Document:

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                                                                    EXHIBIT 10.6

                              SEPARATION AGREEMENT

      This Separation Agreement ("Agreement") and the Release, which is attached
and incorporated by reference as Exhibit A (the "Release"), are made, effective
as of September 27, 2001 (the "Effective Date"), by and between Gregory J.
Melsen ("Employee"), and American Medical Systems, Inc. and its parent and/or
subsidiary corporations, affiliates, successors, predecessors, shareholders,
present and/or former officers, directors, agents, employees, and attorneys,
whether in their individual or official capacities, benefit plans and plan
administrators, and insurers (collectively referred to as "Employer").

      The Employer and Employee wish to provide for the terms and conditions of
Employee's separation from employment pursuant to the terms of this Agreement.

      The Employer does not believe that it has any claims against the Employee,
nor do the parties believe that the Employee has any claims against the
Employer. Nevertheless, the parties have agreed upon the following terms
regarding the Employee's separation from employment, and to resolve any actual
and potential claims arising out of the Employee's employment with and
separation from Employer.

      IN CONSIDERATION OF THIS ENTIRE SEPARATION AGREEMENT AND RELEASE, THE
PARTIES AGREE AS FOLLOWS:

1. TERMINATION OF EMPLOYMENT. From the Effective Date through the Salary
Termination Date, as defined below, the Employee will provide such services, on
a part-time basis, as the Employer may reasonably request; provided that such
requests do not interfere with the Employee's other professional or consulting
activities. The Employee's employment with the Employer will terminate effective
as of December 31, 2001; provided, however, that if, prior to December 31, 2001,
Employee becomes a part-time or full-time employee of another for-profit entity
or provides consulting services to another for-profit entity for more than 80
hours per month, then the Employee's employment with the Employer will terminate
as of the date that the Employee becomes so employed or provides such consulting
services (the "Salary Termination Date"). The Employee shall promptly notify the
Employer if he becomes employed by another for-profit entity or provides
consulting services to a for-profit entity for more than 80 hours per month
prior to December 31, 2001. The Employee may become employed by or provide any
amount of consulting services to any not-for-profit entity prior to December 31,
2001 without affecting the Salary Termination Date.

2. RESIGNATION AS OFFICER. Employee hereby confirms his resignation of his
positions as (a) an officer of American Medical Systems Holdings, Inc. ("AMS
Holdings"), (b) an officer and director of all direct and indirect subsidiaries
of AMS Holdings, and (c) a member of the Employer's employee benefits committee.

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3. PRIOR AGREEMENTS. Except as expressly provided herein (a) the Employment
Agreement, dated March 24, 1999, between the Employer and the Employee (the
"Employment Agreement") is terminated effective as of the Effective Date, and
(b) the Secrecy and Non-Competition Agreement, dated March 11, 1999, between the
Employer and the Employee (the "Non-Compete Agreement") will remain in full
force and effect in accordance with its terms. Subject to the last sentence of
Section 4, neither the Employer nor the Employee will have any obligations,
rights or benefits under the Employment Agreement after the Effective Date. The
Restricted Period set forth in Section 1(a) of the Non-Compete Agreement will
expire on July 30, 2002.

4. COMPENSATION AND BENEFITS. In consideration for the Release and provided
Employee does not exercise his right to rescind this Agreement and Release as
set forth in Section 5 of the Release, Employer shall provide the Employee with
the compensation and benefits set forth in Exhibit B, subject to applicable
withholding for income and employment related taxes. The parties agree that the
consideration set forth in Exhibit B is greater than anything owed to Employee
by law, contract (including the Employment Agreement) or under the policies of
Employer and is provided to Employee in exchange for, and specifically
contingent upon, his signing this Agreement and the attached Release. If the
Employee rescinds the Release, the Employee's employment will terminate as of
the effective date of such rescission, and the Employee will be entitled to the
compensation and benefits set forth in Section 6(e) of the Employment Agreement
and will not be entitled to any compensation or benefits under this Agreement.

5. CONFIDENTIALITY. It is the intent of the parties that this Agreement and
Release be and is confidential. The Employee warrants that he has not and will
not disclose the terms of this Agreement and Release to any person other than
his spouse, attorney, tax advisor, financial advisor or representatives of the
E.E.O.C. or the Minnesota Department of Human Rights, who shall be bound by the
same prohibitions against disclosure as bind the Employee, and the Employee
shall be responsible for advising these individuals of this confidentiality
provision and obtaining their commitment to maintain such confidentiality. The
Employee acknowledges that Employer may be required to file this Agreement with
the Securities and Exchange Commission and disclose the material terms of this
Agreement in reports and proxy material filed by the Employer with the
Securities and Exchange Commission. The Employee may disclose the material terms
of this Agreement to the same extent as the Employer has disclosed such terms
pursuant to the foregoing sentence.

6. RELEASE. In consideration of the compensation and other benefits set forth in
this Agreement, the Employee will voluntarily sign the Release at the same time
he signs this Agreement. Except as set forth herein and except for any claims
the Employer may have for breach of this Agreement or the Non-Compete Agreement
occurring after the Effective Date, the Employer releases the Employee from any
and all claims, liabilities, causes of action and rights against the Employee
arising out of and in connection with the employment relationship between
Employee and the Employer.

7. STIPULATION OF NO CHARGES. The Employee affirmatively represents that he has
not filed nor caused to be filed any charges, claims, complaints, or actions
against the Employer before

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any federal, state, or local administrative agency, court, or other forum.

8. NON-DISPARAGEMENT. Each party to this Agreement agrees not to make any
disparaging or defamatory comments regarding the other party. Furthermore, the
Employee agrees not to encourage in any way any individual or group of
individuals to bring or pursue a lawsuit, charge, complaint, or grievance, or
make any other demands against Employer.

9. DAMAGES FOR VIOLATION OF DUTY OF CONFIDENTIALITY AND/OR NON-DISPARAGEMENT.
Any violation by either party of the confidentiality and/or non-disparagement
provisions of this Agreement shall entitle the other party to bring a legal
action for appropriate equitable relief as well as damages, including reasonable
attorneys' fees.

10. NON-ADMISSIONS. The parties expressly deny any and all liability or
wrongdoing and agree that nothing in this Agreement and Release shall be deemed
to represent any concession or admission of such liability or wrongdoing or any
waiver of any defense.

