarantor in connection
with such payment; and (c) "Contribution Share" shall mean, for any Guarantor in
respect of any Excess Payment made by any other Guarantor, the ratio (expressed
as a percentage) as of the date of such Excess Payment of (i) the amount by
which the aggregate present fair salable value of all of its assets and
properties exceeds the amount of all debts and liabilities of such Guarantor
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of such Guarantor hereunder) to (ii) the amount by
which the aggregate present fair salable value of all assets and other
properties of the Credit Parties other than the maker of such Excess Payment
exceeds the amount of all of the debts and liabilities (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of the Credit Parties) of the Credit Parties other than the maker of
such Excess Payment; provided, however, that, for purposes of calculating the
Contribution Shares of the Guarantors in respect of any Excess Payment, any
Guarantor that became a Guarantor subsequent to the date of any such Excess
Payment shall be deemed to have been a Guarantor on the date of such
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Excess Payment and the financial information for such Guarantor as of the date
such Guarantor became a Guarantor shall be utilized for such Guarantor in
connection with such Excess Payment. This Section 4.6 shall not be deemed to
affect any right of subrogation, indemnity, reimbursement or contribution that
any Guarantor may have under applicable law against the Borrower in respect of
any payment of Guaranteed Obligations. Notwithstanding the foregoing, all rights
of contribution against any Guarantor shall terminate from and after such time,
if ever, that such Guarantor shall be relieved of its obligations pursuant to
Section 8.5.
4.7 GUARANTEE OF PAYMENT; CONTINUING GUARANTEE.
The guarantee in this Section 4 is a guaranty of payment and not of
collection, is a continuing guarantee, and shall apply to all Credit Party
Obligations whenever arising.
SECTION 5
CONDITIONS
5.1 CLOSING CONDITIONS.
This Credit Agreement shall become effective at such time on or after
the Closing Date when it shall have been executed by the Borrower, Influence and
the Agent, and the Agent shall have received copies hereof (telefaxed or
otherwise) which, when taken together, bear the signatures of each Lender, and
thereafter this Credit Agreement shall be binding upon and inure to the benefit
of each Credit Party, the Agent and each Lender and their respective successors
and assigns.
5.2 CONDITIONS TO INITIAL EXTENSIONS OF CREDIT.
The obligation of the Lenders to enter into this Credit Agreement and
to make the initial Loans or the Issuing Lender to issue the initial Letter of
Credit, whichever shall occur first, shall be subject to satisfaction of the
following conditions in addition to satisfaction of the conditions set forth in
Section 5.1:
(a) Executed Credit Documents. Receipt by the Agent of duly
executed copies of: (i) the Notes, (ii) the Pledge Agreement, (iii) the
Security Agreement, (iv) the Mortgage Instruments and (v) the Warburg
Guaranty.
(b) Corporate Documents. Receipt by the Agent of the
following:
(i) Charter Documents. Copies of the articles or
certificates of incorporation or other charter documents of
each Credit Party certified to be true and complete as of a
recent date by the appropriate Governmental Authority of the
state or other jurisdiction of its incorporation and certified
by a secretary or assistant secretary of such Credit Party to
be true and correct as of the Initial Funding Date.
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(ii) Bylaws. A copy of the bylaws of each Credit
Party certified by a secretary or assistant secretary of such
Credit Party to be true and correct as of the Initial Funding
Date.
(iii) Resolutions. Copies of resolutions of the Board
of Directors of each Credit Party approving and adopting the
Credit Documents to which it is a party, the transactions
contemplated therein and authorizing execution and delivery
thereof, certified by a secretary or assistant secretary of
such Credit Party to be true and correct and in force and
effect as of the Initial Funding Date.
(iv) Good Standing. Copies of (A) certificates of
good standing, existence or its equivalent with respect to
each Credit Party certified as of a recent date by the
appropriate Governmental Authorities of the state or other
jurisdiction of incorporation and each other jurisdiction in
which the failure to so qualify and be in good standing could
have a Material Adverse Effect and (B) to the extent
available, a certificate indicating payment of all corporate
or comparable franchise taxes certified as of a recent date by
the appropriate governmental taxing authorities.
(v) Incumbency. An incumbency certificate of each
Credit Party certified by a secretary or assistant secretary
to be true and correct as of the Initial Funding Date.
(c) Warburg Partnership Documents. (i) A copy of the
certificate of limited partnership and the partnership agreement (not
including the schedules thereto) of U.S. Warburg, as amended and
modified from time to time, certified by an officer of the Manager to
be true and correct as of the Initial Funding Date, (ii) a copy of the
Management Agreement certified to be true and complete as of the
Initial Funding Date by an officer of the Manager, (iii) a copy of the
authorization of the General Partner authorizing the Manager to execute
and deliver the Warburg Guaranty on behalf of U.S. Warburg, (iv) an
excerpted copy of Sections 4.1, 4.2 and 4.3 of the Amended and Restated
Operating Agreement of the Manager authorizing officers of the Manager
to execute and deliver documents (including, without limitation, the
Warburg Guaranty) on behalf of the Manager certified to be true and
correct as of the Initial Funding Date by an officer of the Manager and
(v) incumbency certificate of the Manager certified by an officer of
the Manager to be true and correct as of the Initial Funding Date.
(d) Opinions of Counsel. The Agent shall have received, in
each case dated as of the Initial Funding Date and in form and
substance reasonably satisfactory to the Agent:
(i) a legal opinion of Willkie Farr & Gallagher,
counsel for the Credit Parties;
(ii) a legal opinion of Willkie Farr & Gallagher,
general counsel for the General Partner;
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(iii) a legal opinion of special local counsel for
each Credit Party not organized in the State of Delaware or
the State of New York;
(iv) a legal opinion of special local real estate
counsel for the Credit Parties for each State in which any
Mortgaged Property is located; and
(v) a legal opinion of special foreign counsel for
the Credit Parties for each country in which any Material
Foreign Subsidiary is organized.
(e) Personal Property Collateral. The Agent shall have
received:
(i) searches of Uniform Commercial Code filings in the
jurisdiction of the chief executive office of each Credit
Party and each jurisdiction where any Collateral is located or
where a filing would need to be made in order to perfect the
Agent's security interest in the Collateral, copies of the
financing statements on file in such jurisdictions and
evidence that no Liens exist other than Permitted Liens;
(ii) duly executed UCC financing statements for each
appropriate jurisdiction where financing statements are
required to be filed, in the Agent's sole discretion, in order
to perfect the Agent's security interest in the Collateral;
(iii) searches of ownership of, and Liens on, intellectual
property of each Credit Party in the appropriate governmental
offices;
(iv) all certificates evidencing any certificated Capital
Stock pledged to the Agent pursuant to the Pledge Agreement,
together with duly executed in blank, undated stock powers
attached thereto (unless, with respect to the pledged Capital
Stock of any Material Foreign Subsidiary, such stock powers
are deemed unnecessary by the Agent in its reasonable
discretion under the law of the jurisdiction of incorporation
of such Person);
(v) duly executed notices of grant of security interest
in the form required by the Security Agreement as are
necessary, in the Agent's sole discretion, to perfect the
Agent's security interest in the Collateral;
(vi) all instruments and chattel paper in the possession
of any of the Credit Parties, together with allonges or
assignments as may be necessary or appropriate to perfect the
Agent's security interest in the Collateral;
(vii) duly executed consents as are necessary, in the
Agent's sole discretion, to perfect the Agent's security
interest in the Collateral; and
(viii) in the case of any personal property Collateral
located at a premises leased by a Credit Party, such estoppel
letters, consents and waivers from the landlords on such real
property as may be required by the Agent.
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(f) Real Property Collateral. The Agent shall have received,
in form and substance reasonably satisfactory to the Agent:
(i) fully executed and notarized mortgages, deeds of
trust or deeds to secure debt (each, as the same may be
amended, modified, restated or supplemented from time to time,
a "Mortgage Instrument" and collectively the "Mortgage
Instruments") encumbering the fee interest and/or leasehold
interest of any Credit Party in each of the Real Properties
designated in Schedule 6.20(a) (each a "Mortgaged Property"
and collectively the "Mortgaged Properties");
(ii) in the case of each real property leasehold interest
of any Credit Party constituting Mortgaged Property, (a) such
estoppel letters, consents and waivers from the landlords on
such real property as may be required by the Agent, which
estoppel letters shall be in the form and substance reasonably
satisfactory to the Agent and (b) evidence that the applicable
lease, a memorandum of lease with respect thereto, or other
evidence of such lease in form and substance reasonably
satisfactory to the Agent, has been or will be recorded in all
places to the extent necessary or desirable, in the reasonable
judgment of the Agent, so as to enable the Mortgage Instrument
encumbering such leasehold interest to effectively create a
valid and enforceable first priority lien (subject to
Permitted Liens) on such leasehold interest in favor of the
Agent (or such other Person as may be required or desired
under local law) for the benefit of Lenders;
(iii) maps or plats of an as-built survey of the sites of
the real property covered by the Mortgage Instruments
certified to the Agent and the title insurance company issuing
the policy referred to in Section 5.2(f)(iv) (the "Title
Insurance Company") in a manner reasonably satisfactory to
each of the Agent and the Title Insurance Company, dated a
date reasonably satisfactory to each of the Agent and the
Title Insurance Company by an independent professional
licensed land surveyor, which maps or plats and the surveys on
which they are based shall be sufficient to delete any
standard printed survey exception contained in the applicable
title policy and be made in accordance with the Minimum
Standard Detail Requirements for Land Title Surveys jointly
established and adopted by the American Land Title Association
and the American Congress on Surveying and Mapping in 1992,
and, without limiting the generality of the foregoing, there
shall be surveyed and shown on such maps, plats or surveys the
following: (A) the locations on such sites of all the
buildings, structures and other improvements and the
established building setback lines; (B) the lines of streets
abutting the sites and width thereof; (C) all access and other
easements appurtenant to the sites necessary to use the sites;
(D) all roadways, paths, driveways, easements, encroachments
and overhanging projections and similar encumbrances affecting
the site, whether recorded, apparent from a physical
inspection of the sites or otherwise known to the surveyor;
(E) any encroachments on any adjoining property by the
building structures and improvements on the sites; and (F) if
the site is described as being on a filed map, a legend
relating the survey to said map;
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(iv) ALTA mortgagee title insurance policies issued by
Chicago Title Insurance Company (the "Mortgage Policies"), in
amounts not less than the respective amounts designated in
Schedule 6.20(a) with respect to any particular Mortgaged
Property, assuring the Agent that each of the Mortgage
Instruments creates a valid and enforceable first priority
mortgage lien on the applicable Mortgaged Property, free and
clear of all defects and encumbrances except Permitted Liens,
which Mortgage Policies shall be in form and substance
reasonably satisfactory to the Agent and shall provide for
affirmative insurance and such reinsurance as the Agent may
reasonably request, all of the foregoing in form and substance
reasonably satisfactory to the Agent;
(v) evidence as to (A) whether any Mortgaged Property is
in an area designated by the Federal Emergency Management
Agency as having special flood or mud slide hazards (a "Flood
Hazard Property") and (B) if any Mortgaged Property is a Flood
Hazard Property, (1) whether the community in which such
Mortgaged Property is located is participating in the National
Flood Insurance Program, (2) the applicable Credit Party's
written acknowledgment of receipt of written notification from
the Agent (a) as to the fact that such Mortgaged Property is a
Flood Hazard Property and (b) as to whether the community in
which each such Flood Hazard Property is located is
participating in the National Flood Insurance Program and (3)
copies of insurance policies or certificates of insurance of
the Consolidated Parties evidencing flood insurance
satisfactory to the Agent and naming the Agent as sole loss
payee on behalf of the Lenders; and
(vi) evidence reasonably satisfactory to the Agent that
each of the Mortgaged Properties, and the uses of the
Mortgaged Properties, are in compliance in all material
respects with all applicable laws, regulations and ordinances
including without limitation health and environmental
protection laws, erosion control ordinances, storm drainage
control laws, doing business and/or licensing laws, zoning
laws (the evidence submitted as to zoning should include the
zoning designation made for each of the Mortgaged Properties,
the permitted uses of each such Mortgaged Properties under
such zoning designation and zoning requirements as to parking,
lot size, ingress, egress and building setbacks) and laws
regarding access and facilities for disabled persons
including, but not limited to, the Federal Architectural
Barriers Act, the Fair Housing Amendments Act of 1988, the
Rehabilitation Act of 1973 and the Americans with Disabilities
Act of 1990.
(g) Availability. After giving effect to the Refinancing and
the making of the initial Loans and the issuance of the initial Letters
of Credit hereunder on the Initial Funding Date, the Revolving
Committed Amount shall exceed the sum of the aggregate outstanding
principal amount of Revolving Loans plus LOC Obligations by at least
$8,000,000.
(h) Evidence of Insurance. Receipt by the Agent of copies of
insurance policies or certificates of insurance of the Consolidated
Parties evidencing liability and casualty
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insurance meeting the requirements set forth in the Credit Documents,
including, but not limited to, naming the Agent as additional insured
(in the case of liability insurance) or loss payee (in the case of
hazard insurance) on behalf of the Lenders.
(i) Government Consent. Receipt by the Agent of evidence that
all governmental, shareholder and material third party consents and
approvals necessary or desirable in connection with the Refinancing and
expiration of all applicable waiting periods without any action being
taken by any authority that could restrain, prevent or impose any
material adverse conditions on the Refinancing or that could seek or
threaten any of the foregoing, and no law or regulation shall be
applicable which in the judgment of the Agent could have such effect.
(j) Capital Contribution. The Agent shall be satisfied that
members of the Initial Investor Group shall have contributed
approximately $20.9 million to the Borrower in exchange for common
Capital Stock of the Borrower, all on terms that are satisfactory to
the Agent.
(k) Officer's Certificates. The Agent shall have received (i)
a certificate or certificates executed by an Executive Officer of the
Borrower as of the Initial Funding Date, in form and substance
satisfactory to the Agent, stating that (A) each Credit Party is in
compliance with all existing financial obligations, (B) all
governmental, shareholder and third party consents and approvals, if
any, with respect to the Credit Documents and the transactions
contemplated thereby have been obtained, (C) no action, suit,
investigation or proceeding is pending or threatened in any court or
before any arbitrator or governmental instrumentality that purports to
affect any Credit Party or any transaction contemplated by the Credit
Documents, if such action, suit, investigation or proceeding could have
a Material Adverse Effect and (D) immediately after giving effect to
the Refinancing, (1) no Default or Event of Default exists, (2) all
representations and warranties contained herein and in the other Credit
Documents are true and correct in all material respects and (3) on the
basis of income statement items and capital expenditures for the
12-month period ending on the last day of the most recently ended
calendar month prior to the Initial Funding Date and balance sheet
items as of the Initial Funding Date after giving effect to the
Refinancing, the Credit Parties are in pro forma compliance with each
of the financial covenants set forth in Section 7.11; and (ii) a
certificate or certificates executed by an officer of the Manager as of
the Initial Funding Date stating that (A) all governmental, shareholder
and third party consents and approvals, if any, with respect to the
Warburg Guaranty and the transactions contemplated thereby have been
obtained, (B) there does not exist any pending or threatened action,
suit, investigation, or proceeding against any WPEP Entity that could
have a Material Adverse Effect and (C) immediately after giving effect
to the Credit Agreement, the other Credit Documents and all
transactions contemplated therein to occur on such date, (1) no Default
or Event of Default exists, (2) all representations and warranties of
the WPEP Entities contained in the Warburg Guaranty are true and
correct in all material respects and (3) as of the Initial Funding
Date, the aggregate Remaining Capital Commitment Balances of all
Limited Partners is at least $2.5 billion.
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(l) Solvency Certificate. The Agent shall have received a
certificate executed by an Executive Officer of the Borrower as of the
Initial Funding Date, in form and substance satisfactory to the Agent,
regarding the Solvency of each of the Credit Parties.
(m) Purchase Agreement. The Agent shall have received a copy,
certified by an Executive Officer of the Borrower as true and complete,
of the Purchase Agreement as originally executed and delivered,
together with all exhibits and schedules thereto.
(n) Fees and Expenses. Payment by the Credit Parties to the
Lenders and the Agent of all fees and expenses relating to the Credit
Facilities which are due and payable on the Initial Funding Date,
including, without limitation, payment to the Agent of the fees set
forth in the Agent's Fee Letter.
(o) Leverage Ratio. After giving effect to the Refinancing,
the ratio of (i) Funded Indebtedness of the Consolidated Parties on a
consolidated basis (other than Revolving Loans and Tranche B Term
Loans) on the Initial Funding Date to (ii) Consolidated EBITDA for the
four fiscal quarter period ending on December 31, 1999, shall be no
greater than 3.1 to 1.0.
(p) Parent Joinder Agreement. Receipt by the Agent of a duly
executed copy of the Parent Joinder Agreement.
(q) 1999 Audited Financial Statements. Receipt by the Agent of
the audited annual financial statements of the Consolidated Parties
described in Section 7.1(a) for the fiscal year ended December 31,
1999.
(r) Other. Receipt by the Lenders of such other documents,
instruments, agreements or information as reasonably requested by any
Lender, including, but not limited to, information regarding
litigation, tax, accounting, labor, insurance, pension liabilities
(actual or contingent), real estate leases, material contracts, debt
agreements, property ownership and contingent liabilities of the
Consolidated Parties.
5.3 CONDITIONS TO ALL EXTENSIONS OF CREDIT.
The obligations of each Lender to make, convert or extend any Loan and
of the Issuing Lender to issue or extend any Letter of Credit (including the
initial Loans and the initial Letter of Credit) are subject to satisfaction of
the following conditions in addition to satisfaction on the Closing Date of the
conditions set forth in Section 5.1 and satisfaction on the Initial Funding Date
of the conditions set forth in Section 5.2:
(a) The Borrower shall have delivered (i) in the case of any
Revolving Loan, any portion of the Tranche A Term Loan or any portion
of the Tranche B Term Loan, an appropriate Notice of Borrowing or
Notice of Extension/Conversion or (ii) in the case of any Letter of
Credit, the Issuing Lender shall have received an appropriate request
for issuance in accordance with the provisions of Section 2.2(b);
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(b) The representations and warranties set forth in Section 6
and in Section 10 of the Warburg Guaranty shall, subject to the
limitations set forth therein, be true and correct in all material
respects as of such date (except for those which expressly relate to an
earlier date);
(c) There shall not have been commenced against the Borrower
or the Parent an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or any
case, proceeding or other action for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
for the winding up or liquidation of its affairs, and such involuntary
case or other case, proceeding or other action shall remain
undismissed;
(d) No Default or Event of Default shall exist and be
continuing either prior to or after giving effect thereto; and
(e) Immediately after giving effect to the making of such Loan
(and the application of the proceeds thereof) or to the issuance of
such Letter of Credit, as the case may be, (i) the sum of the aggregate
outstanding principal amount of Revolving Loans plus LOC Obligations
shall not exceed the Revolving Committed Amount, and (ii) the LOC
Obligations shall not exceed the LOC Committed Amount.
The delivery of each Notice of Borrowing, each Notice of Extension/Conversion
and each request for a Letter of Credit pursuant to Section 2.2(b) shall
constitute a representation and warranty by the Credit Parties of the
correctness of the matters specified in subsections (b), (c), (d) and (e) above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Agent and each Lender that:
6.1 FINANCIAL CONDITION.
(a) The audited consolidated balance sheets and income
statements of the Consolidated Parties (other than Influence and its
Subsidiaries) for the fiscal years ended December 31, 1996 and December
31, 1997 and the period from September 10, 1998 to December 31, 1998
(including the notes thereto) (i) have been audited by KPMG Peat
Marwick LLP, in the case of the 1996 and 1997 financial statements, and
Ernst & Young, LLP, in the case of the 1998 financial statements, (ii)
have been prepared in accordance with GAAP consistently applied
throughout the periods covered thereby and (iii) present fairly (on the
basis disclosed in the footnotes to such financial statements) the
consolidated financial condition, results of operations and cash flows
of the Consolidated Parties (other than Influence and its Subsidiaries)
as of such date and for such periods. The audited consolidated balance
sheets and income statements of Influence for the fiscal year December
31, 1998 and for the six-month period ended June 30, 1999 (including
the notes
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thereto) (i) have been audited by Ernst & Young, LLP, (ii) have been
prepared in accordance with GAAP consistently applied throughout the
periods covered thereby and (iii) present fairly (on the basis
disclosed in the footnotes to such financial statements) the
consolidated financial condition, results of operations and cash flows
of Influence as of such date and for such periods. The unaudited
interim consolidated balance sheets of each of the Consolidated Parties
(other than Influence and its Subsidiaries) and of Influence and its
Subsidiaries as at the end of, and the related unaudited interim
statements of earnings and of cash flows for, each fiscal quarterly
period ended (x) after December 31, 1998 for the Consolidated Parties
(other than Influence and its Subsidiaries) and (y) after June 30, 1999
for Influence and its Subsidiaries and prior to the Closing Date (i)
have been prepared in accordance with GAAP consistently applied
throughout the periods covered thereby and (ii) present fairly (on the
basis disclosed in the footnotes to such financial statements) the
consolidated and consolidating financial condition, results of
operations and cash flows of the Consolidated Parties (other than
Influence and its Subsidiaries) or Influence, as the case may be, as of
such date and for such periods but are subject to potential adjustments
for in process research and development write-offs associated with the
acquisition of Influence and its Subsidiaries or the acquisition of the
UroVive product line. Except as contemplated by the Purchase Agreement,
during the period from December 31, 1998 to and including the Initial
Funding Date, there has been no sale, transfer or other disposition by
any Consolidated Party (including Influence and its Subsidiaries) of
any material part of the business or property of the Consolidated
Parties (including Influence and its Subsidiaries), taken as a whole,
and, except for the Acquisition of the Capital Stock of Influence
pursuant to the Purchase Agreement, no purchase or other acquisition by
any of them of any business or property (including any Capital Stock of
any other Person ) material in relation to the consolidated financial
condition of the Consolidated Parties (including Influence and its
Subsidiaries), taken as a whole, in each case, which is not reflected
in the foregoing financial statements or in the notes thereto and has
not otherwise been disclosed in writing to the Lenders on or prior to
the Initial Funding Date. Except as disclosed on Schedule 6.1(a)
hereto, the Consolidated Parties (including Influence and its
Subsidiaries) have no material liabilities (contingent or otherwise)
that are not reflected in the foregoing financial statements or in the
notes thereto.
(b) The pro forma consolidated balance sheet of the
Consolidated Parties as of the Initial Funding Date giving effect to
the Refinancing and reflecting estimated purchase accounting
adjustments is based upon reasonable assumptions made known to the
Lenders and upon information not known to be incorrect or misleading in
any material respect but such balance sheet is subject to potential
adjustments for in process research and development write-offs
associated with the acquisition of Influence and its Subsidiaries or
the acquisition of the UroVive product line.
(c) The financial statements delivered pursuant to Section
7.1(a) and (b) have been prepared in accordance with GAAP (except as
may otherwise be permitted under Section 7.1(a) and (b)) and present
fairly (on the basis disclosed in the footnotes to such financial
statements) the consolidated and consolidating financial condition,
results of operations and cash flows of the Consolidated Parties as of
such date and for such periods.
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6.2 NO MATERIAL CHANGE.
Except as set forth on Schedule 6.9, since December 31, 1998, there has
been no development or event relating to or affecting a Consolidated Party which
has had or could reasonably be expected to have a Material Adverse Effect.
6.3 ORGANIZATION AND GOOD STANDING.
Each of the Consolidated Parties (a) is duly organized, validly
existing and is in good standing under the laws of the jurisdiction of its
incorporation or organization, (b) has the corporate or other necessary power
and authority, and the legal right, to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is
currently engaged and (c) is duly qualified as a foreign entity and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, other than in such jurisdictions where the failure to be so
qualified and in good standing would not be reasonably expected to have a
Material Adverse Effect.
6.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each of the Credit Parties has the corporate or other necessary power
and authority, and the legal right, to make, deliver and perform the Credit
Documents to which it is a party, and in the case of the Borrower, to obtain
extensions of credit hereunder, and has taken all necessary corporate or other
necessary action to authorize the borrowings and other extensions of credit on
the terms and conditions of this Credit Agreement and to authorize the
execution, delivery and performance of the Credit Documents to which it is a
party. No consent or authorization of, filing with, notice to or other similar
act by or in respect of, any Governmental Authority or any other Person is
required to be obtained or made by or on behalf of any Credit Party in
connection with the borrowings or other extensions of credit hereunder, with the
execution, delivery, performance, validity or enforceability of the Credit
Documents to which such Credit Party is a party or with the consummation of the
Refinancing, except for (i) consents, authorizations, notices and filings
described in Schedule 6.4, all of which have been obtained or made or have the
status described in such Schedule 6.4 and (ii) filings to perfect the Liens
created by the Collateral Documents. This Credit Agreement has been, and each
other Credit Document to which any Credit Party is a party will be, duly
executed and delivered on behalf of the Credit Parties. This Credit Agreement
constitutes, and each other Credit Document to which any Credit Party is a party
when executed and delivered will constitute, a legal, valid and binding
obligation of such Credit Party enforceable against such party in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
6.5 NO CONFLICTS.
Neither the execution and delivery of the Credit Documents, nor the
consummation of the transactions contemplated therein, nor performance of and
compliance with the terms and provisions thereof by such Credit Party will (a)
violate or conflict with any provision of its articles
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or certificate of incorporation or bylaws or other organizational or governing
documents of such Person, (b) violate, contravene or materially conflict with
any Requirement of Law or any other law, regulation (including, without
limitation, Regulation U or Regulation X), order, writ, judgment, injunction,
decree or permit applicable to it, (c) violate, contravene or conflict with
contractual provisions of, or cause an event of default under, any indenture,
loan agreement, mortgage, deed of trust, contract or other agreement or
instrument to which it is a party or by which it may be bound, the violation of
which could reasonably be expected to have a Material Adverse Effect, or (d)
result in or require the creation of any Lien (other than those contemplated in
or created in connection with the Credit Documents) upon or with respect to its
properties.
6.6 NO DEFAULT.
No Consolidated Party is in default in any respect under any contract,
lease, loan agreement, indenture, mortgage, security agreement or other
agreement or obligation to which it is a party or by which any of its properties
is bound which default could reasonably be expected to have a Material Adverse
Effect. No Default or Event of Default has occurred or exists except as
previously disclosed in writing to the Lenders.
6.7 OWNERSHIP.
Each Consolidated Party is the owner of, and has good and marketable
title to, all of its respective assets and none of such assets is subject to any
Lien other than Permitted Liens.
6.8 INDEBTEDNESS.
Except as otherwise permitted under Section 8.1, the Consolidated
Parties have no Indebtedness.
6.9 LITIGATION.
Except as disclosed in Schedule 6.9, there does not exist any pending
or threatened action, suit or legal, equitable, arbitration or administrative
proceeding against any Consolidated Party which could reasonably be expected to
have a Material Adverse Effect.
6.10 TAXES.
Each Consolidated Party has filed, or caused to be filed, all material
tax returns (Federal, state, local and foreign) required to be filed and paid
(a) all amounts of taxes shown thereon to be due (including interest and
penalties) and (b) all other taxes, fees, assessments and other governmental
charges (including mortgage recording taxes, documentary stamp taxes and
intangibles taxes) owing by it, except for such taxes (i) which are not yet
delinquent or (ii) that are being contested in good faith and by proper
proceedings, and against which adequate reserves are being maintained in
accordance with GAAP. No Credit Party is aware as of the Initial Funding Date of
any proposed material tax assessments against it or any other Consolidated
Party.
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6.11 COMPLIANCE WITH LAW.
Each Consolidated Party is in compliance with all Requirements of Law
and all other laws, rules, regulations, orders and decrees (including without
limitation Environmental Laws) applicable to it, or to its properties, unless
such failure to comply could not reasonably be expected to have a Material
Adverse Effect.
6.12 ERISA.
Except as disclosed and described in Schedule 6.12 attached hereto or
as would not be reasonably expected to have a Material Adverse Effect:
(a) During the five-year period prior to the date on which
this representation is made or deemed made: (i) no ERISA Event has
occurred, and, to the best knowledge of the Executive Officers of the
Credit Parties, no event or condition has occurred or exists as a
result of which any ERISA Event could reasonably be expected to occur,
with respect to any Plan; (ii) no "accumulated funding deficiency," as
such term is defined in Section 302 of ERISA and Section 412 of the
Code, whether or not waived, has occurred with respect to any Plan;
(iii) each Plan has been maintained, operated, and funded in compliance
with its own terms and in material compliance with the provisions of
ERISA, the Code, and any other applicable federal or state laws; and
(iv) no lien in favor of the PBGC or a Plan has arisen or is reasonably
likely to arise on account of any Plan.
(b) The actuarial present value of all "benefit liabilities"
(as defined in Section 4001(a)(16) of ERISA), whether or not vested,
under each Single Employer Plan, as of the last annual valuation date
prior to the date on which this representation is made or deemed made
(determined, in each case, in accordance with Financial Accounting
Standards Board Statement 87, utilizing the actuarial assumptions used
in such Plan's most recent actuarial valuation report), did not exceed
as of such valuation date the fair market value of the assets of such
Plan.
(c) Neither any Consolidated Party nor any ERISA Affiliate has
incurred, or, to the best knowledge of the Executive Officers of the
Credit Parties, could be reasonably expected to incur, any withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer
Plan. Neither any Consolidated Party nor any ERISA Affiliate would
become subject to any withdrawal liability under ERISA if any
Consolidated Party or any ERISA Affiliate were to withdraw completely
from all Multiemployer Plans and Multiple Employer Plans as of the
valuation date most closely preceding the date on which this
representation is made or deemed made. Neither any Consolidated Party
nor any ERISA Affiliate has received any notification that any
Multiemployer Plan is in reorganization (within the meaning of Section
4241 of ERISA), is insolvent (within the meaning of Section 4245 of
ERISA), or has been terminated (within the meaning of Title IV of
ERISA), and no Multiemployer Plan is, to the best knowledge of the
Executive Officers of the Credit Parties, reasonably expected to be in
reorganization, insolvent, or terminated.
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(d) No prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility has occurred with respect to a Plan which has subjected
or may subject any Consolidated Party or any ERISA Affiliate to any
liability under Sections 406, 409, 502(i), or 502(l) of ERISA or
Section 4975 of the Code, or under any agreement or other instrument
pursuant to which any Consolidated Party or any ERISA Affiliate has
agreed or is required to indemnify any Person against any such
liability.
(e) Neither any Consolidated Party nor any ERISA Affiliates
has any material liability with respect to "expected post-retirement
benefit obligations" within the meaning of the Financial Accounting
Standards Board Statement 106, except as have been accrued on the
financial statements of the Borrower. Each Plan which is a welfare plan
(as defined in Section 3(1) of ERISA) to which Sections 601-609 of
ERISA and Section 4980B of the Code apply has been administered in
compliance in all material respects of such sections.
(f) Neither the execution and delivery of this Credit
Agreement nor the consummation of the financing transactions
contemplated thereunder will involve any transaction which is subject
to the prohibitions of Sections 404, 406 or 407 of ERISA or in
connection with which a tax could be imposed pursuant to Section 4975
of the Code. The representation by the Credit Parties in the preceding
sentence is made in reliance upon and subject to the accuracy of the
Lenders' representation in Section 11.15 with respect to their source
of funds and is subject, in the event that the source of the funds used
by the Lenders in connection with this transaction is an insurance
company's general asset account, to the application of Prohibited
Transaction Class Exemption 95-60, 60 Fed. Reg. 35,925 (1995),
compliance with the regulations issued under Section 401(c)(1)(A) of
ERISA, or the issuance of any other prohibited transaction exemption or
similar relief, to the effect that assets in an insurance company's
general asset account do not constitute assets of an "employee benefit
plan" within the meaning of Section 3(3) of ERISA or a "plan" within
the meaning of Section 4975(e)(1) of the Code.
6.13 CORPORATE STRUCTURE; CAPITAL STOCK, ETC.
The corporate capital and ownership structure of the Consolidated
Parties as of the Initial Funding Date is as described in Schedule 6.13A. Set
forth on Schedule 6.13B is a complete and accurate list with respect to the
Borrower and each of its direct and indirect Subsidiaries of (i) jurisdiction of
incorporation, (ii) number of shares of each class of Capital Stock outstanding,
(iii) number and percentage of outstanding shares of each class owned (directly
or indirectly) by the Consolidated Parties and (iv) number and effect, if
exercised, of all outstanding options, warrants, rights of conversion or
purchase and all other similar rights with respect thereto. The outstanding
Capital Stock of all such Persons is validly issued, fully paid and, in the case
of the Borrower or any Domestic Subsidiary, non-assessable and is owned by the
Consolidated Parties, directly or indirectly, in the manner set forth on
Schedule 6.13B, free and clear of all Liens (other than those arising under or
contemplated in connection with the Credit Documents). Other than as set forth
in Schedule 6.13B, neither the Borrower nor any of its Subsidiaries has
outstanding any securities convertible into or exchangeable for its Capital
Stock nor does any such Person have outstanding any rights to subscribe for or
to purchase or any options for the purchase of, or any agreements
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providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to its Capital Stock. Schedule
6.13B may be updated from time to time by the Borrower by giving written notice
thereof to the Agent.
6.14 GOVERNMENTAL REGULATIONS, ETC.
(a) None of the transactions contemplated by this Credit
Agreement (including, without limitation, the direct or indirect use of
the proceeds of the Loans) will violate or result in a violation of the
Securities Act, the Securities Exchange Act or any of Regulations U and
X. If requested by any Lender or the Agent, the Borrower will furnish
to the Agent and each Lender a statement, in conformity with the
requirements of FR Form U-1 referred to in Regulation U, that no part
of the Letters of Credit or proceeds of the Loans will be used,
directly or indirectly, for the purpose of "buying" or "carrying" any
"margin stock" within the meaning of Regulations U and X, or for the
purpose of purchasing or carrying or trading in any securities.
(b) None of the Consolidated Parties is (i) an "investment
company", or a company "controlled" by "investment company", within the
meaning of the Investment Company Act of 1940, as amended, (ii) a
"holding company" as defined in, or otherwise subject to regulation
under, the Public Utility Holding Company Act of 1935, as amended or
(iii) subject to regulation under any other Federal or state statute or
regulation which limits its ability to incur Indebtedness.
6.15 PURPOSE OF LOANS AND LETTERS OF CREDIT.
The proceeds of the Loans hereunder shall be used solely by the
Borrower to effect the Refinancing, to pay fees and expenses related to the
Refinancing and to provide for working capital and general corporate purposes of
the Borrower and its Subsidiaries (including, without limitation, Permitted
Acquisitions). The Letters of Credit shall be used only for or in connection
with appeal bonds, reimbursement obligations arising in connection with surety
and reclamation bonds, reinsurance, domestic or international trade transactions
and obligations not otherwise aforementioned relating to transactions entered
into by the applicable account party for general corporate purposes in the
ordinary course of business.
6.16 ENVIRONMENTAL MATTERS.
Except as disclosed and described in Schedule 6.16 attached hereto or
as would not reasonably be expected to have a Material Adverse Effect:
(a) Each of the Real Properties and all operations at the Real
Properties are in compliance with all applicable Environmental Laws,
there is no violation of any Environmental Law with respect to the Real
Properties or the Businesses, and there are no conditions relating to
the Real Properties or the Businesses that could reasonably be expected
to give rise to liability under any applicable Environmental Laws.
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(b) None of the Real Properties contains, or has previously
contained, any Materials of Environmental Concern at, on or under the
Real Properties in amounts or concentrations that constitute or
constituted a violation of, or could reasonably be expected to give
rise to liability under, Environmental Laws.
(c) No Consolidated Party has received any written or verbal
notice of, or inquiry from any Governmental Authority regarding, any
violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Real Properties or the
Businesses that remains unresolved, nor does any Executive Officer of
any Credit Party have knowledge or reason to believe that any such
notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been
transported or disposed of from the Real Properties, or generated,
treated, stored or disposed of at, on or under any of the Real
Properties or any other location, in each case by or on behalf of any
Consolidated Party in violation of, or in a manner that could
reasonably be expected to give rise to liability under, any applicable
Environmental Law.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the best knowledge of the Executive Officers
of the Credit Parties, threatened, under any Environmental Law to which
any Consolidated Party is or will be named as a party, nor are there
any consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to
the Consolidated Parties, the Real Properties or the Businesses.
(f) There has been no release, or threat of release, of
Materials of Environmental Concern at or from the Real Properties, or
arising from or related to the operations (including, without
limitation, disposal) of any Consolidated Party in connection with the
Real Properties or otherwise in connection with the Businesses, in
violation of or in amounts or in a manner that could give rise to
liability under Environmental Laws.
6.17 INTELLECTUAL PROPERTY.
Each Consolidated Party owns, or has the legal right to use, all
patents, trademarks, tradenames, copyrights, technology, know-how and processes
(the "Intellectual Property") necessary for each of them to conduct its business
as currently conducted except for those the failure to own or have such legal
right to use could not reasonably be expected to have a Material Adverse Effect.
As of the Closing Date, set forth on Schedule 6.17 is a list of all Intellectual
Property registered with the United States Copyright Office or the United States
Patent and Trademark Office and owned by each Consolidated Party or that any
Consolidated Party has the right to use. Except as provided on Schedule 6.17, no
claim has been asserted and is pending by any Person challenging or questioning
the use of any such Intellectual Property or the validity or effectiveness of
any such Intellectual Property, nor does any Credit Party know of any such
claim, and, to the knowledge of the Executive Officers of the Credit Parties,
the use of such Intellectual Property by any Consolidated Party does not
infringe on the rights of any Person, except for such claims and
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infringements that, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
6.18 SOLVENCY.
Each Credit Party is Solvent.
6.19 INVESTMENTS.
All Investments of each Consolidated Party are Permitted Investments.
6.20 BUSINESS LOCATIONS.
Set forth on Schedule 6.20(a) is a list of all Real Properties located
in the United States as of the Initial Funding Date. Set forth on Schedule
6.20(b) is a list of all locations where any tangible personal property of a
Consolidated Party is located as of the Initial Funding Date. Set forth on
Schedule 6.20(c) is the chief executive office and principal place of business
of each Consolidated Party as of the Initial Funding Date.
6.21 DISCLOSURE.
Neither this Credit Agreement nor any financial statements delivered to
the Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of any Consolidated Party in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein or herein not misleading.
6.22 NO BURDENSOME RESTRICTIONS.
No Consolidated Party is a party to any agreement or instrument or
subject to any other obligation or any charter or corporate restriction or any
provision of any applicable law, rule or regulation which, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect.
6.23 BROKERS' FEES.
No Consolidated Party has any obligation to any Person in respect of
any finder's, broker's, investment banking or other similar fee in connection
with any of the transactions contemplated under the Credit Documents.
6.24 LABOR MATTERS.
There are no collective bargaining agreements or Multiemployer Plans
covering the employees of a Consolidated Party as of the Initial Funding Date,
and none of the Consolidated Parties has suffered any strikes, walkouts, work
stoppages or other material labor difficulty within
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the last five years except for any of the foregoing that individually or in the
aggregate could not be reasonably expected to have a Material Adverse Effect.
6.25 NATURE OF BUSINESS.
As of the Closing Date, the Consolidated Parties are engaged in the
business of manufacturing and distributing medical urological devices.
6.26 YEAR 2000 COMPLIANCE.
Each of the Credit Parties has (i) completed a review and assessment of
all areas within its and each of its Subsidiaries' businesses and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications may not be able to recognize and properly perform date-sensitive
functions after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) substantially
completed implementation of that plan in accordance with that timetable. The
Year 2000 Problem has not resulted in, and each Credit Party believes that the
Year 2000 Problem will not result in, a Material Adverse Effect.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this
Credit Agreement is in effect or any amounts payable hereunder or under any
other Credit Document shall remain outstanding or any Letter of Credit is
outstanding, and until all of the Commitments hereunder shall have terminated:
7.1 INFORMATION COVENANTS.
The Credit Parties will furnish, or cause to be furnished, to the Agent
and each of the Lenders:
(a) Annual Financial Statements. As soon as available, and in
any event within 90 days (or, in the case of fiscal year 1999, 120
days) after the close of each fiscal year of the Consolidated Parties,
a consolidated balance sheet and income statement of the Consolidated
Parties as of the end of such fiscal year, together with related
consolidated statements of retained earnings and cash flows for such
fiscal year, in each case setting forth in comparative form
consolidated figures for the preceding fiscal year, all such financial
information described above to be in reasonable form and detail and
audited by independent certified public accountants of recognized
national standing reasonably acceptable to the Agent and whose opinion
shall be to the effect that such financial statements have been
prepared in accordance with GAAP (except for changes with which such
accountants concur) and shall not be limited as to the scope of the
audit or qualified as to the status of the Consolidated Parties as a
going concern or any other material qualifications or exceptions.
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(b) Quarterly Financial Statements. As soon as available, and
in any event within 45 days after the close of each fiscal quarter of
the Consolidated Parties (other than the fourth fiscal quarter, in
which case 90 days (or, in the case of fiscal year 1999, 120 days)
after the end thereof), a consolidated and consolidating balance sheet
and income statement of the Consolidated Parties as of the end of such
fiscal quarter, together with related consolidated and consolidating
statements of retained earnings and cash flows for such fiscal quarter,
in each case setting forth in comparative form consolidated and
consolidating figures for the corresponding period of the preceding
fiscal year, all such financial information described above to be in
reasonable form and detail and reasonably acceptable to the Agent, and
accompanied by a certificate of an Executive Officer of the Borrower to
the effect that such quarterly financial statements fairly present in
all material respects the financial condition of the Consolidated
Parties and have been prepared in accordance with GAAP, subject to
changes resulting from audit and normal year-end audit adjustments.
(c) Officer's Certificate. At the time of delivery of the
financial statements provided for in Sections 7.1(a) and 7.1(b) above,
a certificate of an Executive Officer of the Borrower substantially in
the form of Exhibit 7.1(c), (i) demonstrating compliance with the
financial covenants contained in Section 7.11 by calculation thereof as
of the end of each such fiscal period and (ii) stating that no Default
or Event of Default exists, or if any Default or Event of Default does
exist, specifying the nature and extent thereof and what action the
Credit Parties propose to take with respect thereto.
