Exhibit 10.1
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
          THIS AMENDMENT NO. 1 to the Employment Agreement between Bruce
Thornton (the “Executive”) and Oculus Innovative Sciences, Inc., a Delaware
corporation (the “Corporation”), effective as of June 1, 2005, is entered into
by and between the Executive and the Corporation effective as of August 5, 2008.
          WHEREAS, the parties wish to make certain modifications to the
Agreement to comply with final regulations published under Section 409A of the
Internal Revenue Code of 1986, as amended;
          NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises of the parties, the parties hereto agree as follows:
          1. The Agreement and all exhibits attached thereto are hereby
incorporated by reference herein and made a part hereof, subject to the
specified modifications set forth herein.
          2. Section 5 of the Agreement is hereby amended to read in its
entirety as follows:
“5.1 Termination by the Corporation. The Executive’s employment by the
Corporation, and the Period of Employment, may be terminated at any time by the
Corporation: (i) with Cause (as defined in Section 5.5, or (ii) without Cause,
or (iii) in the event of the Executive’s death, or (iv) in the event that the
Board determines in good faith that the Executive has a Disability (as defined
in Section 5.5).
5.2 Termination by the Executive. The Executive’s employment by the Corporation,
and the Period of Employment, may be terminated at any time by the Executive, on
no less than thirty (30) days prior written notice to the Corporation.
5.3 Benefits Upon Termination. If the Executive’s employment by the Corporation
is terminated during the Period of Employment for any reason by the Corporation
or by the Executive, the Corporation shall have no further obligation to make or
provide to the Executive, and the Executive shall have no further right to
receive or obtain from the Corporation, any payments or benefits except:
          (a) the Corporation shall pay the Executive (or, in the event of his
death, the Executive’s estate) any Accrued Obligations (as defined in
Section 5.5); and
          (b) if, during the Period of Employment, the Executive’s employment is
terminated by the Corporation without Cause or by the

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Executive for Good Reason (as defined in Section 5.5) (and, in each case, other
than due to either the Executive’s death, or a good faith determination by the
Board that the Executive has a Disability):
     (i) the Corporation shall, subject to the conditions set forth in
Section 5.3(c), also pay the Executive a lump sum severance benefit equal to
twelve (12) times the average monthly Base Salary paid to the Executive over the
twelve (12) whole months preceding the month in which the termination of the
Executive’s employment occurs. Subject to the conditions set forth in
Section 5.3(c), such lump sum amount shall be paid to the Executive (without
interest) no later than seven (7) days following the date on which the
Executive’s employment by the Corporation terminates;
     (ii) the Corporation shall, subject to the conditions set for the in
Section 5.3(c), pay as a severance benefit one hundred percent (100%) of the
Executive’s premiums under the Consolidated Omnibus Budget Reconciliation Act
(“COBRA”) for the same or reasonably equivalent medical coverage as in effect on
the date the Executive’s employment terminated for a period not to exceed the
lesser of one year following the date of such termination or until the Executive
becomes eligible for medical insurance coverage provided by another employer;
and
     (iii) as of the date the Executive’s employment terminates, any and all
stock options, stock appreciation rights, restricted stock awards, and similar
equity and equity-based awards granted by the Corporation to the Executive
outstanding immediately prior to such termination of employment shall thereupon
be deemed fully vested and shall be exercisable for a period of no less than
twelve (12) months thereafter or until the stated expiration date for such
option or award at the end of its maximum term, whichever is earlier; provided,
however, that this Section 5.3(b)(iii) shall not affect any right of the
Corporation to terminate such option or award in connection with a change in
control of the Corporation or similar event to the extent such right exists
under the provisions of any agreement evidencing such option or award.
          (c) Any obligation of the Corporation pursuant to Section 5.3(b) to
pay a severance benefit in the circumstances described therein is further
subject to the following two “conditions precedent: (i) such severance
obligation shall be paid only if the Executive has remained in compliance with
all of the provisions of Section 5.6 and Sections 7 through 12, and such
obligation shall terminate immediately if the Executive is for any reason not in
compliance with one or more of the provisions of Section 5.6, and Sections 7
through 12; and (ii) the Executive’s satisfaction of the release obligations set
forth in Section 5.4. For purposes of the preceding sentence, if the Executive
is not in compliance with one or more provisions of Section 5.6, and Sections 7
though 12, and a cure is

