Exhibit 10.4 to Biodrain Medical, Inc. Form S-1



Exhibit 10.4 


CONFIDENTIAL
SEPARATION AGREEMENT AND RELEASE


          THIS
AGREEMENT is made and entered into between Lawrence W. Gadbaw (hereinafter,
“Gadbaw”) and BIODRAIN MEDICAL, INC., (hereinafter, “the Company”).


          WHEREAS,
Gadbaw was employed by the Company and resigned that employment August 13,
2008; and


          WHEREAS,
Gadbaw and the Company previously entered into an Employment Agreement in
conjunction with execution of the Nondisclosure and Noncompete Agreement dated
October 18, 2006 and attached hereto as Exhibit A and Exhibit B; and


          WHEREAS,
Gadbaw is currently the Chairman of the Board of Directors for the Company;
and


          WHEREAS,
the parties agree it is in their best interests to sever the employment
relationship; and


          WHEREAS,
the parties acknowledge no stock option plan yet exists, but hope to create
one; and


          WHEREAS,
the purpose of this Agreement is to set forth the terms and conditions under
which Gadbaw and the Company will sever their employment relationship;


          NOW,
THEREFORE, in consideration of the recitals stated above and the mutual
agreements, covenants, and provisions contained, in this Agreement, the parties
agree as follows:


          1.
Termination. Gadbaw and the Company agree that the effective date of
Gadbaw’s termination is August 13, 2008 (the “Termination Date”). Gadbaw shall
be paid his regular salary and benefits through the Termination Date.


          2.
Payments. As consideration for the terms contained in this Agreement,
including Gadbaw’s release of any and all claims, his agreement to maintain
the confidentiality of this Agreement, and his promise to abide by the
restrictive covenants set forth in his Nondisclosure and Noncompete Agreement,
the Company shall pay to Gadbaw the following:


	
 

	
 

	
 


	
 

	
a.

	
Gadbaw’s regular salary
 from the Termination Date through the end of August 2008.


	
 

	
 

	
 


	
 

	
b.

	
The amount of Forty-Six
 Thousand Dollars ($46,000), less applicable withholdings for taxes and any
 other benefits typically deducted from Gadbaw’s salary (the “Accrued Salary
 Payment”). The Accrued Salary Payment shall be payable in equal monthly
 installments of Two Thousand Dollars ($2,000) (the “Monthly Payments”). The
 Monthly Payments shall commence only upon expiration of the rescission period
 described in Section 8 without the occurrence of any rescission and shall be
 paid, concurrently with, the Company’s payroll cycle until, such time as the
 Accrued Salary Payment is paid in full (the “Payment Term). If the Company
 is able to raise Three Million Dollars ($3,000,000) in













	
 

	
 

	
 


	
 

	
 

	
additional funds delivered
 to the Company before the expiration of the Payment Term, the remaining
 unpaid balance of the Accrued Salary Payment shall be paid in full by the
 Company to Gadbaw within 30 days after the Investment is reached and the
 Company has received the funds, and the Company shall have no further
 obligation to make Monthly Payments. Severance payment is the balance of
 monthly pay from 8/14/08 to 8/31/08 in the amount of $5,843.83, for
 a period of 18 days.


	
 

	
 

	
 


	
 

	
c.

	
If the Company receives
 the funds from the Investment, Gadbaw will be eligible for an additional
 bonus in the amount of Twenty-Five Thousand Dollars ($25,000), less
 applicable tax withholdings, to be paid within 30 days after the Company
 receives the funds from the Investment. The Company has no obligation to pay
 the $25,000 if the Company does not receive the funds from the Investment.


	
 

	
 

	
 


	
 

	
d.

	
Gadbaw shall have no right
 to any compensation, benefits, salary or bonus beyond that referenced in the
 preceding subparagraphs of this Section 2 on account of his employment or
 termination of employment with the Company. These sums will only be paid,
 however, provided the rescission period referred to in Section 8 has expired
 without rescission of this Agreement by Gadbaw.


	
 

	
 

	
 


	
 

	
e.

	
The Company’s obligation
 for payment of the above-referenced amounts shall cease in the event that
 Gadbaw i) fails to sign the release in the form attached hereto as Exhibit B
 (“Release”), ii) rescinds the Release, or iii) breaches any portion of this
 Agreement. If Gadbaw fails to sign the Release under this Agreement or if
 Gadbaw breaches any portion of this Agreement, he will be obligated to repay
 to the Company all payments made to him under the terms of this Agreement.


