Document:

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EXHIBIT 10.1

THIRD AMENDMENT TO SECOND AMENDED AND RESTATED FINANCING AND

SECURITY AGREEMENT

     THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED FINANCING AND
SECURITY AGREEMENT (this “Agreement”) is made as of February 28, 2004, by
SENSYTECH, INC., formerly known as Sensys Technologies Inc., a Delaware
corporation (“Sensytech”), ST PRODUCTIONS SYSTEMS, INC., a Delaware
corporation (“Production”) and SENSYTECH FINANCIAL SERVICES, INC., a
Delaware corporation (“Financial”; Sensytech, Production and Financial
are hereinafter referred to collectively as the “Borrower”), and BANK OF
AMERICA, N. A., formerly NationsBank, N. A., a national banking
association (the “Lender”).

RECITALS

     A. Sensytech and the Lender entered into a Second Amended and Restated
Financing
and Security Agreement dated as of February 28, 2002 (the “Original
Agreement.

     B. Production joined in the Original Agreement as a borrower pursuant
to an Additional Borrower Joinder Supplement dated April 15, 2002.

     C. Financial joined in the Original Agreement as a borrower pursuant
to an Additional Borrower Joinder Supplement dated March 1, 2003.

     D. The Original Agreement has been modified pursuant to a First
Amendment to Second Amended and Restated Financing and Security
Agreement dated as of February 28, 2003 and a Second Amendment to Second
Amended and Restated Financing and Security Agreement dated as of March
1, 2003 (together with the Original Agreement, as amended, modified,
substituted, extended, and renewed from time to time, collectively, the
“Financing Agreement”).

     E. The Financing Agreement provides for some of the agreements between
the Borrower and the Lender with respect to the “Loans” (as defined in the
Financing Agreement), including a revolving credit facility in the maximum principal amount
of $15,000,000 and a letter of credit facility as part of that revolving credit facility.

     F. The Borrower has requested that the Lender extend the Revolving
Credit Expiration Date to February 28, 2006.

     G. The Lender is willing to agree to the Borrower’s request on the
condition, among others, that this Agreement be executed.

AGREEMENTS

     NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, receipt of which is hereby acknowledged, the
Borrower and the Lender agree as follows:

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     1. The Borrower and the Lender agree that the Recitals above are a part of
this Agreement. Unless otherwise expressly defined in this Agreement, terms
defined in the Financing Agreement shall have the same meaning under this Agreement.

     2. The Borrower and the Lender agree that on the date hereof the aggregate
outstanding principal balance under the Revolving Credit Note (subject to
change for returned items and other adjustments made in the ordinary course
of business) is $ – 0 –

     3. Each of the Borrower represents and warrants to the Lender as follows:

          (a) It is a corporation duly organized, and validly existing and in good
standing under the laws of the State of Delaware and is duly qualified to
do business as a foreign
corporation in good standing in every other state wherein the conduct of
its business or the
ownership of its property requires such qualification;

          (b) It has the power and authority to execute and deliver this Agreement
and perform its obligations hereunder and has taken all necessary and appropriate
corporate/partnership action to authorize the execution, delivery and
performance of this Agreement;

          (c) The Financing Agreement, as heretofore amended and as amended by this
Agreement, and each of the other Financing Documents remains in full force
and effect, and
each constitutes the valid and legally binding obligation of Borrower,
enforceable in accordance
with its terms;

          (d) All of Borrower’s representations and warranties contained in
the Financing Agreement and the other Financing Documents are true and correct
on and as of the date of Borrower’s execution of this Agreement; and

          (e) No Event of Default and no event which, with notice, lapse of time or
both would constitute an Event of Default, has occurred and is continuing
under the Financing Agreement or the other Financing Documents which has not
been waived in writing by the Lender.

     4. The Financing Agreement is hereby amended as follows:

          (a) Section 1.1 (Certain Defined Terms) of the Financing Agreement is
hereby amended by deleting the following defined terms in their entirety
and inserting the following defined terms in place thereof:

          “Revolving Credit Expiration Date” means February 28, 2006.”

          (b) Section 2.3.3 (Administrative Fees) is hereby deleted in its entirety
and the following section is inserted in its place;

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     “2.3.3 Administrative Fees.