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reasonably possible in the circumstances, the Executive will not be deemed to
have breached such provision(s) unless the Executive is given notice and a
reasonable opportunity (in no case shall more than a 10-day cure period be
required) to cure such breach and such breach is not cured within such time
period. The parties agree that a cure will not be reasonably possible in all
circumstances including, without limitation, a material breach of
confidentiality or similar occurrence.
          (d) Except as expressly provided herein, the foregoing provisions of
this Section 5.3 shall not affect (i) the Executive’s receipt of benefits
otherwise due terminated employees under group insurance coverage consistent
with the terms of the applicable Corporation welfare benefit plan; (ii) the
Executive’s rights under COBRA to continue participation in medical, dental,
hospitalization and life insurance coverage; (iii) the Executive’s receipt of
benefits otherwise due in accordance with the terms of the Corporation’s 401(k)
plan (if any); or (iv) any rights that the Executive may have under and with
respect to a stock option, stock appreciation right, restricted stock award, or
similar equity or equity-based award, to the extent that such award was granted
before the date that the Executive’s employment by the Corporation terminates
and to the extent expressly provided in the written agreement evidencing such
award.
          5.4 Release; Exclusive Remedy.
          (a) This Section 5.4 shall apply notwithstanding anything else
contained in this Agreement to the contrary. As a condition precedent to any
Corporation obligation to the Executive pursuant to Section 5.3(b), the
Executive shall, upon or promptly following his last day of employment with the
Corporation, provide the Corporation with a valid, executed, written Release (as
defined in Section 5.5) (in a form provided by the Corporation) and such release
shall have not been revoked by the Executive pursuant to any revocation rights
afforded by applicable law. The Corporation shall have no obligation to make any
payment to the Executive pursuant to Section 5.3(b) unless and until the Release
contemplated by this Section 5.4 becomes irrevocable by the Executive in
accordance with all applicable laws, rules and regulations.
          (b) The Executive agrees that the payments contemplated by Section 5.3
shall constitute the exclusive and sole remedy for any termination of his
employment and the Executive covenants not to assert or pursue any other
remedies, at law or in equity, with respect to any termination of employment.
The Corporation and Executive acknowledge and agree that there is no duty of the
Executive to mitigate damages under this Agreement. All amounts paid to the
Executive pursuant to Section 5.3 shall be paid without regard to whether the
Executive has taken or takes actions to mitigate damages.

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          5.5 Certain Defined Terms.
          (a) As used herein, “Accrued Obligations” means:
               (i) any Base Salary that had accrued but had not been paid
(including accrued and unpaid vacation time) prior to the date of termination;
and
               (ii) any reimbursement due to the Executive pursuant to
Section 4.2 for expenses incurred by the Executive prior to the date the Period
of Employment terminates.
          (b) As used herein, “Cause” shall mean the reasonable and good faith
determination by a majority of the Board based on its reasonable belief at the
time that, during the Period of Employment, any of the following events or
contingencies exists or has occurred:
               (i) the Executive is convicted of, or has pled guilty to, a
felony (under the laws of the United States or any state thereof); or
               (ii) the Executive has engaged in acts of fraud, material
dishonesty or other acts of willful misconduct in the course of his duties
hereunder, unless the Executive believed in good faith that such acts were in
the interests of the Corporation; or
               (iii) the Executive willfully and repeatedly fails to perform or
uphold his duties under this Agreement; or
               (iv) the Executive willfully fails to comply with reasonable
directives of the CEO which are communicated to him in writing.
          (c) As used herein, “Disability” shall mean a physical or mental
impairment which substantially limits a major life activity of the Executive and
which renders the Executive unable to perform the essential functions of the
Executive’s position, even with reasonable accommodation which does not impose
an undue hardship on the Corporation , for ninety (90) days in any consecutive
twelve (12) month period. The Board reserves the right, in good faith, to make
the determination of whether or not a Disability exists for purposes of this
Agreement based upon information supplied by the Executive and/or his medical
personnel, as well as information from medical personnel (or others) selected by
the Corporation or its insurers.
          (d) As used herein, “Good Reason” shall mean the occurrence of one or
more of the following without the Executive’s written consent:
               (i) the assignment of the Executive to duties materially
inconsistent with the Executive’s authorities, duties, responsibilities and