	
 

	
 

	
 


	
 

	
f.

	
The Company will pay
 Gadbaw and Gadbaw will accept from the Company, in full and final settlement,
 the above-referenced consideration.





          Gadbaw
agrees that he is solely responsible for any and all liability created under
the federal and state tax laws and agrees to indemnify the Company and hold it
harmless for all such liability or obligations, if any Further, the Company
makes no warranty concerning the treatment of any sums paid hereunder under
said laws and Gadbaw has not relied upon any such warranty.


          Gadbaw
understands that no additional money is to be paid or other consideration given
to him on account of his employment or termination of employment with the
Company other than the consideration referenced in this Agreement.


          3.
Continued Non-Employment Relationship. Gadbaw will continue his
relationship with the Company after the Termination Date as a non-employee
Chairman of the Board of Directors, subject to the same rights and limitations
as other members of the Board of Directors. During such time as Gadbaw serves
as the Chairman of the Board of Directors, the Company


2.






shall pay Gadbaw at the rate
of Twenty-Four Thousand Dollars ($24,000) per year, to be paid to Gadbaw in
equal monthly payments concurrently with the Company’s payroll cycle.


          4.
Stock Options. Subject to Gadbaw’s execution of stock option and
shareholder agreements acceptable to the Company, the Company shall grant
Gadbaw stock options for One Hundred Sixty Thousand (160.000) shares of common
stock in the Company. The exercise price will be the fair market value of the
Company at the time of grant as determined by the Board of Directors.
Additionally, on each September 1 during such time as Gadbaw serves as Chairman
of the Board of Directors, the Company shall grant to Gadbaw additional stock
options for 30,000 shares of common stock, commencing on September 1 of the
year following the year of Gadbaw’s termination of employment, the exercise
price to be determined in the same manner.


          If,
at the time of each grant, the Company has adopted a stock option plan (an
“Option Plan”), such options may, but need not, be granted pursuant to and
subject to such plan. Such options:


	
 

	
 

	
 


	
 

	
a.

	
Shall be non-qualified
 options to purchase common stock;


	
 

	
 

	
 


	
 

	
b.

	
Shall have a term of three
 years from the date of grant subject to termination 90 days after death;


	
 

	
 

	
 


	
 

	
c.

	
Shall vest at grant;


	
 

	
 

	
 


	
 

	
d.

	
Shall, have no
 registration rights;


	
 

	
 

	
 


	
 

	
e.

	
Shall be non-transferrable
 except upon death;


	
 

	
 

	
 


	
 

	
f.

	
May, but need not, provide
 for cashless exercise (either by surrender of shares or of options);


	
 

	
 

	
 


	
 

	
g.

	
Shall be subject to
 adjustment, for stock splits, stock dividends, reverse splits and similar
 events;


	
 

	
 

	
 


	
 

	
h.

	
Shall terminate
 immediately if Gadbaw i) fails to sign the Release, ii) rescinds the Release,
 or iii) breaches any portion of this Agreement;


	
 

	
 

	
 


	
 

	
i.

	
Shall not be represented
 by a certificate or agreement other than this Agreement unless granted
 pursuant to an option plan;


	
 

	
 

	
 


	
 

	
j.

	
Shall allow exercise only
 if, at exercise, Gadbaw has paid to the Company (in addition to the exercise
 price), any tax withholdings required to be made;


	
 

	
 

	
 


	
 

	
k.

	
Shall be subject to
 Gadbaw, at exercise, making customary representations regarding investment
 intent and agreeing to customary restrictions on transfer; and


	
 

	
 

	
 


	
 

	
l.

	
Shall not entitle Gadbaw
 to any rights as a shareholder unless and until exercised.





3.






          5.
Full Compensation. The payments that will be made on Gadbaw’s behalf to
Gadbaw for his benefit pursuant to this Agreement will compensate him for and
extinguish any and all of his claims arising out of his employment with the
Company or his employment termination including, but not limited to, claims for
attorneys’ fees and costs, and any and all claims for any type of legal or
equitable relief.


          6.
Records, Documents and Property. Gadbaw will promptly return to the
Company all its property and documents provided to him as an employee to the
extent he does not need the property in his capacity as Chairman of the Board.


          7.
General Release. In consideration of the payments and other undertakings
stated herein, Gadbaw will sign a separate Release in the form attached hereto
as Exhibit B at the time he signs this Agreement. This Agreement shall not he
interpreted or construed to limit the Release in any manner, or vice versa.