     The Borrower shall pay to the Lender a quarterly
administrative fee (each an “Administrative Fee” and collectively,
the “Administrative Fees”) for administrative services performed
in conjunction with the Revolving Credit Facility. The quarterly
Administrative Fee shall be $5,625 and shall be payable each
quarter, in advance, on the first (1st) day of each March, June,
September and December until the Revolving Credit Termination
Date,”

          (c) Section 6.1.12 (Government Contracts) is hereby deleted in its
entirety and the following section is inserted in its place:

          “Section 6.1.12 Government Contracts.

     The Borrower shall immediately notify the Lender of the
execution of any Government Contract with a contract value equal
to or greater than One Million Five Hundred Thousand Dollars
($1,500,000) and shall in accordance with Section 3.2 (Grant of
Liens) execute any instruments and take any steps in order that
all moneys due and to become due under such Government Contracts
shall be assigned to the Lender and notice thereof given to the
Government under the Federal Assignment of Claims Act of 1940 (31
U.S.C. §3727 and 41 U.S.C. §15) or any other similar applicable
law. On the Lender’s request the Borrower shall assign such other
Government Contracts as the Lender requires in the exercise of its
reasonable discretion.”

          (d) Section 6.1.15(a) (Tangible Net Worth) is hereby deleted in its
entirety and the following section is inserted in its place:

     ”(a) Tangible Net Worth. The Borrower will at all times
maintain a Tangible Net Worth of not less than $20,000,000.”

          (e) Section 6.2,1 (Capital Structure, etc.) is hereby deleted in its
entirety and
the following section is inserted in its place:

     “Section 6.2.1 Capital Structure, Merger, Acquisition or Sale of
Assets.

     The Borrower will not alter or amend its capital structure,
authorize any additional class of equity, enter into any merger or
consolidation or amalgamation, windup or dissolve itself (or
suffer any liquidation or dissolution) or acquire all or
substantially all the assets of any Person with a purchase price
of $5,000,000 or more, or make acquisitions in the aggregate
during the term of the Credit Facilities with an aggregate
purchase price in excess of $15,000,000, or sell, lease or
otherwise dispose of any of its assets without the prior written
consent of the Lender. Any consent of the Lender to the
disposition of any assets may be conditioned on a specified use of
the proceeds of disposition.”

          (f) Section 6.2.6 is hereby deleted in its entirety and the
following section is inserted in its place:

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     “Section 6.2.6 Operating Lease Obligations:

     The Borrower will not incur or permit to exist any Lease
Obligations except Capital Leases expressly permitted by this Agreement,
if the aggregate amount of all such Lease Obligations would at any time
exceed Two Million Five Hundred Thousand Dollars ($2,500,000) during any
fiscal year of the Borrower.”

          (g) Section 6.2.18 (Profitability) is hereby deleted in its
entirety.

     5. The Borrower hereby issues, ratifies and confirms the representations,
warranties
and covenants contained in the Financing Agreement, as amended hereby. The
Borrower agrees that this Agreement is not intended to and shall not cause a novation with
respect to any or all of the Obligations.

     6. The Borrower acknowledges and warrants that the Lender has acted in
good faith
and has conducted in a commercially reasonable manner its relationships
with the Borrower in
connection with this Agreement and generally in connection with the
Financing Agreement and
the Obligations, the Borrower hereby waiving and releasing any claims to
the contrary.

     7. The Borrower shall pay at the time this Agreement is executed and
delivered all
fees, commissions, costs, charges, taxes and other expenses incurred by
the Lender and its
counsel in connection with this Agreement, including, but not limited to,
reasonable fees and
expenses of the Lender’s counsel and all recording fees, taxes and
charges.

     8. This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be
deemed to be an original
and all taken together shall constitute but one and the same instrument.
The Borrower agrees
that the Lender may rely on a telecopy of any signature of the Borrower.
The Lender agrees that
the Borrower may rely on a telecopy of this Agreement executed by the
Lender.

     IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement under seal as of the date and year first written above.

	 	 	 	 	 
	WITNESS OR ATTEST:	 	SENSYTECH, INC., formerly known as Sensys
	 	 	Technologies Inc.
	 
	 	 	 	 
	/s/
SHARON M. JOHNSON

	 	By:
	 	/s/ Donald F. Fultz                   (Seal)
	

	 	 	 	
 
	

	 	 	 	Name: Donald F. Fultz
	

	 	 	 	Title: Vice President and CEO

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	WITNESS:	 	ST PRODUCTION SYSTEMS, INC.
	 
