Exhibit 10.1

EXECUTIVE TRANSITION AGREEMENT

     This Executive Transition Agreement (the “Agreement”) is made and entered
into by and between Theodore A. Boutacoff (“Employee”) and Iridex Corporation
(the “Company”), effective as of April 28, 2005 (the “Effective Date”).

RECITALS

     Whereas, Employee and the Board of Directors of the Company (the “Board”)
have determined that it is in the best interests of the Company and its
stockholders to hire a new Chief Executive Officer and for Employee to continue
his employment with the Company in his current capacity until the new Chief
Executive Officer has been hired, to assume the role of a senior principal
advisor to the new Chief Executive Officer upon the hiring of such new Chief
Executive Officer and to assist the Company with and ensure a smooth transition
in connection with and following the hiring of the new Chief Executive Officer.

     Whereas, the Board believes that it is in the best interests of the Company
and its stockholders to provide Employee with an incentive to continue his
employment with the Company as Chairman of the Board and to motivate Employee to
maximize the value of the Company for the benefit of its stockholders.

     Whereas, the Board believes that in order to ensure that the Company will
have the continued dedication and objectivity of Employee, it is in the best
interests of the Company and its stockholders to provide Employee with certain
benefits described herein.

     Now, Therefore, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:

AGREEMENT

     1. Transition to Senior Principal Advisor; Resignation as Chief Executive
Officer. Effective on the date a new Chief Executive Officer commences
employment with the Company (the “Transition Commencement Date”), Employee
hereby resigns as Chief Executive Officer and accepts employment as a senior
principal advisor to the new Chief Executive Officer. In addition, it is the
Company’s understanding that it is the current intent of the Company’s Board of
Directors to appoint the Employee as Chairman of the Board of Directors on or
about the Transition Commencement Date, it being understood by both parties
hereto that Employee’s continuing tenure as a member of the Board of Directors
is subject to Employee’s re-election by the Company’s shareholders and his
appointment as Chairman of the Board is subject to the future approval of the
Board of Directors.

          (a) Transition Duties, Salary and Benefits. Following the Transition
Commencement Date, Employee shall be a senior principal advisor to the new Chief
Executive Officer and shall advise the new Chief Executive Officer, as mutually
agreed by the new Chief Executive Officer and the Employee, in one or more of
the following areas: product strategy; product applications; strategic planning;
and/or strategic business development. Employee will

 

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continue to receive a salary and benefits equal to the salary and benefits
received by Employee as of the Effective Date of this Agreement, subject to
annual adjustments at the discretion of the Board. Employee will continue to be
eligible to receive bonus compensation equal to that for which he is currently
eligible, on an annualized basis, through the Transition Commencement Date.
Following the Transition Commencement Date, Employee shall be eligible to
receive bonus compensation in such amounts, on an annualized basis, as are
determined by the Company’s Board of Directors and which reflect his role and
responsibilities following the Transition Commencement Date as a senior
principal advisor to the Chief Executive Officer.

          (b) Equity Compensation. As of the Effective Date, Employee shall be
granted an option to purchase Seventy-Five Thousand (75,000) shares of the
Company’s Common Stock at an exercise price equal to the fair market value as of
the date of the grant, pursuant to the Company’s 1998 Stock Plan. Such options
shall vest in equal monthly installments from the date of this Agreement over a
three (3) year period (including the Severance Payment Period), except as
otherwise provided in this Agreement. Employee shall have ninety (90) days from
termination to exercise said option.

     2. At-Will Employment. The Company and Employee acknowledge that Employee’s
employment is and will continue to be at-will, as defined under applicable law.
If Employee’s employment terminates for any reason, Employee will not be
entitled to any payments, benefits, damages, awards or compensation other than
as provided by this Agreement. The Company and Employee acknowledge that the
duties, responsibilities and obligations of Employee hereunder and the
obligations of the Company hereunder, relate only to Employee’s employment
relationship with the Company. Nothing in this Agreement is intended to affect,
in any way, Employee’s service as a member of the Board. Subject to
Section 5(f)(vii) hereof, Employee agrees to devote his full business time and
attention (although Employee shall not be obligated to work more than 40 hours
per week) to his role and responsibilities as a senior principal advisor to the
CEO, unless otherwise mutually agreed by the Company and Employee.

