EXHIBIT 10.28
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Agreement"), dated as
of December 27, 2002, is entered into by and among AMERICAN MEDICAL SYSTEMS,
INC., a Delaware corporation (the "Borrower"), each of the Persons identified as
a "Guarantor" on the signature pages hereto, each of the Persons identified as a
"Lender" on the signature pages hereto and BANK OF AMERICA, N.A., as Agent for
the Lenders (in such capacity, the "Agent").
RECITALS
A. The Borrower, the Guarantors, the Lenders and the Agent, are party
to that certain Credit Agreement dated as of March 24, 2000 (as previously
amended prior to the date hereof, the "Credit Agreement"). Unless otherwise
defined herein or the context otherwise requires, capitalized terms used in this
Agreement, including its preamble and recitals, have the meanings provided in
the Credit Agreement.
B. The Credit Parties have requested certain amendments to the Credit
Agreement.
C. The Required Lenders have agreed to amend the Credit Agreement on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto hereby agree as follows:
1. Amendments to Section 1.1.
(a) The following definitions appearing in Section 1.1 of the Credit
Agreement are hereby amended and restated in their entireties:
"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), (b) any
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Securities Exchange Act) (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 31% or more of the outstanding Voting
Stock of the Parent, (c) during any period of up to 24 consecutive
months, commencing after the Closing Date, individuals who at the
beginning of such 24 month period were directors of the Parent
(together with any new director whose election by the Parent's board of
directors or whose nomination for election by the Parent's shareholders
was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the
directors of the Parent then in office or (d) the Parent shall fail to
own directly 100% of the outstanding Capital Stock of the Borrower. 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.
"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)
the recognition of expense for the write-off of purchased research and
development, and (F) cash charges not to exceed an aggregate amount
of $3,000,000 and non-cash charges, in each case incurred in connection
with the Acquisition of Snowball, Inc. pursuant to the Snowball
Acquisition Agreement.
"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) the sum of (1) Funded Indebtedness of the
Consolidated Parties on a consolidated basis on the last day of such
period plus (2) the Snowball Earnout Payment to (b) Consolidated EBITDA
for such period.
"Maturity Date" means September 24, 2005.
"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 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, (ii) any Acquisition as referred to in Section 8.6(j) or
(iii) the making of the Snowball Earnout Payment as referred to in
Section 8.18. In connection with any calculation of the financial
covenants set forth in 7.11 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, (ii) any
Acquisition as referred to in Section 8.6(j) or (iii) the making of the
Snowball Earnout Payment as referred to in Section 8.18, as applicable,
and containing reasonably detailed calculations, upon giving effect to
the applicable transaction on a Pro Forma Basis, of the financial
covenants set forth in 7.11 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.
(b) The last sentence of the definition of "Indebtedness" appearing in
Section 1.1 of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
Notwithstanding any other provisions of this Credit Agreement
to the contrary, the Indebtedness of the Consolidated Parties shall not
include the obligations of any Consolidated Party in respect of the
Snowball Earnout Payment.
(c) The following new definitions are hereby added to Section 1.1 of
the Credit Agreement in the appropriate alphabetical order to read as follows:
"Net Product Revenues" shall have the meaning assigned to such
term in Schedule 1.1.
"Snowball Acquisition Agreement" means the Agreement and Plan
of Merger by and among the Borrower, Snowball Acquisition Corp.,
Cryogen, Inc., and Robert Knarr, as Shareholders' Representative dated
as of December 14, 2002 (without giving effect to any subsequent
amendments or modifications thereto).
"Snowball Earnout Payment" means the "Earnout Payment" as
defined in Section 1.9 of the Snowball Acquisition Agreement. For
purposes of calculating the financial covenants set forth in Section
7.11 at any time prior to the Snowball Earnout Payment becoming due and
payable, the Snowball Earnout Payment shall be equal to the amount of
such payment if such payment were required to be made on the last day
of the twelve month period ending on such date of determination. A copy
of the relevant provisions of the Snowball Acquisition Agreement are
attached hereto as Schedule 1.1.
2. Amendments to Section 2.3(d). Section 2.3(d) of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
(d) Repayment of Tranche A Term Loan. The principal amount of
the Tranche A Term Loan shall be repaid in nineteen (19) consecutive
quarterly installments as follows unless accelerated sooner pursuant to
Section 9.2:
<Table>
<Caption>
TRANCHE A TERM LOAN
PRINCIPAL AMORTIZATION PRINCIPAL AMORTIZATION
PAYMENT DATES PAYMENT
---------------------- ----------------------
December 31, 2002 $1,363,603.49
March 31, 2003 $1,363,338.64
June 30, 2003,
September 30, 2003,
December 31, 2003 and
March 31, 2004 $1,636,367.58
June 30, 2004,
September 30, 2004,
December 31, 2004
March 31, 2005 and
June 30, 2005 $1,840,922.57
Maturity Date $5,522,767.72
</Table>
3. Amendments to Section 7.1. The following sentence is hereby added to
the end of Section 7.1(b) to read as follows:
During the period commencing on the first date following the
Acquisition of Snowball, Inc. that the product of (x) Net Product
Revenues times (y) 3 exceeds $40,000,000 and ending on the date that
the Snowball Earnout Payment is made, the Borrower shall deliver
quarterly to the Agent and the Lenders, no later than thirty (30) days
following the last day of Borrower's fiscal quarter, a statement with
reasonable detail reflecting Borrower's calculation of the Snowball
Earnout Payment for the prior fiscal
quarter, which such statement shall be prepared in accordance with GAAP
on a basis consistent with the accounting principles and revenue
recognition policies followed by Borrower in the preparation of its
financial statements.
