AMMD Amer Medical Sys Hldgs (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

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American Medical Systems Holdings, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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To Our Stockholders:

 

You are cordially invited to attend a special meeting of the stockholders of American Medical Systems Holdings, Inc. to be held at 10700 Bren Road West, Minnetonka, Minnesota 55343 on Wednesday, June 15, 2011 , at 12:00 p.m. local time. At the special meeting, holders of our common stock as of the close of business on May 9, 2011 will be asked to consider and vote upon proposals to:

 

 

 

If the merger is completed, we will become a wholly owned indirect subsidiary of Endo Pharmaceuticals Holdings Inc. and you will be entitled to receive $30.00 in cash, without interest, and less any applicable withholding tax, for each share of our common stock that you own.

 

After careful consideration, our board of directors unanimously approved the merger agreement and determined that the merger and the other transactions contemplated by the merger agreement are advisable and fair to and in the best interests of American Medical Systems Holdings, Inc. and our stockholders. Our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement and “FOR” the adjournment proposal.

 

Your vote is very important.   We cannot complete the merger unless the holders of a majority of the outstanding shares of our common stock vote to adopt the merger agreement. The proposal to adjourn the special meeting will be approved if shares representing a majority of the shares present in person or by proxy and entitled to vote thereon are voted in favor of the proposal. The obligations of American Medical Systems Holdings, Inc. and Endo Pharmaceuticals Holdings Inc. to complete the merger are also subject to the satisfaction or waiver of several other conditions. We encourage you to read the accompanying proxy statement, including the annexes, in its entirety because it explains the proposed merger, the documents related to the merger and other related matters.

 

Whether or not you plan to attend the special meeting, please submit your proxy by completing and mailing to us the enclosed proxy card as soon as possible. If your shares are held in an account at a brokerage firm, bank or other nominee, you should instruct your broker, bank or nominee how to vote your shares using the enclosed voting instruction form furnished by your broker, bank or nominee. If you do not vote or do not instruct your broker, bank or nominee how to vote, it will have the same effect as voting against the adoption of the merger agreement.

 

If you sign, date and mail your proxy and do not indicate how you want to vote, your proxy will be voted “FOR” the adoption of the merger agreement and “FOR” the proposal to adjourn the special meeting, provided that no proxy that is specifically marked “AGAINST” the proposal to adopt the merger agreement will be voted in favor of the adjournment proposal, unless it is specifically marked “FOR” the adjournment proposal.

 

I enthusiastically support this transaction and join the other members of our board of directors in recommending that you vote for the adoption of the merger agreement.

 

 

Very truly yours,

 

 

Anthony P. Bihl, III

President and Chief Executive Officer

 

Neither the U.S. Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger or the merger agreement, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in the proxy statement. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated May 10, 2011 and is first being mailed to stockholders on or about May 11, 2011.

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON WEDNESDAY, JUNE 15, 2011

 

TO THE STOCKHOLDERS OF AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.:

 

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of American Medical Systems Holdings, Inc., or AMS, a Delaware corporation, will be convened on Wednesday, June 15, 2011, at 12:00 p.m. local time, at 10700 Bren Road West, Minnetonka, Minnesota 55343 for the following purposes, as more fully described in the accompanying proxy statement and the merger agreement attached to it as Annex A :

 

 

Pursuant to the terms of the merger agreement, Merger Sub will merge with and into AMS with AMS continuing as the surviving corporation and becoming a wholly owned indirect subsidiary of Endo, and each outstanding share of AMS common stock (other than shares held by Endo or its subsidiaries and shares as to which appraisal rights are properly demanded) will be converted into the right to receive $30.00 per share in cash, without interest and less any applicable withholding tax.

 

After careful consideration, our board of directors unanimously approved the merger agreement and determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable and fair to and in the best interests of AMS and our stockholders. Our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement and “FOR” the proposal to adjourn the special meeting.

 

Only stockholders of record at the close of business on May 9, 2011 are entitled to notice of, and to vote at the special meeting. Each share of our common stock is entitled to one vote on each matter to be voted upon at the special meeting. A complete list of our stockholders of record entitled to vote at the special meeting will be available for ten days prior to the special meeting at 10700 Bren Road West, Minnetonka, Minnesota 55343 for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting and will also be available at the special meeting.

 

Stockholders of AMS who do not vote in favor of adoption of the merger agreement are entitled to demand appraisal rights in connection with the merger if they meet certain conditions and comply with certain procedures under Section 262 of the General Corporation Law of the State of Delaware, which is attached to this proxy statement as Annex C .

 

By Order of the Board of Directors,

 

 

Jeanne M. Forneris

Senior Vice President, General Counsel and Corporate Secretary

 

May 10, 2011

 

 

 

 

TABLE OF CONTENTS

 

 

The following questions and answers briefly address some questions you may have regarding the special meeting and the proposed merger. These questions and answers may not address all questions that may be important to you as a stockholder of American Medical Systems Holdings, Inc. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement. We encourage you to read this proxy statement, including the annexes, in its entirety because it explains the proposed merger, the documents related to the merger and other related matters. In this proxy statement, the terms “the Company,” “we,” “our,” “ours,” “us” and “AMS” refer to American Medical Systems Holdings, Inc. We refer to Endo Pharmaceuticals Holdings Inc. as Endo, and NIKA Merger Sub, Inc. as Merger Sub.

 

 

 

 

 

 

MacKenzie Partners, Inc.

Call Collect: (212) 929-5500

Toll Free: (800) 322-2885

Email to: proxy@mackenziepartners.com

 

SUMMARY

 

The Companies (page 17)

 

The Merger (page 17)

 

Effect of the Merger on Stock Options and Restricted Share Awards (page 48)

	•	Each option to acquire our common stock that is vested and exercisable immediately prior to the merger will be cancelled and terminated in exchange for the right to receive $30.00 minus the per share exercise price for each underlying share of the option, less any required withholding taxes. Each other option will convert into an option to acquire the number of shares of Endo common stock (rounded down to the nearest whole share) equal to (i) the number of shares of our common stock subject to the option immediately prior to the completion of the merger, multiplied by (ii) the Equity Exchange Ratio. The exercise price per share of any such adjusted option will be an amount (rounded up to the nearest whole cent) equal to (A) the exercise price per share of the option immediately prior to the completion of the merger divided by (B) the Equity Exchange Ratio. All other terms and conditions of the converted option will be the same as the terms and conditions in effect immediately prior to the completion of the merger.
	•	Each outstanding restricted share award granted prior to April 10, 2011 which is scheduled to vest within one year of the merger will convert into the right to receive $30.00 per share, less any required withholding taxes. Each other restricted share award will convert into a restricted share award of Endo common stock with the same terms and conditions as were applicable to such restricted share award immediately prior to the completion of the merger, except that the number of restricted shares of Endo common stock will be equal to (i) the number of restricted shares of our common stock subject to such restricted share award immediately prior to the completion of the merger, multiplied by (ii) the Equity Exchange Ratio, rounded down to the nearest whole share.

 

The Special Meeting (page 13)

 

Stockholders Entitled to Vote; Vote Required (page 13)

 

Quorum (page 13)

 

Shares Owned by Our Directors and Executive Officers (page 14)

 

Market Price and Dividend Data (page 64)

 

Recommendation of Our Board of Directors (page 23)

	•	approved the merger agreement, the merger and the other transactions contemplated by the merger agreement; and
	•	determined that the merger agreement, the merger and the other transactions contemplated in the merger agreement are advisable and fair to and in the best interests of us and our stockholders.

 

Interests of Our Directors and Executive Officers in the Merger (page 33)

	•	As of May 9, 2011, our executive officers held options to purchase a total of 3,079,380 shares of our common stock, of which 1,556,920 are scheduled to become vested and exercisable prior to the completion of the merger, assuming that the merger is completed on June 17, 2011. Options to purchase an additional 231,250 shares of our common stock are subject to accelerated vesting upon completion of the merger. Each vested option will be cancelled in exchange for the right to receive an amount in cash equal to $30.00 per underlying common share minus the exercise price per underlying share of the option, less any required withholding taxes. The remaining options to purchase 1,291,210 shares of our common stock are subject to accelerated vesting upon a qualifying termination of the executive officer’s employment.
	•	As of May 9, 2011, our executive officers held a total of 33,322 restricted shares of our common stock, which are subject to accelerated vesting upon completion of the merger and cancelled in exchange for the right to receive an amount in cash equal to $30.00, less any required withholding taxes. In addition, as of May 9, 2011, our executive officers also held an additional 83,487 restricted shares of our common stock which are subject to accelerated vesting upon a qualifying termination of the executive officer’s employment.
	•	As of May 9, 2011, our non-executive directors held options to purchase a total of 1,046,089 shares of our common stock, of which 896,093 are scheduled to become vested and exercisable prior to the completion of the merger, assuming that the merger is completed on June 17, 2011. The other options to purchase a total of 149,996 shares of our common stock are subject to accelerated vesting upon completion of the merger. As a result, upon completion of the merger, all options held by our directors will be cancelled in exchange for the right to receive an amount in cash equal to $30.00 per underlying common share minus the exercise price per underlying share of the option.
	•	As of May 9, 2011, assuming that the merger is completed on June 17, 2011, our non-executive directors held a total of 46,571 restricted shares of our common stock, all of which are subject to accelerated vesting upon completion of the merger and will be cancelled in exchange for the right to receive an amount in cash equal to $30.00.
	•	Our executive officers are each party to a change in control severance agreement that provides for certain cash severance payments and benefits that will be triggered if they incur a qualifying termination of employment either during the twelve month period after the completion of the merger, or prior to the completion of the merger if the termination was in connection with the merger or, in certain cases, if the executive officer terminates employment for any reason in the thirteenth month following the merger.
	•	Our executive officers (other than our president and chief executive officer) are participants in our retention bonus plan which provides for a cash bonus in connection with the participant’s continued employment with us following the merger.
	•	Our directors and officers will continue to be indemnified for acts and omissions occurring at or prior to the completion of the merger and will have the benefit of director and officer liability insurance for six years following completion of the merger.
	•	Our president and chief executive officer entered into an employment agreement with Endo which will become effective upon the completion of the merger, as described below under “The Merger — Interests of Our Directors and Executive Officers in the Merger — Endo Employment Agreement with Anthony P. Bihl, III.”

 

Opinion of J.P. Morgan Securities LLC (page 26 and Annex B)

 

Litigation Relating to the Merger (page 41)

 

Delisting and Deregistration of Our Common Stock (page 41)

 

The Merger Agreement (page 48)

	•	the adoption of the merger agreement by our stockholders;
	•	the absence of any law, rule, regulation, order or injunction preventing the completion of the merger;
	•	the absence of any pending or threatened proceeding by any governmental entity challenging the merger; and
	•	any applicable waiting or review period under the Hart-Scott-Rodino Antitrust Improvements Act and applicable foreign antitrust laws has expired or terminated and any required approvals, clearances and waivers have been obtained.

	•	certain specified representations and warranties relating to our organization and capitalization made by us in the merger agreement must be true and correct in all material respects as of April 10, 2011 and as

		of the completion of the merger (except for those representations and warranties that expressly relate to an earlier date which only need to be true and correct as of such earlier date);

	•	all other representations and warranties made by us in the merger agreement must be true and correct as of April 10, 2011 and as of the completion of the merger (except for those representations and warranties that expressly relate to an earlier date which only need to be true and correct as of such earlier date), except where the failure of such representations and warranties to be true and correct or would not reasonably be expected to have, individually or in the aggregate, a material adverse effect (as defined in “The Merger Agreement — Representations and Warranties”) on us;
	•	the performance by us in all material respects of our obligations and covenants under the merger agreement;
	•	the receipt by Endo of a certificate signed on behalf of us by our chief executive officer or chief financial officer certifying the satisfaction of the foregoing conditions;
	•	no material adverse effect on our business has occurred since April 10, 2011 that is continuing; and
	•	no law or order may be and remain in effect and no governmental litigation may be pending or threatened which seeks to place material limitations on Endo’s ownership of us or our subsidiaries or requires that Endo divest, hold separate, license or agree to any structural or conduct remedy with respect to operations or assets that would represent an amount of annual revenues of more than $50 million.

	•	certain specified representations and warranties relating to Endo’s and Merger Sub’s organization and brokers used in the transaction made by Endo and Merger Sub in the merger agreement must be true and correct in all material respects as of April 10, 2011 and as of completion of the merger (except for those representations and warranties that expressly relate to an earlier date which only need to be true and correct as of such earlier date);
	•	all other representations and warranties made by Endo and Merger Sub in the merger agreement must be true and correct as of April 10, 2011 and as of the completion of the merger (except for those representations and warranties that expressly relate to an earlier date which only need to be true and correct as of such earlier date), except where the failure of such representations and warranties to be true and correct would not reasonably be expected to prevent, materially impede or materially delay the transactions contemplated by the merger agreement;
	•	the performance by each of Endo and Merger Sub in all material respects of their obligations and covenants under the merger agreement; and
	•	our receipt of a certificate signed by an executive officer of Endo certifying the satisfaction of the foregoing conditions.

	•	solicit, initiate, knowingly encourage, enter into or otherwise participate in any discussions or negotiations regarding, any acquisition proposal; or

	•	provide any information to any person regarding, or afford any person any access to, our properties and books or records, or otherwise take any action to assist or knowingly facilitate, or that would be reasonably expected to assist or facilitate, any person or group with respect to an acquisition proposal.