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status (including tides and reporting requirements) as General Counsel of the
Corporation, or a material reduction or alteration in the nature or status of
the Executive’s authorities, duties or responsibilities, other than an
insubstantial and inadvertent act that is remedied by the Corporation promptly
after receipt of notice thereof given by the Executive; or
               (ii) a reduction by the Corporation in the Executive’s Base
Salary as in effect on the Effective Date or as the same shall be increased from
time to time, or the Corporation otherwise fails to satisfy its compensation
obligations to the Executive under this Agreement, after notice by the Executive
and a reasonable opportunity to cure; or
               (iii) only after the Sale of the company, the Corporation’s
requiring Executive to be based at any office or location more than fifty
(50) miles from the Corporation’s headquarters in Petaluma, California; or
               (iv) the failure of the Corporation to obtain a satisfactory
agreement from any successor to the Corporation to assume and agree to perform
this Agreement ; provided, however, that none of the events specified in clause
(i),(ii),or (iii) above shall constitute Good Reason unless the Executive shall
have notified the Corporation in writing describing the events which constitute
Good Reason and the Corporation shall have failed to cure such event within a
reasonable period, not to exceed ten (10) days, after the Corporation’s actual
receipt of such written notice.
          (e) As used herein, “Release” shall mean a written release, discharge
and covenant not to sue entered into by the Executive on behalf of himself, his
descendants, dependents, heirs, executors, administrators, assigns, and
successors, and each of them, of and in favor of the Corporation, its parent (if
any), the Corporation’s subsidiaries and affiliates, past and present, and each
of them, as well as its and their trustees, directors, officers, agents,
attorneys, insurers, employees, shareholders, members, representatives, assigns,
and successors, past and present, and each of them (the “releasees”), with
respect to and from any and all claims, wages, demands, rights, liens,
agreements, contracts, covenants, actions, suits, causes of action, obligations,
debts, costs, expenses, attorneys’ fees, damages, judgments, orders and
liabilities of whatever kind or nature in law, equity or otherwise, whether now
known or unknown, suspected or unsuspected, and whether or not concealed or
hidden, which he may then own or hold or he at any be theretofore owned or held
or may in the future hold as against any or all of said releasees, arising out
of or in any way connected with the Executive’s employment relationship with
each and every member of the Company Group(as defined in Section 7) with which
the Executive has had such a relationship, or the termination of his employment
or any other transactions, occurrences, acts or omissions or any loss, damage or
injury

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whatever, known or unknown, suspected or unsuspected, resulting from any act or
omission by or on the part of said releasees, or any of them, committed or
omitted prior to the date of such release including, without limiting the
generality of the foregoing, any claim under Section 1981 of the Civil Rights
Act of 1866, Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act, the Americans with Disabilities Act, the Family and Medical
Leave Act of 1993, the California Fair Employment and Housing Act, the
California Family Rights Act, any other claim under any other federal, state or
local law or regulation, and any other claim for severance pay, bonus or
incentive pay, sick leave, holiday pay, vacation pay, life insurance, health or
medical insurance or any other fringe benefit, medical expenses, or disability
(except that such release shall not constitute a release of any Corporation
obligation to the Executive that may be due to the Executive pursuant to
Section 5.3(b) upon the Corporation’s receipt of such release). The Release
shall also contain the Executive’s warrant that he has not theretofore assigned
or transferred to any person or entity, other than the Corporation, any released
matter or any part or portion thereof and that he will defend, indemnify and
hold harmless the Corporation and the aforementioned releasees from and against
any claim (including the payment of attorneys’ fees and costs actually incurred
whether or not litigation is commenced) that is directly or indirectly based on
or in connection with or arising out of any such assignment or transfer made,
purported or claimed.
5.6 Resignation From Boards. Upon or promptly following any termination of
Executive’s employment with the Corporation, the Executive agrees to resign from
(i) each and every board of directors (or similar body, as the case may be) of
the Corporation and each of its affiliates on which the Executive may then serve
(if any), and (ii) each and every office of the Corporation and each of its
affiliates that the Executive may then hold, and all positions that he may have
previously held with the Corporation and any of its affiliates.”
5.7 Excise Tax Gross-Up. During and after the period of Executive’s employment
with the Corporation, Executive shall be entitled to the excise tax protections
set forth in Exhibit B hereto. The preceding sentence takes precedence over any
contrary provision (such as, without limitation, an excise tax cut-back
provision) of any other applicable incentive plan or award agreement.
5.8 Section 409A.
          (a) Notwithstanding any provision to the contrary in this Agreement,
the Corporation shall delay the commencement of payments or benefits coverage to
which the Executive would otherwise become entitled under the Agreement in
connection with the Executive’s termination of employment until the earlier of
(i) the expiration of the six-

