SETTLEMENT AGREEMENT
     This settlement agreement (“Settlement Agreement”), dated this 14th day of
August, 2007, is entered into by and among Iridex Corporation, a Delaware
corporation (“Purchaser”), American Medical Systems, Inc., a Delaware
corporation (“Parent”) and Laserscope, a California corporation (“Seller” and
collectively with Purchaser and Parent, the “Parties”).
     WHEREAS, the Parties are party to an Asset Purchase Agreement dated
November 30, 2006 (the “Purchase Agreement”) pursuant to which Purchaser
acquired from Seller certain assets related to Seller’s aesthetics business. All
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed such term in the Purchase Agreement.
     WHEREAS, Section 1.5 of the Purchase Agreement contemplates that the
purchase price for the Purchased Assets is to be adjusted after the Closing.
     WHEREAS, in connection with the Purchase Agreement, Purchaser and Seller
entered into a Product Supply Agreement dated January 16, 2007 (the “PSA”) and
wish to amend certain terms of such agreement as more fully set forth herein.
     WHEREAS, the Parties wish to enter into this Settlement Agreement to
document their full and final agreement as to the amount of the adjustment
contemplated by Section 1.5 of the Purchase Agreement, to amend the PSA and to
set forth their mutual understanding as to certain other matters.
     NOW, THEREFORE, in consideration of the promises herein made and other good
and valuable consideration, it is hereby agreed as follows:
1.       Purchase Price Adjustment

  (a)   The Parties agree that pursuant to the provisions of Section 1.5 of the
Purchase Agreement, Purchaser will make an additional payment to Parent in the
amount of $1,150,000 (the “Adjustment Amount”), as set forth in subsection
(b) below, which will be the sole and final adjustment to the Purchase Price
under Section 1.5 of the Purchase Agreement. There will be no further
adjustments to the Purchase Price relating to the Cash of the Subsidiaries or
any other adjustment factor called for under Section 1.5 of the Purchase
Agreement or as a result of the audit of the historical financial statements of
the Aesthetics Business.     (b)   Purchaser will pay to Parent the Adjustment
Amount by making weekly payments beginning on August 16, 2007 and continuing on
the Thursday of each week thereafter for one year for a total of 52 payments.
The amount of each such payment will be equal to $22,115.38 (1/52 of the
Adjustment Amount). If any scheduled payment date is not a business day, then
the applicable payment will be due on the first business day thereafter. All
payments shall be made by wire transfer of immediately available funds.

 

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  (c)   The parties agree that the initial purchase price allocation set forth
in Schedule 1.6 to the Purchase Agreement is superseded and replaced with
Schedule 1.6 attached hereto.

2.       Product Supply Agreement.

  (a)   Attached hereto as Exhibit A are purchase orders (the “Purchase Orders”)
from Purchaser for Products (as defined in the PSA), which supersede and replace
in the entirety any and all forecasts or purchase orders previously delivered by
Purchaser under the PSA. Purchaser will not submit, and Seller will not accept,
any further purchase orders or forecasts under the PSA. Seller will build and
deliver Products only pursuant to the foregoing purchase orders. Attached hereto
as Exhibit B is a schedule of Products, hand pieces and service parts (the
“Accessories Purchase Orders”) that Seller will deliver to Purchaser prior to
October 16, 2007. All of the delivery dates set forth in the Purchase Orders and
the Accessories Purchase Orders may be delayed by Seller in its discretion
except for the delivery dates related to the Gemini products; provided, however,
that in no event shall such delivery date be delayed by more than ninety
(90) days following the delivery date set forth in such Purchase Order.     (b)
  In accordance with the terms of the Letter Agreement between Parent and
Purchaser, dated June 27, 2007, as amended on July 31, 2007 and August 6, 2007
(as so amended, the “Letter Agreement”), the payment terms for (i) all Products
sold to Purchaser under the PSA and the purchase order attached hereto as
Exhibit A, and (ii) the hand pieces and service parts listed on Exhibit B shall
be cash in advance or via a confirmed letter of credit (with Seller being
entitled to immediately draw on such letter of credit upon shipment of
Products), and Section 3.2 of the PSA is hereby amended to reflect the
foregoing. Purchaser will pay to Seller, by wire transfer in immediately
available funds, against outstanding invoices under the PSA, plus accrued
interest, the following amounts: (i) $100,000 on each of August 23, 2007 and
August 30, 2007; and (ii) $150,000 on each of September 6, 2007, September 13,
2007, September 20, 2007, and September 27, 2007. The foregoing payment schedule
shall supersede and replace the weekly payment schedule in the Letter Agreement,
and Parent and Seller waive Purchaser’s prior breach of the weekly payment
schedule in the Letter Agreement. Seller will apply these payments first to
invoices (both invoiced amount and accrued interest) that have been outstanding
the longest. Purchaser will pay the remaining balance of all outstanding
invoices under the PSA in full, plus accrued interest, upon the earlier of
(a) two (2) business days following the closing of its contemplated equity
financing of approximately $5 million (“Equity Investment”) or (b) August 31,
2007; provided that, if it shall be a condition to the Equity Financing that an
exemption from the Nasdaq stockholder approval requirements with respect to
issuances of greater than 20% of the Company’s outstanding securities under Rule
4350(i) be obtained pursuant to Rule 4350(i)(2), such date shall be extended to
September 28, 2007.