     3. Severance Benefits.

          (a) Involuntary Termination other than for Cause. In the event that
(a) the Company (or any parent or subsidiary of the Company employing Employee)
terminates Employee’s employment with the Company (or any parent or subsidiary
of the Company) without Employee’s consent and for a reason other than for Cause
or (b) Employee terminates his employment with the Company for Good Reason and,
in either such case, subject to the Employee’s (or Employee’s estate, as
applicable) execution and delivery of a general release of claims in
substantially the form attached hereto as Exhibit A (the “Release Agreement”)
and such Release Agreement becomes legally binding on the Employee, then
promptly following such termination of employment, or, if later, the effective
date of the Release Agreement, Employee (or Employee’s estate, as applicable)
will receive the following benefits from the Company:

               (i) Accrued Compensation. Employee will be entitled to receive
all accrued vacation, expense reimbursements and any other benefits due to
Employee through the date of termination of employment in accordance with the
Company’s then existing employee benefit plans, policies and arrangements.

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               (ii) Severance Payment. Employee will be paid continuing payments
of severance pay (the “Cash Severance Payment”) in an aggregate amount equal to
the amount of base salary Employee would have been paid at Employee’s base
salary rate, as then in effect, had Employee continued his employment with the
Company through the Severance Payment Period (as defined below) and such
aggregate amount will be paid ratably on a periodic basis through March 15 of
the calendar year following the year of employment termination in accordance
with the Company’s normal payroll policies; provided, however, that if during
the Severance Payment Period Employee engages in Competition, breaches the terms
of the Release Agreement or breaches the covenants in Section 6, all severance
payments being made to Employee by the Company pursuant to this subsection will
immediately cease and Employee shall not be entitled to any additional severance
payments hereunder; and provided, further, that in the event that there is a
Change of Control during the Severance Payment Period and the Company has not
ceased making severance payments to Employee pursuant to the preceding clause,
Employee will be paid a lump sum one time cash payment immediately prior to such
Change of Control equal to any amount of the Cash Severance Payment not yet paid
to Employee in accordance with the Company’s normal payroll policies, but that
would otherwise be due through the end of the Severance Payment Period.

               (iii) Continued Employee Benefits. Employee will receive
Company-paid coverage during the Severance Payment Period for Employee and
Employee’s eligible dependents under the Company’s Benefit Plans; provided,
however, that if during the Severance Payment Period Employee engages in
Competition, breaches the terms of the Release Agreement or breaches the
covenants in Section 6, all Company-paid coverage pursuant to this subsection
will immediately cease. In the event of a Change of Control, Employee will
receive a lump sum payment equivalent to the cost of COBRA coverage for Employee
and Employee’s eligible dependents for the remainder of the Severance Payment
Period.

               (iv) Acceleration of Options. 100% of the unvested shares subject
to all of Employee’s options to purchase shares of Company common stock (the
“Options”) outstanding on the date of such termination, whether granted on,
before or after the date of this Agreement, and 100% of any of Employee’s shares
of Company common stock subject to a Company repurchase right upon Employee’s
termination of employment for any reason (the “Restricted Stock”) whether
acquired by Employee on, before or after the date of this Agreement, will
immediately vest upon such termination. To the extent not expressly amended
hereby, the terms and the terms and provisions otherwise applicable to such
Options and Restricted Stock shall remain in full force and effect.

               (v) Payments or Benefits Required by Law. Employee will receive
such other compensation or benefits from the Company as may be required by law
(for example, “COBRA” coverage under Section 4980B of the Internal Revenue Code
of 1986, as amended (the “Code”)).

               (vi) Consulting Agreement. In the event that Employee’s
employment with the Company is terminated such that Employee is eligible to
receive the benefits set forth in Sections 3(a)(i), 3(a)(ii), 3(a)(iii) and
3(a)(iv) above, the Company will have the option of retaining Employee as a
consultant to the Company to provide consulting services to the Company during
the Severance Payment Period or such shorter period as the parties may mutually
agree, subject to the Company and Employee mutually agreeing on the terms of any
such consulting relationship.

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Nothing in this Section 3(a)(vi) shall require Employee to perform consulting
services or in any way affect Employee’s rights under this Agreement.

