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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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Form 10-KAnnual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934



|                           |  |                        
|-------------------------- |  | -----------------------
|For the fiscal year ended: |  | Commission file number:
|December 29, 2001          |  | 30733                  



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AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.(Exact name of registrant as specified in its charter)

|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 41-1978822                          
|(State of incorporation) |  | (I.R.S. Employer Identification No.)

10700 Bren Road West
Minnetonka, MN 55343
(Address of principal executive offices)

Registrants telephone number:

(952) 933-4666



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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share

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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes   X IN BALLOT BOX                     No  OPEN BALLOT BOX

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.   OPEN BALLOT BOX

As of March 18, 2002, 31,705,653 shares of Common Stock of the Registrant
were deemed outstanding, and the aggregate market value of the Common Stock of
the Registrant (based upon the closing price of the Common Stock at that date
as reported by The Nasdaq Stock Market), excluding outstanding shares
beneficially owned by directors, executive officers, and affiliates of AMS, was
approximately $421,719,069.

Part III of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific sections are referred to in this
Annual Report) from the Registrants Proxy Statement for the Annual Meeting of the
Stockholders to be held May 8, 2002 (the 2002 Proxy Statement).



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TABLE OF CONTENTS



|                                         |                                                                                                |  |  |  |  |  |  | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                  
|                                         | ITEM 1. BUSINESS.                                                                             
|                                         | ITEM 1A. CERTAIN IMPORTANT FACTORS.                                                           
|                                         | ITEM 2. PROPERTIES.                                                                           
|                                         | ITEM 3. LEGAL PROCEEDINGS.                                                                    
|                                         | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                  
|                                         | ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.                                                
|PART II                                 
|                                         | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.                
|                                         | ITEM 6. SELECTED FINANCIAL DATA.                                                              
|                                         | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|                                         | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                          
|                                         | ITEM 8. FINANCIAL STATEMENTS.                                                                 
|                                         | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 
|PART III                                
|                                         | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                                  
|                                         | ITEM 11. EXECUTIVE COMPENSATION.                                                              
|                                         | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.                      
|                                         | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                                      
|PART IV                                 
|                                         | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.                    
|Second Amendment to Employment Agreement
|Separation Agreement, dated 9/27/01     
|Employment Agreement, dated 7/30/01     
|2000 Equity Incentive Plan, as amended  
|2001 Management Incentive Plan          
|Subsidiaries of the Company             
|Consent of Ernst & Young LLP            



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AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.

FORM 10-K

For the Fiscal Year Ended December 29, 2001

TABLE OF CONTENTS

|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  | Description                                                                           |  | Page
|         |  |                                                                                       |  |     
|        
|PART I   |  |                                                                                       |  |     
|Item 1.  |  | Business                                                                              |  | 1   
|Item 1A. |  | Certain Important Factors                                                             |  | 10  
|Item 2.  |  | Properties                                                                            |  | 12  
|Item 3.  |  | Legal Proceedings                                                                     |  | 12  
|Item 4.  |  | Submission Of Matters To A Vote Of Security Holders                                   |  | 12  
|Item 4A. |  | Executive Officers Of The Registrant                                                  |  | 13  
|        
|
|PART II  |  |                                                                                       |  |     
|Item 5.  |  | Market For Registrants Common Equity And Related Stockholder Matters                 |  | 15  
|Item 6.  |  | Selected Financial Data                                                               |  | 16  
|Item 7.  |  | Managements Discussion And Analysis Of Financial Condition And Results Of
Operations |  | 17  
|Item 7A. |  | Quantitative And Qualitative Disclosures About Market Risk                            |  | 25  
|Item 8.  |  | Financial Statements                                                                  |  | 26  
|Item 9.  |  | Changes In And Disagreements With Accountants On Accounting And Financial
Disclosure  |  | 26  
|        
|
|PART III |  |                                                                                       |  |     
|Item 10. |  | Directors And Executive Officers Of The Registrant                                    |  | 26  
|Item 11. |  | Executive Compensation                                                                |  | 26  
|Item 12. |  | Security Ownership Of Certain Beneficial Owners And Management                        |  | 26  
|Item 13. |  | Certain Relationships And Related Transactions                                        |  | 26  
|        
|
|PART IV  |  |                                                                                       |  |     
|Item 14. |  | Exhibits, Financial Statement Schedules, And Reports On Form 8-K                      |  | 27  

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FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Any statements not of historical fact may be considered forward-looking
statements. Written words such as may, expect, believe, anticipate, or
estimate, or other variations of these or similar words, identify such
forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
from those expressed in such forward-looking statements. Important factors
known to us that could cause such material differences are identified in this
Annual Report on Form 10-K on page 10 through 12, and in the Management
Discussion and Analysis of Results of Operations and Financial Condition
beginning on page 17 of this Annual Report on Form 10-K. We undertake no
obligation to correct or update any forward-looking statements, whether as a
result of new information, future events, or otherwise. You are advised,
however, to consult any future disclosures we make on related subjects in
future filings with the SEC.




PART I




ITEM 1. BUSINESS.

Overview

We are the leading independent company focused solely on supplying medical
devices to physicians specializing in the treatment of urological disorders.
We currently manufacture and market a broad and well-established line of
proprietary products directly to urologists, with our principal focus on the
three major urological disorders: incontinence, erectile dysfunction and
prostate disease.



| |  |  | Incontinence.We offer a broad
line of products designed to treat men and women suffering from urinary and fecal
incontinence. Our products include artificial sphincters, male and female sling
 systems, a vaginal vault prolapse system, and graft materials. Our incontinence
 products represented $51.7 million, or 44%, of our 2001 net sales.                                                                                  
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Erectile Dysfunction.We are the
leader in the surgical erectile dysfunction market, with about 70% market share in penile
prostheses
based on 2001 sales. Our erectile dysfunction products include a full line of
inflatable and malleable penile prostheses and accessories used in the diagnosis and treatment of erectile dysfunction. Our erectile dysfunction products represented $59.2 million, or 50%, of our 2001 net sales.
|
| |  |  | Prostate Disease.We participate in
the prostate disease market with our prostatic stents and resection loops, and
outside of the United States, we market our minimally invasive ethanol injection
system for treatment of enlarged prostates, also referred to as Benign Prostatic
 Hyperplasia, or BPH. Our prostate disease products represented $7.1 million, or 6%, of our
2001 net sales.                                       

Our product development and acquisition strategy has focused on expanding our
product offering and on adding less-invasive medical devices for the treatment
of incontinence, erectile dysfunction and prostate disease. Starting in 1999,
we expanded our commitment to the treatment of incontinence and prostate
disease through the acquisitions of several leading-edge technologies. In
October 1999, we acquired exclusive worldwide distribution rights to the
ProstaJect Ethanol Injection System, a minimally invasive treatment for BPH.
In December 1999, we acquired Influence, Inc., a provider of less-invasive
sling products for treating female incontinence.





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In fiscal year 2001, our research and development activities resulted in the
commercialization of several new or improved products. In the first quarter of
2001, we introduced an internal paralyne coating for our penile prostheses to
increase the durability of the prostheses. In the second quarter of 2001, we
introduced InhibiZone, an external anitibiotic surface coating for our penile
prostheses. In April 2001, we introduced in Europe our SPARC sling system for
the treatment of female incontinence, which was introduced in the United States
in August 2001. In January 2001, we acquired rights to distribute cadaveric
human dermis from Collagenesis Corporation, which ceased operations at the end
of 2001. As a result, we are currently working to establish another supplier
for cadaveric human dermis tissue. In December 2001, we acquired worldwide
rights to distribute DermMatrix, a porcine dermis graft material, from Carbon
Medical Technologies, Inc. Human dermis and porcine dermis can be used as
sling materials for incontinence, and for other pelvic vault repairs.

We are currently developing several new products or product enhancements for
incontinence, erectile dysfunction and prostate disease. These products
include a new and improved InFast product to replace the design acquired with
Influence, Inc., and a new and improved pump for our urinary control system and
inflatable penile prostheses.

Our company was founded in 1972. Pfizer Inc. acquired the company in 1985. In
September 1998, a group of investors led by Warburg, Pincus Equity Partners
L.P. purchased the assets of the company from Pfizer. We formed American
Medical Systems Holdings, Inc., our current holding company, in April 2000. In
this Annual Report on Form 10-K, references to AMS, the company, we and
our, unless the context otherwise requires, refer to American Medical Systems
Holdings, Inc. and its subsidiaries, including its wholly owned operating
subsidiary, American Medical Systems, Inc. Our principal executive offices are
located at 10700 Bren Road West, Minnetonka, Minnesota 55343, and our telephone
number is 952-933-4666. Our website is www.AmericanMedicalSystems.com.Our
website is not intended to be part of this Annual Report of Form 10-K.

Financial Information About Segments

Since our inception, we have operated in the single industry segment of
developing, manufacturing, and marketing medical devices.

Seasonality

Our sales and operating results have varied and are expected to continue to
vary significantly from quarter to quarter as a result of seasonal patterns.
We believe our business is seasonal, with the third quarter of each year
typically having the lowest sales and fourth quarter of each year typically
having the highest sales. There can be no assurance that future seasonal
fluctuations will not adversely affect our business and results of operations.

Our Products

We offer a full line of surgical products to treat incontinence, erectile
dysfunction and prostate disease. Approximately 60 million people in the
United States suffer from one or more of these disorders. We estimate that
approximately 11 million of these people have a disorder severe enough to be
potential candidates for treatment with our products, although only a small
share of the patients suffering from these disorders seek treatment. In recent
years, the number of people seeking treatment for urological disorders has
grown with the publicity for new treatment alternatives, especially new drug
therapies.

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When a patient seeks treatment, urologists generally assess the severity of the
urological disorder as mild, moderate or severe. Regardless of the degree of
severity, however, patients will often consider a non-invasive treatment first.
If the non-invasive treatment is unsuccessful, urologists may recommend a
surgical treatment.

Incontinence products accounted for 33%, 42%, and 44% of our revenues in 1999,
2000 and 2001. Erectile dysfunction products accounted for 58%, 51% and 50% of
our revenues in 1999, 2000 and 2001. Prostate disease products accounted for
9%, 7% and 6% of our revenues in 1999, 2000 and 2001.

Incontinence Products

Incontinence is the involuntary release of urine or fecal matter from the body.
There are three primary types of incontinence: stress, urge and mixed. AMS
products treat stress incontinence, which is a symptom of the lack of
bladder-neck or mid-urethral support caused primarily by weak tissue
surrounding the bladder, urethra and bladder neck. The weakening of tissue
surrounding the bladder, urethra and bladder neck arises most commonly in women
as a result of pregnancy and childbirth and in men as a result of prostate
cancer surgery.

We estimate urinary incontinence affects approximately 11 million women and 2
million men in the United States, the majority of whom suffer from mild
incontinence. These patients will typically attempt to manage their
incontinence condition through the use of disposable adult diapers and pads, a
catheter and a urinary drainage bag, or, for women, pelvic floor muscle
strengthening. These approaches only provide the patient a means to manage
their incontinence. They do not permanently cure incontinence.

Patients with moderate to severe stress incontinence may find incontinence
management unacceptable and may benefit from one of the following procedures to
cure their incontinence:



| |  |  | A bulking procedure, where a bulking product is implanted in the
wall of the urethra at the bladder neck to bulk the sphincter and close
the urethra;                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A sling procedure, where a sling material acts as a back stop to
the urethra to prevent leakage when there is a stress event;                                          
|
| |  |  | A bladder-neck suspension procedure, which lifts up vaginal or
periurethral tissue and repositions the bladder to prevent urine leakage during a stress event; or      
|
| |  |  | An artificial urinary sphincter procedure, where a saline-filled
cuff is inserted around the urethra to gently squeeze the urethra
closed to keep urine in the bladder.

We offer products that are used in all four of the above procedures. Our line
of incontinence products are designed to meet a wide range of patient needs in
the treatment of urinary and fecal incontinence for men and women. Our core
incontinence products consist of the following:



| |  |  | In-Fast Female Sling System, a bladder-neck suspension system used
to treat female incontinence;
| | - |  | ------------------------------------------------------------------------------------------------
|
| |  |  | SPARC Sling System, a mid-urethral support system used to treat female incontinence;            
|
| |  |  | InVance Male Sling System, a urethral support system used to treat male incontinence; and       
|
| |  |  | Acticon Neosphincter, an implant used to treat severe fecal incontinence.                       

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Our core incontinence products under development include changes to the In-Fast
inserter, the SPARC needles and handles, and the control pump for the sphincter
products. For information on the FDA regulatory approval process for our
products, see the BusinessGovernment Regulation section below.

Erectile Dysfunction Products

Erectile dysfunction is the inability to achieve or maintain an erection
sufficient for sexual intercourse, most often caused by cardiovascular disease,
vascular disorders, or complications from diabetes or prostate surgery. We
believe erectile dysfunction affects approximately 100 million men, and their
partners, around the world, of which approximately 18 percent have severe
dysfunction. The primary treatment options for erectile dysfunction are oral
and injectable medications, vacuum devices, and penile implants. The most
popular oral medication is Viagra, and there are new oral and topical
medications in development that could be introduced into the U.S. market in
2002.

Although the success of Viagra and other treatments has had a positive impact
on the diagnosis and treatment of patients suffering from erectile dysfunction,
many men with severe erectile dysfunction are not successfully treated with
these therapies. For these men, an implanted penile prostheses may be required
to allow an erection.

Our core erectile dysfunction products consist of the following:



| |  |  | AMS Malleable Prostheses, a series of semi-rigid malleable penile
implants, including the AMS Malleable 650;                                                                       
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | AMS Inflatable Prostheses, a complete range of inflatable penile
implants, including the AMS 700 inflatable prosthesis with paralyne and
InhibiZone antibiotic surface coating; and
|
| |  |  | Neva System, a diagnostic system that measures nocturnal erectile
events and records pertinent data for physician review.                                                          

We are developing a new pump for the inflatable prostheses, which we expect to
have available during 2002. For information on the FDA regulatory approval
process for our products, see the BusinessGovernment Regulation section
below.

Prostate Disease Products

An enlarged prostate, generally caused by BPH, and urethral strictures may
restrict the normal passage of urine from the bladder. Symptoms of these
restrictions include: increased frequency of urination, sudden urge to urinate
and weak urine flow. We believe more than 13 million men in the United States
have symptoms of BPH, and nearly 3 million of these men suffer from severe BPH.
Approximately 2 million are treated with drugs and approximately 250,000 are
treated surgically.

Conventional treatments for patients with mild to moderate BPH are watchful
waiting and drug therapy. For patients with moderate to severe BPH, the most
common surgical treatment is transurethral resection of the prostate, or TURP.
New, less-invasive techniques such as lasers, RF energy needles, and microwave
therapy, are also available. These therapies are designed to kill prostatic
tissue without damaging the urethra. Stents are another alternative for
patients who suffer from BPH. Treatments of urethral strictures include
dilation procedures, urethrotomy procedures and stents.

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Our core prostate disease products consist of the following:



| |  |  | UroLume Endoprostheses, an urethral stent used to relieve urinary
obstruction caused by BPH, detrusor external sphincter dyssenergia, or
DESD, and strictures;                                                     
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Coaguloop Resection Electrode, a resection loop used for
electrosurgery of the prostate; and                                                                                                                       
|
| |  |  | ProstaJect Ethanol Injection System, available outside of the
United States and in early-stage clinical trials in the United States,
is used to relieve the symptoms of BPH by injecting ethanol into the
prostate.

We have also developed the BioFlowdegradable stent to hold the urethra open
for two to four weeks after prostate surgery, eliminating the need for a
catheter. This product has been cleared for sale in many international
markets, and for early-stage clinical trials in the United States. For
information on the FDA regulatory approval process for our products, see the
BusinessGovernment Regulation section below.

Sales and Marketing

We sell our products in the United States, Canada, Australia and most European
countries through direct field representatives. We have 60 employees in our
U.S. sales force, and 40 employees in our international sales force. We also
have a network of approximately 47 foreign independent distributors and agents
who supplement our direct sales force. These distributors and agents sell our
products primarily in Eastern Europe, Southeast Asia, South America, the Middle
East and Africa. The local market condition, regulatory situation and
competitive situation determine the type of products we sell in our distributor
markets.

Our marketing department consists of approximately 41 professionals who develop
and implement marketing programs designed to increase awareness, understanding
and preference for our products with patients and urologists. We do this
through medical marketing programs, surgical training programs, patient
education materials, reimbursement assistance and medical advisory boards.

Manufacturing and Supply

Our products are manufactured in an ISO 9001 certified facility. We use
approximately 75,000 square feet at our headquarters in Minnetonka, Minnesota
for manufacturing, research and development, warehousing and distribution. We
manufacture almost all of our products and related components in our Minnesota
facility where we have numerous manufacturing capabilities, including highly
skilled operations specialists using state-of-the-art expertise and technology
in plastic injection molding, silicone molding, dip coating, and silicone
extrusion. By the end of our first quarter of 2002, we expect to complete the
transition of our Israeli manufacturing processes to our Minnesota facility.

Although many of the materials we purchase for our products are available from
multiple sources, some materials are only supplied by a limited number of
vendors. The main materials for our implantable prostheses is raw silicone.
We currently rely on one supplier to provide the silicone used in most of our
implantable products. We are aware of only two suppliers of silicone to the
medical device industry for permanent implant usage. We currently do not have
a supplier of human cadaveric dermal tissue, a material used in our sling
procedures, but there are several other companies who supply this tissue to
hospitals and surgeons. We are actively working on obtaining additional
sources of this material. We do, however, have a supplier of porcine dermis
tissue, which can be used in our sling procedures and other procedures. We
purchase other raw materials from multiple suppliers in the United States.

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We maintain a comprehensive quality assurance and quality control program,
which includes documentation of all material specifications, operating
procedures, equipment maintenance and quality control test methods. Our
documentation systems comply with appropriate FDA and ISO 9001 requirements.

We are currently operating one manufacturing shift and are at approximately 30%
of our production capacity. We believe that our property in Minnesota is
adequate to serve our business operations for the foreseeable future.

Research and Development

Our research and development staff focuses on improving our current products
and developing new products to treat incontinence, erectile dysfunction, and
enlarged prostate and urinary strictures. Our research and development staff
also consults with our network of leading urologists to develop new products
and new features to our existing products.

In addition to developing internal ideas, we consult with a global network of
leading physicians, and evaluate new concepts against our current business
strategy. Selected concepts are prototyped and evaluated before substantial
funding is allocated to any development or clinical and regulatory approval
activities. We spent $9.6 million in 1999, $12.2 million in 2000, and $11.9
million in 2001 on research and development activities. We invested $3.5
million in 1999 and 2001 in InjecTx and our ProstaJect product. We invested
$3.0 million and $1.5 million during 2001 for rights to distribute tissue
products from Collagenesis and Carbon Medical Technologies.

Competition in the medical device industry is intense and is characterized by
extensive research efforts and rapid technological progress. We believe that
the primary competitive factors include quality, technical capability,
innovation, breadth of product line, distribution capabilities and price. Many
of our competitors in the urology market have greater resources, more widely
accepted products, less-invasive therapies, greater technical capabilities and
stronger name recognition than we do. Our competitive capability is affected
by our ability to develop new products and innovative technologies, obtain
regulatory clearance and ensure regulatory compliance for our products, protect
the proprietary technology of our products and manufacturing process,
effectively market our products, and maintain and establish distribution
relationships. All of these abilities require continuously attracting and
retaining skilled and dedicated employees and excellent relationships with
physicians and suppliers.

Our principal competitors in the erectile dysfunction market include
pharmaceutical companies such as Pfizer, Inc., which makes Viagra, and
manufactures of penile implants such as Mentor Corporation. Our principal
competitors in the incontinence market include Boston Scientific Corporation,
Johnson & Johnson, C.R. Bard, Inc., and Mentor Corporation. Our principal
competitors in the enlarged prostate and urethral strictures market include
Urologix, Inc., VidaMed, Inc. (which is being acquired by Medtronic, Inc.),
Johnson & Johnson, and Boston Scientific Corporation.

Our competitors also include academic institutions and other public and private
research organizations that continue to conduct research, seek patent
protection and establish arrangements for commercializing products in this
market which will compete with our products.

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Patents and Intellectual Property

We rely on a combination of patents, trade secrets, know-how, trademarks,
copyrights and agreements to protect our business interests. We currently have
80 issued U.S. patents and numerous corresponding international patents that
cover various aspects of our technology. We also have U.S. and international
patent applications pending. A substantial portion of our annual research and
development budget is allocated towards generating new concepts and product
ideas. This, combined with our patent program, has significantly increased the
number of patentable proposals.

We seek to aggressively protect technology, inventions and improvements that we
consider important through the use of patents and trade secrets in the United
States and significant foreign markets, but we cannot be sure our patents will
provide competitive advantages for our products, or that our competitors will
not challenge or circumvent these rights. In addition, we cannot be sure the
U.S. Patent and Trademark Office, or PTO, will issue any of our pending patent
applications. The PTO may also deny or significantly narrow claims made under
our patent applications. Any issued patents may not provide us with
significant commercial protection. We could incur substantial costs in
proceedings before the PTO, including interference proceedings. These
proceedings could result in adverse decisions as to the priority of our
inventions. The laws of some of the countries in which our products are or may
be sold may not protect our products and intellectual property to the same
extent as the laws in the United States, or at all.

While we do not believe that any of our products infringe any valid claims of
patents or other proprietary rights held by third parties, we cannot assure you
that we do not infringe any patents or other proprietary rights held by third
parties. If a third party makes an infringement claim, our costs to defend the
claim could be substantial and adversely affect us, even if we were ultimately
successful in defending the claim. If our products were found to infringe any
proprietary right of a third party, we could be required to pay significant
damages or license fees to the third party or cease production. Litigation may
also be necessary to enforce patent rights we hold or to protect trade secrets
or techniques we own. Any claims or litigation could result in substantial
costs and diversion of effort by our management.

We also rely on trade secrets and other unpatented proprietary technology, but
we cannot be sure we can meaningfully protect our rights in these unpatented
proprietary technologies or that others will not independently develop
substantially equivalent proprietary products or processes or otherwise gain
access to our proprietary technology. We seek to protect our trade secrets and
proprietary know-how, in part, with confidentiality agreements with our
employees and consultants, but we cannot be sure these agreements will not be
breached, that we will have adequate remedies for any breach or that our
competitors will not discover or independently develop our trade secrets.

Government Regulation

United States

Numerous governmental authorities, principally the FDA and corresponding state
and foreign regulatory agencies, strictly regulate our products and research
and development activities. The Federal Food, Drug, and Cosmetic Act, or FDA
Act, the regulations promulgated under this act, and other federal and state
statutes and regulations, govern, among other things, the pre-clinical and
clinical testing, design, manufacture, safety, efficacy, labeling, storage,
record keeping, advertising and promotion of medical devices.

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Generally, before we can market a new medical device, we must obtain marketing
clearance through a 510(k) premarket notification, approval of a premarket
approval application, or PMA, or approval of product development protocol, or
PDP. A PMA or PDP application must be submitted if a proposed device does not
qualify for a 510(k) premarket clearance procedure. It generally takes several
months from the date of a 510(k) submission to obtain clearance, but it may
take longer, particularly if a clinical trial is required. The PMA and PDP
process can be expensive, uncertain, require detailed and comprehensive data
and generally take significantly longer than the 510(k) process.