	•	the potential acquirer has entered into a confidentiality agreement that contains terms that are no less restrictive than those contained in the confidentiality agreement between us and Endo (including the standstill provisions thereof) and does not prohibit AMS from complying with its non-solicitation obligations;
	•	the acquisition proposal did not result from a breach of our non-solicitation obligations described above;
	•	a majority of our board of directors determines in good faith (after consultation with a financial advisor and outside legal counsel) that the acquisition proposal is, or would reasonably be expected to result in, a superior proposal; and
	•	our board of directors determines in good faith (after consultation with a financial advisor and outside legal counsel) that such actions are necessary in order to comply with its fiduciary duties to our stockholders under applicable law.

	•	the tender or exchange offer is for all of our outstanding voting securities; and
	•	the board of directors has in accordance with the terms of the merger agreement, withdrawn, modified or qualified (or publicly proposed to do so) its recommendation that our stockholders vote in favor of the adoption of the merger agreement, or has approved or recommended, or publicly proposed to approve or recommend, an acquisition proposal.

	•	by either Endo or us if:

	–	a court or other governmental entity has permanently restrained, enjoined or otherwise prohibited the merger and the terminating party is in material compliance with its obligations related to reasonable best efforts to obtain antitrust approvals,
	–	the merger has not been completed by October 10, 2011 and such delay was not caused by a breach of the merger agreement by the terminating party (provided that Endo may not terminate the merger

		agreement for this reason if (i) a court or other governmental entity has permanently restrained, enjoined or otherwise prohibited the merger, (ii) the primary cause of such restraint, injunction or other prohibition is securityholder litigation relating to the merger and (iii) Endo was provided an opportunity to consent to settle such securityholder litigation and did not provide such consent),

	–	a majority of the outstanding shares of our common stock do not vote to adopt the merger agreement at the special meeting or at any adjournment or postponement thereof (provided that AMS may not terminate the merger agreement for this reason if it is in material breach of its non-solicitation obligations or its obligations relating to the special meeting), or
	–	the other party has breached the merger agreement in a manner that results in the failure of certain conditions and such breach is not cured within 30 days following written notice to the party committing such breach or by its nature is not capable of being cured; or

	•	by Endo if:

	–	our board of directors withdraws, modifies or qualifies (or publicly proposes to do so), in a manner adverse to Endo, its recommendation that our stockholders vote in favor of the adoption of the merger agreement,
	–	we fail to include our board of directors’ recommendation that our stockholders adopt the merger agreement in this proxy statement,
	–	our board of directors fails to reject (or if requested by Endo, publicly recommend against) any acquisition proposal within ten business days after it is publicly known,
	–	we fail to send our stockholders, within ten business days after a tender or exchange offer has commenced by a third party, a statement that our board of directors recommends rejection of the tender or exchange offer,
	–	we or our board of directors fail to hold a stockholders meeting for the purpose of voting on the merger agreement with Endo in breach of our obligation to do so (and the principal reason for the failure is not Endo’s material breach of its obligations under the merger agreement),
	–	our board of directors fails to publicly reaffirm its recommendation that our stockholders adopt this agreement within seven days of Endo’s request to do so (subject to certain exceptions and limitations),
	–	we materially breach our covenants relating to non-solicitation or waiver of standstills described in “The Merger Agreement — Covenants — No Solicitation of Acquisition Proposals and Standstill Waivers,” or
	–	a material adverse effect exists and is continuing; or

	•	by us if:

	–	(i) we determine that a bona fide, unsolicited, written acquisition proposal constitutes a superior proposal,
	–	(ii) our board of directors, after taking into account any modifications to the terms of the Endo merger agreement properly submitted by Endo, believes that the acquisition proposal constitutes a superior proposal after following certain procedures and is permitted to change its recommendation with respect to the merger according to the terms of the merger agreement,  and
	–	(iii) we pay Endo a termination fee of $90 million.

	•	If (A) the merger agreement is terminated because (i) the merger has not occurred by October 10, 2011, (ii) our stockholders have not approved the merger agreement at our special meeting, or (iii) we have materially breached our non-solicitation covenant described in “The Merger Agreement — Covenants— No Solicitation of Acquisition Proposals and Standstill Waivers,” (B) a bona fide acquisition proposal has been made public prior to October 10, 2011 in the case of clause (i) above, or prior to the special meeting in the case of clause (ii) above, or prior to the termination of the merger agreement in the case of clause (iii) above, and (C) within twelve months of termination, we complete an alternative transaction or enter into an agreement to do so, then we must pay Endo (x) up to $45 million of its reasonable and documented transaction costs upon the termination of the merger agreement and (y) an amount equal to $90 million minus what we previously paid to Endo in clause (x) on the date we enter into an agreement with respect to, or complete, an alternative transaction.
	•	We must pay Endo a termination fee of $90 million if Endo terminates the merger agreement because:

	–	our board of directors withdraws, modifies or qualifies (or publicly proposes to do so), in a manner adverse to Endo, its recommendation that our stockholders vote in favor of the adoption of the merger agreement;
	–	we fail to include our board of directors’ recommendation that our stockholders adopt the merger agreement in the proxy statement;
	–	our board of directors fails to reject (or if requested by Endo, publicly recommend against) any acquisition proposal within ten business days after it is publicly known;
	–	we fail to send our stockholders within ten business days after a tender or exchange offer has commenced by a third party, a statement that our board of directors recommends rejection of the tender or exchange offer;
	–	we or our board of directors fails to hold a stockholders meeting for the purpose of voting on the merger agreement with Endo in breach of our obligation to do so (and the principal reason for the failure is not Endo’s material breach of its obligations under the merger agreement); or
	–	our board of directors fails to publicly reaffirm its recommendation that our stockholders adopt this agreement within seven days of Endo’s request to do so (subject to certain limitations).

	•	We must also pay Endo a termination fee of $90 million if (i) we determine that a bona fide, unsolicited, written acquisition proposal constitutes a superior proposal, (ii) our board of directors, after taking into account any modifications to the terms of the Endo merger agreement properly submitted by Endo, believes that the acquisition proposal constitutes a superior proposal after following certain procedures and is permitted to change its recommendation with respect to the merger according to the terms of the merger agreement and (iii) we terminate the merger agreement.

 

Financing of the Merger (page 47)

 

Material U.S. Federal Income Tax Consequences (page 41)

 

Regulatory Matters (page 43)

 

Paying Agent

 

Appraisal Rights (page 43 and Annex C)

	•	you must not vote in favor of the adoption of the merger agreement;
	•	you must deliver a written demand to us for appraisal in compliance with Section 262 of the General Corporation Law before the vote on the adoption of the merger agreement at the special meeting; and
	•	you must hold your shares of record continuously from the time of making a written demand for appraisal through the effective date of the merger; a stockholder who is the record holder of shares of our common stock on the date the written demand for appraisal is made, but who thereafter transfers those shares prior to the effective date of the merger, will lose any right to appraisal in respect of those shares.

 

This proxy statement contains “forward-looking statements” within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Statements other than statements of historical fact are forward-looking statements for purposes of federal and state securities laws, including projections of earnings, revenue or other financial items; statements regarding future economic conditions or performance; statements of belief; and statements of assumptions. Forward-looking statements may include the words “may,” “could,” “will,” “should,” “would,” “estimate,” “intend,” “continue,” “believe,” “expect,” “anticipate” or other similar words. These forward-looking statements, including, without limitation, those projections regarding the completion of the merger, government consents and approvals and the outcome of the contingencies such as legal proceedings, are necessarily estimates reflecting the best judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties. Risks and uncertainties pertaining to the following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements:

 

 

You should not place any undue reliance on forward-looking statements and should consider the cautionary statements contained or referred to in this section in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We do not undertake any obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances that occur after the date of this proxy statement or to reflect the occurrence of unanticipated events, except as we are required to do by law.

 

We are furnishing this proxy statement to our stockholders as part of the solicitation of proxies by our board of directors for use at the special meeting, or at any adjournment or postponement thereof.

 

We will hold the special meeting at 10700 Bren Road West, Minnetonka, Minnesota 55343 on Wednesday, June 15, 2011 at 12:00 p.m. local time.

 

At the special meeting, we are asking holders of record of our common stock on May 9, 2011 to consider and vote on the following proposals:

 

 

Pursuant to the terms of the merger agreement, Merger Sub will merge with and into AMS with AMS continuing as the surviving corporation and becoming a wholly owned indirect subsidiary of Endo, and each outstanding share of AMS stock (other than shares held by Endo or its subsidiaries and shares as to which appraisal rights are properly demanded) will be converted into the right to receive $30.00 per share in cash, without interest, and less applicable withholding tax.

 

Our board of directors has determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable and fair to and in the best interests of us and our stockholders and has unanimously approved the merger agreement.

 

Our board of directors unanimously recommends that our stockholders vote “FOR” the adoption of the merger agreement and “FOR” the proposal to adjourn the special meeting. See “The Merger — Recommendation of Our Board of Directors; Our Reasons for the Merger.”

 

You may vote at the special meeting if you were a record holder of shares of our common stock at the close of business on May 9, 2011, the record date for the special meeting. For each share of our common stock that you owned on the record date, you are entitled to cast one vote on each matter voted upon at the special meeting. As of May 9, 2011 , there were 77,746,333 shares of our common stock outstanding and entitled to vote.

 

A quorum of stockholders is necessary to hold the special meeting. The required quorum for the transaction of business at the special meeting is the presence, either in person or represented by proxy, of the holders of a majority of the outstanding common stock entitled to vote at the special meeting. If a quorum is not present at the special meeting, we expect that the special meeting will be adjourned to solicit additional proxies. Abstentions will count as shares present for establishing a quorum. “Broker non-votes,” discussed below, will not count for purposes of establishing a quorum.

 

You may vote “FOR” or “AGAINST,” or you may “ABSTAIN” from voting on, the proposal to adopt the merger agreement. Adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote at the special meeting. Because the vote on the proposal to adopt the merger agreement is based on the total number of shares outstanding, rather

than the number of actual votes cast, abstentions and “broker non-votes” will have the same effect as voting against the adoption of the merger agreement. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting authority and has not received instructions from the beneficial owner of the shares. Brokers and other nominees will not have discretionary authority on the proposal to adopt the merger agreement.

 

The proposal to adjourn the special meeting will be approved if a majority of the shares of common stock, present in person or represented by proxy and entitled to vote on the subject matter, vote in favor of the proposal. Broker non-votes will have no effect on the proposal to adjourn the special meeting although abstentions will have the same effect as a vote against that proposal.

 

A list of our stockholders will be available for review for any purpose germane to the special meeting at 10700 Bren Road West, Minnetonka, Minnesota 55343 during regular business hours for a period of ten days before the special meeting and will also be available at the special meeting.

 

As of May 9, 2011, the record date for the special meeting, our directors and executive officers were entitled to vote approximately 343,522 shares of common stock, or approximately 0.4% of our total common stock outstanding on that date. These numbers do not give effect to outstanding stock options, none of which are entitled to vote at the special meeting. We currently expect that each of our directors and executive officers will vote their shares in favor of the proposals to be presented at the special meeting.

 

You may vote in person or by proxy at the special meeting.

 

Voting in Person

 

If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held in “street name,” which means your shares are held of record by a broker, bank or other nominee, and you wish to vote at the special meeting, you must bring to the special meeting a legal proxy from the record holder of the shares (your broker, bank or nominee) authorizing you to vote at the special meeting.

 

Voting by Proxy

 

If you do not wish to attend the special meeting you may submit your proxy by completing, dating, signing and returning the enclosed proxy card by mail. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the stockholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, provided that no proxy that is specifically marked “AGAINST” the proposal to adopt the merger agreement will be voted in favor of the adjournment proposal, unless it is specifically marked “FOR” the adjournment proposal.

 

Only shares affirmatively voted for the proposal to adopt the merger agreement and the proposal to adjourn the special meeting, and properly executed proxies that do not contain voting instructions, will be counted as votes “FOR” the proposals. Shares of our common stock held by persons who attend the special meeting but abstain from voting in person or by proxy, and shares of our stock for which we received proxies directing an abstention, will have the same effect as votes “AGAINST” the adoption of the merger agreement and the proposal to adjourn the special meeting. Shares represented by proxies that reflect a “broker non-vote” will not be counted for purposes of determining whether a quorum exists, and those proxies will have the same effect as votes “AGAINST” the proposal to adopt the merger agreement but will have no effect on the adjournment proposal. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner has

not received instructions from the beneficial owner and does not have discretionary authority to vote the shares.

 

Although it is not currently expected, the special meeting may be adjourned for the purpose of, among other things, soliciting additional proxies. An adjournment may occur under any of the methods described below.

 

 

A stockholder of record may revoke a proxy at any time before it is voted by filing with our corporate secretary a duly executed revocation of proxy, by submitting a duly executed proxy to our corporate secretary dated later than that stockholder’s original proxy or by appearing at the special meeting and voting in person. A stockholder of record may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy. Attendance at the special meeting without voting will not itself revoke a proxy. If your shares are held in street name, you must contact your broker, bank or nominee to revoke your proxy. If the special meeting is adjourned or postponed, stockholders can revoke their proxies for the special meeting at any time prior to their use at the special meeting as adjourned or postponed.

