Exhibit 10.7 


	
 

	
 


	
 

	
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
 REGISTERED UNDER THE SECURITIES ACT OF
 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE
 TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN
 OPINION OF COUNSEL, SATISFACTORY TO THE
 CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.





BioDrain Medical, Inc.


DIRECTOR
STOCK OPTION AGREEMENT

(Non-Statutory)


          This
Director Stock Option Agreement is made and entered as of the 22nd day of
August, 2006 (the Agreement Date”)
by and between BioDrain Medical, Inc., a Minnesota corporation (“Company”) and
Board of Directors member Thomas J. McGoldrick (the “Optionee”) as
consideration for Board membership.


1. Stock Option Grant.


               (a)
Annual Grant. In accordance with
the Director Stock Option Agreement entered as of August 22, 2005 and for the preceding year ending August
21, 2006 of, Optionee’s Board membership, Optionee is hereby granted
10,000 Option Shares subject to the terms set forth below.


2. Nonstatutory Option. The
Option is granted to purchase up to the number of shares of authorized but unissued common stock of the Company specified in
Section 1 (the “Shares”). The Option will expire, and all rights to exercise it will terminate on the
earliest of: (a) the date provided below in Sections 8 and 9, and (b) the Expiration Date. This Option is intended
by the Company and the Optionee to be a Non-Statutory Stock Option and
does not qualify for any special tax benefits to the Optionee.


3. Exercise Price. The Exercise Price for each Option Share of
the Company will be $1.00.


4. Period of Exercise The Options will expire at 5:00 p.m. on the
fifth anniversary of this Grant Date.


5. Vesting of Options. Optionee will have the right to exercise the
Stock Option in accordance with the following schedule:


               The
Shares subject to the Stock Option will vest in 90 days from the Annual Grant
Date for each succeeding year.


6. Transferability. The Option is not transferable except by will
or the laws of descent and distribution and may be exercised during the lifetime of the Optionee only by the
Optionee, and if exercised following the Optionee’s death, by the Optionee’s
legal representative upon presenting evidence of authority to act on behalf
of the Optionee’s estate acceptable to the Company.


7. Change in Control. If the Company enters into a binding
agreement during the time that Optionee is a Board member of the Company that results in a change in control (as
defined in the following sentence), then 100% of the Shares will vest. For
purposes of this Option Agreement, “change in control” means that:


                    (1)
any individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity or person, or any syndicate or
group deemed to be a person under Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), is or becomes the “beneficial
owner” (as defined in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act), directly or
indirectly, of securities of the Corporation representing fifty percent (50%)
or more of the combined voting power
of the Company’s then outstanding securities entitled to vote in the election
of directors of the Company; or


                    (2)
there occurs a reorganization, merger, consolidation or other corporate
transaction involving the Company
(“Transaction”), in each case, with respect to which the stockholders of the


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Company immediately prior to such
Transaction do not, immediately after the Transaction, own more than fifty
percent (50%) of the combined voting power of the Company or other corporation
resulting from such Transaction; or


                    (3)
all or substantially all of the assets of the Company are sold, liquidated
or distributed.


8. Termination of Services by the Company. If at any time prior
to August 22, 2008, Optionee’s membership
on the Board of Directors of the Company is terminated by the Company without
“Cause”, then Optionee may exercise
the Option as to one hundred percent (100%) of the remaining 40,000 Shares of the Initial Grant which are not otherwise
vested on the date of the termination.


9. Option Lapse. The Option will lapse and becomes unexercisable
in full on the earliest of the following events:


               (a)
the first anniversary of the Optionee’s death, as provided below in Section 10;


               (b)
the date otherwise provided below in Section 10, unless the Board of Directors
otherwise extends such period before the applicable expiration date.


10. Board Resignation. If Optionee ceases to be a Board member for any
reason other than that described in
this Section 10, Optionee will have the right, subject to the other provisions
of this Agreement, to exercise the
Option for the term of the Option but only to the extent that on the date of
termination the Optionee’s right to exercise such Option had vested, and at the
end of such period the Option will expire, and all rights to exercise it
will terminate.


