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EXHIBIT 10.1




AMENDED AND RESTATED

EMPLOYMENT AGREEMENT




     THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as
of May 24, 2007 (the “Effective Date”), by and between James R. Talevich (“Talevich”) and I-Flow
Corporation, a Delaware corporation (the “Company”).



Background




     The Company and Talevich previously entered into that certain Employment Agreement dated as of
June 21, 2000. The parties wish to amend and restate their prior agreement as provided herein.



Agreement




     1. Employment. The Company agrees to employ Talevich, and Talevich agrees to serve,
in the capacity of Chief Financial Officer. The Company’s Board of Directors (the “Board”) may
provide such additional designations of title to Talevich as the Board, in its discretion, may deem
appropriate. The Company shall employ Talevich at will, and either Talevich or the Company may
terminate Talevich’s employment with the Company at any time and for any reason, with or without
cause.



     2. Employment Compensation And Benefits.




     (a) Base Salary. Talevich’s base salary as of the Effective Date of this
Agreement shall be at the annual rate of Two Hundred Twenty Five Thousand Dollars
($225,000). This salary level shall be reviewed at least annually by the Board’s
Compensation Committee on the basis of Talevich’s performance and the Company’s financial
success and progress. During the term of this Agreement, Talevich’s base salary shall not
be reduced.




     (b) Annual Bonus and Stock Options. In addition to the base salary specified
in subsection (a) above, Talevich shall be entitled to earn an annual bonus in accordance
with the terms of each year’s management bonus program as reasonably determined by the
Board. In addition, Talevich is eligible to participate in the equity incentive programs as
established by the Company from time to time. The level of such participation shall be
determined by the Board in the reasonable exercise of its discretion.




     (c) Vacation. Talevich shall be entitled to at least four (4) weeks paid
vacation during each year of this Agreement. In the event Talevich does not use such
vacation, he shall receive, at the end of each year of this Agreement (or upon termination
of this Agreement, if earlier), vacation pay for all unused vacation calculated at the base
salary rate then in effect as set forth in Section 2(a) above.



 









 






     (d) Automobile Allowance. During the term of this Agreement, the Company shall
pay Talevich an automobile expense allowance of $1,000 per month, grossed up for income tax
purposes, and shall reimburse Talevich for all gasoline and maintenance expenses incurred by
him in operating his automobile.




     (e) Expense Reimbursement. The Company shall reimburse Talevich for all
reasonable business expenses incurred by Talevich in the course of performing services for
the Company.




     (f) Life Insurance. The Company shall provide Talevich, at the Company’s cost,
with a life insurance policy on the life of Talevich, which policy shall be owned personally
by Talevich or his assignee. The amount of such policy shall be at least equal to two times
Talevich’s base salary, as determined from time to time under Section 2(a) above. Talevich
shall be entitled to increase the amount of such policy by reimbursing the Company for the
additional premium attributable to such increase.




     (g) Other Benefits. The Company shall provide Talevich with such other
employment benefits, including, without limitation, medical and dental insurance, as is
provided by the Company to its other executive employees.



     3. Severance Pay.




     (a) Termination of Employment With Good and Valid Cause. In the event
Talevich’s employment by the Company is terminated for “good and valid cause,” or Talevich
voluntarily resigns, the Company shall have no obligation to pay any severance pay to
Talevich. For purposes of this Section 3(a), the term “good and valid cause” shall mean:




     (i) Conviction of a felony.




     (ii) The death of Talevich.




     (iii) Talevich’s malfeasance in connection with his employment or habitual
neglect of his duty hereunder not cured after written notification thereof by the
Board of Directors, which notice shall specify the alleged instances of neglect of
his duty, and shall provide Talevich with 60 days in which to remedy such
malfeasance or neglect.




     (b) Termination Without Cause. In the event Talevich’s employment as provided
herein is terminated by the Company without cause, or in the event Talevich resigns his
employment because his job location is transferred (without his prior, voluntary consent) to
a site more than thirty (30) miles away from his current place of employment, the Company
shall be obligated to pay and provide and Talevich shall be entitled to receive, as
severance, the following payments (to be made in a lump sum immediately upon termination of
employment) and benefits:



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     (i) A cash payment equal to one (1) times the sum of (A) Talevich’s annual
salary in effect at the time of termination, plus (B) the average annual bonus
earned by Talevich in the previous three full fiscal years;




     (ii) Any bonus, or relevant pro rata portion thereof, earned by Talevich for
the fiscal year in which the termination occurs;