4. Amendments to Section 7.6. The reference to "Section 7.11(a) and
(b)" in Section 7.6 is hereby amended and replaced with a reference to "Section
7.11".
5. Amendments to Section 7.11. A new Section 7.11(d) is hereby added to
the Credit Agreement to read as follows:
(d) Minimum Consolidated EBITDA. As of the last day of each
fiscal quarter of the Consolidated Parties, Consolidated EBITDA shall
be greater than or equal to $35,000,000.
6. Amendment to Sections 7.14 and 7.15. Sections 7.14 and 7.15 of the
Credit Agreement are hereby deleted.
7. Amendments to Section 8.5. The reference to "Section 7.11(a) and
(b)" in Section 8.5 is hereby amended and replaced with a reference to "Section
7.11".
8. Amendment to Section 8.6. Sections 8.6(j) and 8.6.(k) of the Credit
Agreement are hereby amended and restated in their entireties to read as
follows:
(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 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 during such four
fiscal-quarter period 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 $5,000,000 of
either cash-on-hand or 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
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 January 10, 2003 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
January 10, 2003, (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 for all Acquisitions
occurring after January 10, 2003, $25,000,000 less the aggregate
principal amount of all Investments made pursuant to subsection (k)
below; or
(k) Investments (other than Acquisitions) by the Credit
Parties in a principal amount not to exceed for all such Investments
occurring after January 10, 2003, an aggregate principal amount of
$25,000,000 less the aggregate consideration (excluding consideration
of the types described in clauses (A) through (E) in subsection (j)
above) paid by the Consolidated Parties in connection with Permitted
Acquisitions.
9. New Section 8.18. A new Section 8.18 is hereby added to the Credit
Agreement to read as follows:
8.18 Snowball Earnout Payment.
Notwithstanding anything to the contrary contained herein, the
Credit Parties shall not permit any Consolidated Party to pay all or
any part of the Snowball Earnout Payment unless (a) after giving effect
to the Snowball Earnout Payment, the sum of (1) cash on hand plus (2)
the Revolving Committed Amount shall exceed the sum of (Y) the
aggregate outstanding principal amount of Revolving Loans plus (Z) LOC
Obligations by at least $5,000,000, (b) no later than five (5) Business
Days prior to the Snowball Earnout Payment, 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, and (c) immediately
prior to and after giving effect to the Snowball Earnout Payment, no
Default or Event of Default exists.
10. New Schedule 1.1. A new Schedule 1.1 in the form of Schedule 1.1
attached hereto is hereby added to the Credit Agreement.
11. Waivers.
(a) The Required Lenders hereby waive the Events of Default
caused by the failure of the WPEP Entities to own beneficially,
directly or indirectly, at least 30% of the outstanding Voting Stock of
the Parent.
(b) The Required Lenders hereby waive the Events of Default
caused by the failure of the WPEP Entities and the Co-Investor to
control, whether through ownership of Voting Stock, by contract or
otherwise, a majority of the seats (excluding vacant seats) on the
Parent's Board of Directors.
12. Effectiveness. This Agreement shall be and become effective as of
the date hereof at such time as the Agent shall have received (a) executed
counterparts (including facsimile signatures) of this Agreement, which
collectively shall have been duly executed on behalf of each of the Credit
Parties and the Required Lenders, (b) for the account of each Lender approving
this Agreement on or before December 28, 2002, an amendment fee of 0.10% of the
Revolving Commitment of such Lender and the outstanding Tranche A Term Loan of
such Lender on December 28, 2002 and (c) payment of the reasonable fees and
expenses of Moore & Van Allen PLLC, counsel for the Agent.
13. Construction. This Agreement is a Credit Document executed pursuant
to the Credit Agreement and shall (unless otherwise expressly indicated therein)
be construed, administered and applied in accordance with the terms and
provisions of the Credit Agreement.
14. Representations and Warranties. Each Credit Party hereby represents
and warrants that (i) each Credit Party that is party to this Agreement: (a) has
the requisite corporate power and authority to execute, deliver and perform this
Agreement, as applicable and (b) is duly authorized to, and has been authorized
by all necessary corporate action, to execute, deliver and perform this
Agreement, (ii) the representations and warranties contained in Section 6 of the
Credit Agreement are true and correct in all material respects on and as of the
date hereof upon giving effect to this Agreement as though made on and as of
such date (except for those which expressly relate to an earlier date) and (iii)
no Default or Event of Default exists under the Credit Agreement on and as of
the date hereof upon giving effect to this Agreement.