11. INVALIDITY. In case any one or more of the provisions of this Agreement and
Release shall be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained in
this Agreement and Release will not in any way be affected or impaired thereby.

12. RETURN AND RELEASE OF ALL PROPERTY. The Employee agrees to immediately
return any and all of the Employer's property to the Employer.

13. CHOICE OF LAW/VENUE. This Agreement shall be construed and interpreted in
accordance with applicable federal laws and the laws of the State of Minnesota.
If either party brings a legal action pursuant to this Agreement and Release
including, but not limited to, an action to enforce its terms, or to challenge
its validity, such legal action shall be properly filed in a court of competent
jurisdiction located in Hennepin County, Minnesota.

      IN WITNESS WHEREOF, the parties have signed this Agreement on the date set
forth below to be effective as of the Effective Date.

                                       AMERICAN MEDICAL SYSTEMS, INC.

Dated:   October 16, 2001              By:    /s/ Janet L. Dick
                                           -------------------------------------

                                       Its:   Vice President, Human Resources
                                            ------------------------------------

Dated:   October 16, 2001              /s/ Gregory J. Melsen
                                       -----------------------------------------
                                       Gregory J. Melsen

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                                                                       EXHIBIT A

                                     RELEASE

1.    DEFINITIONS. I intend all words used in this Release to have their plain
meanings in ordinary English. Technical legal words are not needed to describe
what I mean. Specific terms I use in this Release have the following meanings:

      (a) "I," "me," and "my" include both me, Gregory J. Melsen and anyone who
      has or obtains any legal rights or claims through me.

      (b) "Employer," as used in this Release, shall at all times mean American
      Medical Systems, Inc., and its respective parent and/or subsidiary
      corporations, affiliates, successors, predecessors, shareholders, present
      and/or former officers, directors, agents, employees, and attorneys,
      whether in their individual or official capacities, benefit plans and plan
      administrators, and insurers.

      (c) "My Claims" mean any and all of the actual or potential claims of any
      kind whatsoever I have now against Employer, regardless of whether I now
      know about those claims, that are in any way related to my employment with
      or separation (termination of employment) from the Employer, including,
      but not limited to, claims for invasion of privacy; breach of written or
      oral, express or implied, contract; fraud or misrepresentation; the Age
      Discrimination in Employment Act of 1967 ("ADEA"), 29 U.S.C. ss. 626, as
      amended, the Older Workers Benefit Protection Act of 1990 ("OWBPA"), 29
      U.S.C. 626(f), Title VII of the Civil Rights Act of 1964 ("Title VII"), 42
      U.S.C. ss. 2000e, et seq., the Americans with Disabilities Act ("ADA"), 29
      U.S.C. ss. 2101, et seq., the Family Medical Leave Act ("FMLA"), 29 U.S.C.
      ss. 2601 et seq., the Employee Retirement Income Security Act of 1978
      ("ERISA"), as amended, 29 U.S.C. ss. ss. 1001, et seq., Equal Pay Act
      ("EPA"), 29 U.S.C. ss. 206(d), the Worker Adjustment and Retraining
      Notification Act ("WARN"), 29 U.S.C. ss. 2101 et seq., the Minnesota Human
      Rights Act, Minn. Stat. ss. 363.01, et seq., Minnesota Statutes ss. 181 et
      seq., and any other federal, state, or local statute, law, rule,
      regulation, ordinance or order. This includes, but is not limited to,
      claims for violation of any civil rights laws based on protected class
      status; claims for assault, battery, defamation, intentional or negligent
      infliction of emotional distress, breach of the covenant of good faith and
      fair dealing, promissory estoppel, negligence, violation of public policy,
      and all other claims for unlawful employment practices, and all other
      common law or statutory claims.

2.    AGREEMENT TO RELEASE MY CLAIMS. Except as stated in Section 4, I agree to
give up all My Claims, waive any rights thereunder, and withdraw any and all of
my charges and lawsuits against Employer. In exchange for my agreement to
release My Claims, I am receiving satisfactory consideration (compensation) from
Employer to which I am not otherwise entitled by law, contract, or under any
Employer policy. The consideration I am receiving is a full and fair payment for
the release of all My Claims. Employer does not owe me anything in addition to
what I will be receiving.

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3.    OLDER WORKERS BENEFIT PROTECTION ACT. I understand and have been advised
that the above release of My Claims is subject to the terms of the Older Workers
Benefit Protection Act ("OWBPA"). The OWBPA provides that an individual cannot
waive a right or claim under the Age Discrimination in Employment Act ("ADEA")
unless the waiver is knowing and voluntary. I have been advised of this law, and
I agree that I am signing this Release voluntarily, and with full knowledge of
its consequences. I understand that the Employer is giving me at least
twenty-one (21) days from the date I received a copy of this Release to decide
whether I want to sign it. I acknowledge that I have been advised to use this
time to consult with an attorney about the effect of this Release. IF I SIGN
THIS RELEASE BEFORE THE END OF THE TWENTY-ONE (21) DAY PERIOD IT WILL BE MY
PERSONAL, VOLUNTARY DECISION TO DO SO, AND WILL BE DONE WITH FULL KNOWLEDGE OF
MY LEGAL RIGHTS. I agree that material and/or immaterial changes to this Release
will not restart the running of this consideration period.

4.    EXCLUSIONS FROM RELEASE.

      (a) My Claims do not include my rights, if any, to claim the following:
      Re-employment Insurance benefits; claims for my vested post-termination
      benefits under any 401(k) or similar retirement benefit plan; my COBRA
      rights; my rights to enforce the terms of this Release; or my rights to
      assert claims that are based on events occurring after this Release
      becomes effective.

      (b) Nothing in this Release interferes with my right to file a charge with
      the Equal Employment Opportunity Commission ("EEOC"), or participate in
      any manner in an EEOC investigation or proceeding under Title VII, the
      ADA, the ADEA, or the EPA. I, however, understand that I am waiving my
      right to recover individual relief including, but not limited to, back
      pay, front pay, reinstatement, attorneys' fees, and/or punitive damages,
      in any administrative or legal action whether brought by the EEOC,
      Employee, or any other party.

