Document:

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                             AMS NONFUNDED DEFERRED
                                COMPENSATION AND
                                  SUPPLEMENTAL
                                  SAVINGS PLAN

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                     AMS NONFUNDED DEFERRED COMPENSATION AND
                            SUPPLEMENTAL SAVINGS PLAN

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
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                                                                                 ----
<S>                   <C>                                                        <C>
ARTICLE I             Purpose                                                      1

ARTICLE II            Definitions                                                  1

ARTICLE III           Eligibility                                                  3

ARTICLE IV            Deferred Compensation Account Allocations                    3

ARTICLE V             Company Contribution Account Allocations                     3

ARTICLE VI            Investment of Accounts                                       4

ARTICLE VII           Vesting                                                      4

ARTICLE VIII          Distributions and Withdrawals                                5

ARTICLE IX            Source of Payment of Benefits                                5

ARTICLE X             Designation of Beneficiaries                                 6

ARTICLE XI            Administration of the Plan                                   6

ARTICLE XII           Amendment and Termination                                    7

ARTICLE XIII          General Provisions                                           7
</TABLE>

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                     AMS NONFUNDED DEFERRED COMPENSATION AND
                            SUPPLEMENTAL SAVINGS PLAN

                                    ARTICLE I
                                     PURPOSE

         1.1 American Medical Systems, Inc. established this NonFunded Deferred
Compensation and Supplemental Savings Plan effective as of September 10, 1998
for the purposes of providing to its eligible employees (a) benefits which would
have been payable from the tax-exempt trust under the tax-qualified benefit plan
known as the AMS Savings and Investment Plan ("SIP") but for the limitations
placed by the Code on contributions with respect to such employees under such
plan and (b) an opportunity to defer all or a portion of their eligible
compensation.

                  The portions of the Plan providing (a) benefits without regard
to the limitation on "compensation" under Section 401(a)(17) of the Code, the
limitation applicable to the SIP under Section 402(g) of the Code and (b) an
opportunity to defer all or a portion of an eligible employee's compensation,
constitute an unfunded plan maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees. The portion of the Plan providing benefits above the limitations
prescribed under Section 415 of the Code constitutes an "excess benefit plan" as
defined in Section 3(36) of the Act.

                                   ARTICLE II
                                   DEFINITIONS

When used herein, the following terms shall have the following meanings:

         2.1 "Account" means an Employee's Deferred Compensation Account and
Company Contribution Account under the Plan.

         2.2 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

         2.3 "Beneficiary" means the beneficiary or beneficiaries designated in
accordance with Article X of the Plan to receive the amount, if any, payable
upon the death of an Employee who participates in the Plan.

         2.4 "Benefit Limitations" means (a) the maximum aggregate amount of
"annual additions" which could have been made to an Employee's accounts under
the SIP

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in accordance with Section 415 of the Code, (b) the limitation prescribed under
Section 401(a)(17) of the Code on the amount of annual compensation that can be
taken into account under the SIP, and (c) the limitation applicable to the SIP
under Section 402(g) of the Code.

         2.5 "Board of Directors" means the Board of Directors of the Company.

         2.6 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.

         2.7 "Committee" means the members of the American Medical Systems, Inc.
Employee Benefits Committee appointed by the Board of Directors to administer
the Plan in accordance with Article XI.

         2.8 "Company" means American Medical Systems, Inc., and its successors
or assigns.

         2.9 "Company Contribution Account" means a Participant's Account
attributable to allocations pursuant to Section 5.1 as adjusted for earnings and
losses pursuant to Article VI.

         2.10 "Compensation" means the total cash compensation, including
commissions, bonuses and any payments received pursuant to any management
incentive program maintained by the Company, determined without regard to the
limitation prescribed under Section 401(a)(17) of the Code on the amount of
annual compensation that can be taken into account under the SIP.

         2.11 "Deferred Compensation Account" means a Participant's Account
attributable to allocations pursuant to Section 4.1 as adjusted for earnings and
losses pursuant to Article VI.

         2.12 "Employee" means any employee of the Employer who has been
specifically designated by the Committee as eligible to participate in the Plan.