          (b) Other Terminations. If at any time Employee voluntarily terminates
Employee’s employment with the Company or any parent or subsidiary of the
Company (other than for Good Reason) or if the Company (or any parent or
subsidiary of the Company employing Employee) terminates Employee’s employment
with the Company (or any parent or subsidiary of the Company) for Cause, then
Employee will (i) receive his earned but unpaid base salary through the date of
termination of employment, (ii) receive all accrued vacation, expense
reimbursements and any other benefits due to Employee through the date of
termination of employment in accordance with established Company plans, policies
and arrangements, and (iii) not be entitled to any other compensation or
benefits (including, without limitation, accelerated vesting of Options or
Restricted Stock) from the Company except to the extent provided under the
applicable stock option agreement(s) or as may be required by law (for example,
“COBRA” coverage under Section 4980B of the Code).

          (c) Termination due to Death or Disability. For the avoidance of
doubt, if Employee’s employment with the Company (or any parent or subsidiary of
the Company) is terminated due to Employee’s death or Employee’s becoming
Disabled, then Employee or Employee’s estate (as the case may be) will receive
the severance benefits provided for in Section 3(a) above, and will not be
entitled to any other compensation or benefits from the Company except to the
extent required by law.

          (d) Exclusive Remedy. In the event of a termination of Employee’s
employment with the Company (or any parent or subsidiary of the Company), the
provisions of this Section 3 are intended to be and are exclusive and in lieu of
any other rights or remedies to which Employee or the Company may otherwise be
entitled (including any contrary provisions in any written formal employment
agreement or offer letter between the Company and Employee (any such agreements,
an “Employment Agreement”)), whether at law, tort or contract, in equity, or
under this Agreement. Employee will be entitled to no benefits, compensation or
other payments or rights upon termination of employment other than those
benefits expressly set forth in this Section 3.

     4. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to Employee
(i) constitute “parachute payments” within the meaning of Section 280G of the
Code and (ii) but for this Section 4, would be subject to the excise tax imposed
by Section 4999 of the Code, then the severance and other benefits provided for
in this Agreement or otherwise payable to Employee will be either:

  (a)   delivered in full, or     (b)   delivered as to such lesser extent which
would result in no portion of such severance benefits being subject to excise
tax under Section 4999 of the Code,

whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by Employee on an after-tax basis, of the greatest amount of
severance benefits, notwithstanding that all or some portion of such severance
benefits may be taxable under Section 4999 of the Code. Unless the Company

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and Employee otherwise agree in writing, any determination required under this
Section 4 will be made in writing by the Company’s independent public
accountants (the “Accountants”), whose determination will be conclusive and
binding upon Employee and the Company for all purposes. For purposes of making
the calculations required by this Section 4, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and Employee will furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company will
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 4.

     5. Definition of Terms. The following terms referred to in this Agreement
will have the following meanings:

          (a) Benefit Plans. “Benefit Plans” means plans, policies or
arrangements that the Company sponsors (or participates in) and that immediately
prior to Employee’s termination of employment provide Employee and/or Employee’s
eligible dependents with medical, dental, and/or vision benefits. Benefit Plans
do not include any other type of benefit (including, but not by way of
limitation, disability, life insurance or retirement benefits). A requirement
that the Company provide Employee and Employee’s eligible dependents with
coverage under the Benefit Plans will not be satisfied unless the coverage is no
less favorable than that provided to Employee and Employee’s eligible dependents
immediately prior to Employee’s termination of employment. Notwithstanding any
contrary provision of this Section 5(a), but subject to the immediately
preceding sentence, the Company may, at its option, satisfy any requirement that
the Company provide coverage under any Benefit Plan by (i) reimbursing
Employee’s premiums under COBRA after Employee has properly elected continuation
coverage under COBRA (in which case Employee will be solely responsible for
electing such coverage for Employee and Employee’s eligible dependents), or
(ii) instead providing coverage under a separate plan or plans providing
coverage that is no less favorable or by paying Employee a lump sum payment
sufficient to provide Employee and Employee’s eligible dependents with
equivalent coverage under a third party plan that is reasonably available to
Employee and Employee’s eligible dependents.

          (b) Cause. “Cause” shall mean (i) any act of personal dishonesty taken
by Employee against the Company, which is intended to result in substantial
personal enrichment of Employee; (ii) Employee’s conviction of or plea of nolo
contendere to a felony or a material violation of federal or state law by
Employee that the Board reasonably believes has had or will have a detrimental
effect on the Company’s reputation or business, (iii) an intentional and
reckless act by Employee that constitutes misconduct and is injurious to the
Company, or (iv) willful misconduct or gross neglect of Employee’s duties. The
Company must provide Employee with at least thirty (30) days advance written
notice of Employee’s misconduct or neglect under subsections (i), (iii) or (iv)
(the “Cure Period”) if such conduct is reasonably capable of being cured. If
Employee does not cure the misconduct or neglect to the reasonable satisfaction
of the Company by the expiration of the Cure Period and/or if the misconduct or
neglect is not capable of being cured, Employee’s employment may then be
terminated by the Board at its sole discretion. Notice of termination shall be
given in accordance with Section 7(b).