If human clinical trials of a device are required, either for a 510(k)
submission or a PMA application, the sponsor of the trial, usually the
manufacturer or the distributor of the device, must file an investigational
device exemption, or an IDE, application prior to commencing human clinical
trials. The IDE application must be supported by data, typically including the
results of animal and/or laboratory testing. If the IDE application is
approved by the FDA and one or more appropriate institutional review boards, or
IRBs, human clinical trials may begin at a specific number of investigational
sites with a specific number of patients, as approved by the FDA. If the
device presents a nonsignificant risk to the patient, a sponsor may begin the
clinical trial after obtaining approval for the study by the IRBs without
separate approval from the FDA. Submission of an IDE does not give assurance
that the FDA will approve the IDE and, if it is approved, there can be no
assurance the FDA will determine that the data derived from the studies support
the safety and efficacy of the device or warrant the continuation of clinical
trials. An IDE supplement must be submitted to and approved by the FDA before
a sponsor or investigator may make a change to the investigational plan that
may affect its scientific soundness, study indication or the rights, safety or
welfare of human subjects.

Our core implantable products have been approved through the PMA or PDP
application process. Most of our other products are approved through the
510(k) premarketing notification process. We have conducted clinical trials to
support many of our regulatory approvals.

We currently plan to seek approval from the FDA to market the ProstaJect device
and dehydrated alcohol, as a drug/device combination product, in the United
States. An investigational new drug application, commonly known as an IND
application, was cleared by the FDA in January 2001 and allows us to conduct a
clinical study to assess safety and dosage parameters of use. In order to
obtain FDA marketing approval, we will need to conduct adequate and
well-controlled randomized clinical trials to establish the safety and
effectiveness of the combination drug/device product; submit to the FDA a new
drug application, commonly known as an NDA; and obtain FDA approval of the NDA
prior to any commercial sale or shipment of the product in the United States.
Throughout the process, we will be required to submit extensive clinical data
to the FDA, which the FDA will review and analyze. This process is expensive,
uncertain and generally takes several years to complete.

In addition to granting marketing approvals for our products, the FDA and
international regulatory authorities periodically inspect our company to assure
compliance with applicable quality system regulations. We must comply with the
host of regulatory requirements that apply to medical devices marketed in the
United States and internationally. The FDA last inspected our Minnetonka,
Minnesota manufacturing facility in 2000.

If the FDA believes we are not in compliance with law, it can institute
proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against us and our officers
and employees. If we fail to comply with these regulatory requirements, our
business, financial condition and results of operations could be harmed. In
addition, regulations regarding the manufacture and sale of our products are
subject to change. We cannot predict the effect, if any, that these changes
might have on our business, financial condition and results of operations.

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In addition to the FDAs regulation of the sale and marketing of medical
devices, we are also subject to the National Organ Transplant Act, or NOTA,
because we provide human tissue in connection with our sling systems for
urinary incontinence. NOTA prohibits the purchase and sale of human organs,
including related tissue, for valuable consideration. NOTA permits the payment
of reasonable expenses associated with the removal, transportation, processing,
preservation, quality control, implantation and storage of human tissue. NOTA
enables the federal government to impose civil and criminal penalties on those
found to have violated this federal statute.

The FDA has proposed a more comprehensive regulatory framework that builds upon
and supersedes the existing regulations for human tissue-based products.
Implementation of this proposed regulatory approach may lead to medical device
submissions for some of the tissue products we provide with our sling kits. We
do not expect at this time that our human tissue products will be subject to
the device regulations.

International

In order to market our products in European and other foreign countries, we
must obtain required regulatory approvals and comply with extensive regulations
governing product safety, quality and manufacturing processes. These
regulations vary significantly from country to country and with respect to the
nature of the particular medical device. The time required to obtain these
foreign approvals to market our products may be longer or shorter than that
required in the United States, and requirements for licensing may differ from
FDA requirements.

In order to market our products in the member countries of the European Union,
we are required to comply with the medical devices directive and obtain CE mark
certification. CE mark certification is an international symbol of adherence
to quality assurance standards and compliance with applicable European medical
device directives. Under the medical devices directives, all medical devices
including active implants and in-vitro diagnostic products must qualify for CE
marking.

Third-Party Reimbursement

In the United States, as well as in foreign countries, government-funded or
private insurance programs, commonly known as third-party payors, pay the cost
of a significant portion of a patients medical expenses. A uniform policy of
reimbursement does not exist among all these payors. Therefore, reimbursement
can be quite different from payor to payor. We believe that reimbursement is
an important factor in the success of any medical device. Consequently, we
seek to obtain reimbursement for all of our products.

Reimbursement in the United States begins with our ability to obtain FDA
clearances and approvals to market these products. Reimbursement also depends
on our ability to demonstrate the short-term and long-term clinical and
cost-effectiveness of our products from the results we obtain from clinical
experience and formal clinical trials.

The U.S. Centers for Medicare and Medicaid Services, or CMS, sets reimbursement
policy for the Medicare program in the United States. CMS has a national
coverage policy, which provides for the diagnosis and treatment of erectile
dysfunction in Medicare beneficiaries. It is estimated that 50-60% of penile
prosthesis procedures are performed on patients covered by Medicare.

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Commercial payor coverage for erectile dysfunction varies widely across the
United States. Prior authorization is required for penile prosthesis
surgeries, and we have developed programs to address coverage denials for
physicians and their patients. For example, the introduction of Viagra
resulted in some plans establishing broad coverage exclusions for erectile
dysfunction, most notably some Blue Cross/Blue Shield plans.

Medicare has a national coverage policy that provides coverage for our AMS 800
Artificial Urinary Sphincter. Likewise, the In-Fast and InVance sling fixation
systems are utilized in surgical procedures that are well-accepted and paid for
by third-party payors. Minimally invasive treatments for prostate disease are
generally covered under many third-party reimbursement programs. Treatment for
stricture of the urethra is covered by all Medicare carriers in the United
States and BPH is covered by Medicare in 49 states.

All third-party reimbursement programs, whether government funded or insured
commercially, whether inside the United States or outside, are developing
increasingly sophisticated methods of controlling health care costs through
prospective reimbursement and capitation programs, group purchasing, redesign
of benefits, second opinions required prior to major surgery, careful review of
bills, encouragement of healthier lifestyles and exploration of more
cost-effective methods of delivering health care. These types of programs can
potentially limit the amount which health care providers may be willing to pay
for medical devices.

CMS implemented the Final Rule on its Prospective Payment System For Outpatient
Services on August 1, 2000. We estimate that more than half of the procedures
using our products are used in an outpatient hospital setting. This rule
established a new system to reimburse Medicare outpatient surgical services
provided in a hospital. All of our current products used on an outpatient
basis are on CMS list of pass-through payment categories, which is necessary
for device reimbursement.

Employees

As of December 29, 2001, we employed directly and through our subsidiaries 521
people in the following areas: 164 in manufacturing, 202 in sales and
marketing, 69 in administration, 50 in regulatory, clinical and quality
assurance, and 36 in research and development. We do not have any active
organized labor unions. We believe we have an excellent relationship with our
employees.

Financial Information About Geographic Areas

See Note 9 of our financial statements on page F-18 of this Annual Report on
Form 10-K for the information about geographic areas.




ITEM 1A. CERTAIN IMPORTANT FACTORS.

There are several important factors that could cause our actual results to
differ materially from our anticipated results or which are reflected in any
forward-looking statements in this Annual Report on Form 10-K. These factors,
and their impact on the success of our operations and our ability to achieve
our goals, include the following:

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Successful Introduction of New Products and Product Improvements

As part of our growth strategy, we intend to introduce a number of new products
and product improvements. If we do not timely introduce these new products and
product improvements, or they are not well-accepted by the market, our future
growth will suffer.

Continued Use of Non-Invasive Treatment Alternatives

We predominantly sell medical devices for invasive or minimally invasive
surgical procedures. If patients do not accept our products, our sales may
decline. Patient acceptance of our products depends on a number of factors,
including the failure of non-invasive therapies, the degree of invasiveness
involved in the procedures using our products, the rate and severity of
complications from the procedures using our products and other adverse side
effects from the procedures using our products. Patients are more likely first
to consider non-invasive alternatives to treat their urological disorders. The
introduction of new oral medications or other less-invasive therapies may cause
our sales to decline in the future.

Continued Physician Use and Endorsement of our Products

In order for us to sell our products, physicians must recommend and endorse
them. We may not obtain the necessary recommendations or endorsements from
physicians. Many of the products we acquired or are developing are based on
new treatment methods. Acceptance of our products is dependent on educating
the medical community as to the distinctive characteristics, perceived
benefits, clinical efficacy and cost-effectiveness of our products compared to
competitive products, and on training physicians in the proper application of
our products.

Increased Supply of Sling Material

In the past we have provided human cadaveric dermal tissue as a service in
conjunction with the sale of our sling procedure kits for urinary incontinence.
Currently, the available supply of human tissue is not sufficient to meet
demand. In December 2001, our sole supplier of human cadaveric dermal tissue
declared bankruptcy and is no longer supplying us with human tissue. We are
actively working on obtaining additional sources of this material, but if we
are not successful sales of our sling procedure kits could decline. We have,
however, obtained a source of porcine dermal tissue that can be used with our
sling procedure kits, but we cannot assure you that such supply will be
sufficient to meet our demands.

Actions Related to Reimbursement for our Products

We may be unable to sell our products on a profitable basis if third-party
payors deny coverage or reduce their current levels of reimbursement. Our
revenues depend largely on government health care programs and private health
insurers reimbursing patients medical expenses. Physicians, hospitals and
other health care providers may not purchase our products if they do not
receive satisfactory reimbursement from these third-party payors for the cost
of the procedures using our products. If we are unable to obtain adequate
levels of reimbursement from third-party payors outside of the United States,
international sales of our products may decline. Many foreign markets have
governmentally managed health care systems that govern reimbursement for new
devices and procedures.

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Potential Product Recalls

In the event that any of our products prove to be defective, we could
voluntarily recall, or the FDA could require us to redesign or implement a
recall of, any defective product. We believe there is a possibility that we
may recall products in the future and that future recalls could result in
significant costs to us and in significant negative publicity which could harm
our ability to market our products in the future.




ITEM 2. PROPERTIES.

Our corporate headquarters, main warehouse and manufacturing operations are
located in a 180,000 square foot building we own in Minnetonka, Minnesota. The
manufacturing operations at this location include sufficient capacity to expand
production of our current products.

We lease office space for our international operations in France, Spain,
Germany, Belgium, England, Australia and Canada.




ITEM 3. LEGAL PROCEEDINGS.

We have been and are also currently subject to various legal proceedings and
other matters which arise in the ordinary course of business, including product
liability claims. In connection with the purchase of our assets from Pfizer in
1998, Pfizer retained liability for claims relating to products that were sold
before the completion of the acquisition. We are liable for claims relating to
products sold after the completion of the acquisition.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.



| | (a) |  | On November 29, 2001, we held a special meeting of our
stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (c) |  | At the special meeting, our stockholders were presented
with and asked to vote upon a proposal to amend our 2000 Equity
Incentive Plan to increase the number of shares reserved for
issuance under this plan from 3,900,000 to 5,355,000 shares. The
voting results for this proposal are as follows: 16,642,891
shares voted for the proposal, 7,681,891 shares voted against the
proposal, 200 shares abstained from voting on the proposal and no
shares were represented by broker non-votes.

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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

Our executive officers, with their ages and biographical information as of
March 15,2002, are as follows:

|                               |  |     |       |  |       |                                                                                                                
|------------------------------ |  | --- | ----- |  | ----- | ---------------------------------------------------------------------------------------------------------------
|Name                           |  | Age |       |  | Title
|                               |  |     |       |  |      
|Douglas W. Kohrs
M. James Call |  |     | 44
56 |  |       | President, Chief Executive Officer and Director
Executive Vice President, Chief Financial
Officer and Secretary
|Janet L. Dick                  |  |     | 45    |  |       | Vice President, Human Resources                                                                                
|Martin J. Emerson              |  |     | 38    |  |       | Vice President and General Manager,
International                                                              
|Richard J. Faleschini          |  |     | 55    |  |       | Vice President, Sales and Marketing                                                                            
|Lawrence W. Getlin             |  |     | 56    |  |       | Vice President, Regulatory, Medical Affairs
and Quality Systems                                                
|Johann Neisz                   |  |     | 44    |  |       | Vice President, Research and Development                                                                       
|J. Daniel Ruys                 |  |     | 51    |  |       | Vice President, International                                                                                  

Douglas W. Kohrshas served as our President, Chief Executive Officer and one
of our directors since April 1999. Mr. Kohrs has 20 years of experience in the
medical device industry, most recently as general manager of Sulzer Spine-Tech,
Inc. from May 1998 to April 1999. Mr. Kohrs was part of the founding team at
Spine-Tech when it was formed in 1991 to develop and commercialize the BAK
spinal fusion cage, a novel implantable device to improve the surgical
treatment of degenerative disc disease. Mr. Kohrs also served as Vice
President of Research and Development and Vice President of Marketing during
his tenure at Spine-Tech. Mr. Kohrs currently serves as a director of Disc
Dynamics, Inc., Kyphon, Inc. and Pioneer Surgical Technologies, all privately
held companies.

M. James Callhas served as our Executive Vice President, Chief Financial
Officer and Secretary since July 2001. From 1995 through May 2001, Mr. Call
was Chief Financial Officer of Interventional Technologies Inc., a private
company acquired by Boston Scientific Corporation in April 2001. From 1990
through 1994, Mr. Call was with Medalist Industries, as Vice President Business
Planning & Development, Corporate Secretary, and, from 1992, Chief Financial
Officer.

Janet L. Dickhas served as our Vice President, Human Resources since 1996.
Overall, Ms. Dick has spent almost 17 years in positions of increasing
responsibility within our human resources department and Schneiders human
resources department, both of which were divisions of Pfizer at the time.

Martin J. Emersonhas served as our Vice President and General Manager of
International since June 2000. Mr. Emerson has 16 years experience in the
medical device field in finance and general management capacities. From
September 1998 to February 2000, he served as General Manager and Finance
Director for Boston Scientific Corporation in Singapore. Also in Singapore, he
was Vice President and Regional Financial Officer with MasterCard International
from April 1997 to September 1998. Mr. Emersons earlier experience was with
Baxter International from June 1985 to March 1988 most recently holding the
position of Vice President Finance  Hospital Business, Brussels, from
September 1995 to April 1997.

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Richard J. Faleschinihas served as our Vice President, Sales and Marketing
since November 1999. Mr. Faleschini has over 22 years experience in medical
device sales, marketing and general management. From July 1995 to August 1999,
he served in various executive positions at Medtronic, Inc. with
responsibilities for several sectors of its cardiovascular businesses,
including coronary stents, most recently as Vice President, U.S. Cardiovascular
Health Care Systems Marketing. Mr. Faleschini currently serves as a director
of MedAcoustics, Inc., a privately held company.

Lawrence W. Getlin, J.D.has served as our Vice President, Regulatory, Medical
Affairs and Quality Systems and Compliance since 1990. He is a member of the
American Bar Association and the California State Bar, as well as the U.S.
Court of Appeals 9th District, and District Court, Central District of
California, and is Regulatory Affairs Certified. Mr. Getlin currently serves
as AMS representative on the board of directors of InjecTx, Inc., a privately
held company that supplies us with our ProstaJect ethanol injection systems.

Johann Neiszhas served as our Vice President, Research and Development since
May 1999. Mr. Neisz has 18 years of medical device product development
experience. From July 1988 to May 1999, Mr. Neisz was employed by Medtronic,
Inc. in senior level research and development capacities in the Netherlands,
Sweden, and in the United States with its Neuro, Synectics-Dantec, Corporate
Ventures and Tachyarrhythmia Instruments businesses.

J. Daniel Ruyshas served as our Vice President, International since July 1999.
Mr. Ruys has more than 20 years of experience in sales, marketing and general
management with medical device companies and has spent most of his career based
in Europe. From April 1997 to June 1999, he served as the European Director of
MICROVENA International B.V. From March 1995 to March 1997, he served as the
Vice President, Europe of CardioGenesis B.V.

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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information

Our common stock began trading on the Nasdaq National Market System on August
11, 2000 under the symbol AMMD. Before that date, no public market for our
common stock existed. The following table sets forth, for the periods
indicated, the high and low closing sales prices per share of our common stock
as reported on the Nasdaq National Market. These prices do not include
adjustments for retail mark-ups, mark-downs or commissions.

|                  |                                       |      |   |       |     |  |   |       | 
|----------------- | ------------------------------------- | ---- | - | ----- | --- |  | - | ----- | 
|Fiscal Year 2001: |                                       | High |   |       | Low | 
|                  |                                       |      |   |       |     | 
|                  | First Quarter                         |      | $ | 14.50 |     |  | $ | 8.25  | 
|                  | Second Quarter                        |      | $ | 17.48 |     |  | $ | 7.50  | 
|                  | Third Quarter                         |      | $ | 21.85 |     |  | $ | 15.04 | 
|                  | Fourth Quarter                        |      | $ | 21.15 |     |  | $ | 16.07 | 
|Fiscal Year 2000: |                                       |      |   |       |     |  |   |      
|                  | Third Quarter (since August 11, 2000) |      | $ | 16.00 |     |  | $ | 10.88 | 
|                  | Fourth Quarter                        |      | $ | 21.31 |     |  | $ | 11.13 | 

Holders

As of March 18, 2002, there were approximately 276 shareholders of record and
an estimated 2,600 beneficial stockholders.

Dividends

We have never declared or paid cash dividends. We currently intend to retain
all future earnings for the operation and expansion of our business. We do not
anticipate declaring or paying cash dividends on our common stock in the
foreseeable future. Any payment of cash dividends on our common stock will be
at the discretion of our board and will depend upon our results of operations,
earnings, capital requirements, contractual restrictions and other factors
deemed relevant by our board. In addition, our current senior credit facility
prohibits us from paying you any cash dividends without out lenders consent.

Recent Sale of Unregistered Securities

Pursuant to an Exchange Agreement we entered into in December 1999 in
connection with our acquisition of Influence, we issued 3,093 shares of our
voting common stock to a former shareholder of Influence, Inc. on December 17,
2001. These shares were issued in a transaction exemption from registration
under the Securities Act of 1933, as amended, under Section 4(2) of this Act.

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ITEM 6. SELECTED FINANCIAL DATA.

|                                      |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |   |         |        |  |   |         |        | 
|------------------------------------- | ----------------------------------- | ---- | -------------------- | ------ | ---- | --------------------------------------------------- | ----------- | ------ | -------------- | ----------- | ------- | ----------------------- |  | ---- | ------------ | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                                      |                                     |      | Combined Predecessor |        |      | Consolidated American Medical Systems Holdings, Inc |            
|                                      |                                     |      |                      |        |      |                                                     |            
|                                      |                                     |      |                      |        |      |                                                     | Period from |        |                | Period from |         |                         |  |      |              |        |      |   |         |        |  |   |        
|                                      |                                     |      | Year Ended           |        |      | Jan. 1, 1998                                        |             |        | Sept. 11, 1998 |             |         | Year Ended December 31, |  |      | Year Ended   |       
|                                      |                                     |      | December 31,         |        |      | to Sept. 10,                                        |             |        | to Dec. 31,    |             |         |                         |  |      | December 29, |       
|(in thousands, except per share data) |                                     | 1997 |                      |        | 1998 |                                                     |             | 1998   |                |             | 1999    |                         |  | 2000 |              |        | 2001 |  
|                                      |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |  
|Statement of Operations Data:         |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |   |         |        |  |   |         |       
|Net sales                             |                                     | $    | 91,958               |        |      | $                                                   | 54,615      |        |                | $           | 23,115  |                         |  | $    | 81,353       |        |      | $ | 100,317 |        |  | $ | 117,938 |       
|Cost of sales (1)                     |                                     |      | 19,694               |        |      |                                                     | 14,050      |        |                |             | 15,551  |                         |  |      | 31,419       |        |      |   | 21,891  |        |  |   | 23,140  |       
|                                      |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |  
|Gross profit                          |                                     |      | 72,264               |        |      |                                                     | 40,565      |        |                |             | 7,564   |                         |  |      | 49,934       |        |      |   | 78,426  |        |  |   | 94,798  |       
|Operating expenses:                   |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |   |         |        |  |   |         |       
|                                      | Marketing and sales                 |      |                      | 21,607 |      |                                                     |             | 18,486 |                |             |         | 8,261                   |  |      |              | 30,400 |      |   |         | 39,277 |  |   |         | 44,931 | 
|                                      | General and administrative          |      |                      | 17,073 |      |                                                     |             | 19,846 |                |             |         | 1,951                   |  |      |              | 7,889  |      |   |         | 12,128 |  |   |         | 12,156 | 
|                                      | Research and development            |      |                      | 16,251 |      |                                                     |             | 10,177 |                |             |         | 2,884                   |  |      |              | 9,552  |      |   |         | 12,225 |  |   |         | 11,899 | 
|                                      | Transition and reorganization       |      |                      |       |      |                                                     |             |       |                |             |         | 2,517                   |  |      |              | 3,000  |      |   |         | 1,000  |  |   |         | 1,000  | 
|                                      | Amortization of intangibles         |      |                      | 998    |      |                                                     |             | 19     |                |             |         | 965                     |  |      |              | 4,260  |      |   |         | 8,360  |  |   |         | 9,374  | 
|                                      | In-process research and
development |      |                      |       |      |                                                     |             |       |                |             |         |                        |  |      |              | 7,354  |      |   |         |       |  |   |         |       | 
|                                      |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |  
|Total operating expenses              |                                     |      | 55,929               |        |      |                                                     | 48,528      |        |                |             | 16,578  |                         |  |      | 62,455       |        |      |   | 72,990  |        |  |   | 79,360  |       
|                                      |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |  
|Operating income (loss)               |                                     |      | 16,335               |        |      |                                                     | (7,963      | )      |                |             | (9,014  | )                       |  |      | (12,521      | )      |      |   | 5,436   |        |  |   | 15,438  |       
|Royalty and other income (expense)    |                                     |      | (112                 | )      |      |                                                     | (155        | )      |                |             | 180     |                         |  |      | 4,205        |        |      |   | 2,928   |        |  |   | (104    | )     
|Interest income                       |                                     |      |                     |        |      |                                                     |            |        |                |             |        |                         |  |      | 130          |        |      |   | 427     |        |  |   | 881     |       
|Interest
expense                      |                                     |      |                     |        |      |                                                     |            |        |                |             | (1,672  | )                       |  |      | (7,003       | )      |      |   | (7,370  | )      |  |   | (3,813  | )     
|                                      |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |  
|Income (loss) before income taxes     |                                     |      | 16,223               |        |      |                                                     | (8,118      | )      |                |             | (10,506 | )                       |  |      | (15,189      | )      |      |   | 1,421   |        |  |   | 12,402  |       
|Income tax benefit (expense)          |                                     |      | (6,136               | )      |      |                                                     | 3,241       |        |                |             | 4,024   |                         |  |      | 5,340        |        |      |   | (1,369  | )      |  |   | (5,872  | )     
|                                      |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |  
|Net income (loss)                     |                                     | $    | 10,087               |        |      | $                                                   | (4,877      | )      |                | $           | (6,482  | )                       |  | $    | (9,849       | )      |      | $ | 52      |        |  | $ | 6,530   |       
|                                      |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |  
|Net income per share basic (2)       |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      | $ | 0.00    |        |  | $ | 0.22    |       
|Net income per share diluted (2)     |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      | $ | 0.00    |        |  | $ | 0.20    |       
|                                      |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |  
|Shares used in calculation:           |                                     |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |   |         |        |  |   |         |       
|                                      | Basic                               |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |   |         | 10,478 |  |   |         | 29,792 | 
|                                      | Diluted                             |      |                      |        |      |                                                     |             |        |                |             |         |                         |  |      |              |        |      |   |         | 12,809 |  |   |         | 32,068 | 



---

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | In connection with our acquisition from Pfizer, Inc., we recorded inventories at fair market
value on the date of acquisition. This accounting treatment required a $21.8 million
write-up of inventories above costs. The write-up was charged to cost of sales over the
following six months as the acquired inventory was sold. Cost of sales were charged $10.2
million in the period from September 11 to December 31, 1998, and $11.6 million in the
first quarter of 1999 related to this fair market value cost adjustment.
|
| | (2) | No net income per share is presented during the fiscal year 1999, the period from September
11 through December 31, 1998, the period from January 1 through September 10, 1998, and the
fiscal year 1997 because no shares of common stock were outstanding.                                                                                                                                                                                                                                                                       

|                               |  |             |         |  |                                                      |                    |         |      |  |                |         |   |              |      |         |  |  |       |         | 
|------------------------------ |  | ----------- | ------- |  | ---------------------------------------------------- | ------------------ | ------- | ---- |  | -------------- | ------- | - | ------------ | ---- | ------- |  |  | ----- | ------- | 
|                               |  | Combined    |         |  |                                                      |                    |         |      |  |                |         |   |              |      |         |  |  |       |        
|                               |  | Predecessor |         |  | Consolidated American Medical Systems Holdings, Inc. |                   
|                               |  |             |         |  |                                                      |                   
|                               |  |             |         |  |                                                      |                    |         |      |  |                |         |   |              |      |         |  |  | As of |        
|                               |  |             |         |  |                                                      | As of December 31, |         |      |  |                |         |   | December 29, |     
|                               |  |            
|                               |  | 1997        |         |  | 1998                                                 |                    |         | 1999 |  |                | 2000    |   |              | 2001 |        
|                               |  |             |         |  |                                                      |                    |         |      |  |                |         |   |              |      |        
|                               |  |             |         |  |                                                      |                    |         |      |  | (in thousands) |         |   |              |      |        
|Balance Sheet Data:            |  |             |         |  |                                                      |                    |         |      |  |                |         |   |              |      |         |  |  |       |         | 
|Cash and cash equivalents (1)  |  | $           |        |  |                                                      | $                  | 2,808   |      |  | $              | 6,940   |   |              | $    | 12,165  |  |  | $     | 28,755  | 
|Working capital                |  |             | 108,197 |  |                                                      |                    | 26,193  |      |  |                | 5,844   |   |              |      | 22,068  |  |  |       | 50,908  | 
|Total assets                   |  |             | 174,716 |  |                                                      |                    | 155,600 |      |  |                | 179,008 |   |              |      | 181,262 |  |  |       | 235,151 | 
|Long-term liabilities          |  |             | 52,104  |  |                                                      |                    | 95,000  |      |  |                | 95,821  |   |              |      | 38,980  |  |  |       | 25,884  | 
|Redeemable preferred stock     |  |             |        |  |                                                      |                    | 40,981  |      |  |                | 67,465  |   |              |      |        |  |  |       |        | 
|Stockholders equity (deficit) |  | $           | 122,612 |  |                                                      | $                  | (7,908  | )    |  | $              | (21,836 | ) |              | $    | 109,523 |  |  | $     | 174,087 | 



---

| |     |                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Cash balances at December 31, 1997 were zero because Pfizer regularly transferred
cash from our predecessors bank account to its bank account as part of its cash
management policy.