         2.13 "Employer" means the Company and each subsidiary thereof that
adopts the Plan, with the consent of the Committee.

         2.14 "Matching Contribution" means an Employer matching contribution
under the SIP.

         2.15 "Participant" means an Employee who has an Account under the Plan.

         2.16 "Plan" means the AMS NonFunded Deferred Compensation and
Supplemental Savings Plan as set forth herein and as amended and restated from
time to time.

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         2.17 "Retirement" means the Employee's separation from service with the
Employer on or after the attainment of age 55.

         2.18 "SIP" means the AMS Savings and Investment Plan, as amended and
restated from time to time.

         2.19 "Tax Deferred Contribution" means a contribution as defined in the
Section 402(e)(3) of the Code which is made by an Employee to the SIP.

                                   ARTICLE III
                                   ELIGIBILITY

         3.1 Each Employee who has been specifically designated by the Committee
as eligible to participate in the Plan may participate effective as of the first
day of the calendar month coinciding with or next following such designation.

                                   ARTICLE IV
                    DEFERRED COMPENSATION ACCOUNT ALLOCATIONS

         4.1 Each Employee designated by the Committee as eligible to
participate in the Plan and who is prevented from making additional Tax Deferred
Contributions to the SIP by reason of the Benefit Limitations, may elect to
reduce such Employee's Compensation by an amount designated by the Employee in
1% increments, and to have such amount credited to such Employee's Deferred
Compensation Account under the Plan. Eligible Employees will make separate
deferral elections with respect to base compensation and bonus payments. Any
such election shall be in writing and must be made no later than December 31 of
the calendar year preceding the year in which such Compensation is earned except
for the first year in which an Employee is eligible to participate in the Plan,
in which case he may, within thirty (30) days following the date such initial
eligibility, elect to defer Compensation otherwise payable following his initial
election. Any election made pursuant to the foregoing sentence, may not be
revoked or changed thereafter except as to Compensation to be earned in
subsequent calendar years. Allocations pursuant to this Section 4.1 shall be
credited to the eligible Employee's Deferred Compensation Account at the same
time as the Employee's Tax Deferred Contributions are credited under the SIP.

                                    ARTICLE V
                    COMPANY CONTRIBUTIONS ACCOUNT ALLOCATIONS

         5.1 With respect to each Participant, there shall be credited to the
Participant's Company Contribution Account under the Plan the sum of (a) the
additional Matching

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Contributions that would have been allocated to the Participant's account under
the SIP to match actual contributions made to the SIP if the Benefit Limitations
were not applicable, and (b) if the Participant elects to reduce such
Participant's Compensation pursuant to Section 4.1, the Matching Contributions
that would have been made to the Participant's account under the SIP if the
amounts allocated to such Participant's Deferred Compensation Account pursuant
to Section 4.1 were Tax Deferred Contributions to the SIP and the Benefit
Limitations did not apply. Allocations pursuant to this Section 5.1 shall be
credited to the Company Contribution Account at the same time as the
Participant's Matching Contributions are credited under the SIP.

                                   ARTICLE VI
                             INVESTMENTS OF ACCOUNTS

         6.1 Any amounts credited to a Participant's Deferred Compensation
Account pursuant to Section 4.1 or to a Participant's Company Contribution
Account pursuant to Section 5.1 shall be credited to the investment vehicles
designated by the Committee. Once each calendar month, a Participant may make an
investment election to reallocate his Account among the investment vehicles
and/or with respect to future Deferred Compensation and Company Contributions to
be made on the Participant's behalf. Such investment elections shall be
implemented as soon as administratively feasible subject to the Committee's
overriding discretion. The Committee shall retain overriding discretion over the
selection of investment vehicles and may change, alter or modify its investment
policy as it deems appropriate.

         6.2 The value of each Account as from time to time determined (but
determined at least quarterly) shall be the fair market value, based on an
accrual basis of accounting, of the investments or other assets then credited to
such Account taking into consideration any investment income or gains thereon as
well as any transaction expenses or losses with respect thereto. At the time
that a Participant receives a distribution from his Account pursuant to Article
VIII, he shall be entitled to receive, and such Account shall be credited with
any applicable gains or losses up until the date of final distribution.