     (iii) For the 12-month period following Talevich’s termination without cause,
Talevich shall be entitled to continue to participate at the Company’s expense in
the group medical insurance programs (including health, drug, dental, and vision
insurance) which had been made available to him (including his family) before his
termination (or a substantively equivalent program). The programs shall be
continued in the same way and at the same level as immediately prior to Talevich’s
termination without cause. Talevich’s participation in such group medical insurance
programs shall be terminated prior to the 12-month anniversary of Talevich’s
termination if and when Talevich receives group medical insurance benefits as a
result of concurrent coverage through another employer’s program; and




     (iv) Talevich’s unvested and outstanding stock options, restricted stock or
other equity-based awards shall immediately and automatically become fully vested
and (to the extent relevant) exercisable. Any stock options and stock appreciation
rights shall remain exercisable for their remaining terms.




Notwithstanding the foregoing or anything in this Agreement, Talevich shall be entitled to
receive whatever additional severance pay and other benefits, if any, for which he may
qualify according to the terms of the “Agreement Re: Change in Control” entered into as of
June 21, 2001 between the Company and Talevich.




     (c) Disability.




     (i) In the event that Talevich is terminated as a result of a Disability (as defined
below), Talevich shall receive amounts equal to 60% of his total compensation in effect at
the time of such termination until Talevich achieves the age of 65, or until such time as
Talevich shall have recovered from such disability and is able to secure full time
employment, whichever first occurs. To this end, the Company shall secure disability
coverage for Talevich, which coverage shall be sufficient to pay Talevich the amounts set
forth in the foregoing sentence. During any such period of disability, options and
restricted stock granted to Talevich shall not lapse by virtue of such disability.




     (ii) “Disability” shall mean a physical or mental incapacity that results in Talevich
becoming unable to continue to perform his responsibilities for the Company and its
affiliated companies and which, at least six (6) months after its commencement, is
determined to be total and permanent by a physician agreed to by the Company and Talevich,
or in the event of Talevich’s inability to designate a physician, his legal representative.
In the absence of agreement between the Company and Talevich, each



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party shall nominate a qualified physician and the two physicians so nominated shall
select a third physician who shall make the determination as to Disability.




     (d) No Mitigation Required. Talevich shall not be required to mitigate the
amount of any payments or benefits provided for in Section 3(b) by seeking other employment
or otherwise, nor shall the amount of any payments or benefits provided for in Section 3(b)
be reduced by any compensation earned by Talevich as the result of employment by another
employer after the date of Talevich’s termination by the Company or otherwise.



     4. Nondisclosure of Confidential Information. Talevich agrees to execute, deliver and
perform, during the term of his employment with the Company and thereafter, all reasonable
confidentiality and nondisclosure agreements, concerning the Company and its products, which are
executed by other key employees and executives of the Company.



     5. Successors. This Agreement is personal to Talevich, and without the prior written
consent of the Company, shall not be assignable by Talevich other than by will or the laws of
descent and distribution. This Agreement shall inure to the benefit of and be enforceable by
Talevich’s legal representatives. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the successors and assigns of the Company.



     6. Governing Law. This Agreement is made and entered into in the State of California,
and the internal laws of California shall govern its validity and interpretation in the performance
by the parties hereto of their respective duties and obligations hereunder.



     7. Modifications. This Agreement may be amended or modified only by an instrument in
writing executed by all of the parties hereto.



     8. Entire Agreement. Except as otherwise set forth herein, this Agreement, together
with the exhibits attached hereto, supercedes any and all prior written or oral agreements between
Talevich and the Company, and contains the entire understanding of the parties hereto with respect
to the terms and conditions of Talevich’s employment with the Company; provided,
however, that this Agreement is not intended to supercede the Agreement re: Change in
Control between Talevich and the Company, which they entered into as of June 21, 2001, or any
agreements which Talevich may previously have entered into regarding the protection of trade
secrets and confidential information.



9. Dispute Resolution.





     (a) Any controversy or dispute between the parties involving the construction,
interpretation, application or performance of the terms, covenants, or conditions of this
Agreement or in any way arising under this Agreement (a “Covered Dispute”) shall, on demand
by either of the parties by written notice served on the other party in the manner
prescribed in Section 10 hereof, be referenced pursuant to the procedures described in
California Code of Civil Procedure (“CCP”) Sections 638, et seq., as they may be amended
from time to time (the “Reference Procedures”), to a retired Judge from the Superior Court
for the County of Orange for a decision.