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          (c) Change of Control. “Change of Control” shall mean the occurrence
of any of the following events:

               (i) the approval by the stockholders of the Company of a merger
or consolidation of the Company with any other corporation or entity; provided,
however, any merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation shall not be deemed a
Change of Control;

               (ii) the approval by the stockholders of the Company of a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company’s assets;

               (iii) any “person” (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becoming the
“beneficial owner” (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company’s then outstanding voting securities; or

               (iv) a change in the composition of the Board occurring within a
12-month period, as a result of which fewer than a majority of the directors are
Incumbent Directors. “Incumbent Directors” shall mean directors who either
(A) are directors of the Company as of the date immediately prior to the Change
of Control, or (B) are elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of those directors whose election or
nomination was not in connection with any transactions described in subsections
(i), (ii), or (iii) or in connection with an actual or threatened proxy contest
relating to the election of directors of the Company.

          (d) Competition. “Competition” will mean Employee’s direct or indirect
engagement in (whether as an employee, consultant, agent, proprietor, principal,
partner, stockholder, corporate officer, director or otherwise), or ownership
interest in or participation in the financing, operation, management or control
of, any person, firm, corporation or business that competes with Company;
provided, however, that Employee may purchase or otherwise acquire up to (but
not more than) one percent (1%) of any class of securities of any enterprise
(but without participating in the activities of such enterprise) if such
securities are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended.

          (e) Disability. “Disability” will mean that Employee has been unable
to perform the principal functions of Employee’s duties due to a physical or
mental impairment, but only if such inability has lasted or is reasonably
expected to last for at least six months. Whether Employee has a Disability will
be determined by the Board based on evidence provided by one or more physicians
selected by the Board.

          (f) Good Reason. “Good Reason” shall mean:

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               (i) without Employee’s express written consent, employee is
(i) assigned a position other than as a senior principal advisor to the Chief
Executive Officer in at least one of the following areas: product strategy;
product applications; strategic planning; and/or strategic business development,
(ii) is assigned duties that are inconsistent with acting as a senior principal
advisor to the Chief Executive Officer, or (iii) is assigned no duties in his
role as senior principal advisor to the Chief Executive Officer; or

               (ii) without Employee’s express written consent, a material
reduction, of the facilities and perquisites available to Employee immediately
prior to such reduction; provided, however, Employee will be deemed not to have
terminated his employment with the Company for Good Reason in the event that
(a) similar such reductions occur concurrently with and apply to the Company’s
senior management, including the Company’s Chief Executive Officer and Vice
Presidents or (b) Employee’s office space and location is reasonably comparable
to that of officers of the Company reporting directly to the Company’s Chief
Executive Officer; or

               (iii) without Employee’s express written consent, a reduction of
Employee’s base annual salary; provided, however, Employee will be deemed not to
have terminated his employment with the Company for Good Reason in the event
similar such reductions occur concurrently and apply to the Company’s senior
management, including the Company’s Chief Executive Officer and Vice Presidents;
or

               (iv) without Employee’s express written consent, a material
reduction by the Company in the kind or level of employee benefits to which
Employee is entitled immediately prior to such reduction with the result that
Employee’s overall benefits package is significantly reduced; provided, however,
Employee will be deemed not to have terminated his employment with the Company
for Good Reason in the event similar such reductions occur concurrently and
apply to the Company’s senior management, including the Company’s Chief
Executive Officer and Vice Presidents; or

               (v) without Employee’s express written consent, the relocation of
Employee to a facility or a location more than twenty-five (25) miles from his
current location; provided, however, Employee will be deemed not to have
terminated his employment with the Company for Good Reason in the event similar
such relocation occurs concurrently with and applies to the Company’s senior
management, including the Company’s Chief Executive Officer and Vice Presidents;
or

               (vi) any purported involuntary termination of Employee by the
Company which is not effected for Cause; or

               (vii) Employee may resign at any time following the second
anniversary of the Effective Date of this Agreement and receive the benefits set
forth in Section 3(a).