         6.3 A Participant's Account shall be reduced by the amount of any
benefits distributed to or on behalf of a Participant. Furthermore, a
Participant's Account shall be reduced for any penalties, withdrawal charges or
similar assessments or charges actually assessed against the value of any
investment held in such Account as a result of early withdrawal or payment of
such investment.

                                   ARTICLE VII
                                     VESTING

         7.1 A Participant shall at all times be 100% vested in the allocations
credited to such Participant's Deferred Compensation Account pursuant to Section
4.1.

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         7.2 A Participant shall at all times be 100% vested in the allocations
credited to such Participant's Company Contribution Account pursuant to Section
5.1.

                                  ARTICLE VIII
                          DISTRIBUTIONS AND WITHDRAWALS

         8.1 The Participant shall receive the vested portion of his Account in
one lump sum as soon as practicable following the Participant's separation from
service whether due to the Participant's Retirement, death, or termination from
employment (voluntary or involuntary). Anything herein to the contrary
notwithstanding, the Committee reserves the right (a) to designate a form of
payment other than a lump sum payment or (b) to limit payments in any given year
to such amount as would not cause a loss of deductibility pursuant to Section
162(m) of the Code.

         8.2 Distributions or withdrawals from a Participant's Account shall not
be permitted prior to the date of distribution pursuant to Section 8.1, except
that a withdrawal may be made from a Participant's Account by reason of an
unforeseeable emergency. For this purpose, an unforeseeable emergency shall be
an unanticipated emergency that is caused by an event beyond the control of the
Participant and that would result in severe financial hardship if early
withdrawal were not permitted. Any early withdrawal approved by the Committee
pursuant to this Section 8.2 shall be limited to the amount necessary to meet
the emergency.

                                   ARTICLE IX
                          SOURCE OF PAYMENT OF BENEFITS

         9.1 All payments provided for under the Plan shall be paid in cash from
the general funds of the Company; provided, however, that such payments shall be
reduced by the amount of any payments made to the Participant or such
Participant's dependents, beneficiaries or estate from any trust or special or
separate fund established by the Company to assure such payments. If the Company
shall make any investments to aid it in meeting its obligations hereunder, a
Participant shall have no right, title, or interest whatever in or to any such
investments except as may otherwise be expressly provided in a separate written
instrument relating to such investments. Nothing contained in this Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind between the Company and any Participant. To the extent that
any Participant acquires a right to receive payments from the Company hereunder,
such right shall be no greater than the right of an unsecured creditor of the
Company.

         9.2 The Company may establish a grantor trust with a third party
institutional trustee for the benefit of Participants in the Plan. The powers,
duties and responsibilities of the trustee shall be as set forth in the trust
agreement and nothing contained in the

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Plan, either expressly or by implication, shall impose any additional powers,
duties or responsibilities upon the trustee. The assets of said trust will be
held separate and apart from other Company funds and shall be used exclusively
for the purposes set forth in the Plan and the applicable trust agreement,
subject to the following conditions:

         (a)      the creation of said trust shall not cause the Plan to be
                  other than "unfunded" for purposes of Title I of the Act;

         (b)      the Company shall be treated as the "grantor" of said trust
                  for purposes of Sections 671 and 677 of the Code; and

         (c)      said trust agreement shall provide that its assets may be used
                  to satisfy claims of the Company's general creditors, provided
                  that the rights of such general creditors are enforceable
                  under federal and state law.

                                    ARTICLE X
                          DESIGNATION OF BENEFICIARIES

         10.1 Unless a Participant otherwise files with the Company a written
designation of one or more persons as the Beneficiary who shall be entitled to
receive the amount, if any, payable under this Plan upon such Participant's
death, the Participant's beneficiary under the SIP shall be deemed to have been
designated such Participant's Beneficiary for benefits under this Plan. In the
event that no election has been made either under the terms of the Plan or the
terms of the SIP, then upon the Participant's death, any amount payable under
the Plan shall be paid to the Participant's estate. If a Participant wishes to
change a Beneficiary designation under the Plan, he may do so at any time and
from time to time without the consent of any Beneficiary. If the Committee is in
doubt as to the right of any person to receive such amount, the Company may
retain such amount, without liability for any interest thereon, until the rights
thereto are determined, or the Company may pay such amount into any court of
appropriate jurisdiction, and such payment shall be a complete discharge of the
liability of the Plan and the Company therefor.