      (c) Nothing in this Release interferes with my right to challenge the
      knowing and voluntary nature of this Release under the ADEA and/or OWBPA.

      (d) Nothing in this Release limits any rights that I would otherwise have
      to be indemnified by the Employer, in my capacity as an officer or
      employee of the Employer, under the Employer's Certificate of
      Incorporation, Bylaws, directors' and officers' insurance policy or
      Section 145 of the Delaware General Corporation Law.

      (e) I agree that Employer reserves any and all defenses, which it has or
      might have against any claims brought by me. This includes, but is not
      limited to, Employer's right to seek available costs and attorneys' fees,
      and to have any monetary award granted to me, if any, reduced by the
      amount of money that I received in consideration for this Release.

5.    RIGHT TO RESCIND AND/OR REVOKE. I understand that insofar as this Release
relates to my rights under the Age Discrimination in Employment Act ("ADEA"), it
shall not become effective or enforceable until seven (7) days after I sign it.
I have the right to rescind this Release only

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insofar as it extends to potential claims under the ADEA by written notice to
Employer within seven (7) calendar days following my signing this Release, and
within fifteen (15) calendar days as to waiver of claims under the Minnesota
Human Rights Act. Any such rescission must be in writing and hand-delivered to
Employer or, if sent by mail, postmarked within the applicable time period, sent
by certified mail, return receipt requested, and addressed as follows:

      (a) post-marked within the seven (7) or fifteen (15) day period;

      (b) properly addressed to JANET L. DICK, VICE PRESIDENT OF HUMAN
      RESOURCES, AMERICAN MEDICAL SYSTEMS, INC., 10700 BREN ROAD WEST,
      MINNETONKA, MN 55343-9679, and

      (c) sent by certified mail, return receipt requested.

      I understand that the payment I am receiving for settling and releasing My
      Claims is contingent upon my agreement to be bound by the terms of this
      Release. Accordingly, if I decide to revoke this Release, I understand
      that I am not entitled to the payments offered in the attached Settlement
      Agreement.

6.    I UNDERSTAND THE TERMS OF THIS RELEASE. I have had the opportunity to read
this Release carefully and understand all its terms. I have reviewed this
Release with my own attorney. In agreeing to sign this Release, I have not
relied on any statements or explanations made by Employer or their attorneys. I
understand and agree that this Release and the attached Settlement Agreement
contain all the agreements between Employer and me. We have no other written or
oral agreements.

Dated:   October 16, 2001                   /s/ Gregory J. Melsen
                                            ------------------------------------
                                            Gregory J. Melsen

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                                                                       EXHIBIT B

                            COMPENSATION AND BENEFITS

1.    SALARY CONTINUATION AND CASH PAYMENT. The Employer shall pay the Employee
his current annualized base salary of $168,000 through the earlier of the Salary
Termination Date or December 31, 2001, in accordance with the Employer's normal
payroll practice and subject to applicable withholding taxes. If the Salary
Termination Date is December 31, 2001, then on January 15, 2002, the Employer
shall pay the Employee $130,000 subject to applicable withholding taxes. Upon
execution of the Agreement, the Employer will make a one-time cash payment to
the Employee of $8,000, subject to applicable withholding taxes.

2.    INCENTIVE BONUS. Upon execution of the Agreement, the Employer will pay
the Employee a bonus in the amount of $50,400, subject to applicable withholding
taxes, which represents the Employee's bonus under the Employer's 2001
Management Incentive Plan, assuming the Employer achieves 100% of the revenue
and operating income objectives under the 2001 Management Incentive Plan for the
full year 2001. If the Employer exceeds 100% of the revenue and operating income
objectives under the 2001 Management Incentive Plan for the full year 2001, the
Employer will pay the Employee the additional bonus to which the Employee would
have been entitled under such plan, as if Employee had been an officer of the
Employer on the date such payment is made, in the first calendar quarter of 2002
at the same time that the Employer pays bonuses under the 2001 Management
Incentive Plan to the participants in the plan. If the Employer does not achieve
100% of the revenue and operating income objectives under the 2001 Management
Incentive Plan for the full year 2001, the Employee will be entitled to retain
the full amount of the bonus paid under this Section 2.

3.    STOCK OPTIONS. The Incentive Stock Option Agreement, dated April 23, 1999,
between the Employer and the Employee (the "Option Agreement") shall remain in
full force and effect in accordance with its terms, except as set forth in this
Section 3. The Employer and Employee acknowledge and agree that, as of the
Effective Date, options to purchase 23,450 shares of Common Stock of AMS
Holdings were vested and unexercised under the Option Agreement and shall remain
exercisable for a period of ninety (90) days after the Effective Date, as set
forth in Section 3(e) of the Option Agreement. Options to purchase 56,250 shares
pursuant to the Option Agreement that had not vested as of the Effective Date
shall (a) become vested and exercisable upon expiration, without rescission, of
all rescission periods set forth in Section 5 of the Release and (b) remain
exercisable through January 31, 2003. The Employee acknowledges that the options
that become exercisable pursuant to the preceding sentence will not qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code.

4.    VACATION/FLOATING HOLIDAYS/UNITED WAY DAYS. Upon execution of the
Agreement, the Employer will pay the Employee for all accrued and unused
vacation, floating holidays and United Way Days as of the Effective Date,
calculated using the Employee's current base salary. The Employee will not
accrue any vacation, floating holidays or United Way Days after the Effective
Date.

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5.    MEDICAL, DENTAL AND EMPLOYEE LIFE PLANS. The Employee will have the right
to participate in the Employer's insured group Medical, Dental, and Employee
Life Insurance plans (including dependant coverage under all such plans) that
the Employer maintains for its other employees on the same basis and at the same
cost afforded to "active" employees through the earlier of (a) December 31, 2002
or (b) the date on which the Employee first becomes eligible to participate in
another group plan providing benefits to the Employee and his eligible family
members. The Employer shall withhold and deduct from payments made through the
Salary Termination Date under Section 1 of this Exhibit B all legally required
amounts necessary to satisfy applicable federal, state or local withholding and
employment tax requirements and the Employee's portion of insurance premiums for
the Employer's group Medical, Dental, and Employee Life Insurance plans. After
January 1, 2002, the Employee shall pay his portion of insurance premiums for
the Employer's group Medical, Dental, and Employee Life Insurance plans directly
to the Employer's third party administrator. The Employee's COBRA rights with
respect to the Employer's group Medical, Dental, and Employee Life Insurance
plans shall begin on the earlier of (a) December 31, 2002 or (b) the date on
which the Employee first becomes eligible to participate in another group plan
providing benefits to the Employee and his eligible family members.

