Guaranty & Investment Agreement

THIS GUARANTY AND INVESTMENT AGREEMENT, dated as of April 17, 2000 (as amended, modified, restated or supplemented from time to time, the "Agreement"), is by and among WARBURG, PINCUS EQUITY PARTNERS, L.P., a Delaware limited partnership ("US Warburg"), WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I, C.V., a commanditaire vennootschap (limited partnership) established under the laws of the Netherlands, WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V., a commanditaire vennootschap (limited partnership) established under the laws of the Netherlands and WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V., a commanditaire vennootschap (limited partnership) established under the laws of the Netherlands (each, including US Warburg, a "Warburg Guarantor" and collectively, the "Warburg Guarantors") and BANK OF AMERICA, N.A., as Agent for the Lenders hereinafter defined (in such capacity, the "Agent").


W I T N E S S E T H


WHEREAS, the Lenders have agreed to make certain loans and extensions of credit to American Medical Systems, Inc., a Delaware corporation (the "Borrower") pursuant to the terms of that Credit Agreement dated as of March 24, 2000 (as amended, modified, extended, increased, renewed or replaced, the "Credit Agreement") among the Borrower, the guarantors party thereto (the "Guarantors"), the Lenders party thereto (the "Lenders") and the Agent; and


WHEREAS, the execution of this Agreement by the Guarantors is a condition precedent to the obligations of the Lenders to make extensions of credit to the Borrower under the Credit Agreement;


NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Warburg Guarantors hereby agree as follows:


1. Definitions. Capitalized terms used herein but not otherwise defined herein shall have the meanings provided in the Credit Agreement. Capitalized terms defined herein and also defined in the Credit Agreement shall have the meanings provided herein. In addition the following terms shall have the following meanings:


"Coverage Ratio" means, as of the end of any fiscal quarter of
US Warburg, the ratio of (a) the sum of (i) Domestic Public Portfolio
Investments on the last day of such period plus (ii) the aggregate
Remaining Capital Commitment Balances of all Limited Partners on the
last day of such period to (b) Funded Debt of US Warburg (including, in
any event, obligations of US Warburg under Sections 2 and 12 hereof) on
the last day of such period.


"Domestic Public Portfolio Investments" means, at any time,
with respect to US Warburg, the sum of:


(i) the aggregate value (as shown in the most recent
financial statements delivered to the Agent and the Lenders
pursuant to Section 11(a)) of all portfolio investments of US
Warburg in any Capital Stock (or other securities convertible
at the option of US Warburg at any time into Capital Stock)
(a) of a


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Person incorporated or organized under the laws of any
State of the United States or the District of Columbia and (b)
which is listed on a U.S. national securities exchange, plus


(ii) 75% of the aggregate value (as shown in the most
recent financial statements delivered to the Agent and the
Lenders pursuant to Section 11) of all portfolio investments
of US Warburg in any Capital Stock (or of other securities
convertible at the option of US Warburg at any time into
Capital Stock) (a) of a Person not incorporated or organized
under the laws of any State of the United States or the
District of Columbia and (b) which is listed on a U.S.
national securities exchange.


"Event of Default" shall have the meaning assigned to such
term in Section 14.


"Fully Satisfied" means, with respect to the Guaranteed
Obligations as of any date, that, as of such date, (a) all principal of
and interest accrued to such date which constitute Guaranteed
Obligations shall have been paid in full in cash, (b) all fees,
expenses and other amounts then due and payable which constitute
Guaranteed Obligations shall have been paid in cash, (c) all
outstanding Letters of Credit shall have been (i) terminated,
(ii) fully cash collateralized or (iii) secured by one or more letters
of credit on terms and conditions, and with one or more financial
institutions, reasonably satisfactory to the Issuing Lender and (d) the
Commitments shall have been expired or terminated in full.


"Funded Debt" means, without duplication, with respect to US
Warburg, the sum of (a) all Indebtedness (other than Hedging
Agreements) of US Warburg for borrowed money (it being understood that
with respect to Indebtedness incurred with an original issue discount,
the obligations shall consist of the then accreted value), (b) all
purchase money Indebtedness of US Warburg, (c) the principal portion of
all obligations of US Warburg under Capital Leases, (d) commercial
letters of credit and the maximum amount of all performance and standby
letters of credit issued or bankers' acceptance facilities created for
the account of US Warburg, including, without duplication, all
unreimbursed draws thereunder, (e) all Guaranty Obligations of US
Warburg with respect to Funded Debt of another Person, (f) all Funded
Debt of another entity secured by a Lien on any property of US Warburg
whether or not such Funded Debt has been assumed by such person,
(g) all Funded Debt of any partnership or unincorporated joint venture
to the extent US Warburg is legally obligated or has a reasonable
expectation of being liable with respect thereto, net of any assets of
such partnership or joint venture and (h) the principal balance
outstanding under any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing product
of US Warburg when such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an operating lease
in accordance with GAAP.