 

We have retained MacKenzie Partners, Inc. to assist in the solicitation of proxies for the special meeting. We will bear the entire cost of our and MacKenzie Partners, Inc.’s solicitations, including the payment of a fee of approximately $40,000, plus reimbursement of reasonable out-of-pocket expenses. We may also employ our directors, officers and employees to solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional remuneration for their efforts. We or MacKenzie Partners, Inc. may also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of our common stock that the brokers and fiduciaries hold of record. Upon request, we will reimburse them for their reasonable out-of-pocket expenses.

 

Under applicable Delaware law, stockholders who do not wish to accept the consideration payable for their shares of common stock pursuant to the merger may seek judicial appraisal of the fair value of their shares by the Delaware Court of Chancery. Generally, in order to properly demand appraisal, a stockholder must:

 

 

 

Merely voting against, or failing to vote in favor of, the merger agreement will not preserve your right to appraisal under the General Corporation Law. Also, because a submitted proxy not marked “against” or “abstain” will be voted “FOR” the proposal to adopt the merger agreement, the submission of a proxy not marked “against” or “abstain” will result in the waiver of appraisal rights. If you hold shares in the name of a broker, bank or other nominee, you must instruct your nominee to take the steps necessary to enable you to demand appraisal for your shares.

 

Annex C to this proxy statement contains the full text of Section 262 of the General Corporation Law, which relates to your right of appraisal. We encourage you to read these provisions carefully and in their entirety. If you or your nominee fails to follow all of the steps required by Section 262 of the General Corporation Law, you will lose your right of appraisal.

 

If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact our proxy solicitor at:

 

MacKenzie Partners, Inc.

Call Collect: (212) 929-5500

Toll Free: (800) 322-2885

Email to: proxy@mackenziepartners.com

 

This discussion of the merger does not purport to be complete and is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Annex A and which is incorporated by reference into this proxy statement. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

 

We are asking our stockholders to adopt the Agreement and Plan of Merger, dated as of April 10, 2011, by and among Endo Pharmaceuticals Holdings Inc. (to which we refer as Endo), NIKA Merger Sub, Inc., a wholly owned indirect subsidiary of Endo (to which we refer as Merger Sub), and American Medical Systems Holdings, Inc. (to which we refer as AMS), as it may be amended from time to time. If we complete the merger, we will become a wholly owned indirect subsidiary of Endo, and our stockholders will have the right to receive $30.00 in cash, without interest and less any applicable withholding taxes, for each share of common stock that is outstanding immediately prior to the completion of the merger. Any withheld amounts will be treated for all purposes as having been paid to the holder of our common stock in respect of whose shares the withholding was made.

 

American Medical Systems Holdings, Inc.

10700 Bren Road West

Minnetonka, Minnesota 55343

(952) 930-6000

www.americanmedicalsystems.com

 

AMS is a diversified supplier of medical devices and procedures to treat incontinence, erectile dysfunction, benign prostatic hyperplasia (BPH), pelvic floor prolapse and other pelvic disorders in men and women. These disorders can significantly diminish one’s quality of life and profoundly affect social relationships. In recent years, the number of people seeking treatment has increased markedly as a result of longer lives, higher-quality-of-life expectations and greater awareness of new treatment alternatives. American Medical Systems’ products reduce or eliminate the incapacitating effects of these diseases, often through minimally invasive therapies. AMS’ products were used to treat approximately 340,000 patients in 2010. AMS’ common stock, par value $0.01 per share, is listed on the NASDAQ Global Select Market under the symbol “AMMD.”

 

For additional information about AMS and our business, see “Where You Can Find More Information” on page 68.

 

Endo Pharmaceuticals Holdings Inc.

100 Endo Boulevard

Chadds Ford, Pennsylvania 19317

(610) 558-9800

www.endo.com

 

Endo is a U.S.-based, specialty healthcare solutions company, focused on high-value branded products and specialty generics. Endo aims to be the premier partner to healthcare professionals and payment providers, delivering an innovative suite of complementary diagnostics, drugs, devices and clinical data to meet the needs of patients in areas such as pain, urology, oncology and endocrinology. Endo’s common stock, par value $0.01 per share, is listed on the NASDAQ Global Select Market under the symbol “ENDP.”

For additional information about Endo and its business, see “Where You Can Find More Information” on page 68.

 

NIKA Merger Sub, Inc.

100 Endo Boulevard

Chadds Ford, Pennsylvania 19317

(610) 558-9800

 

Merger Sub, a Delaware corporation and a wholly owned indirect subsidiary of Endo, was organized solely for the purpose of entering into the merger agreement with AMS and completing the merger and has not conducted any business operations other than those incident to its formation and the transactions contemplated by the merger agreement. If the merger is completed, Merger Sub will cease to exist following its merger with and into AMS.

 

Our board of directors and management, in their ongoing effort to maximize stockholder value, have periodically reviewed and assessed our business strategy, a variety of strategic alternatives (including the sale of some of our assets, the sale of the entire Company and the acquisition of other businesses and assets) and the various trends and conditions affecting our businesses generally.

 

In late 2009, Endo initiated discussions with us regarding a potential acquisition of AMS by Endo to form a combined pharmaceutical and medical device company focused on pain solutions and pelvic health. Endo sent us a written indication of interest in acquiring us at a price of $23.00 per share of our common stock in a mix of approximately 75% cash and 25% stock, subject to a 60-day exclusivity period and certain other conditions. After consulting with our management, representatives of J.P. Morgan Securities LLC, or J.P. Morgan, which was acting as our financial advisor, and representatives of Latham & Watkins LLP, or Latham & Watkins, which was our legal counsel, and reviewing an evaluation of our business plan and prospects, our board of directors determined not to proceed with discussions with Endo regarding a potential acquisition at that time because our board of directors believed that the offer price was materially less than the value of the Company. However, over the next year, we had discussions with Endo on potential licensing matters and joint ventures, which did not come to fruition.

 

In late December 2010, David P. Holveck, the Chief Executive Officer of Endo, called Anthony P. Bihl III, our President and Chief Executive Officer, to schedule a meeting at the J.P. Morgan Healthcare Conference in San Francisco, California. Mr. Holveck did not indicate the purpose of the meeting at that time. At the January 12, 2011 meeting, Mr. Holveck expressed interest in pursuing an acquisition of AMS and orally indicated that he had spoken with Endo’s board of directors and was prepared to present AMS with a preliminary acquisition proposal at a price of $27.50 per share of our common stock in cash. The opening price of our common stock on that day was $19.66.

 

On January 13, 2011, our board of directors held a special telephonic meeting to discuss Endo’s oral offer. At this meeting, our board of directors directed management to contact J.P. Morgan to act as our financial advisor with respect to Endo’s January 12 proposal and Latham & Watkins to provide legal advice regarding the potential transaction, which our management did immediately after the board meeting.

 

On January 14, 2011, our board of directors held a special telephonic meeting to continue its discussions from January 13. With input from representatives of J.P. Morgan and Latham & Watkins, our board of directors discussed the Endo proposal, preliminary valuation considerations, strategy, timing and potential next steps. Our board of directors directed Mr. Bihl to call Mr. Holveck to request that he formalize his January 12 offer in writing, which Mr. Bihl did after the board meeting.

 

Later that day, we received a non-binding letter of interest from Endo, pursuant to which Endo proposed to acquire all outstanding shares of our common stock at a price of $27.50 per share of our common stock in cash, subject to the completion of due diligence, negotiation of a definitive merger agreement and other conditions. The letter indicated that Endo intended to finance the transaction through third party financing, but that its offer would not be subject to a financing condition. The letter also indicated that Endo would like to

enter into exclusive negotiations with us for a period of 45 days to work toward the execution of a definitive acquisition agreement. The letter also indicated that Endo had discussed its proposal with its board of directors. The opening price of our common stock on that day was $19.32.

 

On January 26, 2011, our board of directors held an in-person special meeting in New York City to discuss Endo’s January 14 proposal. During the meeting, our board of directors, management, representatives of J.P. Morgan and representatives of Latham & Watkins discussed Endo’s proposal, the history of interactions with Endo and other potential strategic opportunities for the Company. Representatives of Latham & Watkins also reviewed the fiduciary duties of the board of directors, including in connection with a potential sale of the Company. Representatives of J.P. Morgan reviewed a preliminary analysis of the financial consideration for the proposed transaction. Our board of directors considered, among other things, the valuation of the Company, the timing and risks associated with our business plan, whether to pursue a sale of the Company at that time, Endo’s ability to finance the transaction and Endo’s request for a 45-day exclusivity period. Our board of directors authorized Mr. Bihl to inform Mr. Holveck that the proposed $27.50 per share of our common stock in the initial proposal was inadequate relative to our long-term prospects. In addition, our board of directors determined that it was inappropriate to enter into exclusive negotiations with Endo because that would prevent the Company from soliciting other potential buyers that might be willing to offer a higher price. However, our board of directors did authorize Mr. Bihl to meet with Endo’s management to discuss our long-term strategic plan under the condition that Endo would confirm in advance that it was willing and able to increase its proposed acquisition price.

 

On January 28, 2011, Mr. Bihl and Mr. Holveck discussed by telephone numerous issues related to Endo’s proposal. During that call, Mr. Bihl informed Mr. Holveck that we believed the price proposed in Endo’s January 14 proposal was inadequate relative to the Company’s long-term prospects and that we were not willing to grant exclusivity to Endo. However, Mr. Bihl informed Mr. Holveck that our management team would be willing to meet with Endo’s management team to discuss the Company’s long-term strategic plans on a limited basis if Endo was willing and able to improve its January 14 proposal. Mr. Holveck confirmed to Mr. Bihl that Endo was prepared to review its initial proposal after meeting with our management team to discuss our long-term strategic plan if our long-term strategic plan supported such review.

 

On February 11, 2011, our board of directors held a regularly scheduled meeting in San Jose, California. At this meeting, among other things, our management discussed the status of its discussions with Endo, representatives of Latham & Watkins reviewed the board of directors’ fiduciary duties in the context of a sale of the Company transaction, and representatives of J.P. Morgan reviewed a list of 12 companies that could potentially be interested in a strategic transaction with the Company based on their strategic fit with the Company and their ability to finance an acquisition of the Company. A medical device manufacturer, which we refer to in this proxy statement as Bidder A, was among the 12 companies discussed with the board of directors. After considering the list of potential interested parties and extensive discussions, our board of directors decided that it was premature to solicit additional offers until the Company had greater certainty that the discussions with Endo were likely to lead to a sale of the Company.

 

On February 16, 2011, we entered into a formal engagement letter with J.P. Morgan to formally engage them as our financial advisor for a potential sale of the Company.

 

On February 18, 2011, we entered into a confidentiality agreement with Endo in connection with our discussions regarding a potential transaction.

 

On February 18, 2011, certain members of our management team, including Mr. Bihl, Mark A. Heggestad, our Executive Vice President and Chief Financial Officer, and Jeanne Forneris, our Senior Vice President and General Counsel, together with representatives of Latham & Watkins and J.P. Morgan, met with representatives of Endo and its outside financial and legal advisors in New York City to allow Endo to conduct initial business due diligence. During this meeting, AMS management discussed a summary of our business plan, including, among other things, a summary of our marketed products and new products in development and our financials.

On February 24, 2011, Mr. Holveck orally indicated to Mr. Bihl that Endo was prepared to submit a revised proposal that would increase its offer from $27.50 to an amount between $29.00 and $30.00 per share of our common stock. Mr. Holveck indicated that the increased offer would be subject to satisfactory completion of more comprehensive due diligence and negotiation of a definitive acquisition agreement. Mr. Bihl indicated to Mr. Holveck that he would present this revised proposal to our board of directors. The opening price of our common stock on that day was $21.72.

 

On February 25, 2011, our board of directors held a special telephonic meeting with representatives from Latham & Watkins and J.P. Morgan to discuss Endo’s revised proposal. During this meeting, representatives of J.P. Morgan reviewed with our board of directors an analysis of Endo’s financial ability to complete the proposed transaction. In addition, during this meeting, our board of directors discussed a targeted solicitation of other parties and the companies that might be contacted. Following discussions, our board of directors authorized management to engage Endo in an expanded due diligence process. Our board of directors determined not to engage in discussions with other potential purchasers until discussions with Endo had developed further.

 

On February 28, 2011, Mr. Bihl called Mr. Holveck by telephone to discuss the status of the potential transaction. During this call, Mr. Bihl indicated that a limited number of additional Company employees would be authorized to provide additional due diligence materials to Endo. Mr. Bihl also provided Mr. Holveck an outline for proposed next steps in the due diligence process and requested that he document his February 24 offer in writing.

 

Later that day, Mr. Bihl received a letter from Mr. Holveck confirming that Endo was willing to increase its offer price from $27.50 to an amount between $29.00 and $30.00 per share of our common stock, subject to the satisfactory completion of due diligence and negotiation of a definitive acquisition agreement. The opening price of our common stock on that day was $22.48.

 

From February 28 to April 10, 2011, we, representatives of J.P. Morgan and representatives of Latham & Watkins had numerous telephonic and other communications with Endo and its legal, financial and other advisors regarding due diligence.