(d) Annual Business Plan and Budgets. By March 1 of each
fiscal year of the Borrower, an annual (with quarterly break out)
business plan and budget of the Consolidated Parties for such fiscal
year containing, among other things, pro forma financial statements.
(e) Compliance With Certain Provisions of the Credit
Agreement. Within 90 days after the end of each fiscal year of the
Credit Parties, a certificate containing information regarding (i) the
calculation of Excess Cash Flow and (ii) the amount of all Asset
Dispositions, Debt Issuances and Equity Issuances that were made during
the prior fiscal year.
(f) Accountant's Certificate. Within the period for delivery
of the annual financial statements provided in Section 7.1(a), a
certificate of the accountants conducting the annual audit stating that
they have reviewed this Credit Agreement as it relates to accounting
and other financial matters and stating further whether, in the course
of their audit, they have become aware of any Default or Event of
Default and, if any such Default or Event of Default exists, specifying
the nature and extent thereof, provided that such accountants shall not
be liable by reason of any failure to obtain knowledge of any such
Default or Event of Default that would not be disclosed in the course
of their audit examination; provided further, that no such certificate
shall be required if the Borrower has used its best efforts to obtain
such a certificate and such accountants are unwilling to provide such a
certificate and other independent certified public accountants of
recognized national standing are unwilling to provide such a
certificate.
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(g) Auditor's Reports. Promptly upon receipt thereof, a copy
of any other report or "management letter" submitted by independent
accountants to any Consolidated Party in connection with any annual,
interim or special audit of the books of such Person.
(h) Reports. Promptly upon transmission or receipt thereof,
(i) copies of any filings and registrations with, and reports to or
from, the Securities and Exchange Commission, or any successor agency,
and copies of all financial statements, proxy statements, notices and
reports as any Consolidated Party shall send to its shareholders (in
their capacity as shareholders) or to a holder of any Indebtedness owed
by any Consolidated Party in its capacity as such a holder and (ii)
upon the request of the Agent, all reports and written information to
and from the United States Environmental Protection Agency, or any
state or local agency responsible for environmental matters, the United
States Occupational Health and Safety Administration, or any state or
local agency responsible for health and safety matters, or any
successor agencies or authorities concerning environmental, health or
safety matters.
(i) Notices. Upon any Executive Officer of a Credit Party
obtaining knowledge thereof, the Credit Parties will give written
notice to the Agent immediately of (i) the occurrence of an event or
condition consisting of a Default or Event of Default, specifying the
nature and existence thereof and what action the Credit Parties propose
to take with respect thereto, and (ii) the occurrence of any of the
following with respect to any Consolidated Party (A) the pendency or
commencement of any litigation, arbitral or governmental proceeding
against such Person which if adversely determined is likely to have a
Material Adverse Effect or (B) the institution of any proceedings
against such Person with respect to, or the receipt of notice by such
Person of potential liability or responsibility for violation, or
alleged violation of any Federal, state or local law, rule or
regulation, including but not limited to, Environmental Laws, the
violation of which could reasonably be expected to have a Material
Adverse Effect.
(j) ERISA. Upon any Executive Officer of a Credit Party
obtaining knowledge thereof, the Credit Parties will give written
notice to the Agent promptly (and in any event within five Business
Days) of: (i) any event or condition, including, but not limited to,
any Reportable Event, that constitutes, or might reasonably lead to, an
ERISA Event; (ii) with respect to any Multiemployer Plan, the receipt
of notice as prescribed in ERISA or otherwise of any withdrawal
liability assessed against the Credit Parties or any ERISA Affiliates,
or of a determination that any Multiemployer Plan is in reorganization
or insolvent (both within the meaning of Title IV of ERISA); (iii) the
failure to make full payment on or before the due date (including
extensions) thereof of all amounts which any Consolidated Party or any
ERISA Affiliate is required to contribute to each Plan pursuant to its
terms and as required to meet the minimum funding standard set forth in
ERISA and the Code with respect thereto; or (iv) any change in the
funding status of any Plan that could reasonably be expected to have a
Material Adverse Effect, together with a description of any such event
or condition or a copy of any such notice and a statement by an
Executive Officer of the Borrower briefly setting forth the details
regarding such event, condition, or notice, and the action, if any,
which has been or is being taken or is proposed to be taken by the
Credit Parties with respect thereto. Promptly upon request, the Credit
Parties shall
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furnish the Agent and the Lenders with such additional information
concerning any Plan as may be reasonably requested, including, but not
limited to, copies of each annual report/return (Form 5500 series), as
well as all schedules and attachments thereto required to be filed with
the Department of Labor and/or the Internal Revenue Service pursuant to
ERISA and the Code, respectively, for each "plan year" (within the
meaning of Section 3(39) of ERISA).
(k) Environmental. Upon the written request of the Agent, (i)
based upon the reasonable belief that there has been a violation of
Environmental Law or a release of Materials of Environmental Concern at
a Real Property which is reasonably likely to have a Material Adverse
Effect or (ii) at any time during the existence of an Event of Default,
upon the written request of the Agent, the Credit Parties will furnish
or cause to be furnished to the Agent, at the Credit Parties' expense,
a report of an environmental assessment of reasonable scope, form and
depth, (including, where appropriate, invasive soil or groundwater
sampling) by a consultant reasonably acceptable to the Agent as to the
nature and extent of the presence of any Materials of Environmental
Concern on any Real Properties (as defined in Section 6.16) and as to
the compliance by any Consolidated Party with Environmental Laws at
such Real Properties. If the Credit Parties fail to deliver such an
environmental report within seventy-five (75) days after receipt of
such written request then the Agent may arrange for same, and the
Consolidated Parties hereby grant to the Agent and their
representatives access to the Real Properties to reasonably undertake
such an assessment (including, where appropriate, invasive soil or
groundwater sampling). The reasonable cost of any assessment arranged
for by the Agent pursuant to this provision will be payable by the
Credit Parties on demand and added to the obligations secured by the
Collateral Documents.
(l) Additional Patents and Trademarks. At the time of delivery
of the financial statements and reports provided for in Section 7.1(a),
a report signed by an Executive Officer of the Borrower setting forth
(i) a list of registration numbers for all patents, trademarks, service
marks, tradenames and copyrights awarded to any Consolidated Party
since the last day of the immediately preceding fiscal year and (ii) a
list of all patent applications, trademark applications, service mark
applications, trade name applications and copyright applications
submitted by any Consolidated Party since the last day of the
immediately preceding fiscal year and the status of each such
application, all in such form as shall be reasonably satisfactory to
the Agent.
(m) Other Information. With reasonable promptness upon any
such request, such other information regarding the business, properties
or financial condition of any Consolidated Party as the Agent or the
Required Lenders may reasonably request.
7.2 PRESERVATION OF EXISTENCE AND FRANCHISES.
Except as a result of or in connection with a dissolution, merger or
disposition of a Subsidiary not prohibited by Section 8.4 or Section 8.5, each
Credit Party will, and will cause each of its Subsidiaries to, do all things
necessary to preserve and keep in full force and effect its existence, rights,
franchises and authority, except (with respect to rights, franchises and
authority
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only) where the failure to do so would not have or be reasonably expected to
have a Material Adverse Effect.
7.3 BOOKS AND RECORDS.
Each Credit Party will, and will cause each of its Subsidiaries to,
keep complete and accurate books and records of its transactions in accordance
with good accounting practices on the basis of GAAP (including the establishment
and maintenance of appropriate reserves).
7.4 COMPLIANCE WITH LAW.
Each Credit Party will, and will cause each of its Subsidiaries to,
comply with all laws, rules, regulations and orders, and all applicable
restrictions imposed by all Governmental Authorities, applicable to it and its
Property if noncompliance with any such law, rule, regulation, order or
restriction could reasonably be expected to have a Material Adverse Effect.
7.5 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
Each Credit Party will, and will cause each of its Subsidiaries to,
pay, settle or discharge (a) all taxes, assessments and governmental charges or
levies imposed upon it, or upon its income or profits, or upon any of its
properties, before they shall become delinquent, (b) all lawful claims
(including claims for labor, materials and supplies) which, if unpaid, might
give rise to a Lien upon any of its properties, and (c) except as prohibited
hereunder, all of its other Indebtedness as it shall become due; provided,
however, that (i) no Consolidated Party shall be required to pay any such tax,
assessment, charge, levy, claim or Indebtedness which is being contested in good
faith by appropriate proceedings and as to which adequate reserves therefor have
been established in accordance with GAAP, unless the failure to make any such
payment (A) would give rise to an immediate right to foreclose on a Lien
securing such amounts or (B) could reasonably be expected to have a Material
Adverse Effect and (ii) no Consolidated Party shall be required to pay any
Indebtedness if the aggregate amount of such unpaid Indebtedness does not exceed
$1,500,000 (taking into account applicable insurance or indemnitees to the
extent the provider of such insurance or indemnity has the financial ability to
support its obligations with respect thereto and is not disputing the same).
7.6 INSURANCE.
(a) Each Credit Party will, and will cause each of its
Subsidiaries to, at all times maintain in full force and effect
insurance (including worker's compensation insurance, liability
insurance, casualty insurance and business interruption insurance) in
such amounts, covering such risks and liabilities and with such
deductibles or self-insurance retentions as are in accordance with
normal industry practice (or as otherwise required by the Collateral
Documents). The Agent shall be named as loss payee or mortgagee, as its
interest may appear, and/or additional insured with respect to any such
insurance providing coverage in respect of any Collateral, and each
provider of any such insurance shall agree, by endorsement upon the
policy or policies issued by it or by independent instruments furnished
to the Agent, that it will give the Agent thirty (30) days prior
written notice
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before any such policy or policies shall be altered or canceled. The
present insurance coverage of the Consolidated Parties is outlined as
to carrier, policy number, expiration date, type and amount on Schedule
7.6.
(b) In the event that the Consolidated Parties receive Net
Cash Proceeds in excess of $500,000 in aggregate amount during any
fiscal year of the Consolidated Parties ("Excess Proceeds") on account
of any loss of, damage to or destruction of, or any condemnation or
other taking for public use of, any Property of the Consolidated
Parties (with respect to any Consolidated Party, an "Involuntary
Disposition"), the Credit Parties shall, within the period of 365 days
following the date of receipt of such Excess Proceeds, apply (or cause
to be applied) an amount equal to such Excess Proceeds to (i) make
Eligible Reinvestments (including but not limited to the repair or
replacement of the related Property) or (ii) prepay the Loans (and cash
collateralize LOC Obligations) in accordance with the terms of Section
3.3(b)(iii)(B); provided, however, that such Person shall not undertake
replacement or restoration of such Property unless, after giving pro
forma effect to any Funded Indebtedness to be incurred in connection
with such replacement or restoration, the Credit Parties would be in
compliance with the financial covenants set forth in Section 7.11(a)
and (b) as of the most recent fiscal quarter end preceding the date of
determination with respect to which the Agent has received the Required
Financial Information (assuming, for purposes hereof, that such Funded
Indebtedness was incurred as of the first day of the four
fiscal-quarter period ending as of such fiscal quarter end). All
insurance proceeds shall be subject to the security interest of the
Agent (for the ratable benefit of the Lenders) under the Collateral
Documents. Pending final application of any Excess Proceeds, the Credit
Parties may apply such Excess Proceeds to temporarily reduce the
Revolving Loans or to make Permitted Investments.
7.7 MAINTENANCE OF PROPERTY.
Each Credit Party will, and will cause each of its Subsidiaries to,
maintain and preserve its properties and equipment material to the conduct of
its business in good repair, working order and condition, normal wear and tear
and casualty and condemnation excepted, and will make, or cause to be made, in
such properties and equipment from time to time all repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto as may
be needed or proper, to the extent and in the manner customary for companies in
similar businesses.
7.8 PERFORMANCE OF OBLIGATIONS.
Each Credit Party will, and will cause each of its Subsidiaries to,
perform in all material respects all of its obligations under the terms of all
material agreements, indentures, mortgages, security agreements or other debt
instruments to which it is a party or by which it is bound, unless the failure
to do so will not have or be reasonably expected to have a Material Adverse
Effect.
7.9 USE OF PROCEEDS.
The Borrower will use the proceeds of the Loans and will use the
Letters of Credit solely for the purposes set forth in Section 6.15.
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7.10 AUDITS/INSPECTIONS.
Upon reasonable notice and during normal business hours (but absent the
existence of an Event of Default or other reasonable cause, not more than twice
during any fiscal year), each Credit Party will, and will cause each of its
Subsidiaries to, permit representatives appointed by the Agent, including,
without limitation, independent accountants, agents, attorneys, and appraisers
to visit and inspect its property, including its books and records, its accounts
receivable and inventory, its facilities and its other business assets, and to
make photocopies or photographs thereof and to write down and record any
information such representative obtains and shall permit the Agent or its
representatives to investigate and verify the accuracy of information provided
to the Lenders and to discuss all such matters with the officers, employees and
representatives of such Person. The Credit Parties agree that the Agent, and its
representatives, may conduct an annual audit of the Collateral, at the expense
of the Credit Parties.
7.11 FINANCIAL COVENANTS.
(a) Leverage Ratio. The Leverage Ratio, as of the last day of
each fiscal quarter of the Consolidated Parties indicated below, shall
be less than or equal to the ratio indicated with respect to such date:
FISCAL QUARTER END LEVERAGE RATIO
March 31, 2000
June 30, 2000 3.50 to 1.00
September 30, 2000
December 31, 2000
March 31, 2001
June 30, 2001 3.00 to 1.00
September 30, 2001
December 31, 2001 and each
fiscal quarter-end thereafter 2.50 to 1.00
(b) Interest Coverage Ratio. The Interest Coverage Ratio, as
of the last day of each fiscal quarter of the Consolidated Parties
indicated below, shall be greater than or equal to the ratio indicated
with respect to such date:
FISCAL QUARTER END INTEREST COVERAGE RATIO
March 31, 2000
June 30, 2000 2.00 to 1.00
September 30, 2000
December 31, 2000
March 31, 2001
June 30, 2001 2.50 to 1.00
September 30, 2001
December 31, 2001 and each 3.00 to 1.00
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fiscal quarter-end thereafter
(c) Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio, as of the last day of each fiscal quarter of the Consolidated
Parties indicated below, shall be greater than or equal to the ratio
indicated with respect to such date:
FISCAL QUARTER END FIXED CHARGE COVERAGE RATIO
June 30, 2000 and each fiscal
quarter-end thereafter 1.00 to 1.00
7.12 NEW SUBSIDIARIES.
As soon as practicable and in any event within 30 days after any Person
becomes a direct or indirect Subsidiary of the Parent, the Borrower shall
provide the Agent with written notice thereof setting forth information in
reasonable detail describing all of the assets of such Person and shall (a) if
such Person is a Domestic Subsidiary, (i) cause such Person to execute a Joinder
Agreement in substantially the same form as Exhibit 7.12 and (ii) cause 100% of
the issued and outstanding Capital Stock of such Person to be delivered to the
Agent (together with undated stock powers signed in blank) and pledged to the
Agent pursuant to an appropriate pledge agreement(s) in substantially the form
of the Pledge Agreement and otherwise in form acceptable to the Agent, (b) if
such Person is a Material Foreign Subsidiary, cause 65% of the issued and
outstanding Capital Stock entitled to vote (within the meaning of Treas. Reg.
Section 1.956-2(c)(2)) and 100% of the issued and outstanding Capital Stock not
entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) of
such Person to be delivered to the Agent (together with undated stock powers
signed in blank (unless, with respect to a Material Foreign Subsidiary, such
stock powers are deemed unnecessary by the Agent in its reasonable discretion
under the law of the jurisdiction of incorporation of such Person)) and pledged
to the Agent pursuant to an appropriate pledge agreement(s) in substantially the
form of the Pledge Agreement and otherwise in form acceptable to the Agent, (c)
if such Person is a Domestic Subsidiary, cause such Person to deliver to the
Agent with respect to any real Property owned or leased by such Person and which
is not Excluded Property, documents, instruments and other items of the types
required to be delivered pursuant to Section 5.2(e) all in form, content and
scope reasonably satisfactory to the Agent and (d) deliver such other
documentation as the Agent may reasonably request in connection with the
foregoing, including, without limitation, appropriate UCC-1 financing
statements, real estate title insurance policies, environmental reports,
landlord's waivers, certified resolutions and other organizational and
authorizing documents of such Person, favorable opinions of counsel to such
Person (which shall cover, among other things, the legality, validity, binding
effect and enforceability of the documentation referred to above and the
perfection of the Agent's liens thereunder) and other items of the types
required to be delivered pursuant to Section 5.3(b), (c), (d) and (e), all in
form, content and scope reasonably satisfactory to the Agent.
7.13 PLEDGED ASSETS.
Each Credit Party will (i) cause all of its owned and leased real and
personal Property other than Excluded Property to be subject at all times to
first priority, perfected and, in the case
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of real Property (whether leased or owned), title insured Liens in favor of the
Agent to secure the Credit Party Obligations pursuant to the terms and
conditions of the Collateral Documents or, with respect to any such Property
acquired subsequent to the Initial Funding Date, such other additional security
documents as the Agent shall reasonably request, subject in any case to
Permitted Liens and (ii) deliver such other documentation as the Agent may
reasonably request in connection with the foregoing, including, without
limitation, appropriate UCC-1 financing statements, real estate title insurance
policies, surveys, environmental reports, landlord's waivers, certified
resolutions and other organizational and authorizing documents of such Person,
favorable opinions of counsel to such Person (which shall cover, among other
things, the legality, validity, binding effect and enforceability of the
documentation referred to above and the perfection of the Agent's liens
thereunder) and other items of the types required to be delivered pursuant to
Section 5.2(d) and (e), all in form, content and scope reasonably satisfactory
to the Agent. Without limiting the generality of the above, the Borrower will
cause (A) 100% of the issued and outstanding Capital Stock of the Borrower, (B)
100% of the issued and outstanding Capital Stock of each Domestic Subsidiary and
(C) 65% of the issued and outstanding Capital Stock entitled to vote (within the
meaning of Treas. Reg. Section 1.956-2(c)(2)) and 100% of the issued and
outstanding Capital Stock not entitled to vote (within the meaning of Treas.
Reg. Section 1.956-2(c)(2)) in each Material Foreign Subsidiary to be subject at
all times to a first priority, perfected Lien in favor of the Agent pursuant to
the terms and conditions of the Collateral Documents or such other security
documents as the Agent shall reasonably request.
7.14 INTEREST RATE PROTECTION.
At all times from the date 90 days after the Initial Funding Date, the
Credit Parties shall cause the Borrower to maintain protection against
fluctuations in interest rates pursuant to one or more Hedging Agreements
reasonably satisfactory to the Agent and providing coverage in a notional amount
equal to at least $30,000,000 for a period of three years from the Initial
Funding Date.
7.15 YEAR 2000 COMPLIANCE.
The Credit Parties will promptly notify the Agent in the event any
Credit Party discovers or determines that the Year 2000 Problem has resulted in,
or is reasonably expected to result in, a Material Adverse Effect.
SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this
Credit Agreement is in effect or any amounts payable hereunder or under any
other Credit Document shall remain outstanding or any Letter of Credit is
outstanding, and until all of the Commitments hereunder shall have terminated:
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8.1 INDEBTEDNESS.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the
other Credit Documents;
(b) Indebtedness of the Borrower and its Subsidiaries set
forth in Schedule 8.1(b) (and renewals, refinancings and extensions
thereof on terms and conditions not in excess of that outstanding as of
the date of such renewal, refinancing, or extension);
(c) purchase money Indebtedness (including obligations in
respect of Capital Leases or Synthetic Leases) hereafter incurred by
the Borrower or any of its Subsidiaries to finance the purchase of
fixed assets provided that (i) the total of all such Indebtedness for
all such Persons taken together shall not exceed an aggregate principal
amount of $1,000,000 at any one time outstanding; (ii) such
Indebtedness when incurred shall not exceed the purchase price of the
asset(s) financed; and (iii) no such Indebtedness shall be refinanced
for a principal amount in excess of the principal balance outstanding
thereon at the time of such refinancing;
(d) obligations of the Borrower in respect of Hedging
Agreements entered into in order to manage existing or anticipated
interest rate or exchange rate risks and not for speculative purposes;
(e) intercompany Indebtedness arising out of loans, advances
and Guaranty Obligations permitted under Section 8.6;
(f) preferred Capital Stock issued by the Parent;
(g) Indebtedness of the Borrower or any Domestic Subsidiary in
respect of performance, surety or appeal bonds in the ordinary course
of business;
(h) additional unsecured Indebtedness of the Borrower or any
Domestic Subsidiary in an aggregate principal amount not to exceed
$1,000,000 at any time outstanding for all such Persons taken together;
(i) Indebtedness of any Foreign Subsidiary to any other
Foreign Subsidiary;
(j) additional Indebtedness of Foreign Subsidiaries in an
aggregate principal amount not to exceed the Dollar Equivalent of
$2,000,000 at any time outstanding for all such Persons taken together;
(k) subject to the terms of Section 8.6(j)(vii), Indebtedness
of the Borrower or any Domestic Subsidiary assumed in connection with a
Permitted Acquisition (including
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renewals, refinancings or extensions of such Indebtedness in a
principal amount not in excess of that outstanding as of the date of
such renewal, refinancing or extension), provided that (i) such
Indebtedness is not incurred in anticipation of or in connection with
such Permitted Acquisition and (ii) the aggregate principal amount of
all such Indebtedness shall not exceed $10,000,000 at any one time
outstanding;
(l) Indebtedness of the Borrower or any of its Subsidiaries
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations (or from guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of a
Credit Party or any of its Subsidiaries pursuant to such agreements),
in any case incurred in connection with any Asset Disposition permitted
under Section 8.5, provided that such Indebtedness in respect of any
such Asset Disposition shall not exceed the gross proceeds actually
received by the Borrower and its Subsidiaries in connection therewith;
and
(m) additional unsecured subordinated Indebtedness of the
Parent or the Borrower to any member of the Initial Investor Group,
provided that (i) such Indebtedness shall be subordinated in right of
payment to the Credit Party Obligation on substantially the terms and
conditions set forth in Schedule 8.1(m) and (ii) the aggregate
principal amount of all such Indebtedness shall not exceed $30,000,000
at any one time outstanding.
8.2 LIENS.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Lien with respect to any of its
Property, whether now owned or after acquired, except for:
(a) Liens in favor of the Agent to secure the Credit Party
Obligations;
(b) Liens (other than Liens created or imposed under ERISA)
for taxes, assessments or governmental charges or levies not yet due or
Liens for taxes being contested in good faith by appropriate
proceedings for which adequate reserves determined in accordance with
GAAP have been established (and as to which the Property subject to any
such Lien is not yet subject to foreclosure, sale or loss on account
thereof);
(c) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and suppliers and other Liens
imposed by law or pursuant to customary reservations or retentions of
title arising in the ordinary course of business, provided that such
Liens secure only amounts not yet due and payable or, if due and
payable, are unfiled and no other action has been taken to enforce the
same or are being contested in good faith by appropriate proceedings
for which adequate reserves determined in accordance with GAAP have
been established (and as to which the Property subject to any such Lien
is not yet subject to foreclosure, sale or loss on account thereof);
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(d) Liens (other than Liens created or imposed under ERISA)
incurred or deposits made by any Consolidated Party in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure
the performance of tenders, statutory obligations, bids, leases,
government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money);
(e) Liens in connection with attachments or judgments
(including judgment or appeal bonds) provided that the judgments
secured shall not constitute an Event of Default;
(f) easements, rights-of-way, restrictions (including zoning
restrictions), minor defects or irregularities in title and other
similar charges or encumbrances not, in any material respect, impairing
the use of the encumbered Property for its intended purposes;
(g) Liens on Property of any Person securing purchase money
Indebtedness (including Capital Leases and Synthetic Leases) of such
Person permitted under Section 8.1(c), provided that any such Lien
attaches to such Property concurrently with or within 90 days after the
acquisition thereof;
(h) Liens on Property of a Foreign Subsidiary securing
Indebtedness of such Person permitted under Section 8.1(j);
(i) Liens on Property securing Indebtedness permitted under
Section 8.1(k), provided that such Liens are not incurred in
anticipation of or in connection with a Permitted Acquisition and do
not extend to cover any Property not acquired in such Permitted
Acquisition;
(j) leases or subleases granted to others not interfering in
any material respect with the business of any Consolidated Party;
(k) any interest of title of a lessor under, and Liens arising
from UCC financing statements (or equivalent filings, registrations or
agreements in foreign jurisdictions) relating to, leases permitted by
this Credit Agreement;
(l) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection
with the importation of goods;
(m) Liens deemed to exist in connection with Investments in
repurchase agreements permitted under Section 8.6;
(n) normal and customary rights of setoff upon deposits of
cash in favor of banks or other depository institutions;
(o) Liens of a collection bank arising under Section 4-210 of
the Uniform Commercial Code on items in the course of collection;
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(p) Liens of sellers of goods to the Borrower and any of its
Subsidiaries arising under Article 2 of the Uniform Commercial Code or
similar provisions of applicable law in the ordinary course of
business, covering only the goods sold and securing only the unpaid
purchase price for such goods and related expenses; and
(q) Liens existing as of the Closing Date and set forth on
Schedule 8.2; provided that no such Lien shall at any time be extended
to or cover any Property other than the Property subject thereto on the
Closing Date.
8.3 NATURE OF BUSINESS.
The Credit Parties will not permit any Consolidated Party to
substantively alter the character of the business conducted by such Person as of
the Closing Date with reasonable expansions and extensions of such Business.
8.4 CONSOLIDATION, MERGER, DISSOLUTION, ETC.
Except in connection with a Permitted Asset Disposition, the Credit
Parties will not permit any Consolidated Party to enter into any transaction of
merger or consolidation or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution); provided that, notwithstanding the foregoing
provisions of this Section 8.4 but subject to the terms of Sections 7.12 and
7.13, (a) the Borrower may merge or consolidate with any of its Subsidiaries
provided that the Borrower shall be the continuing or surviving corporation, (b)
any Credit Party other than the Parent or the Borrower may merge or consolidate
with any other Credit Party other than the Parent or the Borrower, (c) any
Consolidated Party which is not a Credit Party may be merged or consolidated
with or into any Credit Party other than the Parent provided that such Credit
Party shall be the continuing or surviving corporation, (d) any Consolidated
Party which is not a Credit Party may be merged or consolidated with or into any
other Consolidated Party which is not a Credit Party, (e) any Subsidiary of the
Borrower may merge with any Person that is not a Credit Party in connection with
an Asset Disposition permitted under Section 8.5, (f) the Borrower or any
Subsidiary of the Borrower may merge with any Person other than a Consolidated
Party in connection with a Permitted Acquisition provided that, if such
transaction involves the Borrower, the Borrower shall be the continuing or
surviving corporation and (g) any Wholly Owned Subsidiary of the Borrower may
dissolve, liquidate or wind up its affairs at any time provided that such
dissolution, liquidation or winding up, as applicable, could not have a Material
Adverse Effect.
8.5 ASSET DISPOSITIONS.
The Credit Parties will not permit any Consolidated Party to make any
Asset Disposition other than an Excluded Asset Disposition unless (a) the
consideration paid in connection therewith shall be cash or Cash Equivalents,
(b) if such transaction is a Sale and Leaseback Transaction, such transaction is
not prohibited by the terms of Section 8.13, (c) such transaction does not
involve the sale or other disposition of a minority equity interest in any
Consolidated Party, (d) such transaction does not involve a sale or other
disposition of receivables other than receivables owned by or attributable to
other Property concurrently being disposed of in a transaction otherwise
permitted under this Section 8.5, (e) the aggregate net book value of all of the
assets sold or otherwise
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disposed of by the Consolidated Parties in all such transactions after the
Closing Date shall not exceed $1,000,000, (f) no later than five (5) Business
Days prior to such Asset Disposition, the Borrower shall have delivered to the
Agent (i) a Pro Forma Compliance Certificate demonstrating that, upon giving
effect on a Pro Forma Basis to such transaction, the Credit Parties would be in
compliance with the financial covenants set forth in Section 7.11(a) and (b) and
(ii) a certificate of an Executive Officer of the Borrower specifying the
anticipated date of such Asset Disposition, briefly describing the assets to be
sold or otherwise disposed of and setting forth the net book value of such
assets, the aggregate consideration and the Net Cash Proceeds to be received for
such assets in connection with such Asset Disposition and (g) the Credit Parties
shall, within the period of 180 days following the consummation of such Asset
Disposition (with respect to any such Asset Disposition, the "Application
Period"), apply (or cause to be applied) an amount equal to the Net Cash
Proceeds of such Asset Disposition to (i) make Eligible Reinvestments or (ii)
prepay the Loans (and cash collateralize LOC Obligations) in accordance with the
terms of Section 3.3(b)(iii)(A). Pending final application of the Net Cash
Proceeds of any Asset Disposition, the Consolidated Parties may apply such Net
Cash Proceeds to temporarily reduce the Revolving Loans or to make Investments
in Cash Equivalents.
Upon a sale of assets or the sale of Capital Stock of a Consolidated
Party permitted by this Section 8.5, the Agent shall (to the extent applicable)
deliver to the Credit Parties, upon the Credit Parties' request and at the
Credit Parties' expense, such documentation as is reasonably necessary to
evidence the release of the Agent's security interest, if any, in such assets or
Capital Stock, including, without limitation, amendments or terminations of UCC
financing statements, if any, the return of stock certificates, if any, and the
release of such Consolidated Party from all of its obligations, if any, under
the Credit Documents.
8.6 INVESTMENTS.
The Credit Parties will not permit any Consolidated Party to make any
Investments, except for:
(a) Investments consisting of cash and Cash Equivalents;
(b) Investments consisting of accounts receivable created,
acquired or made by any Consolidated Party in the ordinary course of
business and payable or dischargeable in accordance with customary
trade terms or otherwise in the prudent judgment of such Consolidated
Party;
(c) Investments consisting of Capital Stock, obligations,
securities or other property received by any Consolidated Party in
settlement of accounts receivable (created in the ordinary course of
business) from bankrupt obligors;
(d) Investments existing as of the Closing Date and set forth
in Schedule 8.6 (including additional Investments required to be made
in connection therewith as such additional Investments are described in
Schedule 8.6);
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(e) Investments consisting of (i) loans or advances to
directors, officers, employees and agents in the ordinary course of
business to provide for the payment of reasonable expenses incurred by
such persons in the performance of their responsibilities or in
connection with any relocation and (ii) loans or advances to directors,
officers, employees, agents, customers or suppliers that do not exceed
$100,000 in the aggregate at any one time outstanding;
(f) Investments in any Credit Party other than the Parent;
(g) Investments in Foreign Subsidiaries in an aggregate
principal amount (including Investments of such type set forth in
Schedule 8.6) not to exceed the Dollar Equivalent of $1,000,000 at any
time outstanding;
(h) to the extent constituting Investments, transactions
permitted under Section 8.7;
(i) any Eligible Reinvestment of the proceeds of any
Involuntary Disposition as contemplated by Section 7.6(b) or of any
Asset Disposition as contemplated by Section 8.5(g); or
(j) Investments consisting of an Acquisition by the Borrower
or any Subsidiary of the Borrower, provided that (i) the Property
acquired (or the Property of the Person acquired) in such Acquisition
is used or useful in the same or a similar line of business as the
Borrower and its Subsidiaries were engaged in on the Closing Date (or
any reasonable extensions or expansions thereof), (ii) the Agent shall
have received all items in respect of the Capital Stock or Property
acquired in such Acquisition required to be delivered by the terms of
Section 7.12 and/or Section 7.13, (iii) in the case of an Acquisition
of the Capital Stock of another Person, the board of directors (or
other comparable governing body) of such other Person shall have duly
approved such Acquisition, (iv) the Borrower shall have delivered to
the Agent (A) a Pro Forma Compliance Certificate demonstrating that,
upon giving effect to such Acquisition on a Pro Forma Basis, the Credit
Parties would be in compliance with the financial covenants set forth
in Section 7.11(a) and (b) and (B) a certificate of an Executive
Officer of the Borrower demonstrating that upon giving effect to such
Acquisition, at least 90% of Consolidated EBITDA for four
fiscal-quarter period ending as of the most recent fiscal quarter end
preceding the date of such transaction with respect to which the Agent
has received the Required Financial Information shall have been audited
in accordance with GAAP by independent certified public accountants of
recognized national standing reasonably acceptable to the Agent (whose
opinion shall not be limited as to the scope or qualified as to going
concern status), (v) the representations and warranties made by the
Credit Parties in any Credit Document shall be true and correct in all
material respects at and as if made as of the date of such Acquisition
(after giving effect thereto) except to the extent such representations
and warranties expressly relate to an earlier date, (vi) after giving
effect to such Acquisition, there shall be at least $7,000,000 of
availability existing under the Revolving Committed Amount and (vii)
the aggregate consideration (including cash and non-cash consideration
and any assumption of Indebtedness, but excluding consideration
consisting of (A) any Capital Stock of the
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Parent issued to the seller of the Capital Stock or Property acquired
in such Acquisition, (B) the proceeds of any Equity Issuance by the
Parent consummated subsequent to the Initial Funding Date to the extent
not required to be applied to prepay of the Loans pursuant to the terms
of Section 3.3(b)(v), (C) the proceeds of any Asset Disposition,
Excluded Asset Disposition or Involuntary Disposition consummated
subsequent to the Initial Funding Date, (D) the proceeds of any
Investor Subordinated Debt and (E) the proceeds of any Equity Issuance
by any Consolidated Party to any Credit Party or any member of the
Initial Investor Group) paid by the Consolidated Parties shall not
exceed (1) $5,000,000, for any single Acquisition, or (2) $10,000,000
for all Acquisitions occurring after the Closing Date.
8.7 RESTRICTED PAYMENTS.
The Credit Parties will not permit any Consolidated Party to, directly
or indirectly, declare, order, make or set apart any sum for or pay any
Restricted Payment, except (a) to make dividends or other distributions payable
to any Credit Party other than the Parent (directly or indirectly through
Subsidiaries), (b) as permitted by Section 8.8 or Section 8.9, (c) loans to the
Parent to permit the Parent to pay expenses incurred by it so long as the Parent
is in compliance with the provisions of Section 8.12, (d) loans to the Parent or
dividends to the Parent to permit the Parent to, and the Parent shall be
permitted to, (1) pay cash severance payments to employees of the Parent
following the death, retirement or termination of such employees and (2)
repurchase outstanding shares of Capital Stock of the Parent owned by employees
of the Parent following the death, retirement or termination of such employee or
purchase equity securities of the Parent from existing stockholders pursuant to
the Parent's exercise of a right of first refusal, provided that such Restricted
Payments do not exceed $500,000 in the aggregate during the term of this Credit
Agreement and (e) purchases of Capital Stock of Influence from existing
stockholders of Influence pursuant to the Exchange Agreement dated as of
December 15, 1999 between the Borrower and Urotek Ltd. provided that the
consideration for such Capital Stock is solely (except for cash issued for
fractional shares) is Capital Stock in the Parent.
8.8 OTHER INDEBTEDNESS.
The Credit Parties will not permit any Consolidated Party to (i) if any
Default or Event of Default has occurred and is continuing or would be directly
or indirectly caused as a result thereof, (a) after the issuance thereof, amend
or modify any of the terms of any Indebtedness of such Consolidated Party if
such amendment or modification would add or change any terms in a manner adverse
to such Consolidated Party, or shorten the final maturity or average life to
maturity or require any payment to be made sooner than originally scheduled or
increase the interest rate applicable thereto, or (b) make (or give any notice
with respect thereto) any voluntary or optional payment or prepayment or
redemption or acquisition for value of (including without limitation, by way of
depositing money or securities with the trustee with respect thereto before due
for the purpose of paying when due), refund, refinance or exchange of any other
Indebtedness of such Consolidated Party, (ii) after the issuance thereof, amend
or modify any of the terms of the documents evidencing or governing any Investor
Subordinated Debt if such amendment or modification would add or change any
terms in a manner adverse to the Consolidated Parties, or shorten the final
maturity or average life to maturity thereof or require any payment to be made
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sooner than originally scheduled or increase the interest rate applicable
thereto or change any subordination provision thereof, (iii) make interest
payments in respect of the Investor Subordinated Debt in violation of the
subordination provisions of the documents evidencing or governing such Investor
Subordinated Debt or (iv) make (or give any notice with respect thereto) any
voluntary or optional payment or prepayment, redemption, acquisition for value
or defeasance of (including without limitation, by way of depositing money or
securities with the trustee with respect thereto before due for the purpose of
paying when due), refund, refinance or exchange of any Investor Subordinated
Debt.
8.9 TRANSACTIONS WITH AFFILIATES.
The Credit Parties will not permit any Consolidated Party to enter into
or permit to exist any transaction or series of transactions with any officer,
director, shareholder, Subsidiary or Affiliate of such Person other than (a)
advances of working capital to any Credit Party other than the Parent, (b)
transfers of cash and assets to any Credit Party other than the Parent, (c)
intercompany transactions expressly permitted by Section 8.1, Section 8.4,
Section 8.5, Section 8.6, or Section 8.7, (d) normal compensation and
reimbursement of expenses of officers and directors and (e) except as otherwise
specifically limited in this Credit Agreement, other transactions which are
entered into in the ordinary course of such Person's business on terms and
conditions substantially as favorable to such Person as would be obtainable by
it in a comparable arms-length transaction with a Person other than an officer,
director, shareholder, Subsidiary or Affiliate.
8.10 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS.
The Credit Parties will not permit any Consolidated Party to (i) change
its fiscal year without prior written notice to the Agent (provided that no such
change may occur if such change would materially affect the Lenders ability to
read and interpret the financial statements delivered pursuant to Section 7.1 or
make any calculation in respect of the financial covenants set forth in Section
7.11) or (ii) change its articles or certificate of incorporation or its bylaws
in any manner that would reasonably be likely to adversely affect the rights of
the Lenders.
8.11 LIMITATION ON RESTRICTED ACTIONS.
The Credit Parties will not permit any Consolidated Party to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any such Person to (a) pay
dividends or make any other distributions to any Credit Party on its Capital
Stock or with respect to any other interest or participation in, or measured by,
its profits, (b) pay any Indebtedness or other obligation owed to any Credit
Party, (c) make loans or advances to any Credit Party, (d) sell, lease or
transfer any of its properties or assets to any Credit Party, or (e) act as a
Credit Party and pledge its assets pursuant to the Credit Documents or any
renewals, refinancings, exchanges, refundings or extension thereof, except (in
respect of any of the matters referred to in clauses (a)-(d) above) for such
encumbrances or restrictions existing under or by reason of (i) this Credit
Agreement and the other Credit Documents, (ii) applicable law, (iii) any
document or instrument governing Indebtedness incurred pursuant to Section
8.1(c), provided that any such restriction contained therein relates only to the
asset or assets constructed or acquired in connection therewith, (iv) any
Permitted Lien or any document or instrument
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governing any Permitted Lien, provided that any such restriction contained
therein relates only to the asset or assets subject to such Permitted Lien or
(v) customary restrictions and conditions contained in any agreement relating to
the sale of any Property permitted under Section 8.5 pending the consummation of
such sale.
8.12 OWNERSHIP OF SUBSIDIARIES; LIMITATIONS ON PARENT.
Notwithstanding any other provisions of this Credit Agreement to the
contrary:
(a) The Credit Parties will not permit any Consolidated Party
to (i) permit any Person (other than the Borrower or any Wholly Owned
Subsidiary of the Borrower) to own more than 10% of the Capital Stock
of any Subsidiary of the Borrower, except (A) to qualify directors
where required by applicable law or to satisfy other requirements of
applicable law with respect to the ownership of Capital Stock of
Foreign Subsidiaries or (B) as a result of or in connection with a
dissolution, merger, consolidation or disposition of a Subsidiary not
prohibited by Section 8.4 or Section 8.5, (ii) permit any Subsidiary of
the Borrower to issue or have outstanding any shares of preferred
Capital Stock or (iii) permit, create, incur, assume or suffer to exist
any Lien on any Capital Stock of any Subsidiary of the Borrower, except
for Permitted Liens.
(b) The Parent shall not (i) hold any material assets other
than the Capital Stock of the Borrower, (ii) have any liabilities other
than (A) the liabilities under the Credit Documents, (B) tax
liabilities in the ordinary course of business, (C) loans and advances
permitted under Section 8.9 and (D) corporate, administrative and
operating expenses in the ordinary course of business or (iii) engage
in any business other than (A) owning the Capital Stock of the Borrower
and activities incidental or related thereto and (B) acting as a
Guarantor hereunder and pledging its assets to the Agent, for the
benefit of the Lenders, pursuant to the Collateral Documents to which
it is a party.
8.13 SALE LEASEBACKS.
The Credit Parties will not permit any Consolidated Party to enter into
any Sale and Leaseback Transaction.
8.14 CAPITAL EXPENDITURES.
The Credit Parties will not permit Consolidated Capital Expenditures
for any fiscal year to exceed $4,000,000, plus the unused amount available for
Consolidated Capital Expenditures under this Section 8.14 for the immediately
preceding fiscal year (excluding any carry-forward available from any prior
fiscal year).
8.15 NO FURTHER NEGATIVE PLEDGES.
The Credit Parties will not permit any Consolidated Party to enter
into, assume or become subject to any agreement prohibiting or otherwise
restricting the existence of any Lien upon any of its Property in favor of the
Agent (for the benefit of the Lenders) for the purpose of securing the
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Credit Party Obligations, whether now owned or hereafter acquired, or requiring
the grant of any security for any obligation if such Property is given as
security for the Credit Party Obligations, except (a) in connection with any
Permitted Lien or any document or instrument governing any Permitted Lien,
provided that any such restriction contained therein relates only to the asset
or assets subject to such Permitted Lien, (b) in connection with any Permitted
Lien or any document or instrument governing any Permitted Lien, provided that
any such restriction contained therein relates only to the asset or assets
subject to such Permitted Lien and (c) pursuant to customary restrictions and
conditions contained in any agreement relating to the sale of any Property
permitted under Section 8.5, pending the consummation of such sale.