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

Overview

Our company was founded in 1972. Pfizer, Inc. acquired the company in 1985.
In September 1998, a group of investors led by Warburg, Pincus Equity Partners,
L.P. purchased the assets of the company from Pfizer. We formed American
Medial Systems Holdings, Inc., our current holding company, in April 2000.

We manufacture and market a broad and well-established line of medical devices
for patients suffering from incontinence, erectile dysfunction and prostate
disease. We are focused on expanding our product offering and adding
less-invasive medical devices for urological disorders through product
development and acquisitions.

Starting in 1999, we expanded our commitment to the incontinence and prostate
disease market with acquisition of several technologies, most notably
Influence, Inc. These acquisitions have enabled us to diversify our product
portfolio by offering alternate treatments for incontinence and prostate
disease.

We incurred substantial losses during 1998 and 1999. These losses resulted
primarily from non-recurring costs related to the acquisition from Pfizer,
including non-recurring charges to cost of sales related to acquired
inventories. We incurred additional losses in 1999 related to the acquisition
of Influence, Inc. and other technologies for incontinence, primarily from
non-recurring charges to operating costs for in-process research and
development. Without these non-recurring charges, we would have been
profitable during 1998 and 1999.

Results of Operations

The following is a discussion of the results of our operations and financial
condition for the year ended December 31, 2000 compared to the year ended
December 29, 2001; and the year ended December 31, 1999 compared to the year
ended December 31, 2000.

Comparison of the year ended December 31, 2000 to the year ended December 29,
2001

Net sales.The following chart compares net sales between 2000 and 2001.

|                       |  |                     |         |  |                   |   |         |         |  |   |         |  |  |  |      |  
|---------------------- |  | ------------------- | ------- |  | ----------------- | - | ------- | ------- |  | - | ------- |  |  |  | ---- | -
|                       |  | Twelve months ended |         |  | Change            |  
|                       |  |                     |         |  |                   |  
|(amounts in thousands) |  | December 31, 2000   |         |  | December 29, 2001 |   |         | Dollars |  |   | Percent | 
|                       |  |                     |         |  |                   |   |         |         |  |   |         | 
|Erectile Dysfunction   |  | $                   | 51,288  |  |                   | $ | 59,165  |         |  | $ | 7,877   |  |  |  | 15.4 | %
|Male Incontinence      |  |                     | 26,564  |  |                   |   | 31,190  |         |  |   | 4,626   |  |  |  | 17.4 | %
|Female Incontinence    |  |                     | 15,880  |  |                   |   | 20,483  |         |  |   | 4,603   |  |  |  | 29.0 | %
|Prostate Disease       |  |                     | 6,585   |  |                   |   | 7,100   |         |  |   | 515     |  |  |  | 7.8  | %
|                       |  |                     |         |  |                   |   |         |         |  |   |         | 
|Total                  |  | $                   | 100,317 |  |                   | $ | 117,938 |         |  | $ | 17,621  |  |  |  | 17.6 | %
|                       |  |                     |         |  |                   |   |         |         |  |   |         | 
|United States Sales    |  | $                   | 81,670  |  |                   | $ | 97,069  |         |  | $ | 15,399  |  |  |  | 18.9 | %
|International Sales    |  |                     | 18,647  |  |                   |   | 20,869  |         |  |   | 2,222   |  |  |  | 11.9 | %
|                       |  |                     |         |  |                   |   |         |         |  |   |         | 
|Total                  |  | $                   | 100,317 |  |                   | $ | 117,938 |         |  | $ | 17,621  |  |  |  | 17.6 | %
|                       |  |                     |         |  |                   |   |         |         |  |   |         | 

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The following chart compares quarterly sales by product for the year ended
December 29, 2001.

|                     |  |      |        |  |     |   |        |     |  |   |        |  |  |       |        |  |  |   |         | 
|-------------------- |  | ---- | ------ |  | --- | - | ------ | --- |  | - | ------ |  |  | ----- | ------ |  |  | - | ------- | 
|                     |  | 2001 |        |  |     |   |       
|                     |  |      |        |  |     |   |       
|(thousands)          |  | 1st  |        |  | 2nd |   |        | 3rd |  |   | 4th    |  |  | Total |       
|                     |  |      |        |  |     |   |        |     |  |   |        |  |  |       |       
|Erectile Dysfunction |  | $    | 13,542 |  |     | $ | 14,054 |     |  | $ | 14,970 |  |  | $     | 16,663 |  |  | $ | 59,229  | 
|Male Incontinence    |  |      | 7,649  |  |     |   | 7,648  |     |  |   | 6,725  |  |  |       | 8,472  |  |  |   | 30,494  | 
|Female Incontinence  |  |      | 4,778  |  |     |   | 4,990  |     |  |   | 5,160  |  |  |       | 6,186  |  |  |   | 21,114  | 
|Prostate Disease     |  |      | 1,579  |  |     |   | 1,746  |     |  |   | 1,782  |  |  |       | 1,994  |  |  |   | 7,101   | 
|                     |  |      |        |  |     |   |        |     |  |   |        |  |  |       |       
|Total                |  | $    | 27,548 |  |     | $ | 28,438 |     |  | $ | 28,637 |  |  | $     | 33,315 |  |  | $ | 117,938 | 
|                     |  |      |        |  |     |   |        |     |  |   |        |  |  |       |       

During the second quarter of 2001, we released a new penile implant with an
antimicrobial coating. Sales of this new product led to an increase of $7.9
million, or 15.4%, in erectile dysfunction product line sales. In the
incontinence product lines, new products, specifically the InVance, a male
sling fixation system which we introduced late in 2000, and the SPARC, a
suprapubic synthetic sling system which we introduced in the third quarter of
2001, led to an increase in sales of $9.2 million, or 21.7%.

In the United States, our sales increased across all product lines led by the
introduction of the new products mentioned above and greater sales of existing
products. Our international sales increased across the incontinence product
lines, led by the SPARC system and the AMS 800 Urinary prosthesis, and in
prostate product lines with the introduction of the ProstaJect Ethanol
Injection System.

We maintain allowance for future sales returns. This allowance is calculated
based on actual returns in a six-month period from sales in the previous
six-month period and is charged to net sales. At December 29, 2001, this
allowance was $463,000 compared to $138,000 at December 31, 2000.

Cost of sales.Cost of sales as a percentage of net sales decreased from 21.8%
in 2000 to 19.6% in 2001. Cost of sales in 2001 benefited from greater
spreading of fixed overhead costs over higher manufacturing volumes combined
with lower obsolescence and warranty charges.

We maintain an allowance for obsolescence, which is calculated by reviewing
specific quantities of on-hand inventory with actual sales history. At
December 29, 2001, this allowance was $2.7 million compared to $3.1 million at
December 31, 2000. Obsolescence costs are charged to cost of sales.

We maintain a warranty allowance, which is calculated by reviewing actual
returns as a percentage of sales over time. At December 29, 2001, this reserve
was $7.6 million compared to $7.5 million at December 21, 2000. Warranty costs
are charged to cost of sales.

Marketing and sales.As a percent of sales, marketing and sales costs dropped
from 39.2% of net sales in 2000 to 38.1% in 2001, although spending increased
$5.7 million, or 14.4%, from $39.3 million in 2000 to $44.9 million in 2001.
Commission expense was approximately $1.0 million higher in 2001 than in 2000
due to higher sales volume. Distribution costs were $0.3 million higher in
2001 than in 2000 because of higher sales volumes. United States marketing
costs increased approximately $1.7 million due to the rollout of new marketing
concepts and significant marketing expenditures related to new product
rollouts. International sales and marketing costs were up $2.6 million in 2001
versus 2000. A substantial portion of these costs were related to new employee
additions in 2001 and the last half of 2000, and marketing costs related to the
rollout of new products. We expect total spending in marketing and sales to
increase in 2002 but continue to decrease as a percentage of net sales.

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General and administrative.General and administrative costs were
approximately equal in 2001 versus 2000. As a percentage of net sales, general
and administrative costs decreased from 12.1% of sales in 2000 to 10.3% of
sales in 2001. Cost increases in 2001 from 2000 were in the areas of employee
compensation, public reporting costs including the cost to prepare our first
Annual Report, corporate insurances, and additional bonuses. Cost decreases
were experienced in the areas of information technology as development work
tended to be done with internal staff versus outside consultants, and in human
resources as employee recruitment costs decreased due to the utilization of
lower cost methods for employee recruitment. We expect total spending in
general and administrative to increase in 2002 but continue to decrease as a
percentage of net sales.

We maintain an allowance for doubtful accounts, which is calculated by a
combination of specific account identification as well as percentages of past
due balances. At December 29, 2001, this allowance was $0.8 million compared
to $0.7 million at December 31, 2000. Bad debt expense is charged as part of
general and administrative costs.

Research and development.Research and development costs decreased $326,000 in
2001 versus 2000. As a percent of net sales, research and developments costs
decreased from 12.2% of sales in 2000 to 10.1% of sales in 2001. Technology
purchases such as ProstaJect, royalty arrangements such as with SPARC, and
distribution agreements such as with DermMatrix, have allowed research and
development costs to remain flat instead of internal development of such
products. We expect total spending in research and development to increase in
2002 but to remain within the range, as a percentages of net sales, of the past
two years.

Transition and reorganization.In the third quarter of 2001, an assessment was
completed of management personnel needs. Transition and reorganization costs
of $1.0 million were recorded for employee termination costs.

Amortization of intangibles.Amortization of intangibles increased $1.0
million, or 12.1%, in 2001 versus 2000. This increase is attributable to
milestone payments and contingent purchase price payments following the
Influence acquisition. We have made all potential milestone payments and
contingent purchase price payments relating to the Influence acquisition.

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets.Under the new rules, goodwill and
indefinite lived intangible assets are no longer amortized but are reviewed
annually for impairment. Separable intangible assets that are not deemed to
have an indefinite life will continue to be amortized over their estimated
useful lives. The amortization provisions of Statement 142 apply to goodwill
and intangible assets acquired after June 30, 2001.

With respect to goodwill and intangible assets acquired prior to July 1, 2001,
the new accounting rules were applied beginning December 30, 2001. Application
of the nonamortization provisions of Statement 142 is expected to result in an
increase in net income of $4.7 million ($0.14 per share) starting in fiscal
year 2002. We will test goodwill for impairment using the two-step process
prescribed in Statement 142. The first step is a screen for potential
impairment, while the second step measures the amount of the impairment, if
any. We expect to perform the first of the required impairment test of
goodwill and indefinite lived intangible assets as of December 29, 2001 in the
first quarter of 2002. We do not anticipate that these rules on impairment
will have a significant effect on our earnings or financial position.

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Below is a table detailing the quarterly pro forma impact on earnings with the
adoption of Financial Accounting Standards No. 141, Business Combinations,
and No. 142, Goodwill and Other Intangible Assets, as if the adoptions of the
new standards were effective in fiscal year 2001.

|                                                                              |  |         |       |   |         |   |       |         |  |   |         |   |  |   |       |  
|----------------------------------------------------------------------------- |  | ------- | ----- | - | ------- | - | ----- | ------- |  | - | ------- | - |  | - | ----- | -
|                                                                              |  | 2001    |      
|                                                                              |  |         |      
|                                                                              |  | First   |       |   | Second  |   |       | Third   |  |   | Fourth  |  
|(in thousands, except per share data)                                         |  | Quarter |       |   | Quarter |   |       | Quarter |  |   | Quarter |  
|                                                                              |  |         |       |   |         |   |       |         |  |   |         |  
|Net income, as reported                                                       |  | $       | 1,404 |   |         | $ | 1,534 |         |  | $ | 2,007   |   |  | $ | 1,585 |  
|Pro forma change in net income with adoption
of new accounting pronouncements |  |         | 1,242 |   |         |   | 1,407 |         |  |   | 1,406   |   |  |   | 1,503 |  
|Tax impact                                                                    |  |         | (335  | ) |         |   | (335  | )       |  |   | (335    | ) |  |   | (335  | )
|                                                                              |  |         |       |   |         |   |       |         |  |   |         |  
|Pro forma net income                                                          |  | $       | 2,311 |   |         | $ | 2,606 |         |  | $ | 3,078   |   |  | $ | 2,753 |  
|                                                                              |  |         |       |   |         |   |       |         |  |   |         |  
|Diluted earnings per share, as reported                                       |  | $       | 0.05  |   |         | $ | 0.05  |         |  | $ | 0.06    |   |  | $ | 0.05  |  
|Pro forma diluted earnings per share                                          |  | $       | 0.08  |   |         | $ | 0.09  |         |  | $ | 0.09    |   |  | $ | 0.08  |  

Royalty and other income.We license our stent delivery technology to a former
subsidiary of Pfizer for medical use outside of the urology field. We entered
into this license agreement in September 1998 in connection with our
acquisition from Pfizer. All of our royalty income is from this license.

Royalty and other income decreased from $2.9 million in 2000 to a loss of $0.1
million in 2001. In early 2001, we received a non-recurring payment of
$375,000 representing reimbursement to resolve a quality issue with a materials
supplier dating back to the fourth quarter of 1999.

On January 5, 2001, we made a $3.0 million equity investment in Collagenesis
Corporation. At the time of the investment, Collagenesis was working with its
existing debt holders to exchange its outstanding debt into equity and raise
additional capital. Pursuant to the terms of the agreement with Collagenesis,
we converted the equity position into a $3.0 million 10% Senior Subordinated
Convertible Voting Promissory Note in April 2001. In December 2001,
Collagenesis declared bankruptcy and is currently in dissolution. Generally
accepted accounting principles require that investments such as our investment
in Collagenesis be reviewed for impairment whenever events or circumstances
indicate the carrying amount of an asset may not be recoverable. We consider
Collagenesis bankruptcy and dissolution an event requiring such a review.
Based on this review, we have determined that impairment in our Collagenesis
investment exists. Accordingly, the investment has been written off and
charged to other losses. In addition to the direct investment in Collagenesis,
we also leased certain equipment to Collagenesis that was recorded as a note
receivable and valued at approximately $400,000. This note receivable is
deemed uncollectible and has also been written off to other losses.
Collagenesis was our sole supplier of human cadaveric dermal tissue. We are
actively working on obtaining additional sources of this material. Between our
current inventory supply and our DermMatrix porcine product, we believe we can
meet current customer demands.

Not taking into consideration the non-recurring receipt of $375,000 and the
approximate $3.4 million of write-off related to Collagenesis, royalty income
was $2.9 million in 2000 and 2001.

Interest income and interest expense.Interest expense decreased from 2000
because average borrowings under notes payable were approximately $37 million
lower in 2001 than in 2000. Interest income increased from 2000 due to
investment of receipts from our secondary common stock offering completed in
July 2001.

Income tax expense.Income tax expense increased $4.5 million in 2001 compared
to 2000, as income before income taxes in 2001 was $12.4 million compared to
income before income taxes of $1.4 million

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in 2000. Effective tax rate comparisons between periods are not meaningful, as
permanent non-deductible expenses are abnormally high in comparison to income
before income taxes in both 2001 and 2000.

As part of our adoption of Statements of Financial Accounting Standards No.
141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets, we will no longer be recording goodwill amortization that previously
has been a permanent non-deductible expense. In 2001, the total of this type
of amortization was approximately $2.0 million. If the new rules that will be
adopted in 2002 were in place in 2001, our effective tax rate would have been
approximately 41%.

Net income.Net income was $6.5 million higher in 2001 than in 2000. This
increase in net income resulted from the increase in revenues described above
while maintaining control over our operating costs.

Comparison of the year ended December 31, 1999 to the year ended December 31,
2000

Net sales.The following chart compares net sales between 1999 and 2000.

|                       |  |                     |        |  |                   |   |         |         |  |   |         |   |  |  |      |  
|---------------------- |  | ------------------- | ------ |  | ----------------- | - | ------- | ------- |  | - | ------- | - |  |  | ---- | -
|                       |  | Twelve months ended |        |  | Change            |  
|                       |  |                     |        |  |                   |  
|(amounts in thousands) |  | December 31, 1999   |        |  | December 31, 2000 |   |         | Dollars |  |   | Percent |  
|                       |  |                     |        |  |                   |   |         |         |  |   |         |  
|Erectile Dysfunction   |  | $                   | 47,196 |  |                   | $ | 51,288  |         |  | $ | 4,092   |   |  |  | 8.7  | %
|Male Incontinence      |  |                     | 25,334 |  |                   |   | 26,564  |         |  |   | 1,230   |   |  |  | 4.9  | %
|Female Incontinence    |  |                     | 1,632  |  |                   |   | 15,880  |         |  |   | 14,248  |   |  |  | 873  | %
|Prostate Disease       |  |                     | 7,191  |  |                   |   | 6,585   |         |  |   | (606    | ) |  |  | -8.4 | %
|Total                  |  | $                   | 81,353 |  |                   | $ | 100,317 |         |  | $ | 18,964  |   |  |  | 23.3 | %
|                       |  |                     |        |  |                   |   |         |         |  |   |         |  
|United States Sales    |  | $                   | 62,910 |  |                   | $ | 81,670  |         |  | $ | 18,760  |   |  |  | 29.8 | %
|International Sales    |  |                     | 18,443 |  |                   |   | 18,647  |         |  |   | 204     |   |  |  | 1.1  | %
|Total                  |  | $                   | 81,353 |  |                   | $ | 100,317 |         |  | $ | 18,964  |   |  |  | 23.3 | %
|                       |  |                     |        |  |                   |   |         |         |  |   |         |  

Net sales increased $19.0 million, or 23.3%, from $81.3 million in 1999 to
$100.3 million in 2000. Of this increase, 81.6% was attributable to
incontinence product sales. Incontinence sales increases related to sling
products acquired as part of the Influence acquisition in December 1999
amounted to $14.2 million, or 74.9%, of our sales increase in 2000 over sales
in 1999. Erectile dysfunction sales increased 8.7% with an increase in the
number of units sold being somewhat offset by negative currency translation
costs.

Increased sales of our incontinence and erectile dysfunction products were
offset by a decline in sales in our prostate products. Sales of our UroLume
Endoprosthesis stents decreased $0.6 million in 2000 compared to 1999 due to
manufacturing problems at an outside supplier. This problem was corrected in
the first quarter of 2000 and sales of this product have been near 1999 levels
since March 2000.

Net sales in the United States increased $18.8 million, or 29.8 %, from $62.9
million in 1999 to $81.7 million in 2000. Of this increase, $13.1 million, or
72.1%, is attributable to sling product sales acquired from Influence and the
balance of the increase was due to the growth in sales from erectile
dysfunction and other incontinence products.

International net sales increased $0.2 million, or 1.2%, from $18.4 million
1999 to $18.6 million in 2000. Slightly improved sales of incontinence and
erectile dysfunction products were almost entirely offset by

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decreased sales of prostate products. The net increase in sales revenue was
negatively impacted by currency translation costs of approximately $1.9 million
in 2000 compared to 1999.

Cost of sales.Cost of sales as a percentage of net sales decreased from 38.6%
in 1999 to 21.8% in 2000. Our cost of sales during 1999 was negatively
impacted because our inventories were recorded at fair market value at the date
of our acquisition from Pfizer. Some of this inventory was sold during the
first three months of 1999 resulting in an $11.6 million charge to cost of
sales. Excluding this charge, cost of sales as a percentage of net sales was
24.4% in 1999. Cost of sales in 2000 benefited from improved manufacturing
efficiencies, including reduced scrap and lower warranty charges.

Marketing and sales.Marketing and sales costs increased $8.9 million, or
29.2%, from $30.4 million in 1999 to $39.3 million in 2000. Approximately $5.0
million of this increase was attributable to marketing and the sales force that
focuses on the sling product sales acquired from Influence in December 1999.
We also had a full year of expenses relating to our 1999 restructuring of our
European sales and marketing operations. These actions were required for us to
create independent sales and marketing operations following our acquisition
from Pfizer.

General and administrative.General and administrative costs increased $4.2
million, or 53.7%, from $7.9 million in 1999 to $12.1 million in 2000. This
increase in costs is primarily attributable to accounting, information
technology, and general management functions necessary to support the
operations acquired from Influence.

Research and development.Research and development costs increased $2.7
million, or 28.0%, from $9.5 million in 1999 to $12.2 million in 2000. This
increased spending supports our strategic emphasis on internal new product
development, some of which is described below in the Acquired In-Process
Research and Development section. We also added a number of research and
development personnel through our acquisition of Influence.

Transition and reorganization.In the first six months of 1999, we completed
an assessment of senior management personnel needs and also completed a
strategic review of our research and development function. We accrued $3.0
million of transition and reorganization expenses as a result of this review.
These costs primarily related to employee termination benefits and executive
search fees. In the first six months of 2000, we completed another assessment
of management personnel needs. We accrued $1.0 million of transition and
reorganization expenses as a result of this review. These costs are primarily
related to employee termination benefits.