                                   ARTICLE XI
                           ADMINISTRATION OF THE PLAN

         11.1 The Plan shall be administered by the Committee, which shall have
full power and authority to interpret, construe and administer the Plan, and
review claims for benefits under the Plan, and the Committee's interpretations
and constructions of the Plan and actions thereunder shall be binding and
conclusive on all persons and for all purposes.

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         11.2 If any claim for benefits under the Plan is wholly or partially
denied, the Committee shall give written notice by registered or certified mail
of such denial to the claimant within 90 days after receipt of the written claim
by the Committee. Notice must be written in a manner calculated to be understood
by the claimant, setting forth the specific reasons for such denial, specific
reference to pertinent Plan provisions on which the denial is based, a
description of any additional material or information necessary for the claimant
to perfect the claim and an explanation of why such material or information is
necessary, and an explanation of the Plan's claim review procedure. The
Committee shall also advise the claimant that the claimant or the claimant's
duly authorized representative may request a review by the Committee of the
decision to deny the claim by filing with the Committee, within 60 days after
such notice has been received by the claimant, a written request for such
review. The claimant may review pertinent documents and submit issues and
comments in writing within the same 60 day period. If such request is so filed,
such review shall be made by the Committee with 60 days after receipt of such
request, unless special circumstances (including, but not limited to, a need to
hold a hearing) require an extension of time for processing, in which case a
decision shall be rendered not later than 120 days after receipt of the request
for review. The claimant shall be given written notice within such 60 day period
of the decision resulting from such review, which shall include specific reasons
for the decision, written in a manner calculated to be understood by the
claimant, and specific references to the provisions on which the decision was
based.

                                   ARTICLE XII
                            AMENDMENT AND TERMINATION

         12.1 The Plan may be amended, suspended or terminated, in whole or in
part, by the Board of Directors, but no such action shall retroactively impair
or otherwise adversely affect the rights of any person to benefits under the
Plan which have accrued prior to the date of such action, as determined by the
Committee. The Committee may adopt amendments to the Plan which it deems
necessary or appropriate to comply with applicable laws or government
regulations or which do not materially increase the annual cost of the Plan.

                                  ARTICLE XIII
                               GENERAL PROVISIONS

         13.1 This Plan shall be binding upon and inure to the benefit of the
Company and its successors and assigns and the Participant, and the designees
and the estate of the Participant. Nothing in this Plan shall preclude the
Company from consolidating or merging into or with, or transferring all or
substantially all of its assets to, another corporation which assumes this Plan
and all obligations of the Company hereunder. Upon such a consolidation, merger
or transfer of assets and assumption, the term

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"Company" shall refer to such other corporation and this Plan shall continue in
full force and effect.

         13.2 Neither the Plan nor any action taken hereunder shall be construed
as giving to a Participant the right to be retained in the employ of the
Employer or as affecting the right of the Employer to dismiss any Participant.

         13.3 The Company may withhold from any benefits payable under this Plan
all Federal, state, city or other taxes as shall be required pursuant to any law
or governmental regulation or ruling.

         13.4 Except insofar as may otherwise be required by law, no amount
payable at any time under the Plan shall be subject in any manner to alienation
by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment,
charge or encumbrance of any kind nor in any manner be subject to the debts or
liabilities of any person and any attempt to so alienate or subject any such
amount, whether presently or thereafter payable, shall be void. If any person
shall attempt to, or shall alienate, sell, transfer, assign, pledge, attach,
charge or otherwise encumber any amount payable under the Plan, or any part
thereof, or if by reasons of such person's bankruptcy or other event happening
at any such time such amount would be made subject to such person's debts or
liabilities or would otherwise not be enjoyed by such person, then the
Committee, if it so elects, may direct that such amount be withheld and that the
same or any part thereof be paid or applied to or for the benefit of such
person, such person's spouse, children or other dependents, or any of them, in
such manner and proportion as the Committee may deem proper.