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  (c)   Parent agrees that the listing of work-in-process, raw and packaging
materials, and service, replacement and accessory parts used to build the
Gemini, Venus, Aura, Lyra and Solis products (subject to the last sentence in
this Section 2(c), the “Parts Inventory”) attached hereto as Exhibit C
accurately represents the item numbers, product classifications and the actual
unit costs thereof. Purchaser will receive 63.4% of all parts included in the
Parts Inventory that are identified as “Greenlight/Gemini Common” in Exhibit C
and 100% of all other parts included in the Parts Inventory. Seller will deliver
the Parts Inventory to Purchaser at Seller’s facility in San Jose, California by
part and quantity requested by Purchaser at mutually agreeable times during the
remaining term of the PSA; provided, however, that Seller shall retain
possession of such Parts Inventory as is necessary to allow it to build Products
to be delivered to Seller under the purchase orders referred to in Section 2(a)
after termination or expiration of the PSA and shall deliver any such remaining
Parts Inventory after delivery such Products. Title to the Parts Inventory shall
pass to Purchaser upon the earlier of delivery of such inventory to Purchaser or
termination or expiration of the PSA. Purchaser shall confirm the parts and
quantities of Parts Inventory being delivered at the time of delivery at
Seller’s facility in San Jose, California. Except as set forth in the preceding
sentence, a physical count of the Inventory contemplated by Section 7.3(c) of
the PSA will not be conducted. Notwithstanding anything in this Agreement or the
PSA to the contrary, the Parts Inventory does not include, and Seller will not
sell to Purchaser, such quantity of work-in-process, and raw materials
sufficient to allow Seller to build up to 35 Aura products, and Seller shall
retain ownership and possession of such items that would otherwise be included
in the definition of Parts Inventory but for this sentence, even though such
items are included in the quantities set forth on Exhibit C.     (d)   The
pricing currently in effect under the PSA will remain in effect for the duration
of the PSA and for purchase of Products and Parts Inventory thereafter
notwithstanding anything to the contrary in Section 3.1 of the PSA. For purposes
of clarity, the pricing currently in effect does not include the 20% markup
referred to in Section 3.1 of the PSA.     (e)   The PSA shall terminate on
October 16, 2007 unless terminated earlier in accordance with the provisions of
the PSA, as amended by this Settlement Agreement. Notwithstanding the foregoing
sentence, the provisions of Sections 2.5, 2.6, 2.8, 2.10, 5.1 and 5.2 of the PSA
shall continue to apply to Products (if any) sold to Purchaser after the
termination of the PSA pursuant to the purchase orders referred to in
Section 2(a). Section 7.1 of the PSA is hereby amended to reflect the foregoing
sentences.     (f)   The purchase price for the Product Inventory (as defined in
the PSA) to be purchased by Purchaser pursuant to Section 7.3(c) of the PSA
after the expiration or termination of the PSA shall be $4,059,557 (the “Final
Product Inventory Payment”), consisting of:

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  (i)   $3,700,000 (the “Parts Inventory Amount”) for Parts Inventory delivered
upon or prior to expiration or termination of the PSA, and;     (ii)   $359,557
for service parts delivered on or about March 9, 2007.