Amortization of intangibles.Amortization of intangibles increased $4.1
million, or 96.2%, from $4.3 million in 1999 to $8.4 million in 2000.
Amortization related to the Influence acquisition added $4.0 million to costs
in 2000 versus the same period in 1999.

Royalty and other income (expense).Royalty and other income decreased $1.3
million, or 30.4%, from $4.2 million in 1999 to $2.9 million in 2000. During
1999, we benefited from a one-time $0.5 million contractual research and
development project reimbursement.

Interest income and interest expense.Net interest expense was $6.9 million
in 2000 and 1999. Higher interest rates in 2000 versus 1999 were offset by
lower average borrowings during 2000 as compared to 1999.

Income tax benefit (expense).Income tax expense increased $6.7 million from a
tax benefit of $5.3 million in 1999 to a $1.4 million tax expense in 2000.
Effective tax rate comparisons between 1999 and 2000 are not meaningful as
permanent non-deductible expenses, primarily related to amortization, are

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abnormally high in comparison to pretax income in 2000.

Net Income.Net income for 2000 was $0.1 million compared to a net loss of
$9.8 million in 1999.

Liquidity and Capital Resources

Cash and cash equivalents were $28.8 million on December 29, 2001 compared to
$12.2 million on December 31, 2000. The net increase in cash and cash
equivalents is due to cash flows provided by operations and financing
activities partially offset by investing activities as described below. In
addition to our cash and cash equivalents balance, we had $9.0 million in
short-term investments and $18.8 million in long-term investments on December
29, 2001.

Cash flows from operating activities.During 2001, our cash flows from
operating activities provided $20.9 million versus $7.3 million during 2000.
Our net income plus depreciation and amortization of intangibles provided $19.8
million of cash in 2001 versus $12.1 million in 2000. We incurred a non-cash
expense of $0.7 million due to the acceleration of stock option vesting for a
terminated employee. We incurred a non-cash expense of $3.4 million related to
the write-off of our investment in Collagenesis. Our income tax expense of
$5.9 million in 2001 was partially offset by tax loss carryforwards included in
deferred tax assets. During 2001, accounts receivable and inventories
increased $6.8 million due to higher sales in 2001 and inventories being built
to support product rollouts in the last half of 2001. Accounts payable and
accrued expenses increased $3.9 million in 2001 due to higher payable levels
related to higher inventory levels and increased compensation accruals for
bonuses, commissions, and pension liability. During 2000, accounts payable and
accrued expenses decreased $4.8 million as accrued acquisition expenses mostly
relating to the Influence acquisition, and transition and reorganization
expenses incurred in 1999, were paid.

Cash flows from investing activities.During 2001, we made additional
milestone and contingent purchase price payments relating to the Influence
acquisition totaling $11.5 million. We have made all milestone and contingent
purchase price payments related to the Influence acquisition. We made a $3.0
million investment in Collagenesis Corporation and an additional $1.5 million
investment in InjecTx. We acquired worldwide distribution rights to distribute
DermMatrix, a porcine dermis graft material used in sling and pelvic prolapse
procedures, for $1.5 million. We purchased $27.8 million in short and
long-term investments.

During 2000, we made milestone payments relating to the acquisition of
Influence totaling $3.7 million. We paid the second $1.0 million installment
related to a patent purchase. We paid $1.6 million in up-front financing fees
on our senior credit facility.

Cash flows from financing activities.We have a senior credit facility, which
consists of term debt and a $15 million revolving line of credit. Our senior
credit facility expires in March 2006. This facility is secured by
substantially all of our assets, and contains restrictions concerning the
payment of dividends, incurrence of additional debt and capital expenditures.
In addition, we are subject to, and in compliance with, certain financial
covenants including ratios related to fixed charges coverage and leverage.
During 2001, we made regular principal payments of $4.1 million and a
prepayment of principal of approximately $11.5 million under the term portion
our senior credit facility. As of December 29, 2001, the outstanding principal
balance under our senior credit facility was $28.9 million. As of December 29,
2001, we did not have an outstanding balance under our revolving line of credit
and had $15 million of availability under the revolving line of credit. The
following table sets forth our future payment obligations under our senior
credit facility and operating leases:



23Table of Contents

|                                   |  |                        |        |  |      |          |       |       |        |   |        |         |  |   |       | 
|---------------------------------- |  | ---------------------- | ------ |  | ---- | -------- | ----- | ----- | ------ | - | ------ | ------- |  | - | ----- | 
|                                   |  | Payments Due By Period |       
|                                   |  |                        |       
|                                   |  |                        |        |  |      | Less     |       |       | One to |   |        | Four to | 
|                                   |  |                        |        |  |      | Than One |       |       | Three  |   |        | Five    | 
|Contractual Obligations            |  | Total                  |        |  | Year |          |       | Years |        |   | Years  |        
|                                   |  |                        |        |  |      |          |       |       |        |   |        |        
|Long-term debt                     |  | $                      | 28,909 |  |      | $        | 4,909 |       |        | $ | 22,159 |         |  | $ | 1,841 | 
|Capital lease obligations          |  |                        |       |  |      |          |      |       |        |   |       |         |  |   |      | 
|Operating leases                   |  |                        | 815    |  |      |          | 451   |       |        |   | 325    |         |  |   | 39    | 
|                                   |  |                        |        |  |      |          |       |       |        |   |        |        
|Total contractual cash obligations |  | $                      | 29,724 |  |      | $        | 5,360 |       |        | $ | 22,484 |         |  | $ | 1,880 | 
|                                   |  |                        |        |  |      |          |       |       |        |   |        |        

In July 2001, we completed a secondary public offering in which we sold
3,500,000 shares of common stock and Warburg Pincus, our principal stockholder,
sold 3,500,000 shares at an offering price of $16.40 per share. We received
proceeds of $53.8 million, after deducting $3.7 million for underwriting and
issuance costs. We also received proceeds from the exercise of stock options
and the Employee Stock Purchase Plan totaling $1.2 million.

In August 2000, we received $63.3 million in net proceeds form our initial
public offering of common stock and the exercise of stock options. We used
these proceeds to pay $35.0 million outstanding under our then guaranteed
revolving line of credit. During 2000, we also made regular principal payments
of $5.5 million and a prepayment of principal of $15.0 million under the term
portion our senior credit facility.

Cash Commitments.On January 1, 2002, we terminated the AMS Retirement Annuity
Plan and expect to distribute the plans assets to participants during 2002.
We expect to make an approximate $5.8 million additional cash payment to the
plan prior to distribution of the assets.

Since January 1, 2002, we have implemented a new profit sharing plan whereby
contributions to the plan will vary based upon our performance and will be
allocated to participants equally. While the contribution will be variable, we
expect that initially the profit sharing contribution will approximate our
historical AMS Retirement Annuity Plan expense at current income levels. We
estimate that our profit sharing contribution in 2002 will be approximately
$1.2 million.

Our acquisition of the distribution rights to DermMatrix, a porcine dermis
graft material used in sling and pelvic prolapse procedures, requires us to
make an additional $1.0 million payment in December 2002. If we do not make
this payment, our supplier has the right to terminate the supply agreement.

We believe that funds generated from operations, together with the net proceeds
of the secondary offering and funds available under our senior credit facility,
will be sufficient to finance our current operations and planned capital
expenditure requirements for at least the next 12 months.

Acquired In-Process Research and Development

In connection with our acquisitions of technologies during 1999, we conducted a
valuation of the intangible assets acquired. Based on this valuation, we
assigned $7.4 million to acquired in-process research and development resulting
in a one-time charge to 1999 earnings. A brief description of the status of
our acquired in-process research and development projects is set forth below:

The InVance Male Sling System, a male sling fixation system has been released
into the market. Product development and market release is currently on hold
for the following products: TransFix Sutureless

24



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##### Table of Contents



Sling Fixation System, a pull-in anchoring system that is sutureless; No-Tac, a
next generation female sling system that does not require a bone screw in the
pubic bone; Flast, a device to harvest human fascia lata tissue for sling
procedures; and Clip-In, a clip around the suture in place of a knot.

NexTus is a soft tissue-anchoring device. We received 510(k) clearance for
this device in the second quarter of 2001. We are now clinically evaluating
the product with a select physician group. Our launch plans will depend on
both the clinical success with the product and our ability to manufacture the
product economically.

The UroVive Microballoon System is a durable reversible microballoon system to
treat stress urinary incontinence. It includes a microballoon, a delivery
system, and a syringe filled with saline. The clinical data we acquired with
this product was subsequently deemed not suitable for FDA submission. Because
of the expense necessary to meet the FDA requirements, we are not currently
pursuing a U.S. launch. This product is currently under-going additional
development and evaluation. Our plans to re-launch this product
internationally will depend on the outcome of this development.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Hedging and Currency Fluctuations

We have not purchased options or entered into forward or futures contracts,
except as required by our senior credit facility. As of December 29, 2001, all
of our derivatives, designated as cash flow hedges, are interest rate swaps.
We hedged a portion of our original $65.0 million variable rate term note, as
required by our senior credit facility, by entering into an interest rate swap
agreement in which we agree to exchange, at specified intervals, the calculated
difference between the fixed interest rate of the swap and the variable
interest rate on a portion of our debt. This interest rate swap agreement
expires June 30, 2003. We expect that pre-tax losses totaling approximately
$1.3 million, which are recorded in other comprehensive income (loss) at
December 29, 2001 and represent the difference between the fixed rate of the
swap agreement and variable interest of the term note, will be recognized
within the next twelve months as part of interest expense. At December 29,
2001, the fair value of the interest rate swap, based upon quoted market prices
for contracts with similar maturities, was approximately $1.9 million. The pay
rate of the interest rate swap is 10.065% and the predicted future receive rate
on our senior credit facility is approximately 5.1%.

Our operations outside of the United States are maintained in their local
currency, except for our Israeli subsidiary, where the U.S. dollar serves as
the functional currency. All assets and liabilities of our international
subsidiaries are translated to U.S. dollars at year-end exchange rates in
effect during the year. Translation adjustments arising from the use of
differing exchange rates are included in accumulated other comprehensive income
in stockholders equity. Gains and losses on foreign currency transactions are
included in operations and were not material in any period.

Inflation

We do not believe that inflation has had a material effect on our results of
operations in recent years and periods. There can be no assurance, however,
that our business will not be adversely affected by inflation in the future.

25



---



##### Table of Contents






ITEM 8. FINANCIAL STATEMENTS.

Our Consolidated Financial Statements and the report of our independent
certified public accountants are included in this Annual Report on Form 10-K
beginning on page F-1. The index to this report and the financial statements
is included in Item 14 (a) (1) below.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.




PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.



| | A. |  | Directors of the Registrant.                                                                                                                                                                                                                                                        
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The information in the Election of DirectorsInformation About
Nominees and Other Directors and Election of DirectorsOther
Information About Nominees and Other Directors sections of our 2002
Proxy Statement is incorporated in this Annual Report on Form 10-K by
reference.
|
| | B. |  | Executive Officers of the Registrant.                                                                                                                                                                                                                                               
|
| |    |  | Information about our executive officers is included in this Annual
Report on Form 10-K under Item 4A, Executive Officers of the
Registrant.                                                                                                                                      
|
| | C. |  | Compliance with Section 16(a) of the Exchange Act.                                                                                                                                                                                                                                  
|
| |    |  | The information in the Section 16(a) Beneficial Ownership Reporting
Compliance section of our 2002 Proxy Statement is incorporated in
this Annual Report on Form 10-K by reference.                                                                                               




ITEM 11. EXECUTIVE COMPENSATION.

The information in the Election of Directors-Director Compensation, Election
of DirectorsCompensation Committee Interlocks and Insider Participation,
Compensation Committee Report on Executive Compensation, and Compensation
and Other Benefits sections of our 2002 Proxy Statement is incorporated in
this Annual Report on Form 10-K by reference.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information in the Principal Stockholders and Beneficial Ownership of
Management section of our 2002 Proxy Statement is incorporated in this Annual
Report on Form 10-K by reference.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information in the Certain Transactions section of our 2002 Proxy
Statement is incorporated in this Annual Report on Form 10-K by reference.

26



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##### Table of Contents






PART IV




ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.

|                                                                                                                                                                                                               |  |                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------
|(a) 1. Financial Statements:Our following Consolidated Financial Statements and the Independent
Auditors Report thereon are included herein (page numbers refer to
pages in this Annual Report on Form 10-K): |  |                       
|                                                                                                                                                                                                              
|Report of Independent Auditors                                                                                                                                                                                 |  | Page F-1              
|                                                                                                                                                                                                              
|Consolidated Balance Sheets as of December 31, 2000
and December 29, 2001                                                                                                                                      |  | Page F-2              
|                                                                                                                                                                                                              
|Consolidated Statements of Operations for the years ended
December 31, 1999 and 2000, and the year ended December 29, 2001                                                                                     |  | Page F-3              
|                                                                                                                                                                                                              
|Consolidated Statements of Stockholders Equity (Deficit)
for the years ended December 31, 1999 and 2000,
and the year ended December 29, 2001                                                                 |  | Pages F-4
and F-5     
|                                                                                                                                                                                                              
|Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 2000, and the year ended December 29, 2001                                                                                     |  | Page F-6              
|                                                                                                                                                                                                              
|Notes to Consolidated Financial Statements for the
years ended December 31, 1999 and 2000, and the year
ended December 29, 2001                                                                                |  | Pages F-7
through F-23

27



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##### Table of Contents



2.     Financial Statement Schedules:

American Medical Systems Holdings, Inc.
Schedule II  Valuation and Qualifying Accounts
(In thousands)

|                                                                   |                   |           |            |       |          |            |   |            |  |  |               |       |            |  |   |       | 
|------------------------------------------------------------------ | ----------------- | --------- | ---------- | ----- | -------- | ---------- | - | ---------- |  |  | ------------- | ----- | ---------- |  | - | ----- | 
|                                                                   |                   |           | Balance at |       |          | Charged to |   |            |  |  |               |       |            |  |  
|                                                                   |                   |           | Beginning  |       |          | Costs and  |   |            |  |  |               |       | Balance at | 
|Description                                                        |                   | of Period |            |       | Expenses |            |   | Deductions |  |  | End of Period |      
|                                                                   |                   |           |            |       |          |            |   |            |  |  |               |      
|Column A                                                           |                   | Column B  |            |       | Column C |            |   | Column D   |  |  | Column E      |      
|Allowance for doubtful accounts deducted from accounts
receivable: |                   |           |            |       |          |            |   |            |  |  |               |       |            |  |   |      
|For the period ended:                                              |                   |           |            |       |          |            |   |            |  |  |               |       |            |  |   |      
|                                                                   | December 29, 2001 |           | $          | 696   |          |            | $ | 580        |  |  | $             | 474   |            |  | $ | 802   | 
|                                                                   | December 31, 2000 |           | $          | 404   |          |            | $ | 953        |  |  | $             | 661   |            |  | $ | 696   | 
|                                                                   | December 31, 1999 |           | $          | 700   |          |            | $ | 186        |  |  | $             | 482   |            |  | $ | 404   | 
|Valuation allowance deducted from inventories:                     |                   |           |            |       |          |            |   |            |  |  |               |       |            |  |   |      
|For the period ended:                                              |                   |           |            |       |          |            |   |            |  |  |               |       |            |  |   |      
|                                                                   | December 29, 2001 |           | $          | 3,140 |          |            | $ | 310        |  |  | $             | 751   |            |  | $ | 2,699 | 
|                                                                   | December 31, 2000 |           | $          | 2,193 |          |            | $ | 1,761      |  |  | $             | 814   |            |  | $ | 3,140 | 
|                                                                   | December 31, 1999 |           | $          | 2,486 |          |            | $ | 346        |  |  | $             | 639   |            |  | $ | 2,193 | 
|Accrued product liability allowance:                               |                   |           |            |       |          |            |   |            |  |  |               |       |            |  |   |      
|For the period ended:                                              |                   |           |            |       |          |            |   |            |  |  |               |       |            |  |   |      
|                                                                   | December 29, 2001 |           | $          | 1,211 |          |            | $ | 300        |  |  | $             | 13    |            |  | $ | 1,498 | 
|                                                                   | December 31, 2000 |           | $          | 1,043 |          |            | $ | 571        |  |  | $             | 403   |            |  | $ | 1,211 | 
|                                                                   | December 31, 1999 |           | $          | 225   |          |            | $ | 818        |  |  | $             |      |            |  | $ | 1,043 | 
|Accrued warranty expense:                                          |                   |           |            |       |          |            |   |            |  |  |               |       |            |  |   |      
|For the period ended:                                              |                   |           |            |       |          |            |   |            |  |  |               |       |            |  |   |      
|                                                                   | December 29, 2001 |           | $          | 7,548 |          |            | $ | 516        |  |  | $             | 477   |            |  | $ | 7,587 | 
|                                                                   | December 31, 2000 |           | $          | 7,385 |          |            | $ | 1,234      |  |  | $             | 1,071 |            |  | $ | 7,548 | 
|                                                                   | December 31, 1999 |           | $          | 6,348 |          |            | $ | 1,037      |  |  | $             |      |            |  | $ | 7,385 | 



|3. Exhibits: |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                  
|------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|             | The exhibits to this Annual Report
      on Form 10-K are listed in the Exhibit Index attached hereto.
      A copy of any of the exhibits listed in the Exhibit Index will be
      sent at a reasonable cost to any stockholder as of March 26, 2002,upon receipt from any such person of a written request for any such
      exhibit. Requests should be sent to the attention of M. James Call at
      American Medical Systems, 10700 Bren Road West, Minnetonka, MN 55343.
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|             | The following is a list of each
      management contract or compensatory plan or arrangement required to be filed
      as an exhibit to this Annual Report on Form 10-K under Item 14(c):                                                                                                                                                                                                                                                                                       
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                  
|             | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Employment
      Agreement, dated April 23, 1999, between Douglas Kohrs and American
      Medical Systems, Inc.                 
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                  
|             | 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Amendment to the Employment Agreement,
      dated April 17, 2000, between Douglas Kohrs and American Medical Systems,
      Inc.

28



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##### Table of Contents





| | 3.  |  | Second Amendment to Employment Agreement, dated January 1, 2002,
between Douglas Kohrs and American Medical Systems, Inc.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------
|
| | 4.  |  | Stock Option Agreement, dated April 23, 1999, between Douglas Kohrs
and American Medical Systems, Inc.                   
|
| | 5.  |  | Separation Agreement, dated September 27, 2001, between Gregory J.
Melsen and American Medical Systems, Inc.             
|
| | 6.  |  | Employment Agreement, dated May 1, 1999, between Johann Neisz and
American Medical Systems, Inc.                         
|
| | 7.  |  | Employment Agreement, dated July 30, 2001, between M. James Call and
American Medical Systems, Inc.                      
|
| | 8.  |  | Consulting Agreement, dated September 1, 1999, between Medical Genesis
and American Medical Systems, Inc.                
|
| | 9.  |  | 2000 Equity Incentive Plan, as amended.                                                                                  
|
| | 10. |  | Form of Incentive Stock Option Agreement.                                                                                
|
| | 11. |  | Form of Non-Qualified Stock Option Agreement.                                                                            
|
| | 12. |  | Employee Stock Purchase Plan.                                                                                            
|
| | 13. |  | 2001 Management Incentive Plan.                                                                                          

(b) Reports on Form 8-K filed in the fourth quarter of 2001:



|                                                                                                                                                                                                            | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|On December 3, 2001, we filed a Current Report on Form 8-K
reporting a change in our fiscal year (Item 8) which was effective
January 1, 2001. We did not file any financial statements with
this Form 8-K.

29



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##### Table of Contents



FINANCIAL STATEMENTS AND NOTES THERETO

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors of
American Medical Systems Holdings, Inc.

We have audited the accompanying consolidated balance sheets of American
Medical Systems Holdings, Inc. as of December 31, 2000 and December 29, 2001,
and the related consolidated statements of operations, changes in stockholders
equity (deficit) and cash flows for each of the three years in the period ended
December 29, 2001. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Medical
Systems Holdings, Inc. as of December 31, 2000 and December 29, 2001, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 29, 2001, in conformity with accounting
principles generally accepted in the United States.

Ernst & Young LLP

Minneapolis, Minnesota
January 25, 2002

F-1



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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

|                                           |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |              |         |         |              |         |         | 
|------------------------------------------ | ------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | ------ | ------------ | ------- | ------- | ------------ | ------- | ------- | 
|                                           |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        | December 31, |         |         | December 29, |        
|                                           |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        | 2000         |         |         | 2001         |        
|                                           |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |              |         |         |              |        
|Assets                                     |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |              |         |        
|Current assets:                            |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |              |         |        
|                                           | Cash and cash equivalents             |                                                                                                                                                                                                                                                       | $                         | 12,165                                     |        |              | $       | 28,755  |             
|                                           | Short-term investments                |                                                                                                                                                                                                                                                       |                           |                                           |        |              |         | 9,013   |             
|                                           | Accounts receivable, net              |                                                                                                                                                                                                                                                       |                           | 23,616                                     |        |              |         | 25,306  |             
|                                           | Inventories                           |                                                                                                                                                                                                                                                       |                           | 9,674                                      |        |              |         | 13,991  |             
|                                           | Deferred taxes                        |                                                                                                                                                                                                                                                       |                           | 7,688                                      |        |              |         | 7,471   |             
|                                           | Other current assets                  |                                                                                                                                                                                                                                                       |                           | 1,684                                      |        |              |         | 1,552   |             
|                                           |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |             
|                                           |                                       |                                                                                                                                                                                                                                                       | Total current assets      |                                            |        | 54,827       |         |         |              | 86,088  |        
|Property, plant and equipment, net         |                                       |                                                                                                                                                                                                                                                       | 24,773                    |                                            |        |              | 23,604  |        
|Goodwill, net                              |                                       |                                                                                                                                                                                                                                                       | 78,014                    |                                            |        |              | 82,365  |        
|Intangible assets, net                     |                                       |                                                                                                                                                                                                                                                       | 19,717                    |                                            |        |              | 17,118  |        
|Deferred income taxes                      |                                       |                                                                                                                                                                                                                                                       | 1,807                     |                                            |        |              | 3,180   |        
|Investments                                |                                       |                                                                                                                                                                                                                                                       |                          |                                            |        |              | 18,783  |        
|Investments in technology and other assets |                                       |                                                                                                                                                                                                                                                       | 2,124                     |                                            |        |              | 4,013   |        
|                                           |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |             
|                                           |                                       |                                                                                                                                                                                                                                                       | Total assets              |                                            | $      | 181,262      |         |         | $            | 235,151 |        
|                                           |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |             
|Liabilities and Stockholders Equity       |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |              |         |        
|Current liabilities:                       |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |              |         |        
|                                           | Accounts payable                      |                                                                                                                                                                                                                                                       | $                         | 2,431                                      |        |              | $       | 2,678   |             
|                                           | Accrued compensation expense          |                                                                                                                                                                                                                                                       |                           | 13,306                                     |        |              |         | 15,656  |             
|                                           | Accrued warranty expense              |                                                                                                                                                                                                                                                       |                           | 7,548                                      |        |              |         | 7,587   |             
|                                           | Other accrued expense                 |                                                                                                                                                                                                                                                       |                           | 3,441                                      |        |              |         | 4,350   |             
|                                           | Current portion of notes payable      |                                                                                                                                                                                                                                                       |                           | 6,033                                      |        |              |         | 4,909   |             
|                                           |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |             
|                                           |                                       |                                                                                                                                                                                                                                                       | Total current liabilities |                                            |        | 32,759       |         |         |              | 35,180  |        
|Long-term notes payable                    |                                       |                                                                                                                                                                                                                                                       | 38,459                    |                                            |        |              | 24,000  |        
|Other long-term liabilities                |                                       |                                                                                                                                                                                                                                                       |                          |                                            |        |              | 1,884   |        
|Minority interest                          |                                       |                                                                                                                                                                                                                                                       | 521                       |                                            |        |              |        |        
|Stockholders equity:                      |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |              |         |        
|                                           |                                       | Common stock, par value $.01 per share; authorized 95,000,000
shares; issued and outstanding 16,166,887 voting shares and
11,597,941 non-voting shares for December 31, 2000;
29,587,378
voting and 2,372,941 non-voting shares for December 29, 2001 |                           |                                            | 278    |              |         |         | 320          |        
|                                           | Additional paid-in capital            |                                                                                                                                                                                                                                                       |                           | 135,449                                    |        |              |         | 194,630 |             
|                                           | Deferred compensation                 |                                                                                                                                                                                                                                                       |                           | (996                                       | )      |              |         | (448    | )           
|                                           | Accumulated other comprehensive loss: |                                                                                                                                                                                                                                                       |                           |                                            |        |              |         |         |             
|                                           |                                       | Cumulative translation adjustments                                                                                                                                                                                                                    |                           |                                            | (1,073 | )            |         |         | (1,646       | )      
|                                           |                                       | Derivative financial instruments                                                                                                                                                                                                                      |                           |                                            |       |              |         |         | (1,164       | )      
|                                           | Accumulated deficit                   |                                                                                                                                                                                                                                                       |                           | (24,135                                    | )      |              |         | (17,605 | )           
|                                           |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |             
|                                           |                                       |                                                                                                                                                                                                                                                       |                           | Total stockholders equity                 |        |              | 109,523 |         |              |         | 174,087 | 
|                                           |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |             
|                                           |                                       |                                                                                                                                                                                                                                                       |                           | Total liabilities and stockholders equity |        | $            | 181,262 |         |              | $       | 235,151 | 
|                                           |                                       |                                                                                                                                                                                                                                                       |                           |                                            |        |             

The accompanying notes are an integral part of the consolidated financial statements.