 

On March 1, 2011, our board of directors held a special telephonic meeting to discuss Endo’s written proposal. During this meeting, our board of directors discussed the transaction process, and representatives of J.P. Morgan reviewed with the board of directors a revised list of 12 companies that could be candidates for a strategic transaction with the Company based on their ability to pay a premium similar to that being offered by Endo and their strategic and regulatory fit with the Company. Our board of directors and representatives of J.P. Morgan also discussed the possibility of soliciting interest in a potential transaction from private equity firms and other financial investors, but after reviewing the financial profile of the Company with J.P. Morgan, our board of directors determined that financial buyers would be unlikely to be able to match the price being offered by Endo. Our board of directors authorized representatives of J.P. Morgan to begin to solicit interest in a strategic transaction from 11 of the 12 potential buyers on the list discussed, including Bidder A. Our board of directors determined not to contact the remaining company on the list because it believed that company was unlikely to be able to pay a premium as high as Endo due to the dispositions that regulatory authorities would likely impose as conditions to approval of a merger between AMS and that company.

 

Between March 1 and March 9, 2011, representatives of J.P. Morgan contacted eight of the 11 potential alternative bidders approved by our board of directors, including Bidder A. In addition, J.P. Morgan also had discussions with one additional medical device manufacturer who had contacted J.P. Morgan to express an interest in a potential transaction with us.

 

On March 9, 2011, our board of directors held a special telephonic meeting to receive an update on the status of the sale process. Representatives of J.P. Morgan summarized its discussions to date with the nine potential alternative bidders, of which six had declined to submit an acquisition proposal to us based on publicly available information and three, including Bidder A, were still evaluating a potential transaction with us. In addition, representatives of J.P. Morgan informed our board of directors that they had not yet contacted the other three parties selected on March 1, which were all pharmaceutical companies that our board of

directors had previously concluded were less likely to acquire the Company. After weighing the likelihood of these three parties making a proposal to acquire us against the Company’s interest in preserving the confidentiality of its pending negotiations and the competitive disadvantages of releasing confidential information about the Company to additional bidders, our board of directors instructed J.P. Morgan not to contact any of the remaining three potential bidders. Also during this meeting, our board of directors discussed the status of due diligence and negotiations with Endo.

 

On March 9, 2011, we delivered an initial draft of a definitive merger agreement to Endo. From March 9, 2011 to April 10, 2011, AMS management and representatives of Latham & Watkins conducted extensive discussions with Endo and its legal counsel to negotiate the terms of the definitive merger agreement.

 

Between March 10, 2011 and March 14, 2011, two of the three remaining alternative bidders notified J.P. Morgan, without giving specific reasons, that they were not interested in pursuing a transaction with us. Bidder A remained interested and indicated that it would like to meet with our management to gain additional insight into our strategic plan and pipeline of products in development before submitting a formal acquisition proposal.

 

On March 14, 2011, we entered into a confidentiality agreement with Bidder A. On March 15, 2011, members of our management team met with Bidder A in Minneapolis, Minnesota to discuss Bidder A’s interest in a potential acquisition. During this meeting, we presented to Bidder A our business plan, including, among other things, a summary of our marketed products and new products in development and portions of the internal financial analyses and forecasts which are summarized under “— Certain Financial Forecasts.”

 

On March 15, 2011, we provided Endo access to our electronic due diligence data site to facilitate the due diligence process.

 

From March 17, 2011 to March 24, 2011, members of our management team conducted meetings and due diligence with Endo in Minneapolis, Minnesota to review each of our business segments. During these meetings, we provided Endo certain of our internal financial analyses and forecasts which are summarized below under “— Certain Financial Forecasts.” We also provided Endo with a preliminary report on our revenue for the quarter ended April 2, 2011.

 

On March 24, 2011, Bidder A notified us that it was no longer interested in pursuing a potential transaction with us.

 

On March 25, 2011, our board of directors held a special telephonic meeting to discuss the status of negotiations with Endo and the other alternative bidders.

 

On March 28, 2011, another medical device manufacturer, which we refer to as Bidder B, contacted J.P. Morgan and expressed a potential interest in acquiring AMS. Representatives of J.P. Morgan informed Bidder B that the sale process was at an advanced stage and that Bidder B would need to act quickly if it would like to acquire the Company. Bidder B indicated that they would evaluate the opportunity and contact J.P. Morgan if they had further interest, but as of the date of this proxy statement, they had not contacted J.P. Morgan.

 

On March 31, 2011, Mr. Bihl met with Mr. Holveck to discuss the status of the merger agreement negotiations and Endo’s due diligence review.

 

On April 1, 2011, our board of directors held a special meeting in New York City. At this meeting,

 

 

 

Following discussions, our board of directors instructed management to continue negotiations with Endo.

 

Later that day, Mr. Bihl spoke to Mr. Holveck by telephone to provide an update on that day’s meeting of our board of directors and to discuss next steps toward finalizing the negotiation of the merger agreement and Endo’s due diligence review.

 

Between April 1 and April 7, 2011, Mr. Bihl and Mr. Holveck held several discussions regarding key terms of the potential transaction between AMS and Endo.

 

On April 4, 2011, Endo provided to AMS and Latham & Watkins drafts of the financing commitment documents relating to Endo’s proposed financing for the transaction. That same day, Mr. Bihl and Mr. Holveck discussed the need to provide incentives to key AMS employees to remain with AMS through and after the completion of the merger pursuant to a retention program.

 

On April 5, 2011, we provided our board of directors a report of our financial results for the quarter ended April 2, 2011.

 

On the morning of April 7, 2011, Mr. Holveck and other members of Endo’s management team and outside financial and legal advisors met with Mr. Bihl in New York City and advised him that Endo was prepared to move forward with the transaction at a price of $29.00 per share of common stock in cash. Mr. Holveck also presented Mr. Bihl with a proposal to resolve open terms of the draft merger agreement. Mr. Bihl indicated to Mr. Holveck that we expected a price of at least $30.00 per share of common stock in cash. Following a meeting with his management team, Mr. Holveck informed Mr. Bihl that Endo would consider a $30.00 offer, subject to satisfactory negotiation and resolution of key open terms of the merger agreement. The opening price of our common stock that morning was $22.20.

 

Mr. Holveck also delivered a written proposal to Mr. Bihl, which summarized certain terms in the merger agreement to which Endo would be willing to agree. These terms principally related to the circumstances in which we or Endo could terminate the merger agreement, certain covenants relating to Endo’s obligation to obtain financing for the transaction, the amount of and circumstances under which we would have to pay a termination fee, the terms of a potential retention program for key AMS employees, and the treatment of employee stock options and restricted stock. Mr. Bihl responded with a revised proposal with respect to several of these terms in the merger agreement. Later that afternoon, Mr. Bihl, other members of our management team, representatives of Latham & Watkins and representatives of J.P. Morgan met Endo and its legal and financial advisors to further discuss these terms as well as other details of the merger agreement.

 

Later that evening, our board of directors held a special telephonic meeting. Our management team, representatives of Latham & Watkins and representatives of J.P. Morgan provided our board of directors with an update on the status of our negotiations with Endo, the remaining issues in the merger agreement and an analysis of the then-current drafts of Endo’s financing commitment documents. Our board of directors directed our management team and advisors to continue to negotiate certain terms of the merger agreement.

 

The morning of April 8, 2011, Mr. Holveck and Mr. Bihl met to discuss key terms of the potential transaction between AMS and Endo, including the price of $30.00 per share of common stock in cash. From April 8 to April 10, 2011, members of our management team and representatives of Latham & Watkins finalized the terms and conditions of the merger agreement, with Endo and its legal counsel. The opening price of our common stock on April 8, 2011 was $22.32.

 

During the afternoon of April 8, 2011, Endo provided Mr. Bihl with an initial draft of a proposed employment agreement between Mr. Bihl and Endo that would take effect upon completion of the merger.

 

On April 10, 2011, our board of directors held a special telephonic meeting to consider approval of the proposed merger agreement. At this meeting,

 

After discussions with its financial and legal advisors, our board of directors unanimously determined the merger to be advisable and fair to and in the best interests of the Company and our stockholders. Our board of directors resolved unanimously to approve the form, terms and conditions of the merger agreement, and resolved unanimously to approve the merger, the other transactions contemplated by the merger agreement and all other actions or matters necessary or appropriate to give effect to the foregoing. Our board of directors further resolved unanimously to recommend that our stockholders vote for the adoption of the merger agreement and thereby approve the merger and the other transactions contemplated by the merger agreement.

 

The merger agreement was executed by the parties later that evening on April 10, 2011.

 

On April 11, 2011, before the opening of trading on the U.S. public stock markets, we and Endo issued a joint press release announcing the execution of the merger agreement.

 

Recommendation of Our Board of Directors

 

Our board of directors, by the unanimous vote of all directors:

 

 

Accordingly, our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement.

 

Reasons for the Merger

 

In reaching its decision to approve the merger and the merger agreement and to recommend that our stockholders adopt the merger agreement, our board of directors consulted with management and its legal and financial advisors. These consultations included discussions regarding our strategic business plan, the historical prices for AMS common stock, our past and current business operations and financial condition, our future prospects and the potential merger with Endo. The board of directors also consulted with Latham & Watkins regarding the terms of the merger agreement and related matters.

 

Our board of directors considered a number of positive factors in its deliberations, including:

 

 

 

 

 

 

Our board of directors also considered potential drawbacks and risks relating to the merger, including the following:

 

 

Our board of directors also considered that certain of our directors and officers may have conflicts of interest in connection with the merger, as they may receive certain benefits that are different from, or in addition to, those of our other stockholders. See “— Interests of Our Directors and Executive Officers in the Merger.”

 

After taking into account all of the factors set forth above, as well as others, our board of directors unanimously agreed that the benefits of the merger outweighed the drawbacks and risks and that the merger and the other transactions contemplated by the merger agreement were advisable and fair to and in the best interests of us and our stockholders. Our board of directors has unanimously approved the merger agreement and recommended that our stockholders vote to adopt the merger agreement at the special meeting.

 

The foregoing discussion is not intended to be an exhaustive list of the information and factors considered by our board of directors in its consideration of the merger, but is merely a summary of the material positive factors and material drawbacks and risks considered by our board of directors in that regard. In view of the number and variety of factors and the amount of information considered, our board of directors did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, our board of directors did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of our board of directors may have given different weights to different factors. Our board of directors made its recommendation based on the totality of information presented to, and the investigation conducted by, the board of directors.

 

Pursuant to an engagement letter dated February 16, 2011, the Company retained J.P. Morgan as its financial advisor in connection with the proposed merger.

 

At the meeting of the board of directors of the Company on April 10, 2011, J.P. Morgan rendered its oral opinion to the board of directors of the Company that, as of such date and based upon and subject to the factors and assumptions set forth in its written opinion, the consideration to be paid to the holders of the Company’s common stock in the proposed merger was fair, from a financial point of view, to such holders. J.P. Morgan has confirmed its April 10, 2011 oral opinion by delivering its written opinion to the board of directors of the Company, dated April 10, 2011, that, as of such date, the consideration to be paid to the holders of the Company’s common stock in the proposed merger was fair, from a financial point of view, to such holders. No limitations were imposed by the Company’s board of directors upon J.P. Morgan with respect to the investigations made or procedures followed by it in rendering its opinions.

 

The full text of the written opinion of J.P. Morgan dated April 10, 2011, which sets forth, among other things, the assumptions made, procedures followed, factors and matters considered and limitations on the review undertaken, is attached as Annex B hereto and is incorporated herein by reference. The Company’s stockholders are urged to read the opinion in its entirety. J.P. Morgan’s written opinion was addressed to the board of directors of the Company, was directed only to the consideration to be paid in the merger and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote at the special meeting of the Company’s stockholders. The summary of the opinion of J.P. Morgan set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion.

 

In connection with preparing its opinion, J.P. Morgan, among other things:

 

 

In addition, J.P. Morgan held discussions with certain members of the management of the Company with respect to certain aspects of the merger, and the past and current business operations of the Company, the financial condition and future prospects and operations of the Company, the Financial Forecasts and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

 

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by the Company or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (nor has J.P. Morgan assumed responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of the Company or Endo under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts

provided to it or derived from such analyses and forecasts (including the Financial Forecasts), J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of the Company. J.P. Morgan expressed no view as to such analyses or forecasts or the assumptions on which they were based. J.P. Morgan also assumed that the merger and the other transactions contemplated by the merger agreement will be consummated as described in the merger agreement and that the definitive merger agreement did not differ in any material respects from the draft of the merger agreement furnished to J.P. Morgan. J.P. Morgan also assumed that the representations and warranties made by the Company and Endo in the merger agreement and the related agreements were and will be true and correct in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and it relied on the assessments made by advisors to the Company with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the completion of the merger will be obtained without any adverse effect on the Company or on the holders of the Company’s common stock in the merger.

 

J.P. Morgan’s opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, April 10, 2011. It should be understood that subsequent developments may affect J.P. Morgan’s opinion, and J.P. Morgan does not have any obligation to update, revise, or reaffirm such opinion. J.P. Morgan’s opinion is limited to the fairness, from a financial point of view, of the consideration to be paid to the holders of the Company’s common stock in the proposed merger, and J.P. Morgan has expressed no opinion as to the fairness of the merger to, or any consideration paid in connection therewith to, the holders of any other class of securities, creditors or other constituencies of the Company or as to the underlying decision by the Company to engage in the merger. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the merger, or any class of such persons relative to the consideration to be paid to the holders of the Company’s common stock in the merger or with respect to the fairness of any such compensation.