      Subject to subsections (g) and (h) below, the Final Product Inventory
Payment shall be payable in thirty-nine (39) equal weekly installments,
beginning on January 3, 2008 and continuing on the Thursday of each week
thereafter through and including September 25, 2008, in the amount of $110,185,
which includes interest on the unpaid balance of the Final Product Inventory
Payment at the rate of 10% per annum from the date that the PSA terminates or
expires. If any scheduled payment date is not a business day, then the
applicable payment will be due on the first business day thereafter. All
payments shall be made by wire transfer of immediately available funds.     (g)
  In the event that Purchaser increases its Borrowing Capacity (as defined
below) under any credit facility that is senior to Purchaser’s payment
obligations hereunder to Seller, either with its current senior lender,
Mid-Peninsula Bank — part of Greater Bay Bank N.A, or any subsequent senior
lender, to more than $12 million (the amount of Borrowing Capacity in excess of
$12 million being the “Increased Capacity”), either prior to Purchaser’s
acquisition of the Product Inventory or at any time thereafter while payments
are due under Sections 1(b) or 2(f), then Purchaser shall pay at the time of
acquisition of the Product Inventory, or if such Increased Capacity becomes
available after the date of such acquisition, then at the time such Increased
Capacity becomes available, an amount equal to 50% of such Increased Capacity.
Such payment shall be applied to the payments otherwise due under Sections 1(b)
or 2(f) in the inverse order of maturity beginning with the last payment then
due. “Borrowing Capacity” shall mean the maximum amount that Purchaser is
permitted to borrow under its credit facility then in effect, less (i) any
amount that is not available to borrow due to borrowing base limitations under
the credit facility and (ii) any minimum cash restriction imposed by the lender,
including segregated cash deposits or other balances that must be maintained at
the lender.     (h)   Notwithstanding the foregoing subsections (f) and (g), in
the event that the date on which Seller is obligated to sell the Product
Inventory to Purchaser under Section 7.3(c) of the PSA occurs in a Payment
Blockage Period (as defined in the Subordination Agreement by and between
Mid-Peninsula Bank — part of Greater Bay Bank N.A, Parent, Seller and Purchaser
dated the date hereof (the “Subordination Agreement”)), then Purchaser agrees to
pay to Seller the entire purchase price for the Product Inventory purchased
pursuant to Section 7.3(c) within three (3) business days from the date of sale
or as soon thereafter as permitted by the Subordination Agreement.     (i)  
Section 7.3(c)(ii) of the PSA is hereby deleted from the PSA and shall be of no
further force or effect.

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  (j)   Simultaneously with the execution and delivery of this Settlement
Agreement, Seller is executing and delivering to Purchaser a signed
representation letter to Purchaser’s independent registered public accountants,
which such representation letter is attached as Exhibit D hereto.     (k)   The
above sections (a) — (j) constitute an amendment to the PSA under Section 9.3(a)
of the PSA.

     3.       Cross-Default.

  (a)   The occurrence of an Event of Default under the terms of the Senior Debt
(as defined in the Subordination Agreement) or any other agreement between the
Purchaser and the lender of the Purchaser’s senior debt, which is not cured by
Purchaser within the applicable cure period or waived by such lender within
30 days, or the issuance of a Payment Blockage Notice (as defined in the
Subordination Agreement) to Seller shall be deemed to be a breach of this
Settlement Agreement.     (b)   Simultaneously with the execution of this
Settlement Agreement, Purchaser is entering into a security agreement with
Seller and Parent (the “Security Agreement”). Any breach by Purchaser of any
provision of this Settlement Agreement, the Letter Agreement or the occurrence
of an Event of Default under the Security Agreement shall constitute an
immediate default under both the Security Agreement and PSA and the thirty
(30) day cure period referenced under Section 7.2(b) of the PSA shall not apply.
Any breach of this Settlement Agreement, the Letter Agreement or the PSA or the
occurrence of an Event of Default under the Security Agreement shall, subject to
the terms of the Subordination Agreement, entitle Parent and Seller to any and
all remedies available to them under the Security Agreement, the PSA, this
Settlement Agreement, at law and in equity, including, but not limited to, the
right to terminate the PSA immediately upon written notice to Purchaser with no
additional notice period or opportunity to cure and the right to declare all
amounts due hereunder and the Letter Agreement to be immediately due and payable
in full.

     4.       French Personnel. Purchaser agrees to pay 50% of Parent’s (or its
affiliate’s) out of pocket costs, including severance costs and reasonable
attorneys’ fees, relating to the termination of the employment of Kristine
Hautekiet. The parties acknowledge that Parent’s affiliate will implement such
termination. Such amount will be paid by Purchaser within fifteen days of Parent
delivering a request for such payment along with supporting documentation.
     5.       Parent and Seller Release; Parent and Seller Representations and
Warranties.

  (a)   Except with respect to payments due hereunder or the Letter Agreement or
breaches of this Settlement Agreement, each of Parent and Seller, for and on
behalf of itself and its employees, officers, directors, shareholders,
affiliates,

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      representatives, predecessors, successors and assigns (collectively, the
“Seller Releasing Parties”), hereby fully and forever release and discharge
Purchaser and its affiliates from any and all claims, liabilities, demands,
damages, rights, actions or causes of action, whether fixed or contingent,
liquidated or unliquidated, direct or indirect, known or unknown (“Claims”),
which any Seller Releasing Party has or may have in any way relating to, arising
out of, or involving (i) any amounts due any Seller Releasing Party under
Sections 1.4 or 1.5 of the Purchase Agreement or (ii) any amounts due any Seller
Releasing Party under the PSA or any other violations or breaches thereof.