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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)

|                                   |                                     |              |         |                     |        |   |              |        |        |              |         |        |        | 
|---------------------------------- | ----------------------------------- | ------------ | ------- | ------------------- | ------ | - | ------------ | ------ | ------ | ------------ | ------- | ------ | ------ | 
|                                   |                                     |              |         | For the years ended |       
|                                   |                                     |              |         |                     |       
|                                   |                                     |              |         | December 31,        |        |   | December 31, |        |        | December 29, |        
|                                   |                                     |              |         | 1999                |        |   | 2000         |        |        | 2001         |        
|                                   |                                     |              |         |                     |        |   |              |        |        |              |        
|Net sales                          |                                     | $            | 81,353  |                     |        | $ | 100,317      |        |        | $            | 117,938 |       
|Cost of sales                      |                                     |              | 31,419  |                     |        |   | 21,891       |        |        |              | 23,140  |       
|                                   |                                     |              |         |                     |        |   |              |        |       
|                                   |                                     | Gross profit |         |                     | 49,934 |   |              |        | 78,426 |              |         |        | 94,798 | 
|Operating expenses:                |                                     |              |         |                     |        |   |              |        |        |              |         |       
|                                   | Marketing and sales                 |              |         | 30,400              |        |   |              | 39,277 |        |              |         | 44,931 |       
|                                   | General and administrative          |              |         | 7,889               |        |   |              | 12,128 |        |              |         | 12,156 |       
|                                   | Research and development            |              |         | 9,552               |        |   |              | 12,225 |        |              |         | 11,899 |       
|                                   | Transition and reorganization       |              |         | 3,000               |        |   |              | 1,000  |        |              |         | 1,000  |       
|                                   | Amortization of intangibles         |              |         | 4,260               |        |   |              | 8,360  |        |              |         | 9,374  |       
|                                   | In-process research and development |              |         | 7,354               |        |   |              |       |        |              |         |       |       
|                                   |                                     |              |         |                     |        |   |              |        |       
|Total operating expenses           |                                     |              | 62,455  |                     |        |   | 72,990       |        |        |              | 79,360  |       
|                                   |                                     |              |         |                     |        |   |              |        |       
|Operating income (loss)            |                                     |              | (12,521 | )                   |        |   | 5,436        |        |        |              | 15,438  |       
|Royalty and other income (expense) |                                     |              | 4,205   |                     |        |   | 2,928        |        |        |              | (104    | )     
|Interest income                    |                                     |              | 130     |                     |        |   | 427          |        |        |              | 881     |       
|Interest expense                   |                                     |              | (7,003  | )                   |        |   | (7,370       | )      |        |              | (3,813  | )     
|                                   |                                     |              |         |                     |        |   |              |        |       
|Income (loss) before income taxes  |                                     |              | (15,189 | )                   |        |   | 1,421        |        |        |              | 12,402  |       
|Income tax benefit (expense)       |                                     |              | 5,340   |                     |        |   | (1,369       | )      |        |              | (5,872  | )     
|                                   |                                     |              |         |                     |        |   |              |        |       
|Net income (loss)                  |                                     | $            | (9,849  | )                   |        | $ | 52           |        |        | $            | 6,530   |       
|                                   |                                     |              |         |                     |        |   |              |        |       
|Earnings per share:                |                                     |              |         |                     |        |   |              |        |        |              |         |       
|                                   | Basic                               |              |         |                     |        |   | $            | 0.00   |        |              | $       | 0.22   |       
|                                   | Diluted                             |              |         |                     |        |   | $            | 0.00   |        |              | $       | 0.20   |       
|Weighted average common shares:    |                                     |              |         |                     |        |   |              |        |        |              |         |       
|                                   | Basic                               |              |         |                     |        |   |              | 10,478 |        |              |         | 29,792 |       
|                                   | Diluted                             |              |         |                     |        |   |              | 12,809 |        |              |         | 32,068 |       

The accompanying notes are an integral part of the consolidated financial statements.

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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
(In thousands)

|                                                             |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   |               |        |       |      |        |   |       |   |             |      |   |   |         |        |  
|------------------------------------------------------------ | ---------------------------------------------------------------------------- |  | ------------ |  |  | ---------- | --- |  | ----------- | - | ------- | -------- |  | - | ------------- | ------ | ----- | ---- | ------ | - | ----- | - | ----------- | ---- | - | - | ------- | ------ | -
|                                                             |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   |               |        |       |      |        |   |       |   | Accumulated |      |   |   |         |       
|                                                             |                                                                              |  | Common Stock |  |  | Additional |     |  |             |   |         |          |  |   |               |        | Other |      |        |   |       |  
|                                                             |                                                                              |  |              |  |  | Paid-In    |     |  | Accumulated |   |         | Deferred |  |   | Comprehensive |        |       |      |        |  
|                                                             |                                                                              |  | Shares       |  |  | Par Value  |     |  | Capital     |   |         | Deficit  |  |   | Compensation  |        |       | Loss |        |   | Total |  
|                                                             |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   |               |        |       |      |        |   |       |  
|Balances at December 31, 1998                                |                                                                              |  |             |  |  | $          | 0   |  |             | $ | 0       |          |  | $ | (7,463        | )      |       | $    | 0      |   |       | $ | (445        | )    |   | $ | (7,908  | )     
|Comprehensive loss                                           |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   |               |        |       |      |        |   |       |   |             |      |   |   |         |       
|                                                             | Net loss                                                                     |  |              |  |  |            |     |  |             |   |         |          |  |   |               | (9,849 | )     |      |        |   |       |   |             |     |   |   |         | (9,849 | )
|                                                             | Cumulative translation adjustment                                            |  |              |  |  |            |     |  |             |   |         |          |  |   |               |       |       |      |        |   |       |   |             | (548 | ) |   |         | (548   | )
|                                                             |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   |               |        |       |      |        |   |      
|Total comprehensive loss                                     |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   | (9,849        | )      |       |      |        |   |       |   | (548        | )    |   |   | (10,397 | )     
|Accretion of cumulative preferred
stock dividends            |                                                                              |  |             |  |  |            |    |  |             |   |        |          |  |   | (3,531        | )      |       |      |       |   |       |   |            |      |   |   | (3,531  | )     
|                                                             |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   |               |        |       |      |        |   |      
|Balances at December 31, 1999                                |                                                                              |  |             |  |  |            |    |  |             |   |        |          |  |   | (20,843       | )      |       |      |       |   |       |   | (993        | )    |   |   | (21,836 | )     
|Comprehensive loss                                           |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   |               |        |       |      |        |   |       |   |             |      |   |   |         |       
|                                                             | Net income                                                                   |  |              |  |  |            |     |  |             |   |         |          |  |   |               | 52     |       |      |        |   |       |   |             |     |   |   |         | 52     |  
|                                                             | Cumulative translation adjustment                                            |  |              |  |  |            |     |  |             |   |         |          |  |   |               |       |       |      |        |   |       |   |             | (80  | ) |   |         | (80    | )
|                                                             |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   |               |        |       |      |        |   |      
|Total comprehensive loss                                     |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   | 52            |        |       |      |        |   |       |   | (80         | )    |   |   | (28     | )     
|Accretion of cumulative preferred
stock dividends            |                                                                              |  |             |  |  |            |    |  |             |   |        |          |  |   | (3,344        | )      |       |      |       |   |       |   |            |      |   |   | (3,344  | )     
|Conversion of preferred stock
to common stock                |                                                                              |  | 21,269       |  |  |            | 213 |  |             |   | 70,644  |          |  |   |              |        |       |      |       |   |       |   |            |      |   |   | 70,857  |       
|Issuance of common stock, net of
offering expenses           |                                                                              |  | 6,250        |  |  |            | 63  |  |             |   | 62,871  |          |  |   |              |        |       |      |       |   |       |   |            |      |   |   | 62,934  |       
|Issuance of common stock pursuant
to stock options exercised |                                                                              |  | 246          |  |  |            | 2   |  |             |   | 407     |          |  |   |              |        |       |      |       |   |       |   |            |      |   |   | 409     |       
|Income tax benefit related to
stock option plans             |                                                                              |  |             |  |  |            |    |  |             |   | 96      |          |  |   |              |        |       |      |       |   |       |   |            |      |   |   | 96      |       
|Issuance of compensatory
stock options                       |                                                                              |  |             |  |  |            |    |  |             |   | 1,431   |          |  |   |              |        |       |      | (1,431 | ) |       |   |            |      |   |   |        |       
|Amortization of deferred
compensation                        |                                                                              |  |             |  |  |            |    |  |             |   |        |          |  |   |              |        |       |      | 435    |   |       |   |            |      |   |   | 435     |       
|                                                             |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   |               |        |       |      |        |   |      
|Balances at December 31, 2000                                |                                                                              |  | 27,765       |  |  |            | 278 |  |             |   | 135,449 |          |  |   | (24,135       | )      |       |      | (996   | ) |       |   | (1,073      | )    |   |   | 109,523 |       
|Comprehensive income                                         |                                                                              |  |              |  |  |            |     |  |             |   |         |          |  |   |               |        |       |      |        |   |       |   |             |      |   |   |         |       
|                                                             | Net income                                                                   |  |              |  |  |            |     |  |             |   |         |          |  |   |               | 6,530  |       |      |        |   |       |   |             |     |   |   |         | 6,530  |  
|                                                             | Cumulative effect of change in
and hedging activities (SFAS
133), net of tax |  |              |  |  |            |     |  |             |   |         |          |  |   |               |       |       |      |        |   |       |   |             | (712 | ) |   |         | (712   | )
|                                                             | Net loss on derivative financial
instruments, net of tax                     |  |              |  |  |            |     |  |             |   |         |          |  |   |               |       |       |      |        |   |       |   |             | (928 | ) |   |         | (928   | )

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##### Table of Contents



|                                                                                              |                                                                                                               |  |              |  |  |            |     |  |             |   |         |          |  |   |               |   |       |      |      |   |       |   |             |      |   |   |         |      |  
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- |  | ------------ |  |  | ---------- | --- |  | ----------- | - | ------- | -------- |  | - | ------------- | - | ----- | ---- | ---- | - | ----- | - | ----------- | ---- | - | - | ------- | ---- | -
|                                                                                              |                                                                                                               |  |              |  |  |            |     |  |             |   |         |          |  |   |               |   |       |      |      |   |       |   | Accumulated |      |   |   |         |     
|                                                                                              |                                                                                                               |  | Common Stock |  |  | Additional |     |  |             |   |         |          |  |   |               |   | Other |      |      |   |       |  
|                                                                                              |                                                                                                               |  |              |  |  | Paid-In    |     |  | Accumulated |   |         | Deferred |  |   | Comprehensive |   |       |      |      |  
|                                                                                              |                                                                                                               |  | Shares       |  |  | Par Value  |     |  | Capital     |   |         | Deficit  |  |   | Compensation  |   |       | Loss |      |   | Total |  
|                                                                                              |                                                                                                               |  |              |  |  |            |     |  |             |   |         |          |  |   |               |   |       |      |      |   |       |  
|                                                                                              | Amounts reclassified to interest
expense during the period from
derivative and hedging activities,
net of tax |  |              |  |  |            |     |  |             |   |         |          |  |   |               |  |       |      |      |   |       |   |             | 476  |   |   |         | 476  |  
|                                                                                              | Cumulative translation adjustment                                                                             |  |              |  |  |            |     |  |             |   |         |          |  |   |               |  |       |      |      |   |       |   |             | (573 | ) |   |         | (573 | )
|                                                                                              |                                                                                                               |  |              |  |  |            |     |  |             |   |         |          |  |   |               |   |       |      |      |   |       |  
|Total comprehensive income                                                                    |                                                                                                               |  |              |  |  |            |     |  |             |   |         |          |  |   | 6,530         |   |       |      |      |   |       |   | (1,737      | )    |   |   | 4,793   |     
|Issuance of common stock
pursuant to stock options exercised                                  |                                                                                                               |  | 425          |  |  |            | 4   |  |             |   | 735     |          |  |   |              |   |       |      |     |   |       |   |            |      |   |   | 739     |     
|Issuance of common stock
pursuant to ESPP                                                     |                                                                                                               |  | 55           |  |  |            | 1   |  |             |   | 498     |          |  |   |              |   |       |      |     |   |       |   |            |      |   |   | 499     |     
|Issuance of common stock
pursuant to secondary offering,
net of offering expenses             |                                                                                                               |  | 3,500        |  |  |            | 35  |  |             |   | 53,786  |          |  |   |              |   |       |      |     |   |       |   |            |      |   |   | 53,821  |     
|Issuance of common stock
pursuant to direct grants                                            |                                                                                                               |  | 1            |  |  |            |    |  |             |   | 27      |          |  |   |              |   |       |      |     |   |       |   |            |      |   |   | 27      |     
|Issuance of common stock
pursuant to purchase of minority
interest in consolidated subsidiary |                                                                                                               |  | 214          |  |  |            | 2   |  |             |   | 3,231   |          |  |   |              |   |       |      |     |   |       |   |            |      |   |   | 3,233   |     
|Acceleration of stock option vesting
recorded as compensation costs                           |                                                                                                               |  |             |  |  |            |    |  |             |   | 747     |          |  |   |              |   |       |      |     |   |       |   |            |      |   |   | 747     |     
|Issuance of non-qualified stock
options for services                                          |                                                                                                               |  |             |  |  |            |    |  |             |   | 19      |          |  |   |              |   |       |      |     |   |       |   |            |      |   |   | 19      |     
|Income tax benefit related to
stock option plans                                              |                                                                                                               |  |             |  |  |            |    |  |             |   | 240     |          |  |   |              |   |       |      |     |   |       |   |            |      |   |   | 240     |     
|Amortization of deferred
compensation                                                         |                                                                                                               |  |             |  |  |            |    |  |             |   |        |          |  |   |              |   |       |      | 446  |   |       |   |            |      |   |   | 446     |     
|Deferred compensation forfeitures                                                             |                                                                                                               |  |             |  |  |            |    |  |             |   | (102    | )        |  |   |              |   |       |      | 102  |   |       |   |            |      |   |   |        |     
|                                                                                              |                                                                                                               |  |              |  |  |            |     |  |             |   |         |          |  |   |               |   |       |      |      |   |       |  
|Balances at December 29, 2001                                                                 |                                                                                                               |  | 31,960       |  |  | $          | 320 |  |             | $ | 194,630 |          |  | $ | (17,605       | ) |       | $    | (448 | ) |       | $ | (2,810      | )    |   | $ | 174,087 |     
|                                                                                              |                                                                                                               |  |              |  |  |            |     |  |             |   |         |          |  |   |               |   |       |      |      |   |       |  

The accompanying notes are an integral part of the consolidated financial statements.

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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
(In thousands, except share data)

|                                                 |                                                                                   |   |       |                                                 |        |                    |         |         |              |        |        |              |       |        |         |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | - | ----- | ----------------------------------------------- | ------ | ------------------ | ------- | ------- | ------------ | ------ | ------ | ------------ | ----- | ------ | ------- | -
|                                                 |                                                                                   |   |       |                                                 |        | For the year ended |        
|                                                 |                                                                                   |   |       |                                                 |        |                    |        
|                                                 |                                                                                   |   |       |                                                 |        | December 31,       |         |         | December 31, |        |        | December 29, |      
|                                                 |                                                                                   |   |       |                                                 |        | 1999               |         |         | 2000         |        |        | 2001         |      
|                                                 |                                                                                   |   |       |                                                 |        |                    |         |         |              |        |        |              |      
|Cash flows from operating activities:            |                                                                                   |   |       |                                                 |        |                    |         |         |              |        |        |             
|                                                 | Net income                                                                        |   | $     | (9,849                                          | )      |                    | $       | 52      |              |        | $      | 6,530        |      
|                                                 | Adjustments to reconcile net income to net cash
provided by operating activities: |   |       |                                                 |        |                    |         |         |              |        |        |              |      
|                                                 |                                                                                   |   |       | Depreciation                                    | 2,578  |                    |         |         | 3,723        |        |        |              | 3,867 |       
|                                                 |                                                                                   |   |       | Amortization of intangibles                     | 4,260  |                    |         |         | 8,360        |        |        |              | 9,374 |       
|                                                 |                                                                                   |   |       | Deferred financing costs                        |       |                    |         |         | 215          |        |        |              | 270   |       
|                                                 |                                                                                   |   |       | In-process research and development             | 7,354  |                    |         |         |             |        |        |              |      |       
|                                                 |                                                                                   |   |       | Noncash deferred compensation                   |       |                    |         |         | 435          |        |        |              | 446   |       
|                                                 |                                                                                   |   |       | Noncash transition and reorganization           |       |                    |         |         |             |        |        |              | 747   |       
|                                                 |                                                                                   |   |       | Noncash impairment of investment in technology  |       |                    |         |         |             |        |        |              | 3,000 |       
|                                                 |                                                                                   |   |       | Noncash stock option compensation               |       |                    |         |         |             |        |        |              | 45    |       
|                                                 |                                                                                   |   |       | Income tax benefit related to stock option
plan |       |                    |         |         | 96           |        |        |              | 240   |       
|                                                 |                                                                                   |   |       | Change in net deferred taxes                    | (2,814 | )                  |         |         | 1,093        |        |        |              | 3,876 |       
|                                                 |                                                                                   |   |       | Changes in operating assets and liabilities:    |        |                    |         |         |              |        |        |              |       |       
|                                                 |                                                                                   |   |       | Accounts receivable                             |        | (1,800             | )       |         |              | (3,242 | )      |              |       | (2,418 | )      
|                                                 |                                                                                   |   |       | Receivable from former affiliate                |        | 6,757              |         |         |              |       |        |              |       |       |        
|                                                 |                                                                                   |   |       | Inventories                                     |        | 11,921             |         |         |              | 1,290  |        |              |       | (4,360 | )      
|                                                 |                                                                                   |   |       | Accounts payable and accrued expenses           |        | (4,500             | )       |         |              | (4,809 | )      |              |       | 3,898  |        
|                                                 |                                                                                   |   |       | Other assets                                    |        | (9                 | )       |         |              | 94     |        |              |       | (257   | )      
|                                                 |                                                                                   |   |       |                                                 |        |                    |         |         |             
|                                                 |                                                                                   |   |       | Net cash provided by operating
activities       |        |                    | 13,898  |         |              |        | 7,307  |              |       |        | 25,258  |  
|                                                 |                                                                                   |   |       |                                                 |        |                    |         |         |             
|Cash flows from investing activities:            |                                                                                   |   |       |                                                 |        |                    |         |         |              |        |        |             
|                                                 | Purchase of property, plant and equipment                                         |   |       | (6,470                                          | )      |                    |         | (1,675  | )            |        |        | (2,698       | )    
|                                                 | Purchase of business                                                              |   |       | (31,622                                         | )      |                    |         | (3,744  | )            |        |        | (11,499      | )    
|                                                 | Purchase of investments in technology                                             |   |       |                                                |        |                    |         |        |              |        |        | (4,500       | )    
|                                                 | Purchase of short and long-term investments                                       |   |       |                                                |        |                    |         |        |              |        |        | (27,796      | )    
|                                                 | Purchase of other intangibles                                                     |   |       | (1,000                                          | )      |                    |         | (2,611  | )            |        |        | (1,500       | )    
|                                                 |                                                                                   |   |       |                                                 |        |                    |         |         |             
|                                                 |                                                                                   |   |       | Net cash used in investing activities           |        |                    | (39,092 | )       |              |        | (8,030 | )            |       |        | (47,993 | )
|                                                 |                                                                                   |   |       |                                                 |        |                    |         |         |             
|Cash flows from financing activities:            |                                                                                   |   |       |                                                 |        |                    |         |         |              |        |        |             
|                                                 | Sale of preferred stock                                                           |   |       | 22,953                                          |        |                    |         |        |              |        |        |             |      
|                                                 | Issuance of common stock                                                          |   |       |                                                |        |                    |         | 63,343  |              |        |        | 55,059       |      
|                                                 | Borrowings on long-term debt                                                      |   |       | 6,300                                           |        |                    |         | 4,700   |              |        |        |             |      
|                                                 | Payments on long-term debt                                                        |   |       |                                                |        |                    |         | (61,508 | )            |        |        | (15,583      | )    
|                                                 |                                                                                   |   |       |                                                 |        |                    |         |         |             
|                                                 |                                                                                   |   |       | Net cash provided by financing
activities       |        |                    | 29,253  |         |              |        | 6,535  |              |       |        | 39,476  |  
|                                                 |                                                                                   |   |       |                                                 |        |                    |         |         |             
|Effect of exchange rates                         |                                                                                   |   | 73    |                                                 |        |                    | (587    | )       |              |        | (151   | )           
|                                                 |                                                                                   |   |       |                                                 |        |                    |         |         |             
|Net increase in cash and cash equivalents        |                                                                                   |   | 4,132 |                                                 |        |                    | 5,225   |         |              |        | 16,590 |             
|Cash and cash equivalents at beginning of period |                                                                                   |   | 2,808 |                                                 |        |                    | 6,940   |         |              |        | 12,165 |             
|                                                 |                                                                                   |   |       |                                                 |        |                    |         |         |             
|Cash and cash equivalents at end of period       |                                                                                   | $ | 6,940 |                                                 |        | $                  | 12,165  |         |              | $      | 28,755 |             
|                                                 |                                                                                   |   |       |                                                 |        |                    |         |         |             
|Supplemental disclosure:                         |                                                                                   |   |       |                                                 |        |                    |         |         |              |        |        |             
|Cash paid for interest                           |                                                                                   | $ | 6,049 |                                                 |        | $                  | 7,542   |         |              | $      | 3,403  |             
|Cash paid for taxes                              |                                                                                   | $ | 0     |                                                 |        | $                  | 56      |         |              | $      | 2,084  |             

The accompanying notes are an integral part of the consolidated financial statements.