6.    OTHER BENEFIT PLANS. The Employee's right to participate in all other
benefit plans of the Employer will cease as set forth below.

      (a) Employee AD&D Insurance. Coverage will cease as of October 1, 2001.
      Continuation coverage is not available for Employee AD&D insurance
      coverage.

      (b) Dependent AD&D Insurance (if applicable). Coverage will cease as of
      October 1, 2001, unless the Employee elects to discontinue the deductions
      earlier. Continuation coverage is not available for Dependent AD&D
      insurance coverage.

      (c) Flexible Spending Accounts. The Employee agrees not to make any
      contributions after December 31, 2001 to the Employer's Dependent Care
      Spending Account or Health Care Spending Account.

      (d) AMS Savings Investment Plan. The Employee agrees not to make any
      contributions to the AMS Savings and Investment Plan (including the
      related non-qualified plan) after the Effective Date. The Employee may
      take a distribution under this plan or roll the account balance into a
      qualified IRA at any time after the Salary Termination Date.

      (e) AMS Retirement Annuity Plan. The Employee's years of creditable
      service under the AMS Retirement Annuity Plan will be calculated based
      upon service as of the Effective Date. As of September 30, 2001, the
      Employee's accrued benefit (assuming the Employee elects a lump sum
      distribution) under the AMS Retirement Annuity Plan was $28,616,07. The
      Employer intends to terminate the plan effective as of December 31, 2001.

      (f) Disability. Short Term Disability and Long Term Disability coverage
      will cease

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      as of the Effective Date.

      (g) Employee Stock Purchase Plan. The Employee's right to participate in
      the Employee Stock Purchase Plan shall cease as of the Effective Date.

      (h) Group Legal Plan (Hyatt Premier Legal Plan). If the Employee is
      currently enrolled in the group legal plan, contributions will cease as of
      as of the Effective Date.

      (i) Other Benefit Plans. The Employee's right to participate in all other
      benefit plans of the Employer shall cease as of the Effective Date.

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                                                                    EXHIBIT 10.8

                         AMERICAN MEDICAL SYSTEMS, INC.

                              EMPLOYMENT AGREEMENT

            THIS EMPLOYMENT AGREEMENT is made and entered into effective as of
July 30, 2001, between American Medical Systems, Inc., a Delaware corporation
(the "Company"), and M. James Call (the "Executive").

                                R E C I T A L S:

            WHEREAS, the Company recognizes that the future growth,
profitability and success of the Company's business will be substantially and
materially enhanced by the employment of the Executive by the Company; and

            WHEREAS, the Company desires to employ the Executive and the
Executive has indicated his willingness to provide his services to the Company,
on the terms and conditions set forth herein;

            NOW, THEREFORE, on the basis of the foregoing premises and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:

            Section 1. Employment. The Company hereby agrees to employ the
Executive and the Executive hereby accepts employment with the Company, on the
terms and subject to the conditions hereinafter set forth. The Executive shall
serve as the Executive Vice President, Chief Financial Officer and Secretary of
the Company, and, in such capacity, shall report directly to the Company's Chief
Executive Officer and shall have such duties as are typically performed by the
chief financial officer of a corporation, together with such additional duties,
commensurate with the Executive's position as the Chief Financial Officer of the
Company, as may be assigned to the Executive from time to time by the Company's
Chief Executive Officer. The Executive will also serve on the Employee Benefits
Committee of the Company. The principal location of the Executive's employment
shall be at the Company's principal executive office located in Minnetonka,
Minnesota, although the Executive understands and agrees that he may be required
to travel from time to time for Company business reasons.
<PAGE>
            Section 2. Term. Unless terminated pursuant to Section 6 hereof, the
Executive's employment hereunder shall commence on the date hereof and shall
continue during the period ending on the second anniversary of the date hereof
(the "Initial Term"). Thereafter, the Executive's employment term shall extend
automatically for consecutive periods of one year unless either party shall
provide notice of termination not less than sixty (60) days prior to an
anniversary date of this Agreement. The Initial Term, together with any
extension pursuant to this Section 2, is referred to herein as the "Employment
Term." The Employment Term shall terminate upon any termination of the
Executive's employment pursuant to Section 6.

            Section 3. Compensation. During the Employment Term, the Executive
shall be entitled to the following compensation and benefits:

            (a) Salary. As compensation for the performance of the Executive's
services hereunder, the Company shall pay to the Executive a base salary (the
"Salary") of $215,000 per annum with increases, if any, as may be approved in
writing by the Company's Chief Executive Officer or Board of Directors. The
Salary shall be payable in accordance with the customary payroll practices of
the Company as the same shall exist from time to time. In no event shall the
Salary be decreased during the Employment Term.

            (b) Bonus. During the Employment Term, in addition to Salary, the
Executive shall be eligible to participate in such bonus plans as may be adopted
from time by the Board of Directors for other officers of the Company (the
"Bonus") for each such calendar year ending during the Employment Period;
provided that, unless the Board of Directors determines otherwise, the Executive
must be employed on the last day of such calendar year in order to receive the
Bonus attributable thereto. The Executive's entitlement to the Bonus for any
particular calendar year shall be based on the attainment of performance
objectives established by the Board of Directors in any such bonus plan.

            (c) Benefits. Except as otherwise provided in this Agreement, in
addition to the Salary and Bonus, if any, the Executive shall be entitled during
the Employment Term to participate in health, insurance, retirement, disability,
automobile and other benefit programs provided to other officers of the Company
on terms no less favorable than those available to

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<PAGE>
the other officers of the Company. The Executive shall also be entitled to the
same number of vacation days, holidays, sick days and other benefits as are
generally allowed to other senior executives of the Company in accordance with
the Company's policies in effect from time to time, except that the Executive
shall be entitled to two (2) weeks of vacation during 2001 and no less than four
(4) weeks of vacation during each calendar year thereafter.