  (b)   Parent and Seller represent and warrant to the Purchaser Releasing
Parties (as defined below) that, as of the date hereof, neither Parent nor
Seller has (i) any claim for indemnification under Section 8.3 of the Purchase
Agreement, the Asset Purchase Agreement dated December 30, 2006 by and between
Laserscope (UK) Limited and American Medical Systems UK Limited (the “UK Asset
Purchase Agreement”), or the Asset Purchase Agreement dated December 30, 2006 by
and between Laserscope France Limited and American Medical Systems France (the
“French Asset Purchase Agreement”) or (ii) knowledge of any events, facts or
circumstances that would give rise to, or with the passage of time would give
rise to, a claim for indemnification under any of the foregoing agreements.
Parent and Seller acknowledge and agree that the Purchaser Releasing Parties’
damages for any breach of the foregoing sentence will be equal in amount to the
damages arising out of any claim that Parent or Seller makes under Section 8.3
of the Purchase Agreement, the UK Asset Purchase Agreement or the French Asset
Purchase Agreement that constitutes a breach of the foregoing sentence. Parent
and Seller agree that the survival period set forth in the first sentence of
Section 8.1 of the Purchase Agreement with respect to the representations and
warranties made by Purchaser in Article III of the Purchase Agreement shall
expire on the date hereof, and that neither Parent nor Seller will have any
right to make a claim for indemnification under Article VIII of the Purchase
Agreement based on a breach of any representation or warranty by Purchaser in
Article III of the Purchase Agreement; provided that the representations and
warranties referred to in clause (a) of the second sentence of Section 8.1, and
the right to make a claim for any breach thereof, shall survive for the time
periods set forth therein. The provisions of this Settlement Agreement shall not
impact or alter Parent’s or Seller’s rights set forth in the Purchase Agreement,
or otherwise, with respect to Fraud Claims (as defined in the Purchase
Agreement) or breaches of covenants contained in the Purchase Agreement, in each
case that are unknown by Parent and Seller as of the date hereof or occur after
the date hereof, or their ability to make claims in connection therewith.

     6.       Purchaser Release; Purchaser Representations and Warranties.

  (a)   Except with respect to payments due hereunder or breaches of this
Settlement Agreement, Purchaser, for and on behalf of itself and its employees,
officers, directors, shareholders, affiliates, representatives, predecessors,
successors and assigns (collectively, the “Purchaser Releasing Parties”), hereby
fully and forever

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      releases and discharges the Seller Releasing Parties from any and all
Claims, which any Purchaser Releasing Party has or may have in any way relating
to, arising out of, or involving:

  (i)   any amounts due any Purchaser Releasing Party under Sections 1.4 or 1.5
of the Purchase Agreement;     (ii)   any breach or alleged breach by a Seller
Releasing Party of Section 2.6, 2.7, 2.9 and/or 4.4(g) of the Purchase
Agreement, regardless of whether any Purchaser Released Party knew, knows or
should have known of such breach, and regardless of whether the breach occurred
or occurs or is alleged to occur or have occurred before, on or after the date
hereof;     (iii)   any claim for indemnification under Section 8.2 of the
Purchase Agreement, the UK Asset Purchase Agreement, or the French Asset
Purchase Agreement, in each case to the extent related to the matters referred
to in clauses (i) — (ii) above; or     (iv)   any amounts due any Purchaser
Releasing Party under the PSA for any violations or breaches by a Seller
Releasing Party thereof.

  (b)   Purchaser represents and warrants to the Seller Releasing Parties that,
as of the date hereof, Purchaser does not have (i) any claim for indemnification
under Section 8.2 of the Purchase Agreement, the UK Asset Purchase Agreement or
the French Asset Purchase Agreement or (ii) knowledge of any events, facts or
circumstances that would give rise to, or with the passage of time would give
rise to, a claim for indemnification under any of the foregoing agreements.
Purchaser acknowledges and agrees that the Seller Releasing Parties’ damages for
any breach of the foregoing sentence will be equal in amount to the damages
arising out of any claim that Purchaser makes under Section 8.2 of the Purchase
Agreement, the UK Asset Purchase Agreement or the French Asset Purchase
Agreement that constitutes a breach of the foregoing sentence. Purchaser agrees
that the survival period set forth in the first sentence of Section 8.1 of the
Purchase Agreement with respect to the representations and warranties made by
Parent and Seller in Article II of the Purchase Agreement shall expire on the
date hereof, and that Purchaser will not have any right to make a claim for
indemnification under Article VIII of the Purchase Agreement based on a breach
of any representation or warranty by Parent or Seller in Article II of the
Purchase Agreement; provided that the representations and warranties referred to
in clauses (a) and (b) of the second sentence of Section 8.1, and the right to
make a claim for any breach thereof, shall survive for the time periods set
forth therein. The provisions of this Settlement Agreement shall not impact or
alter Purchaser’s rights set forth in the Purchase Agreement, or otherwise, with
respect to Fraud Claims or breaches of covenants contained in the Purchase
Agreement, in each case that are unknown by Purchaser as of the date hereof or
occur after the date hereof, or its ability to make claims in connection
therewith.