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AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business Description and Significant Accounting Policies

Business Description

American Medical Systems, Inc., predecessor to American Medical Systems
Holdings, Inc. (collectively, the Company or AMS), was a business unit
within Pfizer Inc. until September 10, 1998 when it, and certain net assets
exclusively used in its business, was acquired by a group of private investors.
The Company manufactures and markets a broad and well-established line of
proprietary surgical products directly to urologists and gynecologists. The
Company principally focuses on the three major urological disorders:
incontinence, erectile dysfunction and prostate disease.

Principles of Consolidation

The consolidated financial statements include the accounts of American Medical
Systems Holdings, Inc. and its subsidiaries after elimination of all
significant intercompany transactions and accounts. In March 2000, American
Medical Systems, Inc. formed American Medical Systems Holdings, Inc. In April
2000, the stockholders of American Medical Systems, Inc. exchanged all of their
outstanding shares of capital stock of American Medical Systems, Inc. for an
identical number of shares of the same class and series of capital stock of
American Medical Systems Holdings, Inc. No change in ownership occurred as a
result of this reorganization, and the reorganization was accounted for as a
reorganization of entities under common control. Accordingly, this
reorganization had no effect on the Companys financial statements.

Cash and Cash Equivalents

For financial reporting purposes, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. The Companys cash and cash equivalent balances are
concentrated primarily with one investment manager and the majority is invested
in daily money market funds.

Short and Long-Term Investments

The Company considers investments with an original maturity longer than three
months but less than one year short-term investments. Investments with an
original maturity longer than one year are classified as long-term investments.
The Companys investments are concentrated primarily with one investment
manager and are invested in asset backed securities, commercial paper,
corporate bonds, and government securities. Investments are classified as
available for sale and are carried at cost, which approximates market.

Concentration of Risks

The Companys accounts receivable are primarily due from hospitals and
independent foreign distributors located mainly in the United States and
Western Europe. Although the Company does not require collateral from its
customers, concentrations of credit risk in the United States are somewhat
mitigated by a large number of geographically dispersed customers. The Company
does not presently anticipate credit risk associated with foreign trade
receivables, although collection could be impacted by the underlying economies
of the respective countries.

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Inventories

The majority of inventories are stated at the lower of cost, determined on the
first-in, first-out method, or market. At the date the Company was acquired
from Pfizer Inc., inventories were recorded at fair value requiring a $21.8
million write-up. This write-up was charged to the statement of operations
over a six-month period ended March 31, 1999, representing an estimate of the
period over which inventories were sold. Cost of sales was charged $11.6
million in the first quarter of 1999 relating to this write-up.

Property, Plant and Equipment

Property, plant and equipment, including internal and external costs of
computer software, are carried at cost less accumulated depreciation.
Depreciation and amortization are generally recorded using the straight-line
method over the following estimated useful asset lives:

|                              |  |            |  | 
|----------------------------- |  | ---------- |  | 
|Building                      |  | 20 years  
|Machinery and equipment       |  | 8-12 years
|Furniture, fixtures and other |  | 3-12 years
|Software                      |  | 3-5 years 

Maintenance, repairs and minor improvements are charged to expense as incurred
while major betterments and renewals are capitalized. When assets are sold or
retired, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is included in operations.

Intangible Assets, Including Goodwill

Intangible assets consist of goodwill and purchased intangibles related to
workforce, patents, non-compete agreements, tradename, and developed research
and development technologies. Intangible assets are being amortized on a
straight-line basis over periods ranging principally from 10 to 25 years. The
Company continually evaluates the periods of amortization to determine whether
events and circumstances, such as effects of competition, obsolescence and
other economic factors, warrant revision of the useful lives. The Company
assesses the recoverability of goodwill from future operations using cash flows
of the related acquired business as a measure. Under this approach, the
carrying value of goodwill would be reduced if it becomes probable that the
estimated expected undiscounted future cash flows of the related business are
less than the carrying amount of goodwill over its remaining amortization
period. If an impairment exists, the Company measures the impairment utilizing
discounted cash flows. See Footnote No. 13 for further information regarding
the Companys implementation of Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations, and Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, effective for
the Companys fiscal year beginning December 30, 2001.

Long-Lived Assets

The Company follows Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed of. SFAS No. 121 requires the long-lived assets, including
goodwill, be reviewed for impairment whenever events or circumstances indicate
the carrying amount of an asset may not be recoverable. The Company evaluates
potential impairment by comparing the carrying amount of the assets with the
estimated cash flows associated with them. If an impairment exists, the
Company measures the impairment utilizing discounted cash flows. See Footnote
No. 13 for further information regarding the Companys implementation of
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal on Long-Lived Assets, effective for the Companys fiscal
year beginning December 30, 2001.

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Revenue Recognition

A significant portion of Company revenue is generated from inventory
temporarily loaned to customers or from consigned inventory maintained at
hospitals or with field representatives. For these, revenue is recognized at
the time the Company is notified that the product has been used or implanted.
In all other instances, revenue is recognized at the time product is shipped,
net of allowances for estimated returns.

Research and Development

Research and development costs are expensed as incurred.

Advertising Costs

Advertising costs are charged to operations in the year incurred. Advertising
costs charged to operations during the years ended December 31, 1999 and 2000,
and the year ended December 29, 2001, were $3.2 million, $2.6 million, and $2.1
million, respectively.

Product Warranty Costs

The Company provides a warranty on its products and accrues estimated future
warranty costs based on its history of actual warranty costs incurred.
Warranty costs are included as part of cost of sales.

Software Development Costs

The Company capitalizes certain costs incurred in connection with developing or
obtaining software for internal use in accordance with AICPA Statement of
Position 98-1, Accounting For Computer Software Developed For Or Obtained For
Internal Use.

Income Taxes

The Company accounts for income taxes using the liability method. The
liability method provides that deferred tax assets and liabilities are recorded
based on the differences between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes (temporary
differences) using enacted tax rates in effect in the years in which the
differences are expected to reverse. Temporary differences relate primarily to
the allowance for doubtful accounts, obsolete inventory allowances,
depreciation, and accruals for vacation, product liability and warranty costs.

Foreign Currency Translation

The financial statement amounts attributed to operations outside of the United
States are maintained in their local currency, except for Influence Medical
Technologies Ltd., where the United States dollar serves as the functional
currency. All assets and liabilities of the Companys international
subsidiaries are translated to United States dollars at year-end exchange
rates, while elements of the statement of operations are translated at average
exchange rates in effect during the year. Translation adjustments arising from
the use of differing exchange rates are included in accumulated other
comprehensive loss in stockholders equity. Gains and losses on foreign
currency transactions are included in operations and were not material during
the periods presented.

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Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant areas
which require the use of managements estimates relate to the determination of
the allowances for doubtful accounts receivable and obsolete inventories, the
period of goodwill amortization, the extent of required warranty reserve, the
extent of the contingency for product liability claims, and the need for a
valuation allowance on deferred tax assets. The Company is subject to risks
and uncertainties, such as changes in the health care environment, competition
and legislation that may cause actual results to differ from estimated results.

Earnings per Share

The following table presents information necessary to calculate basic and
diluted earnings per common share and common share equivalents for the years
ended December 31, 2000 and December 29, 2001. No data is presented for 1999
as the Company had no common shares or common share equivalents outstanding
during this period.

|                                                                                                    |  |      |        |  |      |   |        | 
|--------------------------------------------------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|(In thousands, except per share data)                                                               |  | 2000 |        |  | 2001 |  
|                                                                                                    |  |      |        |  |      |  
|Earnings                                                                                            |  | $    | 52     |  |      | $ | 6,530  | 
|Weighted-average shares outstanding for
basic earnings per share                                    |  |      | 10,478 |  |      |   | 29,792 | 
|Dilutive effect of stock options                                                                    |  |      | 2,331  |  |      |   | 2,276  | 
|Adjusted weighted-average shares outstanding and
assumed conversions for diluted earnings per share |  |      | 12,809 |  |      |   | 32,068 | 
|Basic earnings per share                                                                            |  | $    | 0.00   |  |      | $ | 0.22   | 
|Diluted earnings per share                                                                          |  | $    | 0.00   |  |      | $ | 0.20   | 

Accounting periods

Effective January 1, 2001, the Company changed its fiscal year end from a
calendar year ending on December 31 to a 52 or 53-week fiscal year ending on
the Saturday nearest December 31. Accordingly, the 2001 fiscal year ended on
December 29, 2001, whereas previous fiscal years ended on December 31. The
effect of this change was not material to the Companys financial condition or
results of operations. No report was filed to cover the transition period as
activity during this period was deemed to be immaterial. All fiscal quarters
will end on the Saturday nearest the end of the calendar quarter.

Reclassification

Certain 1999 and 2000 amounts have been reclassified to conform to the 2001
presentation.

2. Acquisitions

Influence

On December 16, 1999, the Company acquired Influence Inc., a supplier of bone
anchors and sling products used in the treatment of female incontinence. The
Company paid the former shareholders of Influence, Inc. $24.3 million at the
closing of the acquisition and capitalized $3.2 million related to transaction
and transition costs. The Company made contingent purchase price payments of
$7.8 million as various milestones related to transitional and integration
activities were completed by various dates ending on December 17, 2001. The
Company has made all milestone payments. In addition, the Company made
contingent purchase price payments during April 2001 of approximately $7.9
million, net of settlement costs, following settlement of its litigation with
Boston Scientific Corporation. Per the

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acquisition agreement, certain
settlement costs were deductible from contingent purchase price payments.
These contingent purchase price payments and settlement costs have been
recorded as goodwill. In connection with this transaction, the Company
expensed $6.1 million of acquired in-process research and development, and
recorded $6.6 million of goodwill and other intangibles including $9.9 million
of developed research technology, $2.2 million of tradename, $1.1 million
related to non-compete agreements, and $0.5 million related to the workforce.
In September 2001, the Company acquired the minority interest relating to the
original acquisition of Influence, Inc., and in December 2001 made the final
milestone payment relating to this minority interest, by issuing 214,436 shares
of common stock valued at $3.2 million. The issuance of this common stock has
been recorded as goodwill.

The Companys consolidated statements of operations include Influences
financial results from the December 16, 1999 date of acquisition. The
following provides Company results on a pro forma basis including Influence as
if the acquisition occurred at the beginning of the year presented (in
thousands):

|         |  |  |  |  |  |                   |        |   |           |   |         |  
|-------- |  |  |  |  |  | ----------------- | ------ | - | --------- | - | ------- | -
|         |  |  |  |  |  | Year Ended        |       
|         |  |  |  |  |  | December 31, 1999 |       
|         |  |  |  |  |  |                   |       
|         |  |  |  |  |  | As Reported       |        |   | Pro forma |  
|         |  |  |  |  |  |                   |        |   |           |  
|Revenues |  |  |  |  |  | $                 | 81,353 |   |           | $ | 92,506  |  
|Net loss |  |  |  |  |  | $                 | (9,849 | ) |           | $ | (16,057 | )

UroSurge

On August 3, 1999, the Company acquired all assets related to its UroVive
Microballoon System for the treatment of female stress urinary incontinence.
The Company paid UroSurge, Inc. $4.2 million at the closing of the acquisition.
In addition, the Company has agreed to pay royalties on net sales generated by
the acquired products through December 2003. UroSurge did not successfully
meet certain additional milestones and consequently the Company was not
obligated to make any additional payments. In connection with this
transaction, the Company expensed $1.3 million of acquired in-process research
and development and recorded intangible assets of $2.2 million related to
developed research technology and $0.2 million of licensed patents.

Investments in Technology

On October 4, 1999, the Company signed an exclusive,
long-term agreement with
InjecTx to distribute its injection system worldwide. The Company made an
initial $2.0 million equity investment in InjecTx in October 1999 and an
additional $1.5 million equity investment in InjecTx in March 2001. The
Company is also required to invest up to an additional $1.0 million of equity
if certain additional clinical study milestones are achieved. The Company
currently owns 16% of the capital stock of InjecTx. This investment will
continue to be accounted for on a cost basis.

On January 5, 2001, the Company made a $3.0 million equity investment in
Collagenesis Corporation. At the time of the investment, Collagenesis was
working with its existing debt holders to exchange its outstanding debt into
equity and raise additional capital. Pursuant to the terms of the agreement
with Collagenesis, the Company converted its equity position into a $3.0
million 10% Senior Subordinated Convertible Voting Promissory Note in April
2001. In December 2001, Collagenesis declared bankruptcy and is currently
working on a plan of dissolution. Generally accepted accounting principles
require that investments such as the Companys investment in Collagenesis be
reviewed for impairment whenever events or circumstances indicate the carrying
amount of an asset may not be recoverable. The Company considers Collagenesis
bankruptcy and plan of dissolution such an event requiring such a review.
Based on this review, the Company has determined that an impairment in its
Collagenesis investment exists. Accordingly, the investment has been written
off and charged to other expense.

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In-process Research and Development

In connection with the acquisitions of Influence and from UroSurge, the Company
conducted a valuation of the intangible assets acquired. The value assigned to
purchased in-process research and development (IPR&D) was $6.1 million and
$1.3 million of the purchase price for Influence and UroSurge, respectively.
IPR&D represented purchased in-process research and development that had not
yet reached technological feasibility and had no alternative future use.
Accordingly, these amounts were expensed during 1999 following consummation of
the acquisitions. The value assigned to IPR&D was determined by identifying
research projects in areas for which technological feasibility had not been
achieved. The value was determined by estimating the costs to develop the
IPR&D into commercially viable products, estimating the resulting cash flows
from such products, and discounting the net cash flows back to their present
value.

The Company estimated costs required to obtain regulatory approvals and has
assumed the approvals will be received. Costs related to manufacturing,
distribution, and marketing of the products are included in the projections.
The resulting cash flows from such projects are based on managements estimates
of revenues, cost of sales, research and development costs, sales and
marketing, general and administrative, and the anticipated income tax effect.
The Company does not expect gross margins or expense levels to significantly
change following introduction of these products. The discounted rates utilized
in discounting the net cash flows from purchased in-process research and
development were 23% for Influence products and 35% for UroSurge products.
These discount rates reflect uncertainties surrounding the successful
development of the purchased in-process research and development.

The forecast data employed in the analyses was based upon internal product
level forecast information. The forecast data and assumptions are inherently
uncertain and unpredictable. However, based upon the information available at
this time, management believes the forecast data and assumptions to be
reasonable. These assumptions may be incomplete or inaccurate, and no
assurance can be given that unanticipated events and circumstances will not
occur. Unless otherwise noted, forecasts and assumptions have not changed
materially from the date the appraisals were completed.

3. Transition and Reorganization Expense

In the first quarter of 1999, the Company completed an assessment of senior
management personnel needs and also completed a strategic review of its
research and development efforts. As a result of this review, the Company
incurred $3.0 million of transition and reorganization expenses for the year
ended December 31, 1999 primarily related to employee termination benefits and
executive search recruiting fees. Twenty-two employees were terminated as a
result of this reorganization. In the second quarter of 2000, the Company
completed another assessment of senior management personnel needs. As a result
of this review, the Company incurred $1.0 million of transition and
reorganization expenses for the year ended December 31, 2000, primarily related
to employee termination benefits. Seven employees were terminated as a result
of this reorganization. In the third quarter of 2001, the Company completed
another assessment of senior management personnel needs. As a result of this
review, the Company incurred $1.0 million of transition and reorganization
expenses for the year ended December 29, 2001. Four employees resigned or were
terminated as a result of this reorganization. The Company expects
substantially all of these benefits to be paid by September 30, 2002.

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Below is a summary of transition and reorganization expenditures (in
thousands):

|                             |  |           |        |   |         |              |      |      |              |   |      |        |           |       |      |   |       |   |      |   |  |   |        |  
|---------------------------- |  | --------- | ------ | - | ------- | ------------ | ---- | ---- | ------------ | - | ---- | ------ | --------- | ----- | ---- | - | ----- | - | ---- | - |  | - | ------ | -
|                             |  |           |        |   |         | Acceleration |      |      |              |   |      |        |           |       |      |   |       |   |      |   |  |   |       
|                             |  |           |        |   |         | Stock        |      |      |              |   |      |        | Executive |       |      |   |       |   |      |   |  |  
|                             |  |           |        |   |         | Option       |      |      | Professional |   |      | Search |           |       |      |   |       |   |      |   | 
|                             |  | Severance |        |   | Vesting |              |      | Fees |              |   | Fees |        |           | Other |      |   | Total |  
|                             |  |           |        |   |         |              |      |      |              |   |      |        |           |       |      |   |       |  
|Balance at
December 31, 1998 |  | $         | 667    |   |         | $            | 0    |      |              | $ | 439  |        |           | $     | 0    |   |       | $ | 129  |   |  | $ | 1,235  |  
|Accrued                      |  |           | 2,490  |   |         |              |     |      |              |   | 145  |        |           |       | 314  |   |       |   | 51   |   |  |   | 3,000  |  
|Paid                         |  |           | (2,279 | ) |         |              |     |      |              |   | (584 | )      |           |       | (314 | ) |       |   | (129 | ) |  |   | (3,306 | )
|                             |  |           |        |   |         |              |      |      |              |   |      |        |           |       |      |   |       |  
|Balance at
December 31, 1999 |  |           | 878    |   |         |              |     |      |              |   |     |        |           |       |     |   |       |   | 51   |   |  |   | 929    |  
|Accrued                      |  |           | 1,000  |   |         |              |     |      |              |   |     |        |           |       |     |   |       |   |     |   |  |   | 1,000  |  
|Paid                         |  |           | (1,213 | ) |         |              |     |      |              |   |     |        |           |       |     |   |       |   |     |   |  |   | (1,213 | )
|                             |  |           |        |   |         |              |      |      |              |   |      |        |           |       |      |   |       |  
|Balance at
December 31, 2000 |  |           | 665    |   |         |              |     |      |              |   |     |        |           |       |     |   |       |   |     |   |  |   | 665    |  
|Accrued                      |  |           | 222    |   |         |              | 747  |      |              |   | 31   |        |           |       |     |   |       |   |     |   |  |   | 1,000  |  
|Paid                         |  |           | (695   | ) |         |              | (747 | )    |              |   | (31  | )      |           |       |      |   |       |   |     |   |  |   | (1,473 | )
|                             |  |           |        |   |         |              |      |      |              |   |      |        |           |       |      |   |       |   |     
|Balance at
December 29, 2001 |  | $         | 192    |   |         | $            | 0    |      |              | $ | 0    |        |           | $     | 0    |   |       | $ | 0    |   |  | $ | 192    |  
|                             |  |           |        |   |         |              |      |      |              |   |      |        |           |       |      |   |       |  

4. Balance Sheet Information

The following provides additional information concerning selected balance sheet
accounts (in thousands):

|                                    |                                 |   |              |        |   |              |         |        |  
|----------------------------------- | ------------------------------- | - | ------------ | ------ | - | ------------ | ------- | ------ | -
|                                    |                                 |   | December 31, |        |   | December 29, |        
|                                    |                                 |   | 2000         |        |   | 2001         |        
|                                    |                                 |   |              |        |   |              |        
|Accounts receivable, net:           |                                 |   |              |        |   |              |         |       
|                                    | Trade accounts receivable       |   | $            | 22,578 |   |              | $       | 24,926 |  
|                                    | Other receivables               |   |              | 1,734  |   |              |         | 1,182  |  
|                                    | Allowance for doubtful accounts |   |              | (696   | ) |              |         | (802   | )
|                                    |                                 |   |              |        |   |             
|                                    |                                 | $ | 23,616       |        |   | $            | 25,306  |       
|                                    |                                 |   |              |        |   |             
|Inventories:                        |                                 |   |              |        |   |              |         |       
|                                    | Raw materials                   |   | $            | 3,079  |   |              | $       | 3,366  |  
|                                    | Work-in-progress                |   |              | 2,699  |   |              |         | 2,210  |  
|                                    | Finished goods                  |   |              | 7,036  |   |              |         | 11,114 |  
|                                    | Obsolescence reserve            |   |              | (3,140 | ) |              |         | (2,699 | )
|                                    |                                 |   |              |        |   |             
|                                    |                                 | $ | 9,674        |        |   | $            | 13,991  |       
|                                    |                                 |   |              |        |   |             
|Property, plant and equipment, net: |                                 |   |              |        |   |              |         |       
|                                    | Land and building               |   | $            | 13,289 |   |              | $       | 13,664 |  
|                                    | Machinery and equipment         |   |              | 10,061 |   |              |         | 12,567 |  
|                                    | Furniture, fixtures and other   |   |              | 3,093  |   |              |         | 2,764  |  
|                                    | Software                        |   |              | 5,919  |   |              |         | 5,872  |  
|                                    |                                 |   |              |        |   |             
|                                    |                                 |   | 32,362       |        |   |              | 34,867  |       
|Accumulated depreciation            |                                 |   | (7,589       | )      |   |              | (11,263 | )     
|                                    |                                 |   |              |        |   |             
|                                    |                                 | $ | 24,773       |        |   | $            | 23,604  |       
|                                    |                                 |   |              |        |   |             
|Goodwill, net:                      |                                 |   |              |        |   |              |         |       
|Goodwill                            |                                 | $ | 86,826       |        |   | $            | 96,761  |       
|Accumulated amortization            |                                 |   | (8,812       | )      |   |              | (14,396 | )     
|                                    |                                 |   |              |        |   |             
|                                    |                                 | $ | 78,014       |        |   | $            | 82,365  |       
|                                    |                                 |   |              |        |   |             
|Intangible assets, net:             |                                 |   |              |        |   |              |         |       
|                                    | Developed technologies          |   | $            | 12,073 |   |              | $       | 12,073 |  
|                                    | Patents                         |   |              | 9,683  |   |              |         | 9,683  |  
|                                    | Other                           |   |              | 3,031  |   |              |         | 4,535  |  
|                                    |                                 |   |              |        |   |             
|                                    |                                 |   | 24,787       |        |   |              | 26,291  |       
|Accumulated amortization            |                                 |   | (5,070       | )      |   |              | (9,173  | )     
|                                    |                                 |   |              |        |   |             
|                                    |                                 | $ | 19,717       |        |   | $            | 17,118  |       
|                                    |                                 |   |              |        |   |             

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5. Long-Term Debt

Senior Credit Facility

In April 2000, the Company established a new credit facility. The new facility
consisted of a $65.0 million term note, a $35.0 million guaranteed note, and a
$15.0 million guaranteed revolving line of credit. Subsequent to December 31,
2000, the guarantee on the revolving line of credit was removed. The Company
used proceeds from its initial public offering to pay $35.0 million outstanding
under the guaranteed note and approximately $6.0 million under its then
guaranteed revolving line of credit. On June 30, 2000, September 30, 2000, and
December 30, 2000, the Company also made quarterly principal payments
aggregating $5.5 million under the $65.0 million term note. On September 30,
2000, the Company also prepaid $15.0 million under the $65.0 million term note
reducing required quarterly principal payments. On March 30, 2001, June 29,
2001, and September 29, 2001, the Company made quarterly principal payments
aggregating $4.1 million. On July 2, 2001, the Company also prepaid $11.5
under the $65.0 million term note again reducing required quarterly principal
payments. The term note now requires quarterly principal payments of $1.1
million through March 2002, $1.4 million from June 2002 through March 2003,
$1.6 million from June 2003 through March 2004, and $1.8 million from June 2004
through March 2006.

The Company has an interest swap agreement covering $30.0 million of the term
note, essentially establishing a fixed rate of 10.065% on this portion of the
debt. The remainder of the term note bears interest, payable quarterly, at the
Base Rate (the higher of the Federal Funds rate plus 0.5% or the Prime Rate)
plus from 1% to 2% for Base Rate loans or LIBOR plus 2% to 3% for Eurodollar
loans. Throughout 2000, the guaranteed portion of this facility carried
interest at the Base Rate for Base Rate loans or LIBOR plus 0.875% for
Eurodollar loans. Following the release of the guarantee, the revolving line
of credit now bears interest at the same rates as the term note. On December
29, 2001, the Base Rate was 5.75% and LIBOR was 3.91%. Through December 29,
2001, the Company has only requested Eurodollar loans.