"General Partner" means Warburg, Pincus & Co., a New York
general partnership, as general partner of US Warburg.


"Guaranteed Obligations" means, without duplication, all of
the obligations (including, but not limited to, in respect of interest
accruing after the occurrence of a


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Bankruptcy Event, regardless of whether such interest is an allowed
claim under the Bankruptcy Code) of the Borrower to the Lenders
(including the Issuing Lender) and the Agent, whenever arising, under
(i) Sections 2.1, 2.2, 2.4, 3.5(a) and 3.5(b) of the Credit Agreement,
the Revolving Notes and the Tranche B Term Notes and (ii) to the
extent relating to the payment of principal, interest, fees or other
amounts payable in respect of Revolving Loans, Letters of Credit, LOC
Obligations or the Tranche B Term Loan, Sections 3.1, 3.3(b), 3.5(b),
3.6, 3.8, 3.9, 3.11, 3.12 or 11.5 of the Credit Agreement.


"Holdback Merger Consideration" shall have the meaning
assigned to such term in Section 2.8(b) of the Purchase Agreement.


"Limited Partners" means the limited partners of US Warburg.


"Manager" means E.M. Warburg, Pincus & Co., LLC, a New York
limited liability company.


"Mandatory Investment" means a purchase of Capital Stock in
the Parent in Dollars and in funds immediately available to the Parent
sufficient in amount to, and made in order to, enable the Borrower to
fulfill its obligation to make when due payments of Holdback Merger
Consideration in an aggregate amount of up to $11,000,000 in accordance
with the terms of the Side Letter.


"Material Adverse Effect" means a material adverse effect on
(i) after taking into account any applicable insurance and any
applicable indemnification (to the extent the provider of such
insurance or indemnification has the financial ability to support its
obligations with respect thereto and is not disputing or refusing to
acknowledge same), on the operations, financial condition, business or
prospects US Warburg, (ii) the ability of US Warburg to make payments
required under this Agreement, (iii) the ability of US Warburg to
perform any material obligation under this Agreement or (iv) the
material rights and remedies of the Agent under this Agreement.


"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which US
Warburg or any Subsidiary of US Warburg is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to
be) an "employer" within the meaning of Section 3(5) of ERISA.


"Plan Asset Regulations" means the plan asset regulations of
the Department of Labor, 29 CFR ss. 2510.3-101 et seq., as amended, and
the advisory opinions and rulings issued thereunder.


"Remaining Capital Commitment Balance" means, at any time, the
difference of (i) the amount of "Partners Capital-Contributions
Receivable" as defined in (A) as of the Closing Date, the September 30,
1999 statement of net assets and partners' capital of US Warburg or
(B) at any time after the Closing Date, the most recent statement of
net assets and partners' capital of US Warburg delivered to the Agent
and the Lenders pursuant to Section 11(a) minus (ii) any portion of the
amount determined pursuant to clause (i) above with respect to which
the Limited Partners shall not be obligated, upon request by the


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General Partner, to make capital contributions for the purpose of
providing funds to US Warburg to repay the Guaranteed Obligations.


"Side Letter" shall have the meaning assigned to such term in
Section 2.8(b) of the Purchase Agreement.


2. The Guaranty. Each of the Warburg Guarantors hereby jointly and severally guarantees to the Agent, for the ratable benefit of each Lender and the Agent as hereinafter provided, as primary obligor and not as surety, the prompt payment of the Guaranteed Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in accordance with the terms thereof. In addition, if any of the Guaranteed Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), each of the Warburg Guarantors hereby jointly and severally promises to pay the same promptly, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, to pay the same promptly in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal.


This guarantee is a guaranty of payment and not of collection, is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising.


Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, the obligations of each Warburg Guarantor other than US Warburg under this Agreement shall be limited to an aggregate amount equal to the largest amount that would not render such obligations subject to avoidance under Section 548 of the Bankruptcy Code or any comparable provisions of any applicable state law.