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     7.       Security Interest; Permitted Exception to Non-Compete Covenant.
Upon execution of this Settlement Agreement, Purchaser shall execute and deliver
to Parent and Seller a Security Agreement in form and content satisfactory to
Parent and Seller under which Purchaser is granting to Parent and Seller,
subject to the terms of the Subordination Agreement, a security interest in all
of Purchaser’s assets to secure all of its current and future obligations to
Seller. In the event that Parent and/or Seller takes possession of, or acquires
any rights in, any Products or Product Inventory sold to Purchaser, or any other
assets of Purchaser whether pursuant to the Security Agreement or otherwise, or
in the event any Product Inventory that Purchaser is obligated to purchase under
Section 7.3 of the PSA is not so purchased in accordance with the terms of the
PSA as modified by this Settlement Agreement, then Parent, Seller and/or the
affiliate of either of them shall be entitled, subject to Article 9 of the
Uniform Commercial Code and the terms of the Subordination Agreement, to market
and sell such Products and/or Product Inventory and/or assets, or otherwise
utilize, transfer or dispose of such items, in any manner that Parent, Seller
and/or the affiliate of either of them determines. Any such utilization,
marketing, sale, transfer or disposition, or any activity reasonably related
thereto, will not be considered a violation or breach of Section 4.4(b) of the
Purchase Agreement, and Purchaser agrees it will not seek to enforce the
provisions of such Section 4.4(b) in connection with any such actions by Parent,
Seller and/or the affiliate of either of them.
     8.       Full Awareness. Each of the Parties hereto warrants, represents
and agrees that it is entering into this Settlement Agreement with full
knowledge of the terms and provisions of this Settlement Agreement.
     9.       Authority. Each of the Parties hereto represents and warrants that
said Party has the full authority to enter into this Settlement Agreement, and
that the individuals who are executing this Settlement Agreement on behalf of
that Party are authorized to do so and to bind that Party (and that Party’s
affiliates) to the terms and conditions of this Settlement Agreement.
     10.       Binding Effect. This Settlement Agreement is binding upon and
shall inure to the benefit of the licensees, representatives, employees,
officers, transferees, affiliates, subsidiaries, parent corporations,
successors, heirs and/or assigns of the Parties hereto.
     11.       Entire Agreement. This Settlement Agreement, the Letter Agreement
and the Purchase Agreement contain the entire agreement between the Parties
hereto with respect to the subject matter hereof, supersedes any and all prior
oral and written agreements relating thereto, and may not be modified, amended
or amplified except by a written document executed by the Parties hereto.
     12.       Governing Law. This Settlement Agreement shall be governed by the
laws of the State of Minnesota.
     13.       Severability. If any provision of this Settlement Agreement is
invalid and unenforceable in any jurisdiction then, to the fullest extent
permitted by law, (a) the other provisions hereof shall remain in full force and
effect in such jurisdiction, and (b) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.

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     14.       Counterparts. This Settlement Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument. The Parties agree that delivery by
facsimile of executed signature pages shall be deemed execution of this
Settlement Agreement. All facsimile signatures of this Settlement Agreement
shall be deemed originals for all purposes.
***Remainder of Page Intentionally Left Blank***

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

          IRIDEX CORPORATION   LASERSCOPE By:     By:  
 
Name:    
 
Name:   Title     Title

            AMERICAN MEDICAL SYSTEMS, INC.
      By:    
        Name:           Title:        

 

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Exhibit A
Purchase Orders
See attached

 

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Exhibit B
Hand Pieces and Service Parts
See attached

 

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Exhibit C
Work-in-process, Raw and Packaging Materials, and Service, Replacement and
Accessory Parts
See attached

 

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Exhibit D
Form of Representation Letter
See attached

 

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Schedule 1.6
Asset Allocation
See attached