         13.5 If the Committee shall find that any person to whom any amount is
or was payable hereunder is unable to care for such person's affairs because of
illness or accident, or has died, then the Committee, if it so elects, may
direct that any payment due such person or such person's estate (unless a prior
claim therefor has been made by a duly appointed legal representative) or any
part thereof be paid or applied for the benefit of such person or to or for the
benefit of such person's spouse, children or other dependents, an institution
maintaining or having custody of such person, any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise entitled
to payment, or any of them, in such manner and proportion as the Committee may
deem proper. Any such payment shall be in complete discharge of the liability of
the Company therefor.

         13.6 All elections, designations, requests, notices, instructions, and
other communications from a Participant, Beneficiary or other person to the
Committee required or permitted under the Plan shall be in such form as is
prescribed from time to time by the Committee, shall be mailed by first-class
mail or delivered to such location as shall be specified by the Committee, and
shall be deemed to have been given and delivered only upon actual receipt
thereof at such location.

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         13.7 The benefits payable under this Plan shall be in addition to all
other benefits provided for Employees of the Company.

         13.8 The captions preceding the sections and articles hereof have been
inserted solely as a matter of convenience and in no way define or limit the
scope or intent of any provisions of the Plan.

         13.9 This Plan shall be governed by the laws of the State of Minnesota
from time to time in effect.

IN WITNESS WHEREOF, the undersigned has executed this Plan as of the 5th day
of March, 1999.

                                            AMERICAN MEDICAL SYSTEMS, INC.

                                          BY: /s/ Jan Dick
                                              ---------------------------------

                                          TITLE: Vice President-Human Resources
                                                 ------------------------------

                                       9<PAGE>   1
                                  AMS NONFUNDED
                          SUPPLEMENTAL RETIREMENT PLAN

<PAGE>   2

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S>            <C>                                                                 <C>
ARTICLE I      ESTABLISHMENT OF THE PLAN.............................................1
               1.1 Establishment.....................................................1
               1.2 Purpose...........................................................1
               1.3 Status of Plan Under ERISA........................................1

ARTICLE II     DEFINITIONS...........................................................1
               2.1 Actuarial Equivalent..............................................1
               2.2 Board.............................................................2
               2.3 Code..............................................................2
               2.4 Compensation......................................................2
               2.5 Corporation.......................................................2
               2.6 Employee..........................................................2
               2.7 ERISA.............................................................2
               2.8 Participant ......................................................2
               2.9 Plan..............................................................2
               2.10 Plan Administrator...............................................2
               2.11 Retirement Benefit...............................................3
               2.12 Retirement Plan..................................................3
               2.13 Single Life Annuity..............................................3
               2.14 Statutory Limit..................................................3

ARTICLE III    PARTICIPATION.........................................................3
               3.1 Eligibility for Participation.....................................3
               3.2 Termination of Active Participation...............................3

ARTICLE IV     BENEFITS..............................................................4
               4.1 Eligibility.......................................................4
               4.2 Amount of Benefit.................................................4
               4.3 Payment...........................................................4
               4.4 Tax Withholding...................................................4

ARTICLE V      OTHER TERMINATION OF EMPLOYMENT.......................................5
               5.1 Other Termination of Employment...................................5
               5.2 Termination of Employment for Just Cause..........................5

ARTICLE VI     ADMINISTRATION........................................................5
               6.1 Plan Administration...............................................5
               6.2 Powers of Plan Administrator......................................6
               6.3 Standard of Care..................................................6
               6.4 Claims Procedure..................................................6
</TABLE>

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                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<S>            <C>                                                                 <C>
ARTICLE VII    MISCELLANEOUS.........................................................7
               7.1 Funding of Benefits...............................................7
               7.2 Assignment........................................................7
               7.3 Employment Rights.................................................7
               7.4 Amendment or Termination..........................................7
               7.5 Corporate Successors..............................................8
               7.6 Construction......................................................8
               7.7 Governing Law.....................................................8
</TABLE>

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                                    ARTICLE I
                            ESTABLISHMENT OF THE PLAN

         1.1 Establishment.

         American Medical Systems, Inc., (the "Corporation") hereby establishes
a retirement benefit plan to be known as the AMS NonFunded Supplemental
Retirement Plan (the "Plan"). The Plan shall be effective as of September 10,
1998.