3. Guaranteed Obligations Unconditional. The obligations of the Warburg Guarantors are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Credit Documents, or any other agreement or instrument referred to therein, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 3 that the obligations of the Warburg Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Warburg Guarantor agrees that it shall defer any right of subrogation, indemnity, reimbursement or contribution against the Borrower, any Guarantor or any other Warburg Guarantor for amounts paid under this Agreement until such time as the Guaranteed Obligations have been Fully Satisfied. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Warburg Guarantor hereunder which shall remain absolute and unconditional as described above:


(a) at any time or from time to time, without notice to any
Warburg Guarantor, the time for any performance of or compliance with
any of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;


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(b) any of the acts mentioned in any of the provisions of any
of the Credit Documents or any other agreement or instrument referred
to in the Credit Documents shall be done or omitted;


(c) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents or any other agreement or instrument referred to in
the Credit Documents shall be waived or any other guarantee of any of
the Guaranteed Obligations or any security therefor shall be released,
impaired or exchanged in whole or in part or otherwise dealt with;


(d) any Lien granted to, or in favor of, the Agent or any
Lender or Lenders as security for any of the Guaranteed Obligations
shall fail to attach or be perfected; or


(e) any of the Guaranteed Obligations shall be determined to
be void or voidable (including, without limitation, for the benefit of
any creditor of any Warburg Guarantor) or shall be subordinated to the
claims of any Person (including, without limitation, any creditor of
any Warburg Guarantor).


With respect to its obligations hereunder, each Warburg Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Credit Documents or any other agreement or instrument referred to in the Credit Documents, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations.


4. Reinstatement. Neither the Warburg Guarantors' obligations hereunder nor any remedy for the enforcement thereof shall be impaired, modified, changed or released in any manner whatsoever by an impairment, modification, change, release or limitation of the liability of the Borrower or any Guarantor, by reason of the Borrower's or any Guarantor's bankruptcy or insolvency or by reason of the invalidity or unenforceability of all or any portion of the Guaranteed Obligations. The obligations of the Warburg Guarantors under this Agreement shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Warburg Guarantor agrees that it will indemnify the Agent, for itself and for the benefit of each Lender, on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Agent or any Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.


5. Certain Additional Waivers. The Warburg Guarantors agree that this Agreement may be enforced by the Agent on behalf of the Lenders without the necessity of resorting to or exhausting any other security or collateral and without the necessity at any time of having recourse to the Credit Parties under the Credit Agreement or any collateral securing the Guaranteed Obligations or otherwise, and each Warburg Guarantor agrees not to assert any right to require the Agent and the Lenders to proceed against the Credit Parties or any other Person


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(including any co-guarantor) or to require the Agent and the Lenders to pursue any other remedy or enforce any other right. Each Warburg Guarantor further agrees that it shall have no right of subrogation, reimbursement or indemnity, nor any right of recourse to security, if any, for the Guaranteed Obligations until the Guaranteed Obligations shall have been Fully Satisfied. Each Warburg Guarantor further acknowledges and agrees that nothing contained in this Agreement shall prevent the Agent or the Lenders from suing the Credit Parties in respect of their obligations under the Credit Agreement and the other Credit Documents or foreclosing on any security interest or lien on any collateral securing the Guaranteed Obligations or from exercising any other rights available to the Agent and the Lenders under the Credit Documents if neither the Borrower nor the Guarantors timely perform their obligations, and the exercise of any of such rights and completion of any such foreclosure proceedings shall not constitute a discharge of any of the Warburg Guarantors' obligations hereunder unless as a result thereof the Guaranteed Obligations shall have been Fully Satisfied, it being the purpose and intent that the Warburg Guarantors' obligations hereunder be absolute, irrevocable, independent and unconditional under all circumstances.


Without limiting the generality of the provisions of this Section 5, each Warburg Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. ss.ss 26-7 through 26-9, inclusive, to the extent applicable. Each Warburg Guarantor further agrees that it shall have no right of recourse to security for the Guaranteed Obligations, except through the exercise of rights of subrogation pursuant to Section 3 and through the exercise of rights of contribution pursuant to Section 27.


6. Remedies. The Warburg Guarantors agree that, to the fullest extent permitted by law, as between the Warburg Guarantors, on the one hand, and the Agent on behalf of the Lenders, on the other hand, the Guaranteed Obligations may be declared to be forthwith due and payable for purposes of Section 2 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Guaranteed Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Guaranteed Obligations being deemed to have become automatically due and payable), the Guaranteed Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Warburg Guarantors for purposes of Section 2.


7. Attorneys' Fees and Costs of Collection. The Warburg Guarantors further jointly and severally agree to pay on demand all costs and expenses of the Agent, if any (including, without limitation, reasonable attorneys' fees and expenses and the cost of internal counsel), in connection with any enforcement (whether through negotiations, legal proceedings, or otherwise) of this Agreement.


8. Right of Set-Off. Upon the occurrence and during the continuance of any ...