 

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with providing its opinion and contained in a presentation delivered to the AMS board of directors on April 10, 2011. The financial analyses summarized below include information presented in tabular format. In order to fully understand J.P. Morgan’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s financial analyses. All market data used by J.P. Morgan in its analyses was as of April 8, 2011.

 

Public Trading Multiples .  Using publicly available information, J.P. Morgan compared selected financial data of the Company with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan determined to be analogous to the Company. These companies were selected, among other reasons, because they share similar business characteristics to the Company based on operational characteristics and financial metrics. The companies selected by J.P. Morgan were the following:

 

 

 

None of the companies utilized in the analysis were identical to the Company. Accordingly, a complete analysis of the results of the following calculations cannot be limited to a quantitative review of such results and involves complex considerations and judgments concerning the differences in the financial and operating characteristics of the companies compared to the Company’s and other factors that could affect the public trading value of the companies and the Company.

 

For this analysis J.P. Morgan used two sets of financial forecasts: (1) the “Street Case,” based on estimates of Wall Street analysts; and (2) the “Management Case,” provided by the Company which are summarized under “— Certain Financial Forecasts.” Using the closing price of the Company’s common stock as of April 8, 2011 and the number of shares of the Company’s common stock then outstanding, J.P. Morgan calculated, for each of the comparable companies and the Company, the ratios of: (1) Firm Value (which is the value of common equity, plus book value of debt, minus cash and cash equivalents) as of April 8, 2011 to estimated revenue for calendar year 2011; (2) Firm Value as of April 8, 2011 to estimated EBITDA (which is earnings before interest, taxes, depreciation and amortization) for calendar year 2011, and (3) closing price as of April 8, 2011 to estimated cash earnings (or net income plus amortization) per share for calendar year 2011. The following table presents the results of the J.P. Morgan calculations:

 

 

J.P. Morgan then calculated the Company’s equity value per share implied by certain reference ranges of multiples, which were based on the ranges of multiples calculated in the chart above for comparable companies but adjusted to take into account differences between the Company and the comparable companies and such other factors as J.P. Morgan deemed appropriate, and noted that, for the Street Case, the implied equity values per share of the Company’s common stock ranged from: (1) $11.50 to $22.25, based on the ratio of Firm Value to estimated revenue, using a reference range of 2.0x to 3.6x; (2) $20.50 to $25.75, based on the ratio of Firm Value to estimated EBITDA, using a reference range of 10.0x to 12.8x; and (3) $20.25 to $27.00, based on the ratio of closing price as of April 8, 2011 to estimated cash earnings per share, using a reference range of 15.0x to 20.0x; and noted that, for the Management Case, the implied equity values per share of the Company’s common stock ranged from: (1) $12.25 to $23.00, based on the ratio of Firm Value to estimated revenue, using a reference range of 2.0x to 3.6x; (2) $21.50 to $27.00, based on the ratio of Firm Value to estimated EBITDA, using a reference range of 10.0x to 12.8x; and (3) $19.75 to $26.50, based on the ratio of closing price as of April 8, 2011 to estimated cash earnings per share, using a reference range of 15.0x to 20.0x.

 

All values presented were rounded to the nearest $0.25. In each case, J.P. Morgan compared the implied equity values per share to the per share consideration of $30.00 in cash to be paid to the holders of the Company’s common stock in the merger and the $22.33 per share closing price of the Company’s common stock as of April 8, 2011.

 

Selected Transaction Analysis .  Using publicly available information, J.P. Morgan examined selected transactions with respect to businesses which J.P. Morgan determined to be analogous to the Company’s business. These transactions were selected, among other reasons, because the businesses involved in these transactions share similar business characteristics to the Company based on operational characteristics and

financial metrics. The transactions considered and the month and year each transaction was announced are as follows:

 

 

Using publicly available estimates, J.P. Morgan reviewed the Firm Values implied by the transaction as a multiple of (1) the target company’s revenue for the twelve-month period immediately preceding announcement of the transaction (“LTM Revenue”), which is referred to below as “firm value/LTM Revenue,” (2) the target company’s EBITDA for the twelve-month period immediately preceding announcement of the transaction (“LTM EBITDA”), which is referred to below as “firm value/LTM EBITDA,” and (3) the target company’s EBITDA for the twelve-month period immediately following the announcement of the transaction (“NTM EBITDA”), which is referred to below as “firm value/NTM EBITDA.” For the precedent transactions, J.P. Morgan noted that this analysis showed:

 

 

Based on the results of this analysis and other factors that J.P. Morgan considered appropriate, J.P. Morgan applied a firm value/LTM Revenue multiple range of 2.5x to 4.5x to the Company’s LTM Revenue, a firm value/LTM Revenue multiple range of 11.0x to 16.5x to the Company’s LTM EBITDA, and a firm value/NTM EBITDA multiple range of 10.0x to 15.0x to the Company’s NTM EBITDA from the “Management Case” described above. This analysis showed the following:

 

 

All values presented were rounded to the nearest $0.25. In each case, J.P. Morgan compared the implied equity values per share to the per share consideration of $30.00 in cash to be paid to the holders of the Company’s common stock in the merger and the $22.33 per share closing price of the Company’s common stock as of April 8, 2011.

 

Discounted Cash Flow Analysis .  J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining the fully diluted equity value per share of the Company’s common stock. J.P. Morgan calculated the unlevered free cash flows that the Company is expected to generate during fiscal years 2011 through 2020, based upon financial projections prepared by the management of the Company which included the Financial Forecasts for the years 2011 to 2015. J.P. Morgan then calculated the terminal value as of December 31, 2020 by applying, based upon J.P. Morgan’s judgment and experience, a range of perpetual growth rates from 2.5% to

3.5%. The unlevered free cash flows from April 8, 2011 through December 31, 2020 and the range of terminal asset values were then discounted to present values using a range of discount rates from 10.0% to 11.0% and added together in order to derive the implied Firm Value of the Company. The discount rate range was chosen by J.P. Morgan based upon an analysis of the weighted-average cost of capital of the Company conducted by J.P. Morgan and applied using the mid-year convention for discounting. In calculating the estimated diluted equity value per share, J.P. Morgan adjusted the firm value for the Company’s excess cash and total debt as of December 31, 2010 and divided by the fully diluted shares outstanding of the Company. Based on the foregoing, the analysis indicated an implied equity value per share of the common stock of $25.00 to $30.75 per share. All values presented were rounded to the nearest $0.25. In each case, J.P. Morgan compared implied equity values per share to the per share consideration of $30.00 in cash to be paid to the holders of the Company’s common stock in the merger and the $22.33 per share closing price of the common stock as of April 8, 2010.

 

Historical Share Price Analysis .  J.P. Morgan reviewed the price performance of the Company’s common stock during various periods ending on April 8, 2011 on a standalone basis and also in relation to the S&P 500 and a composite index consisting of the publicly traded companies listed under “Public Trading Multiples” above. J.P. Morgan also noted that the merger consideration of $30.00 per share of the Company’s common stock represented:

 

 

J.P. Morgan noted that historical stock trading and analyst price targets analyses are not valuation methodologies but were presented merely for informational purposes.

 

General

 

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies reviewed as described in the above summary is identical to the Company, and none of the selected transactions reviewed was identical to the merger. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of the Company. The transactions selected were similarly chosen because their participants, size and other factors, for purposes of J.P. Morgan’s analysis, may be considered similar to the merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and

operational characteristics of the companies involved and other factors that could affect the companies compared to the Company and the transactions compared to the merger.

 

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. J.P. Morgan was selected to advise the Company with respect to the merger and to deliver an opinion to the Company’s board of directors with respect to the merger on the basis of such experience and its familiarity with the Company.

 

Under the terms of a letter agreement dated February 16, 2011, the Company engaged J.P. Morgan as its financial advisor in connection with the proposed merger. Pursuant to the terms of the letter agreement, the Company has agreed to pay J.P. Morgan a transaction fee of 0.86% of the aggregate consideration to be paid in the merger, or approximately $24.5 million, payable upon completion of the merger, of which $1.0 million was earned upon delivery of the opinion. In addition, the Company has agreed to reimburse J.P. Morgan for its expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the Federal securities laws.

 

J.P. Morgan and its affiliates maintain banking and other business relationships with the Company and its affiliates, for which it receives customary fees. During the two years preceding the date of this letter, J.P. Morgan and its affiliates have had commercial or investment banking relationships with the Company and Endo, for which J.P. Morgan and its affiliates have received customary compensation. Such services during such period have included acting as joint bookrunning manager on Endo’s $400,000,000 senior notes offering in November 2010, acting as joint bookrunners and joint lead arrangers on Endo’s $400,000,000 Term Loan A and $500,000,000 Revolving Credit Facility in November 2010 and acting as joint bookrunner on Endo’s $300,000,000 Senior Secured Revolving Credit Facility in October 2009. In addition, J.P. Morgan’s commercial banking affiliate is an agent bank and a lender under outstanding credit facilities of Endo, for which it receives customary compensation or other financial benefits. Since the delivery of the fairness opinion, J.P. Morgan was engaged by the Company to be lead arranger on the Company’s new $250,000,000 Revolving Credit Facility, for which it received customary compensation. In the ordinary course of J.P. Morgan’s businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of the Company or Endo for its own account or for the accounts of customers and, accordingly, J.P. Morgan may at any time hold long or short positions in such securities.

 

Historically, AMS has prepared and provided public guidance as to certain of AMS’ projected annual financial performance measures with respect to the then current fiscal year in its press release announcing its financial results for the immediately preceding fourth quarter and for the fiscal year then ended, and has publicly updated that guidance from time to time. A press release containing AMS’ most recent public guidance as to financial performance for fiscal year 2011 was furnished to the SEC on Form 8-K on February 15, 2011.

 

In February 2011, we prepared certain limited financial analyses and forecasts regarding our possible future operations, or the Financial Forecasts. The Financial Forecasts were prepared at the direction of and approved by our board of directors, and were used by it in connection with its deliberations regarding a potential sale of the Company. The Financial Forecasts were also provided to Endo and J.P. Morgan. Bidder A also received summarized portions of the Financial Forecasts. The Financial Forecasts were prepared for use only by our board of directors, J.P. Morgan and potential purchasers and do not, and were not intended to, act as public guidance regarding our future financial performance.

 

The Financial Forecasts were necessarily based on a variety of assumptions and estimates. The assumptions and estimates underlying the Financial Forecasts may not be realized and are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond our control. The assumptions and estimates used to create the Financial Forecasts involve judgments made with respect to, among other things, future pricing, cost of goods sold,

selling and marketing expenses, research and development spending, impending U.S. healthcare tax, our costs of financing, our senior secured credit facility, our convertible notes, prevailing interest rates and income tax rates, all of which are difficult to predict and some of which are outside of our control. The Financial Forecasts also reflect assumptions as to certain business decisions that do not reflect any of the effects of the merger, or any other changes that may in the future affect us or our assets, business, operations, properties, policies, corporate structure, capitalization and management as a result of the merger or otherwise. Accordingly, there can be no assurance that the assumptions and estimates used to prepare the Financial Forecasts will prove to be accurate, and actual results may materially differ.

 

The inclusion of the Financial Forecasts in this proxy statement should not be regarded as an indication that AMS, Endo or any of their respective advisors or representatives considered or consider the Financial Forecasts to be an accurate prediction of future events, and the Financial Forecasts should not be relied upon as such. None of AMS, Endo or any of their respective advisors or representatives has made or makes any representation regarding the information contained in the Financial Forecasts, and except as may be required by applicable securities laws, none of them intend to update or otherwise revise or reconcile the Financial Forecasts to reflect circumstances existing after the date such Financial Forecasts were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Financial Forecasts are shown to be in error.

 

AMS’ stockholders are cautioned not to place undue reliance on the Financial Forecasts included in this proxy statement, and such projected financial information should not be regarded as an indication that AMS, our board of directors, J.P. Morgan, Endo or any other person considered, or now considers, them to be reliable predictions of future results, and they should not be relied upon as such.

 

A summary of the material projected financial information that was included in the Financial Forecasts is set forth below. All amounts are expressed in millions of dollars except for earnings per share.

 

 

Although presented with numerical specificity, the Financial Forecasts are not actual facts and reflect numerous assumptions, estimates and judgments as to future events made by AMS’ management, including assumptions, estimates and judgments noted above. Moreover, the Financial Forecasts are based on certain future business decisions that are subject to change. The Financial Forecasts generally take into account estimated taxes. There can be no assurance that the assumptions, estimates and judgments used to prepare the Financial Forecasts will prove to be accurate, and actual results may differ materially from those contained in the Financial Forecasts. The inclusion of the Financial Forecasts in this proxy statement should not be regarded as an indication that such Financial Forecasts will be predictive of actual future results, and the Financial Forecasts should not be relied upon as such. The Financial Forecasts are forward-looking statements.

 

The Financial Forecasts should be read together with the historical financial statements of AMS, which have been filed with the SEC, and the other information regarding AMS contained elsewhere in this proxy statement. None of the Financial Forecasts were prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither our independent auditors, nor any other independent accountants (including, without limitation, Endo’s), have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information. The report of AMS’ independent registered public accounting firm included in AMS’ Annual Report on Form 10-K for the year ended January 1, 2011 relates to

AMS’ historical financial information. It does not extend to the Financial Forecasts and should not be read to do so.