               (a)
If Optionee dies while a Board member, or after ceasing to be a Board member
but during the period while he could
have exercised an Option under the preceding sub-Sections, the Option granted
to the Optionee may be exercised, to
the extent it has vested at the time of death and subject to the Plan, at any time within twelve (12) months after the
Optionee’s death, by the executors or administrators of his estate or by any person or persons who acquire the
Option by will or the laws of descent and distribution, but not beyond
the otherwise applicable term of the Option.


11. Adjustment in Capitalization. If there is any change in the
outstanding common stock of the Company
by reason of a stock dividend or split, recapitalization, reclassification, or
other similar capital change, the
aggregate number of Option Shares subject to the Option will be appropriately
adjusted by the Company, as directed
by the Board of Directors of the Company whose determination is final and
conclusive, except that fractional Shares will be rounded to the nearest whole
Share. In any such case, the number
and kind of Shares that are subject to the Option and the Option exercise price
per Share will be proportionately
adjusted without any change in the aggregate Option price to be paid upon
exercise of the Option.


12. Amendment, Modification and Termination of Agreement. The
Board of Directors of the Company may
at any time terminate, and from time to time may amend or modify Agreement;
provided, however, that no amendment,
modification, or termination of this Agreement may in any manner adversely
affect the Option without the consent of the Optionee.


13. Lock up Period. The Optionee understands that the Company at
a future date may file a registration or offering statement (the “Registration
Statement”) with the Securities and Exchange Commission to facilitate an initial public offering of its
securities. The Optionee agrees, for the benefit of the Company, that should
such an initial public offering be made and should the managing underwriter of
such offering require, the Optionee will not, without the prior written consent
of the Company and such underwriter, during the Lock Up Period as defined
herein: (i) sell, transfer or otherwise dispose of, or agree to sell, transfer
or otherwise dispose of any Shares beneficially held by the Optionee during the
Lock Up Period; (ii) sell, transfer
or otherwise dispose of, or agree to sell, transfer or otherwise dispose of any
options, rights


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or warrants to purchase any
Shares beneficially held by the Optionee during the Lock Up Period; or (iii)
sell or grant, or agree to sell or grant, options, rights or warrants with
respect to any Shares. The foregoing does
not prohibit gifts to donees or transfers by will or the laws of descent to
heirs or beneficiaries provided that
such donees, heirs and beneficiaries are bound by the restrictions set forth
herein. The term “Lock Up Period”
means the lesser of (a) 180 days or (b) the period during which Company
officers and directors are restricted
by the managing underwriter from effecting any sales or transfers of the
Company’s common stock. The Lock Up
Period will commence on the effective of the Registration Statement.


14. Securities Matters.


          (1)
Registration. If the Company deems
it necessary or desirable to register or qualify the Option or any Shares with
respect to which the Option has been granted or exercised under the Securities
Act of 1933, as amended, or any
other applicable statute or regulation, the Optionee will cooperate with the
Company and take such action as is necessary to permit registration or
qualification of the Option or the Shares.
The foregoing notwithstanding, the Company has no obligation to register the
Option or any Shares.


          (2)
Investment
Intent. Unless the Company has
determined that the following representation is unnecessary, each person exercising any portion of the Option will be
required, as a condition to the issuance
of Shares pursuant to exercise of the Option, to make a representation in
writing (a) that he or she is
acquiring the Shares for his or her own account for investment and not with a
view to, or for sale in connection with, the distribution of any part thereof,
(b) that before any transfer in connection with the resale of the Shares, he or she will obtain the
written opinion of counsel for the Company, or other counsel acceptable to the Company, that the Shares may be
transferred. The Company may also place a stop transfer order with its transfer agent with respect to the Shares and
require that certificates representing the Shares contain legends
reflecting the foregoing.


15. Miscellaneous.


          (1)
Requirements of Law. The granting
of the Option and the issuance of Shares are subject to all applicable laws, rules and regulations, and to
such approvals by any governmental agencies or national securities
exchanges as may be required.