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     (b) The Reference Procedures shall be commenced by either party by the filing in the
Superior Court of the State of California for the County of Orange of a petition pursuant to
CCP Section 638(1) (a “Petition”). Said Petition shall designate as a referee a Judge from
the list of retired Orange County Superior Court Judges who have made themselves available
for trial or settlement of civil litigation under said Reference Procedures. If the parties
hereto are unable to agree on the designation of a particular retired Orange County Superior
Court Judge or the designated Judge is unavailable or unable to serve in such capacity,
request shall be made in said Petition that the Presiding or Assistant Presiding Judge of
the Orange County Superior Court appoint as referee a retired Orange County Superior Court
Judge from the aforementioned list.




     (c) Except as hereafter agreed by the parties, the referee shall apply the internal law
of California in deciding the issues submitted hereunder. Unless formal pleadings are
waived by agreement among the parties and the referee, the moving party shall file and serve
its complaint within 15 days from the date a referee is designated as provided herein, and
the other party shall have 15 days thereafter in which to plead to said complaint. Each of
the parties reserves its respective rights to allege and assert in such pleadings all
claims, causes of action, contentions and defenses which it may have arising out of or
relating to the general subject matter of the Covered Dispute that is being determined
pursuant to the Reference Procedures. Reasonable notice of any motions before the referee
shall be given, and all matters shall be set at the convenience of the referee. Discovery
shall be conducted as the parties agree or as allowed by the referee. Unless waived by each
of the parties, a reporter shall be present at all proceedings before the referee.




     (d) It is the parties’ intention by this Section 9 that all issues of fact and law and
all matters of a legal and equitable nature related to any Covered Dispute will be submitted
for determination by a referee designated as provided herein. Accordingly, the parties
hereby stipulate that a referee designated as provided herein shall have all powers of a
Judge of the Superior Court including, without limitation, the power to grant equitable and
interlocutory and permanent injunctive relief.




     (e) Each of the parties specifically (i) consents to the exercise of jurisdiction over
his person by a referee designated as provided herein with respect to any and all Covered
Disputes; and (ii) consents to the personal jurisdiction of the California courts with
respect to any appeal or review of the decision of any such referee.




     (f) Each of the parties acknowledges that the decision by a referee designated as
provided herein shall be a basis for a judgment as provided in CCP Section 644 and shall be
subject to exception and review as provided in CCP Section 645.



     10. Notices. Any notice or communications required or permitted to be given to the
parties hereto shall be delivered personally or be sent by United States registered or certified
mail, postage prepaid and return receipt requested, and addressed or delivered as follows, or at
such other addresses the party addressed may have substituted by notice pursuant to this Section:



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	I-Flow Corporation

	 	James R. Talevich
	20202 Windrow Drive

	 	27232 Lost Colt Drive
	Lake Forest, California 92630

	 	Laguna Hills, California 92653
	Attn: Chief Executive Officer
	 	 






     11. Captions. The captions of this Agreement are inserted for convenience and do not
constitute a part hereof.



     12. Severability. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein and there shall be deemed substituted for such invalid, illegal or
unenforceable provision such other provision as will most nearly accomplish the intent of the
parties to the extent permitted by the applicable law. In case this Agreement, or any one or more
of the provisions hereof, shall be held to be invalid, illegal or unenforceable within any
governmental jurisdiction or subdivision thereof, this Agreement or any such provision thereof
shall not as a consequence thereof be deemed to be invalid, illegal or unenforceable in any other
governmental jurisdiction or subdivision thereof.



     14. Attorneys’ Fees. In the event any party institutes any action or proceeding to
enforce any provision of this Agreement, the prevailing party shall be entitled to receive from the
losing party actual attorneys’ fees and costs incurred in such action or proceeding.



     15. Further Assurances. Each party hereto shall promptly execute and deliver such
further instruments and take such further actions as the other party may reasonably require or
request in order to carry out the intent of this Agreement.



     16. Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall together constitute one in the same
Agreement.



     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and
delivered effective as of the day and year first written above in Lake Forest, California.



	 	 	 	 	 	 	 	 	 
	I-FLOW CORPORATION	 	 	 	JAMES R. TALEVICH	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Donald M. Earhart
	 	 	 	/s/ James R. Talevich	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	Name: Donald M. Earhart
	 	 	 	James R. Talevich	 	 
	 

	 	Title: President & CEO	 	 	 	 	 	 







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