 

Overview

 

In considering the recommendation of our board of directors with respect to the merger agreement, you should be aware that our directors and executive officers may be deemed to have interests in the transactions contemplated by the merger agreement that may be different from, or in addition to, those of our stockholders generally. These interests may present these individuals with certain potential conflicts of interest. Our board of directors was aware of these interests and considered them, along with other matters, as described in “— Recommendation of Our Board of Directors; Our Reasons for the Merger” section of this proxy statement, in reaching its decisions to approve the merger agreement and to recommend that our stockholders vote in favor of the adoption of the merger agreement.

 

For further information with respect to the arrangements between AMS and its executive officers, directors and affiliates described in this proposal, please also see our proxy statement filed with the SEC on March 30, 2011 under the headings “Director Compensation,” “Compensation Discussion and Analysis,” and “Executive Compensation.”

 

Beneficial Ownership of our Stock

 

As of May 9, 2011, the record date for the special meeting, our directors and executive officers beneficially owned and were entitled to vote, in the aggregate, approximately 343,522 shares of our common stock, or approximately 0.4% of our total common stock outstanding on that date. These numbers do not give effect to outstanding stock options which are not entitled to vote at the special meeting but do include restricted shares of our common stock. Our directors and executive officers will receive the same $30.00 per share for their shares of our common stock as our other stockholders. For further information with respect to the ownership of our common stock of our directors and executive officers, see “Security Ownership of Certain Beneficial Owners and Management.”

 

Effect of the Merger on Stock Options

 

The merger agreement provides that each option to purchase shares of our common stock granted under any of our stock plans, including the American Medical Systems Holdings, Inc. 2000 Equity Incentive Plan, as amended, and the American Medical Systems Holdings, Inc. 2005 Stock Incentive Plan, as amended and restated, or any other plan, agreement or arrangement, other than the American Medical Systems Holdings, Inc. Employee Stock Purchase Plan, as amended, which is outstanding immediately prior to the completion of the merger and which is vested and exercisable (or per the terms of the applicable award agreement, employment agreement or other agreement providing for vesting and exercisability conditions, would become vested and exercisable as of the completion of the merger) (which we refer to in this proxy statement as a Vested Option), will be cancelled in exchange for the right to receive an amount in cash equal to $30.00 minus the exercise price per share of the Vested Option, multiplied by the number of shares subject to the Vested Option, less any required withholding taxes (which we refer to in this proxy statement as the Vested Option Payment). Each other option to purchase shares of our common stock which is outstanding immediately prior to the completion of the merger (which we refer to in this proxy statement as an Unvested Option), will be converted into an option to acquire Endo common stock (which we refer to in this proxy statement as an Adjusted Endo Option), on the same economic terms and conditions as were applicable to such Unvested Option immediately prior to the completion of the merger, except that (i) the number of shares of Endo common stock subject to each Adjusted Endo Option will be equal to the number of shares of our common stock subject to such Unvested Option immediately prior to the completion of the merger, multiplied by the Equity Exchange Ratio, rounded down to the nearest whole share, and (ii) such Adjusted Endo Option will have an exercise price per share equal to the per share exercise price of such Unvested Option immediately

prior to the completion of the merger, divided by the Equity Exchange Ratio, rounded up to the nearest whole cent.

 

The following table sets forth information regarding the options to purchase shares of our common stock (rounded to the nearest whole number) held by our executive officers and directors as of May 9, 2011 that are vested or are scheduled to be vested by June 17, 2011 (the assumed date the merger is completed for purposes of this table), or would be converted at the completion of the merger into the right to receive a Vested Option Payment options which are scheduled to be unvested on June 17, 2011 and which are subject to accelerated vesting upon (i) completion of the merger or (ii) completion of the merger and a qualifying termination of employment concurrent with the completion of the merger.

 

 

 

 

Effect of the Merger on Restricted Stock

 

The merger agreement provides that each restricted share of our common stock granted under any of our equity plans which was granted prior to April 10, 2011 and which is outstanding immediately prior to the completion of the merger, and which would become vested prior to the one-year anniversary of the completion of the merger per the terms of the applicable award agreement, employment agreement or other agreement

providing for vesting conditions will be cancelled in exchange for the right to receive an amount in cash equal to $30.00, less any required withholding taxes. All other restricted shares of our common stock which are outstanding immediately prior to the completion of the merger will be converted into restricted shares of Endo common stock on the same terms and conditions as were applicable to such restricted shares of our common stock immediately prior to the completion of the merger, except that the number of restricted shares of Endo common stock will be equal to the number of restricted shares of our common stock immediately prior to the completion of the merger, multiplied by the Equity Exchange Ratio, rounded down to the nearest whole share.

 

The following table sets forth information regarding the restricted shares of our common stock held by our executive officers and directors as of May 9, 2011 that are either (i) scheduled to be unvested on June 17, 2011 (the assumed date the merger is completed for purposes of this table) and which would be subject to accelerated vesting upon completion of the merger or (ii) that would be subject to accelerated vesting upon completion of the merger and a qualifying termination of employment (assuming for purposes of this table that the merger is completed on June 17, 2011).

 

 

 

 

Employment Agreements

 

We are a party to amended and restated employment agreements with each of Anthony P. Bihl, III, President and Chief Executive Officer (as described further below, Mr. Bihl has entered into a new employment agreement which will, upon the completion of the merger, supersede the one described in this section), Mark A. Heggestad, Executive Vice President and Chief Financial Officer, Joe W. Martin, Senior Vice President and General Manager, BPH Therapies, and Maximillian D. Fiore, Senior Vice President and Chief Technology Officer, each dated March 26, 2010, and employment agreements with each of Whitney D. Erickson, Senior Vice President and General Manager, Men’s Health, dated December 27, 2006, Jeanne M. Forneris, Senior Vice President and General Counsel, dated February 1, 2010, Thomas K. Rassmussen, Vice President of Minnetonka Operations and Supply Chain, dated September 19, 2007, John F. Nealon, Senior

Vice President and General Manager, Women’s Health, dated December 26, 2001, Randall R. Ross, Senior Vice President, Human Resources, dated June 8, 2009, and Michael E. Ryan, Vice President and General Manager, Asia Pacific/Latin America Region, dated September 29, 1986.

 

The employment agreements with Mr. Bihl, Mr. Heggestad, Mr. Martin and Mr. Fiore provide for at-will employment and annual base salaries as adjusted of $551,200 for Mr. Bihl, $323,600 for Mr. Heggestad, $322,300 for Mr. Martin and $304,400 for Mr. Fiore. The employment agreement with Mr. Ryan provides for one-year employment terms renewing on each anniversary of September 27, subject to termination by either party by notice, and an annual base salary as adjusted of $225,900. In addition, the employment agreements provide that each executive will be eligible to participate in our Executive Variable Incentive Awards Plan with a target bonus equal to the following percentage of base salary, based on the achievement of performance objectives under the plan: 100% for Mr. Bihl, 60% for Mr. Heggestad, 50% for Mr. Martin and 40% for Mr. Fiore. The employment agreements also entitle the executives to participate in our other standard benefit programs and contain customary confidentiality, non-solicitation and non-competition provisions. The employment agreements with Ms. Erickson, Ms. Forneris, Mr. Nealon, Mr. Rassmussen and Mr. Ross provide for at-will employment and do not contain specific compensation or benefits provisions. All of the agreements contain customary confidentiality, non-solicitation and non-competition provisions (one year for Messrs. Bihl, Heggestad and Martin and two years for Mses. Erickson and Forneris and Messrs. Nealon, Rassmussen and Ross).

 

Change in Control Severance Agreements

 

Our executive officers, as well as our senior management officers, are each party to a standard change in control severance agreement with us. As described below, Mr. Bihl has entered into a new employment agreement which will, upon the completion of the merger, supersede his change in control severance agreement. These change in control severance agreements provide that if we terminate the executive’s employment without “cause,” or if the executive leaves voluntarily for “good reason,” during the 12-month period after a “change in control” (each as defined in the change in control severance agreements), or prior to a change in control if the termination was a condition of the change in control or at the request or insistence of a person related to the change in control or for Messrs. Bihl, Heggestad and Nealon and Ms. Erickson, if the executive leaves voluntarily during the one month period following the one-year anniversary of the change in control, we (or our successor) would be required to provide the executive with the following benefits:

 

 

 

In March 2009, the compensation committee determined that any future change in control severance agreements would not provide (i) for the acceleration of outstanding options and equity awards upon completion of a change in control, (ii) for excise tax gross-up payments, (iii) an executive with the ability to terminate his or her employment for any reason during the first full calendar month following the first anniversary date of the change in control and (iv) for a cash “gross-up payment” related to continued coverage under our group health and dental plans.

 

Because Mr. Bihl, Mr. Heggestad, Mr. Nealon and Ms. Erickson have pre-March 2009 change in control severance agreements, all unvested stock options held by Mr. Bihl, Mr. Heggestad, Mr. Nealon and Ms. Erickson and granted prior to fiscal 2010 would immediately vest in full and become exercisable upon a change in control, whether or not the acquiring entity or successor assumes or replaces the equity awards and whether or not the executive continues to be employed by us (or the successor) after the change in control. Because they have post-March 2009 change in control severance agreements, there is no acceleration of unvested options or restricted share awards for the remaining executive officers in their change in control severance agreements upon completion of a change in control, in the absence of a termination of employment without cause or for good reason within 12 months after the change in control. In February 2010, new forms of equity award agreements were adopted that do not provide for the acceleration of stock options and restricted stock solely upon completion of a change in control, but provide for acceleration of vesting upon both a change in control and a termination of employment without cause or for good reason within 12 months after the change in control. Further, such award agreements provide that the terms of the award agreements supersede the acceleration provisions that may be contained in the change in control severance agreements of the recipient. As such, the vesting of awards granted in 2010 and thereafter to Mr. Bihl, Mr. Heggestad, Mr. Nealon and Ms. Erickson are not automatically accelerated upon completion of a change in control in the absence of a termination of employment without cause or for good reason within 12 months after the change in control as was provided in their change in control severance agreements (although, as previously described, certain of their restricted share awards will vest at the time the merger is completed under the terms of the merger agreement).

 

The completion of the merger will constitute a change in control under the change in control severance agreements.

 

Retention Bonus Plan

 

On April 10, 2011, we adopted the American Medical Systems Holdings, Inc. Retention Bonus Plan for purposes of providing certain key employees with a cash bonus in connection with continued employment with us following the merger. The retention bonus plan will be administered by the compensation committee of our board of directors until the completion of the merger, and thereafter by a committee consisting of our President, our Senior Vice President of Human Resources and the Senior Vice President of Human Resources of Endo. Mr. Heggestad, Ms. Erickson, Mr. Martin, Mr. Fiore, Mr. Rassmussen, Mr. Ross, Mr. Ryan, Mr. Nealon and Ms. Forneris were selected by the compensation committee to participate in the retention bonus plan (Mr. Bihl was not selected to participate).

 

Under the retention bonus plan each participant is eligible to receive a retention bonus, as determined by the compensation committee, to be paid in a single lump sum no later than 30 days after the retention date or dates established by the compensation committee for such participant, provided the participant remains

continuously employed by us through the retention date. If a participant’s employment is terminated without “cause” (as defined in the retention bonus plan) prior to the retention date, subject to the execution and non-revocation of a general release of claims, the participant will be eligible to receive a retention bonus, as determined by the compensation committee, to be paid in a single lump sum on the 60th day after the date on which the participant’s employment is terminated. The total amount that may be payable under the retention bonus plan to all eligible participants, as determined by the compensation committee, is $11.5 million. The amounts that may be payable to each of the following executive officers under the retention bonus plan, as determined by the compensation committee, are $323,600 to Mr. Heggestad, $298,200 to Ms. Erickson, $322,300 to Mr. Martin, $304,400 to Mr. Fiore, $254,700 to Mr. Rassmussen, $270,800 to Mr. Ross, $225,900 to Mr. Ryan, $285,500 to Mr. Nealon and $310,800 to Ms. Forneris. Each such bonus is payable to the executive in two equal installments, with the first installment to be paid on the 6-month anniversary of the completion of the merger, subject to the executive’s continued employment with us through such date, and the second installment to be paid on the 12-month anniversary of the completion of the merger, subject to the executive’s continued employment with us through such date, provided, that if the executive’s employment is terminated without cause prior to the 12-month anniversary of the completion of the merger, then the executive will receive payment of any unpaid installment, subject to the executive’s execution and non-revocation of a general release of claims.

 

If the merger agreement terminates in accordance with its terms prior to the completion of the merger, the retention bonus plan will terminate and no participant will have any right to any bonus under the retention bonus plan.

 

Under the retention bonus plan, if it is determined that any retention bonus, when taken together with any other payment or benefit received by the participant in connection with the merger or the termination of the participant’s employment would constitute a parachute payment under Section 280G of the Code and would be subject to the excise tax imposed by Section 4999 of the Code, then such payments or benefits under the plan will be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code but only if, by reason of such reduction, the net after-tax benefit received by the participant will exceed the net after-tax benefit received by such participant if no such reduction was made. The compensation committee has determined that this provision does not apply to certain participants that are a party to an agreement with us that provides for a gross-up payment in connection with excise tax imposed on the participant under Section 4999 of the Code, including Mr. Heggestad, Mr. Nealon and Ms. Erickson.