	 	 	 	 
	/s/SHARON
            M. JOHNSON
	 	By:
	 	/s/ Donald F. Fultz (SEAL)
	

	 	 	 	
 
	

	 	 	 	Name: Donald FT Fultz
	

	 	 	 	Title: Vice President and CFO
	 
	 	 	 	 
	WITNESS:	 	SENSYTECH FINANCIAL SERVICES, INC
	 
	 	 	 	 
	/s/
SHARON M. JOHNSON

	 	By:
	 	/s/ Donald F. Fultz (SEAL)
	

	 	 	 	
 
	

	 	 	 	Name: Donald F. Fultz
	

	 	 	 	Title: Vice President and CFO
	 
	 	 	 	 
	WITNESS:	 	BANK OF AMERICA, N. A., formerly
	

	 	Nations
	 	Bank, N. A.
	 
	 	 	 	 
	ANN SHANKROFF
	 	By:
	 	/s/DIANE BAUMAN (SEAL)
	

	 	 	 	
 
	

	 	 	 	DIANE BAUMAN
	

	 	 	 	Senior Vice President

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AMERICAN MEDICAL SYSTEMS, INC.

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT is made and entered into effective as of April
26, 2004, between American Medical Systems, Inc., a Delaware corporation (the
“Company”), and Martin J. Emerson(the “Executive”).

R E C I T A L S:

     WHEREAS, the Company currently employs the Executive as the Company’s
President and Chief Operating Officer, and the Company recognizes that the
future growth, profitability and success of the Company’s business will be
substantially and materially enhanced by the continued 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 President and Chief Operating 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 President 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 $250,000 per year with increases, if any, as may be approved by
the Board of Directors (the “Board” or “Board of Directors”) of American
Medical Systems Holdings, Inc. (the “Parent Corporation”) 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.

     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

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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

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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

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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 below, 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 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.

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     (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.

     For purposes of this Agreement, “Change in 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 Parent Corporation, taking into account as

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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
Parent Corporation Common Stock”) or (B) the combined voting power of the then
outstanding voting securities of the Parent Corporation entitled to vote
generally in the election of directors (the “Outstanding Parent Corporation
Voting Securities”); provided, however, that for purposes of this subsection
(i), the following acquisitions shall not constitute a Change in Control: (x)
any acquisition by the Parent Corporation or any “affiliate” of the Parent
Corporation, within the meaning of 17 C.F.R. § 230.405 (an “Affiliate”), (y)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Parent Corporation or any Affiliate of the Parent
Corporation, (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
Parent Corporation (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
Parent Corporation Common Stock and Outstanding Parent Corporation Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 60% of, 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 Parent Corporation or all or substantially all of the
Parent Corporation’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 Parent
Corporation Common Stock and Outstanding Parent Corporation 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

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Business Combination were members of the incumbent Board of Directors of
the Parent Corporation at the time of the execution of the initial agreement
providing for such Business Combination; or

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

     (iv) The sale of at least 80% of the assets of the Parent Corporation 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
either (A) a vote of at least two-thirds of the directors who then comprised
the Board of Directors immediately prior to such vote or (B) the Nominating
Committee of the Board of Directors shall be considered a member of the Board
of Directors on the date of this Agreement.

     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 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.

     (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.

8

 

     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

9

 

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,

10

 

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.

11

 

     (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

12

 

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; 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:

13

 

(i) If to the Executive, at 9696 Falcons Way, Eden Prairie, MN
55347 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 Chairman of the
Board or 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. Except as provided in this Section 16,
this Agreement constitutes the entire understanding and agreement of the
parties hereto regarding the employment of the Executive, and this Agreement
supersedes all prior negotiations, discussions, correspondence, communications,
understandings and agreements between the parties relating to the subject
matter of this Agreement. The Agreement, executed by the Executive on June 13,
2000, in connection with the Executive’s initial employment with the Company
will remain in full force and effect; provided, however, to the extent such
prior agreement conflicts with this Agreement, the terms of this Agreement will
control.

     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.

14

 

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

	 	 	 	 	 
	 	 	AMERICAN MEDICAL SYSTEMS, INC.
	 
	 	 	 	 
	

	 	By:  /s/ Martin J. Emerson
	 	

	

	 	 
	 	

	

	 	 	 	Name: Martin J. Emerson
	

	 	 	 	Title: President, Chief
Operating Officer

15

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