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month period measured from the date of the Executive’s “separation from service”
with the Corporation (as such term is defined in Treasury Regulations issued
under Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”)) or (ii) the date of the Executive’s death, if the Corporation in good
faith determines that the Executive is a “specified employee” within the meaning
of that term under Code Section 409A at the time of such separation from service
and that such delayed commencement is otherwise required in order to avoid a
prohibited distribution under Section 409A(a)(2) of the Code. Upon the
expiration of the applicable Code Section 409A(a)(2) deferral period, all
payments and benefits deferred pursuant to this section (whether they would have
otherwise been payable in a single sum or in installments in the absence of such
deferral) shall be paid or reimbursed to the Executive in a lump sum, and any
remaining payments and benefits due under the Agreement shall be paid or
provided in accordance with the normal payment dates specified for them herein.
If a benefit subject to the delayed payment rules of this section is to be
provided other than by the payment of money to the Executive, then continuation
of such benefit during the deferral period is conditioned on pre-payment by the
Executive to the Corporation of the full taxable value of the benefit and
following the end of the deferral period, the Corporation shall repay the
Executive for the payments made by the Executive pursuant to the terms of this
sentence which would otherwise not have been required of the Executive.
          (b) To the extent the Corporation is required pursuant to this
Agreement to reimburse expenses incurred by the Executive, and such
reimbursement obligation is subject to Section 409A of the Code, the Corporation
shall reimburse any such eligible expenses by the end of the calendar year next
following the calendar year in which the expense was incurred, subject to any
earlier required deadline for payment otherwise applicable under this Agreement;
provided, however, that the following sentence shall apply to any tax gross-up
payment and related expense reimbursement obligation to the extent subject to
Section 409A. Any such tax gross-up payment will be made by the end of the
calendar year next following the calendar year in which the Executive remits the
related taxes, and any required reimbursement of expenses incurred due to a tax
audit or litigation addressing the existence or amount of a tax liability will
be made by the end of the calendar year next following the calendar year in
which the taxes that are the subject of the audit or litigation are remitted to
the taxing authority, or where as a result of such audit or litigation no taxes
are remitted, the end of the calendar year next following the calendar year in
which such audit is completed or there is a final and nonappealable settlement
or other resolution of the litigation, in each case subject to any earlier
required deadline for payment otherwise applicable under this Agreement.

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          (c) The provisions of this Agreement which require commencement of
payments or benefits coverage subject to Section 409A upon a termination of
employment shall be interpreted to require that the Executive have a “separation
from service” with the Corporation (as such term is defined in Treasury
Regulations issued under Code Section 409A).
          (d) Each payment made (including any benefit provided) pursuant to
this Agreement as part of a series of payments shall for all purposes of
Section 409A be treated as a separate payment and not as a single payment.
          (e) In each case where this Agreement provides for the payment of an
amount that constitutes nonqualified deferred compensation under Code
Section 409A to be made to the Executive within a designated period (e.g.,
within a specified number of days after the date of termination) and such period
begins and ends in different calendar years, the exact payment date within such
range shall be determined by the Corporation, in its sole discretion, and the
Executive shall have no right to designate the year in which the payment shall
be made.
          (f) To the fullest extent applicable, amounts and other benefits
payable under this Agreement are intended to be exempt from the definition of
“nonqualified deferred compensation” under Code Section 409A, in accordance with
one or more of the exemptions available under the Treasury Regulations
promulgated under Section 409A. To the extent that any amounts or benefits
payable under this Agreement are or become subject to Code Section 409A due to a
failure to qualify for an exemption from the definition of nonqualified deferred
compensation, this Agreement is intended to comply with the applicable
requirements of Code Section 409A with respect to such amounts or benefits. This
Agreement shall be interpreted and administered to the extent possible in a
manner consistent with the foregoing statement of intent.”
          3. Section 26 of the Agreement is hereby amended to insert the section
reference “5.8,” after “5.7”.
          4. Except as expressly modified by this Amendment, the terms and
provisions of the Agreement shall remain unchanged and in full force and effect.
          5. Any modification to this Amendment shall be effective only if it is
in writing and signed by the parties to be bound thereby.
          6. This Amendment (including the Agreement and exhibits to the
Agreement incorporated herein by reference) constitutes the entire agreement
between the parties hereto with respect to the changes to the Agreement provided
for in this Amendment and supersedes all prior or contemporaneous written or
oral agreements and understandings among the parties in connection with the
subject matter thereof.

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          IN WITNESS WHEREOF, the parties have executed this Amendment by their
duly authorized officers or agents.

              OCULUS INNOVATIVE SCIENCES, INC.       EXECUTIVE
 
           
By:
  /s/ Hojabr Alimi       /s/ Bruce Thornton
 
         
Title:
  President & CEO       Bruce Thornton
Date:
  August 5, 2008       Date: August 5, 2008

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