8.16 OPERATING LEASE OBLIGATIONS.
The Credit Parties will not permit any Consolidated Party to enter
into, assume or permit to exist any obligations for the payment of rental under
Operating Leases in respect of all Property other than automobiles provided to
sales representatives in the ordinary course of business, which in the aggregate
for all of the Consolidated Parties would exceed $500,000 in any fiscal year.
8.17 LIMITATION ON FOREIGN OPERATIONS.
The Credit Parties will not permit (i) the sum of (a) the portion of
Consolidated Total Assets owned by Foreign Subsidiaries plus (b) the portion of
Consolidated Total Assets owned by the Parent, the Borrower and the Domestic
Subsidiaries and located outside the United States to exceed 20% of Consolidated
Total Assets or (ii) the portion of Consolidated EBITDA attributable to the
Foreign Subsidiaries for any four quarter period to exceed 20% of Consolidated
EBITDA for such period.
SECTION 9
EVENTS OF DEFAULT
9.1 EVENTS OF DEFAULT.
An Event of Default shall exist upon the occurrence and during the
continuance of any of the following specified events (each an "Event of
Default"):
(a) Payment. Any Credit Party shall
(i) default in the payment when due of any principal
of any of the Loans or of any reimbursement obligations
arising from drawings under Letters of Credit, or
(ii) default, and such default shall continue for
three (3) or more Business Days, in the payment when due of
any interest on the Loans or on any reimbursement obligations
arising from drawings under Letters of Credit, or of any
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Fees or other amounts owing hereunder, under any of the other
Credit Documents or in connection herewith or therewith; or
(b) Representations. Any representation, warranty or statement
made or deemed to be made by any Credit Party herein, in any of the
other Credit Documents, or in any statement or certificate delivered or
required to be delivered pursuant hereto or thereto shall prove untrue
in any material respect on the date as of which it was deemed to have
been made; or
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance of
any term, covenant or agreement contained in Sections 7.2,
7.9, 7.11, 7.12 or 7.13 or Section 8;
(ii) default in the due performance or observance of
any term, covenant or agreement contained in Sections 7.1(a),
(b), (c) or (d) and such default shall continue unremedied for
a period of at least 5 days after the earlier of an Executive
Officer of a Credit Party becoming aware of such default or
notice thereof by the Agent; or
(iii) default in the due performance or observance by
it of any term, covenant or agreement (other than those
referred to in subsections (a), (b), (c)(i) or (c)(ii) of this
Section 9.1) contained in this Credit Agreement or any other
Credit Document and such default shall continue unremedied for
a period of at least 30 days after the earlier of an Executive
Officer of a Credit Party becoming aware of such default or
notice thereof by the Agent; or
(d) Other Credit Documents. Except as a result of or in
connection with a dissolution, merger or disposition of a Subsidiary
not prohibited by Section 8.4 or Section 8.5, any Credit Document shall
fail to be in full force and effect or to give the Agent and/or the
Lenders the Liens, rights, powers and privileges purported to be
created thereby, or any Credit Party shall so state in writing; or
(e) Guaranties. Except as the result of or in connection with
a dissolution, merger or disposition of a Subsidiary not prohibited by
Section 8.4 or Section 8.5, the guaranty given by any Guarantor
hereunder (including any Person after the Closing Date in accordance
with Section 7.12) or any provision thereof shall cease to be in full
force and effect, or any Guarantor (including any Person after the
Closing Date in accordance with Section 7.12) hereunder or any Person
acting by or on behalf of such Guarantor shall deny or disaffirm such
Guarantor's obligations under such guaranty, or any Guarantor shall
default in the due performance or observance of any term, covenant or
agreement on its part to be performed or observed pursuant to any
guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with
respect to the Parent, the Borrower or any Domestic Subsidiary; or
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(g) Defaults under Other Agreements.
(i) Any Consolidated Party shall default in the
performance or observance (beyond the applicable grace period
with respect thereto, if any) or any material obligation or
condition of any contract or lease material to the
Consolidated Parties taken as a whole if such default could
reasonably be expected to have a Material Adverse Effect; or
(ii) With respect to any Indebtedness (other than
Indebtedness outstanding under this Credit Agreement) in
excess of $1,500,000 in the aggregate for the Consolidated
Parties (other than Foreign Subsidiaries which are not
Material Foreign Subsidiaries) taken as a whole, (A) either
(1) default in any payment shall occur and continue (beyond
the applicable grace period with respect thereto, if any) with
respect to any such Indebtedness, or (2) a default in the
observance or performance relating to such Indebtedness or
contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event or condition shall
occur or exist, the effect of which default or other event or
condition is to cause, or permit, the holder or holders of
such Indebtedness (or trustee or agent on behalf of such
holders) to cause (determined without regard to whether any
notice or lapse of time is required), any such Indebtedness to
become due prior to its stated maturity; or (B) any such
Indebtedness shall be declared due and payable, or required to
be prepaid other than by a regularly scheduled required
prepayment, prior to the stated maturity thereof; or
(h) Judgments. One or more judgments or decrees shall be
entered against one or more of the Consolidated Parties (other than
Foreign Subsidiaries which are not Material Foreign Subsidiaries)
involving a liability of $1,500,000 or more in the aggregate (to the
extent not paid or fully covered by insurance provided by a carrier who
has acknowledged coverage and has the ability to perform) and any such
judgments or decrees shall not have been vacated, discharged or stayed
or bonded pending appeal within 30 days from the entry thereof; or
(i) ERISA. Any of the following events or conditions, if such
event or condition could involve possible taxes, penalties, and other
liabilities in an aggregate amount which could reasonably be expected
to have a Material Adverse Effect: (i) any "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA and
Section 412 of the Code, whether or not waived, shall exist with
respect to any Plan, or any lien shall arise on the assets of any
Consolidated Party or any ERISA Affiliate in favor of the PBGC or a
Plan; (ii) an ERISA Event shall occur with respect to a Single Employer
Plan, which is, in the reasonable opinion of the Agent, likely to
result in the termination of such Plan for purposes of Title IV of
ERISA; (iii) an ERISA Event shall occur with respect to a Multiemployer
Plan or Multiple Employer Plan, which is, in the reasonable opinion of
the Agent, likely to result in (A) the termination of such Plan for
purposes of Title IV of ERISA, or (B) any Consolidated Party or any
ERISA Affiliate incurring any liability in connection with a withdrawal
from, reorganization of (within the meaning of Section 4241 of ERISA),
or insolvency (within the meaning of Section 4245 of ERISA) of such
Plan; or
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(iv) any prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility shall occur which may subject any Consolidated Party or
any ERISA Affiliate to any liability under Sections 406, 409, 502(i),
or 502(l) of ERISA or Section 4975 of the Code, or under any agreement
or other instrument pursuant to which any Consolidated Party or any
ERISA Affiliate has agreed or is required to indemnify any person
against any such liability; or
(j) Event of Default under Warburg Guaranty. The occurrence of
an "Event of Default" under and as defined in the Warburg Guaranty; or
(k) Ownership. The occurrence of a Change of Control.
9.2 ACCELERATION; REMEDIES.
Upon the occurrence and during the continuance of an Event of Default,
the Agent may or, upon the request and direction of the Required Lenders, shall,
by written notice to the Credit Parties take any of the following actions:
(a) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately terminated.
(b) Acceleration. Declare the unpaid principal of and any
accrued interest in respect of all Loans, any reimbursement obligations
arising from drawings under Letters of Credit and any and all other
indebtedness or obligations of any and every kind owing by the Credit
Parties to the Agent and/or any of the Lenders hereunder to be due
whereupon the same shall be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Credit Parties.
(c) Cash Collateral. Direct the Credit Parties to pay (and the
Credit Parties agree that upon receipt of such notice they will
immediately pay) to the Agent additional cash, to be held by the Agent,
for the benefit of the Lenders, in a cash collateral account as
additional security for the LOC Obligations in respect of subsequent
drawings under all then outstanding Letters of Credit in an amount
equal to the maximum aggregate amount which may be drawn under all
Letters of Credits then outstanding.
(d) Enforcement of Rights. Enforce any and all rights and
interests created and existing under the Credit Documents including,
without limitation, all rights and remedies existing under the
Collateral Documents, all rights and remedies against a Guarantor and
all rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in
Section 9.1(f) shall occur with respect to the Borrower, then, without the
giving of any notice or other action by the Agent or the Lenders, (i) the
Commitments automatically shall terminate, (ii) all Loans, all reimbursement
obligations arising from drawings under Letters of Credit, all accrued interest
in respect thereof, all accrued and unpaid Fees and other indebtedness or
obligations owing to the Agent and/or any of the Lenders hereunder automatically
shall immediately become due and payable and (iii) the Credit
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Parties automatically shall be obligated to pay to the Agent additional cash, to
be held by the Agent, for the benefit of the Lenders, in a cash collateral
account as additional security for the LOC Obligations in respect of subsequent
drawings under all then outstanding Letters of Credit in an amount equal to the
maximum aggregate amount which may be drawn under all Letters of Credits then
outstanding.
SECTION 10
AGENCY PROVISIONS
10.1 APPOINTMENT, POWERS AND IMMUNITIES.
Each Lender hereby irrevocably appoints and authorizes the Agent to act
as its agent under this Credit Agreement and the other Credit Documents with
such powers and discretion as are specifically delegated to the Agent by the
terms of this Credit Agreement and the other Credit Documents, together with
such other powers as are reasonably incidental thereto. The Agent (which term as
used in this sentence and in Section 10.5 and the first sentence of Section 10.6
hereof shall include its Affiliates and its own and its Affiliates' officers,
directors, employees, and agents): (a) shall not have any duties or
responsibilities except those expressly set forth in this Credit Agreement and
shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible
to the Lenders for any recital, statement, representation, or warranty (whether
written or oral) made in or in connection with any Credit Document or any
certificate or other document referred to or provided for in, or received by any
of them under, any Credit Document, or for the value, validity, effectiveness,
genuineness, enforceability, or sufficiency of any Credit Document, or any other
document referred to or provided for therein or for any failure by any Credit
Party or any other Person to perform any of its obligations thereunder; (c)
shall not be responsible for or have any duty to ascertain, inquire into, or
verify the performance or observance of any covenants or agreements by any
Credit Party or the satisfaction of any condition or to inspect the property
(including the books and records) of any Credit Party or any of its Subsidiaries
or Affiliates; and (d) shall not be responsible for any action taken or omitted
to be taken by it under or in connection with any Credit Document, except for
its own gross negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
10.2 RELIANCE BY AGENT.
The Agent shall be entitled to rely upon any certification, notice,
instrument, writing, or other communication (including, without limitation, any
thereof by telephone or telecopy) believed by it to be genuine and correct and
to have been signed, sent or made by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel (including counsel for
any Credit Party), independent accountants, and other experts selected by the
Agent. The Agent may deem and treat the payee of any Note as the holder thereof
for all purposes hereof unless and until the Agent receives and accepts an
Assignment and Acceptance executed in accordance with Section 11.3(b) hereof. As
to any matters not expressly provided for by this
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Credit Agreement, the Agent shall not be required to exercise any discretion or
take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Required Lenders, and such instructions shall be binding on
all of the Lenders; provided, however, that the Agent shall not be required to
take any action that exposes the Agent to personal liability or that is contrary
to any Credit Document or applicable law or unless it shall first be indemnified
to its satisfaction by the Lenders against any and all liability and expense
which may be incurred by it by reason of taking any such action.
10.3 DEFAULTS.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of a Default or Event of Default unless the Agent has received
written notice from a Lender or a Credit Party specifying such Default or Event
of Default and stating that such notice is a "Notice of Default". In the event
that the Agent receives such a notice of the occurrence of a Default or Event of
Default, the Agent shall give prompt notice thereof to the Lenders. The Agent
shall (subject to Section 10.2 hereof) take such action with respect to such
Default or Event of Default as shall reasonably be directed by the Required
Lenders (or such other Lenders as required by Section 11.6), provided that,
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interest of the Lenders.
10.4 RIGHTS AS A LENDER.
With respect to its Commitment and the Loans made by it, Bank of
America (and any successor acting as Agent) in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Agent, and the
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. Bank of America (and any successor
acting as Agent) and its Affiliates may (without having to account therefor to
any Lender) accept deposits from, lend money to, make investments in, provide
services to, and generally engage in any kind of lending, trust, or other
business with any Credit Party or any of its Subsidiaries or Affiliates as if it
were not acting as Agent, and Bank of America (and any successor acting as
Agent) and its Affiliates may accept fees and other consideration from any
Credit Party or any of its Subsidiaries or Affiliates for services in connection
with this Credit Agreement or otherwise without having to account for the same
to the Lenders.
10.5 INDEMNIFICATION.
The Lenders agree to indemnify the Agent (to the extent not reimbursed
under Section 11.5 hereof, but without limiting the obligations of the Credit
Parties under such Section) ratably (in accordance with their respective (i)
Revolving Commitments (or, if the Revolving Commitments have been terminated,
the outstanding Revolving Loans and Participation Interests in Letters of Credit
(including the Participation Interests of the Issuing Lender in Letters of
Credit)), (ii) outstanding Tranche A Term Loans (and Participation Interests
therein) and (iii) outstanding
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Tranche B Term Loans (and Participation Interests therein)) for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including attorneys' fees), or disbursements of any kind and
nature whatsoever that may be imposed on, incurred by or asserted against the
Agent (including by any Lender) in any way relating to or arising out of any
Credit Document or the transactions contemplated thereby or any action taken or
omitted by the Agent under any Credit Document; provided that no Lender shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Person to be indemnified. Without
limitation of the foregoing, each Lender agrees to reimburse the Agent promptly
upon demand for its ratable share of any costs or expenses payable by the Credit
Parties under Section 11.5, to the extent that the Agent is not promptly
reimbursed for such costs and expenses by the Credit Parties. The agreements in
this Section 10.5 shall survive the repayment of the Loans, LOC Obligations and
other obligations under the Credit Documents and the termination of the
Commitments hereunder.
10.6 NON-RELIANCE ON AGENT AND OTHER LENDERS.
Each Lender agrees that it has, independently and without reliance on
the Agent or any other Lender, and based on such documents and information as it
has deemed appropriate, made its own credit analysis of the Credit Parties and
their Subsidiaries and decision to enter into this Credit Agreement and that it
will, independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under the Credit Documents. Except for notices, reports, and other
documents and information expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition, or business of any Credit Party or any of its Subsidiaries
or Affiliates that may come into the possession of the Agent or any of its
Affiliates.
10.7 SUCCESSOR AGENT.
The Agent may resign at any time by giving notice thereof to the
Lenders and the Credit Parties. Upon any such resignation, the Required Lenders
shall have the right to appoint a successor Agent. If no successor Agent shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within thirty (30) days after the retiring Agent's giving of notice
of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent which shall be a commercial bank organized under the laws of the
United States having combined capital and surplus of at least $100,000,000. Upon
the acceptance of any appointment as Agent hereunder by a successor, such
successor shall thereupon succeed to and become vested with all the rights,
powers, discretion, privileges, and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Section 10 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as Agent.
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SECTION 11
MISCELLANEOUS
11.1 NOTICES.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the Business Day following the day on which the same
has been delivered prepaid (or pursuant to an invoice arrangement) to a
reputable national overnight air courier service, or (d) the third Business Day
following the day on which the same is sent by certified or registered mail,
postage prepaid, in each case to the respective parties at the address, in the
case of the Credit Parties and the Agent, set forth below, and, in the case of
the Lenders, set forth on Schedule 2.1(a), or at such other address as such
party may specify by written notice to the other parties hereto:
if to any Credit Party:
American Medical Systems, Inc.
10700 Bren Road
Minnetonka, Minnesota 55343-9679
Attn: Greg Melsen
Telephone: (612) 930-6167
Telecopy: (612) 930-6695
if to the Agent:
Bank of America, N. A.
Independence Center, 15th Floor
NC1-001-15-04
101 North Tryon Street
Charlotte, North Carolina 28255
Attn: Erik Truette, Agency Services
Telephone: (704) 388-1108
Telecopy: (704) 409-0028
with a copy to:
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Bank of America, N. A.
Bank of America Corporate Center, 13th Floor
NC1-007-13-06
100 North Tryon Street
Charlotte, North Carolina 28255
Attn: Kip Davis
Telephone: (704) 388-7731
Telecopy: (704) 386-9607
11.2 RIGHT OF SET-OFF; ADJUSTMENTS.
Upon the occurrence and during the continuance of any Event of Default,
each Lender (and each of its Affiliates) is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender (or any
of its Affiliates) to or for the credit or the account of any Credit Party
against any and all of the obligations of such Person now or hereafter existing
under this Credit Agreement, under the Notes, under any other Credit Document or
otherwise, irrespective of whether such Lender shall have made any demand
hereunder or thereunder and although such obligations may be unmatured. Each
Lender agrees promptly to notify any affected Credit Party after any such
set-off and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section 11.2 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) that such Lender may have.
11.3 BENEFIT OF AGREEMENT.
(a) This Credit Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that none of the Credit Parties
may assign or transfer any of its interests and obligations without
prior written consent of each of the Lenders; provided further that the
rights of each Lender to transfer, assign or grant participations in
its rights and/or obligations hereunder shall be limited as set forth
in this Section 11.3.
(b) Each Lender may assign to one or more Eligible Assignees
all or a portion of its rights and obligations under this Credit
Agreement (including, without limitation, all or a portion of its
Loans, its Notes, and its Commitment); provided, however, that
(i) each such assignment shall be to an Eligible
Assignee;
(ii) except in the case of an assignment to another
Lender, an Affiliate of an existing Lender or any fund that
invests in bank loans and is advised or managed by an
investment advisor to an existing Lender or an assignment of
all of a Lender's rights and obligations under this Credit
Agreement, any such partial assignment shall be in an amount
at least equal to $5,000,000 (or, if less, the
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remaining amount of the Commitment being assigned by such
Lender) or an integral multiple of $1,000,000 in excess
thereof; and
(iii) the parties to such assignment shall execute
and deliver to the Agent for its acceptance an Assignment and
Acceptance in the form of Exhibit 11.3(b) (an "Assignment and
Acceptance"), together with any Note subject to such
assignment and a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the
extent of such assignment, have the obligations, rights, and benefits
of a Lender hereunder and the assigning Lender shall, to the extent of
such assignment, relinquish its rights and be released from its
obligations under this Credit Agreement. Upon the consummation of any
assignment pursuant to this Section 11.3(b), the assignor, the Agent
and the Credit Parties shall make appropriate arrangements so that, if
required, new Notes are issued to the assignor and the assignee. If the
assignee is not a United States person under Section 7701(a)(30) of the
Code, it shall deliver to the Credit Parties and the Agent
certification as to exemption from deduction or withholding of Taxes in
accordance with Section 3.11.
(c) The Agent shall maintain (and the Borrower hereby
designates the Agent to serve as the Borrower's agent to maintain) at
its address referred to in Section 11.1 a copy of each Assignment and
Acceptance delivered to and accepted by it and a register for the
recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the Loans owing to, each Lender
from time to time (the "Register"). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and
the Credit Parties, the Agent and the Lenders may treat each Person
whose name is recorded in the Register as a Lender hereunder for all
purposes of this Credit Agreement. The Register shall be available for
inspection by the Credit Parties or any Lender at any reasonable time
and from time to time upon reasonable prior notice. Any assignment of
any Loan or other Credit Party Obligations shall be effective only upon
an entry with respect thereto being made in the Register.
(d) Upon its receipt of an Assignment and Acceptance executed
by the parties thereto, together with any Note subject to such
assignment and payment of the processing fee, the Agent shall, if such
Assignment and Acceptance has been completed and is in substantially
the form of Exhibit 11.3(b) hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the parties thereto.
(e) Each Lender may sell participations to one or more Persons
in all or a portion of its rights, obligations or rights and
obligations under this Credit Agreement (including all or a portion of
its Commitment or its Loans); provided, however, that (i) such Lender's
obligations under this Credit Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations, (iii) the participant shall be
entitled to the benefit of the yield protection provisions contained in
Sections 3.6 through 3.12, inclusive (but only to
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the extent that the selling Lender is so entitled), and the right of
set-off contained in Section 11.2, and (iv) the Credit Parties shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Credit Agreement,
and such Lender shall retain the sole right to enforce the obligations
of the Credit Parties relating to the Credit Party Obligations owing to
such Lender and to approve any amendment, modification, or waiver of
any provision of this Credit Agreement (other than amendments,
modifications, or waivers (A) decreasing the amount of principal of or
the rate at which interest is payable on such Loans or Notes, (B)
extending any scheduled principal payment date or date fixed for the
payment of interest on such Loans or Notes, (C) extending its
Commitment, (D) except as the result of or in connection with an Asset
Disposition not prohibited by Section 8.5, releasing all or
substantially all of the Collateral, (E) except as the result of or in
connection with a dissolution, merger or disposition of a Consolidated
Party not prohibited by Section 8.4 or Section 8.5, releasing the
Borrower or substantially all of the other Credit Parties from its or
their obligations under the Credit Documents or (D) releasing US
Warburg from its obligations under the Warburg Guaranty).
(f) Notwithstanding any other provision set forth in this
Credit Agreement, any Lender may at any time assign and pledge all or
any portion of its Loans and its Notes (i) to any Federal Reserve Bank
as collateral security pursuant to Regulation A and any Operating
Circular issued by such Federal Reserve Bank or (ii) in the case of any
Lender which has made Tranche B Term Loans hereunder and is an
investment fund, to the trustee under the indenture to which such fund
is a party in support of its obligations to such trustee for the
benefit of the applicable trust beneficiaries. No such assignment shall
release the assigning Lender from its obligations hereunder.
(g) Any Lender may furnish any information concerning the
Consolidated Parties in the possession of such Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 11.14
hereof.
11.4 NO WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of the Agent or any Lender in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Agent or any Lender and any of the
Credit Parties shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or under any other
Credit Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder or thereunder. The rights and
remedies provided herein are cumulative and not exclusive of any rights or
remedies which the Agent or any Lender would otherwise have. No notice to or
demand on any Credit Party in any case shall entitle the Credit Parties to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent or the Lenders to any other or
further action in any circumstances without notice or demand.
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11.5 EXPENSES; INDEMNIFICATION.
(a) The Credit Parties jointly and severally agree to pay on
demand all reasonable out-of-pocket costs and expenses of the Agent in
connection with the syndication, preparation, execution, delivery,
administration, modification, and amendment of this Credit Agreement,
the other Credit Documents, and the other documents to be delivered
hereunder, including, without limitation, the reasonable fees and
expenses of counsel for the Agent (including the cost of internal
counsel) with respect thereto and with respect to advising the Agent as
to its rights and responsibilities under the Credit Documents. The
Credit Parties further jointly and severally agree to pay on demand all
costs and expenses of the Agent and the Lenders, if any (including,
without limitation, reasonable attorneys' fees and expenses and the
cost of internal counsel), in connection with any work-out or
restructuring relating to the Credit Facilities or any enforcement
(whether through negotiations, legal proceedings, or otherwise) of any
of the Credit Documents.
(b) The Credit Parties jointly and severally agree to
indemnify and hold harmless the Agent and each Lender and each of their
Affiliates and their respective officers, directors, employees, agents,
and advisors (each, an "Indemnified Party") from and against any and
all claims, damages, losses, liabilities, costs, and expenses
(including, without limitation, reasonable attorneys' fees) that may be
incurred by or asserted or awarded against any Indemnified Party, in
each case arising out of or in connection with or by reason of
(including, without limitation, in connection with any investigation,
litigation, or proceeding or preparation of defense in connection
therewith) the Credit Documents, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Loans,
except to the extent such claim, damage, loss, liability, cost, or
expense is found in a final, non-appealable judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party's
gross negligence or willful misconduct. In the case of an
investigation, litigation or other proceeding to which the indemnity in
this Section 11.5 applies, such indemnity shall be effective whether or
not such investigation, litigation or proceeding is brought by any of
the Credit Parties, their respective directors, shareholders or
creditors or an Indemnified Party or any other Person or any
Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated. The Credit Parties
agree not to assert any claim against the Agent, any Lender, any of
their Affiliates, or any of their respective directors, officers,
employees, attorneys, agents, and advisers, on any theory of liability,
for special, indirect, consequential, or punitive damages arising out
of or otherwise relating to the Credit Documents, any of the
transactions contemplated herein or the actual or proposed use of the
proceeds of the Loans.
(c) Without prejudice to the survival of any other agreement
of the Credit Parties hereunder, the agreements and obligations of the
Credit Parties contained in this Section 11.5 shall survive the
repayment of the Loans, LOC Obligations and other obligations under the
Credit Documents and the termination of the Commitments hereunder.
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11.6 AMENDMENTS, WAIVERS AND CONSENTS.
Neither this Credit Agreement nor any other Credit Document nor any of
the terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, each of the Credit Parties
party thereto and the Required Lenders, provided, however, that:
(a) without the consent of each Lender affected thereby,
neither this Credit Agreement nor any other Credit Document may be
amended, changed, waived, discharged or terminated so as to
(i) extend the final maturity of any Loan or of any
reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit, or extend or waive any
Principal Amortization Payment of any Loan, or any portion
thereof,
(ii) reduce the rate or extend the time of payment of
interest on any Loan or of any reimbursement obligation, or
any portion thereof, arising from drawings under Letters of
Credit (other than as a result of waiving the applicability of
any post-default increase in interest rates) or of any Fees,
(iii) reduce or waive the principal amount of any Loan or
of any reimbursement obligation, or any portion thereof,
arising from drawings under Letters of Credit,
(iv) increase the Commitment of a Lender over the amount
thereof in effect (it being understood and agreed that a
waiver of any Default or Event of Default or mandatory
reduction in the Commitments shall not constitute a change in
the terms of any Commitment of any Lender),
(v) except as the result of or in connection with a
Permitted Asset Disposition and subject to the terms of
Section 11.6(e), release all or substantially all of the
Collateral,
(vi) except as the result of or in connection with a
dissolution, merger or disposition of a Consolidated Party not
prohibited by Section 8.4 or Section 8.5 and subject to the
terms of Section 11.6(e), release the Borrower or
substantially all of the other Credit Parties from its or
their obligations under the Credit Documents,
(vii) amend, modify or waive any provision of this
Section 11.6,
(viii) reduce any percentage specified in, or otherwise
modify, the definitions of Required Guaranteed Lenders,
Required Lenders or Required Tranche A Term Lenders,
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(ix) release US Warburg from its obligations under the
Warburg Guaranty, or
(x) subject to the terms of Section 11.6(e), consent to
the assignment or transfer by the Borrower or all or
substantially all of the other Credit Parties of any of its or
their rights and obligations under (or in respect of) the
Credit Documents except as permitted thereby;
(b) without the consent of the Agent, no provision of Section
10 may be amended, changed, waived, discharged or terminated;
(c) without the consent of the Issuing Lender, no provision of
Section 2.2 may be amended, changed, waived, discharged or terminated;
(d) without the consent of the Required Tranche A Term
Lenders, (A) no amendment, change, waiver, discharge or termination of
any of the following which would have an adverse effect on the Tranche
A Term Lenders shall be effective: (1) the definitions of "Asset
Disposition", "Asset Disposition Prepayment Event", "Application
Period", "Capital Stock", "Collateral", "Collateral Documents", "Debt
Issuance", "Domestic Subsidiary", "Eligible Reinvestment", "Equity
Issuance", "Excess Proceeds", "Excluded Asset Disposition", "Excluded
Equity Issuance", "Excluded Property", "Foreign Subsidiary",
"Guarantors", "Involuntary Disposition", "Joinder Agreement", "Lien",
"Material Foreign Subsidiary", "Mortgaged Instruments", "Mortgaged
Properties", "Mortgaged Policies", "Net Cash Proceeds", "Permitted
Asset Disposition", "Permitted Liens", "Pledge Agreement", "Property",
"Security Agreement", "Subsidiary", "Subsidiary Guarantor" and "Tranche
A Obligations" set forth in Section 1.1, (2) Sections 3.3(a),
3.3(b)(iii)-(vi),3.15(b), 4, 7.6(b), 7.12, 7.13, 8.2, 8.5 or 9.1(e) or
(3) any of the Collateral Documents, and (B) neither this Credit
Agreement nor any other Credit Document may be amended, changed,
waived, discharged or terminated so as to (1) except as the result of
or in connection with a Permitted Asset Disposition, release any of the
Collateral, (2) except as the result of or in connection with a
dissolution, merger or disposition of a Consolidated Party not
prohibited by Section 8.4 or Section 8.5, release the Borrower or any
of the other Credit Parties from its or their obligations under the
Credit Documents or (3) consent to the assignment or transfer by the
Borrower or any of the other Credit Parties of any of its or their
rights and obligations under (or in respect of) the Credit Documents
except as permitted thereby;
(e) without the consent of the Required Guaranteed Lenders, no
amendment, change, waiver, discharge or termination of any of the
following which would have an adverse effect on the Guaranteed Lenders
shall be effective: (A) the definitions of "Guaranteed Lenders" set
forth in Section 1.1, (B) the Warburg Guaranty or (C) Section 9.1(j);
and
(f) without the consent of each Lender, no amendment, change,
waiver, discharge or termination of Sections 5.2(a), (n), (o), (p) or
(q) shall be effective.
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Notwithstanding the fact that the consent of all the Lenders is
required in certain circumstances as set forth above, (x) each Lender
is entitled to vote as such Lender sees fit on any bankruptcy
reorganization plan that affects the Loans, and each Lender
acknowledges that the provisions of Section 1126(c) of the Bankruptcy
Code supersedes the unanimous consent provisions set forth herein and
(y) the Required Lenders shall determine whether or not to allow a
Credit Party to use cash collateral in the context of a bankruptcy or
insolvency proceeding and such determination shall be binding on all of
the Lenders.
11.7 COUNTERPARTS.
This Credit Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart for each of the parties hereto. Delivery by facsimile by any of
the parties hereto of an executed counterpart of this Credit Agreement shall be
as effective as an original executed counterpart hereof and shall be deemed a
representation that an original executed counterpart hereof will be delivered.
11.8 HEADINGS.
The headings of the sections hereof are provided for convenience only
and shall not in any way affect the meaning or construction of any provision of
this Credit Agreement.
11.9 SURVIVAL.
All indemnities set forth herein, including, without limitation, in
Section 2.2(i), 3.11, 3.12, 10.5 or 11.5 shall survive the execution and
delivery of this Credit Agreement, the making of the Loans, the issuance of the
Letters of Credit, the repayment of the Loans, LOC Obligations and other
obligations under the Credit Documents and the termination of the Commitments
hereunder, and all representations and warranties made by the Credit Parties
herein shall survive until this Credit Agreement shall be terminated in
accordance with the terms of Section 11.13.
11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE.
(a) THIS CREDIT AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY
PROVIDED THEREIN, THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED
BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. Any legal action or proceeding with respect to this
Credit Agreement or any other Credit Document may be brought in the
courts of the State of New York in New York County, or of the United
States for the Southern District of New York, and, by execution and
delivery of this Credit Agreement, each of the Credit Parties hereby
irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the nonexclusive jurisdiction of such
courts. Each of the Credit Parties further irrevocably consents to the
service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof
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by registered or certified mail, postage prepaid, to it at the address
set out for notices pursuant to Section 11.1, such service to become
effective three (3) days after such mailing. Nothing herein shall
affect the right of the Agent or any Lender to serve process in any
other manner permitted by law or to commence legal proceedings or to
otherwise proceed against any Credit Party in any other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of
any of the aforesaid actions or proceedings arising out of or in
connection with this Credit Agreement or any other Credit Document
brought in the courts referred to in subsection (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE
LENDERS, EACH OF THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.11 SEVERABILITY.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.12 ENTIRETY.
This Credit Agreement together with the other Credit Documents
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
11.13 TERMINATION.
The term of this Credit Agreement shall be until the Credit Party
Obligations are Fully Satisfied.
11.14 CONFIDENTIALITY.
The Agent and each Lender (each, a "Lending Party") agrees to keep
confidential any information furnished or made available to it by or on behalf
of the Credit Parties pursuant to this Credit Agreement; provided that nothing
herein shall prevent any Lending Party from disclosing such information (a) to
any other Lending Party or any Affiliate of any Lending Party, or any officer,
director, employee, agent, or advisor of any Lending Party or Affiliate of any
Lending
108
<PAGE> 114
Party, (b) to any other Person if reasonably incidental to the administration of
the Credit Facilities, (c) as required by any law, rule, or regulation, (d) upon
the order of any court or administrative agency, (e) upon the request or demand
of any regulatory agency or authority, (f) that is or becomes available to the
public or that is or becomes available to any Lending Party other than as a
result of a disclosure by any Lending Party prohibited by this Credit Agreement,
(g) in connection with any litigation to which such Lending Party or any of its
Affiliates may be a party, (h) to the extent necessary in connection with the
exercise of any remedy under this Credit Agreement or any other Credit Document,
(i) to the National Association of Insurance Commissioners or any similar
organization or any nationally recognized rating agency that requires access to
information about a Lender's investment portfolio in connection with ratings
issued with respect to such Lender, (j) to any direct or indirect contractual
counterparty in swap agreements or such contractual counterparty's professional
advisor (so long as such contractual counterparty or professional advisor to
such contractual counterparty (i) has been approved in writing by the Borrower
and (ii) agrees in a writing enforceable by the Borrower to be bound by the
provisions of this Section 11.14) and (k) subject to provisions substantially
similar to those contained in this Section 11.14, to any actual or proposed
participant or assignee.
11.15 SOURCE OF FUNDS.
Each of the Lenders hereby represents and warrants to the Borrower that
at least one of the following statements is an accurate representation as to the
source of funds to be used by such Lender in connection with the financing
hereunder:
(a) no part of such funds constitutes assets allocated to any
separate account maintained by such Lender in which any employee
benefit plan (or its related trust) has any interest;
(b) to the extent that any part of such funds constitutes
assets allocated to any separate account maintained by such Lender,
such Lender has disclosed to the Borrower the name of each employee
benefit plan whose assets in such account exceed 10% of the total
assets of such account as of the date of such purchase (and, for
purposes of this clause (b), all employee benefit plans maintained by
the same employer or employee organization are deemed to be a single
plan);
(c) to the extent that any part of such funds constitutes
assets of an insurance company's general account, such insurance
company has complied with all of the requirements of the regulations
issued under Section 401(c)(1)(A) of ERISA; or
(d) such funds constitute assets of one or more specific
benefit plans which such Lender has identified in writing to the
Borrower.
As used in this Section 11.15, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA.
109
<PAGE> 115
11.16 REGULATION D.
Each of the Lenders hereby represents and warrants to the Borrower that
it is a commercial lender, other financial institution or other "accredited"
investor (as defined in SEC Regulation D) which makes or acquires or loans on
the ordinary course of business and that it will make or acquire Loans for its
own account in the ordinary course of business.
11.17 CONFLICT.
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
[Signature Page to Follow]
110
<PAGE> 116
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: AMERICAN MEDICAL SYSTEMS, INC.
By: /s/ Gregory J. Melsen
----------------------------
Name: Gregory J. Melsen
--------------------------
Title: Vice President -
-------------------------
Finance, Treasurer and
-------------------------
Chief Financial Officer
-------------------------
SUBSIDIARY
GUARANTOR: INFLUENCE, INC.
By: /s/ Gregory J. Melsen
----------------------------
Name: Gregory J. Melsen
--------------------------
Title: Chief Financial Officer
-------------------------
<PAGE> 117
LENDERS: BANK OF AMERICA, N. A.,
individually in its capacity as a
Lender and in its capacity as Agent
By: /s/ John J. O'Neill
----------------------------
Name: John J. O'Neill
--------------------------
Title: Managing Director
-------------------------
BANKERS TRUST COMPANY
By: /s/ David J. Bell
----------------------------
Name: David J. Bell
--------------------------
Title: Principal
-------------------------
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Mark K. Olson
----------------------------
Name: Mark K. Olson
--------------------------
Title: Senior Vice President
-------------------------
FLEET NATIONAL BANK
By: /s/ Timothy G. Clifford
----------------------------
Name: Timothy G. Clifford
--------------------------
Title: Director
-------------------------
<PAGE> 1
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of April 17, 2000 (this "Security
Agreement"), is made by American Medical Systems, Inc., a Delaware corporation
(the "Borrower"), American Medical Systems Holdings, Inc., a Delaware
corporation (the "Parent"), certain Subsidiaries of the Borrower (together with
the Parent, individually a "Guarantor" and collectively the "Guarantors"; the
Guarantors, together with the Borrower, individually a "Credit Party" and
collectively the "Credit Parties") and Bank of America, N.A., in its capacity as
agent (in such capacity, the "Agent") for the lenders from time to time party to
the Credit Agreement described below (the "Lenders").
RECITALS
WHEREAS, pursuant to that certain Credit Agreement, dated as of March
24, 2000 (as amended, modified, extended, renewed or replaced from time to time,
the "Credit Agreement"), among the Borrower, the Guarantors, the Lenders and the
Agent, the Lenders have agreed to make Loans and issue Letters of Credit upon
the terms and subject to the conditions set forth therein; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective Loans and
to issue Letters of Credit under the Credit Agreement that the Credit Parties
shall have executed and delivered this Security Agreement to the Agent for the
ratable benefit of the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
(a) Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Credit
Agreement, and the following terms which are defined in the Uniform
Commercial Code (the "UCC") in effect in the State of New York on the
date hereof are used herein as so defined: Accounts, Chattel Paper,
Deposit Accounts, Documents, Equipment, Farm Products, Fixtures,
General Intangibles, Instruments, Inventory, Investment Property,
Proceeds and Securities Intermediary. For purposes of this Security
Agreement, the term "Lender" shall include any Affiliate of any Lender
which has entered into a Hedging Agreement with any Credit Party (to
the extent the obligations of such Credit Party thereunder constitute
Credit Party Obligations).
(b) In addition, the following terms shall have the following
meanings:
"Copyright Licenses": any agreement, now existing or hereafter
arising, providing for the grant by or to a Credit Party of any right
under any Copyright including, without limitation, any thereof referred
to in Schedule 1.1(b) attached hereto.
<PAGE> 2
"Copyrights": (i) all copyrights in all Works, now existing or
hereafter created or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the
United States Copyright Office or in any similar office or agency of
the United States, any State thereof or any other country or any
political subdivision thereof, or otherwise, including, without
limitation, any thereof referred to in Schedule 1.1(b) attached hereto,
and (ii) all renewals thereof including, without limitation, any
thereof referred to in Schedule 1.1(b) attached hereto.
"Patent License": all agreements, now existing or hereafter
arising, providing for the grant by or to a Credit Party of any right
to make, use or sell any invention covered by a Patent, including,
without limitation, any thereof referred to in Schedule 1.1(b) attached
hereto.
"Patents": (i) all letters patent of the United States or any
other country, now existing or hereafter arising, and all improvement
patents, reissues, reexaminations, patents of additions, renewals and
extensions thereof, including, without limitation, any thereof referred
to in Schedule 1.1(b) attached hereto, and (ii) all applications for
letters patent of the United States or any other country, now existing
or hereafter arising, and all provisionals, divisions, continuations
and continuations-in-part and substitutes thereof, including, without
limitation, any thereof referred to in Schedule 1.1(b) attached hereto.
"Trademark License": any agreement, now existing or hereafter
arising, providing for the grant by or to a Credit Party of any right
to use any Trademark, including, without limitation, any thereof
referred to in Schedule 1.1(b) attached hereto.
"Trademarks": (i) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade
styles, service marks, logos and other source or business identifiers,
together with the goodwill of the business symbolized by said marks,
names, logos and identifiers now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States
Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any
thereof referred to in Schedule 1.1(b) attached hereto, and (ii) all
renewals thereof including, without limitation, any thereof referred to
in Schedule 1.1(b) attached hereto.
"Work": any work of authorship which is subject to copyright
protection pursuant to Title 17 of the United States Code or the
applicable copyright laws of any other country.
2. Grant of Security Interest in the Collateral. To secure the prompt
payment and performance in full when due, whether by lapse of time, acceleration
or otherwise, of the Secured Obligations (as defined in Section 4 hereof), each
Credit Party hereby grants to the Agent, for the benefit of the Lenders, a
continuing security interest in, and a right to set off against, any and all
right, title and interest of such Credit Party in and to the following, whether
now owned or existing or owned, acquired, or arising hereafter (collectively,
the "Collateral"):
<PAGE> 3
(a) all Accounts;
(b) all cash and Cash Equivalents;
(c) all Chattel Paper;
(d) all Copyrights;
(e) all Copyright Licenses;
(f) all Deposit Accounts;
(g) all Documents;
(h) all Equipment;
(i) all Fixtures;
(j) all General Intangibles, including,
without limitation, General Intangibles consisting of
rights under the Purchase Agreement;
(k) all Instruments;
(l) all Inventory;
(m) all Investment Property;
(n) all Patents;
(o) all Patent Licenses;
(p) all Trademarks;
(q) all Trademark Licenses;
(r) all books, records, ledger cards, files, correspondence,
computer programs, tapes, disks, and related data processing software
(owned by such Credit Party or in which it has an interest) that at any
time evidence or contain information relating to any Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
(s) all other personal property of any kind or type whatsoever
owned by such Credit Party; and
(t) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing.
<PAGE> 4
Notwithstanding the foregoing provisions of this Section 2, such grant
of security interest contained herein shall not extend to, and the Collateral
shall not include, any Chattel Paper and General Intangibles which are now or
hereafter held by a Credit Party as licensee, lessee or otherwise, to the extent
that (a) such Chattel Paper and General Intangibles are not assignable or
capable of being encumbered as a matter of law or under the terms of the
license, lease or other agreement applicable thereto (but solely to the extent
that any such restriction shall be enforceable under applicable law), without
the consent of the licensor or lessor thereof or other applicable party thereto,
(b) such consent has not been obtained and (c) with respect to any material
contract of a Credit Party, a commercially reasonable effort has been made to
obtain such consent; provided, however, that the foregoing grant of security
interest shall extend to, and the Collateral shall include, (i) any and all
proceeds of such Chattel Paper and General Intangibles to the extent that the
assignment or encumbering of such proceeds is not so restricted and (ii) upon
any such licensor, lessor or other applicable party's consent with respect to
any such otherwise excluded Chattel Paper or General Intangibles being obtained,
thereafter such Chattel Paper or General Intangibles as well as any and all
proceeds thereof that might theretofore have been excluded from such grant of
security interest contained herein and the Collateral.