          (g) Severance Payment Period. “Severance Payment Period” shall mean
three years starting from the earlier to occur of: (i) the three month
anniversary of the Effective Date of this Agreement and (ii) the Transition
Commencement Date.

     6. Non-Solicitation. During the Severance Payment Period, Employee,
directly or indirectly, whether as employee, owner, sole proprietor, partner,
director, member, consultant, agent,

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founder, co-venturer or otherwise, will not: (i) solicit, induce or influence
any person to leave employment with the Company; or (ii) directly or indirectly
solicit business from any of the Company’s customers and users on behalf of any
business that directly competes with the principal business of the Company.

     7. Successors.

          (a) The Company’s Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company’s business and/or
assets will assume the obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
“Company” will include any successor to the Company’s business and/or assets
which executes and delivers the assumption agreement described in this Section
7(a) or which becomes bound by the terms of this Agreement by operation of law.

          (b) Employee’s Successors. The terms of this Agreement and all rights
of Employee hereunder will inure to the benefit of, and be enforceable by,
Employee’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

     8. Notice.

          (a) General. Notices and all other communications contemplated by this
Agreement will be in writing and will be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid on the third day after mailing. In the
case of Employee, mailed notices will be addressed to him at the home address
which he most recently communicated to the Company in writing. In the case of
the Company, mailed notices will be addressed to its corporate headquarters, and
all notices will be directed to the attention of its President.

          (b) Notice of Termination. Any termination by the Company for Cause or
by Employee for Good Reason or as a result of a voluntary resignation will be
communicated by a notice of termination to the other party hereto given in
accordance with Section 8(a) of this Agreement. Such notice will indicate the
specific termination provision in this Agreement relied upon, will set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and will specify the termination
date (which will be not more than thirty (30) days after the giving of such
notice). The failure by Employee to include in the notice any fact or
circumstance which contributes to a showing of Good Reason will not waive any
right of Employee hereunder or preclude Employee from asserting such fact or
circumstance in enforcing his rights hereunder.

     9. Miscellaneous Provisions.

          (a) Term of Agreement. This Agreement will terminate upon the third
anniversary of the Effective Date.

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          (b) No Duty to Mitigate. Employee will not be required to mitigate the
amount of any payment contemplated by this Agreement, nor will any such payment
be reduced by any earnings that Employee may receive from any other source.

          (c) Waiver. No provision of this Agreement will be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by Employee and by an authorized officer of the Company (other than
Employee). No waiver by either party of any breach of, or of compliance with,
any condition or provision of this Agreement by the other party will be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.

          (d) Headings. All captions and section headings used in this Agreement
are for convenient reference only and do not form a part of this Agreement.

          (e) Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto and supersedes in their entirety all prior
representations, understandings, undertakings or agreements (whether oral or
written and whether expressed or implied) of the parties with respect to the
subject matter hereof, including (without limitation) any Employment Agreement.
No future agreements between the Company and Employee may supersede this
Agreement, unless they are in writing and specifically mention this
Section 9(e).

          (f) Choice of Law. The laws of the State of California (without
reference to its choice of laws provisions) will govern the validity,
interpretation, construction and performance of this Agreement.

          (g) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement will not affect the validity or enforceability
of any other provision hereof, which will remain in full force and effect.

          (h) Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes.

          (i) Counterparts. This Agreement may be executed in counterparts, each
of which will be deemed an original, but all of which together will constitute
one and the same instrument.

          (j) Arbitration. To provide a mechanism for rapid and economical
dispute resolution, Employee and the Company agree that any and all disputes,
claims, or causes of action, in law or equity, arising from or relating to the
enforcement, breach, performance, or interpretation of this Agreement,
Employee’s employment with the Company or the termination of that employment,
shall be resolved, to the fullest extent permitted by law, by final, binding and
confidential arbitration in Santa Clara county, California conducted by JAMS,
Inc. (“JAMS”) or its successor, under JAMS’ then applicable rules and procedures
for employment disputes. Employee and the Company acknowledge that by agreeing
to this arbitration procedure each waives the right to resolve any such dispute
through a trial by jury or judge or administrative proceeding. Both Employee and
the Company will have the right to be represented by legal counsel at any
arbitration proceeding. The arbitrator shall: (a) have the authority to compel
adequate discovery for the resolution of the dispute and to award such relief as
would otherwise be permitted by law; and (b)

