AMERICAN MEDICAL SYSTEMS, INC. EMPLOYMENT AGREEMENT

Exhibit 10.3

AMERICAN MEDICAL SYSTEMS, INC.

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT is made and entered into effective as of April 1, 2009, between American Medical Systems, Inc., a Delaware corporation (the “ Company ”), and Joe W. Martin (the “ Executive ”).

RECITALS

     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 Sr. Vice President and General Manager, BPH Therapies of American Medical Systems Holdings, Inc. (the “ Parent Corporation ”) and the Company, and, in such capacity. 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 April 1, 2009 and shall continue during the period ending on March 31, 2010 (the “ Initial Term ”). Thereafter, the Executive’s employment hereunder 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 and this Agreement 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:

     Section 4. S alary . As compensation for the performance of the Executive’s services hereunder, the Company shall pay to the Executive a base salary (the “ Salary ”) of $303,200 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.

     Section 5. Bonus . During the Employment Term, in addition to Salary, the Executive shall be eligible to participate in the executive variable incentive plan or such other bonus plans as may be adopted from time to time by the Board of Directors or the Compensation Committee of the Board for officers of the Company (the “ Bonus ”) for each such fiscal 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 each fiscal quarter or year, as of which the Bonus is determined under any bonus plan, in order to receive the Bonus attributable to such fiscal quarter or year. The Executive’s entitlement to the Bonus for any particular fiscal quarter or 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, and the Executive’s target Bonus for 100% achievement of performance objectives under such bonus plan shall be 50% of base Salary. The Executive’s participation in the 2009 executive variable incentive plan shall be effective as of the beginning of employment on a prorated basis.

          (a) Stock Options .

     (1) The Executive shall be granted on the date established by the Compensation Committee per the date of the Resolution for the Option (the “ Grant Date ”) a Non-Qualified Stock Option to acquire 130,000 shares of Common Stock of the Parent Corporation under the Parent Corporation’s 2005 Stock Incentive Plan (the “ 2005 Plan ”) at an exercise price equal to the Fair Market Value (as defined in the 2005 Plan) of one share of Common Stock on the Grant Date; such option to become exercisable, on a cumulative basis, with respect to 25% of the shares covered by such option on March 31, 2010, and with respect to 6.25% of the shares covered by such option on the last day of each calendar quarter thereafter, provided that the Executive has been continuously employed by or providing service to the Company through, each such date; and such option to expire seven years from the Grant Date. All of the terms and conditions relating to the option, including the vesting and expiration dates, are set forth in the Stock Option Certificate, dated the Grant Date, evidencing such option.

     (b) Relocation Expenses . The Executive will be eligible for the Company’s standard relocation benefits, which include, movement of household goods, up to 12 months temporary housing if needed, closing costs on the purchase of a home in Minnesota, and other benefits as set forth in the Relocation Program provided to the Executive. Additionally, the Executive will receive reimbursement of up to $75,000 on loss on sale of his current home, if applicable.

     (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 medical, dental, life and disability insurance programs and other benefit programs provided to officers of the Company on terms no less favorable than those available to the officers of the Company. The Executive shall also be entitled to the

same number of paid-time-off days, holidays 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) 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 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 (1) participate in the activities of professional trade organizations related to the business of the Company and its subsidiaries, and (2) engage in personal investing activities, provided that the activities set forth in these clauses (1) and (2), either singly or in the aggregate, do not interfere in any material respect with the services to be provided by the Executive hereunder.

     (e) 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: (1) 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, (2) 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; (3) any continued or repeated absence from the Company, unless such absence is (A) approved or excused by the Chief Executive Officer of the Company 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); (4) use of illegal drugs by the Executive or repeated drunkenness; (5) conviction of the Executive for the commission of a felony; or (6) 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 .

     (1) 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.

     (2) In the event of the Executive’s Termination of Employment (defined below) by the Company without Cause, whether during or upon expiration of the then current term of this Agreement, and Executive executes within thirty days following Termination of Employment (and does not revoke within the relevant statutory periods) a Release and Separation Agreement in the form provided by the Company, then in addition to the amounts specified in Section 6(e)(1), (i) the Company shall continue to pay the Executive his 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, until the earlier of (x) the date that is twelve (12) months after the date of such termination or (y) the date the Executive begins full-time employment with another employer (the “ Severance Term ”); and (ii) if the Executive elects COBRA continuation coverage under the Company’s group medical and/or dental plans, then for each month of the Severance Term, the Company will pay or reimburse the Executive an amount equal to the excess of (A) the portion of the monthly cost for the Executive’s coverage under the Company’s group health and/or dental plans that was borne by the Company immediately prior to the Executive’s Termination of Employment (subject to the rule for coverage changes discussed below) over (B) the portion of the monthly cost for the Executive’s coverage under the Company’s group health and/or dental plans that is borne by the Company during the Severance Term. If the level of the Executive’s coverage changes during the Severance Term, as, for example, from single to family coverage or to no coverage, the amount will be determined as if

the new coverage level had been the level of coverage in effect immediately prior to the Termination of Employment. Any reimbursement made under this Section 6(e)(2) shall be made on or before the last day of the calendar year following the calendar year in which the expense was incurred. In the event the Executive accepts part-time employment or engages in his own business, including consulting activity, prior to the last date of the Severance Term, the Executive shall immediately notify the Company and the Company shall be entitled to reduce the amounts due the Executive under this Section 6(e) by the amounts paid to the Executive in respect of such part-time employment or other business activity.

     (3) Further, in the event the Executive’s Termination of Employment 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), which Bonus shall be paid following the end of the calendar year.

     (4) Amounts owed by the Company in respect of the Salary 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 after the expiration of any rescission periods contained in the release, but not more than 90 days following such termination.

     (5) 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 andshall 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..

     (6) To the extent the Executive incurs a tax liability (including foreign, federal, state and local taxes) in connection with the reimbursement under Section 6(e)(2) which the Executive would not have incurred had the Executive been an active employee of the Company participating in the Company’s group health and dental plans, the Company will make a payment to the Executive in an amount equal to such tax liability plus an additional amount sufficient to permit the Executive to retain a net amount after all taxes equal to the initial tax liability in connection with the benefit. The payment pursuant to this Section 6(e)(6) will be made within 10 days after the Executive’s remittal of a written request for payment accompanied by a statement indicating the basis for and amount of the Executive’s tax liability, but in no event later than December 31 of the calendar year next following the calendar year in which the related taxes are remitted to the appropriate taxing authority.

     (7) Notwithstanding the foregoing, if, at the time of his or her Termination of Employment, the Executive is a ‘specified employee’ (defined below), and the Company reasonably determines that any salary continuation

payment due under Section 6(e)(2) constitutes deferred compensation subject to the requirements of Code Section 409A, then such payments shall be suspended and not made until on or after the first day after the end of the six (6) month period following the Executive’s Termination of Employment but in no event later than seven (7) months following T