The Credit Parties and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest created hereby in the
Collateral (i) constitutes continuing collateral security for all of the Secured
Obligations, whether now existing or hereafter arising and (ii) is not to be
construed as an assignment of any of the Intellectual Property.
3. Provisions Relating to Accounts.
(a) Anything herein to the contrary notwithstanding, each of
the Credit Parties shall remain liable under each of the Accounts to
observe and perform all the conditions and obligations to be observed
and performed by it thereunder, all in accordance with the terms of any
agreement giving rise to each such Account. Neither the Agent nor any
Lender shall have any obligation or liability under any Account (or any
agreement giving rise thereto) by reason of or arising out of this
Security Agreement or the receipt by the Agent or any Lender of any
payment relating to such Account pursuant hereto, nor shall the Agent
or any Lender be obligated in any manner to perform any of the
obligations of a Credit Party under or pursuant to any Account (or any
agreement giving rise thereto), to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by
it or as to the sufficiency of any performance by any party under any
Account (or any agreement giving rise thereto), to present or file any
claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which
it may be entitled at any time or times.
(b) At any time after the occurrence and during the
continuance of an Event of Default, (i) at the expense of the Credit
Parties, the Agent shall have the right, but not the obligation, to
make test verifications of the Accounts in any manner and through any
medium that it reasonably considers advisable, and the Credit Parties
shall furnish all such assistance and information as the Agent may
require in connection with such test
<PAGE> 5
verifications, (ii) upon the Agent's request, and at the expense of the
Credit Parties, the Credit Parties shall cause independent public
accountants or others satisfactory to the Agent to furnish to the Agent
reports showing reconciliations, aging and test verifications of, and
trial balances for, the Accounts and (iii) the Agent in its own name or
in the name of others may communicate with account debtors on the
Accounts to verify with them to the Agent's satisfaction the existence,
amount and terms of any Accounts.
4. Security for Obligations. The security interest created hereby in
the Collateral constitutes continuing collateral security for all of the
following, whether now existing or hereafter incurred (the "Secured
Obligations"):
(a) In the case of the Borrower, the prompt performance and
observance by the Borrower of all obligations of the Borrower under the
Credit Agreement, the Notes, this Security Agreement and the other
Credit Documents to which the Borrower is a party;
(b) Subject to clause (c) of Section 28 hereof, in the case of
the Guarantors, the prompt performance and observance by such Guarantor
of all obligations of such Guarantor under the Credit Agreement, this
Security Agreement and the other Credit Documents to which such
Guarantor is a party, including, without limitation, its guaranty
obligations arising under Section 4 of the Credit Agreement; and
(c) All other indebtedness, liabilities, obligations and
expenses of any kind or nature owing from any Credit Party to any
Lender or the Agent in connection with (i) this Security Agreement or
any other Credit Document, whether now existing or hereafter arising,
due or to become due, direct or indirect, absolute or contingent, and
howsoever evidenced, held or acquired, together with any and all
modifications, extensions, renewals and/or substitutions of any of the
foregoing, (ii) collecting and enforcing the Credit Party Obligations
and (iii) if and to the extent agreed to by such Credit Party in the
documentation evidencing same, all liabilities and obligations owing
from such Credit Party to any Lender or any Affiliate of any Lender
arising under any Hedging Agreements.
5. Credit Parties Remain Liable. Anything herein to the contrary
notwithstanding, (a) each Credit Party shall remain liable under the contracts
and agreements of such Credit Party included in the Collateral to the extent set
forth therein and to perform all of the duties and obligations thereunder to the
same extent as if this Security Agreement had not been executed, (b) the
exercise by the Agent of any of the rights hereunder shall not release a Credit
Party from any of its duties or obligations under the contracts and agreements
included in the Collateral, and (c) neither the Agent nor any of the Lenders
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Security Agreement, nor shall the
Agent or any of the Lenders be obligated to perform any of the obligations or
duties of the Credit Parties thereunder or to take any action to collect or
enforce any claim for payment assigned thereunder.
<PAGE> 6
6. Representations and Warranties. Each Credit Party hereby represents
and warrants to the Agent, for the benefit of the Lenders, that until such time
as the Credit Party Obligations are Fully Satisfied:
(a) Location of Collateral. The location of all tangible
property included in the Collateral owned by each Credit Party is as
shown on Schedule 6.20(b) to the Credit Agreement as such Schedule
6.20(b) may be updated from time to time.
(b) Chief Executive Office; Books & Records. Each Credit
Party's chief executive office and chief place of business is (and for
the prior four months have been) located at the locations set forth on
Schedule 6.20(c) to the Credit Agreement as such Schedule 6.20(c) may
be updated from time to time, and each Credit Party keeps its books and
records at such locations.
(c) Ownership. Each Credit Party is the legal and beneficial
owner of its Collateral and has a valid right to use, pledge, sell,
assign or transfer the same. Each Credit Party's legal name is as shown
in this Security Agreement, and no Credit Party has in the past four
months changed its name, been party to a merger, consolidation or other
change in structure or used any tradename except as set forth in
Schedule 6(c) attached hereto, which Schedule 6(c) may be updated by
written notice from such Credit Party to the Agent.
(d) Security Interest/Priority. This Security Agreement
creates a valid security interest in favor of the Agent, for the
benefit of the Lenders, in the Collateral of each Credit Party and,
when properly perfected by filing, registration or otherwise, shall
constitute a valid first priority, perfected security interest in such
Collateral, to the extent such security can be perfected by filing
under the UCC, federal law or other applicable personal property
security legislation, free and clear of all Liens except for Permitted
Liens.
(e) Farm Products. None of the Collateral constitutes, or is
the Proceeds of, Farm Products.
(f) Contracts; Agreements. Except as set forth on Schedule
6(f) attached hereto, the Credit Parties have no material contracts or
agreements which are non-assignable by their terms or which prevent the
granting of a security interest therein. Schedule 6(f) may be updated
from time to time by the Credit Parties by giving written notice
thereof to the Agent. No consent of any other person or entity and no
authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required (i) for
the grant by a Credit Party of the assignment and security interest
granted hereby or for the execution, delivery or performance of this
Security Agreement by the Credit Parties, (ii) for the perfection or
maintenance of the assignment and security interest created hereby
(including the first priority nature of such assignment and security
interest) or (iii) for the exercise by the Agent of its rights and
remedies hereunder.
<PAGE> 7
(g) Accounts. (i) Each Account of the Credit Parties and the
papers and documents relating thereto are genuine and in all material
respects what they purport to be, (ii) no Account of any Credit Party
is evidenced by any instrument or chattel paper, unless such instrument
or chattel paper has been theretofore endorsed over and delivered to
the Agent, (iii) no surety bond was required or given in connection
with any receivables of a Credit Party or the contracts out of which
they arose and (iv) the goods sold and/or services furnished giving
rise to each Account are not subject to any security interest or Lien
except for the first priority, perfected security interest granted to
the Agent herein and except for Permitted Liens.
(h) Inventory. No Inventory of a Credit Party is held by a
third party (other than a Credit Party) pursuant to consignment, sale
or return, sale on approval or similar arrangement, unless such Credit
Party has complied with the terms of Section 9-114 of the UCC.
(i) Copyrights, Patents and Trademarks.
(i) Schedule 1.1(b) attached hereto includes all
Intellectual Property owned or used by the Credit Parties, as
such Schedule 1.1(b) may be updated from time to time.
(ii) No Credit Party has made any assignment or
agreement in conflict with the security interest in the
Intellectual Property of each Credit Party hereunder.
7. Covenants. Each Credit Party covenants that, until such time as the
Credit Party Obligations are Fully Satisfied, such Credit Party shall:
(a) Other Liens. Defend the Collateral against the claims and
demands of all other parties claiming an interest therein, keep the
Collateral free from all Liens, except for Permitted Liens, and not
sell, exchange, transfer, assign, lease or otherwise dispose of the
Collateral or any interest therein, except as permitted under the
Credit Agreement.
(b) Preservation of Collateral. Keep the Collateral in good
order, condition and repair in all material respects, ordinary wear and
tear excepted, and not use the Collateral in violation of the
provisions of this Security Agreement.
(c) Instruments/Chattel Paper. If any of the Collateral shall
be or become evidenced by any Instrument or Chattel Paper or if any
Collateral shall be stored or shipped subject to a Document,
immediately deliver such Instrument, Chattel Paper or Document to the
Agent, duly endorsed in a manner satisfactory to the Agent, to be held
as Collateral pursuant to this Security Agreement.
(d) Change in Location or Name. Not, without providing 30 days
prior written notice to the Agent and without filing (or confirming
that the Agent has filed) such amendments to any previously filed
financing statements as the Agent may require, (a)
<PAGE> 8
change the location of its chief executive office and chief place of
business (as well as its books and records) from the locations set
forth on Schedule 6.20(c) to the Credit Agreement, (b) change the
location of its Collateral from the locations set forth for such Credit
Party on Schedule 6.20(b) to the Credit Agreement, or (c) change its
name, be party to a merger, consolidation or other change in structure
or use any tradename other than as set forth on Schedule 6(c) attached
hereto.
(e) Inspection. At all times allow the Agent or its
representatives to visit and inspect the Collateral to the extent set
forth in Section 7.10 of the Credit Agreement.
(f) Perfection of Security Interest. Execute and deliver to
the Agent such agreements, assignments or instruments (including
affidavits, notices, reaffirmations and amendments and restatements of
existing documents, as the Agent may reasonably request) and do all
such other things as the Agent may reasonably deem necessary or
appropriate (i) to assure to the Agent the effectiveness and priority
of its security interests hereunder, including, but not limited to, (A)
such financing statements (including renewal statements) or amendments
thereof or supplements thereto or other instruments as the Agent may
from time to time reasonably request in order to perfect and maintain
the security interests granted hereunder in accordance with the UCC and
any other personal property security legislation in the appropriate
state(s) or province(s), (B) with regard to Investment Property,
execute and cause the Securities Intermediary with respect to such
Investment Property to execute a securities control agreement in form
and substance satisfactory to the Agent, (C) with regard to Copyrights,
a Notice of Grant of Security Interest in Copyrights for filing with
the United States Copyright Office substantially in the form of Exhibit
7(f)-1 attached hereto, and (D) with regard to Patents and Trademarks,
a Notice of Grant of Security Interest in Patents and Trademarks for
filing with the United States Patent and Trademark Office substantially
in the form of Exhibit 7(f)-2 attached hereto, (ii) to consummate the
transactions contemplated hereby and (iii) to otherwise protect and
assure the Agent of its rights and interests hereunder. To that end,
each Credit Party agrees that the Agent may file one or more financing
statements disclosing the Agent's security interest in any or all of
the Collateral of such Credit Party without, to the extent permitted by
law, such Credit Party's signature thereon, and further each Credit
Party also hereby irrevocably makes, constitutes and appoints the
Agent, its nominee or any other Person whom the Agent may designate, as
such Credit Party's attorney in fact with full power and for the
limited purpose to sign in the name of such Credit Party any such
financing statements, or amendments and supplements to financing
statements, renewal financing statements, notices or any similar
documents which in the Agent's reasonable discretion would be
necessary, appropriate or convenient in order to perfect and maintain
perfection of the security interests granted hereunder, such power,
being coupled with an interest, being and remaining irrevocable until
the Credit Party Obligations are Fully Satisfied. Each Credit Party
hereby agrees that a carbon, photographic or other reproduction of this
Security Agreement or any such financing statement is sufficient for
filing as a financing statement by the Agent without notice thereof to
such Credit Party wherever the Agent may in its sole discretion desire
to file the same. In the event for any reason the law of any
jurisdiction other than New York becomes or is applicable to the
Collateral of any Credit Party or any part thereof, or to
<PAGE> 9
any of the Secured Obligations, such Credit Party agrees to execute and
deliver all such instruments and to do all such other things as the
Agent in its sole discretion reasonably deems necessary or appropriate
to preserve, protect and enforce the security interests of the Agent
under the law of such other jurisdiction (and, if a Credit Party shall
fail to do so promptly upon the request of the Agent, then the Agent
may execute any and all such requested documents on behalf of such
Credit Party pursuant to the power of attorney granted hereinabove).
Each Credit Party agrees to mark its books and records to reflect the
security interest of the Agent in the Collateral.
(g) Collateral Held by Warehouseman, Bailee, etc. If any
Collateral is at any time in the possession or control of a
warehouseman, bailee or any agent or processor of such Credit Party,
notify the Agent of such possession, notify such Person of the Agent's
security interest for the benefit of the Lenders in such Collateral,
and instruct such Person to hold all such Collateral for the Agent's
account subject to the Agent's instructions.
(h) Treatment of Accounts. (i) Not grant or extend the time
for payment of any Account, or compromise or settle any Account for
less than the full amount thereof, or release any Person or property,
in whole or in part, from payment thereof, or allow any credit or
discount thereon, other than in the prudent conduct of a Credit Party's
business and (ii) maintain at its principal place of business a record
of Accounts consistent with customary business practices.
(i) Covenants Relating to Copyrights. Unless the applicable
Credit Party believes it is not necessary in the prudent conduct of its
business,
(i) Employ the Copyright for each Work with
such notice of copyright as may be required by law to secure
copyright protection.
(ii) (A) Not do any act or knowingly omit to do
any act whereby any Copyright may become invalidated; (B) not
do any act, or knowingly omit to do any act, whereby any
Copyright may become injected into the public domain; (C)
notify the Agent promptly if it knows, that any material
Copyright may become injected into the public domain or of any
adverse determination or development (including, without
limitation, the institution of, or any such determination or
development in, any court or tribunal in the United States or
any other country), regarding a Credit Party's ownership of
any such Copyright or its validity; (D) take all necessary
steps as it shall deem appropriate under the circumstances to
maintain and pursue each application (and to use its best
efforts to obtain the relevant registration) and to maintain
each registration of each Copyright owned by a Credit Party
including, without limitation, filing of applications for
renewal where necessary; and (E) promptly notify the Agent of
any material infringement of any material Copyright of a
Credit Party of which it becomes aware and take such actions
as it shall reasonably deem appropriate under the
circumstances to protect such Copyright, including, where
appropriate, the bringing of suit for infringement, seeking
injunctive relief and seeking to recover any and all damages
for such infringement.
<PAGE> 10
(iii) Not make any assignment or agreement in
conflict with the security interest in the Copyrights of each
Credit Party hereunder.
(j) Covenants Relating to Patents and Trademarks. Unless the
applicable Credit Party believes it is not necessary in the prudent
conduct of its business,
(i) (A) Continue to use each Trademark in such
a manner as to maintain such Trademark in full force free from
any claim of abandonment for non-use, (B) maintain as in the
past the quality of products and services offered under such
Trademark, (C) employ such Trademark with the appropriate
notice of registration or notice of trademark or service mark,
as applicable, sufficient to protect such Trademark, (D) not
adopt or use any mark which is confusingly similar or a
colorable imitation of such Trademark unless the Agent, for
the ratable benefit of the Lenders, shall obtain a perfected
security interest in such mark pursuant to this Security
Agreement, and (E) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any
act whereby any Trademark may be lost.
(ii) Not do any act, or omit to do any act,
whereby any Patent may become abandoned or dedicated.
(iii) Notify the Agent promptly if it knows, that
any application or registration relating to any material
Patent or material Trademark may become abandoned or
dedicated, or of any adverse determination or development
(including, without limitation, the institution of, or any
such determination or development in, any proceeding in the
United States Patent and Trademark Office or any court or
tribunal in any country), regarding a Credit Party's ownership
of any Patent or Trademark or its right to register the same
or to keep and maintain the same.
(iv) Take all reasonable and necessary steps,
including, without limitation, in any proceeding before the
United States Patent and Trademark Office, or any similar
office or agency in any other country or any political
subdivision thereof, to maintain and pursue each application
(and to obtain the relevant registration) and to maintain each
registration of the Patents and Trademarks, including, without
limitation, filing of applications for renewal, affidavits of
use and affidavits of incontestability.
(v) Promptly notify the Agent after it learns
that any material Patent or material Trademark is infringed,
misappropriated or diluted in any material manner by a third
party, and take such actions as it shall reasonably deem
appropriate under the circumstances to protect such Patent or
Trademark, including, where it shall reasonably deem
appropriate, the bringing of suit for infringement,
misappropriation or dilution, seeking injunctive relief where
<PAGE> 11
appropriate and seeking to recover any and all damages for
such infringement, misappropriation or dilution.
(vi) Not make any assignment or agreement in
conflict with the security interest in the Patents or
Trademarks of each Credit Party hereunder.
(k) New Intellectual Property. With respect to any
Intellectual Property acquired or created by a Credit Party after the
Closing Date, the Credit Parties shall comply with the terms of Section
7.1(l) and Section 7.13 of the Credit Agreement.
(l) Other Additional Collateral. If, subsequent to the Closing
Date, a Credit Party shall acquire any securities, instruments, chattel
paper or other personal property required to be delivered to the Agent
as Collateral hereunder, the Credit Party shall immediately notify the
Agent of same and take such action (including, but not limited to, the
actions set forth in Section 7.13 of the Credit Agreement) as requested
by the Agent and at its own expense, (subject to the limitations set
forth in Section 7.13 of the Credit Agreement) to ensure that the Agent
has a first priority perfected Lien in all personal property of the
Credit Parties whether now owned or hereafter acquired, subject only to
Permitted Liens.
8. Advances by Lenders. On failure of any Credit Party to perform any
of the covenants and agreements contained herein, the Agent or the Lenders may,
at its sole option and in its sole discretion, perform the same (provided that
the Agent shall promptly give the Borrower notice of such performance after the
fact) and in so doing may expend such sums as the Agent or the Lenders may
reasonably deem advisable in the performance thereof, including, without
limitation, the payment of any insurance premiums, the payment of any taxes, a
payment to obtain a release of a Lien or potential Lien, expenditures made in
defending against any adverse claim and all other expenditures which the Agent
or the Lenders may make for the protection of the security hereof or which may
be compelled to make by operation of law. All such sums and amounts so expended
shall be repayable by the Credit Parties on a joint and several basis (subject
to Section 28 hereof) promptly upon notice thereof and demand therefor, shall
constitute additional Secured Obligations and shall bear interest from the date
said amounts are expended at the default rate provided in Section 3.1 of the
Credit Agreement for Revolving Loans that are Base Rate Loans. No such
performance of any covenant or agreement by the Agent or the Lenders on behalf
of any Credit Party, and no such advance or expenditure therefor, shall relieve
the Credit Parties of any default under the terms of this Security Agreement or
the other Credit Documents. The Agent or the Lenders may make any payment hereby
authorized in accordance with any bill, statement or estimate procured from the
appropriate public office or holder of the claim to be discharged without
inquiry into the accuracy of such bill, statement or estimate or into the
validity of any tax assessment, sale, forfeiture, tax lien, title or claim
except to the extent the Agent or the Lenders are aware that such payment is
being contested in good faith by a Credit Party in appropriate proceedings and
against which adequate reserves are being maintained in accordance with GAAP.
<PAGE> 12
9. Events of Default.
The occurrence of an event which under the Credit Agreement would
constitute an Event of Default shall be an Event of Default hereunder (an "Event
of Default").
10. Remedies.
(a) General Remedies. Upon the occurrence of an Event of
Default and during continuation thereof, the Agent and the Lenders
shall have, in addition to the rights and remedies provided herein, in
the Credit Documents or Hedging Agreement between any Credit Party and
any Lender (to the extent the obligations of such Credit Party
thereunder constitute Credit Party Obligations) or by law (including,
but not limited to, the rights and remedies set forth in the UCC or
equivalent legislation of the jurisdiction applicable to the affected
Collateral), the rights and remedies of a secured party under the UCC
to the extent permitted by law (regardless of whether the UCC is the
law of the jurisdiction where the rights and remedies are asserted and
regardless of whether the UCC applies to the affected Collateral), and
further, the Agent may, with or without judicial process or the aid and
assistance of others, to the extent permitted by applicable law, (i)
enter on any premises on which any of the Collateral may be located
and, without resistance or interference by the Credit Parties, take
possession of the Collateral, (ii) dispose of any Collateral on any
such premises, (iii) require the Credit Parties to assemble and make
available to the Agent at the expense of the Credit Parties any
Collateral at any place and time designated by the Agent which is
reasonably convenient to both parties, (iv) remove any Collateral from
any such premises for the purpose of effecting sale or other
disposition thereof, and/or (v) without demand and without
advertisement, notice, hearing or process of law, all of which each of
the Credit Parties hereby waives to the fullest extent permitted by
law, at any place and time or times, sell and deliver any or all
Collateral held by or for it at public or private sale, by one or more
contracts, in one or more parcels, for cash, upon credit or otherwise,
at such prices and upon such terms as the Agent deems advisable, in its
sole discretion (subject to any and all mandatory legal requirements).
Each of the Credit Parties acknowledges that any private sale
referenced above may be at prices and on terms less favorable to the
seller than the prices and other terms which might have been obtained
at a public sale and, notwithstanding the foregoing, agrees that such
private sale shall be deemed to have been made in a commercially
reasonable manner. In addition to all other sums due the Agent and the
Lenders with respect to the Secured Obligations, the Credit Parties
shall pay the Agent and each of the Lenders all reasonable costs and
expenses incurred by the Agent or any such Lender, including, but not
limited to, reasonable attorneys' fees and court costs, in obtaining or
liquidating the Collateral, in enforcing payment of the Secured
Obligations, or in the prosecution or defense of any action or
proceeding by or against the Agent or the Lenders or the Credit Parties
concerning any matter arising out of or connected with this Security
Agreement, any Collateral or the Secured Obligations, including,
without limitation, any of the foregoing arising in, arising under or
related to a case concerning a Credit Party under the Bankruptcy Code.
To the extent the rights of notice cannot be legally waived hereunder,
each Credit Party agrees that any requirement of reasonable notice
shall be met if such notice is personally served on or mailed, postage
<PAGE> 13
prepaid, to the Borrower in accordance with the notice provisions of
Section 11.1 of the Credit Agreement at least 10 days before the time
of sale or other event giving rise to the requirement of such notice.
The Agent and the Lenders shall not be obligated to make any sale or
other disposition of the Collateral regardless of notice having been
given. To the extent permitted by law, any Lender may be a purchaser at
any such sale. To the extent permitted by applicable law, each of the
Credit Parties hereby waives all of its rights of redemption with
respect to any such sale. Subject to the provisions of applicable law,
the Agent and the Lenders may postpone or cause the postponement of the
sale of all or any portion of the Collateral by announcement at the
time and place of such sale, and such sale may, without further notice,
to the extent permitted by law, be made at the time and place to which
the sale was postponed, or the Agent and the Lenders may further
postpone such sale by announcement made at such time and place.
(b) Remedies relating to Accounts. Upon the occurrence of an
Event of Default and during the continuance thereof, whether or not the
Agent has exercised any or all of its rights and remedies hereunder,
each Credit Party will promptly upon request of the Agent instruct all
account debtors to remit all payments in respect of Accounts to a
mailing location selected by the Agent. In addition, the Agent or its
designee may notify any Credit Party's customers and account debtors
that the Accounts of such Credit Party have been assigned to the Agent
or of the Agent's security interest therein, and may (either in its own
name or in the name of a Credit Party or both) demand, collect
(including without limitation by way of a lockbox arrangement),
receive, take receipt for, sell, sue for, compound, settle, compromise
and give acquittance for any and all amounts due or to become due on
any Account, and, in the Agent's discretion, file any claim or take any
other action or proceeding to protect and realize upon the security
interest of the Lenders in the Accounts. Each Credit Party acknowledges
and agrees that the Proceeds of its Accounts remitted to or on behalf
of the Agent in accordance with the provisions hereof shall be solely
for the Agent's own convenience and that such Credit Party shall not
have any right, title or interest in such Accounts or in any such other
amounts except as expressly provided herein. The Agent and the Lenders
shall have no liability or responsibility to any Credit Party for
acceptance of a check, draft or other order for payment of money
bearing the legend "payment in full" or words of similar import or any
other restrictive legend or endorsement or be responsible for
determining the correctness of any remittance. Each Credit Party hereby
agrees to indemnify the Agent and the Lenders from and against all
liabilities, damages, losses, actions, claims, judgments, costs,
expenses, charges and reasonable attorneys' fees suffered or incurred
by the Agent or the Lenders (each, an "Indemnified Party") because of
the maintenance of the foregoing arrangements except as relating to or
arising out of the gross negligence or willful misconduct of an
Indemnified Party or its officers, employees or agents. In the case of
any investigation, litigation or other proceeding, the foregoing
indemnity shall be effective whether or not such investigation,
litigation or proceeding is brought by a Credit Party, its directors,
shareholders or creditors or an Indemnified Party or any other Person
or any other Indemnified Party is otherwise a party thereto.
(c) Access. In addition to the rights and remedies hereunder,
upon the occurrence of an Event of Default and during the continuance
thereof, the Agent shall have the right to enter and remain upon the
various premises of the Credit Parties without
<PAGE> 14
cost or charge to the Agent, and use the same, together with materials,
supplies, books and records of the Credit Parties for the purpose of
collecting and liquidating the Collateral, or for preparing for sale
and conducting the sale of the Collateral, whether by foreclosure,
auction or otherwise. In addition, the Agent may remove Collateral, or
any part thereof, from such premises and/or any records with respect
thereto, in order to effectively collect or liquidate such Collateral.
(d) Nonexclusive Nature of Remedies. Failure by the Agent or
the Lenders to exercise any right, remedy or option under this Security
Agreement or any other Credit Document or as provided by law, or any
delay by the Agent or the Lenders in exercising the same, shall not
operate as a waiver of any such right, remedy or option. No waiver
hereunder shall be effective unless it is in writing, signed by the
party against whom such waiver is sought to be enforced and then only
to the extent specifically stated, which in the case of the Agent or
the Lenders shall only be granted as provided herein. To the extent
permitted by law, neither the Agent, the Lenders, nor any party acting
as attorney for the Agent or the Lenders, shall be liable hereunder for
any acts or omissions or for any error of judgment or mistake of fact
or law other than their gross negligence or willful misconduct
hereunder. The rights and remedies of the Agent and the Lenders under
this Security Agreement shall be cumulative and not exclusive of any
other right or remedy which the Agent or the Lenders may have.
(e) Retention of Collateral. The Agent may, after providing
the notices required by Section 9-505(2) of the UCC and otherwise
complying with the requirements of applicable law (including the
failure to receive written objection from any person to whom the Agent
is required to send such notice) of the relevant jurisdiction, to the
extent the Agent is in possession of any of the Collateral, retain the
Collateral in satisfaction of the Secured Obligations. Unless and until
the Agent or the Lenders shall have provided such notices, however, the
Agent or the Lenders shall not, except as otherwise provided under law,
be deemed to have retained any Collateral in satisfaction of any
Secured Obligations for any reason.
(f) Deficiency. In the event that the proceeds of any sale,
collection or realization are insufficient to pay all amounts to which
the Agent or the Lenders are legally entitled, (subject to Section 28
hereof) the Credit Parties shall be jointly and severally liable for
the deficiency, together with interest thereon at the default rate
specified in Section 3.1 of the Credit Agreement for Revolving Loans
that are Base Rate Loans, together with the costs of collection and the
reasonable fees of any attorneys employed by the Agent to collect such
deficiency. Any surplus remaining after the full payment and
satisfaction of the Secured Obligations shall be returned to the Credit
Parties or to whomsoever a court of competent jurisdiction shall
determine to be entitled thereto.
11. Rights of the Agent.
(a) Power of Attorney. In addition to other powers of attorney
contained herein, each Credit Party hereby designates and appoints the
Agent, on behalf of the
<PAGE> 15
Lenders, and each of its designees or agents, as attorney-in-fact of
such Credit Party, irrevocably and with power of substitution, with
authority to take any or all of the following actions upon the
occurrence and during the continuance of an Event of Default:
(i) to demand, collect, settle, compromise, adjust
and give discharges and releases concerning the Collateral of
such Credit Party, all as the Agent may reasonably determine;
(ii) to commence and prosecute any actions at any
court for the purposes of collecting any Collateral of such
Credit Party and enforcing any other right in respect thereof;
(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Agent may deem reasonably appropriate;
(iv) to pay or discharge taxes, liens, security
interests, or other encumbrances levied or placed on or
threatened against the Collateral of such Credit Party;
(v) to direct any parties liable for any payment
under any of the Collateral to make payment of any and all
monies due and to become due thereunder directly to the Agent
or as the Agent shall direct;
(vi) to receive payment of and receipt for any and
all monies, claims, and other amounts due and to become due at
any time in respect of or arising out of any Collateral of
such Credit Party;
(vii) to sign and endorse any drafts, assignments,
verifications, notices and other documents relating to the
Collateral of such Credit Party;
(viii) to settle, compromise or adjust any suit,
action or proceeding described above and, in connection
therewith, to give such discharges or releases as the Agent
may deem reasonably appropriate;
(ix) receive, open and dispose of mail addressed to a
Credit Party and endorse checks, notes, drafts, acceptances,
money orders, bills of lading, warehouse receipts or other
instruments or documents evidencing payment, shipment or
storage of the goods giving rise to the Collateral of such
Credit Party on behalf of and in the name of such Credit
Party, or securing, or relating to such Collateral;
(x) sell, assign, transfer, make any agreement in
respect of, or otherwise deal with or exercise rights in
respect of, any Collateral or the goods or services which have
given rise thereto, as fully and completely as though the
Agent were the absolute owner thereof for all purposes;
<PAGE> 16
(xi) adjust and settle claims under any insurance
policy relating thereto;
(xii) execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, security agreements, affidavits, notices
and other agreements, instruments and documents that the Agent
may determine necessary in order to perfect and maintain the
security interests and liens granted in this Security
Agreement and in order to fully consummate all of the
transactions contemplated therein;
(xiii) institute any foreclosure proceedings that the
Agent may deem appropriate; and
(xiv) do and perform all such other acts and things
as the Agent may reasonably deem to be necessary, proper or
convenient in connection with the Collateral.
This power of attorney is a power coupled with an interest and shall be
irrevocable until such time as the Credit Party Obligations are Fully
Satisfied. The Agent shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges and options expressly
or implicitly granted to the Agent in this Security Agreement, and
shall not be liable for any failure to do so or any delay in doing so.
The Agent shall not be liable for any act or omission or for any error
of judgment or any mistake of fact or law in its individual capacity or
its capacity as attorney-in-fact except acts or omissions resulting
from its gross negligence or willful misconduct. This power of attorney
is conferred on the Agent solely to protect, preserve and realize upon
its security interest in the Collateral.
(b) Performance by the Agent of Obligations. If any Credit
Party fails to perform any agreement or obligation contained herein,
the Agent itself may perform, or cause performance of, such agreement
or obligation, and the expenses of the Agent incurred in connection
therewith shall be payable by the Credit Parties on a joint and several
basis pursuant to Section 14 hereof.
(c) Assignment by the Agent. The Agent may from time to time
assign the Collateral and any portion thereof to a successor Agent, and
the assignee shall be entitled to all of the rights and remedies of the
Agent under this Security Agreement in relation thereto.
(d) The Agent's Duty of Care. Other than the exercise of
reasonable care to assure the safe custody of the Collateral while
being held by the Agent hereunder, the Agent shall have no duty or
liability to preserve rights pertaining thereto, it being understood
and agreed that the Credit Parties shall be responsible for
preservation of all rights in the Collateral, and the Agent shall be
relieved of all responsibility for the Collateral upon surrendering it
or tendering the surrender of it to the Credit Parties. The Agent shall
be deemed to have exercised reasonable care in the custody and
preservation
<PAGE> 17
of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Agent accords its own
property, it being understood that the Agent shall not have
responsibility for taking any necessary steps to preserve rights
against any parties with respect to any of the Collateral.
12. Rights of Required Lenders. All rights of the Agent hereunder, if
not exercised by the Agent, may be exercised by the Required Lenders.
13. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Secured
Obligations and any proceeds of the Collateral, when received by the Agent or
any of the Lenders in cash or its equivalent, will be applied in reduction of
the Secured Obligations in the order set forth in Section 3.15(b) of the Credit
Agreement, and each Credit Party irrevocably waives the right to direct the
application of such payments and proceeds and acknowledges and agrees that the
Agent shall have the continuing and exclusive right to apply and reapply any and
all such payments and proceeds in the Agent's sole discretion, notwithstanding
any entry to the contrary upon any of its books and records.
14. Costs of Counsel. At all times hereafter, the Credit Parties agree
to promptly pay upon demand any and all reasonable costs and expenses of (a) the
Agent or the Lenders, as required under Section 11.5 of the Credit Agreement and
(b) of the Agent as necessary to protect the Collateral or to exercise any
rights or remedies under this Security Agreement or with respect to any
Collateral. All of the foregoing costs and expenses shall constitute Secured
Obligations hereunder.
15. Continuing Agreement.
(a) This Security Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect until such time
as the Credit Party Obligations are Fully Satisfied. At such time as
the Credit Party Obligations are Fully Satisfied, this Security
Agreement shall be automatically terminated and the Agent for the
benefit of the Lenders shall, upon the request and at the expense of
the Credit Parties, forthwith release all of its liens and security
interests hereunder and shall execute and deliver all UCC termination
statements and/or other documents reasonably requested by the Credit
Parties evidencing such termination. Notwithstanding the foregoing all
releases and indemnities provided hereunder shall survive termination
of this Security Agreement.
(b) This Security Agreement shall continue to be effective or
be automatically reinstated, as the case may be, if at any time
payment, in whole or in part, of any of the Secured Obligations is
rescinded or must otherwise be restored or returned by the Agent or any
Lender as a preference, fraudulent conveyance or otherwise under any
bankruptcy, insolvency or similar law, all as though such payment had
not been made; provided that in the event payment of all or any part of
the Secured Obligations is rescinded or must be restored or returned,
all reasonable costs and expenses (including without limitation any
reasonable legal fees and disbursements) incurred by the Agent or any
Lender in
<PAGE> 18
defending and enforcing such reinstatement shall be deemed to be
included as a part of the Secured Obligations.
16. Amendments; Waivers; Modifications. This Security Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except as set forth in Section 11.6 of the Credit Agreement.
17. Successors in Interest. This Security Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Credit Party, its successors and assigns and shall inure, together with the
rights and remedies of the Agent and the Lenders hereunder, to the benefit of
the Agent and the Lenders and their successors and assigns; provided, however,
that none of the Credit Parties may assign its rights or delegate its duties
hereunder without the prior written consent of each Lender or the Required
Lenders, as required by the Credit Agreement.
18. No Liability to the Agent or Lenders. To the fullest extent
permitted by law, each Credit Party hereby releases the Agent in its individual
capacity or its capacity as attorney-in-fact, each Lender in its individual
capacity or its capacity as attorney-in-fact, their respective successors and
assigns and any party acting as attorney for the Agent or the Lenders, from any
liability for any act or omission or for any error of judgment or mistake of
fact or law relating to this Security Agreement or the Collateral, except for
any liability arising from the gross negligence or willful misconduct of the
Agent, or such Lender, or its officers, employees or agents.
19. Notices. All notices required or permitted to be given under this
Security Agreement shall be in conformance with Section 11.1 of the Credit
Agreement.
20. Counterparts. This Security Agreement may be executed in any number
of counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Security Agreement to produce or
account for more than one such counterpart.
21. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Security Agreement.
22. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any
legal action or proceeding with respect to this Security Agreement may
be brought in the courts of the State of North Carolina or the State of
New York, or of the United States for either the Western District of
North Carolina or the Southern District of New York, and, by execution
and delivery of this Security Agreement, each Credit Party hereby
irrevocably accepts for itself and in respect of its
<PAGE> 19
property, generally and unconditionally, the jurisdiction of such
courts. Each Credit Party further irrevocably consents to the service
of process out of any of the aforementioned courts in any such action
or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to it at the address for notices
pursuant to Section 11.1 of the Credit Agreement, such service to
become effective 30 days after such mailing. Nothing herein shall
affect the right of the Agent to serve process in any other manner
permitted by law or to commence legal proceedings or to otherwise
proceed against any Credit Party in any other jurisdiction.
(b) Each Credit Party hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Security Agreement brought in the courts referred to in subsection
(a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum.
23. WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS SECURITY
AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY.
24. Severability. If any provision of any of the Security Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
25. Entirety. This Security Agreement and the other Credit Documents
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
26. Survival. All representations and warranties of the Credit Parties
hereunder shall survive the execution and delivery of this Security Agreement
and the other Credit Documents, the delivery of the Notes and the making of the
Loans under the Credit Agreement.
27. Other Security. To the extent that any of the Secured Obligations
are now or hereafter secured by property other than the Collateral (including,
without limitation, real property and securities owned by a Credit Party), or by
a guarantee, endorsement or property of any other Person, then the Agent and the
Lenders shall have the right to proceed against such other property, guarantee
or endorsement upon the occurrence of any Event of Default, and the Agent and
the Lenders shall have the right, in their sole discretion, to determine which
rights, security, Liens, security interests or remedies the Agent and the
Lenders shall at any time pursue, relinquish, subordinate, modify or take with
respect thereto, without in any way modifying or affecting any of them or any of
the Agent's and the Lenders' rights or the Secured Obligations under this
Security Agreement or under any other of the Credit Documents.
<PAGE> 20
28. Joint and Several Obligations of Credit Parties.
(a) Subject to clause (c) of this Section 28, each of the
Credit Parties is accepting joint and several liability hereunder in
consideration of the financial accommodation to be provided by the
Lenders under the Credit Agreement, for the mutual benefit, directly
and indirectly, of each of the Credit Parties and in consideration of
the undertakings of each of the Credit Parties to accept joint and
several liability for the obligations of each of them.
(b) Subject to clause (c) of this Section 28, each of the
Credit Parties jointly and severally hereby irrevocably and
unconditionally accepts, not merely as a surety but also as a
co-debtor, joint and several liability with the other Credit Parties
with respect to the payment and performance of all of the Secured
Obligations arising under this Security Agreement and the other Credit
Documents, it being the intention of the parties hereto that all the
Secured Obligations shall be the joint and several obligations of each
of the Credit Parties without preferences or distinction among them.
(c) Notwithstanding any provision to the contrary contained
herein or in any other of the Credit Documents, to the extent the
obligations of a Guarantor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of
any applicable state, provincial or federal law relating to fraudulent
conveyances or transfers) then the obligations of each Guarantor
hereunder shall be limited to the maximum amount that is permissible
under applicable law (whether federal or state and including, without
limitation, the Bankruptcy Code).
[remainder of page intentionally left blank]
<PAGE> 21
Each of the parties hereto has caused a counterpart of this Security
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: AMERICAN MEDICAL SYSTEMS, INC.
By: /s/ Gregory J. Melsen
------------------------------
Name: Gregory J. Melsen
----------------------------
Title: Vice President-Finance
Treasurer and Chief
Financial Officer
---------------------------
GUARANTORS: AMERICAN MEDICAL SYSTEMS
HOLDINGS, INC.
By: /s/ Gregory J. Melsen
------------------------------
Name: Gregory J. Melsen
----------------------------
Title: Vice President-Finance,
Treasurer and Chief
Financial officer
---------------------------
INFLUENCE, INC.
By: /s/ Gregory J. Melsen
------------------------------
Name: Gregory J. Melsen
----------------------------
Title: Chief Financial Officer
---------------------------
Accepted and agreed to as of the date first above written.
BANK OF AMERICA, N.A., as Agent
By: /s/ John J. O'Neill
----------------------------
Name: John J. O'Neill
--------------------------
Title: Managing Director
-------------------------
<PAGE> 1
REVOLVING NOTE
$_________________ (DATE)
FOR VALUE RECEIVED, AMERICAN MEDICAL SYSTEMS, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
__________________________, its successors and assigns (the "Lender"), at the
office of Bank of America, N. A., as Agent (the "Agent"), at 101 North Tryon
Street, Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255 (or
at such other place or places as the holder hereof may designate), at the times
set forth in the Credit Agreement dated as of March 24, 2000 among the Borrower,
the Guarantors, the Lenders and the Agent (as it may be as amended, modified,
restated or supplemented from time to time, the "Credit Agreement"; all
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Credit Agreement), but in no event later than the Maturity Date, in
Dollars and in immediately available funds, the principal amount of
________________________DOLLARS ($____________) or, if less than such principal
amount, the aggregate unpaid principal amount of all Revolving Loans made by the
Lender to the Borrower pursuant to the Credit Agreement, and to pay interest
from the date hereof on the unpaid principal amount hereof, in like money, at
said office, on the dates and at the rates selected in accordance with Section
2.1(d) of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default,
the balance outstanding hereunder shall bear interest as provided in Section 3.1
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note, and
all other indebtedness of the Borrower to the Lender shall become immediately
due and payable, without presentment, demand, protest or notice of any kind, all
of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or
in part only by registration of such transfer on the Register maintained by or
on behalf of the Borrower as provided in Section 11.3(c) of the Credit
Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
AMERICAN MEDICAL SYSTEMS, INC.
By:
------------------------
Name:
----------------------
Title:
---------------------
<PAGE> 1
TRANCHE A TERM NOTE
$_________________ (DATE)
FOR VALUE RECEIVED, AMERICAN MEDICAL SYSTEMS, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
__________________________, its successors and assigns (the "Lender"), at the
office of Bank of America, N. A., as Agent (the "Agent"), at 101 North Tryon
Street, Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255 (or
at such other place or places as the holder hereof may designate), at the times
set forth in the Credit Agreement dated as of March 24, 2000 among the Borrower,
the Guarantors, the Lenders and the Agent (as it may be as amended, modified,
restated or supplemented from time to time, the "Credit Agreement"; all
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Credit Agreement), but in no event later than the Maturity Date, in
Dollars and in immediately available funds, the principal amount of
________________________DOLLARS ($____________), and to pay interest from the
date hereof on the unpaid principal amount hereof, in like money, at said
office, on the dates and at the rates selected in accordance with Section 2.3(e)
of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default,
the balance outstanding hereunder shall bear interest as provided in Section 3.1
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note, and
all other indebtedness of the Borrower to the Lender shall become immediately
due and payable, without presentment, demand, protest or notice of any kind, all
of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or
in part only by registration of such transfer on the Register maintained by or
on behalf of the Borrower as provided in Section 11.3(c) of the Credit
Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
AMERICAN MEDICAL SYSTEMS, INC.