         1.2 Purpose.

         The Corporation is adopting the Plan to provide additional retirement
income to the executives who participate in the Plan. The Plan provides certain
executives with benefits necessary to establish a competitive executive
retirement program including benefits which would otherwise be provided under
the qualified defined benefit pension plan sponsored by the Corporation but for
certain limitations on such benefits required by federal law.

         1.3 Status of Plan Under ERISA.

         The Plan is intended to be "unfunded" and maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees for purposes of ERISA. Accordingly, the Plan is not
intended to be covered by Parts 2 through 4 of Subtitle B of Title I of ERISA.

                                   ARTICLE II
                                   DEFINITIONS

         The following terms shall have the meanings described in this Article.
All references in the Plan to specific Articles or Sections shall refer to
Articles or Sections of the Plan unless otherwise indicated.

         2.1 Actuarial Equivalent.

         "Actuarial Equivalent" means equivalent in value of the aggregate
amount of benefits to be received under different forms of payment. Actuarially
Equivalent benefits shall be determined using the actuarial assumptions used for
determining equivalent benefits under the Retirement Plan.

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         2.2 Board.

         "Board" means the Board of Directors of American Medical Systems, Inc..

         2.3 Code.

         "Code" means the Internal Revenue Code of 1986, as amended.

         2.4 Compensation.

         "Compensation" means total Earnings of the Participant as defined in
the Retirement Plan provided, however, the limitations of Section 401(a)(17) of
the Code shall not apply.

         2.5 Corporation.

         "Corporation" means American Medical Systems, Inc. or to the extent
provided in Section 7.5 below, any successor corporation or entity resulting
from a merger or consolidation into or with the Corporation or a transfer or
sale of substantially all of the assets of the Corporation.

         2.6 Employee.

         "Employee" means any person in the regular direct employ of the
Corporation, excluding consultants or self-employed individuals providing
services under contract to the Corporation.

         2.7 ERISA.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

         2.8 Participant.

         "Participant" means an Employee or former Employee of the Corporation
who has met the requirements for participation under Article III, and who is or
may become eligible to receive a benefit from the Plan.

         2.9 Plan.

         "Plan" means the AMS NonFunded Supplemental Retirement Plan.

         2.10 Plan Administrator.

         "Plan Administrator" means the American Medical Systems, Inc. Employee
Benefit Committee, which, shall be the named fiduciary responsible for the
operation and administration of the Plan as provided in Article VI.

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         2.11 Retirement Benefit.

         "Retirement Benefit" means the monthly pension benefit payable to a
Participant from the Retirement PLAN, assuming payment is made in the form of a
Single Life Annuity commencing at age 65.

         2.12 Retirement Plan.

         "Retirement Plan" means the AMS Retirement Plan, as in effect on
September 10, 1998 and as may be amended in the future.

         2.13 Single Life Annuity.

         "Single Life Annuity" means a monthly pension for the life of the
Participant.

         2.14 Statutory Limit.

         "Statutory Limit" means the limits imposed by Code Sections 415 and
401(a)(17).

                                   ARTICLE III
                                  PARTICIPATION

         3.1 Eligibility for Participation.

         It is intended that participation be limited to Employees who will
qualify as members of a "select group of management or other highly compensated
employees" under Title I of ERISA. An Employee shall begin to participate in the
Plan effective as of the date specified by the Plan Administrator. The Plan
Administration shall provide written notice of each Employee's eligibility for
participation in the Plan.

         3.2 Termination of Active Participation.

         The Plan Administrator may remove a Participant from further active
participation in the Plan. If this occurs, the Participant shall not earn any
additional benefits under the Plan. The amount of the Participant's benefits, if
any, under the Plan shall be determined as of the date the Participant ceases
active participation. The former Participant's benefits shall be paid only if
the Participant satisfies all other requirements of the Plan.

                                       3
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                                   ARTICLE IV
                                    BENEFITS

         4.1 Eligibility.

         Except as otherwise provided in Article V, a Participant shall be
eligible for a benefit under the Plan if he terminates employment with the
Corporation and, at the time of the termination, is 100% vested under the
Retirement Plan and eligible for an immediate or deferred Retirement Benefit.