          8.
Rescission. Gadbaw understands that he can take up to twenty one (21)
days after receipt of revised Agreement to consider this Agreement before
signing it. Once this Agreement is executed, Gadbaw may rescind this Agreement
within seven (7) calendar days to reinstate federal Age Discrimination in
Employment Act claims and within fifteen (15) calendar days to reinstate
Minnesota Human Rights Act claims under state law. To be effective, any
rescission within the relevant time periods must be in writing and delivered to
the Employer, in care of Kevin R. Davidson, BioDrain Medical, Inc., 16771
Ironwood Circle, Lakeville, MN 55044 either by hand or by mail within the
15-day period. If sent by mail, the rescission must be (1) postmarked within
the 15-day period; (2) properly addressed to the Employer; and (3) sent by
certified mail, return receipt requested.


          IF
Gadbaw gives notice of rescission within the 15-day time period, he shall no
longer be entitled to the payments or benefits
referred to in Section 2 or the grant of options referred to in Section 4 and
shall return any payments already made to him as of the date of rescission.


          9.
Confidentiality of Terms. The terms of this Agreement and Release will
be treated as confidential by Gadbaw and he shall not disclose its terms to
anyone, except Gadbaw may disclose the terms of this Agreement to his legal
counsel, professional accountant, tax or professional financial advisor,
spouse or as may be required by law
or court order. Gadbaw also represents that no disclosures which would violate
the terms of this provision have been made prior to its execution by Gadbaw.


          10. Nondisclosure
and Noncompete Agreement. The restrictions contained in the Nondisclosure
and Noncompete Agreement attached hereto as Exhibit A will continue in full
force and effect. Gadbaw confirms his commitments to those restrictions and
recognizes that the payments in Section 2 and the grant of options in Section 4
above as further consideration for his promise to abide by those restrictions.
Gadbaw recognizes and agrees that the Nondisclosure and Noncompete Agreements
are critical components of this entire Agreement, In the event of a breach by
Gadbaw of the terms of this paragraph, all payments to Gadbaw shall cease.
Additionally, the Company’s obligation to issue any remaining options shall
cease, any shares issued pursuant to exercise of options shall be immediately
cancelled (in such case the Company shall promptly return to Gadbaw any
exercise price received) and no further options shall vest.


4.







          11.
Non-Admission. Nothing in this Agreement is intended to be, nor will be
deemed to be, an admission of liability by the Company that it has violated any
state or federal statute, local ordinance or principle of common law, or that
it has engaged in any wrongdoing.


          12.
Non-Assignment. The parties agree that this Agreement and the Release
will not be assignable by Gadbaw unless the Company agrees in writing.


          13.
Merger/Entire Agreement. This Agreement and the Release attached as
Exhibit B and the Nondisclosure and Noncompete Agreement attached as Exhibit A
constitute the entire agreements between the parties with respect to the
employment, association and the termination of Gadbaw’s employment relationship
with the Company, and the parties agree that there were no inducements or
representations leading to the execution of this Agreement or the Release, except
as herein contained, Gadbaw agrees that any and all claims which he might have
had against the Company are fully released and discharged by this Agreement and
the Release, and that the only claims which he may hereafter assert against the
Company will be derived only from an alleged breach of the terms of this
Agreement.


          14.
Invalidity. In case any one or more of the provisions of this Agreement
shall be invalid, illegal, or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained in this
Agreement will not in any way be affected or impaired thereby.


          15.
Voluntary and Knowing Action. Gadbaw acknowledges that he has been
advised of his right to be represented by his own attorney, that he has read
and understands the terms of this Agreement, and that he is voluntarily
entering into the Agreement to resolve any disputes with the Company, and that
he has not relied upon any statements made by the Company, its agents or
attorneys.


          16.
Governing Law and Jurisdiction. This Agreement will be construed and
enforced in accordance with the laws of the State of Minnesota. Jurisdiction
and venue shall only be appropriate in Hennepin County, Minnesota.


          17.
Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.


5.






          IN
WITNESS WHEREOF, the parties hereto have executed this Agreement on the dates indicated
at their respective signatures.


	
 

	
 

	
 

	
 

	
 

	
 


	
Dated:

	
09-15-08

	



	
 

	
 

	
 

	 


	
 

	
Lawrence W. Gadbaw


	
 

	
 


	
 

	
BIODRAIN MEDICAL, INC.


	
 

	
 


	
Dated:

	
By:

	
/s/ Kevin R. Davidson

	
 

	 

	
 

	
 

	 


	
 


	
 

	
 

	
Its:

	
President & CEO


	
 

	
 

	
 

	 





6.