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issue a written statement signed by the arbitrator regarding the disposition of
each claim and the relief, if any, awarded as to each claim, the reasons for the
award, and the arbitrator’s essential findings and conclusions on which the
award is based. The arbitrator shall be authorized to award all relief that
Employee or the Company would be entitled to seek in a court of law. The Company
shall pay all JAMS arbitration fees in excess of the administrative fees that
Employee would be required to pay if the dispute were decided in a court of law.
Nothing in this Agreement is intended to prevent either Employee or the Company
from obtaining injunctive relief in court to prevent irreparable harm pending
the conclusion of any such arbitration.

[Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year set
forth below.

              COMPANY   IRIDEX CORPORATION    
 
           

  By:   /s/ Don Hammond    

           
 
           

  Title:   Chairman of the Board of Directors    

           
 
            EMPLOYEE   THEODORE A. BOUTACOFF    
 
           

  By:   /s/ Theodare A. Boutacoff    

           
 
           

  Title:   Chief Executive Officer    

           

 

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Exhibit A

SETTLEMENT AGREEMENT AND MUTUAL RELEASE

     This Settlement Agreement and Mutual Release (“Agreement”) is made by and
between Iridex Corporation (the “Company”), and Theodore A. Boutacoff
(“Employee”).

     WHEREAS, Employee is employed by the Company;

     WHEREAS, the Company and Employee have entered into an Indemnification
Agreement (the “Indemnification Agreement”);

     WHEREAS, the Company and Employee have entered into that certain Executive
Transition Agreement (the “Executive Transition Agreement”) dated as of
April 28, 2005;

     WHEREAS, the Company and Employee have mutually agreed to terminate the
employment relationship and the parties wish to release each other from any
claims arising from or related to the employment relationship;

     NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Employee (collectively referred to as the “Parties”) hereby agree as
follows:

     2. Resignation. Employee agrees to resign from his position as a senior
principal advisor to the Company’s Chief Executive Officer on
                           , 200       (the “Termination Date”).

     3. Consideration. The Company hereby agrees to pay Employee certain
severance benefits as set forth in the Executive Transition Agreement as
consideration for Employee entering into this Agreement.

     4. Confidential Information. Employee shall continue to maintain the
confidentiality of all confidential and proprietary information of the Company.
Employee shall return all Company property and confidential and proprietary
information in his possession to the Company prior to the Effective Date of this
Agreement.

     5. Payment of Salary. Employee acknowledges and represents that, other than
such benefits, if any, that may be received by Employee pursuant to the
Executive Transition Agreement, as of the Effective Date of this Agreement, the
Company has paid all salary, wages, bonuses, accrued vacation, commissions and
any and all other benefits due to Employee.

     6. Release of Claims. Employee agrees that the foregoing consideration
represents settlement in full of all outstanding obligations owed to Employee by
the Company, other than such benefits, if any, that may be received by Employee
pursuant to the Executive Transition Agreement. Employee and the Company, on
behalf of themselves, and their respective heirs, family members, executors,
officers, directors, employees, investors, shareholders, administrators,
affiliates, divisions,

 

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subsidiaries, predecessor and successor corporations, and assigns, hereby fully
and forever release each other and their respective heirs, family members,
executors, officers, directors, employees, investors, shareholders,
administrators, affiliates, divisions, subsidiaries, predecessor and successor
corporations, and assigns (the “Releasees”), from, and agree not to sue
concerning, any claim, duty, obligation or cause of action relating to any
matters of any kind, whether presently known or unknown, suspected or
unsuspected, that any of them may possess arising from any omissions, acts or
facts that have occurred up until and including the Effective Date of this
Agreement including, without limitation,

          (a) any and all claims relating to or arising from Employee’s
employment relationship with the Company and the termination of that
relationship;

          (b) any and all claims relating to, or arising from, Employee’s right
to purchase, or actual purchase of shares of stock of the Company, including,
without limitation, any claims for fraud, misrepresentation, breach of fiduciary
duty, breach of duty under applicable state corporate law, and securities fraud
under any state or federal law;

          (c) any and all claims for wrongful discharge of employment; breach of
contract, both express and implied; breach of a covenant of good faith and fair
dealing, both express and implied; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage;
defamation; negligence; personal injury; assault; battery; invasion of privacy;
false imprisonment; and conversion;

          (d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor
Standards Act, the California Fair Employment and Housing Act, and Labor Code
section 201, et seq.;

          (e) any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination; and

          (f) any and all claims for attorneys’ fees and costs.