            (d) Stock Options. The Company previously granted, on July 3, 2001,
to the Executive stock options (the "Options") to acquire 315,000 shares of
common stock, $.01 par value per share, of the Company (the "Common Stock") at
an exercise price of $15.61 per share. All of the terms and conditions relating
to the Option, including the vesting and expiration dates, are set forth in the
Stock Option Agreements executed by the Company and the Executive (the "Stock
Option Agreements").

            Section 4. Exclusivity. During the Employment Term, the Executive
shall devote his full time to the business of the Company and its subsidiaries,
shall faithfully serve the Company and its subsidiaries, shall in all respects
conform to and comply with the lawful and reasonable directions and instructions
given to him by the Chief Executive Officer or the Board of Directors in
accordance with the terms of this Agreement, shall use his best efforts to
promote and serve the interests of the Company and its subsidiaries and shall
not engage in any other business activity, whether or not such activity shall be
engaged in for pecuniary profit, except that the Executive may (i) participate
in the activities of professional trade organizations related to the business of
the Company and its subsidiaries, (ii) engage in personal investing activities
and (iii) serve on the board of directors of not more than two (2) other
companies whose businesses are not in competition with the business interests of
the Company, provided that the activities set forth in these clauses (i), (ii)
and (iii), either singly or in the aggregate, do not interfere in any material
respect with the services to be provided by the Executive hereunder.

            Section 5. Reimbursement for Expenses. During the Employment Term,
the Executive is authorized to incur reasonable expenses in the discharge of the
services to be performed hereunder, including expenses for travel,
entertainment, lodging and similar items in accordance with the Company's
expense

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<PAGE>
reimbursement policy, as the same may be modified by the Company from time to
time. The Company shall reimburse the Executive for all such proper expenses
upon presentation by the Executive of itemized accounts of such expenditures in
accordance with the financial policy of the Company, as in effect from time to
time.

            Section 6. Termination and Default.

            (a) Death. The Executive's employment shall automatically terminate
upon his death and upon such event, the Executive's estate shall be entitled to
receive the amounts specified in Section 6(e) below.

            (b) Disability. If the Executive is unable to perform the duties
required of him under this Agreement because of illness, incapacity, or physical
or mental disability, the Employment Term shall continue and the Company shall
pay all compensation required to be paid to the Executive hereunder, unless the
Executive is disabled such that the Executive would be entitled to receive
disability benefits under the Company's long-term disability plan, or if no such
plan exists, the Executive is unable to perform the duties required of him under
this Agreement for an aggregate of 180 days (whether or not consecutive) during
any 12-month period during the term of this Agreement, in which event the
Executive's employment shall terminate.

            (c) Cause. The Company may terminate the Executive's employment at
any time, with or without Cause. In the event of termination pursuant to this
Section 6(c) for Cause (as defined below), the Company shall deliver to the
Executive written notice setting forth the basis for such termination, which
notice shall specifically set forth the nature of the Cause which is the reason
for such termination. Termination of the Executive's employment hereunder shall
be effective upon delivery of such notice of termination. For purposes of this
Agreement, "Cause" shall mean: (i) the Executive's failure (except where due to
a disability contemplated by subsection (b) hereof), neglect or refusal to
perform his duties hereunder which failure, neglect or refusal shall not have
been corrected by the Executive within 30 days of receipt by the Executive of
written notice from the Company of such failure, neglect or refusal, which
notice shall specifically set forth the nature of said failure, neglect or
refusal, (ii) any willful or intentional act of the Executive that has the
effect of injuring the reputation or business of the

                                       4
<PAGE>
Company or its affiliates in any material respect; (iii) any continued or
repeated absence from the Company, unless such absence is (A) approved or
excused by the President or Chief Executive Officer or (B) is the result of the
Executive's illness, disability or incapacity (in which event the provisions of
Section 6(b) hereof shall control); (iv) use of illegal drugs by the Executive
or repeated drunkenness; (v) conviction of the Executive for the commission of a
felony; or (vi) the commission by the Executive of an act of fraud or
embezzlement against the Company.

            (d) Resignation. The Executive shall have the right to terminate his
employment at any time by giving notice of his resignation.

            (e) Payments. In the event that the Executive's employment
terminates for any reason, the Company shall pay to the Executive all amounts
and benefits accrued but unpaid hereunder through the date of termination in
respect of Salary or unreimbursed expenses, including accrued and unused
vacation. In addition, in the event the Executive's employment is terminated by
the Company without Cause, whether during or upon expiration of the current term
of this Agreement, in addition to the amounts specified in the foregoing
sentence, (i) the Executive shall continue to receive the Salary (less any
applicable withholding or similar taxes) at the rate in effect hereunder on the
date of such termination periodically, in accordance with the Company's
prevailing payroll practices, for a period of twelve (12) months following the
date of such termination (the "Severance Term") and (ii) to the extent
permissible under the Company's health and welfare plans, the Executive shall
continue to receive any health and welfare benefits provided to him as of the
date of such termination in accordance with Section 3(c) hereof during the
Severance Term, on the same basis and at the same cost as during the Employment
Term. Further, in the event the Executive's employment is terminated without
Cause by reason of the Company having notified the Executive that this Agreement
will not be extended pursuant to Section 2, the Executive shall be entitled to
receive a pro-rated amount of the Bonus in a lump sum based on the Executive's
period of employment during the calendar year in which such termination occurs
(less any applicable withholding or similar taxes). Following the end of the
Severance Term, the Executive shall be entitled to elect health care
continuation coverage permitted under Section 601 through 608 of the Employee

                                       5
<PAGE>
Retirement Income Security Act of 1974, as amended ("ERISA"), as if his
employment had then terminated. In the event the Executive accepts other
employment or engages in his own business prior to the last date of the
Severance Term, the Executive shall forthwith notify the Company and the Company
shall be entitled to set off from amounts and benefits due the Executive under
this Section 6(e) (other than in respect of the Bonus) the amounts paid to and
benefits received by the Executive in respect of such other employment or
business activity. Amounts owed by the Company in respect of the Salary, Bonus
or reimbursement for expenses under the provisions of Section 5 hereof shall,
except as otherwise set forth in this Section 6(e), be paid promptly upon any
termination. The payments and benefits to be provided to the Executive as set
forth in this Section 6(e) in the event the Executive's employment is terminated
by the Company without Cause: (i) shall be lieu of any and all benefits
otherwise provided under any severance pay policy, plan or program maintained
from time to time by the Company for its employees, and (ii) shall not be paid
to the extent that Executive's employment is terminated following a Change in
Control under circumstances entitling the Executive to the benefits described in
Section 6 (f).