EXHIBIT B


RELEASE


Definitions. I intend all words used in this Release to
have their plain meanings in ordinary English, Technical legal words are not
needed to describe what I mean. Specific terms I use in this Release have the
following meanings:


	
 

	
 

	
 


	
 

	
A.

	
I, me, and my include both
 me and anyone who has or obtains any legal rights or claims through me.


	
 

	
 

	
 


	
 

	
B.

	
Company, as used herein, shall at all times mean
 BioDrain Medical, Inc., its parents, subsidiaries, successors and assigns,
 their affiliated and predecessor companies, their successors and assigns, and
 the present or former officers, directors, employees and agents of any of
 them, whether in their individual or official capacities, and the current and
 former trustees or administrators of any pension or other benefit plan
 applicable to the employees or former employees of the Company, in their
 official and individual capacities.


	
 

	
 

	
 


	
 

	
C.

	
My Claims mean all of the rights I have now to any
 relief of any kind from the Company, whether or not I now know about those
 rights, arising out of my employment with the Company, and my employment termination,
 including but not limited to, claims for breach of contract; fraud or
 misrepresentation; violation of the Minnesota Human Rights Act, the Age
 Discrimination in Employment Act or other federal, state, or local civil
 rights laws based on age or other protected class status; defamation;
 intentional or negligent infliction of emotional distress; breach of the
 covenant of good faith and fair dealing; promissory estoppel; negligence;
 wrongful termination of employment; and any other claims for unlawful employment
 practices. However, this release shall not affect any claims which could be
 made under any welfare benefit plan or any pension or retirement plan through
 the Company.





Agreement to
Release My Claims.
I am receiving a substantial amount of money paid by the Company. I agree to
give up all My Claims against the Company in exchange for those payments
specified in the attached Confidential Separation Agreement. I will not bring
any lawsuits, file any charges, complaints, or notices, or make any other
demands against the Company based on My Claims. The money I am receiving is a
full and fair payment for the release of all My Claims. The Company does not
owe me anything in addition to what I will be receiving.


I understand and agree
that, notwithstanding anything to the contrary in this Release, nothing in this
Release is intended to or shall; (a) impose any condition, penalty, or other
limitation affecting my right to challenge this Release: (b) constitute an unlawful
release or waiver of any of my rights under any laws; or (c) prevent, impede,
or interfere with my ability or right to: (i) provide truthful testimony if
under subpoena to do so; (ii) file any charge or complaint (including a
challenge to the validity of this Release) with, or participate in an investigation
or proceeding


B-1






conducted
by, the EEOC, the MDHR, or any other governmental entity; or (iii) respond as otherwise
required and/or provided for by law. Notwithstanding anything to the contrary
in this Release, nothing in this Release is intended to be or shall be
construed to be a violation of any law.


Additional Agreements and Understandings. Even though the
Company is paying me to release My Claims, the Company does not admit that it
may be responsible or legally obligated to me. In fact, the Company denies that
it is responsible or legally obligated for My Claims or that it has engaged in any
wrongdoing.


          I
understand that I may rescind (that is, cancel.) this Release within seven (7)
calendar days of signing it to reinstate federal claims and within fifteen (15)
calendar days of signing it to reinstate state claims. To be effective, my
rescission must be in writing and delivered to the Company in care of Kevin R.
Davidson, BioDrain Medical, Inc., 16771 Ironwood Circle, Lakeville, MN 55044
either by hand or by mail within the 15-day period. If sent by mail, the rescission
must be:


	
 

	
 

	
 


	
 

	
1.

	
Postmarked within the 15-day period;


	
 

	
 

	
 


	
 

	
2.

	
Properly addressed to the Company; and


	
 

	
 

	
 


	
 

	
3.

	
Sent by certified mail, return receipt requested.





          I
have read this Release carefully and understand all its terms. I have had an
opportunity to discuss this Release with my own attorney. In agreeing to sign
this Release, I have not relied on any statements or explanations made by the
Company or its attorneys.


          I
understand and agree that this Release, the Separation Agreement to which it is
attached, and the Nondisclosure and Noncompete Agreement signed October 18,
2006 contain all the agreements between the Company and me. We have no other
written or oral agreements.


	
 

	
 

	
 

	
 


	
Dated:

	
09-15-08

	



	
 

	
 

	
 

	 


	
 

	
Lawrence W. Gadbaw





B-2