By:
---------------------
Name:
-------------------
Title:
------------------
<PAGE> 1
TRANCHE B TERM NOTE
$_________________ (DATE)
FOR VALUE RECEIVED, AMERICAN MEDICAL SYSTEMS, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
__________________________, its successors and assigns (the "Lender"), at the
office of Bank of America, N. A., as Agent (the "Agent"), at 101 North Tryon
Street, Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255 (or
at such other place or places as the holder hereof may designate), at the times
set forth in the Credit Agreement dated as of March 24, 2000 among the Borrower,
the Guarantors, the Lenders and the Agent (as it may be as amended, modified,
restated or supplemented from time to time, the "Credit Agreement"; all
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Credit Agreement), but in no event later than the Maturity Date, in
Dollars and in immediately available funds, the principal amount of
________________________DOLLARS ($____________), and to pay interest from the
date hereof on the unpaid principal amount hereof, in like money, at said
office, on the dates and at the rates selected in accordance with Section 2.3(e)
of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default,
the balance outstanding hereunder shall bear interest as provided in Section 3.1
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note, and
all other indebtedness of the Borrower to the Lender shall become immediately
due and payable, without presentment, demand, protest or notice of any kind, all
of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or
in part only by registration of such transfer on the Register maintained by or
on behalf of the Borrower as provided in Section 11.3(c) of the Credit
Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
AMERICAN MEDICAL SYSTEMS, INC.
By:
---------------------
Name:
-------------------
Title:
------------------
<PAGE> 1
PARENT JOINDER AGREEMENT
THIS JOINDER AGREEMENT (the "Agreement"), dated as of April 17, 2000, is by
and between AMERICAN MEDICAL SYSTEMS, HOLDINGS, INC., a Delaware corporation,
(the "Parent"), and BANK OF AMERICA, N. A., in its capacity as Agent under that
certain Credit Agreement (as it may be amended, modified, restated or
supplemented from time to time, the "Credit Agreement"), dated as of March 24,
2000, by and among AMERICAN MEDICAL SYSTEMS, INC., a Delaware corporation (the
"Borrower"), the Guarantors, the Lenders and Bank of America, N. A., as Agent.
All of the defined terms in the Credit Agreement are incorporated herein by
reference.
The Credit Parties are required by Section 5.2 of the Credit Agreement to
cause the Parent to become a "Guarantor" on or prior to the Initial Funding
Date.
Accordingly, the Parent hereby agrees as follows with the Agent, for the
benefit of the Lenders:
1. The Parent hereby acknowledges, agrees and confirms that, by its
execution of this Agreement, the Parent will be deemed to be a party to the
Credit Agreement and the "Parent" and a "Guarantor" for all purposes of the
Credit Agreement, and shall have all of the obligations of the Parent and a
Guarantor thereunder as if it had executed the Credit Agreement. The Parent
hereby ratifies, as of the date hereof, and agrees to be bound by, all of the
terms, provisions and conditions applicable to the Parent and the Guarantors
contained in the Credit Agreement. Without limiting the generality of the
foregoing terms of this paragraph 1, the Parent hereby jointly and severally
together with the other Guarantors, guarantees to each Lender and the Agent, as
provided in Section 4 of the Credit Agreement, the prompt payment and
performance of the Credit Party Obligations in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in
accordance with the terms thereof.
2. The Parent hereby acknowledges, agrees and confirms that it shall
execute the Security Agreement on or prior to the Initial Funding Date. The
Parent hereby represents and warrants to the Agent that:
(i) The Parent's chief executive office and chief place of business
are (and for the prior four months have been) located at the locations set
forth on Schedule 6.20(c) of the Credit Agreement and the Parent keeps its
books and records at such locations.
(ii) The location of all Collateral owned by the Parent is as shown
on Schedule 6.20(b) of the Credit Agreement.
(iii) The Parent's legal name is as shown in this Agreement and the
Parent has not in the past four months changed its name, been party to a
merger, consolidation or other change in structure or used any tradename
except as set forth in Schedule 6(c) to the Security Agreement.
<PAGE> 2
(iv) The patents and trademarks listed on Schedule 6.17 of the
Credit Agreement constitute all of the registrations and applications for
the patents and trademarks owned by the Parent.
3. The Parent hereby acknowledges, agrees and confirms that it shall
execute the Pledge Agreement on or prior to the Initial Funding Date.
4. The address of the Parent for purposes of all notices and other
communications is 10700 Bren Road, Minnetonka, Minnesota 55343-9679, Attention
of Greg Melsen (Facsimile No. (612) 930-6167).
5. The Parent hereby waives acceptance by the Agent and the Lenders of
the guaranty by the Parent under Section 4 of the Credit Agreement upon the
execution of this Agreement by the Parent.
6. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute one contract.
7. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Parent has caused this Joinder Agreement to be duly
executed by its authorized officers, and the Agent, for the benefit of the
Lenders, has caused the same to be accepted by its authorized officer, as of the
day and year first above written.
AMERICAN MEDICAL SYSTEMS,
HOLDINGS, INC.
By: /s/ Gregory J. Melsen
---------------------------------
Name: Gregory J. Melsen
-------------------------------
Title: Vice President-Finance
Treasurer and Chief Financial
Officer
------------------------------
Acknowledged and accepted:
BANK OF AMERICA, N. A., as Agent
By: /s/ John J. O'Neill
---------------------------------
Name: John J. O'Neill
-------------------------------
Title: Managing Director
------------------------------
<PAGE> 1
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, dated as of April 17, 2000 (this "Pledge Agreement")
is made by American Medical Systems, Inc., a Delaware corporation (the
"Borrower"), American Medical Systems Holdings, Inc., a Delaware corporation
(the "Parent"), certain Subsidiaries of the Borrower (together with the Parent,
individually a "Guarantor" and collectively the "Guarantors"; the Guarantors,
together with the Borrower, individually a "Pledgor" and collectively the
"Pledgors") and Bank of America, N.A., in its capacity as agent (in such
capacity, the "Agent") for the lenders from time to time party to the Credit
Agreement described below (the "Lenders").
RECITALS
WHEREAS, pursuant to that certain Credit Agreement dated as of March 24,
2000 (as amended, modified, extended, renewed or replaced from time to time, the
"Credit Agreement"), among the Borrower, the Guarantors, the Lenders and the
Agent, the Lenders have agreed to make Loans and issue Letters of Credit upon
the terms and subject to the conditions set forth therein; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective Loans and
to issue Letters of Credit under the Credit Agreement that the Pledgors shall
have executed and delivered this Pledge Agreement to the Agent for the ratable
benefit of the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Capitalized terms used herein but not otherwise defined
shall have the meanings ascribed to such terms in the Credit Agreement. For
purposes of this Pledge Agreement, the term "Lender" shall include any Affiliate
of any Lender which has entered into a Hedging Agreement with any Credit Party
(to the extent the obligations of such Credit Party thereunder constitute Credit
Party Obligations).
2. Pledge and Grant of Security Interest. To secure the prompt payment
and performance in full when due, whether by lapse of time or otherwise, of the
Pledgor Obligations (as defined in Section 3 hereof), each Pledgor hereby
pledges and assigns to the Agent, for the benefit of the Lenders, and grants to
the Agent, for the benefit of the Lenders, a continuing security interest in,
and a right to set off against, any and all right, title and interest of such
Pledgor in and to the following, whether now owned or existing or owned,
acquired, or arising hereafter (collectively, the "Pledged Collateral"):
(a) Pledged Capital Stock. (i) 100% (or, if less, the full
amount owned by such Pledgor) of the issued and outstanding Capital Stock
of the Persons set forth on Schedule 2(a) attached hereto that are Domestic
Subsidiaries and
<PAGE> 2
(ii) 65% (or, if less, the full amount owned by such Pledgor) of the issued
and outstanding Capital Stock of the Persons set forth on Schedule 2(a)
attached hereto that are Foreign Subsidiaries, in each full amount owned by
such Pledgor) of the issued and outstanding Capital Stock of the Persons
set forth on Schedule 2(a) attached hereto that are Foreign Subsidiaries,
in each case together with the certificates (or other agreements or
instruments), if any, representing such Capital Stock and all options and
other rights, contractual or otherwise, with respect thereto (collectively,
together with the Capital Stock described in Sections 2(b) and 2(c) below,
the "Pledged Capital Stock"), including, but not limited to, the following:
(A) all shares, securities, membership interests or other equity
interests representing a dividend on any of the Pledged Capital Stock,
or representing a distribution or return of capital upon or in respect
of the Pledged Capital Stock, or resulting from a stock split,
revision, reclassification or other exchange therefor, and any
subscriptions, warrants, rights or options issued to the holder of, or
otherwise in respect of, the Pledged Capital Stock; provided, however,
such Pledgor shall not be required to deliver more than 65% of the
Person that is a Foreign Subsidiary of such Pledgor; and
(B) without affecting the obligations of the Pledgors under any
provision prohibiting such action hereunder or under the Credit
Agreement, in the event of any consolidation or merger involving the
issuer of any Pledged Capital Stock and in which such issuer is not
the surviving entity, the Capital Stock (in the applicable percentage
specified in Section 2(a) above) of the successor entity formed by or
resulting from such consolidation or merger.
(b) Additional Shares. (i) 100% (or, if less, the full amount owned
by such Pledgor) of the issued and outstanding Capital Stock of any Person
which hereafter becomes a Domestic Subsidiary and (ii) 65% (or, if less,
the full amount owned by such Pledgor) of the issued and outstanding
Capital Stock of any Person which hereafter becomes a first-tier Foreign
Subsidiary, in each case together with the certificates (or other
agreements or instruments), if any, representing such Capital Stock.
(c) Proceeds. All proceeds and products of the foregoing, however and
whenever acquired and in whatever form.
Without limiting the generality of the foregoing, it is hereby specifically
understood and agreed that each Pledgor may from time to time hereafter deliver
additional shares of Capital Stock to the Agent as collateral security for the
Pledgor Obligations. Upon delivery to the Agent, such additional Capital Stock
shall be deemed to be part of the Pledged Collateral and shall be subject to the
terms of this Pledge Agreement whether or not Schedule 2(a) is amended to refer
to such additional Capital Stock.
2
<PAGE> 3
3. Security for Pledgor Obligations. The security interest created hereby
in the Pledged Collateral constitutes continuing collateral security for all of
the following, whether now existing or hereafter incurred (the "Pledgor
Obligations"):
(a) In the case of the Borrower, the prompt performance and
observance by the Borrower of all obligations of the Borrower under the
Credit Agreement, the Notes, this Pledge Agreement and the other Credit
Documents to which the Borrower is a party;
(b) Subject to clause (c) of Section 26 hereof, in the case of the
Guarantors, the prompt performance and observance by each Guarantor of all
obligations of such Guarantor under the Credit Agreement, this Pledge
Agreement and the other Credit Documents to which such Guarantor is a
party, including, without limitation, its guaranty obligations arising
under Section 4 of the Credit Agreement; and
(c) All other indebtedness, liabilities, obligations and expenses of
any kind or nature owing from any Credit Party to any Lender or the Agent
in connection with (i) this Pledge Agreement or any other Credit Document,
whether now existing or hereafter arising, due or to become due, direct or
indirect, absolute or contingent, and howsoever evidenced, held or
acquired, together with any and all modifications, extensions, renewals
and/or substitutions of any of the foregoing, (ii) collecting and enforcing
the Credit Party Obligations and (iii) all liabilities and obligations
owing from such Credit Party to any Lender or any Affiliate of any Lender
arising under any Hedging Agreements.
4. Delivery of the Pledged Collateral; Perfection of Security Interest.
Each Pledgor hereby agrees that:
(a) Delivery of Certificates. Each Pledgor shall deliver to the Agent
(i) simultaneously with or prior to the execution and delivery of this
Pledge Agreement, all certificates representing the Pledged Capital Stock
of such Pledgor and (ii) promptly upon the receipt thereof by or on behalf
of a Pledgor, all other certificates and instruments constituting Pledged
Collateral of a Pledgor. Prior to delivery to the Agent, all such
certificates and instruments constituting Pledged Collateral of a Pledgor
shall be held in trust by such Pledgor for the benefit of the Agent
pursuant hereto. All such certificates shall be delivered in suitable form
for transfer by delivery or shall be accompanied by duly executed
instruments of transfer or assignment in blank, substantially in the form
provided in Exhibit 4(a) attached hereto.
(b) Additional Securities. If such Pledgor shall receive by virtue of
its being, becoming or having been the owner of any Pledged Collateral, any
(i) certificate, including without limitation, any certificate representing
a dividend or distribution in connection with any increase or reduction of
capital, reclassification, merger, consolidation, sale of assets,
combination of shares or membership or equity interests, stock splits,
spin-off or split-off, promissory notes or other instrument; (ii) option or
right, whether as an addition to, substitution for, or an exchange for, any
Pledged Collateral or otherwise; (iii) dividends payable in securities; or
(iv) distributions of securities or other
3
<PAGE> 4
equity interests in connection with a partial or total liquidation,
dissolution or reduction of capital, capital surplus or paid-in surplus,
then, subject to the percentage limitations set forth in Section 2(a)
above, such Pledgor shall receive such certificate, instrument, option,
right or distribution in trust for the benefit of the Agent, shall
segregate it from such Pledgor's other property and shall deliver it
forthwith to the Agent in the exact form received together with any
necessary endorsement and/or appropriate stock power duly executed in
blank, substantially in the form provided in Exhibit 4(a), to be held by
the Agent as Pledged Collateral and as further collateral security for the
Pledgor Obligations.
(c) Financing Statements. Each Pledgor shall execute and deliver to
the Agent such UCC or other applicable financing statements as may be
reasonably requested by the Agent in order to perfect and protect the
security interest created hereby in the Pledged Collateral of such Pledgor.
(d) Control. If necessary to perfect the Lenders' security interest
in any Pledged Collateral consisting of uncertificated Pledged Capital
Stock, upon request of the Agent, (i) the Pledgor shall send to each issuer
of such uncertificated Pledged Capital Stock (each an "Issuer") an
authorization statement substantially in the form provided in Exhibit
4(d)(i) (each an "Authorization Statement") and (ii) the Pledgor shall
cause each such Issuer to, and each such Issuer shall, deliver to the Agent
(A) an Acknowledgement and Consent substantially in the form provided in
Exhibit 4(d)(ii)(A) (each an "Acknowledgement and Consent") and (B) a
Transaction Statement substantially in the form provided in Exhibit
4(d)(ii)(B) (each a "Transaction Statement"), confirming that such Issuer
has registered the pledge effected by this Pledge Agreement on its books.
Each Pledgor hereby authorizes and instructs each Issuer that is a party to
this Pledge Agreement to comply with any instruction received by it from
the Agent in writing that (y) states that an Event of Default has occurred
and is continuing and (z) is otherwise in accordance with the terms of this
Pledge Agreement, without any other or further instructions from such
Pledgor, and such Pledgor agrees to indemnify such Issuer for any loss,
damage or liability incurred by such Issuer in acting upon such
instructions of the Agent.
5. Representations and Warranties. Each Pledgor hereby represents and
warrants to the Agent, for the benefit of the Lenders, that so long as any of
the Pledgor Obligations remain outstanding (other than any such obligations
which by the terms thereof are stated to survive termination of the Credit
Documents) or any Credit Document or Hedging Agreement between a Credit Party
and any Lender (to the extent the obligations of such Credit Party thereunder
constitute Credit Party Obligations) is in effect, and until all of the
Commitments shall have been terminated:
(a) Authorization of Pledged Capital Stock. The Pledged Capital Stock
is duly authorized and validly issued, is fully paid and, with respect any
Pledged Capital Stock consisting of stock of a corporation, nonassessable
and is not subject to the preemptive rights of any Person. All other shares
of Capital Stock constituting Pledged Collateral will be duly authorized
and validly issued, fully paid and, with respect any Pledged Capital Stock
consisting of stock of a corporation, nonassessable and not subject to the
preemptive rights of any Person.
(b) Title. Each Pledgor has good and indefeasible title to the
Pledged Collateral of such Pledgor and will at all times be the legal and
beneficial owner of such Pledged Collateral free and clear of any Lien,
other than Permitted Liens. There exists no "adverse claim" within the
meaning of Section 8-102 of the Uniform Commercial Code as in effect in the
State of New York (the "UCC") with respect to the Pledged Capital Stock of
such Pledgor.
4
<PAGE> 5
(c) Exercising of Rights. The exercise by the Agent of its rights and
remedies hereunder will not violate any law or governmental regulation or
any material contractual restriction binding on or affecting a Pledgor or
any of its property.
(d) Pledgor's Authority. No authorization, approval or action by, and
no notice or filing with any Governmental Authority or with the issuer of
any Pledged Capital Stock is required either (i) for the pledge made by a
Pledgor or for the granting of the security interest by a Pledgor pursuant
to this Pledge Agreement or (ii) for the exercise by the Agent or the
Lenders of their rights and remedies hereunder (except as may be required
by laws affecting the offering and sale of securities).
(e) Security Interest/Priority. This Pledge Agreement creates a valid
security interest in favor of the Agent, for the benefit of the Lenders, in
the Pledged Collateral. The taking possession by the Agent of the
certificates, if any, representing the Pledged Capital Stock and all other
certificates and instruments constituting Pledged Collateral will perfect
and establish the first priority of the Agent's security interest in the
Pledged Capital Stock and such certificates and instruments and, upon the
filing of UCC financing statements or registration of the Agent's security
interest on the books and records of the Issuers of any uncertificated
Pledged Capital Stock, the Agent shall have a first priority perfected
security interest in all other Pledged Collateral represented by such
Pledged Capital Stock. Except as set forth in this Section 5(e), no action
is necessary to perfect or otherwise protect such security interest.
(f) No Other Capital Stock. No Pledgor owns any Capital Stock other
than as set forth on Schedule 2(a) attached hereto.
(g) Partnership and Limited Liability Company Interests. Except as
previously disclosed to the Agent, none of the Pledged Capital Stock
consisting of partnership or limited liability company interests (i) is
dealt in or traded on a securities exchange or in a securities market, (ii)
by its terms expressly provides that it is a security governed by Article 8
of the UCC, (iii) is an investment company security, (iv) is held in a
securities account or (v) constitutes a "security" or a "financial asset"
as such terms are defined in Article 8 of the UCC.
6. Covenants. Each Pledgor hereby covenants, that so long as any of the
Pledgor Obligations remain outstanding (other than any such obligations which
by the terms thereof are stated to survive termination of the Credit Documents)
or any Credit Document or Hedging Agreement between any Credit Party and any
Lender (to the extent the obligations of such Credit Party thereunder
constitute Credit Party Obligations) is in effect, and until all the
Commitments shall have been terminated, such Pledgor shall:
(a) Books and Records. Mark its books and records (and shall cause
the issuer of the Pledged Capital Stock of such Pledgor to mark its books
and records) to reflect the security interest granted to the Agent, for the
benefit of the Lenders, pursuant to this Pledge Agreement.
(b) Defense of Title. Warrant and defend title to and ownership of
the Pledged Collateral of such Pledgor at its own expense against the
claims and demands of all other parties claiming an interest therein, keep
the Pledged Collateral free from all Liens, except for Permitted Liens, and
not sell, exchange, transfer, assign, lease or
5
<PAGE> 6
otherwise dispose of Pledged Collateral of such Pledgor or any interest
therein, except as permitted under the Credit Agreement and the other
Credit Documents.
(c) Further Assurances. Promptly execute and deliver at its expense
all further instruments and documents and take all further action that may
be necessary and desirable or that the Agent may reasonably request in
order to (i) perfect and protect the security interest created hereby in
the Pledged Collateral of such Pledgor (including, without limitation, the
execution and filing of UCC financing statements and any and all action
necessary to satisfy the Agent that the Agent has obtained a first priority
perfected security interest in all Pledged Capital Stock); (ii) enable the
Agent to exercise and enforce its rights and remedies hereunder in respect
of the Pledged Collateral of such Pledgor; and (iii) otherwise effect the
purposes of this Pledge Agreement, including, without limitation and if
requested by the Agent, delivering to the Agent irrevocable proxies in
respect of the Pledged Collateral of such Pledgor.
(d) Amendments. Not make or consent to any amendment or other
modification or waiver with respect to any of the Pledged Collateral of
such Pledgor or enter into any agreement or allow to exist any restriction
with respect to any of the Pledged Collateral of such Pledgor other than
pursuant hereto or as may be permitted under the Credit Agreement.
(e) Compliance with Securities Laws. File all reports and other
information now or hereafter required to be filed by such Pledgor with the
United States Securities and Exchange Commission and any other state,
federal or foreign agency in connection with the ownership of the Pledged
Collateral of such Pledgor.
(f) Issuance or Acquisition of Capital Stock. Not, without providing
30 days prior written notice to the Agent and without executing and
delivering, or causing to be executed and delivered, to the Agent such
agreements, documents and instruments as the Agent may require, issue or
acquire any Capital Stock consisting of an interest in a partnership or a
limited liability company that (i) is dealt in or traded on a securities
exchange or in a securities market, (ii) by its terms expressly provides
that it is a security governed by Article 8 of the UCC, (iii) is an
investment company security, (iv) is held in a securities account or (v)
constitutes a "security" or a "financial asset" as such terms are defined
in Article 8 of the UCC.
7. Performance of Obligations and Advances by Agent or Lenders. On
failure of any Pledgor to perform any of the covenants and agreements contained
herein, the Agent or any of the Lenders may, at its sole option and in its
reasonable discretion, perform or cause to be performed the same and in so doing
may expend such sums as the Agent or such Lender may reasonably deem advisable
in the performance thereof, including, without limitation, the payment of any
insurance premiums, the payment of any taxes, a payment to obtain a release of a
Lien or potential Lien, expenditures made in defending against any adverse claim
and all other expenditures which the Agent or such Lender may make for the
protection of the security hereof or which may be compelled to make by operation
of law. All such sums and amounts so expended shall be repayable by the Pledgors
on a joint and several basis promptly upon timely notice thereof and demand
6
<PAGE> 7
therefor, shall constitute additional Pledgor Obligations and shall bear
interest from the date said amounts are expended at the default rate specified
in Section 3.1 of the Credit Agreement for Revolving Loans that are Base Rate
Loans. No such performance of any covenant or agreement by the Agent or the
Lenders on behalf of any Pledgor, and no such advance or expenditure therefor,
shall relieve the Pledgors of any default under the terms of this Pledge
Agreement, the other Credit Documents or any Hedging Agreement between any
Credit Party and any Lender (to the extent the obligations of such Credit Party
thereunder constitute Credit Party Obligations). The Agent or any Lender may
make any payment hereby authorized in accordance with any bill, statement or
estimate procured from the appropriate public office or holder of the claim to
be discharged without inquiry into the accuracy of such bill, statement or
estimate or into the validity of any tax assessment, sale, forfeiture, tax lien,
title or claim except to the extent such payment is being contested in good
faith by a Pledgor in appropriate proceedings and against which adequate
reserves are being maintained in accordance with GAAP.
8. Events of Default. The occurrence of an event which under the Credit
Agreement would constitute an Event of Default shall be an event of default
hereunder (an "Event of Default").
9. Remedies.
(a) General Remedies. Upon the occurrence of an Event of Default and
during the continuation thereof, the Agent and the Lenders shall have, in
respect of the Pledged Collateral of any Pledgor, in addition to the rights
and remedies provided herein, in the Credit Documents, in any Hedging
Agreement between any Credit Party and any Lender (to the extent the
obligations of such Credit Party thereunder constitute Credit Party
Obligations) or by law, the rights and remedies of a secured party under
the UCC or any other applicable law.
(b) Sale of Pledged Collateral. Upon the occurrence of an Event of
Default and during the continuation thereof, without limiting the
generality of this Section and without notice, the Agent may, in its sole
discretion, sell or otherwise dispose of or realize upon the Pledged
Collateral, or any part thereof, in one or more parcels, at public or
private sale, at any exchange or broker's board or elsewhere, at such price
or prices and on such other terms as the Agent may deem commercially
reasonable, for cash, credit or for future delivery or otherwise in
accordance with applicable law. To the extent permitted by law, any Lender
may in such event bid for the purchase of such securities. Each Pledgor
agrees that, to the extent notice of sale shall be required by law and has
not been waived by such Pledgor, any requirement of reasonable notice shall
be met if notice, specifying the place of any public sale or the time after
which any private sale is to be made, is personally served on or mailed
postage prepaid to such Pledgor in accordance with the notice provisions of
Section 11.1 of the Credit Agreement at least 10 days before the time of
such sale. The Agent shall not be obligated to make any sale of Pledged
Collateral of such Pledgor regardless of notice of sale having been given.
The Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
7
<PAGE> 8
(c) Private Sale. Upon the occurrence of an Event of Default and
during the continuation thereof, the Pledgors recognize that the Agent may
deem it impracticable to effect a public sale of all or any part of the
Pledged Collateral and that the Agent may, therefore, determine to make one
or more private sales of any such Pledged Collateral to a restricted group
of purchasers who will be obligated to agree, among other things, to
acquire such Pledged Collateral for their own account, for investment and
not with a view to the distribution or resale thereof. Each Pledgor
acknowledges that any such private sale may be at prices and on terms less
favorable to the seller than the prices and other terms which might have
been obtained at a public sale and, notwithstanding the foregoing, agrees
that such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Agent shall have no obligation to delay sale
of any such Pledged Collateral for the period of time necessary to permit
the issuer of such Pledged Collateral to register such Pledged Collateral
for public sale under the Securities Act of 1933. Each Pledgor further
acknowledges and agrees that any offer to sell such Pledged Collateral
which has been (i) publicly advertised on a bona fide basis in a newspaper
or other publication of general circulation in the financial community of
New York, New York (to the extent that such offer may be advertised without
prior registration under the Securities Act of 1933), or (ii) made
privately in the manner described above shall be deemed to involve a
"public sale" under the UCC, notwithstanding that such sale may not
constitute a "public offering" under the Securities Act of 1933, and the
Agent may, in such event, bid for the purchase of such Pledged Collateral.
(d) Retention of Pledged Collateral. In addition to the rights and
remedies hereunder, upon the occurrence of an Event of Default, the Agent
may, after providing the notices required by Section 9-505(2) of the UCC or
otherwise complying with the requirements of applicable law of the relevant
jurisdiction, retain all or any portion of the Pledged Collateral in
satisfaction of the Pledgor Obligations. Unless and until the Agent shall
have provided such notices, however, the Agent shall not be deemed to have
retained any Pledged Collateral in satisfaction of any Pledgor Obligations
for any reason.
(e) Deficiency. In the event that the proceeds of any sale,
collection or realization are insufficient to pay all amounts to which the
Agent or the Lenders are legally entitled, the Pledgors shall be jointly
and severally liable for the deficiency, together with interest thereon at
the default rate specified in Section 3.1 of the Credit Agreement for
Revolving Loans that are Base Rate Loans and together with the costs of
collection and the reasonable fees of any attorneys employed by the Agent
to collect such deficiency. Any surplus remaining after the full payment
and satisfaction of the Pledgor Obligations shall be returned to the
Pledgors or to whomsoever a court of competent jurisdiction shall determine
to be entitled thereto.
10. Rights of the Agent.
(a) Power of Attorney. In addition to other powers of attorney
contained herein, each Pledgor hereby designates and appoints the Agent, on
behalf of the Lenders,
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<PAGE> 9
and each of its designees or agents as attorney-in-fact of such Pledgor,
irrevocably and with power of substitution, with authority to take any or all of
the following actions upon the occurrence and during the continuance of an Event
of Default:
(i) to demand, collect, settle, compromise, adjust and give
discharges and releases concerning the Pledged Collateral of such
Pledgor, all as the Agent may reasonably determine;
(ii) to commence and prosecute any actions at any court for the
purposes of collecting any of the Pledged Collateral of such Pledgor
and enforcing any other right in respect thereof;
(iii) to defend, settle, adjust or compromise any action, suit
or proceeding brought and, in connection therewith, give such
discharge or release as the Agent may deem reasonably appropriate;
(iv) to pay or discharge taxes, liens, security interests, or
other encumbrances levied or placed on or threatened against the
Pledged Collateral of such Pledgor;
(v) to direct any parties liable for any payment under any of
the Pledged Collateral to make payment of any and all monies due and
to become due thereunder directly to the Agent or as the Agent shall
direct;
(vi) to receive payment of and receipt for any and all monies,
claims, and other amounts due and to become due at any time in respect
of or arising out of any Pledged Collateral of such Pledgor;
(vii) to sign and endorse any drafts, assignments, proxies,
stock powers, verifications, notices and other documents relating to
the Pledged Collateral of such Pledgor;
(viii) to execute and deliver all assignments, conveyances,
statements, financing statements, renewal financing statements, pledge
agreements, affidavits, notices and other agreements, instruments and
documents that the Agent may determine necessary in order to perfect
and maintain the security interests and liens granted in this Pledge
Agreement and in order to fully consummate all of the transactions
contemplated herein;
(ix) to exchange any of the Pledged Collateral of such Pledgor
or other property upon any merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof and, in
connection therewith, deposit any of the Pledged Collateral of such
Pledgor with any committee, depository, transfer agent, registrar or
other designated agency upon such terms as the Agent may determine;
9
<PAGE> 10
(x) to vote for a shareholder or member resolution, or to sign
an instrument in writing, sanctioning the transfer of any or all of
the Pledged Capital Stock of such Pledgor into the name of the Agent
or one or more of the Lenders or into the name of any transferee to
whom the Pledged Capital Stock of such Pledgor or any part thereof may
be sold pursuant to Section 9 hereof; and
(xi) to do and perform all such other acts and things as the
Agent may reasonably deem to be necessary, proper or convenient in
connection with the Pledged Collateral of such Pledgor.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Pledgor Obligations remain
outstanding (other than any such obligations which by the terms thereof are
stated to survive termination of the Credit Documents) or any Credit
Document or any Hedging Agreement between any Credit Party and any Lender
(to the extent the obligations of such Credit Party thereunder continue
Credit Party Obligations) is in effect and (ii) until all of the
Commitments shall have been terminated. The Agent shall be under no duty to
exercise or withhold the exercise of any of the rights, powers, privileges
and options expressly or implicitly granted to the Agent in this Pledge
Agreement and shall not be liable for any failure to do so or any delay in
doing so. The Agent shall not be liable for any act or omission or for any
error of judgment or any mistake of fact or law in its individual capacity
or its capacity as attorney-in-fact except acts or omissions resulting from
its gross negligence or willful misconduct. This power of attorney is
conferred on the Agent solely to protect, preserve and realize upon its
security interest in the Pledged Collateral.
(b) Assignment by the Agent. The Agent may from time to time assign
the Pledgor Obligations and any portion thereof and/or the Pledged
Collateral and any portion thereof, and the assignee shall be entitled to
all of the rights and remedies of the Agent under this Pledge Agreement in
relation thereto.
(c) The Agent's Duty of Care. Other than the exercise of reasonable
care to ensure the safe custody of the Pledged Collateral while being held
by the Agent hereunder, the Agent shall have no duty or liability to
preserve rights pertaining thereto, it being understood and agreed that
each of the Pledgors shall be responsible for preservation of all rights in
the Pledged Collateral of such Pledgor, and the Agent shall be relieved of
all responsibility for such Pledged Collateral upon surrendering it or
tendering the surrender of it to such Pledgor. The Agent shall be deemed to
have exercised reasonable care in the custody and preservation of the
Pledged Collateral in its possession if such Pledged Collateral is accorded
treatment substantially equal to that which the Agent accords its own
property, which shall be no less than the treatment employed by a
reasonable and prudent agent in the industry, it being understood that the
Agent shall not have responsibility for (i) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relating to any Pledged Collateral, whether or not the Agent has or
is deemed to have knowledge of such matters; or (ii) taking any necessary
steps to preserve rights against any parties with respect to any Pledged
Collateral.
10
<PAGE> 11
(d) Voting Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have occurred
and be continuing, to the extent permitted by law, each Pledgor may
exercise any and all voting and other consensual rights pertaining to
the Pledged Collateral of such Pledgor or any part thereof for any
purpose not inconsistent with the terms of this Pledge Agreement or
the Credit Agreement; and
(ii) Upon the occurrence and during the continuance of an
Event of Default, all rights of a Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to
exercise pursuant to paragraph (i) of this Section shall cease and all
such rights shall thereupon become vested in the Agent which shall
then have the sole right to exercise such voting and other consensual
rights.
(f) Dividend and Distribution Rights in Respect of the Pledged
Collateral.
(i) So long as no Event of Default shall have occurred
and be continuing and subject to Section 4(b) hereof, each Pledgor may
receive and retain any and all dividends (other than stock dividends
and other dividends constituting Pledged Collateral which are
addressed hereinabove), distributions or interest paid in respect of
the Pledged Collateral to the extent they are allowed under the Credit
Agreement.
(ii) Upon the occurrence and during the continuance of an
Event of Default:
(A) all rights of a Pledgor to receive the dividends,
distributions and interest payments which it would otherwise be
authorized to receive and retain pursuant to subsection (i) of
this Section shall cease and all such rights shall thereupon be
vested in the Agent which shall then have the sole right to
receive and hold as Pledged Collateral such dividends,
distributions and interest payments; and
(B) all dividends, distributions and interest payments
which are received by a Pledgor contrary to the provisions of
subsection (A) of this Section shall be received in trust for the
benefit of the Agent, shall be segregated from other property or
funds of such Pledgor, and shall be forthwith paid over to the
Agent as Pledged Collateral in the exact form received, to be
held by the Agent as Pledged Collateral and as further collateral
security for the Pledgor Obligations.
(g) Release of Pledged Collateral. The Agent may release any of the
Pledged Collateral from this Pledge Agreement or may substitute any of the
Pledged Collateral for other Pledged Collateral without altering, varying
or diminishing in any way the force, effect, lien, pledge or security
interest of this Pledge Agreement as to any Pledged Collateral
11
<PAGE> 12
not expressly released or substituted, and this Pledge Agreement shall
continue as a first priority lien on all Pledged Collateral not expressly
released or substituted.
11. Rights of Required Lenders. All rights of the Agent hereunder, if not
exercised by the Agent, may be exercised by the Required Lenders.
12. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Pledgor
Obligations and any proceeds of any Pledged Collateral, when received by the
Agent or any of the Lenders in cash or its equivalent, will be applied in
reduction of the Pledgor Obligations in the order set forth in Section 3.15(b)
of the Credit Agreement, and each Pledgor irrevocably waives the right to direct
the application of such payments and proceeds and acknowledges and agrees that
the Agent shall have the continuing and exclusive right to apply and reapply any
and all such payments and proceeds in the Agent's sole discretion,
notwithstanding any entry to the contrary upon any of its books and records.
13. Costs and Expenses. At all times hereafter, the Pledgors agree to
promptly pay upon demand any and all reasonable costs and expenses of the Agent
or the Lenders, (a) as required under Section 11.5 of the Credit Agreement and
(b) as necessary to protect the Pledged Collateral or to exercise any rights or
remedies under this Pledge Agreement or with respect to any Pledged Collateral.
All of the foregoing costs and expenses shall constitute Pledgor Obligations
hereunder.
14. Continuing Agreement.
(a) This Pledge Agreement shall be a continuing agreement in every
respect and shall remain in full force and effect so long as any of the
Pledgor Obligations remain outstanding (other than any such obligations
which by the terms thereof are stated to survive termination of the Credit
Documents) or any Credit Document or Hedging Agreement between any Credit
Party and any Lender (to the extent the obligations of such Credit Party
thereunder constitute Credit Party Obligations) is in effect, and until all
of the Commitments thereunder shall have terminated. Upon such payment and
termination this Pledge Agreement shall be automatically terminated and the
Agent and the Lenders shall, upon the request and at the expense of the
Pledgors, (i) return all certificates representing the Pledged Capital
Stock, all other certificates and instruments constituting Pledged
Collateral and all instruments of transfer or assignment which have been
delivered to the Agent pursuant to this Pledge Agreement and (ii) forthwith
release all of its liens and security interests hereunder and shall execute
and deliver all UCC termination statements and/or other documents
reasonably requested by the Pledgors evidencing such termination.
Notwithstanding the foregoing, all releases and indemnities provided
hereunder shall survive termination of this Pledge Agreement.
(b) This Pledge Agreement shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment, in
whole or in part, of any of the Pledgor Obligations is rescinded or must
otherwise be restored or returned by the Agent or any Lender as a
preference, fraudulent conveyance or otherwise under any bankruptcy,
insolvency or similar law, all as though such payment had not been made;
provided that in the event payment of all or any part of the Pledgor
Obligations is rescinded or must be restored or returned, all reasonable
costs and expenses (including without limitation any reasonable legal fees
and disbursements) incurred by the Agent or any Lender in
12
<PAGE> 13
defending and enforcing such reinstatement shall be deemed to be included
as a part of the Pledgor Obligations.
15. Amendments; Waivers; Modifications. This Pledge Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except as set forth in Section 11.6 of the Credit Agreement.
16. Successors in Interest. This Pledge Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Pledgor, its successors and assigns and shall inure, together with the rights
and remedies of the Agent and the Lenders hereunder, to the benefit of the Agent
and the Lenders and their successors and permitted assigns; provided, however,
that none of the Pledgors may assign its rights or delegate its duties hereunder
without the prior written consent of each Lender or the Required Lenders, as
required by the Credit Agreement. To the fullest extent permitted by law, each
Pledgor hereby releases the Agent and each Lender, and its successors and
assigns, from any liability for any act or omission relating to this Pledge
Agreement or the Collateral, except for any liability arising from the gross
negligence or willful misconduct of the Agent, or such Lender, or its officers,
employees or agents.
17. Notices. All notices required or permitted to be given under this
Pledge Agreement shall be in conformance with Section 11.1 of the Credit
Agreement.
18. Counterparts. This Pledge Agreement may be executed in any number of
counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Pledge Agreement to produce or
account for more than one such counterpart.
19. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning,
construction or interpretation of any provision of this Pledge Agreement.
20. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any legal action or
proceeding with respect to this Pledge Agreement may be brought in the
courts of the State of North Carolina or the State of New York, or of the
United States for either the Western District of North Carolina or the
Southern District of New York, and, by execution and delivery of this
Pledge Agreement, each Pledgor hereby irrevocably accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of
such courts. Each Pledgor further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to it at the address for notices pursuant to Section
11.1 of the Credit Agreement, such service to become effective 30 days
after such mailing. Nothing herein
13
<PAGE> 14
shall affect the right of the Agent to serve process in any other manner
permitted by law or to commence legal proceedings or to otherwise proceed
against any Pledgor in any other jurisdiction.
(b) Each Pledgor hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Pledge
Agreement brought in the courts referred to in subsection (a) hereof and
hereby further irrevocably waives and agrees not to plead or claim in any
such court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum.
21. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH
OF THE PARTIES TO THIS PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
22. Severability. If any provision of this Pledge Agreement is determined
to be illegal, invalid or unenforceable, such provision shall be fully severable
and the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
23. Entirety. This Pledge Agreement, the other Credit Documents and the
Hedging Agreements between any Credit Party and any Lender (to the extent the
obligations of such Credit Party thereunder constitute Credit Party Obligations)
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents, such
Hedging Agreements or the transactions contemplated herein and therein.
24. Survival. All representations and warranties of the Pledgors hereunder
shall survive the execution and delivery of this Pledge Agreement, the other
Credit Documents and the Hedging Agreements between any Credit Party and any
Lender (to the extent the obligations of such Credit Party thereunder constitute
Credit Party Obligations), the delivery of the Notes, the making of the Loans
and the issuance of the Letters of Credit.
25. Other Security. To the extent that any of the Pledgor Obligations are
now or hereafter secured by property other than the Pledged Collateral
(including, without limitation, real and other personal property owned by a
Pledgor), or by a guarantee, endorsement or property of any other Person, then
the Agent and the Lenders shall have the right to proceed against such other
property, guarantee or endorsement upon the occurrence of any Event of Default,
and the Agent and the Lenders have the right, in their sole discretion, to
determine which rights, security, liens, security interests or remedies the
Agent and the Lenders shall at any time pursue, relinquish, subordinate, modify
or take with respect thereto, without in any way modifying or affecting any of
them or any of the Agent's and the Lenders' rights or the Pledgor Obligations
under this Pledge Agreement, under any other of the Credit Documents or under
any
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<PAGE> 15
Hedging Agreement between any Credit Party and any Lender (to the extent the
obligations of such Credit Party thereunder constitute Credit Party
Obligations).
26. Joint and Several Obligations of Pledgors.
(a) Each of the Pledgors is accepting joint and several liability
hereunder in consideration of the financial accommodation to be provided by
the Lenders under the Credit Agreement, for the mutual benefit, directly
and indirectly, of each of the Pledgors and in consideration of the
undertakings of each of the Pledgors to accept joint and several liability
for the obligations of each of them.
(b) Each of the Pledgors jointly and severally hereby irrevocably and
unconditionally accepts, not merely as a surety but also as a co-debtor,
joint and several liability with the other Pledgors with respect to the
payment and performance of all of the Pledgor Obligations arising under
this Pledge Agreement, the other Credit Documents and the Hedging
Agreements between any Credit Party and any Lender (to the extent the
obligations of such Credit Party thereunder constitute Credit Party
Obligations), it being the intention of the parties hereto that all the
Pledgor Obligations shall be the joint and several obligations of each of
the Pledgors without preferences or distinction among them.
(c) Notwithstanding any provision to the contrary contained herein or
in any other of the Credit Documents, to the extent the obligations of a
Pledgor shall be adjudicated to be invalid or unenforceable for any reason
(including, without limitation, because of any applicable state or federal
law relating to fraudulent conveyances or transfers) then the obligations
of such Pledgor hereunder shall be limited to the maximum amount that is
permissible under applicable law (whether federal or state and including,
without limitation, the Bankruptcy Code).