            (f) Change in Control Benefit. In the event that the Executive's
employment is terminated by the Company without Cause or by the Executive for
Good Reason, as defined below, during the 12-month period immediately following
a Change of Control, as defined below, whether during or upon expiration of the
current term of this Agreement: (i) the Company shall pay to the Executive all
amounts and benefits accrued but unpaid hereunder through the date of
termination in respect of Salary or unreimbursed expenses, including accrued and
unused vacation (less any applicable withholding or similar taxes), (ii) all
unvested shares that are subject to the Option shall become immediately vested
and exercisable as set forth in the Stock Option Agreement, (iii) the Company
shall pay to Executive a lump sum payment equal to his Salary at the rate in
effect hereunder on the date of such termination, plus his target Bonus in an
amount equal to 40% of his Salary for the year in which the Change of Control
occurs (less any applicable withholding or similar taxes), (iv) the Company will
reimburse the Executive for reasonable expenses incurred in relocating to
California and (v) to the extent permissible under the Company's health and
welfare plans, the Executive shall continue to receive, at the Company's

                                       6
<PAGE>
cost, any health and welfare benefits provided to him as of the date of such
termination for the 12-month period following his termination of employment.
Following the end of the 12-month period described in clause (v) of the
preceding sentence, the Executive shall be entitled to elect health care
continuation coverage permitted under Sections 601 through 608 of ERISA as if
his employment with the Company then terminated.

            (g) Gross-Up Payment. If the Executive becomes entitled to payments
and benefits following a Change in Control under Section 6(f) or the vesting of
the Options accelerate following a Change in Control as provided in the Stock
Option Agreements, the Company will cause its independent auditors promptly to
review, at the Company's sole expense, the applicability of Code Section 4999 to
any payment or distribution of any type by the Company to or for the Executive's
benefit, whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement, the Stock Option Agreements or otherwise (the "Total
Payments"). If the auditor determines that the Total Payments result in an
excise tax imposed by Code Section 4999 or any comparable state or local law, or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are collectively referred to as
the "Excise Tax"), the Company will make an additional cash payment (a "Gross-Up
Payment") to the Executive within 10 days after such determination equal to an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax, imposed upon the Gross-Up Payment, the Executive would retain an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments.
For purposes of the foregoing determination, the Executive's tax rate will be
deemed to be the highest statutory marginal state and federal tax rate (on a
combined basis) then in effect. If no determination by the Company's auditors is
made prior to the time the Executive is required to file a tax return reflecting
the Total Payments, the Executive will be entitled to receive from the Company a
Gross-Up Payment calculated on the basis of the Excise Tax the Executive
reported in such tax return, within 10 days after the later of the date on which
the Executive files such tax return or the date on which the Executive provides
a copy thereof to the Company. In all events, if any tax authority determines
that a greater Excise Tax should be imposed upon the Total Payments than is
determined by the Company's independent auditors or reflected in the

                                       7
<PAGE>
Executive's tax return pursuant to this Section 6(g), the Executive will be
entitled to receive from the Company the full Gross-Up Payment calculated on the
basis of the amount of Excise Tax determined to be payable by such tax authority
within 10 days after the Executive notifies the Company of such determination.

            For purposes of this Agreement, "Change of Control" shall mean:

            (i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more (on
a fully diluted basis) of either (A) the then outstanding shares of common stock
of the Company, taking into account as outstanding for this purpose such common
stock issuable upon the exercise of options or warrants, the conversion of
convertible stock or debt, and the exercise of any similar right to acquire such
common stock (the "Outstanding Company Common Stock") or (B) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change of Control: (x) any
acquisition by the Company or any "affiliate" of the Company, within the meaning
of 17 C.F.R. ss. 230.405 (an "Affiliate"), (y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
Affiliate of the Company, (z) any acquisition by any corporation or business
entity pursuant to a transaction which complies with clauses (A), (B) and (C) of
subsection (ii) of this Section 6(f) (persons and entities described in clauses
(x), (y) and (z) being referred to herein as "Permitted Holders"); or

            (ii) The consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
60% of,

                                       8
<PAGE>
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, and (B) no
Person (excluding any Permitted Holder) beneficially owns, directly or
indirectly, 50% or more (on a fully diluted basis) of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination, taking into account as outstanding for this purpose such
common stock issuable upon the exercise of options or warrants, the conversion
of convertible stock or debt, and the exercise of any similar right to acquire
such common stock, or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the incumbent Board of Directors of the Company at
the time of the execution of the initial agreement providing for such Business
Combination; or

            (iii) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company; or

            (iv) The sale of at least 80% of the assets of the Company to an
unrelated party, or completion of a transaction having a similar effect; or

            (v) The individuals who on the date of this Agreement constitute the
Board of Directors thereafter cease to constitute at least a majority thereof;
provided that any person becoming a member of the Board of Directors subsequent
to the date of this Agreement and whose election or nomination was approved by a
vote of at least two-thirds of the directors who then comprised the Board of
Directors immediately prior to such vote shall be considered a member of the
Board of Directors on the date of this Agreement.

                                       9
<PAGE>
            For purposes of this Agreement, "Good Reason" shall mean, without
the Executive's prior written consent, (i) a substantial diminution in the
Executive's authority, duties or responsibilities as in effect prior to the
Change of Control, (ii) a reduction by the Company in the Executive's base
Salary as in effect immediately prior to the Change of Control or as thereafter
increased, (iii) the failure by the Company to cover the Executive under
employee benefit plans that, in the aggregate, provide substantially similar
benefits to the Executive and/or his family and dependents at a substantially
similar total cost to the Executive (e.g., premiums, deductibles, co-pays, out
of pocket maximums, required contributions, taxes and the like) relative to the
benefits and total costs under such benefit plans in which the Executive (and/or
his family or dependents) was participating at any time during the 90-day period
immediately preceding the Change of Control, or (iv) the Company's requiring the
Executive to be based at any office or location that is more than fifty (50)
miles further from the office or location thereof immediately preceding a Change
in Control; provided, however, Good Reason shall not include any of the
circumstances or events described herein unless the Executive has first provided
written notice of such circumstance or event and the Company has not corrected
such circumstance or event within thirty (30) days of receipt by the Company of
such written notice from the Executive.