     The Company and Employee agree that the release set forth in this section
shall be and remain in effect in all respects as a complete general release as
to the matters released. This release does not extend to any obligations
incurred under this Agreement, the Transition Agreement, the Indemnification
Agreement or any claim that cannot be waived as a matter of law.

     7. Acknowledgement of Waiver of Claims Under ADEA. Employee acknowledges
that he is waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 (“ADEA”) and that this waiver and
release is knowing and voluntary. Employee and the Company agree that this
waiver and release does not apply to any rights or claims that may arise under
ADEA after the Effective Date of this Agreement. Employee acknowledges that the
consideration given for this waiver and release Agreement is in addition to
anything of value to

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which Employee was already entitled. Employee further acknowledges that he has
been advised by this writing that:

          (a) he should consult with an attorney prior to executing this
Agreement;

          (b) he has twenty-one (21) days within which to consider this
Agreement;

          (c) he has seven (7) days following his execution of this Agreement to
revoke the Agreement;

          (d) this Agreement shall not be effective until the revocation period
has expired; and

          (e) nothing in this Agreement prevents or precludes Employee from
challenging or seeking a determination in good faith of the validity of this
waiver under the ADEA, nor does it impose any condition precedent, penalties or
costs from doing so, unless specifically authorized by federal law.

     8. Civil Code Section 1542. The Parties represent that they are not aware
of any claim by either of them other than the claims that are released by this
Agreement. Employee and the Company acknowledge that they have been advised by
legal counsel and are familiar with the provisions of California Civil Code
Section 1542, which provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

     Employee and the Company, being aware of said code section, agree to
expressly waive any rights they may have thereunder, as well as under any other
statute or common law principles of similar effect.

     9. No Pending or Future Lawsuits. Employee represents that he has no
lawsuits, claims, or actions pending in his name, or on behalf of any other
person or entity, against the Company or the Releasees. Employee also represents
that he does not intend to bring any claims on his own behalf or on behalf of
any other person or entity against the Company or any other Releasees.

     10. Application for Employment. Except as provided for in the Transition
Agreement, Employee understands and agrees that, as a condition of this
Agreement, he shall not be entitled to any employment with the Company, its
subsidiaries, or any successor, and he hereby waives any right, or alleged
right, of employment or re-employment with the Company. Employee further agrees
that he will not apply for employment with the Company, its subsidiaries or
related companies, or any successor.

     11. Confidentiality. The Parties hereto each agree to use their best
efforts to maintain in confidence the existence of this Agreement, the contents
and terms of this Agreement, and the

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consideration for this Agreement (hereinafter collectively referred to as
“Settlement Information”). Each Party hereto agrees to take every reasonable
precaution to prevent disclosure of any Settlement Information to third parties,
and each agrees that there will be no publicity, directly or indirectly,
concerning any Settlement Information. The Parties hereto agree to take every
precaution to disclose Settlement Information only to those employees, officers,
directors, attorneys, accountants, governmental entities, investors and family
members who have a reasonable need to know of such Settlement Information.

     12. No Cooperation. Employee agrees that he will not act in any manner that
might damage the business of the Company. Employee agrees that he will not
encourage, counsel or assist any attorneys or their clients in the presentation
or prosecution of any disputes, differences, grievances, claims, charges, or
complaints by any third party against any of the Releasees, unless under a
subpoena or other court order to do so. Employee shall inform the Company in
writing within three (3) days of receiving any such subpoena or other court
order.

     13. Non-Disparagement. Employee agrees to refrain from any defamation,
libel or slander of the Company or tortious interference with the contracts and
relationships of the Company. All inquiries by potential future employers of
Employee will be directed to the Chief Financial Officer. Upon inquiry, the
Company shall only state the following: Employee‘s last position and dates of
employment.

     14. Costs. Except as provided by law or in Paragraphs 14 or 15, the Parties
shall each bear their own costs, expert fees, attorneys’ fees and other fees
incurred in connection with this Agreement.