[remainder of page intentionally left blank]
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<PAGE> 16
Each of the parties hereto has caused a counterpart of this Pledge
Agreement to be duly executed and delivered as of the date first above written.
PLEDGORS: AMERICAN MEDICAL SYSTEMS, INC.
By: /s/ Gregory J. Melsen
--------------------------------------
Title: Vice President-Finance, Treasurer
and Chief Financial Officer
-----------------------------------
Name: Gregory J. Melsen
------------------------------------
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
By: /s/ Gregory J. Melsen
--------------------------------------
Title: Vice President-Finance, Treasurer
and Chief Financial Officer
-----------------------------------
Name: Gregory J. Melsen
------------------------------------
INFLUENCE, INC.
By: /s/ Gregory J. Melsen
--------------------------------------
Title: Chief Financial Officer
-----------------------------------
Name: Gregory J. Melsen
------------------------------------
Accepted and agreed as of the date first above written.
BANK OF AMERICA, N.A., as Agent
By: /s/ John J. O'Neill
--------------------------------------
Title: Managing Director
-----------------------------------
Name: John J. O'Neill
------------------------------------
<PAGE> 17
Schedule 2(a)
to
Pledge Agreement
dated as of , 2000 in favor of
Bank of America, N.A.,
as Agent
PLEDGED CAPITAL STOCK
PLEDGOR: AMERICAN MEDICAL SYSTEMS
HOLDINGS, INC.
<TABLE>
<CAPTION>
Name of Number of Certificate Percentage Percentage
Domestic Subsidiary Shares Number Ownership Pledged
------------------- ------ ------ --------- -------
<S> <C> <C> <C> <C>
American Medical Systems, Inc. 100% 100%
</TABLE>
PLEDGOR: AMERICAN MEDICAL SYSTEMS,
INC.
<TABLE>
<CAPTION>
Name of Number of Certificate Percentage Percentage
Domestic Subsidiary Shares Number Ownership Pledged
------------------- ------ ------ --------- -------
<S> <C> <C> <C> <C>
Influence, Inc. 10,000,000 100% 100%
</TABLE>
<PAGE> 18
Exhibit 4(a)
to
Pledge Agreement
dated as of __________, 2000 in favor of
Bank of America, N.A.,
as Agent
Irrevocable Stock Power
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
the following shares of capital stock of , a corporation:
No. of Shares Certificate No.
------------- ---------------
and irrevocably appoints its agent and attorney-in-fact
to transfer all or any part of such capital stock and to take all necessary and
appropriate action to effect any such transfer. The agent and attorney-in-fact
may substitute and appoint one or more persons to act for him.
--------------------------------,
a corporation
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 1
GUARANTY AND INVESTMENT AGREEMENT
THIS GUARANTY AND INVESTMENT AGREEMENT, dated as of April 17, 2000 (as
amended, modified, restated or supplemented from time to time, the "Agreement"),
is by and among WARBURG, PINCUS EQUITY PARTNERS, L.P., a Delaware limited
partnership ("US Warburg"), WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I, C.V.,
a commanditaire vennootschap (limited partnership) established under the laws of
the Netherlands, WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V., a
commanditaire vennootschap (limited partnership) established under the laws of
the Netherlands and WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V., a
commanditaire vennootschap (limited partnership) established under the laws of
the Netherlands (each, including US Warburg, a "Warburg Guarantor" and
collectively, the "Warburg Guarantors") and BANK OF AMERICA, N.A., as Agent for
the Lenders hereinafter defined (in such capacity, the "Agent").
W I T N E S S E T H
WHEREAS, the Lenders have agreed to make certain loans and extensions
of credit to American Medical Systems, Inc., a Delaware corporation (the
"Borrower") pursuant to the terms of that Credit Agreement dated as of March 24,
2000 (as amended, modified, extended, increased, renewed or replaced, the
"Credit Agreement") among the Borrower, the guarantors party thereto (the
"Guarantors"), the Lenders party thereto (the "Lenders") and the Agent; and
WHEREAS, the execution of this Agreement by the Guarantors is a
condition precedent to the obligations of the Lenders to make extensions of
credit to the Borrower under the Credit Agreement;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Warburg Guarantors hereby agree as follows:
1. Definitions. Capitalized terms used herein but not otherwise defined
herein shall have the meanings provided in the Credit Agreement. Capitalized
terms defined herein and also defined in the Credit Agreement shall have the
meanings provided herein. In addition the following terms shall have the
following meanings:
"Coverage Ratio" means, as of the end of any fiscal quarter of
US Warburg, the ratio of (a) the sum of (i) Domestic Public Portfolio
Investments on the last day of such period plus (ii) the aggregate
Remaining Capital Commitment Balances of all Limited Partners on the
last day of such period to (b) Funded Debt of US Warburg (including, in
any event, obligations of US Warburg under Sections 2 and 12 hereof) on
the last day of such period.
"Domestic Public Portfolio Investments" means, at any time,
with respect to US Warburg, the sum of:
(i) the aggregate value (as shown in the most recent
financial statements delivered to the Agent and the Lenders
pursuant to Section 11(a)) of all portfolio investments of US
Warburg in any Capital Stock (or other securities convertible
at the option of US Warburg at any time into Capital Stock)
(a) of a
<PAGE> 2
Person incorporated or organized under the laws of any
State of the United States or the District of Columbia and (b)
which is listed on a U.S. national securities exchange, plus
(ii) 75% of the aggregate value (as shown in the most
recent financial statements delivered to the Agent and the
Lenders pursuant to Section 11) of all portfolio investments
of US Warburg in any Capital Stock (or of other securities
convertible at the option of US Warburg at any time into
Capital Stock) (a) of a Person not incorporated or organized
under the laws of any State of the United States or the
District of Columbia and (b) which is listed on a U.S.
national securities exchange.
"Event of Default" shall have the meaning assigned to such
term in Section 14.
"Fully Satisfied" means, with respect to the Guaranteed
Obligations as of any date, that, as of such date, (a) all principal of
and interest accrued to such date which constitute Guaranteed
Obligations shall have been paid in full in cash, (b) all fees,
expenses and other amounts then due and payable which constitute
Guaranteed Obligations shall have been paid in cash, (c) all
outstanding Letters of Credit shall have been (i) terminated,
(ii) fully cash collateralized or (iii) secured by one or more letters
of credit on terms and conditions, and with one or more financial
institutions, reasonably satisfactory to the Issuing Lender and (d) the
Commitments shall have been expired or terminated in full.
"Funded Debt" means, without duplication, with respect to US
Warburg, the sum of (a) all Indebtedness (other than Hedging
Agreements) of US Warburg for borrowed money (it being understood that
with respect to Indebtedness incurred with an original issue discount,
the obligations shall consist of the then accreted value), (b) all
purchase money Indebtedness of US Warburg, (c) the principal portion of
all obligations of US Warburg under Capital Leases, (d) commercial
letters of credit and the maximum amount of all performance and standby
letters of credit issued or bankers' acceptance facilities created for
the account of US Warburg, including, without duplication, all
unreimbursed draws thereunder, (e) all Guaranty Obligations of US
Warburg with respect to Funded Debt of another Person, (f) all Funded
Debt of another entity secured by a Lien on any property of US Warburg
whether or not such Funded Debt has been assumed by such person,
(g) all Funded Debt of any partnership or unincorporated joint venture
to the extent US Warburg is legally obligated or has a reasonable
expectation of being liable with respect thereto, net of any assets of
such partnership or joint venture and (h) the principal balance
outstanding under any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing product
of US Warburg when such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an operating lease
in accordance with GAAP.
"General Partner" means Warburg, Pincus & Co., a New York
general partnership, as general partner of US Warburg.
"Guaranteed Obligations" means, without duplication, all of
the obligations (including, but not limited to, in respect of interest
accruing after the occurrence of a
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Bankruptcy Event, regardless of whether such interest is an allowed
claim under the Bankruptcy Code) of the Borrower to the Lenders
(including the Issuing Lender) and the Agent, whenever arising, under
(i) Sections 2.1, 2.2, 2.4, 3.5(a) and 3.5(b) of the Credit Agreement,
the Revolving Notes and the Tranche B Term Notes and (ii) to the
extent relating to the payment of principal, interest, fees or other
amounts payable in respect of Revolving Loans, Letters of Credit, LOC
Obligations or the Tranche B Term Loan, Sections 3.1, 3.3(b), 3.5(b),
3.6, 3.8, 3.9, 3.11, 3.12 or 11.5 of the Credit Agreement.
"Holdback Merger Consideration" shall have the meaning
assigned to such term in Section 2.8(b) of the Purchase Agreement.
"Limited Partners" means the limited partners of US Warburg.
"Manager" means E.M. Warburg, Pincus & Co., LLC, a New York
limited liability company.
"Mandatory Investment" means a purchase of Capital Stock in
the Parent in Dollars and in funds immediately available to the Parent
sufficient in amount to, and made in order to, enable the Borrower to
fulfill its obligation to make when due payments of Holdback Merger
Consideration in an aggregate amount of up to $11,000,000 in accordance
with the terms of the Side Letter.
"Material Adverse Effect" means a material adverse effect on
(i) after taking into account any applicable insurance and any
applicable indemnification (to the extent the provider of such
insurance or indemnification has the financial ability to support its
obligations with respect thereto and is not disputing or refusing to
acknowledge same), on the operations, financial condition, business or
prospects US Warburg, (ii) the ability of US Warburg to make payments
required under this Agreement, (iii) the ability of US Warburg to
perform any material obligation under this Agreement or (iv) the
material rights and remedies of the Agent under this Agreement.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which US
Warburg or any Subsidiary of US Warburg is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to
be) an "employer" within the meaning of Section 3(5) of ERISA.
"Plan Asset Regulations" means the plan asset regulations of
the Department of Labor, 29 CFR ss. 2510.3-101 et seq., as amended, and
the advisory opinions and rulings issued thereunder.
"Remaining Capital Commitment Balance" means, at any time, the
difference of (i) the amount of "Partners Capital-Contributions
Receivable" as defined in (A) as of the Closing Date, the September 30,
1999 statement of net assets and partners' capital of US Warburg or
(B) at any time after the Closing Date, the most recent statement of
net assets and partners' capital of US Warburg delivered to the Agent
and the Lenders pursuant to Section 11(a) minus (ii) any portion of the
amount determined pursuant to clause (i) above with respect to which
the Limited Partners shall not be obligated, upon request by the
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General Partner, to make capital contributions for the purpose of
providing funds to US Warburg to repay the Guaranteed Obligations.
"Side Letter" shall have the meaning assigned to such term in
Section 2.8(b) of the Purchase Agreement.
2. The Guaranty. Each of the Warburg Guarantors hereby jointly and
severally guarantees to the Agent, for the ratable benefit of each Lender and
the Agent as hereinafter provided, as primary obligor and not as surety, the
prompt payment of the Guaranteed Obligations in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in
accordance with the terms thereof. In addition, if any of the Guaranteed
Obligations are not paid in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration, as a mandatory cash collateralization or
otherwise), each of the Warburg Guarantors hereby jointly and severally promises
to pay the same promptly, without any demand or notice whatsoever, and that in
the case of any extension of time of payment or renewal of any of the Guaranteed
Obligations, to pay the same promptly in full when due (whether at extended
maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise) in accordance with the terms of such extension
or renewal.
This guarantee is a guaranty of payment and not of collection, is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
Notwithstanding any provision to the contrary contained herein or in
any other of the Credit Documents, the obligations of each Warburg Guarantor
other than US Warburg under this Agreement shall be limited to an aggregate
amount equal to the largest amount that would not render such obligations
subject to avoidance under Section 548 of the Bankruptcy Code or any comparable
provisions of any applicable state law.
3. Guaranteed Obligations Unconditional. The obligations of the Warburg
Guarantors are joint and several, absolute and unconditional, irrespective of
the value, genuineness, validity, regularity or enforceability of any of the
Credit Documents, or any other agreement or instrument referred to therein, or
any substitution, release, impairment or exchange of any other guarantee of or
security for any of the Guaranteed Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
which might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section 3 that the obligations
of the Warburg Guarantors hereunder shall be absolute and unconditional under
any and all circumstances. Each Warburg Guarantor agrees that it shall defer any
right of subrogation, indemnity, reimbursement or contribution against the
Borrower, any Guarantor or any other Warburg Guarantor for amounts paid under
this Agreement until such time as the Guaranteed Obligations have been Fully
Satisfied. Without limiting the generality of the foregoing, it is agreed that,
to the fullest extent permitted by law, the occurrence of any one or more of the
following shall not alter or impair the liability of any Warburg Guarantor
hereunder which shall remain absolute and unconditional as described above:
(a) at any time or from time to time, without notice to any
Warburg Guarantor, the time for any performance of or compliance with
any of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;
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(b) any of the acts mentioned in any of the provisions of any
of the Credit Documents or any other agreement or instrument referred
to in the Credit Documents shall be done or omitted;
(c) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents or any other agreement or instrument referred to in
the Credit Documents shall be waived or any other guarantee of any of
the Guaranteed Obligations or any security therefor shall be released,
impaired or exchanged in whole or in part or otherwise dealt with;
(d) any Lien granted to, or in favor of, the Agent or any
Lender or Lenders as security for any of the Guaranteed Obligations
shall fail to attach or be perfected; or
(e) any of the Guaranteed Obligations shall be determined to
be void or voidable (including, without limitation, for the benefit of
any creditor of any Warburg Guarantor) or shall be subordinated to the
claims of any Person (including, without limitation, any creditor of
any Warburg Guarantor).
With respect to its obligations hereunder, each Warburg Guarantor hereby
expressly waives diligence, presentment, demand of payment, protest and all
notices whatsoever, and any requirement that the Agent or any Lender exhaust any
right, power or remedy or proceed against any Person under any of the Credit
Documents or any other agreement or instrument referred to in the Credit
Documents, or against any other Person under any other guarantee of, or security
for, any of the Guaranteed Obligations.
4. Reinstatement. Neither the Warburg Guarantors' obligations hereunder
nor any remedy for the enforcement thereof shall be impaired, modified, changed
or released in any manner whatsoever by an impairment, modification, change,
release or limitation of the liability of the Borrower or any Guarantor, by
reason of the Borrower's or any Guarantor's bankruptcy or insolvency or by
reason of the invalidity or unenforceability of all or any portion of the
Guaranteed Obligations. The obligations of the Warburg Guarantors under this
Agreement shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of any Person in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise, and each Warburg Guarantor agrees that it will
indemnify the Agent, for itself and for the benefit of each Lender, on demand
for all reasonable costs and expenses (including, without limitation, fees and
expenses of counsel) incurred by the Agent or any Lender in connection with such
rescission or restoration, including any such costs and expenses incurred in
defending against any claim alleging that such payment constituted a preference,
fraudulent transfer or similar payment under any bankruptcy, insolvency or
similar law.
5. Certain Additional Waivers. The Warburg Guarantors agree that this
Agreement may be enforced by the Agent on behalf of the Lenders without the
necessity of resorting to or exhausting any other security or collateral and
without the necessity at any time of having recourse to the Credit Parties under
the Credit Agreement or any collateral securing the Guaranteed Obligations or
otherwise, and each Warburg Guarantor agrees not to assert any right to require
the Agent and the Lenders to proceed against the Credit Parties or any other
Person
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(including any co-guarantor) or to require the Agent and the Lenders to pursue
any other remedy or enforce any other right. Each Warburg Guarantor further
agrees that it shall have no right of subrogation, reimbursement or indemnity,
nor any right of recourse to security, if any, for the Guaranteed Obligations
until the Guaranteed Obligations shall have been Fully Satisfied. Each Warburg
Guarantor further acknowledges and agrees that nothing contained in this
Agreement shall prevent the Agent or the Lenders from suing the Credit Parties
in respect of their obligations under the Credit Agreement and the other Credit
Documents or foreclosing on any security interest or lien on any collateral
securing the Guaranteed Obligations or from exercising any other rights
available to the Agent and the Lenders under the Credit Documents if neither the
Borrower nor the Guarantors timely perform their obligations, and the exercise
of any of such rights and completion of any such foreclosure proceedings shall
not constitute a discharge of any of the Warburg Guarantors' obligations
hereunder unless as a result thereof the Guaranteed Obligations shall have been
Fully Satisfied, it being the purpose and intent that the Warburg Guarantors'
obligations hereunder be absolute, irrevocable, independent and unconditional
under all circumstances.
Without limiting the generality of the provisions of this Section 5,
each Warburg Guarantor hereby specifically waives the benefits of N.C. Gen.
Stat. ss.ss 26-7 through 26-9, inclusive, to the extent applicable. Each Warburg
Guarantor further agrees that it shall have no right of recourse to security for
the Guaranteed Obligations, except through the exercise of rights of subrogation
pursuant to Section 3 and through the exercise of rights of contribution
pursuant to Section 27.
6. Remedies. The Warburg Guarantors agree that, to the fullest extent
permitted by law, as between the Warburg Guarantors, on the one hand, and the
Agent on behalf of the Lenders, on the other hand, the Guaranteed Obligations
may be declared to be forthwith due and payable for purposes of Section 2
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or preventing the Guaranteed Obligations from becoming
automatically due and payable) as against any other Person and that, in the
event of such declaration (or the Guaranteed Obligations being deemed to have
become automatically due and payable), the Guaranteed Obligations (whether or
not due and payable by any other Person) shall forthwith become due and payable
by the Warburg Guarantors for purposes of Section 2.
7. Attorneys' Fees and Costs of Collection. The Warburg Guarantors
further jointly and severally agree to pay on demand all costs and expenses of
the Agent, if any (including, without limitation, reasonable attorneys' fees and
expenses and the cost of internal counsel), in connection with any enforcement
(whether through negotiations, legal proceedings, or otherwise) of this
Agreement.
8. Right of Set-Off. Upon the occurrence and during the continuance of
any Event of Default, each Lender (and each of its Affiliates) is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender (or any of its Affiliates) to or for the credit or the
account of any Warburg Guarantor against any and all of the obligations of such
Person now or hereafter existing under this Agreement irrespective of whether
the Agent or such Lender shall have made any demand hereunder and although such
obligations may be unmatured. The rights of each Lender under this Section 8 are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender may have.
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9. Term of Guarantee. This Agreement shall continue in full force and
effect until the Guaranteed Obligations are Fully Satisfied. At any time after
the Guaranteed Obligations have been Fully Satisfied, upon the request of US
Warburg, the Agent, on behalf of the Lenders, shall acknowledge, in writing, the
termination of this Agreement.
10. Representations and Warranties. US Warburg hereby represents to the
Agent, for the ratable benefit of the Lenders, that:
(a) Existence and Power; Authorization; No Conflicts; Consents;
Enforceable Obligations.
(i) US Warburg is a limited partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, and is in good standing in each
other jurisdiction where ownership of its properties or the conduct
of its business requires it to be so, and has all power and
authority under such laws and its partnership agreement and all
material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted.
(ii) (A) The General Partner is a general partnership validly
existing under the laws of the State of New York and has all
necessary power and authority under the laws of the State of New
York and its partnership agreement to execute and deliver this
Agreement on behalf of US Warburg.
(B) The Manager is a limited liability company validly
existing under the laws of the State of New York and has all
necessary power and authority under the laws of the State of New
York and its operating agreement to execute and deliver this
Agreement on the behalf of US Warburg.
(iii) US Warburg has the power and authority to enter into this
Agreement, and to perform its obligations hereunder and consummate
the transactions contemplated hereby and has by proper action duly
authorized the execution and delivery of this Agreement.
(iv) Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated therein, nor
performance of and compliance with the terms and provisions thereof
will (i) violate or conflict with any provision of the partnership
agreement or other governance document of US Warburg, (ii) violate
any law, regulation (including without limitation Regulation U or
Regulation X), order, writ, judgment, injunction, decree or permit
applicable to US Warburg, (iii) violate or materially conflict with
contractual provisions of, or cause an event of default under, any
indenture, loan agreement, mortgage, deed of trust, contract or
other agreement or instrument to which US Warburg is a party or by
which US Warburg may be bound, (iv) result in or require the
creation of any Lien (other than those contemplated in or in
connection with this Agreement) upon or with respect to any
Property owned by US Warburg.
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(v) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental
authority or other Person is required in connection with the
execution, delivery or performance by US Warburg of this Agreement.
(vi) This Agreement has been duly executed and delivered by US
Warburg and constitutes the legal, valid and binding obligation of
US Warburg, enforceable in accordance with its terms.
(b) Financial Condition; No Material Change; No Default; No
Litigation.
(i) The financial statements and financial information
heretofore furnished to each Lender for the fiscal quarter of US
Warburg ended December 31, 1998 are true and correct and fairly
represent the financial condition of US Warburg as of such date;
such financial statements and financial information were prepared
in accordance with GAAP (except as noted therein). Since
December 31, 1998, there has been no development or event relating
to or affecting US Warburg which has had or could have a Material
Adverse Effect.
(ii) No Default or Event of Default presently exists.
(iii) There are no actions, suits or legal, equitable,
arbitration or administrative proceedings, pending or, to the
knowledge of US Warburg threatened, against US Warburg which, if
adversely determined, would have a Material Adverse Effect.
(iv) US Warburg is, and after consummation of the transactions
contemplated by this Agreement, will be Solvent.
(c) Compliance with Law; ERISA; Government Regulations.
(i) US Warburg is in compliance in all material respects with
all laws, rules, regulations, orders and decrees applicable to it,
or to its properties.
(ii) US Warburg has not established, nor does it plan to
establish, any Plan.
(iii) US Warburg is not subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, or the
Interstate Commerce Act, each as amended. In addition, US Warburg
is not (i) an "investment company" registered or required to be
registered under the Investment Company Act of 1940, as amended,
and is not controlled by such a company, or (ii) a "holding
company," or a "Subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "Subsidiary" or a
"holding company," within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
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(d) Permitted Investment. The incurrence by US Warburg of its
obligations hereunder are permitted by such Person's partnership
agreement.
(e) VCOC. The assets of US Warburg do not constitute "plan
assets" within the meaning of the Plan Asset Regulations because US
Warburg qualifies as an "venture capital operating company" within
the meaning of the Plan Asset Regulations and is entitled to the
exemption provided in the Plan Asset Regulations. US Warburg shall
deliver to the Agent a copy of the legal opinion provided to the
Limited Partners that US Warburg qualified, as of the date of US
Warburg's initial investment that was not a short-term investment
of funds pending long-term commitment, as a venture capital
operating company and was entitled to the exemption provided in the
Plan Asset Regulations.
11. Covenants. US Warburg hereby covenants and agrees with the Agent,
for the ratable benefit of the Lenders, that until all of the Guaranteed
Obligations shall have Fully Satisfied:
(a) Financial Statements.
(i) As soon as available and in any event within 90
days after the close of each fiscal year of US Warburg, US
Warburg will furnish, or cause to be furnished, to the Agent
and each of the Lenders a statement of net assets and
partners' capital and statement of operations and changes in
capital accounts, all such financial information to be in
reasonable form and detail, reasonably acceptable to the Agent
and audited by independent certified public accountants of
recognized national standing reasonably acceptable to the
Agent and whose opinion shall be to the effect that such
financial statements have been prepared in accordance with
GAAP (except for changes with which such accountants concur)
and shall not be limited as to the scope of the audit or
qualified as to the status of such Warburg Guarantor as a
going concern.
(ii) As soon as available and in any event within 60
days after the close of each fiscal quarter of US Warburg
(other than the fourth fiscal quarter, in which case 90 days
after the end thereof), such US Warburg will furnish, or cause
to be furnished, to the Agent and each of the Lenders (A) a
statement of net assets and partners' capital and statement of
operations and changes in capital accounts, all such financial
information to be in reasonable form and detail and reasonably
acceptable to the Agent and (B) a certificate of an officer of
the Manager (1) to the effect that such quarterly financial
statements fairly present in all material respects the
financial condition of US Warburg and have been prepared in
accordance with GAAP, subject to changes resulting from audit
and normal year-end audit adjustments and (2) demonstrating
compliance with the financial covenants contained in
Section 11(c) by calculation thereof as of the end of each
such fiscal period.
(b) Plan Assets, etc.; ERISA.
(i) US Warburg will do, or cause to be done, all
things necessary to ensure that US Warburg will not at any
time be deemed to hold "plan assets" within the meaning and as
defined in the Plan Asset Regulations.
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(ii) US Warburg will do, or cause to be done, all things
necessary to ensure that it will not be deemed to hold "plan
assets" within the meaning of the Plan Asset Regulations at any
time, and as soon as practicable after the beginning of each
"annual valuation period" of US Warburg (as defined in the Plan
Asset Regulations), US Warburg shall deliver to the Agent a copy of
the legal opinion concerning the compliance of US Warburg with the
"venture capital operating company" exemption of the Plan Asset
Regulations as required pursuant to section 12(d) of US Warburg's
partnership agreement.
(iii) US Warburg will not establish any Plan.
(c) Financial Covenants.
(i) Coverage Ratio. US Warburg shall cause the Coverage Ratio,
as of the last day of each fiscal quarter of US Warburg, to be
greater than or equal to 2.0 to 1.0.
(ii) Sufficient Liquidity. US Warburg shall at all times
maintain sufficient liquidity to enable it to make payments
required under this Agreement.
12. Holdback Merger Consideration.
(a) Mandatory Investments. US Warburg hereby agrees that, to the
extent that Holdback Merger Consideration becomes payable from time to
time by the Borrower pursuant to the terms of the Side Letter, then US
Warburg shall immediately make (or cause other investors in the Parent
to immediately make) a Mandatory Investment.
(b) Bankruptcy. Notwithstanding the terms of clause (a) above, the
obligations of US Warburg under this Section 12 shall not be satisfied
by the making of a Mandatory Investment (or any other capital
contribution to or investment in the Parent or any of the Consolidated
Parties) at any time after the Business Day immediately preceding the
first day that a Bankruptcy Event with respect to the Parent or the
Borrower shall have occurred.
(c) Purchase of Participation Interest in Lieu of Mandatory
Investment. In the event that US Warburg shall fail to make when due
any Mandatory Investment required pursuant to clause (a) above for any
reason other than the occurrence of a Bankruptcy Event with respect to
the Parent or the Borrower as contemplated by clause (b) above, then US
Warburg hereby promises to pay to the Agent (for the ratable benefit of
the Lenders), on the date that such Mandatory Investment otherwise
would have been required in accordance with the terms of clause (a), an
amount equal to the amount of the Mandatory Investment that otherwise
would have been so required. All amounts paid by US Warburg to the
Agent pursuant to this clause (c) immediately shall be applied by the
Agent (for the ratable benefit of the Lenders) to pay for the purchase
by US Warburg of an undivided, non-voting participation interest in the
Tranche A Term Loan (and, after the Tranche A Term Loan has been
repaid, in all of the Credit Party Obligations then
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outstanding under the Credit Documents) on a basis subordinated in
right of payment on substantially the terms and conditions set forth on
Exhibit A.
(d) Indemnity. In the event that US Warburg shall fail to make when
due any Mandatory Investment required pursuant to clause (a) above due
to the occurrence of a Bankruptcy Event with respect to the Parent or
the Borrower as contemplated by clause (b) above, then US Warburg
agrees to indemnify the Agent and the Lenders for any loss in respect
of any Credit Party Obligations resulting from the failure of the
Borrower to make any required payment the Holdback Merger
Consideration; provided, however, that the obligations of US Warburg
under this clause (d) shall not exceed the amount of Mandatory
Investments that otherwise would have been required pursuant to
clause (a) above but for the occurrence of such Bankruptcy Event.
(e) Separate Obligations. The obligations of US Warburg under this
Section 12 shall be separate and apart from, and in addition to, the
obligations of US Warburg under Section 2 hereof.
13. Additional Liability of Warburg Guarantors. If any of the Warburg
Guarantors are or become liable for any indebtedness owing by any Credit Party
to the Agent or any Lender by endorsement or otherwise other than under this
Agreement, such liability shall not be in any manner impaired or reduced hereby
but shall have all and the same force and effect it would have had if this
Agreement had not existed and such Warburg Guarantor's liability hereunder shall
not be in any manner impaired or reduced thereby.
14. Events of Default. An Event of Default shall exist upon the
occurrence of any of the following specified events (each an "Event of
Default"):
(a) Effectiveness of Agreement. This Agreement or any provision
hereof shall cease to be in full force and effect with respect to US
Warburg, or US Warburg or any Person acting by or on behalf of US
Warburg shall deny or disaffirm US Warburg's obligations under this
Agreement; or
(b) Payment. US Warburg shall default in the payment when due of
any amounts payable by it pursuant to Section 2, 7, 12 or 22 hereof; or
(c) Representations. Any representation, warranty or statement made
or deemed to be made by US Warburg herein or in any statement or
certificate delivered or required to be delivered pursuant hereto or
thereto shall prove untrue in any material respect on the date as of
which it was deemed to have been made; or
(d) Covenants.
(i) US Warburg shall default in the due performance or
observance of any term, covenant or agreement contained in
Section 11(b) or Section 11(c); or
(ii) US Warburg shall default in the due performance or
observance by it of any term, covenant or agreement (other than
those referred to in subsections (a), (c) or (d)(i) of this Section
14) contained in this Agreement and such default shall
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continue unremedied for a period of at least 30 days after the
earlier of an Executive Officer of US Warburg becoming aware of
such default or notice thereof by the Agent; or
(e) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect
to US Warburg; or
(f) Defaults under Other Agreements. With respect to any
Indebtedness in excess of $10,000,000 in the aggregate, (A) US Warburg
shall (1) default in any payment (beyond the applicable grace period
with respect thereto, if any) with respect to any such Indebtedness, or
(2) the occurrence and continuance of a default in the observance or
performance relating to such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or
any other event or condition shall occur or condition exist, the effect
of which default or other event or condition is to cause, or permit,
the holder or holders of such Indebtedness (or trustee or agent on
behalf of such holders) to cause (determined without regard to whether
any notice or lapse of time is required), any such Indebtedness to
become due prior to its stated maturity; or (B) any such Indebtedness
shall be declared due and payable, or required to be prepaid other than
by a regularly scheduled required prepayment, prior to the stated
maturity thereof; or
(g) Judgments. One or more judgments or decrees shall be entered
against US Warburg involving a liability of $10,000,000 or more in the
aggregate (to the extent not paid or fully covered by insurance
provided by a carrier who has acknowledged coverage and has the ability
to perform) and any such judgments or decrees shall not have been
vacated, discharged or stayed or bonded pending appeal within 30 days
from the entry thereof; or
(h) General Partner. Warburg, Pincus & Co., a New York general
partnership, or its Affiliate shall fail to be the sole general partner
of US Warburg; or
(i) Permitted Investment. For any reason, US Warburg's ownership
of all or any portion of the Borrower's Capital Stock shall not be
permitted by US Warburg's partnership agreement; or
(j) Event of Default under Credit Agreement. The occurrence of an
"Event of Default" under and as defined in the Credit Agreement.
15. Remedies. Upon the occurrence and during the continuance of an
Event of Default, the Agent may, or, upon the request and direction of the
Required Lenders, shall, by written notice to the Warburg Guarantors, enforce
any and all rights, remedies and interests created and existing under this
Agreement.
16. No Waiver; Cumulative Rights. No failure or delay on the part of
the Agent or any Lender in exercising any right, power or privilege hereunder or
under any other Credit Document and no course of dealing between the Agent or
any Lender and the Credit Parties and the Warburg Guarantors shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies provided herein are cumulative
and not exclusive of any rights or remedies
12
<PAGE> 13
which the Agent or any Lender would otherwise have. No notice to or demand on
the Credit Parties or any of the Warburg Guarantors in any case shall entitle
either of such Person to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Agent or the
Lenders to any other or further action in any circumstances without notice or
demand.
17. Usury. Notwithstanding any other provisions herein contained, no
provision of this Agreement shall require or permit the collection from any of
the Warburg Guarantors of interest in excess of the maximum rate or amount that
such Warburg Guarantor may be required or permitted to pay pursuant to any
applicable law. In the event any such interest is collected, it shall be applied
in reduction of obligations hereunder, and the remainder of such excess
collected shall be returned to the Warburg Guarantors once such obligations have
been fully satisfied.
13. The Agent. In acting under or by virtue of this Agreement, the
Agent shall be entitled to all the rights, authority, privileges and immunities
provided in the Credit Agreement, all of which provisions are incorporated by
reference herein with the same force and effect as if set forth herein.
18. Successors and Assigns. This Agreement shall be binding on and
enforceable against each Warburg Guarantor and its successors and assigns;
provided that, none of the Warburg Guarantors may assign or transfer any of its
obligations hereunder without prior written consent of the requisite Lenders as
provided in the Credit Agreement. This Agreement is intended for and shall inure
to the benefit of the Agent for itself and the ratable benefit of the Lenders
and each and every person who shall from time to time be or become the owner or
holder of any of the Guaranteed Obligations, and each and every reference herein
to "Agent" or "Lender" shall include and refer to each and every successor or
assignee of the Agent or any Lender at any time holding or owning any part of or
interest in any part of the Guaranteed Obligations. This Agreement shall be
transferable and negotiable with the same force and effect, and to the same
extent, that the Guaranteed Obligations are transferable and negotiable, it
being understood and stipulated that upon assignment or transfer by the Agent or
any Lender of any of the Guaranteed Obligations the legal holder or owner of the
Guaranteed Obligations (or a part thereof or interest therein thus transferred
or assigned by the Agent or any Lender) shall (except as otherwise stipulated by
the Agent or any such Lender in its assignment) have and may exercise all of the
rights granted to the Agent for the benefit of such Lender under this Agreement
to the extent of that part of or interest in the Guaranteed Obligations thus
assigned or transferred to said person. Each Warburg Guarantor expressly waives
notice of transfer or assignment of the Guaranteed Obligations, or any part
thereof, or of the rights of the Agent hereunder. Failure to give notice will
not affect the liabilities of the Warburg Guarantors hereunder.
19. Application of Payments. Each of the Agent and the Lenders may
apply any payments received by it from any source against that portion of the
Guaranteed Obligations (principal, interest, court costs, attorneys' fees or
other) in such priority and fashion as it may deem appropriate.
20. Modifications. Subject to the terms of the Credit Agreement, this
Agreement and the provisions hereof may be changed, discharged or terminated
only by an instrument in writing signed by each of the Warburg Guarantors
affected thereby and the Agent.
13
<PAGE> 14
21. Notices. Except as otherwise expressly provided herein, all notices
and other communications shall have been duly given and shall be effective
(a) when delivered, (b) when transmitted via telecopy (or other facsimile
device) to the number set out below, (c) the Business Day following the day on
which the same has been delivered prepaid to a reputable national overnight air
courier service, or (d) the third Business Day following the day on which the
same is sent by certified or registered mail, postage prepaid, in each case to
the respective parties at the address set forth below or at such other address
as such party may specify by written notice to the other parties hereto:
if to any Warburg Guarantor:
Warburg, Pincus Equity Partners, L.P.
466 Lexington Avenue
New York, New York 10017
Attn: Elizabeth Weatherman
Telephone: (212) 878-0600
Telecopy: (212) 878-9361
if to the Agent:
Bank of America, N. A.
Independence Center, 15th Floor
NC1-001-15-04
101 North Tryon Street
Charlotte, North Carolina 28255
Attn: Erik Truette, Agency Services
Telephone: (704) 388-1108
Telecopy: (704) 409-0028
with a copy to:
Bank of America, N. A.
Bank of America Corporate Center, 13th Floor
NC1-007-13-06
100 North Tryon Street
Charlotte, North Carolina 28255
Attn: Kip Davis
Telephone: (704) 388-7731
Telecopy: (704) 386-9607
22. Taxes.
(a) Any and all payments by or on behalf of any of the Warburg
Guarantors to or for the account of the Agent for the ratable benefit
of the Lenders hereunder shall be made free and clear of and without
deduction for any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Agent,
taxes measured by or imposed on its income, and franchise taxes imposed
on it, by the jurisdiction under the laws of which such
14
<PAGE> 15
Lender (or its Applicable Lending Office) or the Agent (as the case
may be) is organized or located (or in which its principal executive
office is located) or any political subdivision thereof (all such
non-excluded taxes, duties, levies, imposts, deductions, charges,
withholdings, and liabilities being hereinafter referred to as
"Taxes"). If any of the Warburg Guarantors shall be required by law to
deduct any Taxes from or in respect of any sum payable under this
Agreement to any Lender or the Agent, (i) the sum payable shall be
increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section 22) such Lender or the Agent receives an amount equal to the
sum it would have received had no such deductions been made, (ii) such
Person shall make such deductions, (iii) such Person shall pay the
full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law, and (iv) such Person
shall furnish to the Agent, at its address referred to in Section 21,
the original or a certified copy of a receipt evidencing payment
thereof.
(b) In addition, the Warburg Guarantors agree to pay any and all
present or future stamp or documentary taxes and any other excise or
property taxes or charges or similar levies which arise from any
payment made under this Agreement or from the execution or delivery of,
or otherwise with respect to, this Agreement (hereinafter referred to
as "Other Taxes").
(c) The Warburg Guarantors agree to indemnify each Lender and the
Agent for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section 22) paid by such
Lender or the Agent (as the case may be) and any liability (including
penalties, interest, and expenses) arising therefrom or with respect
thereto.
(d) Within thirty (30) days after the date of any payment of
Taxes, the Warburg Guarantors shall furnish to the Agent the original
or a certified copy of a receipt evidencing such payment.
(e) Without prejudice to the survival of any other agreement of
the Guarantors hereunder, the agreements and obligations of the Warburg
Guarantors contained in this Section 22 shall survive the termination
of this Agreement and the payment of all amounts payable hereunder.
23. Severability. If any provision of this Agreement is determined to
be illegal, invalid or unenforceable, such provision shall be fully severable
and the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
24. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any
legal action or proceeding with respect to this Agreement may be
brought in the courts of the State of New York in New York County, or
of the United States for the Southern District of New York, and, by
execution and delivery of this
15
<PAGE> 16
Agreement, each Warburg Guarantor hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally,
the nonexclusive jurisdiction of such courts. Each Warburg Guarantor
further irrevocably consents to the service of process out of any of
the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage
prepaid, to it at the address set out for notices pursuant to Section
21, such service to become effective three (3) days after such mailing.
Nothing herein shall affect the right of the Agent on behalf of the
Lenders to serve process in any other manner permitted by law or to
commence legal proceedings or to otherwise proceed against the Warburg
Guarantors in any other jurisdiction.
(b) Each Warburg Guarantor hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Agreement brought in the courts referred to in subsection (a)
above and hereby further irrevocably waives and agrees not to plead or
claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, THE AGENT AND EACH WARBURG
GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
25. Headings. The headings in this instrument are for convenience of
reference only and shall not limit or otherwise affect the meaning of any
provisions hereof.
26. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts,
each constituting an original, but all together one and the same
instrument.
27. Rights of the Required Lenders. All rights of the Agent hereunder,
if not exercised by the Agent, may be exercised by the Required Lenders.
28. Limited Recourse. Notwithstanding anything that may be expressed or
implied in this Agreement or any document or instrument delivered in connection
therewith (collectively, the "Transaction Documents"), the Borrower agrees and
the Agent on behalf of the Lenders, agrees that no recourse under any
Transaction Document shall be had against (i) any officer, agent, employee or
manager (including the Manager) or employee of the Warburg Guarantors, (ii) any
partner of any Warburg Guarantor (or any of its partners), (iii) any director,
officer, employee, partner, Affiliate or assignee of any Person referred to in
clause (i) or clause (ii) (other than any such Affiliate or assignee that is a
party to a Credit Document) (the Persons referred to in clauses (i) through
(iii), inclusive, being "Non-Liable Entities"), whether by the enforcement of
any assessment or by any legal or equitable proceeding, or by virtue of any
statute, regulation or other applicable law, it being expressly agreed and
acknowledged that no personal liability whatsoever shall attach to, be imposed
on or otherwise be incurred by any Non-Liable Entity, in its capacity as such,
for any obligations of any Warburg Guarantor under any Transaction Document for
any claim based on, arising out of, in respect of or by reason of such
obligations or their creation, all such liability being hereby irrevocably
waived.
16
<PAGE> 17
IN WITNESS WHEREOF, each of the undersigned Warburg Guarantors has caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
WARBURG, PINCUS EQUITY PARTNERS, L.P.,
a Delaware limited partnership
By: E.M. Warburg, Pincus & Co., LLC, a New
York limited liability company, its manager
By: /s/ Elizabeth Weatherman
-------------------------------------------
Name: Elizabeth Weatherman
-----------------------------------------
Title: Managing Director
----------------------------------------
WARBURG, PINCUS NETHERLANDS
EQUITY PARTNERS I, C.V.,
a commanditaire vennootschap (limited partnership)
established under the laws of the Netherlands
By: E.M. Warburg, Pincus & Co., LLC, a New
York limited liability company, its manager
By: /s/ Elizabeth Weatherman
-------------------------------------------
Name: Elizabeth Weatherman
-----------------------------------------
Title: Managing Director
----------------------------------------
WARBURG, PINCUS NETHERLANDS
EQUITY PARTNERS II, C.V.,
a commanditaire vennootschap (limited partnership)
established under the laws of the Netherlands
By: E.M. Warburg, Pincus & Co., LLC, a New
York limited liability company, its manager
By: /s/ Elizabeth Weatherman
-------------------------------------------
Name: Elizabeth Weatherman
-----------------------------------------
Title: Managing Director
----------------------------------------
WARBURG, PINCUS NETHERLANDS
EQUITY PARTNERS III, C.V.,
a commanditaire vennootschap (limited partnership)
established under the laws of the Netherlands
By: E.M. Warburg, Pincus & Co., LLC, a New
York limited liability company, its manager
By: /s/ Elizabeth Weatherman
-------------------------------------------
Name: Elizabeth Weatherman
-----------------------------------------
Title: Managing Director
----------------------------------------
17
<PAGE> 18
ACCEPTED:
BANK OF AMERICA, N.A.,
as Agent
By: /s/ David H. Strickert
-------------------------------
Name: David H. Strickert
Title: Principal
18
<PAGE> 19
Exhibit A
TERMS OF SUBORDINATION
- - No payments or prepayments of principal or interest on the participation
interest of US Warburg in the Credit Party Obligations (the "Warburg
Participation Interest") may be made by the Credit Parties or received by
US Warburg until the Credit Party Obligations have been paid in full in
cash and the Commitments under the Credit Agreement have been terminated.