            (h) Survival of Operative Sections. Upon any termination of the
Executive's employment, the provisions of Sections 6(e), 6(f), 6(g) and 7
through 18 of this Agreement shall survive to the extent necessary to give
effect to the provisions thereof.

            Section 7. Secrecy and Non-Competition.

            (a) No Competing Employment. The Executive acknowledges that the
agreements and covenants contained in this Section 7 are essential to protect
the value of the Company's business and assets and by his current employment
with the Company and its subsidiaries, the Executive has obtained and will
obtain such knowledge, contacts, know-how, training and experience and there is
a substantial probability that such knowledge, know-how, contacts, training and
experience could be used to the substantial advantage of a competitor of the
Company and to the Company's substantial detriment. Therefore, the Executive
agrees that for the period commencing on the date of

                                       10
<PAGE>
this Agreement and ending on the first anniversary of the termination of the
Executive's employment hereunder (such period is hereinafter referred to as the
"Restricted Period") with respect to any State in which the Company is engaged
in business during the Employment Term, the Executive shall not participate or
engage, directly or indirectly, for himself or on behalf of or in conjunction
with any person, partnership, corporation or other entity, whether as an
employee, agent, officer, director, partner or joint venturer, in any business
activities if such activity consists of any activity undertaken or expressly
contemplated to be undertaken by the Company or any of its subsidiaries or by
the Executive at any time during the last three (3) years of the Employment
Term. The foregoing restrictions contained in this Section 7(a) shall not
prevent the Executive from accepting employment with a large diversified
organization with separate and distinct divisions that do not compete, directly
or indirectly, with the Company, so long as prior to accepting such employment
the Company receives separate written assurances from the prospective employer
and from the Executive, satisfactory to the Company, to the effect that the
Executive will not render any services, directly or indirectly, to any division
or business unit that competes, directly or indirectly, with the Company. During
the Restricted Period, the Executive will inform any new employer, prior to
accepting employment, of the existence of this Agreement and provide such
employer with a copy of this Agreement.

            (b) Nondisclosure of Confidential Information. The Executive, except
in connection with his employment hereunder, shall not disclose to any person or
entity or use, either during the Employment Term or at any time thereafter, any
information not in the public domain or generally known in the industry that the
Company treats as confidential or proprietary, in any form, acquired by the
Executive while employed by the Company or any predecessor to the Company's
business or, if acquired following the Employment Term, such information which,
to the Executive's knowledge, has been acquired, directly or indirectly, from
any person or entity owing a duty of confidentiality to the Company or any of
its subsidiaries or affiliates, relating to the Company, its subsidiaries or
affiliates, including but not limited to information regarding customers,
vendors, suppliers, trade secrets, training programs, manuals or materials,
technical information, contracts, systems, procedures, mailing lists, know-how,
trade names, improvements, price lists, financial or other

                                       11
<PAGE>
data (including the revenues, costs or profits associated with any of the
Company's products or services), business plans, code books, invoices and other
financial statements, computer programs, software systems, databases, discs and
printouts, plans (business, technical or otherwise), customer and industry
lists, correspondence, internal reports, personnel files, sales and advertising
material, telephone numbers, names, addresses or any other compilation of
information, written or unwritten, which is or was used in the business of the
Company or any subsidiaries or affiliates thereof. The Executive agrees and
acknowledges that all of such information, in any form, and copies and extracts
thereof, are and shall remain the sole and exclusive property of the Company,
and upon termination of his employment with the Company, the Executive shall
return to the Company the originals and all copies of any such information
provided to or acquired by the Executive in connection with the performance of
his duties for the Company, and shall return to the Company all files,
correspondence and/or other communications received, maintained and/or
originated by the Executive during the course of his employment.

            (c) No Interference. During the Restricted Period, the Executive
shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization (other
than the Company), directly or indirectly solicit, endeavor to entice away from
the Company or its subsidiaries, or otherwise directly interfere with the
relationship of the Company or its subsidiaries with any person who, to the
knowledge of the Executive, is employed by or otherwise engaged to perform
services for the Company or its subsidiaries (including, but not limited to, any
independent sales representatives or organizations) or who is, or was within the
then most recent twelve-month period, a customer or client of the Company, its
predecessors or any of its subsidiaries. The placement of any general classified
or "help wanted" advertisements and/or general solicitations to the public at
large shall not constitute a violation of this Section 7(c) unless the
Executive's name is contained in such advertisements or solicitations.

            (d) Inventions, etc. The Executive hereby sells, transfers and
assigns to the Company or to any person or entity designated by the Company all
of the entire right, title and interest of the Executive in and to all
inventions, ideas,

                                       12
<PAGE>
disclosures and improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Executive, solely or jointly, during his
employment by the Company which relate to methods, apparatus, designs, products,
processes or devices, sold, leased, used or under consideration or development
by the Company, or which otherwise relate to or pertain to the business,
functions or operations of the Company or which arise from the efforts of the
Executive during the course of his employment for the Company. The Executive
shall communicate promptly and disclose to the Company, in such form as the
Company requests, all information, details and data pertaining to the
aforementioned inventions, ideas, disclosures and improvements; and the
Executive shall execute and deliver to the Company such formal transfers and
assignments and such other papers and documents as may be necessary or required
of the Executive to permit the Company or any person or entity designated by the
Company to file and prosecute the patent applications and, as to copyrightable
material, to obtain copyright thereof. Any invention relating to the business of
the Company and disclosed by the Executive within one year following the
termination of his employment with the Company shall be deemed to fall within
the provisions of this paragraph unless proved to have been first conceived and
made following such termination. The foregoing requirements of this Section 7(d)
shall not apply to any invention for which no equipment, supplies, facility or
trade secret information of the Company was used and which was developed
entirely on the Executive's own time, and (i) which does not relate directly to
the Company's business or to the Company's actual or demonstrably anticipated
research or development, or (ii) which does not result from any work the
Executive performed for the Company.