         4.2 Amount of Benefit.

         The benefits payable to an eligible Participant shall be equal to the
amount by which (a) exceeds (b):

                  (a) The Retirement Benefit that would be payable to the
                      Participant under the Retirement Plan without regard to
                      the Statutory Limits and by treating amounts deferred by
                      the Participant under the AMS NonFunded Deferred
                      Compensation and Supplemental Savings Plan as though they
                      were a part of the Participant's Earnings, as defined
                      under the Retirement Plan.

                  (b) The Retirement Benefit payable to the Participant from the
                      Retirement Plan.

         4.3 Payment.

         Benefits under the Plan that are payable to a Participant shall be paid
in ten substantially equal annual installments commencing on the January 1 next
following the Participant's termination from employment. For purposes of making
this calculation the installments shall be the Actuarial Equivalent of a Single
Life Annuity payable at normal retirement age under the Retirement Plan. Upon
the death of a Participant prior to receipt of any or all of the benefits due to
him under the Plan, any remaining balance of installment payments shall be paid
to the beneficiary designated by the Participant under the Retirement Plan. If
the Participant has not designated a beneficiary under the Retirement Plan, or
if no such beneficiary is living at the time of the Participant's death, the
amount in the Participant's account that is distributable upon his death shall
be distributed to the same person or persons who would otherwise be entitled to
receive a distribution of the Participant's benefits under the Retirement Plan.

         4.4 Tax Withholding.

         Benefit payments from the Plan shall be subject to all applicable tax
withholdings.

                                       4
<PAGE>   8

                                    ARTICLE V
                         OTHER TERMINATION OF EMPLOYMENT

         5.1 Other Termination of Employment.

         Notwithstanding any other provisions of the Plan, no benefits shall be
payable to the Participant or his surviving spouse under the Plan in either of
the following situations:

                  (a) If the Participant terminates employment before becoming
                      eligible for benefits under Section 4.1 of the Plan; or

                  (b) If the Participant's employment with the Corporation is
                      terminated by the the Corporation for "just cause", as
                      defined in Section 5.2.

         5.2 Termination of Employment for Just Cause.

         For purposes of Section 5.1, a Participant is terminated for "just
cause" if the Participant's employment is ended because of:

                  (a) Gross negligence, fraud, dishonesty or willful violation
                      of any law or significant policy of the Corporation,
                      committed in connection with his employment and resulting
                      in a material adverse effect on the Corporation; or

                  (b) Failure to substantially perform (for reasons other than
                      disability) the duties reasonably assigned to the
                      Participant in a manner consistent with prior practice.

         The definition of "just cause" in this Section is relevant only for
purposes of eligibility for benefits under the Plan.

                                   ARTICLE VI
                                 ADMINISTRATION

         6.1 Plan Administration.

         The Plan shall be administered by the American Medical Systems, Inc.
Employee Benefits Committee whose members shall consist of three (3) or more
persons appointed by the Board.

                                       5
<PAGE>   9

         6.2 Powers of Plan Administrator.

         The Plan Administrator shall have all discretionary powers necessary to
administer and satisfy its obligations under the Plan, including, but not
limited to, the following:

                  (a) Maintain records pertaining to the Plan.

                  (b) Interpret the terms and provisions of the Plan.

                  (c) Establish procedures by which Participants may apply for
                      benefits under the Plan and appeal a denial of benefits.

                  (d) Determine the rights under the Plan of any Participant
                      applying for or receiving benefits.

                  (e) Administer the claims procedure provided in this Article.

                  (f) Perform all acts necessary to meet the reporting and
                      disclosure obligations imposed by ERISA.

                  (g) Delegate specific responsibilities for the operation and
                      administration of the Plan to such employees or agents as
                      it deems advisable and necessary.

         6.3 Standard of Care.

         The Plan Administrator shall administer the Plan solely in the interest
of Participants and for the exclusive purposes of providing benefits to such
Participants and their beneficiaries. The Plan Administrator shall administer
the Plan with the care, skill, prudence and diligence under the circumstances
then prevailing that a prudent person, acting in a like capacity and familiar
with such matters, would use in the conduct of an enterprise of a like character
and with like aims.