- - Until the Credit Party Obligations have been paid in full in cash and the
Commitments under the Credit Agreement have been terminated, US Warburg
shall have no right to direct the Agent to exercise remedies in respect of
Warburg Participation Interest.
- - Until the date 91 days after the Credit Party Obligations have been paid
in full in cash and the Commitments under the Credit Agreement have been
terminated, US Warburg shall not take any action in its capacity as holder
of Warburg Participation Interest to initiate an involuntary bankruptcy
proceeding in respect of any Credit Party.
- - The Lenders other than US Warburg shall have the right, if not exercised
by US Warburg, to file proofs of claim (and any notice of assignment of the
right to receive payments) in respect of Warburg Participation Interest to
the extent not filed by US Warburg in any bankruptcy proceeding in respect
of any Credit Party.
- - In any bankruptcy proceeding in respect of any Credit Party, the Lenders
other than US Warburg shall be entitled to payment in full in cash before
US Warburg, in its capacity as holder of Warburg Participation Interest,
shall be entitled to receive any payments, property or assets (other than
(i) debt securities that are subordinated at least to the extent provided
in this Exhibit B and (ii) equity securities that are not redeemable for
cash, and in respect of which no cash dividends are payable), until the
Credit Party Obligations have been paid in full in cash and the Commitments
under the Credit Agreement have been terminated.
- - Any payments received by US Warburg, in its capacity as holder of Warburg
Participation Interest, in contravention of the foregoing subordination
provisions shall be held in trust for the benefit of, and immediately
turned over to, the Agent (for the ratable benefit of the Lenders other
than US Warburg).
- - In any reorganization proceeding in respect of any Credit Party, the
Lenders other than US Warburg shall be entitled to approve the use of cash
collateral by such Credit Party.
- - US Warburg, in its capacity as holder of Warburg Participation Interest,
shall not exercise any right of subrogation in respect of any of the Credit
Party Obligations until the Credit Party Obligations have been paid in full
in cash and the Commitments under the Credit Agreement have been
terminated.
<PAGE> 1
March 24, 2000
Bank of America, N.A., as Agent
100 North Tryon Street
Charlotte, North Carolina 28255
Dear Sir or Madam:
Reference is made to the Credit Agreement dated as of March 24, 2000 among
American Medical Systems, Inc. (the "Borrower"), the guarantors party thereto,
the lenders party thereto and Bank of America, N.A., as agent (the "Credit
Agreement"). Capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement or the Warburg Guaranty, as
applicable. As an inducement to the Agent and the Lenders to enter into the
Credit Agreement and make the extensions of credit thereunder, the parties
hereto agree with the Agent, for the benefit of each of the Lenders, as follows:
1. Upon the execution of the Warburg Guaranty, the definition of
Guaranteed Obligations appearing in the Warburg Guaranty is amended as
follows:
"Guaranteed Obligations" means, without duplication, all of the
obligations (including, but not limited to, in respect of interest accruing
after the occurrence of a Bankruptcy Event, regardless of whether such
interest is an allowed claim under the Bankruptcy Code) of the Borrower to
the Lenders (including the Issuing Lender) and the Agent, whenever arising,
under (i) Sections 2.1, 2.2, 2.4, 3.5(a) and 3.5(b) of the Credit
Agreement, the Revolving Notes and the Tranche B Term Notes and (ii) to the
extent relating to the payment of principal, interest, fees or other
amounts payable in respect of Revolving Loans, Letters of Credit, LOC
Obligations or the Tranche B Term Loan, Sections 3.1, 3.3(b), 3.5(b), 3.6,
3.8, 3.9, 3.11, 3.12 or 11.5 of the Credit Agreement. Notwithstanding the
foregoing, (a) if Consolidated EBIDTA for the 12 month period ending
December 31, 1999 is equal to or greater than $21,000,000 but less than
$21,700,000, the Warburg Guarantors agree that $5,000,000 of the
outstanding principal amount of the Tranche A Term Loan shall be converted
into a Tranche B Term Loan, and the aggregate outstanding principal amount
of the Tranche B Term Loan shall be increased by $5,000,000; or (b) if
Consolidated EBIDTA for the 12 month period ending December 31, 1999 is
less than $21,000,000, the Warburg Guarantors agree that the entire
outstanding principal amount of the Tranche A Term Loan shall be converted
into a Tranche B Term Loan, and the aggregate outstanding principal amount
of the Tranche B Term Loan shall be increased by the principal amount of
the Tranche A Term Loan so converted, provided, however, the amount of the
Tranche A Term Loans so converted shall amortize on the same basis as if
such conversion had not occurred as provided in Section 2.3(d) of the
Credit Agreement. Any Tranche A Term Loan converted into a Tranche B Term
Loan and the related amounts described in clause (ii) of the first sentence
of this definition with respect to such converted Tranche A Term Loans,
shall constitute Guaranteed Obligations.
<PAGE> 2
2. The Warburg Guarantors and the Credit Parties agree to execute
such amendments, agreements and other documents, including, without
limitation, the delivery of new or replacement Notes, as are necessary to
effect the intent of this letter.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THIS LETTER AND
THE AGREEMENTS CONTAINED HEREIN AUTOMATICALLY SHALL TERMINATE, AND THE AMENDMENT
TO THE DEFINITION OF "GUARANTEED OBLIGATIONS" EFFECTED HEREBY AUTOMATICALLY
SHALL BE CANCELLED, AT SUCH TIME AS THE BORROWER DELIVERS TO THE AGENT THE
AUDITED FINANCIAL STATEMENTS OF THE CONSOLIDATED PARTIES FOR THE 12 MONTH PERIOD
ENDING DECEMBER 31, 1999 DEMONSTRATING THAT CONSOLIDATED EBITDA FOR SUCH PERIOD
IS AT LEAST $21,700,000.
This agreement shall be governed by the laws of the State of New York.
2
<PAGE> 3
IN WITNESS WHEREOF, each of the undersigned WPEP Entities has caused this
Agreement to be duly executed and delivered as of the day and year above
written.
WARBURG, PINCUS EQUITY PARTNERS, L.P.,
a Delaware limited partnership
By: E.M. Warburg, Pincus & Co., LLC, a New York
limited liability company, its manager
By: /s/ Elizabeth Weatherman
-------------------------------
Name: Elizabeth Weatherman
-----------------------------
Title: Managing Director
----------------------------
WARBURG, PINCUS NETHERLANDS
EQUITY PARTNERS I, C.V.,
a commanditaire vennootschap (limited partnership)
established under the laws of the Netherlands
By: E.M. Warburg, Pincus & Co., LLC, a New York
limited liability company, its manager
By: /s/ Elizabeth Weatherman
-------------------------------
Name: Elizabeth Weatherman
-----------------------------
Title: Managing Director
----------------------------
WARBURG, PINCUS NETHERLANDS
EQUITY PARTNERS II, C.V.,
a commanditaire vennootschap (limited partnership)
established under the laws of the Netherlands
By: E.M. Warburg, Pincus & Co., LLC, a New York
limited liability company, its manager
By: /s/ Elizabeth Weatherman
-------------------------------
Name: Elizabeth Weatherman
-----------------------------
Title: Managing Director
----------------------------
3
<PAGE> 4
WARBURG, PINCUS NETHERLANDS
EQUITY PARTNERS III, C.V.,
a commanditaire vennootschap (limited partnership)
established under the laws of the Netherlands
By: E.M. Warburg, Pincus & Co., LLC, a New York
limited liability company, its manager
By: /s/ Elizabeth Weatherman
-------------------------------
Name: Elizabeth Weatherman
-----------------------------
Title: Managing Director
----------------------------
ACCEPTED:
BANK OF AMERICA, N.A.,
as Agent
By: /s/ David H. Strickert
-------------------------
Name: David H. Strickert
Title: Managing Director
4
<PAGE> 5
ACCEPTED AND AGREED:
AMERICAN MEDICAL SYSTEMS, INC.
By: /s/ Gregory J. Melsen
-----------------------------
Name: Gregory J. Melsen
---------------------------
Title: Vice President - Finance,
--------------------------
Treasurer and Chief
--------------------------
Financial Officer
--------------------------
INFLUENCE, INC.
By: /s/ Gregory J. Melsen
-----------------------------
Name: Gregory J. Melsen
---------------------------
Title: Chief Financial Officer
--------------------------
5
<PAGE> 1
SEPARATION AGREEMENT
The Employer and Employee wish to end their employment relationship in
an honorable, dignified and orderly fashion. To that end, the parties have
agreed to discontinue the Employee's employment with the Employer on the
following terms.
This Separation Agreement ( the "Agreement") and Release, which is
attached and incorporated herein by reference as Exhibit A (the "Release"), are
made by and between Sam B. Humphries (the "Employee"), including the Employee's
agents, heirs, and successors, and American Medical Systems, Inc., including
Warburg, Pincus Equity Partners, L.P. and their respective affiliates,
shareholders, Board members, successors, predecessors, present or former
officers, directors, agents, employees, attorneys, whether in their individual
or official capacities, benefit plans and insurers (the "Employer").
IN CONSIDERATION OF THIS ENTIRE SEPARATION AGREEMENT, INCLUDING ALL EXHIBITS
ATTACHED HERETO, THE PARTIES AGREE AS FOLLOWS:
1. EMPLOYMENT TERMINATION. The Employee's termination of employment
will be effective as of the close of business on April 23, 1999 (the
"Termination Date"). Effective as of that date, the Employee will relinquish his
current titles of President and Chief Executive Officer of the Employer, as well
as any other positions, titles, or directorships he may hold with the Employer
and any of its affiliated companies. Except as expressly provided herein, this
Agreement supersedes in all respects the provisions of the Employee's Employment
Agreement with the Employer dated September 25, 1998 (the "Employment
Agreement") and the provisions of the Employee's Stock Option Agreement with the
Employer dated September 25, 1998 (the "Stock Option Agreement").
2. CONSIDERATION. The Employer shall, after receipt of a fully executed
Agreement and Release, and after expiration of the statutory recission periods
without any rescission of the Agreement or Release, provide the Employee with
the payments and other benefits that are set forth in the Separation Benefits
Summary, which is attached and incorporated herein by reference as Exhibit B
(the "Benefits Summary"), subject to appropriate taxes and withholding, as
severance and compensation for any and all alleged claims which may have arisen
at any time during the Employee's employment with, or in the course of
separation from employment with the Employer. The parties agree that the above
consideration is over and above anything owed to the Employee by law, contract
(including as provided under the Employment Agreement) or under the policies of
Employer, and such additional consideration is provided to the Employee in
exchange for entering into this Agreement.
3. CONFIDENTIALITY. It is the intent of the parties that this Agreement
be and is confidential. The Employee warrants that he has not and will not
disclose the terms of this Agreement to any person other than his spouse,
attorney, tax advisor, or representatives of the E.E.O.C. or the Minnesota
Department of Human Rights, who shall be bound by the same prohibitions against
disclosure as bind the Employee, and
<PAGE> 2
the Employee shall be responsible for advising these individuals of this
confidentiality provision and obtaining their commitment to maintain such
confidentiality.
4. MUTUAL RELEASE. In consideration of the compensation paid by and
other undertakings of Employer stated in this Agreement, the Employee will sign
the attached Release at the same time he signs this Agreement.
5. STIPULATION OF NO CHARGES. The Employee affirmatively represents
that he has not filed nor caused to be filed any charges, claims, complaints, or
actions against the Employer before any federal, state, or local administrative
agency, court, or other forum. The Employee further waives any right to any form
of recovery or compensation from any legal action filed or threatened to be
filed by him or on his behalf based on his employment or terms of employment
with or resignation from the Employer.
6. NON-DISPARAGEMENT. The parties to this Agreement agree that they
will make no disparaging or defamatory comments regarding the other party in any
respect or make any comments concerning any aspect of their relationship or the
conduct or events which precipitated the Employee's separation. Furthermore, the
Employee agrees not to assist or encourage in any way any individual or group of
individuals to bring or pursue a lawsuit, charge, complaint, or grievance, or
make any other demands against the Employer.
7. DUTY OF CONFIDENTIALITY AND NON-COMPETITION. After the Termination
Date, the Employee will continue to be bound by the provisions of Sections 8(a),
(b), (c) and (d) of the Employment Agreement, in accordance with the terms
thereof. In addition, the provisions of Section 9 of the Employment Agreement
shall apply to this Agreement, and is incorporated herein by reference. However,
except as otherwise described in the Benefits Summary, the Employee will not be
entitled to any other compensation or benefits provided under the Employment
Agreement, including specifically and without limitation the benefits provided
under Section 6 thereof. In addition to the legal remedies of the Employer under
the Employment Agreement, the Employee acknowledges and understands that any
violation by the Employee of the terms of this Agreement shall entitle the
Employer to bring legal action for other appropriate equitable relief as well as
damages, including reasonable attorneys' fees, and the return to the Employer of
the consideration received under this Agreement.
8. NON-ADMISSIONS. The parties expressly deny any and all liability or
wrongdoing and agree that nothing in this Agreement shall be deemed to represent
any concession or admission of such liability or wrongdoing or any waiver of any
defense.
9. INVALIDITY. In case any one or more of the provisions of this
Agreement shall be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained in
this Agreement will not in any way be affected or impaired thereby.
2
<PAGE> 3
10. MUTUAL RETURN AND RELEASE OF ALL PROPERTY. The Employee agrees to
immediately return any and all of the Employer's property to the Employer.
11. VOLUNTARY AND KNOWING ACTION. The Employee acknowledges that having
had sufficient opportunity to review this Agreement and Release with his
attorneys, that he has read and understands the terms of this Agreement and
attached Release, and that he has voluntarily and knowingly entered into this
Agreement.
12. RESCISSION/REVOCATION. The Employee may consider the terms of this
Agreement and Release for up to twenty-one (21) days and may decide to
rescind/revoke (cancel) this Agreement within fifteen (15) calendar days of
execution of this Agreement and Release with respect to claims under the
Minnesota Human Rights Act, and within seven (7) calendar days for claims under
the Age Discrimination in Employment Act. Rescission/revocation of any portion
of this Agreement will be deemed to be a rescission/revocation of the Agreement
in its entirety. To be effective, Employee's rescission/revocation must be in
writing and delivered to the Employer either by hand or by mail, within the
applicable rescission/revocation period. If sent by mail, the
rescission/revocation must be:
(a) post-marked within the seven (7) or fifteen (15) day period;
(b) properly addressed to Janet L. Dick, Vice President of Human
Resources, American Medical Systems, Inc., 10700 Bren Road
West, Minnetonka, MN 55343-9679, and
(c) sent by certified mail, return receipt requested.
The Employer shall not be obligated to provide any consideration to the Employee
pursuant to this Agreement in the event the Employee elects to rescind/revoke
this Agreement. Any attempt by the Employee to rescind any part of this
Agreement or Release obligates Employee to immediately return all consideration
under this Agreement to the Employer.
13. INDEMNIFICATION AND OTHER RIGHTS. Notwithstanding anything herein
to the contrary, by signing this Agreement and the Release the Employee will not
have relinquished (i) his right to indemnification for acts occurring or
liabilities arising on or prior to the Termination Date from the Employer under
any charter provision, insurance arrangement or under applicable law with
respect to any claim asserted against the Employee in his capacity as a
director, officer or employee of the Employer, as a trustee of any employee
benefit plan maintained by the Employer, or as a member of any board of
director's committee or employee benefit plan committee, which right shall be no
greater nor less than the indemnification right of other officers and directors
of the Employer, as the case may be, or (ii) his right to payments and benefits
under, or to enforce the provisions of, this Agreement.
3
<PAGE> 4
14. GOVERNING LAW. This Agreement will be construed and interpreted in
accordance with applicable federal laws and the laws of the State of Minnesota.
4
<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement effective as of April 23, 1999.
THE EMPLOYEE
Dated: 6/4/99 /s/ Sam B. Humphries
--------------- ----------------------------------------
THE EMPLOYER
Dated: 5/11/99 By: /s/ Janet L. Dick
--------------- -------------------------------------
Its: Vice President, Human Resources
-------------------------------------
5
<PAGE> 6
EXHIBIT A
RELEASE
Definitions. I intend all words used in this Release to have their plain
meanings in ordinary English. Technical legal words are not needed to describe
what I mean. Specific terms I use in this Release have the following meanings;
provided, however, that any capitalized term that is not otherwise defined in
this Release shall have the meaning set forth in the Agreement to which this
Release is attached:
A. "I," "me" and "my" includes both me, SAM B. HUMPHRIES, and
anyone who has or obtains any legal rights or claims through
me.
B. "Employer," as used in this Release, shall at all times mean
American Medical Systems, Inc., Warburg, Pincus Equity
Partners, L.P. and their respective affiliates, shareholders,
Board members, successors, predecessors, present or former
officers, directors, agents, employees, attorneys, whether in
their individual or official capacities, benefit plans and
plan administrators, and insurers.
C. "My Claims" mean any and all of the actual or potential claims
of any kind whatsoever I have now against the Employer,
regardless of whether I now know about those claims, in any
way related to my employment with or separation from the
Employer, including, but not limited to, claims for invasion
of privacy; breach of contract; fraud or misrepresentation;
violation of the Minnesota Human Rights Act, Title VII of the
1964 Civil Rights Act, the Fair Labor Standards Act, the
Americans With Disabilities Act, the National Labor Relations
Act, the Age Discrimination in Employment Act, the Family and
Medical Leave Act, all as amended, Minn. Stat. ss. 181.932, or
any other federal, state, or local statute, law, rule,
regulation, ordinance or order, including but not limited to
those civil rights laws based on protected class status;
assault, battery, defamation, intentional or negligent
infliction of emotional distress; breach of the covenant of
good faith and fair dealing; promissory estoppel; negligence;
and all other claims for unlawful employment practices, and
all other common law or statutory claims. I understand that I
am not releasing claims under the Age Discrimination in
Employment Act which arise after the date on which I sign this
Release and the Agreement to which it is attached.
Agreement to Release My Claims. I will receive satisfactory consideration from
the Employer to which I am not otherwise entitled by law, contract (including my
Employment Contract), or under any policy of the Employer. I agree to give up
all My Claims and withdraw any and all my charges and lawsuits (if any) against
the Employer in exchange for that consideration. I will not bring any lawsuits,
file any charges, complaints, or notices, or make any other demands against the
Employer based on My Claims. The consideration I am receiving is a full and fair
payment for the release of all My Claims. Employer does not owe me anything in
addition to what I will be receiving.
<PAGE> 7
Additional Agreements and Understandings. Even though the Employer is paying me
to release My Claims, I understand and acknowledge that the Employer does not
admit that it may be responsible or legally obligated to me. In fact, the
Employer expressly denies that it is responsible or legally obligated for My
Claims or that it has engaged in any wrongdoing. I am also hereby advised to
consult with an attorney before I sign this Release and the Agreement to which
it is attached.
Nothing contained herein, however, shall be construed to prohibit me from filing
a charge with the Equal Employment Opportunity Commission, but my release
includes a release of my right to file a court action or to seek individual
remedies or damages in any Equal Employment Opportunity Commission-filed court
action, and my release of these rights shall apply with full force and effect to
any proceedings arising from or relating to such a charge.
Acceptance Period. You have been informed that the terms of the Agreement shall
be open for acceptance by you for a period of twenty-one (21) days after your
Termination Date, during which time you may consider whether or not to accept
the Release and the Agreement and seek counsel to advise you regarding the same.
You understand that changes to the Release and the Agreement, whether material
or immaterial, will not restart this acceptance period.
Right to Rescind and/or Revoke. You have the right to revoke the Agreement and
this Release only insofar as it extends to potential claims under the Age
Discrimination in Employment Act by informing the Employer in writing of your
intent to revoke the Agreement and this Release within seven (7) calendar days
following execution. You likewise have the right to revoke the Agreement and
this Release only insofar as it extends to potential claims under the Minnesota
Human Rights Act by written notice to the Employer within fifteen (15) calendar
days following your execution of this Agreement. Any such rescission must be in
writing and hand-delivered to the Employer or, if sent by mail, postmarked
within the applicable time period, sent by certified mail, return receipt
requested, and addressed as follows:
(a) post-marked within the seven (7) or fifteen (15) day period;
(b) properly addressed to Janet L. Dick, Vice President of Human
Resources, American Medical Systems, Inc., 10700 Bren Road
West, Minnetonka, MN 55343-9679, and
(c) sent by certified mail, return receipt requested.
You agree that if you exercise any right of rescission or revocation, the
Employer may at its option either nullify the Agreement and Release in its
entirety or keep it in effect as to all claims not rescinded or revoked in
accordance with the rescission or revocation provisions of the Agreement and
Release. In the event the Employer opts to nullify the entire Agreement, neither
you nor the Employer will have any rights or obligations
2
<PAGE> 8
whatsoever under the Agreement. Any rescission or revocation, however, does not
affect your separation from employment effective as of the date set forth in
Section 1 of the Agreement.
I have read this Release carefully and understand all its terms. I have reviewed
this Release with my own attorney. In agreeing to sign this Release, I have not
relied on any statements or explanations made by the Employer or their
attorneys.
I understand and agree that this Release and the Agreement to which it is
attached contain all the agreements between the Employer and me. We have no
other written nor oral agreements.
Dated: 6/4/99 /s/ Sam B. Humphries
-------------- -------------------------------
Signature
Sam B. Humphries
-------------------------------
Name
Subscribed and sworn to before me
this 4th day of June, 1999.
/s/ Jacquelyn M. Endy
- ---------------------------------
Notary Public
3
<PAGE> 9
EXHIBIT B
SEPARATION BENEFITS SUMMARY
The following is a Separation Benefits Summary ("Benefits Summary") of the
severance and other benefits that are to be provided to Sam B. Humphries (the
"Employee") by American Medical Systems, Inc. (the "Employer") in connection
with the Employee's termination of employment pursuant to the terms of the
Agreement to which this Benefits Summary is attached:
A. SEVERANCE PAY - The Employee will be paid his regular base salary in
effect as of his Termination Date ($225,000 per annun) for a period of
six (6) months in accordance with the Employer's normal payroll
practice and subject to applicable withholding taxes and without
reduction for subsequent employment by the Employee. Thereafter, the
Employee will be paid his regular base salary as of his Termination
Date, in accordance with the Employer's normal payroll practice and
subject to applicable employment taxes, for twelve (12) additional
months; provided, however, if the Employee is subsequently employed
(including employment as a consultant or independent contractor) during
such 12-month period, all such additional severance payments shall be
discontinued. The Employee shall notify the Employer of any such
subsequent employment immediately. The payments to be made hereunder
shall not commence until after the Employee's statutory recission
rights have expired as further described in the Agreement.
B. LUMP SUM PAYMENT - The Employee shall be paid a lump sum payment in the
amount of $37,500. The payments to be made hereunder shall be made
within two weeks after the Employee's statutory recission rights have
expired as further described in the Agreement.
C. STOCK OPTIONS - All vested and unvested Options (150,000) granted under
the terms of the AMS 1998 Equity Incentive Plan (the "Plan") shall be
canceled, and the terms of the Employee's Stock Option Agreement with
the Employer dated September 25, 1998 shall be of no force or effect as
of the Termination Date.
D. OSI NOTE - The Employee's Non-Recourse Promissory Note dated September
25, 1998 to the Employer in the principal amount of $208,250 shall
remain in effect until September 25, 2001 in accordance with its terms
or until the earlier occurrence of an Event of Default, as defined in
the Pledge Agreement of even date.
E. WARBURG NOTE - The Secured Recourse Promissory Note and Pledge
Agreement, dated September 25, 1998 (the "Note"), between the Employee
and Warburg, Pincus Equity Partners, L.P. ("Warburg") in the principal
amount of $400,000 shall be canceled as to $200,000 of the outstanding
principal amount, and interest thereon. In consideration for such
cancellation, the Employee shall
<PAGE> 10
immediately surrender to Warburg all right, title and interest in
certificates representing 200 shares of Series A non-convertible
preferred stock of the Employer acquired by the Employee pursuant to
the terms of Section 3(e) of the employment agreement dated as of
September 25, 1998, between the Employer and the Employee (the
"Employment Agreement"). The remaining outstanding principal balance of
the Note, and accrued interest, shall be paid in accordance with, and
remain subject to, the current terms of the Note, including Warburg's
security interest in the 40,000 shares of Series B convertible
preferred stock of the Employer acquired by the Employee pursuant to
Section 3(e) of the Employment Agreement; provided, however:
(1) If the remaining outstanding principal balance of the Note, plus
accrued interest (the "Balance"), is not repaid in full prior to the
third anniversary of the Termination Date, the Employee shall repay
such Balance in five equal annual installments, plus accrued interest
on the unpaid Balance. The first such annual installment shall become
due and payable on the third anniversary of the Termination Date; and
the remaining annual installments, plus accrued interest on the
remaining outstanding Balance, shall become due and payable on each of
the four succeeding anniversaries of the Termination Date. The Employee
may prepay the outstanding Balance, plus accrued interest, at any time.
(2) Anything contained in Paragraph E(1) to the contrary
notwithstanding, the remaining principal balance of the Note, plus
accrued interest, shall become immediately due and payable to Warburg
upon the earliest of: (i) the occurrence of an event of Default (as
defined in the Note) other than the Employee's termination of
employment with the Employer, (ii) any failure to make any required
installment payment, plus accrued interest, on the Note as provided in
Paragraph E(1), (iii) 60 days following the end of the "lockup period"
of an initial public offering of shares of common stock of the Employer
pursuant to a registration statement declared effective under the
Securities Act of 1933, as amended, or (iv) the Employer's reasonable
determination that the Employee has not complied with the Employee's
obligations and duties under the Separation Agreement.
F. VACATION/FLOATING HOLIDAYS/UNITED WAY DAYS - All accrued and unused
vacation, floating holidays, and United Way Days will be calculated
using the Employee's base rate of pay as of the Termination Date. This
payment, including any accrued 1999 vacation, will be paid in the form
of a lump sum and will be issued within two weeks after the Termination
Date, subject to any required withholding taxes.
G. HEALTH CARE BENEFITS - The Employee shall continue to receive the
health insurance coverage that was provided to him as of the
Termination Date on the same basis and at the same cost until the end
of the 18-month period following the Termination Date; provided,
however, if the Employee is subsequently employed (including employment
as a consultant or independent contractor)
2
<PAGE> 11
during such 18-month period, the health insurance benefits provided
hereunder may be discontinued by the Employer to the extent the
Employee is receiving comparable health insurance coverage as a result
of his subsequent employment. The Employee shall notify the Employer of
any such subsequent employment immediately. At the end of the 18-month
period following the Termination Date, the Employee shall be entitled
to elect health care continuation coverage permitted under Section 601
through 608 of the Employee Retirement Income Security Act of 1974, as
amended, as if his employment with the Employer had then terminated.
H. WELFARE BENEFITS - To the extent permitted under the Employer's welfare
plans, the Employee shall continue to receive the welfare benefit
coverage (other than health insurance benefits as provided above) that
was provided to him as of the Termination Date on the same basis and at
the same cost until the end of the 18-month period following the
Termination Date; provided, however, if the Employee is subsequently
employed (including employment as a consultant or independent
contractor) during such 18-month period, the welfare benefits provided
hereunder may be discontinued by the Employer to the extent the
Employee is receiving comparable welfare benefit coverage as a result
of his subsequent employment. The Employee shall notify the Employer of
any such subsequent employment immediately.
I. OUTPLACEMENT BENEFITS - The Employee shall be entitled, at the
Employer's expense, to participate in an executive outplacement program
provided through Drake Beam Morin for the 6-month period commencing on
the date the Employee's statutory recission rights have expired, as
further described in the Agreement. If the Employee has not secured
employment by the end of such 6-month period (including employment as a
consultant or independent contractor), the outplacement benefits
provided hereunder may be continued by the Employer, at its discretion,
for an additional 6-month period or until subsequent employment is
secured, whichever first occurs. The Employee shall notify the Employer
of any such subsequent employment immediately.
J. OTHER BENEFITS INFORMATION - THE FOLLOWING IS INTENDED TO HIGHLIGHT HOW
OTHER EMPLOYER BENEFITS ARE AFFECTED.
AMS Savings Investment Plan (SIP): The Employee's contributions and
Employer match monies to the SIP will cease upon the Termination Date.
The Employee may choose to have his monies rolled into a qualified IRA
plan or a company-sponsored qualified plan OR the employee may choose
to take a full distribution of his account which may be subject to the
payment of income taxes and penalty taxes. If the value of the
Employee's account is less than $5,000 as of the Employee's Termination
Date, the Employee must take a distribution of his account within 60
days from the Termination Date.
3
<PAGE> 12
If the value of the Employee's account is $5,000 or more as of the
Employee's Termination Date, the Employee may elect to keep his monies
in the SIP. If the Employee elects this option, the Employee may elect
to take his final distribution at any time before age 65. If the
Employee elects to keep his monies in the SIP, he will have the same
investment direction rights and withdrawal privileges as if he were an
active employee and will continue to receive quarterly status notices.
Please refer to the AMS Savings and Investment Plan highlight booklet
for a full description of the terms of the SIP. Further information and
forms will be provided upon request to the Human Resources
representative.
AMS Retirement Plan: Creditable service under the AMS Retirement Plan
will be calculated based on the Termination Date. Employees who have a
minimum of 5 years of service are considered "vested annuitants."
Employees who are "retirement eligible" will be provided with
additional retirement information on an individual basis by a Human
Resources representative.
4
<PAGE> 1
September 27, 1999
Sam Humphries
7913 Wyoming Court
Bloomington, MN 55438
Dear Sam:
RE: Revised Letter
This letter, with slight revisions from my letter of September 15, is to confirm
our recent discussions regarding the consulting business which you are
commencing and the relationship of this decision to your Separation Benefits
with AMS.
As you know, you have a signed and executed Separation Agreement and Release on
file with AMS which calls for the payment of Severance Pay and continuance of
Health Care and Welfare Benefits for a period of six months from your
Termination Date, April 23, 1999 to October 23, 1999. Additional base salary pay
would only apply if employment, including consultant/independent contractor
work, had not been obtained. You have informed me that you will soon be
establishing a consulting business which, per the Agreement, would cause the
curtailment of pay and benefits on October 23. However, you have requested an
extension of pay and benefits to provide assistance in the early stages of your
business.
In line with this, we agree to continue your regular base salary in effect as of
your Termination Date ($225,000 per annum) for a total period of 10 months from
April 23, 1999, which would be up to February 28, 2000. Additionally, we agree
to provide 12 months of Health Care and Welfare Benefits from April 23, 1999 up
to April 22, 2000. At the end of that period, you will be entitled to elect
continuance coverage for health care, dental (through COBRA) and life insurance
for 18 months, as if your employment with AMS had then terminated. Please be
aware that your contributions for these benefits in 2000 will be per the amount
charged to active employees (through April 22) and normal COBRA rates, both of
which will probably increase next year.
The above offering in no way alters the Separation Agreement and Release which
you have signed with the company; it merely provides an extension to your
Separation Benefits Summary as a means of goodwill. Also, your original
Employment Agreement with the Company still is in force. I call your attention
to Section 8. Secrecy and Non-
<PAGE> 2
Competition, items a., b., and c. As you discussed several weeks ago, we would
interpret the Agreement and have the expectation that you would not be providing
consulting work to companies which are in a competing business with AMS. Also,
if your consulting business entails recruitment and search work, that you would
not present any opportunities or entice any AMS employees to leave the Company
for any other position.
Please acknowledge your understanding and agreement with the above below and
return this to me as soon as possible. Certainly contact me if you have any
questions.
Sincerely,
/s/ Jan Dick
Jan Dick
Vice President, Human Resources
Cc: Bess Weatherman, Warburg, Pincus
I HAVE READ, UNDERSTAND AND AGREE TO THE ABOVE
/s/ Sam B. Humphries 9/29/99
- -------------------------------- --------------------------
Sam B. Humphries Date
<PAGE> 1
NON-RECOURSE
PROMISSORY NOTE
$208,250 Minnetonka, Minnesota
Effective Date: September 25, 1998
FOR VALUE RECEIVED, the undersigned, Sam B. Humphries (the "Maker"),
promises to pay to the order of WPAMS Acquisition Corp., a Delaware corporation,
its successors and assigns (the "Holder"), at its principal offices in
Minnetonka, Minnesota, or such other place as the Holder hereof may designate in
writing from time to time, the principal sum of TWO HUNDRED AND EIGHT THOUSAND,
TWO HUNDRED FIFTY DOLLARS ($208,250), in lawful money of the United States,
together with interest on the unpaid principal balance outstanding from time to
time from the date hereof at a fixed rate of five and fifty-four hundredths
percent (5.54%) per year, compounded annually. Interest hereon shall be computed
an the actual number of days elapsed and a 365-day year.
Accrued interest shall be payable beginning on December 31, 1999 and on
December 31 of each year thereafter so long as any principal balance remains
outstanding under this Note.
The principal sum set forth above, together with all accrued interest
thereon, shall be due and payable in full on September 25, 2001; provided,
however, that to the extent that the Maker sells any Pledged Shares (as defined
below) on or after the date hereof, one hundred percent (100%) of the net
proceeds from the sale of such stock, after the payment of any commission and
income taxes, shall be applied first to accrued interest, if any, and then to
any outstanding principal.
This Note is secured by a security interest in certain shares of common
stock of Optical Sensors Incorporated, a Delaware corporation ("OSI"), owned by
the Maker (the "Pledged Shares"), pursuant to Pledge Agreement of even date
herewith between the Maker and the Holder (the "Pledge Agreement"). This Note is
a nonrecourse note and anything herein to the contrary notwithstanding, the
Holder agrees for itself, its representatives, successors, endorsees, and
assigns that: (a) neither the Maker nor his, heirs, executors, representatives,
successors or assigns shall be personally liable on this Note, and (b) in the
event of default hereunder, the Holder (and any such representative, successor,
endorsee, or assign) shall look for payment solely to the Pledged Shares, and
will not make any claim or institute any action or proceeding against the Maker
(or any heir, executor, representative, successor or assign of the Maker),
except as may be necessary to foreclose the security interest under the Pledge
Agreement. The foregoing shall not be construed to release or impair the
indebtedness evidenced by this Note or the security interest under the Pledge
Agreement, or preclude the application of proceeds from the sale of the Pledged
Shares to the payment of this Note.
This Note may be prepaid in full or in part at any time without premium
or penalty; provided, however, that any prepayments on this Note shall be
applied first to interest and then to principal.
Upon a default in payment hereunder, the Holder may, without notice or
demands, declare this indebtedness immediately due and payable and the Holder
may immediately exercise
<PAGE> 2
any right of setoff and enforce any lien or security interest securing payment
hereof. The foregoing shall be in addition to any rights or remedies contained
in any agreement and/or other writing relating to the indebtedness evidenced
hereby. If this Note is placed with any attorneys for collection upon default,
Maker agrees to pay the Holder its reasonable attorneys' fees and all lawful
costs and expenses of collection, whether or not suit is commenced.
Time is of the essence. No delay or omission on the part of the Holder
in exercising any right hereunder shall operate as a waiver of such right or of
any other remedy under this Note. A waiver on any occasion shall not be
construed as a bar to or waiver of any such right or remedy on a future
occasion.
The makers, endorsers, sureties, guarantors and all other persons
liable for all or part of the indebtedness evidenced by this Note jointly and
severally waive presentment for payment, protest and notice of nonpayment. Such
parties hereby consent without affecting their liability to extension or
alteration of the time or terms of payment hereof, any renewal, any release of
all or any part of the security given for the payment hereof, any acceptance of
additional security of any kind, and any release of, or resort to, any party
liable for payment hereof and such parties shall remain bound in the same
capacities as prior thereto upon each such event.
This Note shall be construed, interpreted and governed by the laws of
the State of Minnesota.
/s/ Sam B. Humphries
-----------------------------
Sam B. Humphries
-2-
<PAGE> 1
PLEDGE AGREEMENT
AGREEMENT entered into and effective this 25th day of
September, 1998, by Sam B. Humphries (the "Pledgor") and in favor of WPAMS
Acquisition Corp., a Delaware corporation (the "Company").
RECITALS:
A. Pledgor has issued a promissory note of even date herewith (the
"Note") payable to the order of the Company in the original principal amount of
Two Hundred and Eight Thousand, Two Hundred Fifty Dollars ($208,250) to borrow
cash to repay a promissory note dated September 1, 1995 payable to the order of
Optical Sensors Incorporated, a Delaware corporation ("OSI"), in the original
principal amount of $245,000.
B. To secure the payment of the Note, the Company requires that the
Pledgor grant it a security interest in certain shares of common stock of OSI in
accordance with this Pledge Agreement, and the Pledgor agrees to grant the
Company such a security interest.
AGREEMENT
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Pledgor hereby agrees as
follows:
I. TERMS OF THE PLEDGE.
A. The Pledge.
Pledgor does hereby pledge and grant to the Company a security
interest in all of the following described property (the
"Collateral"):
1. 105,062 shares of common stock of 051 owned by the Pledgor on the
date hereof, subject to adjustment as provided in Section I.A.3.
(as so adjusted, the "Pledged Shares").
2. The proceeds of any dividend or other distribution attributable
to the Pledged Shares (payable other than in cash) or any shares
of stock or securities of 051 or of another corporation payable
with respect to the Pledged Shares in connection with any change
in the corporate structure or shares of OSI pursuant to any
merger or recapitalization or otherwise.
3. The number of Pledged Shares shall be adjusted on June 30 and
December 31 of each year (the "Determination Date") so that, on
each Determination Date during the term of this Agreement, the
Fair Market Value, as defined below, of Pledged Shares is not
more than 100% of the principal amount of the Note outstanding on
such Determination Date. For purposes of this Agreement, the term
Fair Market Value shall have the meaning set forth in the
Company's 1998 Equity Incentive Plan. If the Fair Market Value of
the Pledged Shares on a Determination Date is more than 100% of
the
<PAGE> 2
principal amount of the Note outstanding on such
Determination Date, a number of Pledged Shares shall be
released from this Pledge Agreement and delivered to the
Pledgor such that the Fair Market Value of the Pledged
Shares is equal to 100% of the principal amount of the Note
on such Determination Date. If the Fair Market Value of the
Pledged Shares on a Determination Date is less than 100% of
the principal amount of the Note outstanding on such
Determination Date, the Pledgor shall deliver to the Company
an additional number of the shares that were previously
released from this Pledge Agreement (to the extent such
shares are then owned by the Pledgor and which shall again
become Pledged Shares) such that the Fair Market Value of
the Pledged Shares is equal to 100% of the principal amount
of the Note outstanding on such Determination Date.
B. Delivery of Collateral.
The Company hereby acknowledges receipt of the certificate
evidencing the Collateral together with a stock assignment
therefor duly endorsed. Pledgor agrees to deliver promptly to the
Company, in the exact form received, all securities and other
property which come into the possession, custody or control of
Pledgor which would be included within the definition of
Collateral in Section I.A. above.
C. Actions Prior to an Event of Default.
Until the occurrence of an Event of Default (as defined in
Section III.A. below) the Pledgor shall have the sole right (a)
to vote the securities constituting the Collateral and to give
consents, waivers and ratifications in respect thereof, provided
that no vote shall be cast, or consent, waiver or ratification
given or action taken that would violate or not comply with any
of the terms and provisions of this Pledge Agreement; and (b) to
receive any and all cash dividends declared and paid on the
securities constituting the Collateral that are not otherwise in
violation of any of the terms and provisions of this Pledge
Agreement.
D. Termination of Security and Return of Collateral.
Upon such date as the entire principal sum and all accrued
interest on the Note shall have been paid in full, (i) all of the
Collateral shall automatically, and without any further action of
the parties hereto, be released from the security interest of the
Company created by this Pledge Agreement and (ii) the Company
shall deliver the certificate or certificates representing the
Collateral to the Pledgor.
-2-
<PAGE> 3
II. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR.
A. Power and Authority to Pledge.
Pledgor has full power and authority to execute and deliver this
Pledge Agreement and to perform his obligations hereunder.
B. Enforceability.
This Pledge Agreement is the valid and binding obligation of
Pledgor, enforceable against Pledgor according to its terms,
subject to applicable bankruptcy, insolvency, moratorium and
other laws affecting creditors rights and remedies and the
judicial limitations on the right to specific performance. Upon
delivery of the Pledged Shares to the Company, this Pledge
Agreement shall create a valid first lien upon, and perfected
security interest in, the Pledged Shares.
C. Title to Collateral.
Pledgor warrants and represents to the Company that it holds
title to the Collateral free and clear of any liens,
encumbrances, security interests and restrictions on transfer and
assignment thereof, except for the security interest created by
this Pledge Agreement, and as required by federal and state
securities laws.
D. Taxes.
Pledgor will promptly pay, when due, all taxes and other
governmental charges levied or assessed upon or against the
Collateral.
E. Preservation of Rights on Collateral.
Pledgor will take any action necessary to preserve redemption,
conversion, warrant, preemptive or other rights (and be aware of
the dates limiting the exercise of such rights) concerning the
Collateral.
F. Maintenance of Security Interest.
The Pledgor will pay all expenses and, upon request, do and enact
all things deemed necessary or appropriate by the Company from
time to time to establish, determine priority of, perfect,
continue perfection, terminate and enforce the Company's interest
in the Collateral and the Company's rights under this Pledge
Agreement.
G. Actions on Behalf of the Pledgor.
If the Pledgor fails at any time to comply with the requirements
of this Article II, or to do any other acts or things which the
Pledgor is required to do under this Pledge Agreement, the
Company shall have the right to do such acts and things, or any
of them, at the Company's option (and the Pledgor appoints the
Company
-3-
<PAGE> 4
as the Pledgor's attorney and agent with the right, but not the
duty, to do any such acts or things). If the Company does any
such acts or things, the Pledgor shall, on demand by the Company,
pay to the Company the amount of all costs and expenses incurred
or to be the rate specified in the Note from the date the same
were paid or incurred by the Company, and shall indemnify and
save harmless the Company from and against any other liability or
damage which it may incur in good faith and without gross
negligence, in the exercise and performance of any such acts or
things.