The debt carrying value of the $28.9 million outstanding at December 29, 2001
approximates fair value estimated using the Companys incremental borrowing
rate for similar liabilities. The senior credit facility is secured by
substantially all of the Companys assets. The Company is subject to, and is
in compliance with, certain covenants including ratios related to fixed charge
coverage and leverage. The Company is prohibited from paying dividends under
its senior credit facility without the lenders consent.

Derivatives and Hedging

The Company adopted Statement of Financial Accounting Standards No. 133, as
amended by SFAS No. 138, Accounting for Derivative Instruments and Hedging
Activities, on January 1, 2001. SFAS 133 requires that all derivatives be
recorded on the consolidated balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in earnings or other
comprehensive income (loss) (OCI) depending on the type of hedging instrument
and the effectiveness of those hedges. In accordance with the transition
provisions of SFAS 133, the Company recorded a cumulative loss adjustment to
OCI of $0.7 million, after taxes, to recognize the fair value of its
derivatives as of the date of adoption.

All of the derivatives used by the Company have been designated as cash flow
hedges at the time of adoption of SFAS 133. The effective portion of the
cumulative gain or loss on the derivative instrument is reported as a component
of OCI in stockholders equity and recognized into earnings in the same period
or periods during which the hedged transaction affects earnings. The
ineffective portion of the derivative instrument, if any, is reported as part
of interest expense and was immaterial in 2001. All derivatives are adjusted
to their fair market values at the end of each quarter. Unrealized net gains
and losses for cash flow hedges, net of any amounts reported as part of
interest expense, are recorded in OCI.

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The Companys credit risk related to derivatives is considered low because they
are entered into with only strong creditworthy counterparties.

As of December 29, 2001, all of the Companys derivatives, designated as
hedges, are interest rate swaps but did not qualify for evaluation using the
short cut method for assessing effectiveness as all critical terms of the swap
did not match those of the variable rate note. As such, there is an assumption
of ineffectiveness. The Company hedged a portion of its original $65.0 million
variable rate term note, as required by its senior credit facility, by entering
into an interest rate swap agreement in which the Company agrees to exchange,
at specified intervals, the calculated difference between the fixed interest
rate of the swap and the variable interest rate on a portion of its debt. This
interest rate swap agreement expires June 30, 2003. The Company expects that
pre-tax losses totaling approximately $1.3 million, which are recorded in OCI
at December 29, 2001 and represent the difference between the fixed rate of the
swap agreement and variable interest of the term note, will be recognized
within the next twelve months as part of interest expense. At December 29,
2001, the fair value of the interest rate swap, based upon quoted market prices
for contracts with similar maturities, was approximately $1.9 million. For the
year end December 29, 2001, unrealized net losses totaling $1.6 million after
taxes, were recorded in OCI. Pre-tax realized losses of $0.9 million were
transferred to interest expense from OCI.

6. Investments

The Companys investments are classified as available-for-sale and are carried
at cost, which approximates market. At December 29, 2001, the Company had
investments in debt securities, classified as available-for-sale, with a fair
market value and cost of $27.8 million.

The contractual maturities of these available-for-sales debt securities as on
December 29, 2001, were as follows:

|                      |  |          |       |  |      |        |        |       |  |   |        | 
|--------------------- |  | -------- | ----- |  | ---- | ------ | ------ | ----- |  | - | ------ | 
|                      |  | Years    |       |  |      |        |       
|                      |  |          |       |  |      |        |       
|                      |  |          |       |  |      | Over 1 |        |       |  |   |       
|                      |  | Within 1 |       |  | to 5 |        |        | Total | 
|                      |  |          |       |  |      |        |        |       | 
|Asset-backed debt     |  | $        | 0     |  |      | $      | 13,615 |       |  | $ | 13,615 | 
|Commercial paper debt |  |          | 993   |  |      |        |       |       |  |   | 993    | 
|Corporate debt        |  |          | 5,433 |  |      |        | 2,065  |       |  |   | 7,498  | 
|U.S. agency debt      |  |          | 2,587 |  |      |        | 3,103  |       |  |   | 5,690  | 
|                      |  |          |       |  |      |        |        |       | 
|Total investments     |  | $        | 9,013 |  |      | $      | 18,783 |       |  | $ | 27,796 | 
|                      |  |          |       |  |      |        |        |       | 

7. Stockholders Equity

Public Offerings

In August 2000, the Company completed an initial public offering of 6,250,000
shares of common stock at an offering price of $11.00 per share. The Company
received proceeds of $62.9 million after deducting $5.8 million for
underwriting and issuance costs. Net proceeds were used for the retirement of
debt, working capital, and other general corporate purposes.

In July 2001, the Company completed a secondary public offering of 3,500,000
shares of common stock at an offering price of $16.40 per share. The Company
received proceeds of $53.8 million after deducting $3.7 million for
underwriting and issuance costs. Net proceeds were used for the retirement of
debt, working capital, and other general corporate purposes.

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Preferred Stock

In conjunction with the Companys initial public offering of common stock, all
outstanding shares of Preferred Stock and cumulative dividends were converted
into shares of voting and non-voting common stock. Series A Preferred Stock
and accumulated dividends totaling $32.5 million were converted into 242,895
shares of voting common stock and 2,712,945 shares of non-voting common stock.
Series B Preferred Stock and accumulated dividends totaling $3.8 million were
converted into 2,265,939 shares of voting common stock. Series C Preferred
Stock and accumulated dividends totaling $18.9 million were converted into
11,355,297 shares of non-voting common stock. Series D Preferred Stock and
accumulated dividends totaling $3.5 million were converted into 1,057,014
shares of voting common stock. Series E Preferred Stock and accumulated
dividends totaling $12.1 million were converted into 3,634,959 shares of
non-voting common stock. Subsequent to the Companys initial public offering,
15,330,260 shares of non-voting common stock have been converted into voting
common stock. In addition, since conversion, Series A through E of Preferred
Stock have been cancelled and are not re-issuable.

Stock Incentive Plan

The Companys 2000 Equity Incentive Plan, as amended (Plan) provides for
granting to eligible employees and certain other individuals nonqualified and
incentive stock options. The Company has reserved 5,355,000 shares of common
stock for issuance under the Plan at December 29, 2001. Options granted under
the Plan generally become exercisable 25% on the first anniversary date of the
grant and 6.25% per quarter thereafter. The options typically expire, if not
exercised, ten years after the date of grant. Options are granted at the fair
market value on the date of the grant. Activity in the Plan was as follows:

|                             |                         |  |           |           |   |                |          |       | 
|---------------------------- | ----------------------- |  | --------- | --------- | - | -------------- | -------- | ----- | 
|                             |                         |  |           |           |   |                | Weighted |      
|                             |                         |  |           |           |   |                | Average  |      
|                             |                         |  | Number    |           |   | Exercise Price |         
|                             |                         |  | of Shares |           |   | Per Share      |         
|                             |                         |  |           |           |   |                |         
|Balance at December 31, 1998 |                         |  | 450,000   |           |   | $              | 1.67     |      
|                             | Granted                 |  |           | 3,021,000 |   |                | $        | 1.67  | 
|                             | Cancelled or terminated |  |           | (777,000  | ) |                | $        | 1.67  | 
|                             |                         |  |           |           |   |               
|Balance at December 31, 1999 |                         |  | 2,694,000 |           |   | $              | 1.67     |      
|                             | Granted                 |  |           | 878,150   |   |                | $        | 7.76  | 
|                             | Exercised               |  |           | (245,779  | ) |                | $        | 1.67  | 
|                             | Cancelled or terminated |  |           | (180,301  | ) |                | $        | 2.00  | 
|                             |                         |  |           |           |   |               
|Balance at December 31, 2000 |                         |  | 3,146,070 |           |   | $              | 3.35     |      
|                             | Granted                 |  |           | 899,875   |   |                | $        | 13.23 | 
|                             | Exercised               |  |           | (424,938  | ) |                | $        | 1.74  | 
|                             | Cancelled or terminated |  |           | (123,327  | ) |                | $        | 4.78  | 
|                             |                         |  |           |           |   |               
|Balance at December 29, 2001 |                         |  | 3,497,680 |           |   | $              | 6.03     |      
|                             |                         |  |           |           |   |               

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Options to purchase 1,186,603 common shares are available for grant under the
Plan at December 29, 2001. At December 29, 2001, the weighted-average
remaining contractual life of outstanding options was 8.1 years. At December
31, 1999, December 31, 2000, and December 29, 2001, 390,376, 1,072,244, and
1,376,780 shares, respectively, were exercisable. Exercise prices for options
outstanding as of December 29, 2001 are summarized as follows:

|                 |  |            |                     |  |             |                     |          |          |          |  |           |  |           |          |  |          |       |  |  |  | 
|---------------- |  | ---------- | ------------------- |  | ----------- | ------------------- | -------- | -------- | -------- |  | --------- |  | --------- | -------- |  | -------- | ----- |  |  |  | 
|                 |  |            | Options Outstanding |  |             | Options Exercisable |         
|                 |  |            |                     |  |             |                     |         
|                 |  |            |                     |  |             |                     | Weighted |          |          |  |           |  |           |          |  |          |       |  |  | 
|                 |  |            | Number              |  |             | Average             |          |          | Weighted |  |           |  |           |          |  | Weighted |      
|                 |  |            | Outstanding         |  |             | Remaining           |          |          | Average  |  |           |  |           |          |  | Average  |      
|Range of         |  | as of      |                     |  | Contractual |                     |          | Exercise |          |  | Number    |  |           | Exercise | 
|Exercise Prices  |  | 12/29/2001 |                     |  | Life        |                     |          | Price    |          |  | of Shares |  |           | Price    | 
|                 |  |            |                     |  |             |                     |          |          |          |  |           |  |           |          | 
|$  1.67          |  |            | 2,042,835           |  |             | 7.3 years           |          | $        | 1.67     |  |           |  | 1,220,980 |          |  | $        | 1.67  | 
|$  6.67 - $11.49 |  |            | 647,400             |  |             | 8.9 years           |          | $        | 9.11     |  |           |  | 86,530    |          |  | $        | 8.08  | 
|$12.56 - $17.00  |  |            | 807,445             |  |             | 9.2 years           |          | $        | 14.63    |  |           |  | 69,270    |          |  | $        | 12.73 | 
|                 |  |            |                     |  |             |                     |          |          |          |  |           |  |           |          | 
|                 |  |            | 3,497,680           |  |             | 8.1 years           |          | $        | 6.03     |  |           |  | 1,376,780 |          |  | $        | 2.63  | 
|                 |  |            |                     |  |             |                     |          |          |          |  |           |  |           |          | 

The Company has elected to follow Accounting Principles Opinion No. 25,
Accounting for Stock Issued to Employees(APB 25) and related interpretations
in accounting for employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation(Statement 123), requires use of
option valuation models that were not developed for use in valuing employee
stock options. The exercise price of the Companys employee stock options
generally equal the market price of the underlying stock on the date of grant
for all options granted, and thus, under APB 25, no compensation expense is
recognized. However, during 2000, the Company recognized deferred compensation
of $1.4 million, reflecting the excess of the fair value of the underlying
stock on the date of grant over the exercise price. The deferred compensation
is being amortized over vesting periods of two to four years.

Pro forma information regarding net income (loss) and income (loss) per share
is required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
Statement 123. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:

|                                         |  |         |      |         |      |         |               |      |  |  |       |  
|---------------------------------------- |  | ------- | ---- | ------- | ---- | ------- | ------------- | ---- |  |  | ----- | -
|                                         |  | 1999    |      |         | 2000 |         |               | 2001 | 
|                                         |  |         |      |         |      |         |               |      | 
|Risk free interest rate                  |  |         | 4.63 | %       |      |         | 5.75          | %    |  |  | 4.25  | %
|Stock price volatility                   |  |         | 0.10 | %       |      |         | 0.10% - 82.56 | %    |  |  | 45.82 | %
|Expected dividend rate                   |  |         | 0    | %       |      |         | 0             | %    |  |  | 0     | %
|Weighted-average expected life
of option |  | 5 years |      | 5 years |      | 5 years

Had compensation costs for option grants been determined consistent with
Statement 123, the Companys net income (loss), on a pro forma basis, would
have been as follows:

|                                        |  |      |        |   |      |   |      |      |  |   |       | 
|--------------------------------------- |  | ---- | ------ | - | ---- | - | ---- | ---- |  | - | ----- | 
|(thousands, except per share amounts)   |  | 1999 |        |   | 2000 |   |      | 2001 | 
|                                        |  |      |        |   |      |   |      |      | 
|Net income (loss) as reported           |  | $    | (9,849 | ) |      | $ | 52   |      |  | $ | 6,530 | 
|Pro forma net income (loss)             |  | $    | (9,751 | ) |      | $ | (26  | )    |  | $ | 5,677 | 
|Basic earnings per share, as reported   |  |      |        |   |      | $ | 0.00 |      |  | $ | 0.22  | 
|Pro forma earnings per share            |  |      |        |   |      | $ | 0.00 |      |  | $ | 0.19  | 
|Diluted earnings per share, as reported |  |      |        |   |      | $ | 0.00 |      |  | $ | 0.20  | 
|Pro forma diluted earnings per share    |  |      |        |   |      | $ | 0.00 |      |  | $ | 0.18  | 

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The weighted average fair value of options granted during 1999, 2000, and 2001
was $1.07, $3.98, and $6.03, respectively.

In managements opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options because
the Companys employee stock options have characteristics significantly
different from those of traded options and have vesting restrictions and
because changes in the subjective input assumptions can materially affect the
fair value estimates. The Black-Scholes option valuation model was developed
for use in estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require input of highly subjective assumptions.

Employee Stock Purchase Plan

On May 24, 2000, the Companys board of directors adopted, and the shareholders
approved, the American Medical Systems Holdings, Inc. Employee Stock Purchase
Plan (ESPP). A total of 300,000 common shares were reserved for issuance
under the ESPP. The ESPP allows employees to elect, at three-month intervals,
to contribute up to 10% of their compensation, subject to certain limitations,
to purchase shares of common stock at the lower of 85% of the fair market value
on the first day or last day of each three-month period. At December 29, 2001,
54,642 shares had been issued under the ESPP.

8. Commitments and Contingent Liabilities

The Company is self-insured on product liability claims below $1 million for
each occurrence and $3 million in the aggregate, and maintains product
liability insurance above these limitations. Product liability events and
claims prior to the September 10, 1998 acquisition of the Company from Pfizer
are the responsibility of Pfizer.

The Company is involved in a number of claims and lawsuits considered normal in
its business, including product liability matters. While it is not possible to
predict the outcome of legal actions brought against the Company, the Company
believes that the liability resulting from the pending claims and suits would
not have a material adverse effect on the results of its operations, cash
flows, or financial position at December 29, 2001, or for the year then ended.

The Company had future minimal rental payments as of December 29, 2001, as
follows: $451,000 for 2002, $203,000 for 2003, $122,000 for 2004, and $39,000
for 2005.

Rent expense for the years ended December 31, 1999 and 2000, and December 29,
2001 was $1.6 million, $1.5 million, and $1.6 million, respectively.

9. Industry Segment Information and Foreign Operations

Since its inception, the Company has operated in the single industry segment of
developing, manufacturing and marketing medical devices.

The Company distributes its products through its direct sales force and
independent sales representatives in the United States, Canada, and most of
Europe. Additionally, the Company distributes its products through foreign
independent distributors, primarily in Europe and Asia, who then market the
products directly to medical institutions. No customer or distributor
accounted for 10% or more of the Companys net sales during years ended
December 31, 1999 and 2000, and December 29, 2001. Foreign subsidiary sales
are predominantly to customers in Western Europe, Australia, and Canada.
Substantially all of the Companys foreign subsidiary assets are located in
Western Europe, Australia, and Canada. At December 31, 2000 and December 29,
2001, consolidated accounts receivable included $7.2 million and $5.8 million,
respectively, due from customers located outside of the United States.

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The following table presents net sales and long-lived assets by geographical
territory. No individual foreign countrys net sales or long-lived assets are
material.

|              |                   |      |            |         |      |  |   |         |  |  |   |         | 
|------------- | ----------------- | ---- | ---------- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|              |                   |      | Year Ended
|              |                   |      |           
|(thousands)   |                   | 1999 |            |         | 2000 |  |   | 2001    | 
|              |                   |      |            |         |      |  |   |         | 
|United States |                   |      |            |         |      |  |   |         |  |  |   |        
|              | Net Sales         |      | $          | 62,920  |      |  | $ | 81,670  |  |  | $ | 97,069  | 
|              | Long-lived assets |      | $          | 114,401 |      |  | $ | 110,522 |  |  | $ | 113,481 | 
|Foreign       |                   |      |            |         |      |  |   |         |  |  |   |        
|              | Net sales         |      | $          | 18,433  |      |  | $ | 18,647  |  |  | $ | 20,869  | 
|              | Long-lived assets |      | $          | 14,751  |      |  | $ | 14,076  |  |  | $ | 13,619  | 

10. Pension and Postretirement Benefits

The Company had pension plans covering most employees worldwide. For U.S.
employees, the Company sponsored the AMS Retirement Annuity Plan. Plan
benefits depended on years of service and employee final average earnings.
Participants vested in their benefits after as few as five years of service.

The Company sponsors a post-retirement plan in the United States, which
provides medical and life insurance benefits to retirees and their eligible
dependents. Employees are eligible if they meet age and service requirements
and qualify for retirement benefits. The Company does not fund other
post-retirement benefit plans, but contributes to the plans as benefits are
paid.

The following tables present reconciliations of the benefit obligation of the
plans, the plan assets of the pension plan and the funded status of the plans
(in thousands):

|                                         |                                                |   |         |        |   |                |        |        |      |   |        |       |   |   |        |        |  
|---------------------------------------- | ---------------------------------------------- | - | ------- | ------ | - | -------------- | ------ | ------ | ---- | - | ------ | ----- | - | - | ------ | ------ | -
|                                         |                                                |   | Pension |        |   | Other Benefits |       
|                                         |                                                |   |         |        |   |                |       
|                                         |                                                |   | 2000    |        |   | 2001           |        |        | 2000 |   |        | 2001  |  
|                                         |                                                |   |         |        |   |                |        |        |      |   |        |       |  
|Change in benefit obligation:            |                                                |   |         |        |   |                |        |        |      |   |        |       |   |   |        |       
|                                         | Benefit obligation at
beginning of year        |   | $       | 14,196 |   |                | $      | 16,695 |      |   | $      | 2,898 |   |   | $      | 2,757  |  
|                                         | Service cost                                   |   |         | 1,149  |   |                |        | 1,305  |      |   |        | 241   |   |   |        | 103    |  
|                                         | Interest cost                                  |   |         | 1,051  |   |                |        | 1,237  |      |   |        | 174   |   |   |        | 112    |  
|                                         | Actuarial (gains) or losses                    |   |         | 586    |   |                |        | 433    |      |   |        | (4    | ) |   |        | (92    | )
|                                         | Plan amendments                                |   |         |       |   |                |        |       |      |   |        |      |   |   |        | (1,106 | )
|                                         | Benefit payments                               |   |         | (287   | ) |                |        | (303   | )    |   |        | (27   | ) |   |        | (32    | )
|                                         | Curtailments                                   |   |         |       |   |                |        |       |      |   |        | (525  | ) |   |        | (16    | )
|                                         |                                                |   |         |        |   |                |        |        |      |   |        |      
|                                         | Benefit obligation at
end of year              |   | $       | 16,695 |   |                | $      | 19,367 |      |   | $      | 2,757 |   |   | $      | 1,726  |  
|                                         |                                                |   |         |        |   |                |        |        |      |   |        |      
|Change in plan assets:                   |                                                |   |         |        |   |                |        |        |      |   |        |       |   |   |        |       
|                                         | Fair value of plan assets
at beginning of year |   | $       | 12,697 |   |                | $      | 13,034 |      |   | $      | 0     |   |   | $      | 0      |  
|                                         | Actual return on
plan assets                   |   |         | 624    |   |                |        | 733    |      |   |        |      |   |   |        |       |  
|                                         | Employer contributions                         |   |         |       |   |                |        | 757    |      |   |        |      |   |   |        |       |  
|                                         | Benefit payments                               |   |         | (287   | ) |                |        | (303   | )    |   |        |      |   |   |        |       |  
|                                         |                                                |   |         |        |   |                |        |        |      |   |        |      
|Fair value of plan assets
at end of year |                                                | $ | 13,034  |        |   | $              | 14,221 |        |      | $ | 0      |       |   | $ | 0      |       
|                                         |                                                |   |         |        |   |                |        |        |      |   |        |      
|Funded status                            |                                                | $ | (3,661  | )      |   | $              | (5,146 | )      |      | $ | (2,757 | )     |   | $ | (1,726 | )     
|Prior service cost                       |                                                |   |        |        |   |                |       |        |      |   |       |       |   |   | (972   | )     
|Unrecognized net
actuarial (gain)        |                                                |   | (2,354  | )      |   |                | (889   | )      |      |   | (662   | )     |   |   | (763   | )     
|                                         |                                                |   |         |        |   |                |        |        |      |   |        |      
|Net amount of (accrued)
benefit cost     |                                                | $ | (6,015  | )      |   | $              | (6,035 | )      |      | $ | (3,419 | )     |   | $ | (3,461 | )     
|                                         |                                                |   |         |        |   |                |        |        |      |   |        |      

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The weighted-average assumptions used and the annual cost related to these
plans consist of:

|                                         |  |         |        |   |                |   |        |      |  |   |      |   |  |   |     |  
|---------------------------------------- |  | ------- | ------ | - | -------------- | - | ------ | ---- |  | - | ---- | - |  | - | --- | -
|                                         |  | Pension |        |   | Other Benefits |  
|                                         |  |         |        |   |                |  
|                                         |  | 2000    |        |   | 2001           |   |        | 2000 |  |   | 2001 |  
|                                         |  |         |        |   |                |   |        |      |  |   |      |  
|Discount rate                            |  |         | 7.5    | % |                |   | 7.5    | %    |  |   | 7.5  | % |  |   | 7.5 | %
|Rate of future compensation
increase     |  |         | 4.5    | % |                |   | 4.5    | %    |  |   | 4.5  | % |  |   | 4.5 | %
|Expected long-term return
on plan assets |  |         | 8.5    | % |                |   | 8.5    | %    |  |   | 0.0  | % |  |   | 0.0 | %
|Service cost                             |  | $       | 1,149  |   |                | $ | 1,305  |      |  | $ | 241  |   |  | $ | 103 |  
|Interest cost                            |  |         | 1,051  |   |                |   | 1,237  |      |  |   | 174  |   |  |   | 112 |  
|Amortization of net
actuarial losses     |  |         | (242   | ) |                |   | (638   | )    |  |   | (47  | ) |  |   | (92 | )
|Expected return on plan assets           |  |         | (1,079 | ) |                |   | (1,127 | )    |  |   |     |   |  |   |     |  
|                                         |  |         |        |   |                |   |        |      |  |   |      |  
|Net periodic benefit costs               |  | $       | 879    |   |                | $ | 777    |      |  | $ | 368  |   |  | $ | 123 |  
|                                         |  |         |        |   |                |   |        |      |  |   |      |  

An average increase of 6.5% in the cost of covered health care benefits was
assumed for 2002 and is projected to gradually decrease to 5.0% for 2004 and
remain at that level thereafter. Since the employee subsidy cap is close to
being reached, the health care cost trend rate sensitivity analysis is no
longer applicable.

Subsequent Event

On January 1, 2002, the Company terminated its AMS Retirement Annuity Plan
which covers substantially all U.S. employees hired before January 1, 2000.
Effective December 31, 2001, all benefits cease accrual with respect to service
and salary. Therefore, benefits were frozen as of that date. Plan assets will
be distributed to participants during fiscal 2002.