         The Plan Administrator shall not be liable for any act or omission
relating to its duties under the Plan, unless the act or omission was due to
gross negligence or willful misconduct.

         6.4 Claims Procedure.

         Any Participant whose application for benefits under the Plan has been
denied, in whole or in part, shall be given written notice of the denial of
benefits by the Plan Administrator. The notice shall be written in easily
understood language and shall indicate the reasons for denial and the specific
Plan provisions on which the denial is based. The notice shall explain that the
Participant may request a review of the denial and state the procedure for
requesting a review. The notice shall describe any additional information
necessary to perfect the Participant's claim and explain why such information is
necessary.

                                       6
<PAGE>   10

         A Participant may make a written request to the Plan Administrator for
a review of any denial of benefits under the Plan. The request for review must
be in writing and must be made within ninety (90) days after the postmark of the
notice of denial. The request shall refer to the provisions of the Plan on which
it is based and shall set forth the facts relied upon as justifying a reversal
or modification of the determination being appealed.

         A Participant who requests a review of a denial of benefits in
accordance with this claims procedure may examine pertinent documents and submit
pertinent issues and comments in writing. The Plan Administrator shall provide a
review of the decision denying the claim for benefits within sixty (60) days
after receiving the written request for review.

                                   ARTICLE VII
                                  MISCELLANEOUS

         7.1 Funding of Benefits.

         All payments provided for under the Plan shall be paid in cash from the
general funds of the Company; provided, however, that such payments shall be
reduced by the amount of any payments made to the Participant or such
Participant's dependents, beneficiaries or estate from any trust or special or
separate fund established by the Company to assure such payments. If the Company
shall make any investments to aid it in meeting its obligations hereunder, a
Participant shall have no right, title, or interest whatever in or to any such
investments except as may otherwise be expressly provided in a separate written
instrument relating to such investments. Nothing contained in this Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind between the Company and any Participant. To the extent that
any Participant acquires a right to receive payments from the Company hereunder,
such right shall be no greater than the right of an unsecured creditor of the
Company.

         7.2 Assignment.

         No benefit or interest under the Plan is subject to assignment or
alienation, whether voluntary or involuntary. Any assignment or alienation of
benefits shall be void.

         7.3 Employment Rights.

         The existence of the Plan shall not grant a Participant any legal right
to continue as an Employee nor shall it affect the right of the Corporation to
discharge a Participant.

         7.4 Amendment or Termination.

         The Corporation shall have the right to amend or terminate the Plan at
any time by action of the Board or by a duly authorized officer or committee.
The Plan Administrator shall also have the right to amend this Plan to comply
with applicable law or for any other reason if such

                                       7
<PAGE>   11

amendment does not materially increase the benefits provided hereunder or the
cost of administering the Plan. However, no amendment or termination shall
reduce a Participant's benefit to an amount less than the benefit the
Participant would be entitled under the Plan if the Participant had terminated
employment as of the date immediately preceding the date of the amendment or
termination.

         7.5 Corporate Successors.

         The Plan shall not be automatically terminated by a transfer or sale of
assets of the Corporation or by the merger or consolidation of the Corporation
into or with any other Corporation or entity, but the Plan shall be continued
after such sale, merger or consolidation only if and to the extent that the
transferee, purchaser or successor entity agrees to continue the Plan. In the
event that the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall terminate subject to the provisions of Section 7.4.

         7.6 Construction.

         Words in the masculine shall apply to the feminine where applicable;
and wherever the context of the Plan dictates, the plural shall be read as the
singular and the singular as plural.

         7.7 Governing Law.

         To the extent that Minnesota law is not preempted by ERISA, the
provisions of this Plan shall be governed by the laws of the State of Minnesota.

                            * * * * * * * * * * * * *

         IN WITNESS WHEREOF, the undersigned has executed this Plan as of the
5th day of March, 1999.

                          AMERICAN MEDICAL SYSTEMS, INC.

                          BY: /s/ Jan Dick
                              -------------------------------------

                          TITLE: Vice President-Human Resources
                                 ----------------------------------

                                       8

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