Document:

exv10w4

 

Exhibit 10.4

AMERICAN MEDICAL SYSTEMS, INC.

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT is made and entered into effective as of December 18, 2006, between
American Medical Systems, Inc., a Delaware corporation (the “Company”), and Mark A.
Heggestad (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 and Chief
Financial Officer, 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 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.

     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 $265,000
per year with increases, if any, as may be approved by the Board of Directors or the Compensation
Committee of the Board. 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 or the Compensation Committee
of the Board 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 or the Compensation Committee of the
Board 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, and other benefit programs provided to other officers
of the Company on terms no less favorable than those available to 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.

     (d) Stock Option. The Executive shall be granted a Non-Qualified Stock Option (the
“Option”) to acquire 175,000 shares of Common Stock of American Medical Systems Holding,
Inc. (the “Parent Corporation”) under the Parent Corporation’s 2005 Stock Incentive Plan
(the “2005 Plan”) at a price equal to Fair Market Value on the grant date, as defined in
such plan. All of the terms and conditions relating to the Option, including the vesting and
expiration dates, are set forth in the Stock Option Certificate attached hereto (the “Stock
Option Certificate”).

     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 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
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 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 then 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 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 in Control, as defined in the 2005 Plan,
whether during or upon expiration of the then 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
outstanding options to purchase shares of common stock of Parent Corporation shall become
immediately vested and exercisable to the extent and on the terms set forth in the related stock
option agreement or certificate, (iii) the Company shall pay to Executive a lump sum payment equal
to his annual Salary at the rate in effect hereunder on the date of such termination, plus his
target Bonus for the year in which the Change in Control occurs (less any applicable withholding or
similar taxes), and (iv) to the extent permissible under the

 

 

Company’s health and welfare plans, the Executive shall continue to receive, at the Company’s
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 (iv) 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 stock options accelerate
following a Change in Control as provided in any stock option agreement or certificate, 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, any stock option agreement or certificate 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 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. Notwithstanding the foregoing, in the event the Company reasonably
determines that the Gross-Up Payment is subject to Section 409A of the Code, such payment will be
made in the same calendar year in which the Total Payments are made.

     (h) 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 in Control, (ii) a reduction by the Company in
the Executive’s base Salary, or an adverse change in the form or timing of the payment thereof, as
in effect immediately prior to the Change in 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 in 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.

     (i) 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.

     (j) Code Section 409A. In the event the Company reasonably determines that any
payments due the Executive under this Agreement following his termination are subject to the
requirements of Section 409A of the

 

 

Internal Revenue Code, the Company will suspend the payments for six months following the
Executive’s termination of employment if the Executive is a “specified employee” within the meaning
of Code section 409A(a)(2)(B).

     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 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
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, 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, 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.

     (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 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.

     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                                          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.

     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 Stock Option
Certificate, 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:	 	 
	 

	 	 	 	 
	 	 	Martin J. Emerson
	 	 	President and Chief Executive Officer
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 	 	Mark A. Heggestad
	 	 	Executive Vice President, Chief Financial Officerexv10w14

 

Exhibit 10.14

American Medical Systems Holdings, Inc.

Non-employee Director Compensation Summary

Annual Retainer

We pay our independent directors an annual retainer for serving on the Board and Committees as
follows:

	 	 	 	 	 
	Board member
	 	$	40,000	 
	Audit Committee chair
	 	$	20,000	 
	Audit Committee member
	 	$	10,000	 
	Compensation Committee chair
	 	$	10,000	 
	Compensation Committee member
	 	$	5,000	 
	Nominating/Governance Committee chair
	 	$	7,500	 
	Nominating/Corporate Governance Committee member
	 	$	2,500	 
	Technology/Business Development chair
	 	$	6,000	 
	Technology/Business Development member
	 	$	4,000	 

Stock Options

Our current compensation program also provides for the grant of stock options to our non-employee
directors effective as of the date of the director’s first appointment or election to the board and
on an annual basis thereafter. On May 4, 2006 (the date of our 2006 annual meeting of
stockholders), we granted Mr. Emmitt, Mr. Graf, Mr. Porter, Mr. Timbie and Ms. Weatherman each an
option to purchase 10,000 shares of our common stock. In July 2006 in connection with a
recommendation by our Compensation Committee regarding non-employee director compensation, we
granted Mr. Emmitt, Mr. Graf, Mr. Porter, Mr. Timbie and Ms. Weatherman each an additional option
to purchase 10,000 shares of our common stock. Upon their initial election to the Board in 2006,
we granted Dr. McLellan, Mr. Sharma Ms. Kiernan’s each an option to purchase 40,000 shares of our
common stock. All options were granted under our 2005 Stock Incentive Plan. These options have an
exercise price equal to the fair market value of one share of common stock on the date of grant,
and vest over a three-year period from the date of grant, as long as the non-employee director
continues to serve on the board. Upon a change in control, all outstanding options would become
immediately exercisable in full and remain exercisable for a period of up to five years. The
options granted in 2006 expire seven years from the date of grant. Each non-employee director who
is reelected as a director at the annual meeting of stockholders or continues to serve as a
director after such meeting will be granted an option to purchase a number of shares of our common
stock, as determined by the board each year prior to the annual meeting for such year. The board
anticipates that value (based on customary valuation methods) of future option grants will be
approximately equal to the value of the options to purchase a total of 20,000 shares granted to
independent directors in 2006.

Expenses

In addition, we reimburse our non-employee directors for reasonable out-of-pocket expenses incurred
in connection with attending regularly scheduled meetings.

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