     15. Tax Consequences. The Company makes no representations or warranties
with respect to the tax consequences of the payment of any sums to Employee
under the terms of this Agreement. Employee agrees and understands that he is
responsible for payment, if any, of local, state and/or federal taxes on the
sums paid hereunder by the Company and any penalties or assessments thereon.
Employee further agrees to indemnify and hold the Company harmless from any
claims, demands, deficiencies, penalties, assessments, executions, judgments, or
recoveries by any government agency against the Company for any amounts claimed
due on account of Employee’s failure to pay federal or state taxes or damages
sustained by the Company by reason of any such claims, including reasonable
attorneys’ fees.

     16. Arbitration. To provide a mechanism for rapid and economical dispute
resolution, Employee and the Company agree that any and all disputes, claims, or
causes of action, in law or equity, arising from or relating to the enforcement,
breach, performance, or interpretation of this Agreement, Employee’s employment
with the Company or the termination of that employment, shall be resolved, to
the fullest extent permitted by law, by final, binding and confidential
arbitration in Santa Clara county, California conducted by JAMS, Inc. (“JAMS”)
or its successor, under JAMS’ then applicable rules and procedures for
employment disputes. Employee and the Company acknowledge that by agreeing to
this arbitration procedure each waives the right to resolve any such dispute
through a trial by jury or judge or administrative proceeding. Both Employee and
the Company will have the right to be represented by legal counsel at any
arbitration proceeding. The arbitrator shall: (a) have the authority to compel
adequate discovery for the resolution of the dispute

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and to award such relief as would otherwise be permitted by law; and (b) issue a
written statement signed by the arbitrator regarding the disposition of each
claim and the relief, if any, awarded as to each claim, the reasons for the
award, and the arbitrator’s essential findings and conclusions on which the
award is based. The arbitrator shall be authorized to award all relief that
Employee or the Company would be entitled to seek in a court of law. The Company
shall pay all JAMS arbitration fees in excess of the administrative fees that
Employee would be required to pay if the dispute were decided in a court of law.
Nothing in this Agreement is intended to prevent either Employee or the Company
from obtaining injunctive relief in court to prevent irreparable harm pending
the conclusion of any such arbitration.

     17. Authority. The Company represents and warrants that the undersigned has
the authority to act on behalf of the Company and to bind the Company and all
who may claim through it to the terms and conditions of this Agreement. Employee
represents and warrants that he has the capacity to act on his own behalf and on
behalf of all who might claim through him to bind them to the terms and
conditions of this Agreement. Each Party warrants and represents that there are
no liens or claims of lien or assignments in law or equity or otherwise of or
against any of the claims or causes of action released herein.

     18. No Representations. Each party represents that it has had the
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Agreement. Neither party has
relied upon any representations or statements made by the other party hereto
which are not specifically set forth in this Agreement.

     19. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.

     20. Entire Agreement. This Agreement represents the entire agreement and
understanding between the Company and Employee concerning Employee’s separation
from the Company, and supersedes and replaces any and all prior agreements and
understandings concerning Employee’s relationship with the Company and his
compensation by the Company, provided, however, that (i) the Indemnification
Agreement and (ii) the Executive Transition Agreement shall remain in effect
following the execution of this Agreement provided further, however, that
paragraph 15 of this Agreement shall supersede any prior agreements to arbitrate
between the parties. To the extent there is any conflict between the provisions
of this Agreement and the Transition Agreement, the Transition Agreement shall
control.

     21. No Oral Modification. This Agreement may only be amended in a writing
signed by Employee and the Chief Executive Officer of the Company.

     22. Governing Law. The laws of the State of California shall govern this
Agreement.

     23. Effective Date. This Agreement is effective seven (7) days after both
Parties have signed it provided the Employee has not revoked it prior to the
expiration of the seventh day (the “Effective Date”).

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     24. Counterparts. This Agreement may be executed in counterparts, and each
counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.

     25. Voluntary Execution of Agreement. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. The Parties
acknowledge that:

          (a) they have read this Agreement;

          (b) they have been represented in the preparation, negotiation, and
execution of this Agreement by legal counsel of their own choice or that they
have voluntarily declined to seek such counsel;

          (c) they understand the terms and consequences of this Agreement and
of the releases it contains; and

          (d) They are fully aware of the legal and binding effect of this
Agreement.

[Remainder of page intentionally left blank. Signature page follows.]

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     IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.

              IRIDEX CORPORATION
 
       
Dated:                        
  By  
                                                                                
 
       

                                 , Chief Executive Officer
 
            Theodore A. Boutacoff, an individual
 
        Dated:                          
                                                                                
    Theodore A. Boutacoff