          (2)
Choice of Law
and Venue. This Agreement is
made under and must be governed by the laws of the State of Minnesota, and each of the parties hereto consents to
venue any suit or action under or with regard
to this Agreement in an appropriate court with jurisdiction in Hennepin County,
Minnesota.


          (3)
Notices. All notices, requests and
other communications from either party to the other hereunder must be given in writing and will be
deemed to have been duly given if personally delivered, or sent by first class,
certified mail, return receipt requested, postage prepaid, to the party may at
the address as provided below, or to such other address as such party may
hereafter designate by written notice to the other party:


                    (a)
If the Company, to the address of its then principal office; and


                    (b)
If to the Optionee, to the residence
address last shown in the records of the Company, which as of the date
of this Agreement is as follows:


	
 

	
 


	
 

	
Thomas J. McGoldrick


	
 

	
19575 W. Chimo


	
 

	
Deephaven, MN 55391





          (4)
No obligation to Exercise. The
granting of the Option imposes no obligation upon the holder thereof to
exercise the Option.


          (5)
Amendments; Final
Agreement. This Agreement
contains the complete and final understanding
of the parties with respect to the subject matter hereof and supersedes all
prior understanding


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and statements, written and
oral. This Agreement may not be amended except in a written instrument signed
by the party against whom enforcement is sought.


          (6)
Headings. Headings and captions
used in this Agreement are for convenience and do not affect the meaning
hereof.


16. Share Issuance. The Company will not be under any obligation to
issue any Shares upon the exercise of this Stock Option unless and until the Company has determined that:


               (a)
it and Optionee have taken all
actions required to register such Shares under the Securities Act, or to
perfect an exemption from the registration requirements thereof;


               (b)
any applicable listing requirement of
any stock exchange on which such Shares are listed has been satisfied;
and


               (c)
all other applicable provisions of
state and federal law have been satisfied.


17. Tax Effect. Optionee acknowledges that the tax effect of the
exercise of this Stock Option and the sale of the underlying Shares is
complicated, that Optionee has consulted with his own professional advisor which respect to all tax matters relating to this
Stock Option and the exercise and sale of the Shares and has not relied on any assurances or representations
of the Company as to such matters.


18. The Shares have not been
registered and, therefore, they may not be sold, pledged, hypothecated, or otherwise transferred unless they are registered
under the Securities Act of 1933, as amended, and applicable state securities laws or an exemption
from such registration is available.


19. Stock Legend. A legend will be placed on any certificate
evidencing the Shares in substantially the following form:


	
 

	
 


	
 

	
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
 NOT BEEN REGISTERED UNDER THE SECURITIES
 ACT OF 1933, AS AMENDED, OR THE STATE SECURITIES LAWS OF ANY STATE. WITHOUT
 SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, PLEDGED,
 HYPOTHECATED, OR OTHERWISE TRANSFERRED AT ANY TIME WHATSOEVER, EXCEPT UPON
 DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL
 SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR
 SUCH TRANSFER AND/OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY
 TO THE EFFECT THAT ANY SUCH
 TRANSFER WILL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED,
 AND/OR APPLICABLE STATE SECURITIES LAWS AND/OR ANY RULE OR REGULATION
 PROMULGATED THEREUNDER.





          IN
WITNESS WHEREOF, each of the parties hereto has executed this Stock Option
Agreement, in the case of the
Corporation by its duly authorized officer, as of the date and year written
above.


	
 

	
 

	
 

	
 

	
 


	 

	 

	 

	 

	 


	
OPTIONEE

	
 

	
BIODRAIN
 MEDICAL, INC.,


	
 

	
 

	
a Minnesota corporation


	
 

	
 

	
 


	
 

	


	
 

	
By:

	



	
 

	 

	
 

	
 

	 


	
Thomas J. McGoldrick

	
 

	
 

	
Kevin R. Davidson


	
 

	
 

	
Its:

	
President &
 CEO





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