 

Endo Employment Agreement with Anthony P. Bihl, III

 

On April 10, 2011, Endo and Mr. Bihl entered into an employment agreement which will become effective upon the completion of the merger and, upon its effectiveness, will supersede Mr. Bihl’s amended and restated employment agreement and change in control severance agreement with us. The employment agreement has a term commencing on the date of completion of the merger and ending on the thirteen-month anniversary thereof, subject to automatic one-year extensions thereafter, unless either party provides advance notice of non-renewal. Mr. Bihl is currently employed by us on an “at-will” basis.

 

The employment agreement does not change Mr. Bihl’s annual base salary, which will remain at $551,200, subject to increase in the discretion of Endo’s Chief Executive Officer. Mr. Bihl will continue to participate in our annual incentive plan for fiscal year 2011, be eligible to participate in Endo’s annual bonus plan for fiscal year 2012, with a target annual bonus equal to 100% of base salary (which is the same target as under his employment agreement with us), and be eligible for a bonus opportunity determined in the discretion of Endo’s Chief Executive Officer beginning with fiscal year 2013. In addition, within 30 days following each of the first and second anniversaries of the date of completion of the merger, Endo will pay Mr. Bihl a cash retention bonus equal to $275,600, provided that he is employed with Endo on the applicable anniversary date. The employment agreement allows Mr. Bihl to participate in Endo’s employee benefit plans generally applicable to employees of Endo following his transition from our benefit plans.

 

Pursuant to the employment agreement, Mr. Bihl will be eligible to receive equity-based compensation, beginning with grants made in fiscal year 2012, in a targeted amount equal to 200%, and a maximum amount equal to 300%, of his base salary for the fiscal year. On the date of completion of the merger, Endo will grant

Mr. Bihl stock options to purchase Endo common stock valued at $551,200 and a number of restricted stock units valued at $551,200. The stock options will vest with respect to 25% of the shares subject thereto on each of the first, second, third and fourth anniversaries of the date of grant, provided that Mr. Bihl is employed on such dates by Endo. The restricted stock units will vest with respect to 50% of the shares subject thereto on the second anniversary of the date of grant and with respect to 25% of the shares subject thereto on each of the third and fourth anniversaries of the date of grant, provided that Mr. Bihl is employed on such dates by Endo. The stock options and restricted stock units will be subject to the terms and conditions set forth in the applicable plan and award agreement.

 

The employment agreement provides that if Mr. Bihl’s employment is terminated by Endo without “cause” (other than due to death or disability) or by Mr. Bihl for “good reason” (each as defined in the employment agreement), and subject to his execution and non-revocation of a general release of claims, Mr. Bihl will be entitled to the following: (i) a payment equal to two times the sum of his base salary and his target annual bonus as in effect immediately prior to such termination, (ii) if his employment is terminated prior to the payment of the retention bonus (A) by Endo without cause, a payment of all unpaid portions of the retention bonus, or (B) by Mr. Bihl for good reason, a pro-rata payment of the retention bonus based on his period of employment with Endo, (iii) continued healthcare coverage for one year following such termination on terms no less favorable than those in effect immediately prior to the termination and (iv) fully accelerated vesting of any equity-based awards held by Mr. Bihl prior to the completion of the merger (provided that a termination in connection with a non-renewal of the employment agreement by Endo will constitute a termination without cause for purposes of this clause (iv) only).

 

If any payments and benefits provided under the employment agreement would be subject to the excise tax imposed by Section 4999 of the Code as a result of the occurrence of the merger, Endo will make an additional cash “gross-up payment” to him in an amount such that the net amount retained by him after payment of all taxes, including any taxes on the gross-up payment, will be equal to such payments and benefits. Other than this gross-up payment that Mr. Bihl was already entitled to under his current employment agreement with us, Endo did not provide Mr. Bihl any excise tax gross-up in this new employment agreement. Accordingly, if any other payments and benefits provided under Mr. Bihl’s new employment agreement would be subject to the excise tax imposed by Section 4999 of the Code, then such payments or benefits will be reduced to the extent necessary so that no portion thereof will be subject to such excise tax.

 

The employment agreement contains non-solicitation and non-competition provisions that each apply during the term of the agreement and for a 12-month period thereafter.

 

Summary of Potential Payments

 

The table below contains a summary of the value of certain material payments and benefits payable to our executive officers and directors described in this section under the heading “— Interests of Our Directors and Executive Officers in the Merger.” Amounts shown in the table are estimates and among other things, assume that the merger will be completed on June 17, 2011 and that each executive officer will have a qualifying termination of his or her employment concurrent with the completion of the merger. These estimates will not be used to determine actual benefits paid, which will be calculated in accordance with terms of the related agreement, plan or arrangement and may materially differ from these estimates.

 

The table does not include the payments and benefits that are not enhanced by the merger, which include:

 

 

 

 

 

 

On April 29, 2011 and May 5, 2011, putative class action lawsuits captioned Walker v. Bihl, et al., and Prime Investors Fund v. Bihl, et al., respectively, were filed in the Hennepin County District Court. The complaints name as defendants the members of our board of directors, as well as the Company, Endo and the Walker complaint also names Merger Sub as a defendant. The plaintiffs allege that our directors breached their fiduciary duties to our stockholders in connection with the merger, and further claim that the Company, Endo and Merger Sub aided and abetted those alleged breaches of fiduciary duty. The complaints allege that the merger between the Company and Endo involves an unfair price, an inadequate sales process and unreasonable deal protection devices, that defendants agreed to the transactions to benefit themselves personally, and that the preliminary proxy statement relating to the special meeting failed to adequately disclose information relating to the background of the merger, our directors’ and officers’ interests in the merger, the Company’s projections from 2016 through 2020 and the opinion provided by J.P. Morgan to our board of directors. The complaints seek injunctive relief, including to enjoin the merger or rescissory damages in the event the merger is completed, and an award of attorneys’ and other fees and costs, in addition to other relief. We believe the plaintiffs’ allegations lack merit, and will contest them vigorously.

 

 

If the merger is completed, our common stock will no longer be listed on the NASDAQ Global Select Market and will be deregistered under the Securities Exchange Act of 1934, as amended, and we will no longer file periodic reports with the SEC.

 

 

The following is a summary of the material U.S. federal income tax consequences of the merger to U.S. Holders (as defined below) of our common stock whose shares are converted into the right to receive cash in the merger. This summary is based on the Internal Revenue Code of 1986, as amended, or the Code, applicable Treasury Regulations, and administrative and judicial interpretations thereof, each as in effect as of the date hereof, all of which may change, possibly with retroactive effect. Any such change could affect the continuing validity of this discussion. We have not requested a ruling from the Internal Revenue Service with respect to the U.S. federal income tax consequences described in this proxy statement. The statements in this discussion are not binding on the Internal Revenue Service or any court and, accordingly, we cannot assure you that the tax consequences described in this discussion will not be challenged by the Internal Revenue Service, or if challenged, will be sustained by a court.

 

This summary is limited to U.S. Holders that hold shares of our common stock as capital assets within the meaning of section 1221 of the Code. In addition, this summary does not address tax considerations applicable to a holder’s particular circumstances or to holders that may be subject to special tax rules, including, without limitation:

 

 

 

In addition, this summary does not address any U.S. federal estate or gift tax consequences; any state, local or foreign tax consequences of the merger; or the tax consequences to holders of our common stock that exercise appraisal rights under Delaware law.

 

THIS SUMMARY DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO THE MERGER. THEREFORE, YOU ARE URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES OF THE MERGER ARISING UNDER THE FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

 

For purposes of this discussion, a “U.S. Holder” means a holder of our common stock that is:

 

 

A non-U.S. holder is a beneficial owner of our common stock (other than a partnership or other entity treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Holder.

 

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner in such partnership will generally depend on the partner’s status and the activities of the partnership. Partnerships and their partners should consult their tax advisors regarding the particular U.S. federal income tax consequences to them of the merger.

 

Consequences of the Merger

 

The receipt of cash in exchange for shares of our common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. A U.S. Holder that receives cash in exchange for shares of our common stock pursuant to the merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received and the holder’s adjusted tax basis in the shares exchanged for cash in the merger. Gain or loss must be calculated separately for each block of common stock (i.e., shares acquired at the same cost in a single transaction) exchanged for cash in the merger. Any such gain or loss will be long-term capital gain or loss if the U.S. Holder’s holding period for the shares of our common stock exceeds one year. Long-term capital gains of noncorporate taxpayers are taxable at a maximum federal income tax rate of 15%. Capital gains of corporate taxpayers are taxable at the regular income tax rates applicable to corporations. The deductibility of capital losses is subject to limitations.

Information Reporting and Backup Withholding

 

Payments made to certain U.S. holders in the merger will be subject to information reporting and may be subject to backup withholding (currently at a rate of 28%). Certain holders are not subject to backup withholding. To avoid backup withholding, U.S. Holders that do not otherwise establish an exemption should complete and return the Internal Revenue Service Form W-9 that each holder will receive with the letter of transmittal following completion of the merger. The Internal Revenue Service Form W-9 will require a U.S. Holder to provide, among other things, the U.S. Holder’s taxpayer identification number and a certification that such holder is a U.S. person, the taxpayer identification number provided is correct and that such holder is not subject to backup withholding. A U.S. Holder that fails to provide its correct taxpayer identification number or falsely certifies that it is not subject to backup withholding may be subject to penalties imposed by the Internal Revenue Service. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a U.S. Holder may be refunded or credited against the U.S. Holder’s U.S. federal income tax liability, if any, if the U.S. Holder timely provides the required information to the IRS.

 

 

Antitrust

 

Under the HSR Act, we cannot complete the merger until we and Endo have filed Notification and Report Forms with the Antitrust Division and the FTC and the applicable waiting period is terminated or expires. The termination or expiration of the waiting period means the parties have satisfied the regulatory requirements under the HSR Act. We and Endo filed Notification and Report Forms under the HSR Act with the Antitrust Division and the FTC on April 22, 2011. We and Endo were granted early termination of the waiting period under the HSR Act on May 3, 2011.

 

Under the merger control rules of jurisdictions outside the United States where the parties conduct business, filings may be required and it may be necessary to observe waiting periods and/or obtain approvals prior to completing the merger. The period for review of the merger will vary from jurisdiction to jurisdiction and may be affected by a variety of factors. The review powers vested in foreign competition authorities include the ability to challenge the legality of the merger on the basis of its effects on competition or otherwise on the public interest. At any time before (and in some cases after) the completion of the merger, foreign competition authorities may seek to enjoin the completion of the merger or to impose conditions or remedies, including the divestiture of assets.

 

Commitment to Obtain Approvals

 

We, Endo and Merger Sub have agreed to use reasonable best efforts to take, or cause to be taken, and to do, or cause to be done, all actions that are necessary, proper or advisable under applicable laws and regulations to complete the merger.

 

Holders of shares of our common stock who do not vote in favor of the adoption of the merger agreement and who properly demand appraisal of their shares will be entitled to appraisal rights in connection with the merger under Section 262 of the General Corporation Law.

 

The following discussion is not a complete statement of the law pertaining to appraisal rights under the General Corporation Law and is qualified in its entirety by the full text of Section 262 which is attached to this proxy statement as Annex C . The following summary does not constitute any legal or other advice nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262.

 

Under Section 262, holders of shares of our common stock who do not vote in favor of the adoption of the merger agreement and who otherwise follow the procedures set forth in Section 262 will be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of the shares, exclusive of any element of value arising from the accomplishment or expectation of the

merger, as determined by the Court, together with interest, if any, to be paid upon the amount determined to be the fair value.

 

Under Section 262, where a merger agreement is to be submitted for adoption at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, must notify each of its stockholders entitled to appraisal rights that appraisal rights are available and include in the notice a copy of Section 262. This proxy statement shall constitute such notice, and the full text of Section 262 is attached to this proxy statement as Annex C . Any holder of our common stock who wishes to exercise appraisal rights, or who wishes to preserve such holder’s right to do so, should review the following discussion and Annex C carefully because failure to timely and properly comply with the procedures specified will result in the loss of appraisal rights. Moreover, because of the complexity of the procedures for exercising the right to seek appraisal of shares of common stock, we believe that if a stockholder considers exercising such rights, such stockholder should seek the advice of legal counsel.

 

Filing Written Demand.   Any holder of our common stock wishing to exercise appraisal rights must deliver to AMS, before the vote on the adoption of the merger agreement at the special meeting at which the proposal to adopt the merger agreement will be submitted to the stockholders, a written demand for the appraisal of the stockholder’s shares, and that stockholder must not vote in favor of the adoption of the merger agreement. A holder of shares of our common stock wishing to exercise appraisal rights must hold of record the shares on the date the written demand for appraisal is made and must continue to hold the shares of record through the effective date of the merger, since appraisal rights will be lost if the shares are transferred prior to the effective date of the merger. The holder must not vote in favor of the adoption of the merger agreement. A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the merger agreement, and it will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights must submit a proxy containing instructions to vote against the adoption of the merger agreement or abstain from voting on the adoption of the merger agreement. Neither voting against the adoption of the merger agreement, nor abstaining from voting or failing to vote on the proposal to adopt the merger agreement, will in and of itself constitute a written demand for appraisal satisfying the requirements of Section 262. The written demand for appraisal must be in addition to and separate from any proxy or vote on the adoption of the merger agreement. The demand must reasonably inform AMS of the identity of the holder as well as the intention of the holder to demand an appraisal of the “fair value” of the shares held by the holder. A stockholder’s failure to make the written demand prior to the taking of the vote on the adoption of the merger agreement at the special meeting of stockholders will constitute a waiver of appraisal rights.