15. Acknowledgment. The Guarantors acknowledge and consent to all of
the terms and conditions of this Agreement and agree that this Agreement does
not operate to reduce or discharge the Guarantors' obligations under the Credit
Agreement or the other Credit Documents. The Guarantors further acknowledge and
agree that the Guarantors have no claims, counterclaims, offsets, or defenses to
the Credit Documents and the performance of the Guarantors' obligations
thereunder or if the Guarantors did have any such claims, counterclaims, offsets
or defenses to the Credit Documents or any transaction related to the Credit
Documents, the same are hereby waived, relinquished and released in
consideration of the Lenders' execution and delivery of this Agreement.
16. Counterparts. This Agreement may be executed by the parties hereto
in several counterparts, each of which shall be deemed to be an original and all
of which shall constitute together but one and the same agreement.
17. Binding Effect. This Agreement, the Credit Agreement and the other
Credit Documents embody the entire agreement between the parties and supersede
all prior agreements and understandings, if any, relating to the subject matter
hereof. These Credit Documents represent the final agreement between the parties
and may not be contradicted by evidence of prior, contemporaneous or subsequent
oral agreements of the parties. Except as expressly modified and amended in this
Agreement, all the terms, provisions and conditions of the Credit Documents
shall remain unchanged and shall continue in full force and effect.
18. GOVERNING LAW. THIS 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.
[Remainder of page is intentionally left blank.]
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Agreement to be duly executed and delivered as of the date first above
written.
BORROWER: AMERICAN MEDICAL SYSTEMS, INC.
By:
--------------------------------
Name: M. James Call
-----------------------------
Title: Chief Financial Officer
-----------------------------
GUARANTORS: AMS RESEARCH CORPORATION
By:
--------------------------------
Name: M. James Call
-----------------------------
Title: Chief Financial Officer
-----------------------------
AMERICAN MEDICAL SYSTEMS
HOLDINGS, INC.
By:
--------------------------------
Name: M. James Call
-----------------------------
Title: Chief Financial Officer
-----------------------------
AMS SALES CORPORATION
By:
--------------------------------
Name: M. James Call
-----------------------------
Title: Chief Financial Officer
-----------------------------
LENDERS: BANK OF AMERICA, N. A.,
individually in its capacity as a
Lender and in its capacity as Agent
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
BANKERS TRUST COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
U.S. BANK NATIONAL ASSOCIATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
FLEET NATIONAL BANK
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
LASALLE BANK NATIONAL ASSOCIATION
By:
--------------------------------
Name: Ann Pifer
------------------------------
Title: First Vice President
-----------------------------
Schedule 1.1
Snowball Earnout Payment
1.9 Earnout Payment. As additional consideration for the Merger and subject
to the conditions set forth in this Section 1.9, Section 1.12
(Dissenting Shares) and Section 8.6 (Right of Off-Set), Parent shall
make an additional payment (an "Earnout Payment") to the Payment Agent
for distribution to those Shareholders who are not otherwise Dissenting
Shareholders (as defined in Section 1.12) ("Participating
Shareholders") in an amount equal to (A) the product of the Net Product
Revenues for the Payment Period (as defined below) multiplied by three
(3), less (B) Forty Million Dollars ($40,000,000); provided however,
that the Earnout Payment shall not exceed One Hundred Ten Million
Dollars ($110,000,000). As used herein, the term "Payment Period" shall
refer to a period of four consecutive fiscal quarters of Parent,
determined pursuant to subsection (b) below, occurring between the
first day of Parent's fiscal quarter beginning on December 29, 2002 and
ending on the last day of Parent's fiscal quarter ending on or about
December 31, 2005 (the "Earnout Period").
*********
"Net Product Revenues" means Parent's properly recognized
consolidated aggregate gross revenues received from sales of the
Products for any use or indication, less the sum of the following
deductions paid by the Parent where applicable and not otherwise
reimbursed by distributors, customers or another third party: shipping,
handling, freight and similar costs of the Parent; sales, use or other
excise or similar taxes imposed upon particular sales of the Products
(excluding income taxes); customs duties; allowances or credits to
customers because of rejections or returns of Product; commercially
reasonable trade or quantity discounts and fees given by the Parent to
distributors or customers, as calculated in accordance with generally
accepted accounting principles consistently applied by Parent in
accordance with its revenue recognition policies. In the event that
Parent bundles the Product with any other of Parent's products or
services, the amount of Net Product Revenue to be attributed as having
been received by Parent hereunder for the bundled products and services
will be calculated by the determining the relevant proportion that the
standard list price of the Product bears to the standard list prices of
the other products and services bundled with the Product.
"Product" or "Products" means the Her Option(TM) Cryoblation
Therapy(TM) System and any of its individual component parts, including
without limitation, consoles and disposables and any other products
developed, modified or derived after the Closing that (i) cryoablate
the uterine lining or uterine fibroids, or (ii) are covered by any
claim in any patents listed in Section 2.19 of the Disclosure Schedule,
any patent issuing from any patent application listed in Section 2.19
of the Disclosure Schedule or any claim in any issued patent claiming
priority to any of the foregoing.
Capitalized terms in this Schedule 1.1 shall have the meanings assigned
thereto in the Snowball Acquisition Agreement.