11. Savings and Investment Plan

The AMS Savings and Investment Plan (the plan) allows employees in the United
States to contribute a portion of their salaries to the plan. The Company
matches a portion of the contributions. The plan is intended to satisfy the
requirements of Section 401(a)(27) of the Internal Revenue Code. Generally,
all employees of the Company are eligible to participate in the plan. The
Company made contributions of $866,000, $944,000, and $1,073,000 for the years
ended December 31, 1999 and 2000, and for the year ended December 29, 2001.

12. Income Taxes

Components of the Companys income (losses) before income taxes are as follows
(in thousands):

|         |       |   |               |         |   |               |       |       |               |   |        |        | 
|-------- | ----- | - | ------------- | ------- | - | ------------- | ----- | ----- | ------------- | - | ------ | ------ | 
|         |       |   | Year Ended    |         |   | Year Ended    |       |       | Year Ended    |  
|         |       |   | Dec. 31, 1999 |         |   | Dec. 31, 2000 |       |       | Dec. 29, 2001 |  
|         |       |   |               |         |   |               |       |       |               |  
|Domestic |       | $ | (14,995       | )       |   | $             | 57    |       |               | $ | 11,915 |       
|Foreign  |       |   | (194          | )       |   |               | 1,364 |       |               |   | 487    |       
|         |       |   |               |         |   |               |       |       |              
|         | Total |   | $             | (15,189 | ) |               | $     | 1,421 |               |   | $      | 12,402 | 
|         |       |   |               |         |   |               |       |       |              

F-20



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##### Table of Contents



Components of the Companys income tax benefit (expense) are as follows (in
thousands):

|         |         |  |               |       |  |               |       |        |               |  |      |        |  
|-------- | ------- |  | ------------- | ----- |  | ------------- | ----- | ------ | ------------- |  | ---- | ------ | -
|         |         |  | Year Ended    |       |  | Year Ended    |       |        | Year Ended    | 
|         |         |  | Dec. 31, 1999 |       |  | Dec. 31, 2000 |       |        | Dec. 29, 2001 | 
|         |         |  |               |       |  |               |       |        |               | 
|Current  |         |  |               |       |  |               |       |        |               |  |      |       
|         | Federal |  | $             | 1,292 |  |               | $     | (1,648 | )             |  | $    | (4,431 | )
|         | State   |  |               | 838   |  |               |       | (296   | )             |  |      | (684   | )
|         | Foreign |  |               | 54    |  |               |       | (518   | )             |  |      | (185   | )
|Deferred |         |  | 3,156         |       |  |               | 1,093 |        |               |  | (572 | )     
|         |         |  |               |       |  |               |       |        |              
|         | Total   |  | $             | 5,340 |  |               | $     | (1,369 | )             |  | $    | (5,872 | )
|         |         |  |               |       |  |               |       |        |              

A reconciliation of income tax benefit (expense) computed at the United States
statutory rate to the effective income tax rate is as follows (in thousands):

|                      |       |   |               |       |  |               |      |        |               |   |        |        |  
|--------------------- | ----- | - | ------------- | ----- |  | ------------- | ---- | ------ | ------------- | - | ------ | ------ | -
|                      |       |   | Year Ended    |       |  | Year Ended    |      |        | Year Ended    |  
|                      |       |   | Dec. 31, 1999 |       |  | Dec. 31, 2000 |      |        | Dec. 29, 2001 |  
|                      |       |   |               |       |  |               |      |        |               |  
|Statutory rate        |       | $ | 5,164         |       |  | $             | (483 | )      |               | $ | (4,217 | )     
|Meals &
entertainment |       |   | (108          | )     |  |               | (165 | )      |               |   | (142   | )     
|Goodwill              |       |   | (178          | )     |  |               | (385 | )      |               |   | (639   | )     
|Foreign               |       |   | 8             |       |  |               | (55  | )      |               |   | (20    | )     
|Other                 |       |   | (125          | )     |  |               | (86  | )      |               |   | (262   | )     
|State taxes           |       |   | 579           |       |  |               | (195 | )      |               |   | (592   | )     
|                      |       |   |               |       |  |               |      |        |              
|                      | Total |   | $             | 5,340 |  |               | $    | (1,369 | )             |   | $      | (5,872 | )
|                      |       |   |               |       |  |               |      |        |              

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Companys deferred income tax assets and liabilities as of December 31,
2000 and December 29, 2001 are as follows (in thousands):

|                               |                                   |   |              |        |   |              |        |       |  
|------------------------------ | --------------------------------- | - | ------------ | ------ | - | ------------ | ------ | ----- | -
|                               |                                   |   | December 31, |        |   | December 29, |       
|                               |                                   |   | 2000         |        |   | 2001         |       
|                               |                                   |   |              |        |   |              |       
|Deferred tax assets:           |                                   |   |              |        |   |              |        |      
|                               | Net operating loss carryforwards  |   | $            | 3,723  |   |              | $      | 0     |  
|                               | Intellectual property             |   |              | 8,856  |   |              |        | 8,260 |  
|                               | Foreign NOL/credits               |   |              | 684    |   |              |        | 684   |  
|                               | Pension liability                 |   |              | 3,324  |   |              |        | 1,853 |  
|                               | Accrued warranty expenses         |   |              | 2,868  |   |              |        | 2,883 |  
|                               | Swap                              |   |              |       |   |              |        | 716   |  
|                               | UroSurge assets                   |   |              | 476    |   |              |        | 483   |  
|                               | Compensation accruals             |   |              | 533    |   |              |        | 582   |  
|                               | Start up costs                    |   |              | 202    |   |              |        | 126   |  
|                               | Workforce and patents             |   |              | 441    |   |              |        | 618   |  
|                               | Other, primarily certain reserves |   |              | 807    |   |              |        | 1,798 |  
|                               | Valuation allowance               |   |              | (5,000 | ) |              |        | (684  | )
|                               |                                   |   |              |        |   |             
|Total deferred tax assets      |                                   |   | 16,914       |        |   |              | 17,319 |      
|Deferred tax liabilities:      |                                   |   |              |        |   |              |        |      
|                               | Acquired technology               |   |              | 4,192  |   |              |        | 3,220 |  
|                               | Influence goodwill                |   |              | 2,253  |   |              |        | 2,002 |  
|                               | Tax over book amortization        |   |              | 872    |   |              |        | 1,282 |  
|                               | Other                             |   |              | 102    |   |              |        | 164   |  
|                               |                                   |   |              |        |   |             
|Total deferred tax liabilities |                                   |   | 7,419        |        |   |              | 6,668  |      
|                               |                                   |   |              |        |   |             
|Net deferred tax asset         |                                   | $ | 9,495        |        |   | $            | 10,651 |      
|                               |                                   |   |              |        |   |             

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On December 29, 2001, the Company has foreign tax loss carryforwards of
approximately $1.8 million with no expiration. Realization of the future tax
benefits related to the net deferred tax assets is dependent on many factors,
including the Companys ability to generate taxable income within the net
operating loss carryforward period. To the extent the net operating losses
were created in a foreign jurisdiction, the Company has included a valuation
allowance of $684,000, which, if subsequently recognized, will be allocated to
goodwill. This amount represents the approximate amount by which the net
operating losses are projected to exceed future income in that foreign
jurisdiction. Management believes that, at a minimum, it is more likely than
not that future taxable income will be sufficient to realize the remaining
recorded asset.

13. New Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets.Under the new rules, goodwill and
indefinite lived intangible assets are no longer amortized but are reviewed
annually for impairment. Separable intangible assets that are not deemed to
have an indefinite life will continue to be amortized over their estimated
useful lives. The amortization provisions of Statement 142 apply to goodwill
and intangible assets acquired after June 30, 2001.

With respect to goodwill and intangible assets acquired prior to July 1, 2001,
the Company will apply the new accounting rules beginning December 30, 2001.
Application of the nonamortization provisions of Statement 142 is expected to
result in an increase in net income of $4.7 million ($0.14 per share) starting
in fiscal year 2002. The Company will test goodwill for impairment using the
two-step process prescribed in Statement 142. The first step is a screen for
potential impairment, while the second step measures the amount of the
impairment, if any. The Company expects to perform the first of the required
impairment test of goodwill and indefinite lived intangible assets as of
December 30, 2001 in the first quarter of 2002. The Company does not
anticipate that these rules on impairment will have a significant effect on
earnings or the financial position of the Company.

In August 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rule, a single accounting model is
established for long-lived assets to be disposed of by sale. In addition,
implementation issues are resolved in regards to previously issued statements.
The Company does not anticipate that the adoption of the new Statement will
have a significant effect on earnings or the financial position of the Company.

14. Quarterly Financial Data (unaudited)

|                                     |         |   |         |  |  |         |        |   |         |   |        |         |   |   |         |      |  |         |        |      |         |   |        |         |  |   |        |      |  |   |        |      | 
|------------------------------------ | ------- | - | ------- |  |  | ------- | ------ | - | ------- | - | ------ | ------- | - | - | ------- | ---- |  | ------- | ------ | ---- | ------- | - | ------ | ------- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                                     |         |   | 2000    |  |  | 2001    |       
|                                     |         |   |         |  |  |         |       
|                                     |         |   | First   |  |  | Second  |        |   | Third   |   |        | Fourth  |   |   | First   |      |  | Second  |        |      | Third   |   |        | Fourth  | 
|                                     |         |   | Quarter |  |  | Quarter |        |   | Quarter |   |        | Quarter |   |   | Quarter |      |  | Quarter |        |      | Quarter |   |        | Quarter | 
|                                     |         |   |         |  |  |         |        |   |         |   |        |         |   |   |         |      |  |         |        |      |         |   |        |         | 
|Net sales                            |         | $ | 24,986  |  |  | $       | 25,093 |   |         | $ | 23,539 |         |   | $ | 26,699  |      |  | $       | 27,548 |      |         | $ | 28,438 |         |  | $ | 28,637 |      |  | $ | 33,315 |     
|Gross profit                         |         |   | 19,256  |  |  |         | 19,308 |   |         |   | 18,628 |         |   |   | 21,234  |      |  |         | 22,151 |      |         |   | 22,651 |         |  |   | 23,199 |      |  |   | 26,797 |     
|Operating income                     |         |   | 1,679   |  |  |         | 379    |   |         |   | 1,209  |         |   |   | 2,169   |      |  |         | 2,626  |      |         |   | 3,111  |         |  |   | 3,419  |      |  |   | 6,282  |     
|Net income (loss)                    |         |   | 209     |  |  |         | (765   | ) |         |   | (348   | )       |   |   | 956     |      |  |         | 1,404  |      |         |   | 1,534  |         |  |   | 2,007  |      |  |   | 1,585  |     
|Net income (loss)
per common share - |         |   |         |  |  |         |        |   |         |   |        |         |   |   |         |      |  |         |        |      |         |   |        |         |  |   |        |      |  |   |        |     
|                                     | Basic   |   |         |  |  |         |        |   |         |   | $      | (0.02   | ) |   | $       | 0.03 |  |         | $      | 0.05 |         |   | $      | 0.05    |  |   | $      | 0.06 |  |   | $      | 0.05 | 
|                                     | Diluted |   |         |  |  |         |        |   |         |   | $      | (0.02   | ) |   | $       | 0.03 |  |         | $      | 0.05 |         |   | $      | 0.05    |  |   | $      | 0.06 |  |   | $      | 0.05 | 

Quarterly and annual earnings per share are calculated independently based on
the weighted average number of shares outstanding during the period.

F-22



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The Companys sales and operating results have varied and are expected to
continue to vary significantly from quarter to quarter as a result of seasonal
patterns. The Company believes the business is seasonal, with the third
quarter of each year typically having the lowest sales and the fourth quarter
of each typically having the highest sales. There can be no assurance that
future seasonal fluctuations will not adversely affect the business and results
of operations.

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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, American Medical Systems Holdings, Inc., the Registrant, has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|       |                |  |  |                                                                              
|------ | -------------- |  |  | -----------------------------------------------------------------------------
|Dated: | March 29, 2002 |  |  | AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.                                      
|      
|       |                |  |  | By /s/ Douglas W. KohrsDouglas W. Kohrs
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below on March 29, 2002 by the following persons on behalf of
the Registrant and in the capacities indicated.

|                                                      |  |                                                                                                  
|----------------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|Signature                                             |  | Title                                                                                            
|                                                     
|/s/ Douglas W. KohrsDouglas W. Kohrs                  |  | President and Chief Executive Officer
(Principal Executive Officer) and Director                 
|                                                     
|/s/ M. James CallM. James Call                        |  | Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|                                                     
|/s/ Richard B. EmmittRichard B. Emmitt                |  | Director                                                                                         
|                                                     
|/s/ Christopher H. PorterChristopher H. Porter, Ph.D. |  | Director                                                                                         
|                                                     
|/s/ David W. StassenDavid W. Stassen                  |  | Director                                                                                         
|                                                     
|/s/ A. Jay GrafA. Jay Graf                            |  | Director                                                                                         
|                                                     
|/s/ Elizabeth H. WeathermanElizabeth H. Weatherman    |  | Director                                                                                         





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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K

For the Year Ended December 31, 2000

|     |  |                                                                                                                                                                                                                  |  |                                                                                                                                |  |  |  | 
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|Item |  |                                                                                                                                                                                                                  |  |                                                                                                                                |  |  |  | 
|No.  |  | Item                                                                                                                                                                                                             |  | Filing Method                                                                                                                  |  |  |  | 
|     |  |                                                                                                                                                                                                                  |  |                                                                                                                                |  |  |  | 
|3.1  |  | Amended and Restated Certificate of
Incorporation of the Company.                                                                                                                                                |  | Incorporated by
reference to Exhibit
3.1 of the Companys
Form 10-Q for the
Quarter Ended
September 30, 2000
(File No. 30733).
|    
|3.2  |  | Bylaws, as amended, of the Company.                                                                                                                                                                              |  | Incorporated by
reference to Exhibit
3.2 of the Companys
Form 10-Q for the
Quarter Ended
September 29, 2001
(File No. 30733).
|    
|4.1  |  | Registration Rights Agreement, dated June
30, 2000, among the investors listed on
Schedule 1 to the Agreement and American
Medical Systems Holdings, Inc.                                                        |  | Incorporated by
reference to Exhibit
4.1 of the Companys
Registration
Statement on Form S-1
(File No. 333-37488).            
|    
|4.2  |  | Certificate of Incorporation of the Company.                                                                                                                                                                     |  | See Exhibit 3.1 above.                                                                                                        
|    
|4.3  |  | Bylaws of the Company.                                                                                                                                                                                           |  | See Exhibit 3.2 above.                                                                                                        
|    
|10.1 |  | Stockholders Agreement, dated April 17,
2000, among Warburg, Pincus Equity
Partners, L.P., the then existing
stockholders of American Medical Systems
Holdings, Inc. and American Medical
Systems Holdings, Inc. |  | Incorporated by
reference to Exhibit
10.1 of the Companys
Registration
Statement on Form S-1
(File No. 333-37488).           
|    
|10.2 |  | Employment Agreement, dated April 23,
1999, between Douglas Kohrs and American
Medical Systems, Inc.                                                                                                             |  | Incorporated by
reference to Exhibit
10.2 of the Companys
Registration
Statement on Form S-1
(File No. 333-37488).           
|    
|10.3 |  | Amendment to the Employment Agreement,
dated April 17, 2000, between Douglas
Kohrs and American Medical Systems, Inc.                                                                                            |  | Incorporated by
reference to Exhibit
10.3 of the Companys
Registration
Statement on Form S-1
(File No. 333-37488).           
|    
|10.4 |  | Second Amendment to Employment Agreement,
dated January 23, 2002, between Douglas
Kohrs and American Medical Systems, Inc.                                                                                       |  | Filed with this
Annual Report on Form
10-K.                                                                                   
|    
|10.5 |  | Stock Option Agreement, dated April 23,
1999, between Douglas Kohrs and American
Medical Systems, Inc.                                                                                                           |  | Incorporated by
reference to Exhibit
10.4 of the Companys
Registration
Statement on Form S-1
(File No. 333-37488).           

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|      |  |                                                                                                                                                                                                                                         |  |                                                                                                                     
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------
|Item  |  |                                                                                                                                                                                                                                         |  |                                                                                                                     
|No.   |  | Item                                                                                                                                                                                                                                    |  | Filing Method                                                                                                       
|      |  |                                                                                                                                                                                                                                         |  |                                                                                                                     
|10.6  |  | Separation Agreement, dated September 27,
2001, between Gregory J. Melsen and
American Medical Systems, Inc.                                                                                                                            |  | Filed with this
Annual Report on Form
10-K.                                                                         
|     
|10.7  |  | Employment Agreement, dated May 1, 1999,
between Johann Neisz and American Medical
Systems, Inc.                                                                                                                                        |  | Incorporated by
reference to Exhibit
10.6 of the Companys
Registration
Statement on Form S-1
(File No. 333-37488). 
|     
|10.8  |  | Employment Agreement, dated July 30, 2001,
between M. James Call and American Medical
Systems Inc.                                                                                                                                      |  | Filed with this
Annual Report on Form
10-K.                                                                         
|     
|10.9  |  | Consulting Agreement, dated September 1,
1999, between Medical Genesis and American
Medical Systems, Inc.                                                                                                                               |  | Incorporated by
reference to Exhibit
10.8 of the Companys
Registration
Statement on Form S-1
(File No. 333-37488). 
|     
|10.10 |  | 2000 Equity Incentive Plan, as amended.                                                                                                                                                                                                 |  | Filed with this
Annual Report on Form
10-K.                                                                         
|     
|10.11 |  | Form of Incentive Stock Option Agreement.                                                                                                                                                                                               |  | Incorporated by
reference to Exhibit
10.10 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.12 |  | Form of Non-Qualified Stock Option
Agreement.                                                                                                                                                                                           |  | Incorporated by
reference to Exhibit
10.11 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.13 |  | Employee Stock Purchase Plan.                                                                                                                                                                                                           |  | Incorporated by
reference to Exhibit
10.12 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.14 |  | 2001 Management Incentive Plan.                                                                                                                                                                                                         |  | Filed with this
Annual Report on Form
10-K.                                                                         
|     
|10.15 |  | Leasing Contract among Oil and Energy
Infrastructures, Ltd., Fuel Products Line,
Ltd. and Influence Medical Technologies
Ltd.                                                                                                           |  | Incorporated by
reference to Exhibit
10.16 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.16 |  | Agreement and Plan of Merger, dated
November 12, 1999, by and among American
Medical Systems, Inc., Persuade Merger
Corp, Influence, Inc., Globerman
Engineering Ltd., Urotek Ltd., Katsumi
Oneda and Lewis C. Pell.                    |  | Incorporated by
reference to Exhibit
10.17 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.17 |  | First Amendment to Agreement and Plan of
Merger, dated December 15, 1999, by and
among American Medical Systems, Inc.,
Persuade Merger Corp, Influence, Inc.,
Globerman Engineering Ltd., Urotek Ltd.,
Katsumi Oneda and Lewis C. Pell. |  | Incorporated by
reference to Exhibit
10.18 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).

E-2



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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                               |  |                                                                                                                     
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------
|Item  |  |                                                                                                                                                                                                                                                               |  |                                                                                                                     
|No.   |  | Item                                                                                                                                                                                                                                                          |  | Filing Method                                                                                                       
|      |  |                                                                                                                                                                                                                                                               |  |                                                                                                                     
|10.18 |  | Second Amendment to Agreement and Plan of
Merger, dated April 17, 2000, by and among
American Medical Systems, Inc., Persuade
Merger Corp, Influence, Inc., Globerman
Engineering Ltd., Urotek Ltd., Katsumi
Oneda and Lewis C. Pell.                         |  | Incorporated by
reference to Exhibit
10.19 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.19 |  | Exchange Agreement, dated December 16,
1999, between American Medical Systems,
Inc. and Urotek Ltd.                                                                                                                                                           |  | Incorporated by
reference to Exhibit
10.20 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.20 |  | First Amendment to Exchange Agreement,
dated April 17, 2000, between American
Medical Systems Holdings, Inc., American
Medical Systems, Inc. and Urotek Ltd.                                                                                                  |  | Incorporated by
reference to Exhibit
10.21 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.21 |  | Credit Agreement, dated March 24, 2000,
among American Medical Systems, Inc.,
American Medical Systems Holdings, Inc.,
Bank of America, N.A., as agent for the
four lenders, and Banc of America
Securities LLC, as sole lead arranger and
sole book manager. |  | Incorporated by
reference to Exhibit
10.22 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.22 |  | Security Agreement, dated March 24, 2000,
among American Medical Systems Holdings,
Inc., American Medical Systems, Inc.,
Influence, Inc. and Banc of America, N.A.                                                                                            |  | Incorporated by
reference to Exhibit
10.23 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.23 |  | Form of Revolving Note issued under Credit
Agreement.                                                                                                                                                                                                         |  | Incorporated by
reference to Exhibit
10.24 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.24 |  | Form of Tranche A Term Note issued under
Credit Agreement.                                                                                                                                                                                                    |  | Incorporated by
reference to Exhibit
10.25 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.25 |  | Form of Tranche B Term Note issued under
Credit Agreement.                                                                                                                                                                                                    |  | Incorporated by
reference to Exhibit
10.26 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.26 |  | Parent Joinder Agreement, dated March 24,
2000, between American Medical Systems
Holdings, Inc. and Bank of America, N.A.                                                                                                                                     |  | Incorporated by
reference to Exhibit
10.27 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).
|     
|10.27 |  | Pledge Agreement, dated March 24, 2000,
among American Medical Systems Holdings,
Inc., American Medical Systems, Inc.,
Influence, Inc. and Banc of America, N.A.                                                                                              |  | Incorporated by
reference to Exhibit
10.28 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).

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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                  
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Item  |  |                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                  
|No.   |  | Item                                                                                                                                                                                                                                                                                   |  | Filing Method                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                  
|10.28 |  | Guaranty and Investment Agreement, dated
March 24, 2000, among Warburg, Pincus
Equity Partners, L.P., other affiliates of
Warburg Pincus and Bank of America, N.A.                                                                                                                     |  | Incorporated by
reference to Exhibit
10.29 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|     
|10.29 |  | Letter Agreement, dated March 24, 2000,
among Warburg, Pincus Equity Partners,
L.P., other affiliates of Warburg Pincus
and Bank of America, N.A.                                                                                                                                      |  | Incorporated by
reference to Exhibit
10.30 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|     
|10.30 |  | Mortgage and Security Agreement and
Fixture Financing Statement with
Assignment of Leases and Rents, dated
April 17, 2000, between American Medical
Systems, Inc. and Bank of America, N.A.                                                                                            |  | Incorporated by
reference to Exhibit
10.39 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|     
|10.31 |  | First Amendment to Credit Agreement, dated
January 3, 2001, among American Medical
Systems, Inc., American Medical Systems
Holdings, Inc., Bank of America, N.A., as
agent for the four lenders, and Banc of
America Securities LLC, as sole lead
arranger and sole book manager.      |  | Incorporated by
reference to Exhibit
10.36 of the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2000
(File No. 000-30733).
|     
|10.32 |  | Second Amendment and Release Agreement,
dated February 20, 2001, among American
Medical Systems, Inc., American Medical
Systems Holdings, Inc., Bank of America,
N.A., as agent for the four lenders, and
Banc of America Securities LLC, as sole
lead arranger and sole book manager. |  | Incorporated by
reference to Exhibit
10.37 of the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2000
(File No. 000-30733).
|     
|21.1  |  | Subsidiaries of American Medical Systems
Holdings.                                                                                                                                                                                                                                     |  | Filed with this
Annual Report on Form
10-K.                                                                                                      
|     
|23.1  |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                          |  | Filed with this
Annual Report on Form
10-K.                                                                                                      

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