III. EVENTS OF DEFAULT AND REMEDIES.
A. Events of Default.
The occurrence of one or more of the following shall constitute
an "Event of Default" hereunder:
1. The Pledgor defaults in the performance or observance of any
of the terms or covenants in this Pledge Agreement;
2. Any representation or warranty made by the Pledgor in this
Pledge Agreement is untrue in any material respect;
3. The Pledgor defaults in the payment of any amounts due under
the Note; or
4. The Pledgor shall become a bankrupt or insolvent, or admit
in writing inability to pay debts as they mature, or make an
assignment for the benefit of creditors; the Pledgor shall
apply for or consent to the appointment of any receiver,
trustee or similar officer for him or for all or any
substantial part of his property; such receiver, trustee or
similar officer shall be appointed without the application
or consent of the Pledgor and such appointment shall
continue undischarged for a period of 30 days; the Pledgor
shall institute (by petition, application, answer, consent
or otherwise) any bankruptcy, insolvency, adjustment of debt
or similar proceeding under the laws of any jurisdiction;
any such proceeding shall be instituted (by petition,
application or otherwise) against the Pledgor and shall
remain undismissed for a period of 30 days; or any judgment,
writ, warrant of attachment or execution or similar process
shall be issued or levied against a substantial part of the
property of the Pledgor, and such judgment, writ or similar
process shall not be released, vacated or fully bonded
within 30 days after its issue or levy.
B. Company's Right to Sell Collateral.
Upon the occurrence of an Event of Default, the Collateral shall
be forfeited by the Pledgor to the Company unless the Company, in
its sole discretion, permits the Pledgor to continue to make
payments under the Note and to retain his rights and interest in
the Collateral under this Pledge Agreement. The Company shall be
-4-
<PAGE> 5
entitled to sell the Collateral upon 10 business days'
written notice to Pledgor, at public auction or private
sale. Thereafter, the Collateral shall be held by the
Company for its own account and the Company may cause the
Collateral to be registered in its name and may vote the
Collateral (whether or not transferred or registered in the
name of the Company) and give all consents, waivers and
ratifications in respect thereof, and may receive all
dividends, interest and other distributions thereon. The
Company may limit sales to purchasers who are acquiring for
investment and not with any view to distribution and may
condition any sale or sales upon restriction against future
transfers to the extent that the Company or counsel for the
Company shall deem necessary to protect the Company from any
liability under the Securities Act of 1933, the Securities
Exchange Act of 1934, state securities laws, and any like or
similar laws now or hereafter in effect.
C. Power of Attorney.
For the purposes of this Article III, the Pledgor
constitutes and appoints the Company as the Pledgor's true
and lawful attorney and agent, on behalf of and in the name,
place and stead of the Pledgor, with the right, but not the
duty, to endorse the Pledgor's name on all applications,
documents, papers and instruments necessary for the Company
to sell, assign, transfer, pledge, encumber or otherwise
transfer title in the Collateral or dispose of the
Collateral to any third party. The Pledgor hereby grants to
the Company, as such attorney and agent, full power and
authority to do, take and perform all and every act and
thing whatsoever required, proper or necessary to be done,
in the exercise of the rights and powers granted above, as
fully to all intents and purposes as the Pledgor might or
could do if personally present, ratifying all that such
attorney and agent shall lawfully do or cause to be done by
virtue hereof. This power of attorney shall be irrevocable
for the life of this Pledge Agreement, and until the Note is
fully paid or satisfied or the collateral is forfeited to
the Company.
D. Waiver of Redemption; No Liability for Value Decline.
Any and all sale(s) of Collateral held by the Company
pursuant to Section III.B. above shall be free from any
right of redemption, which is hereby expressly waived by
Pledgor. In addition, the Company shall have no liability
for any increase or decrease in the value of any of the
Collateral at any time.
E. Rights Cumulative.
All rights and remedies of the Company hereunder are in
addition to rights and remedies afforded the Company under
the Note, any other document or under law. All remedies are
cumulative any may be exercised by the Company concurrently
or consecutively. No failure or omission of the Company to
exercise any such right or remedy shall constitute a waiver
thereof.
-5-
<PAGE> 6
IV. MISCELLANEOUS.
A. Agreement Binding.
This Pledge Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Pledgor and the
Company.
B. Severability.
In the event that one or more provisions of this Pledge
Agreement should be declared to be invalid, illegal or
unenforceable in any respect by a court of competent
jurisdiction, the validity, legality and enforceability of
the remaining provisions herein shall not in any way be
affected or impaired thereby.
C. Survival of Representations.
All representations and warranties made herein are, and
shall continue to be, true and correct in all material
respects until the Note is paid in full.
D. Notices.
All notices and other communications required or permitted
to be given hereunder shall be given and become effective
when deposited in the U. S. Mail, postage prepaid, return
receipt requested, addressed to the parties at the Company's
offices in Minnetonka, Minnesota, or such other address as
the parties may designate from time to time.
E. Governing Law.
This Pledge Agreement shall be construed, interpreted and
governed according to the laws of the State of Minnesota.
F. Nature of Obligations.
The obligations of the Pledgor under this Pledge Agreement
shall be absolute and unconditional and shall remain in full
force and effect without regard to, and shall not be
released, suspended, discharged, terminated, lessened or
otherwise affected by, any circumstance or occurrence
whatsoever, whether or not the Pledgor shall have notice or
knowledge, including, without limitation, (a) any renewal,
extension, substitution, amendment or modification of or
addition or supplement to or deletion from the Note, this
Pledge Agreement or an assignment or transfer of any
thereof; (b) any waiver, consent, extension, indulgence or
other action or inaction under or in respect of the Note,
this Pledge Agreement, or any exercise or nonexercise of any
right, remedy, power or privilege under or in respect of the
Note or this Pledge Agreement, (c) any furnishing of any
additional collateral or security to the Company or its
assignee or any acceptance thereof or any release of any
collateral or security in whole or in part by the Company or
its assignee under this Pledge Agreement or otherwise, (d)
any limitation on any party's
-6-
<PAGE> 7
liability or obligations under the Note or under this Pledge
Agreement or any invalidity or unenforceability, in whole or
in part, or any such instrument or any term thereof, or (e)
any bankruptcy insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like
proceeding relating to the Pledgor, or any action taken with
respect to this Pledge Agreement or the Note by any trustee
or receiver, or by any court, in any such proceeding.
IN WITNESS WHEREOF, Pledgor has executed this Pledge
Agreement as of the day and year first above written.
Pledgor:
/s/ Sam B. Humphries
---------------------------
Sam B. Humphries
Accepted:
WPAMS ACQUISITION CORP.
By: /s/ Elizabeth Weatherman
-----------------------------------------
Name: Elizabeth Weatherman
Title: Director and Benefits Committee
Member
-7-
<PAGE> 1
SEPARATION AGREEMENT
The Employer and Employee wish to end their employment relationship in
an honorable, dignified and orderly fashion. Toward that end, the parties have
agreed to separate according to the following terms.
This Separation Agreement ("Agreement") and Release, which is attached
and incorporated by reference as Exhibit A ("the Release") are made by and
between Helen Vallerand ("Employee") on behalf of the Employee's agents, heirs,
and successors, and American Medical Systems, Inc., Pfizer, Inc., and their
respective parent or subsidiary corporations, affiliates, Board members,
successors, predecessors present or former officers, directors, agents,
employees, attorneys, whether in their individual or official capacities,
benefit plans and insurers ("Employer").
The Employer does not believe that it has any claims against the
Employee, nor do the parties believe that the Employee has any claims against
the Employer. Nevertheless, the parties have agreed upon the following
separation terms to resolve any actual and potential claims arising out of the
Employee's employment with and separation from Employer.
IN CONSIDERATION OF THIS ENTIRE SEPARATION AGREEMENT, THE PARTIES AGREE
AS FOLLOWS:
1. CONSIDERATION. Employer shall, after receipt of a fully executed
Separation Agreement and Release, and after expiration of statutory recission
periods without any rescission of the Release:
(1) Provide the Employee with the gross amount of
$181,555.00, subject to appropriate taxes and
withholding, as severance and compensation for any
and all alleged claims which may have arisen at any
time during the Employee's employment with, or in the
course of separation from employment with the
Employer.
(2) At Employer's option, either (a) amend Employer's
post-retirement medical plan such that Employee will
be eligible to receive benefits under such plan or
(b) provide Employee with coverage under Employer's
group insured medical plan or an individual medical
Insurance plan which covers Employee; provided that
in either case, Employer shall not be obligated to
pay more than $12,000 per year in premiums until
Employee reaches the age of 65 and Employer shall not
be obligated to pay more than $3,000 per year in
premiums after Employee reaches the age of 65.
(3) The parties agree that the above consideration is
over and above anything owed to the Employee by law,
contract or under the policies of Employer, and it is
provided to the Employee in exchange for entering
into this Agreement.
<PAGE> 2
3. CONFIDENTIALITY. It is the intent of the parties that this Agreement
be and is confidential. The Employee warrants that he/she has not and will not
disclose the terms of this Agreement, to any person other than his/her spouse,
attorney, tax advisor, or representatives of the E.E.O.C., or the Minnesota
Department of Human Rights, who shall be bound by the same prohibitions against
disclosure as bind the Employee, and the Employee shall be responsible for
advising these individuals of this confidentiality provision and obtaining their
commitment to maintain such confidentiality.
4. MUTUAL RELEASE. In consideration of the compensation paid by and
other undertakings of Employer stated in this Agreement, the Employee will sign
the attached Release (Exhibit A) at the same time he/she signs this Agreement.
5. STIPULATION OF NO CHARGES. The Employee affirmatively represents
that he/she has not filed nor caused to be filed any charges, claims,
complaints, or actions against the Employer before any federal, state, or local
administrative agency, court, or other forum. The Employee further waives any
right to any form of recovery or compensation from any legal action filed or
threatened to be filed by him/her or on his/her behalf based on his/her
employment or terms of employment with or resignation from Employer.
6. NON-DISPARAGEMENT. The parties to this Agreement agree that they
will make no disparaging or defamatory comments regarding the other parties in
any respect or make any comments concerning any aspect of their relationship or
the conduct or events which precipitated the Employee's separation. Furthermore,
the Employee agrees not to assist or encourage in any way any individual or
group of individuals to bring or pursue a lawsuit, charge, complaint, or
grievance, or make any other demands against Employer.
7. DAMAGES FOR VIOLATION OF DUTY OF CONFIDENTIALITY. Any violation by
the Employee of the confidentiality and/or non-disparagement provisions of this
Agreement shall entitle Employer to bring a legal action for appropriate
equitable relief as well as damages, including reasonable attorneys' fees. If
Employee violates his/her duty of confidentiality and/or non-disparagement as
provided in this Agreement, Employee shall be obligated to return to the
Employer the consideration he/she has received under this Agreement.
8. NON-ADMISSIONS. The parties expressly deny any and all liability or
wrongdoing and agree that nothing in this Agreement shall be deemed to represent
any concession or admission of such liability or wrongdoing or any waiver of any
defense.
9. INVALIDITY. In case any one or more of the provisions of this
Agreement shall be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the
remaining provisions contained in this Agreement will not in
any way be affected or impaired thereby.
2
<PAGE> 3
10. MUTUAL RETURN AND RELEASE OF ALL PROPERTY: The Employee agrees to
immediately return any and all of the Employer's property to the Employer.
11. VOLUNTARY AND KNOWING ACTION. The Employee acknowledges that having
had sufficient opportunity to review this Agreement and Release with his/her
attorneys, that he/she has read and understands the terms of this Agreement and
attached Release, and that he/she has voluntarily and knowingly entered into
this Agreement.
12. RESCISSION/REVOCATION. The Employee may consider the terms of this
Separation Agreement and Release for up to twenty-one (21) days and may decide
to rescind/revoke (cancel) this Agreement within fifteen (15) calendar days of
execution of this Agreement with respect to claims under the Minnesota Human
Rights Act, and within seven (7) calendar days for claims under the Age
Discrimination in Employment Act. Rescission/revocation of any portion of this
Agreement will be deemed to be a rescission/revocation of all of the Agreement.
To be effective, Employee's rescission/revocation must be in writing and
delivered to the Employer either by hand or by mail, within the applicable
rescission/revocation period. If sent by mail, the rescission/revocation must
be:
(a) post-marked within the seven (7) or fifteen (15) day period;
(b) properly addressed to Janet L. Dick, Vice President of Human
Resources, American Medical Systems, Inc., 10700 Bren Road
West, Minnetonka, MN 55343-9679, and
(c) sent by certified mail, return receipt requested.
Employer shall not be obligated to provide any consideration to
Employee pursuant to this Agreement in the event the Employee elects to
rescind/revoke this Agreement. Any attempt by Employee to rescind any part of
this Agreement or Release obligates Employee to immediately return all
consideration under this Agreement to the Employer.
13. COMPLIANCE WITH PRIOR AGREEMENT. The Employee remains bound by the
terms of the Employment Agreement which he/she previously entered into with the
Employer, a copy of which is attached as Exhibit B.
14. GOVERNING LAW. This Agreement will be construed and interpreted in
accordance with applicable federal laws and the laws of the State of Minnesota.
3
<PAGE> 4
THE EMPLOYEE
Dated: 4/29/99 /s/ Helen Vallerand
------------------- -----------------------------------------
THE EMPLOYER
Dated: 4/23/99 By: /s/ Janet Dick
------------------- -----------------------------------------
Its: Vice President, Human Resources
4
<PAGE> 5
EXHIBIT A
RELEASE
Definitions. I intend all words used in this Release to have their plain
meanings in ordinary English. Technical legal words are not needed to describe
what I mean. Specific terms I use in this Release have the following meanings:
A. "I," "me," and "my" include both me, Helen Vallerand, or
anyone who has or obtains any legal rights or claims through
me.
B. "Employer," as used in this Release, shall at all times mean
American Medical Systems, Inc., Pfizer, Inc., and their
respective parent or subsidiary corporations, affiliates,
Board members, successors, predecessors, present or former
officers, directors, agents, employees, attorneys, whether in
their individual or official capacities, benefit plans and
plan administrators, and insurers ("Employer").
C. My Claims mean any or all of the actual or potential claims of
any kind whatsoever I have now against Employer, regardless of
whether I now know about those claims, in any way related to
my employment with or separation from the Employer, including,
but not limited to, claims for invasion of privacy; breach of
contract; fraud or misrepresentation; violation of the
Minnesota Human Rights Act, Title VII of the 1964 Civil Rights
Act, the Fair Labor Standards Act, the Americans With
Disabilities Act, the National Labor Relations Act, the Age
Discrimination in Employment Act, the Family and Medical Leave
Act, all as amended, Minn. Stat.ss.181.932, or any other
federal, state, or local statute, law, rule, regulation,
ordinance or order, including but not limited to those civil
rights laws based on protected class status; assault, battery,
defamation, intentional or negligent infliction of emotional
distress; breach of the covenant of good faith and fair
dealing; promissory estoppel; negligence; and all other claims
for unlawful employment practices, and all other common law or
statutory claims. I understand that I am not releasing claims
under the Age Discrimination in Employment Act, which arise
after the date on which I sign this Release and the Agreement
to which it is attached.
Agreement to Release My Claims. I am receiving satisfactory consideration from
Employer to which I am not otherwise entitled by law, contract, or under any
policy of Employer. I agree to give up all My Claims and withdraw any and all my
charges and lawsuits (if any) against Employer in exchange for that
consideration. I will not bring any lawsuits, file any charges, complaints, or
notices, or make any other demands against the Employer based on My Claims. The
consideration I am receiving is a full and fair payment for the release of all
My Claims. Employer does not owe me anything in addition to what I will be
receiving.
Additional Agreements and Understandings. Even though the Employer is paying me
to release My Claims, I understand and acknowledge that the Employer does not
admit
5
<PAGE> 6
that it may be responsible or legally obligated to me. In fact, the Employer
expressly denies that it or he/she is responsible or legally obligated for My
Claims or that it or he/she has engaged in any wrongdoing. I am also hereby
advised to consult with an attorney before I sign this Release and the Agreement
to which it is attached.
Nothing contained herein, however, shall be construed to prohibit you from
filing a charge with the Equal Employment Opportunity Commission, but your
release includes a release of your right to file a court action or to seek
individual remedies or damages in any Equal Employment Opportunity
Commission-filed court action, and your release of these rights shall apply with
full force and effect to any proceedings arising from or relating to such a
charge.
Acceptance Period. You have been informed that the terms of this Agreement shall
be open for acceptance by you for a period of at least twenty-one (21) days
after the date set forth above, during which time you may consider whether or
not to accept this Agreement and seek counsel to advise you regarding the same.
You agree that changes to this Agreement, whether material or immaterial, will
not restart this acceptance period.
Right to Rescind and/or Revoke. You have the right to revoke this Agreement only
insofar as it extends to potential claims under the Age Discrimination in
Employment Act by informing the Employer of your intent to revoke this Agreement
within seven (7) calendar days following your execution of it.
You likewise have the right to rescind this Agreement only insofar as it extends
to potential claims under the Minnesota Human Rights Act by written notice to
Employer within fifteen (15) calendar days following your execution of this
Agreement. Any such rescission must be in writing and hand-delivered to Employer
or, if sent by mail, postmarked within the applicable time period, sent by
certified mail, return receipt requested, and addressed as follows:
(a) post-marked within the seven (7) or fifteen (15) day period;
(b) properly addressed to Janet L. Dick, Vice President of Human
Resources, American Medical Systems, Inc., 10700 Bren Road
West, Minnetonka, MN 55343-9679, and
(c) sent by certified mail, return receipt requested.
You agree that if you exercise any right of rescission or revocation, Employer
may at its option either nullify this Agreement in its entirety or keep it in
effect as to all claims not rescinded or revoked in accordance with the
rescission or revocation provisions of this Agreement. In the event Employer
opts to nullify the entire Agreement, neither you nor Employer will have any
rights or obligations whatsoever under this Agreement. Any rescission or
revocation, however, does not affect your separation from employment effective
as of the date set forth in Section 1.
6
<PAGE> 7
I have read this Release carefully and understand all its terms. I have reviewed
this Release with my own attorney. In agreeing to sign this Release, I have not
relied on any statements or explanations made by Employer or their attorneys.
I understand and agree that this Release and the Settlement Agreement to which
it is attached contain all the agreements between Employer and me. We have no
other written nor oral agreements.
Dated: April 29, 1999 /s/ Helen Vallerand
----------------------- -------------------------------
Signature
Helen Vallerand
-------------------------------
Name (Print)
Subscribed and sworn to before me
this 29th day of April, 1999
/s/ Judith A. Dian
- --------------------------------
Notary Public
7
<PAGE> 1
SEPARATION AGREEMENT
The Employer and Employee wish to end their employment relationship in an
honorable, dignified and orderly fashion. Toward that end, the parties have
agreed to separate according to the following terms.
This Separation Agreement ("Agreement") and Release, which is attached and
incorporated by reference as Exhibit A ("the Release") are made by and between
William Stein ("Employee") on behalf of the Employee's agents, heirs, and
successors, and American Medical Systems, Inc., Pfizer, Inc., and their
respective parent or subsidiary corporations, affiliates, Board members,
successors, predecessors present or former officers, directors, agents,
employees, attorneys, whether in their individual or official capacities,
benefit plans and insurers ("Employer").
The Employer does not believe that it has any claims against the Employee,
nor do the parties believe that the Employee has any claims against the
Employer. Nevertheless, the parties have agreed upon the following separation
terms to resolve any actual and potential claims arising out of the Employee's
employment with and separation from Employer.
IN CONSIDERATION OF THIS ENTIRE SEPARATION AGREEMENT, THE PARTIES AGREE AS
FOLLOWS:
1. CONSIDERATION. Employer shall, after receipt of a fully-executed
Separation Agreement and Release, and after expiration of statutory recission
periods without any rescission of the Release:
(1) Provide the Employee with the gross amount of $146,675.48, subject to
appropriate taxes and withholding, as severance and compensation for
any and all alleged claims which may have arisen at any time during
the Employee's employment with, or in the course of separation from
employment with the Employer.
(2) The parties agree that the above consideration is over and above
anything owed to the Employee by law, contract or under the policies
of Employer, and it is provided to the Employee in exchange for
entering into this Agreement.
3. CONFIDENTIALITY. It is the intent of the parties that this Agreement be
and is confidential. The Employee warrants that he/she has not and will not
disclose the terms of this Agreement, to any person other than his/her spouse,
attorney, tax advisor, or representatives of the E.E.O.C., or the Minnesota
Department of Human Rights, who shall be bound by the same prohibitions against
disclosure as bind the Employee, and the Employee shall be responsible for
advising these individuals of this confidentiality provision and obtaining their
commitment to maintain such confidentiality.
4. MUTUAL RELEASE. In consideration of the compensation paid by and other
undertakings of Employer stated in this Agreement, the Employee will sign the
attached Release (Exhibit A) at the same time he/she signs this Agreement.
<PAGE> 2
5. STIPULATION OF NO CHARGES. The Employee affirmatively represents that
he/she has not filed nor caused to be filed any charges, claims, complaints, or
actions against the Employer before any federal, state, or local administrative
agency, court, or other forum. The Employee further waives any right to any form
of recovery or compensation from any legal action filed or threatened to be
filed by him/her or on his/her behalf based on his/her employment or terms of
employment with or resignation from Employer.
6. NON-DISPARAGEMENT. The parties to this Agreement agree that they will
make no disparaging or defamatory comments regarding the other parties in any
respect or make any comments concerning any aspect of their relationship or the
conduct or events which precipitated the Employee's separation. Furthermore, the
Employee agrees not to assist or encourage in any way any individual or group of
individuals to bring or pursue a lawsuit, charge, complaint, or grievance, or
make any other demands against Employer.
7. DAMAGES FOR VIOLATION OF DUTY OF CONFIDENTIALITY. Any violation by the
Employee of the confidentiality and/or non-disparagement provisions of this
Agreement shall entitle Employer to bring a legal action for appropriate
equitable relief as well as damages, including reasonable attorneys' fees. If
Employee violates his/her duty of confidentiality and/or non-disparagement as
provided in this Agreement, Employee shall be obligated to return to the
Employer the consideration he/she has received under this Agreement.
8. NON-ADMISSIONS. The parties expressly deny any and all liability or
wrongdoing and agree that nothing in this Agreement shall be deemed to represent
any concession or admission of such liability or wrongdoing or any waiver of any
defense.
9. INVALIDITY. In case any one or more of the provisions of this
Agreement shall be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained in
this Agreement will not in any way be affected or impaired thereby.
10. MUTUAL RETURN AND RELEASE OF ALL PROPERTY: The Employee agrees to
immediately return any and all of the Employer's property to the Employer.
11. VOLUNTARY AND KNOWING ACTION. The Employee acknowledges that having
had sufficient opportunity to review this Agreement and Release with his/her
attorneys, that he/she has read and understands the terms of this Agreement and
attached Release, and that he/she has voluntarily and knowingly entered into
this Agreement.
12. RESCISSION/REVOCATION. The Employee may consider the terms of this
Separation Agreement and Release for up to twenty-one (21) days and may decide
to rescind/revoke (cancel) this Agreement within fifteen (15) calendar days of
execution of this Agreement with respect to claims under the Minnesota Human
Rights Act, and within seven (7) calendar days for claims under the Age
Discrimination in Employment Act. Rescission/revocation of any portion of this
Agreement will be deemed to be a rescission/revocation of all of the Agreement.
To be effective, Employee's rescission/revocation must be in writing and
delivered to the Employer either by hand or by mail, within the applicable
rescission/revocation period. If sent by mail, the rescission/revocation must
be:
2
<PAGE> 3
(a) post-marked within the seven (7) or fifteen (15) day period;
(b) properly addressed to Janet L. Dick, Vice President of Human
Resources, American Medical Systems, Inc., 10700 Bren Road West,
Minnetonka, MN 55343-9679, and
(c) sent by certified mail, return receipt requested.
Employer shall not be obligated to provide any consideration to Employee
pursuant to this Agreement in the event the Employee elects to rescind/revoke
this Agreement. Any attempt by Employee to rescind any part of this Agreement or
Release obligates Employee to immediately return all consideration under this
Agreement to the Employer.
13. COMPLIANCE WITH PRIOR AGREEMENT. The Employee remains bound by the
terms of the Employment Agreement which he/she previously entered into with the
Employer, a copy of which is attached as Exhibit B.
14. GOVERNING LAW. This Agreement will be construed and interpreted in
accordance with applicable federal laws and the laws of the State of Minnesota.
THE EMPLOYEE
Dated: July 15, 1999 /s/ William Richard Stein
------------------------- ----------------------------------
THE EMPLOYER
Dated: 6/2/99 By: /s/ Janet L. Dick
------------------------- ---------------------------------------
Its: Vice President, Human Resources
--------------------------------------
3
<PAGE> 4
EXHIBIT A
RELEASE
Definitions. I intend all words used in this Release to have their plain
meanings in ordinary English. Technical legal words are not needed to describe
what I mean. Specific terms I use in this Release have the following meanings:
A. "I," "me," and "my" include both me, William Stein, or anyone who
has or obtains any legal rights or claims through me.
B. "Employer," as used in this Release, shall at all times mean
American Medical Systems, Inc., Pfizer, Inc., and their
respective parent or subsidiary corporations, affiliates, Board
members, successors, predecessors, present or former officers,
directors, agents, employees, attorneys, whether in their
individual or official capacities, benefit plans and plan
administrators, and insurers ("Employer").
C. My Claims mean any or all of the actual or potential claims of
any kind whatsoever I have now against Employer, regardless of
whether I now know about those claims, in any way related to my
employment with or separation from the Employer, including, but
not limited to, claims for invasion of privacy; breach of
contract; fraud or misrepresentation; violation of the Minnesota
Human Rights Act, Title VII of the 1964 Civil Rights Act, the
Fair Labor Standards Act, the Americans With Disabilities Act,
the National Labor Relations Act, the Age Discrimination in
Employment Act, the Family and Medical Leave Act, all as amended,
Minn. Stat.ss.181.932, or any other federal, state, or local
statute, law, rule, regulation, ordinance or order, including but
not limited to those civil rights laws based on protected class
status; assault, battery, defamation, intentional or negligent
infliction of emotional distress; breach of the covenant of good
faith and fair dealing; promissory estoppel; negligence; and all
other claims for unlawful employment practices, and all other
common law or statutory claims. I understand that I am not
releasing claims under the Age Discrimination in Employment Act,
which arise after the date on which I sign this Release and the
Agreement to which it is attached.
Agreement to Release My Claims. I am receiving satisfactory consideration from
Employer to which I am not otherwise entitled by law, contract, or under any
policy of Employer. I agree to give up all My Claims and withdraw any and all my
charges and lawsuits (if any) against Employer in exchange for that
consideration. I will not bring any lawsuits, file any charges, complaints, or
notices, or make any other demands against the Employer based on My Claims. The
consideration I am receiving is a full and fair payment for the release of all
My Claims. Employer does not owe me anything in addition to what I will be
receiving.
Additional Agreements and Understandings. Even though the Employer is paying me
to release My Claims, I understand and acknowledge that the Employer does not
admit that it may be responsible or legally obligated to me. In fact, the
Employer expressly denies that it or he/she is responsible or legally obligated
for My Claims or that it or he/she has engaged in any
4
<PAGE> 5
wrongdoing. I am also hereby advised to consult with an attorney before I sign
this Release and the Agreement to which it is attached.
Nothing contained herein, however, shall be construed to prohibit you from
filing a charge with the Equal Employment Opportunity Commission, but your
release includes a release of your right to file a court action or to seek
individual remedies or damages in any Equal Employment Opportunity
Commission-filed court action, and your release of these rights shall apply with
full force and effect to any proceedings arising from or relating to such a
charge.
Acceptance Period. You have been informed that the terms of this Agreement shall
be open for acceptance by you for a period of at least twenty-one (21) days
after the date set forth above, during which time you may consider whether or
not to accept this Agreement and seek counsel to advise you regarding the same.
You agree that changes to this Agreement, whether material or immaterial, will
not restart this acceptance period.
Right to Rescind and/or Revoke. You have the right to revoke this Agreement only
insofar as it extends to potential claims under the Age Discrimination in
Employment Act by informing the Employer of your intent to revoke this Agreement
within seven (7) calendar days following your execution of it.
You likewise have the right to rescind this Agreement only insofar as it extends
to potential claims under the Minnesota Human Rights Act by written notice to
Employer within fifteen (15) calendar days following your execution of this
Agreement. Any such rescission must be in writing and hand-delivered to Employer
or, if sent by mail, postmarked within the applicable time period, sent by
certified mail, return receipt requested, and addressed as follows:
(a) post-marked within the seven (7) or fifteen (15) day period;
(b) properly addressed to Janet L. Dick, Vice President of Human
Resources, American Medical Systems, Inc., 10700 Bren Road West,
Minnetonka, MN 55343-9679, and
(c) sent by certified mail, return receipt requested.
You agree that if you exercise any right of rescission or revocation, Employer
may at its option either nullify this Agreement in its entirety or keep it in
effect as to all claims not rescinded or revoked in accordance with the
rescission or revocation provisions of this Agreement. In the event Employer
opts to nullify the entire Agreement, neither you nor Employer will have any
rights or obligations whatsoever under this Agreement. Any rescission or
revocation, however, does not affect your separation from employment effective
as of the date set forth in Section 1.
I have read this Release carefully and understand all its terms. I have reviewed
this Release with my own attorney. In agreeing to sign this Release, I have not
relied on any statements or explanations made by Employer or their attorneys.
I understand and agree that this Release and the Settlement Agreement to which
it is attached contain all the agreements between Employer and me. We have no
other written nor oral agreements.
5
<PAGE> 6
Dated: July 15, 1999 /s/ William Richard Stein
--------------------- -------------------------------------
Signature
William Richard Stein
-------------------------------------
Name (Print)
Subscribed and sworn to before me
this 15th day of July
/s/ Mark D. Mohlke
- ---------------------------
Notary Public
6
<PAGE> 1
RELEASE AGREEMENT
1. In consideration of and in exchange for the agreement of American Medical
Systems, Inc. (AMS) to pay me the equivalent of an additional 13 weeks pay plus
an additional 2 weeks pay per year of service ($550,386.48) and for other good
and valuable consideration, the receipt of which is hereby acknowledged, I, for
myself, my heirs, administrators, executors and assigns, agree to release and
forever discharge AMS, its subsidiaries, affiliated companies, predecessors
(including Pfizer Inc., its affiliates and its current and former employees,
officers and directors), successors and assigns, its current and former
employees, officers and directors (collectively referred to in this Release
Agreement as "AMS") from any and all claims that I may have as a result of any
injuries, losses, damages or any other costs whatsoever, whether known or
unknown, or that I may at any time after the execution of this Release Agreement
by reason of any facts or circumstances from the beginning of time to the date
of this Release Agreement.
This Release Agreement includes, without limitation, any claims
relating to facts or circumstances arising out of or in any way connected with
or relating to my employment or its termination, including but not limited to,
breach of contract, impairment of economic opportunity, intentional infliction
of emotional harm or other tort, or violation of the Civil Rights Act of 1866,
as amended, the Civil Rights Act of 1964, as amended, the Civil Rights Act of
1991, the Age Discrimination in Employment Act of 1967, as amended, the
Americans With Disabilities Act of 1990, or any other federal, state or
municipal statute, ordinance or the common law relating to employment or
employment discrimination, or claims growing out of any legal restrictions on
the rights of AMS to discharge its employees, that I now have or claim to have,
or which I heretofore had, or which I may have or claim to have at any time
hereafter, and I expressly waive any and all remedies that may be available
thereunder. This Release Agreement does not extend to any rights to which I may
be entitled under any employee benefit plans by reason of my employment by AMS.
I understand that the payments to he made to me pursuant to this
Release Agreement shall not commence until after my revocation rights described
in Section 12 of this Release Agreement have expired. I further understand that
the total amount to be paid to me pursuant to this Release Agreement, plus such
additional severance benefits to which I am entitled without regard to this
Release Agreement, shall be paid in semi-monthly installments (less any
applicable income, employment or similar withholding taxes) at the rate $18,431
.07 per installment for a period of 42 installments beginning 1/15/99. I also
understand that payment for accrued vacation ($69,504.97) and my prorated bonus
($96,450.71) less any applicable income, employment or similar withholding
taxes, will be paid in 1999. None of the payments to be paid to me hereunder
shall he included in determining the benefits that I am entitled to receive
under any employee benefit plan maintained by AMS.
2. Although I retain the right to file a charge with the Equal Employment
Opportunity Commission, I hereby waive any and all rights to the receipt of
damages resulting from the disposition of any such charge.
3. I agree and acknowledge that this Release Agreement may he introduced as
evidence by AMS in the event I were to commence any legal, administrative,
judicial or arbitration proceeding against AMS.
<PAGE> 2
4. I agree, except as it is necessary for the filing of my income tax
returns, not to disclose the fact of or amount of this Release Agreement to any
person, representative, corporation or employee of any person or corporation
whatsoever other than my attorney; provided, however, that I may disclose this
Release Agreement to my immediate family, and to legal counsel or tax
accountants solely for the purpose of obtaining professional advice relating
thereto. I agree that should I act in violation of this paragraph, I will remit
to AMS any and all monies paid to me under this Release Agreement.
5. I further agree not to publish, publicize or disseminate in any way, any
information obtained by me or my representatives or agents that relates or
related to my employment or its termination or to any claim or action that was
raised or could have been raised in any administrative, judicial or other legal
or arbitration proceeding brought by me, or that could have been brought by me
against AMS as of the date of this Release Agreement.
6. The parties agree that they will not make any deprecating or defamatory
statements about each other, their employment relationship or the termination of
that employment relationship which are injurious to the other party.
7. I agree not to divulge or use any trade secrets, confidential
information, or other proprietary information of AMS that I obtained or had
access to during the course of my employment with AMS.
8. I agree to return any and all of AMS's property.
9. It is understood and agreed that this Release Agreement is not to be
construed as an admission of liability by AMS.
10. My signature below indicates that I had at least 21 days to consider
this Release Agreement and that I have been advised to consult with an attorney
prior to executing this Agreement.
11. This Release Agreement does not describe the terms of the Separation
Program. The terms are described separately in the Separation Program for AMS.
12. I understand that for a period of at least seven days following the
execution of this Release Agreement, I may revoke this Release Agreement and
this Release Agreement shall not become effective until the revocation period
has expired.
13. Lastly, my signature below indicates that I have carefully read and
reviewed this Release Agreement, and I fully understand all of its terms and
conditions; have not relied upon any other representations by AMS or its
employees or agents concerning the terms of this Release Agreement; and execute
and deliver this Release Agreement freely and voluntarily.
UNDERSTOOD, ACCEPTED AND AGREED
December 3, 1998
-------------------------
Date
/s/ David Booth
- -------------------
David Booth
2
<PAGE> 1
RELEASE AGREEMENT
1. In consideration of and in exchange for the agreement of American
Medical Systems, Inc. (AMS) to pay me the equivalent of an additional 13 weeks
pay plus an additional 2 weeks pay per year of service ($81,295.24) and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, I, for myself, my heirs, administrators, executors and assigns,
agree to release and forever discharge AMS, its subsidiaries, affiliated
companies, predecessors (including Pfizer Inc., its affiliates and its current
and former employees, officers and directors), successors and assigns, its
current and former employees, officers and directors (collectively referred to
in this Release Agreement as "AMS") from any arid all claims that I may have as
a result of any injuries, losses, damages or any other costs whatsoever, whether
known or unknown, or that I may at any time after the execution of this Release
Agreement by reason of any facts or circumstances from the beginning of time to
the date of this Release Agreement.
This Release Agreement includes, without limitation, any claims
relating to facts or circumstances arising out of or in any way connected with
or relating to my employment or its termination, including but not limited to,
breach of contract, impairment of economic opportunity, intentional infliction
of emotional harm or other tort, or violation of the Civil Rights Act of 1866,
as amended, the Civil Rights Act of 1964, as amended, the Civil Rights Act of
1991, the Age Discrimination in Employment Act of 1967, as amended, the
Americans With Disabilities Act of 1990, or any other federal, state or
municipal statute, ordinance or the common law relating to employment or
employment discrimination, or claims growing out of any legal restrictions on
the rights of AMS to discharge its employees, that I now have or claim to have,
or which I heretofore had, or which I may have or claim to have at any time
hereafter, and I expressly waive any and all remedies that may be available
thereunder. This Release Agreement does not extend to any rights to which I may
be entitled under any employee benefit plans by reason of my employment by AMS.
I understand that the payments to be made to me pursuant to this
Release Agreement shall not commence until after my revocation rights described
in Section 12 of this Release Agreement have expired. I further understand that
the total amount to be paid to me pursuant to this Release Agreement, plus such
additional severance benefits to which I am entitled without regard to this
Release Agreement, shall be paid in lump sum form in 1999 ($103,505.35). I also
understand that payment for accrued vacation ($10,006.65) and my prorated bonus
($22,210.11) less any applicable income, employment or similar withholding
taxes, will be paid in 1999. None of the payments to be paid to me hereunder
shall be included in determining the benefits that I am entitled to receive
under any employee benefit plan maintained by AMS.
2. Although I retain the right to file a charge with the Equal Employment
Opportunity Commission, I hereby waive any and all rights to the receipt of
damages resulting from the disposition of any such charge.
3. I agree and acknowledge that this Release Agreement may be introduced as
evidence by AMS in the event I were to commence any legal, administrative,
judicial or arbitration proceeding against AMS.
1
<PAGE> 2
4. I agree, except as it is necessary for the filing of my income tax
returns, not to disclose the fact of or amount of this Release Agreement to any
person, representative, corporation or employee of any person or corporation
whatsoever other than my attorney; provided, however, that I may disclose this
Release Agreement to my immediate family, and to legal counsel or tax
accountants solely for the purpose of obtaining professional advice relating
thereto. I agree that should I act in violation of this paragraph, I will remit
to AMS any and all monies paid to me under this Release Agreement.
5. I further agree not to publish, publicize or disseminate in any way, any
information obtained by me or my representatives or agents that relates or
related to my employment or its termination or to any claim or action that was
raised or could have been raised in any administrative, judicial or other legal
or arbitration proceeding brought by me, or that could have been brought by me
against AMS as of the date of this Release Agreement.
6. 1 further agree not to make any written or oral statements that may
injure AMS.
7. 1 agree not to divulge or use any trade secrets, confidential
information, or other proprietary information of AMS that I obtained or had
access to during the course of my employment with AMS.
8. I agree to return any and all of AMS's property.
9. It is understood and agreed that this Release Agreement is not to be
construed as an admission of liability by AMS.
10. My signature below indicates that I had at least 21 days to consider
this Release Agreement and that I have been advised to consult with an attorney
prior to executing this Agreement.
11. This Release Agreement does not describe the terms of the Separation
Program. The terms are described separately in the Separation Program for AMS.
12. 1 understand that for a period of at least seven days following the
execution of this Release Agreement, I may revoke this Release Agreement and
this Release Agreement shall not become effective until the revocation period
has expired.
13. Lastly, my signature below indicates that I have carefully read and
reviewed this Release Agreement, and I fully understand all of its terms and
conditions; have not relied upon any other representations by AMS or its
employees or agents concerning the terms of this Release Agreement; and execute
and deliver this Release Agreement freely and voluntarily.
UNDERSTOOD, ACCEPTED AND AGREED
28 Oct 98
----------------------------------
Date
/s/ Roger Mitchell
- ----------------------------------------
Roger Mitchell, PhD
2
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
SUBSIDIARIES OF
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC. JURISDICTION OF INCORPORATION
<S> <C>
American Medical Systems, Inc. Delaware
American Medical Systems Australia Pty. Ltd. Australia
American Medical Systems Benelux B.V.B.A. Belgium
American Medical Systems Canada Inc. Canada
American Medical Systems France S.a.r.l. France
American Medical Systems Deutschland Gmbh Germany
American Medical Systems Iberica S.L. Spain
American Medical Systems U.K. Ltd. United Kingdom
Influence, Inc. Delaware
Influence Medical Technologies, Ltd. Israel
</TABLE>
<PAGE> 1
Exhibit 23.1
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our reports dated May 12, 2000 with
respect to the consolidated financial statements of American Medical Systems
Holdings, Inc., and October 26, 1999 (except for Note 10, as to which the date
is November 12, 1999) with respect to the financial statements of Influence,
Inc. included in the Registration Statement and related Prospectus of American
Medical Systems Holdings, Inc.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
May 19, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF KPMG LLP
The Board of Directors
American Medical Systems Holdings, Inc.:
We consent to the use of our report dated June 29, 1998, relating to the
combined statements of operations and cash flows of American Medical Systems, a
Business of Pfizer Inc., for the year ended December 31, 1997, included in the
registration statement, and to the references to our firm under the headings
"Selected Financial Data" and "Experts" in the prospectus.
/s/ KPMG LLP
Minneapolis, Minnesota
May 19, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
American Medical Systems Holdings, Inc. of our report dated June 23, 1998
relating to the consolidated financial statements of Influence, Inc., which
appears in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
May 19, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS OF AMERICAN MEDICAL SYSTEMS HOLDINGS, INC. AS OF MARCH 31,
2000 AND FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH REGISTRATION STATEMENT ON FORM S-1.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,106
<SECURITIES> 0
<RECEIVABLES> 22,866
<ALLOWANCES> 567
<INVENTORY> 12,599
<CURRENT-ASSETS> 46,871
<PP&E> 31,369
<DEPRECIATION> 4,526
<TOTAL-ASSETS> 190,781
<CURRENT-LIABILITIES> 47,608
<BONDS> 104,100
68,782
0
<COMMON> 0
<OTHER-SE> (22,230)
<TOTAL-LIABILITY-AND-EQUITY> 190,781
<SALES> 24,986
<TOTAL-REVENUES> 24,986
<CGS> 5,730
<TOTAL-COSTS> 17,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 1,844
<INCOME-PRETAX> 786
<INCOME-TAX> (442)
<INCOME-CONTINUING> 344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 344
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