            Section 8. Injunctive Relief. Without intending to limit the
remedies available to the Company, the Executive acknowledges that in the event
of a breach of any of the covenants contained in Section 7 hereof may result in
material irreparable injury to the Company or its subsidiaries or affiliates for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of such a
breach or threat thereof, the Company shall be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction, without the
necessity of proving irreparable harm or injury as a result of such breach or
threatened breach of Section 7 hereof,

                                       13
<PAGE>
restraining the Executive from engaging in activities prohibited by Section 7
hereof or such other relief as may be required specifically to enforce any of
the covenants in Section 7 hereof.

            Section 9. Representations and Warranties of the Executive. The
Executive represents and warrants to the Company as follows:

            (a) This Agreement, upon execution and delivery by the Executive,
will be duly executed and delivered by the Executive and (assuming due execution
and delivery hereof by the Company) will be the valid and binding obligation of
the Executive enforceable against the Executive in accordance with its terms.

            (b) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby nor the performance of this
Agreement in accordance with its terms and conditions by the Executive (i)
requires the approval or consent of any governmental body or of any other person
or (ii) conflicts with or results in any breach or violation of, or constitutes
(or with notice or lapse of time or both would constitute) a default under, any
agreement, instrument, judgment, decree, order, statute, rule, permit or
governmental regulation applicable to the Executive. Without limiting the
generality of the foregoing, the Executive is not a party to any
non-competition, non-solicitation, no hire or similar agreement that restricts
in any way the Executive's ability to engage in any business or to solicit or
hire the employees of any person.

            The representations and warranties of the Executive contained in
this Section 9 shall survive the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.

            Section 10. Representations and Warranties of the Company. The
Company represents and warrants to the Executive as follows:

            (a) This Agreement, upon execution and delivery by the Company, will
be duly executed and delivered by the Company and (assuming due execution and
delivery hereof by the Executive) will be the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.

                                       14
<PAGE>
            (b) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby nor the performance of this
Agreement in accordance with its terms and conditions by the Company (i)
requires the approval or consent of any governmental body or of any other person
or (ii) conflicts with or results in any breach or violation of, or constitutes
(or with notice or lapse of time or both would constitute) a default under, any
agreement, instrument, judgment, decree, order, statute, rule, permit or
governmental regulation applicable to the Company.

            The representations and warranties of the Company contained in this
Section 10 shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.

            Section 11. Successors and Assigns; No Third-Party Beneficiaries.
This Agreement shall inure to the benefit of, and be binding upon, the
successors and assigns of each of the parties, including, but not limited to,
the Executive's heirs and the personal representatives of the Executive's
estate; provided, however, that neither party shall assign or delegate any of
the obligations created under this Agreement without the prior written consent
of the other party. Notwithstanding the foregoing, the Company shall have the
unrestricted right to assign this Agreement and to delegate all or any part of
its obligations hereunder to any of its subsidiaries or affiliates, but in such
event such assignee shall expressly assume all obligations of the Company
hereunder and the Company shall remain fully liable for the performance of all
of such obligations in the manner prescribed in this Agreement. Nothing in this
Agreement shall confer upon any person or entity not a party to this Agreement,
or the legal representatives of such person or entity, any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement.

            Section 12. Waiver and Amendments. Any waiver, alteration, amendment
or modification of any of the terms of this Agreement shall be valid only if
made in writing and signed by the parties hereto; provided, however, that any
such waiver, alteration, amendment or modification is consented to on the
Company's behalf by the Board of Directors. No waiver by either of the parties
hereto of their rights hereunder shall be deemed to constitute a waiver with
respect to any subsequent occurrences

                                       15
<PAGE>
or transactions hereunder unless such waiver specifically states that it is to
be construed as a continuing waiver.

            Section 13. Severability and Governing Law. The Executive
acknowledges and agrees that the covenants set forth in Section 7 hereof are
reasonable and valid in geographical and temporal scope and in all other
respects. If any of such covenants or such other provisions of this Agreement
are found to be invalid or unenforceable by a final determination of a court of
competent jurisdiction (a) the remaining terms and provisions hereof shall be
unimpaired and (b) the invalid or unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF MINNESOTA APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED, HOWEVER, THE PROVISIONS OF THIS
AGREEMENT RELATING TO THE OPTION UNDER SECTION 3(d) HEREOF SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

            Section 14. Notices.

            (a) All communications under this Agreement shall be in writing and
shall be delivered by hand or mailed by overnight courier or by
registered or certified mail, postage prepaid:

            (i) If to the Executive, at 5412 Vining Point Road, Minnetonka, MN
            55345 or at such other address as the Executive may have furnished
            the Company in writing, and

            (ii) If to the Company, at 10700 Bren Road West, Minnetonka,
            Minnesota 55343, marked for the attention of the Chief Executive
            Officer,, or at such other address as it may have furnished in
            writing to the Executive.

            (b) Any notice so addressed shall be deemed to be given: if
delivered by hand, on the date of such delivery; if mailed by courier, on the
first business day following the date of such mailing; and if mailed by
registered or certified mail, on the third business day after the date of such
mailing.

                                       16
<PAGE>
            Section 15. Section Headings. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof, affect the meaning or interpretation of
this Agreement or of any term or provision hereof.

            Section 16. Entire Agreement. This Agreement, including the Exhibits
hereto, constitutes the entire understanding and agreement of the parties hereto
regarding the employment of the Executive. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings and
agreements between the parties relating to the subject matter of this Agreement.

            Section 17. Severability. In the event that any part or parts of
this Agreement shall be held illegal or unenforceable by any court or
administrative body of competent jurisdiction, such determination shall not
effect the remaining provisions of this Agreement which shall remain in full
force and effect.

            Section 18. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.

            IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.

                                          AMERICAN MEDICAL SYSTEMS, INC.

                                          By: /s/ Janet L. Dick
                                              ----------------------------------
                                          Name: Janet L. Dick
                                          Title: Vice President, Human Resources

                                          /s/ M. James Call
                                          --------------------------------------
                                          M. James Call

                                       17

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