 

Only a holder of record of shares of our common stock is entitled to demand an appraisal of the shares registered in that holder’s name. A demand for appraisal in respect of shares of our common stock should be executed by or on behalf of the holder of record, fully and correctly, as the holder’s name appears on the holder’s stock certificates, should specify the holder’s name and mailing address and the number of shares registered in the holder’s name and must state that the person intends thereby to demand appraisal of the holder’s shares in connection with the merger. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand should be made in that capacity, and if the shares are owned of record by more than one person, as in a joint tenancy and tenancy in common, the demand should be executed by or on behalf of all joint owners. An authorized agent, including an agent for two or more joint owners, may execute a demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose that, in executing the demand, the agent is acting as agent for the record owner or owners. If the shares are held in “street name” by a broker, bank or nominee, the broker, bank or nominee may exercise appraisal rights with respect to the shares held for one or more beneficial owners while not exercising the rights with respect to the shares held for other beneficial owners; in such case, however, the written demand should set forth the number of shares as to which appraisal is sought and where no number of shares is expressly mentioned the demand will be presumed to cover all shares of our common stock held in the name of the record owner. Stockholders who hold their shares in brokerage accounts or other nominee forms and who wish to exercise

appraisal rights are urged to consult with their brokers to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.

 

All written demands for appraisal pursuant to Section 262 should be sent or delivered to AMS at 10700 Bren Road West, Minnetonka, Minnesota 55343, Attention: Corporate Secretary.

 

At any time within 60 days after the effective date of the merger, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and accept the consideration offered pursuant to the merger agreement by delivering to AMS, as the surviving corporation, a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the effective date of the merger will require written approval of the surviving corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the Court deems just; provided, however, that any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and accept the merger consideration offered pursuant to the merger agreement within 60 days after the effective date of the merger. If the surviving corporation does not approve a request to withdraw a demand for appraisal when that approval is required, or, except with respect to any stockholder who withdraws such stockholder’s right to appraisal in accordance with the proviso in the immediately preceding sentence, if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding, which value could be less than, equal to or more than the consideration being offered pursuant to the merger agreement.

 

Notice by the Surviving Corporation.   Within ten days after the effective date of the merger, the surviving corporation must notify each holder of our common stock who has made a written demand for appraisal pursuant to Section 262, and who has not voted in favor of the adoption of the merger agreement, that the merger has become effective.

 

Filing a Petition for Appraisal.   Within 120 days after the effective date of the merger, but not thereafter, the surviving corporation or any holder of our common stock who has complied with Section 262 and is entitled to appraisal rights under Section 262 may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all dissenting holders. The surviving corporation is under no obligation to and has no present intention to file a petition and holders should not assume that the surviving corporation will file a petition. Accordingly, it is the obligation of the holders of our common stock to initiate all necessary action to perfect their appraisal rights in respect of shares of our common stock within the time prescribed in Section 262. Within 120 days after the effective date of the merger, any holder of our common stock who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving corporation a statement setting forth the aggregate number of shares not voted in favor of the adoption of the merger agreement and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. The statement must be mailed within ten days after a written request for the statement has been received by the surviving corporation or within ten days after the expiration of the period for delivery of demands for appraisal, whichever is later. Notwithstanding the foregoing, a person who is the beneficial owner of shares of our common stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition for appraisal or request from AMS the statement described in this paragraph.

 

If a petition for an appraisal is timely filed by a holder of shares of our common stock and a copy thereof is served upon the surviving corporation, the surviving corporation will then be obligated within 20 days to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached. After notice to the stockholders as required by the court, the Delaware Court of Chancery is empowered to conduct a hearing on the petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights thereunder. The Delaware

Court of Chancery may require the stockholders who demanded payment for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceeding; and if any stockholder fails to comply with the direction, the Delaware Court of Chancery may dismiss the proceedings as to the stockholder.

 

Determination of Fair Value.   After the Delaware Court of Chancery determines the holders of our common stock entitled to appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Delaware Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding, the Court shall determine the “fair value” of the shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the fair value. Unless the Court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment.

 

In determining fair value, the Delaware Court of Chancery will take into account all relevant factors. In Weinberger v. UOP, Inc ., the Supreme Court of Delaware discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods that are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that, in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc ., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger , the Supreme Court of Delaware also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

 

Stockholders considering seeking appraisal should be aware that the fair value of their shares as so determined could be more than, the same as or less than the consideration they would receive pursuant to the merger if they did not seek appraisal of their shares and that an investment banking opinion as to fairness from a financial point of view is not necessarily an opinion as to fair value under Section 262. Although we believe that the merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the merger consideration. Neither Endo nor AMS anticipate offering more than the applicable merger consideration to any of our stockholders exercising appraisal rights, and reserve the right to assert, in any appraisal proceeding, that for purposes of Section 262, the “fair value” of a share of our common stock is less than the merger consideration. The Delaware courts have stated that the methods which are generally considered acceptable in the financial community and otherwise admissible in court may be considered in the appraisal proceedings. In addition, the Delaware courts have decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenting stockholder’s exclusive remedy.

 

If a petition for appraisal is not timely filed, then the right to an appraisal will cease. The costs of the action (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Court and taxed upon the parties as the Court deems equitable under the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by a stockholder in connection with an appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts utilized in the appraisal proceeding, to be charged pro rata against the value of all the shares entitled to be appraised.

If any stockholder who demands appraisal of shares of our common stock under Section 262 fails to perfect, successfully withdraws or loses such holder’s right to appraisal, the stockholder’s shares of our common stock will be deemed to have been converted at the effective date of the merger into the right to receive the merger consideration pursuant to the merger agreement. A stockholder will fail to perfect, or effectively lose, the holder’s right to appraisal if no petition for appraisal is filed within 120 days after the effective date of the merger. In addition, as indicated above, a stockholder may withdraw his, her or its demand for appraisal in accordance with Section 262 and accept the merger consideration offered pursuant to the merger agreement.

 

Failure to comply strictly with all of the procedures set forth in Section 262 of the General Corporation Law will result in the loss of a stockholder’s statutory appraisal rights. Consequently, any stockholder wishing to exercise appraisal rights is urged to consult legal counsel before attempting to exercise those rights.

 

 

In connection with the entry into the merger agreement, Endo received a debt commitment letter, dated April 10, 2011, from Morgan Stanley Senior Funding, Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated and Bank of America, N.A., which are collectively referred to herein as the debt financing sources. The debt commitment letter provides for (a) borrowings under senior secured credit facilities (comprised of a term loan “A” facility of $1.5 billion, a term loan “B” facility of $900 million and a revolving credit facility of $500 million) and (b) $700 million in senior unsecured bridge loans.

 

The facilities contemplated by the debt commitment letter are subject to satisfaction of certain conditions precedent, including, without limitation:

 

 

The debt commitment letter terminates on the earliest of (i) October 10, 2011, (ii) the closing of the merger without the use of the debt financing and (iii) the termination of the merger agreement prior to the closing of the merger in accordance with its terms.

 

The following is a summary of the material terms and conditions of the merger agreement. This description in this section and elsewhere in this proxy statement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the complete text of the merger agreement, a copy of which is attached to this proxy statement as Annex A. This summary may not contain all of the information about the merger that is important to you. Stockholders should carefully read the merger agreement in its entirety. The merger agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about AMS. Such information can be found elsewhere in this proxy statement and in the other public filings we make with the SEC, which are available without charge at www.sec.gov.

 

The merger agreement provides that Merger Sub, a Delaware corporation and a wholly owned indirect subsidiary of Endo, will merge with and into us. We will survive the merger and continue to exist after the merger as a wholly owned indirect subsidiary of Endo.

 

The merger will be completed on the second business day after the satisfaction or waiver of all conditions described under “— Conditions to the Merger” or on such other day as the parties to the merger agreement may mutually agree. We anticipate that the merger will be completed in June 2011. However, we cannot assure you when, or if, all of the conditions to completion of the merger will be satisfied. We refer to the closing of the merger in this proxy statement as the completion of the merger.

 

The completion of the merger will be effective when we and Merger Sub file a certificate of merger with the Secretary of State of the State of Delaware, as required by applicable law, or at such later time as specified in the certificate of merger. We expect to make these filings at the time of the completion of the merger.

 

The merger agreement provides that each share of our common stock outstanding immediately prior to the completion of the merger (other than shares held by Endo, us or either of our respective subsidiaries or by holders properly exercising appraisal rights under the General Corporation Law) will be converted at the completion of the merger into the right to receive $30.00 in cash, without interest and less any applicable withholding tax.

 

If any of our stockholders perfect appraisal rights with respect to any of our shares, then we will treat those shares as described under “The Merger — Appraisal Rights.”

 

At the completion of the merger, stock options and restricted share awards will be treated as described below:

 

 

 

The “Equity Exchange Ratio” is equal to (x) $30.00 divided by (y) the average of the closing prices of Endo common stock on the NASDAQ Global Select Market for the ten trading days ending on (and inclusive of) the trading day that is two trading days prior to the completion of the merger (subject to adjustment to reflect any recapitalization or other similar transaction effected or declared).

 

Endo has designated Wells Fargo Shareowner Services as paying agent under the merger agreement, and at or prior to the completion of the merger, Endo or Merger Sub will deposit (or cause to be deposited) funds with the paying agent in amounts as necessary for the payment of the merger consideration.

 

As soon as reasonably practicable after the completion of the merger, the paying agent will mail to each person who was a holder of record of our common stock immediately prior to the completion of the merger (other than holders who properly exercise their appraisal rights) a letter of transmittal containing instructions for surrendering certificates representing shares of our common stock or non-certificated shares formerly represented by book-entry. After the completion of the merger, each holder of a certificate representing shares of our common stock or book-entry shares of our common stock immediately prior to the merger will, upon surrender thereof to the paying agent, together with a properly completed letter of transmittal, be entitled to receive the merger consideration of $30.00 in cash, less any withholding taxes, for each share of our common stock represented by such certificate or book-entry shares.

 

No interest will be paid or will accrue on the cash payable upon surrender of any certificate or book-entry. The cash paid upon conversion of our common stock will be deemed to have been paid in full satisfaction of all rights pertaining to the shares of our common stock.

 

If any certificate representing our common stock has been lost, stolen or destroyed, the paying agent will pay the merger consideration with respect to each share of our common stock formerly represented by such certificate upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed and, if required by the surviving corporation, the posting by such person of a bond in such amount as surviving corporation may direct as indemnity against any claim that may be made with respect to such certificate.

 

The merger agreement provides that the directors of Merger Sub immediately before the completion of the merger and the officers of AMS immediately before the completion of the merger will be the directors and officers of the surviving corporation until their respective death, permanent disability, resignation or removal or until their respective successors are duly elected and qualified.

 

The merger agreement contains representations and warranties that we, on the one hand, and Endo and Merger Sub, on the other hand, have made to one another as of specific dates. These representations and warranties have been made for the benefit of the other parties to the merger agreement and may be intended not as statements of fact but rather as a way of allocating the risk to one of the parties if those statements prove to be incorrect. In addition, the assertions embodied in the representations and warranties are qualified by information in a confidential disclosure letter provided by us to Endo and Merger Sub in connection with signing the merger agreement. While we do not believe that this disclosure letter contains information required to be publicly disclosed under the applicable securities laws other than information that has already been so disclosed, the disclosure letter does contain information that modifies, qualifies and creates exceptions to our representations and warranties set forth in the attached merger agreement. Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about us, Endo or Merger Sub since they were made as of specific dates, may be intended merely as a risk allocation mechanism between us, Endo and Merger Sub and are modified in important part by the confidential disclosure letter.

 

We have made a number of representations and warranties to Endo and Merger Sub in the merger agreement regarding aspects of our business and other matters pertinent to the merger. The topics covered by these representations and warranties include the following:

 

 

 

Some of our representations and warranties are qualified by a material adverse effect standard. Subject to certain exclusions, a material adverse effect means any occurrence, change, event, effect or circumstance that, individually or in the aggregate,

 

 

 

 

 

Endo and Merger Sub have also made a number of representations to us regarding various matters pertinent to the merger. The topics covered by these representations and warranties include the following:

 

 

The representations and warranties of each of the parties to the merger agreement will expire upon completion of the merger or the termination of the merger agreement.

 

Conduct of Our Business Prior to the Merger

 

In the merger agreement, we have agreed, except as set forth in our disclosure letter, that until the merger is complete, we will:

 

 

In addition, subject to certain specified exceptions, we have agreed not to do any of the following:

 

 

 

No Solicitation of Acquisition Proposals and Standstill Waivers

 

Under the terms of the merger agreement, we agreed to immediately cease any existing activities, discussions or negotiations with any person other than Endo and Merger Sub conducted before April 10, 2011 relating to, or that would reasonably be expected to lead to, any acquisition proposal (as defined below). We further agreed to request the return or destruction of any nonpublic information provided to any person in connection with such activities, discussions or negotiations and that, we and our subsidiaries will not, and we will cause each of our respective representatives not to, directly or indirectly:

 

 

Despite these general prohibitions, subject to certain conditions, we may, at any time prior to the adoption of the merger agreement by our stockholders, furnish information to, and engage in discussions or negotiations with, a person that has made an unsolicited bona fide, written acquisition proposal, if: