Exhibit 10.3


THIRD
ACKNOWLEDGEMENT AND AMENDMENT AGREEMENT


This Third Acknowledgement and Amendment Agreement
(the “Acknowledgement”) is dated October 10, 2007, and is entered into
by and between Richard J. Faleschini (the “Employee”), and BioSphere
Medical, Inc., a Delaware corporation (the “Company”).


WHEREAS, the Employee and the Company have entered
into (i) a certain Employment Agreement dated November 2, 2004, as amended by
an Acknowledgement and Amendment Agreement dated March 16, 2007, and a
Second Acknowledgement and Amendment Agreement dated April 5, 2007, regarding
the Employee’s employment with the Company (the “Employment Agreement”) and
(ii) a certain Executive Retention Agreement made effective as of November 2,
2004 (the “Retention Agreement”);


WHEREAS, the parties desire to modify the provisions
of the Employment Agreement and the Retention Agreement as set forth herein.


NOW, THEREFORE, in
consideration of the mutual covenants contained herein and for other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
undersigned hereby agree as follows:


1.                                       The
Employment Agreement is hereby amended as follows:


(a)                                  Section
3.1 is deleted in its entirety and a new Section 3.1 is inserted in lieu
thereof which reads as follows:


“3.1         Salary and Bonus.  The Company shall pay the Employee, in
periodic installments in accordance with the Company’s customary payroll
practices, an annual base salary of $300,000 for the one-year period commencing
on the Commencement Date.  Such salary
shall be subject to increases thereafter as may be determined from time to time
by the Board.  The Employee shall be
entitled to an annual bonus in an amount equal to up to 50% of his then current
base salary, to be paid based upon the Employee’s achievement of milestones to
be mutually agreed upon annually by the Employee and the Compensation Committee
of the Board, but in any event such bonus shall be paid by March 15 of the year
following the year to which the bonus relates. 
A minimum bonus of 25% of the Employee’s current annual base salary
shall be guaranteed for the first calendar year of this Agreement.”


(b)                                 Section
3.4 is deleted in its entirely and a new Section 3.4 is inserted in lieu
thereof which reads as follows:


“3.4         Reimbursement of Expenses.  The Company shall reimburse the Employee for
all reasonable travel, entertainment and other expenses incurred or paid by the
Employee in connection with, or related to, the performance of his duties,
responsibilities or services under this Agreement, in accordance with 













policies and procedures, and subject to limitations,
adopted by the Company from time to time. 
Notwithstanding the foregoing, (i) the expenses eligible for
reimbursement may not affect the expenses eligible for reimbursement in any
other taxable year, (ii) such reimbursement must be made on or before the last
day of the year following the year in which the expenses was incurred, and
(iii) the right to reimbursement is not subject to liquidation or exchange for
another benefit.”


(c)                                  Section
5.1(b) is deleted in its entirety and a new Section 5.1(b) is inserted in lieu
thereof which reads as follows:


“(b)         In the event the Employee’s employment
is terminated pursuant to Section 4.1 because the Company has elected not to
renew the Agreement, or is terminated by the Employee pursuant to Section 4.3
or by the Company pursuant to Section 4.5, the Company shall continue to pay to
the Employee his salary as in effect on the date of termination and the amount
of the annual bonus paid to him for the fiscal year immediately preceding the
date of termination (payable in annualized monthly installments) and continue
to provide to the Employee the other benefits owed to him under
Section 3.2 (to the extent such benefits can be provided to non-employees,
or to the extent such benefits cannot be provided to non-employees, then the
cash equivalent thereof) until the date 12 months after the date of
termination, provided, however, that the Company’s obligation to make the
aforesaid payments or provide the aforesaid benefits shall immediately
terminate in the event that the Employee violates the provisions of Section 6.1
or Section 7 during such 12 month period. 
Notwithstanding the foregoing, to the extent such payments are
reimbursement to the Employee of medical expenses incurred by the Employee as
described in Reg. § 1.409A-1(b)(9)(v)(B), reimbursements may not be made beyond
the period of time during which the Employee would be entitled (or would, but
for such arrangement, be entitled) to COBRA continuation coverage under a group
health plan of the Company.  The payment
to the Employee of the amounts payable under this Section 5.1(b) (i) shall be
contingent upon the execution by the Employee of a release in a form reasonably
acceptable to the Company and (ii) shall constitute the sole remedy of the
Employee in the event of a termination of the Employee’s employment in the
circumstances set forth in this Section 5.1(b).


Payments to the
Employee under this Section 5.1(b) shall be bifurcated into two portions,
consisting of a portion that does not constitute “nonqualified deferred
compensation” within the meaning of Section 409A of the Internal Revenue Code
of 1986, as amended (the “Code”) and a portion that does constitute
nonqualified deferred compensation. 
Payments hereunder shall first be made from the portion that does not
consist of nonqualified deferred compensation until it is exhausted and then
shall be made from the portion that does constitute nonqualified deferred
compensation.  Notwithstanding the
foregoing, because the Employee is a “specified employee” as defined in Section
409A(a)(3)(B)(i) of the Code, the commencement of the delivery of any such
payments that constitute nonqualified deferred compensation will be delayed to 



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the date that is 6
months and one day after the Employee’ termination of employment (the “Earliest
Payment Date”) unless payable upon the Employee’s death.  Any payments that are delayed pursuant to the
preceding sentence shall be paid on the Earliest Payment Date.  The determination of whether, and the extent
to which, any of the payments to be made to the Employee hereunder are
nonqualified deferred compensation shall be made after the application of all
applicable exclusions under Treasury Reg. § 1.409A-1(b)(9).  Any payments that are intended to qualify for
the exclusion for separation pay due to involuntary separation from service set
forth in Reg. § 1.409A-1(b)(9)(iii) must be paid no later than the last day of
the second taxable year of the Employee following the taxable year of the
Employee in which the Employee’s termination of employment occurs.”


(d)                                 A
new Section 9.10 shall be inserted which shall read as follows:


“9.10       Section
409A.  Notwithstanding anything else
to the contrary in this agreement, to the extent that any of the payments that
may be made hereunder constitute “nonqualified deferred compensation”, within
the meaning of Section 409A and the Employee is a “specified employee” upon his
separation (as defined under Section 409A), the timing of any such payment
following the separation date shall be modified if, absent such modification,
such payment would otherwise be subject to penalty under Section 409A.  In any event, the Company makes no
representation or warranty and shall have no liability to the Employee or to
any other person if any provisions of this agreement are determined to
constitute “nonqualified deferred compensation” subject to Section 409A but do
not satisfy the requirements of that section.”


2.                                       The
Retention Agreement is hereby amended as follows:


(a)                                  Section
4.2(a)(ii) is deleted in its entirety and a new Section 4.2(a)(ii) is inserted
in lieu thereof which reads as follows:


“(ii)         for 12 months after the Date of
Termination, or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue to provide
benefits to the Executive and the Executive’s family at least equal to those
which would have been provided to them if the Executive’s employment had not
been terminated, in accordance with the applicable Benefit Plans in effect on
the Measurement Date or, if more favorable to the Executive and his family, in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies; provided, however, that if
the Executive becomes reemployed with another employer and is eligible to
receive a particular type of benefits (e.g., health insurance benefits) from
such employer on terms at least as favorable to the Executive and his family as
those being provided by the Company, then the Company shall no longer be
required to provide those particular benefits to the Executive and his family
(notwithstanding the foregoing, to the extent such payments are reimbursement
to the Executive of medical expenses incurred by the 



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Executive as
described in Reg. § 1.409A-1(b)(9)(v)(B), reimbursements may not be made beyond
the period of time during which the Executive would be entitled (or would, but
for such arrangement, be entitled) to COBRA continuation coverage under a group
health plan of the Company);”


(b)                                 A
new Section 4.2(d) is added which reads as follows:


“(d)         Specified Employee Provisions.  Payments to the Executive under this Section
4.2 shall be bifurcated into two portions, consisting of a portion that does
not constitute “nonqualified deferred compensation” within the meaning of
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and
a portion that does constitute nonqualified deferred compensation.  Payments hereunder shall first be made from
the portion that does not consist of nonqualified deferred compensation until
it is exhausted and then shall be made from the portion that does constitute
nonqualified deferred compensation. 
Notwithstanding the foregoing, because the Executive is a “specified
employee” as defined in Section 409A(a)(3)(B)(i) of the Code, the commencement
of the delivery of any such payments that constitute nonqualified deferred
compensation will be delayed to the date that is 6 months and one day after the
Executive’s Date of Termination (the “Earliest Payment Date”) unless payable
upon the Executive’s death.  Any payments
that are delayed pursuant to the preceding sentence shall be paid on the
Earliest Payment Date.  The determination
of whether, and the extent to which, any of the payments to be made to the
Executive hereunder are nonqualified deferred compensation shall be made after
the application of all applicable exclusions under Treasury Reg. §
1.409A-1(b)(9).  Any payments that are
intended to qualify for the exclusion for separation pay due to involuntary
separation from service set forth in Reg. § 1.409A-1(b)(9)(iii) must be paid no
later than the last day of the second taxable year of the Executive following
the taxable year of the Executive in which the Executive’s termination of
employment occurs.”


(c)                                  A
new Section 7.10 is added which reads as follows:


“7.10       Section 409A.  Notwithstanding anything else to the contrary
in this agreement, to the extent that any of the payments that may be made
hereunder constitute “nonqualified deferred compensation”, within the meaning
of Section 409A and the Executive is a “specified employee” upon his separation
(as defined under Section 409A), the timing of any such payment following the
separation date shall be modified if, absent such modification, such payment
would otherwise be subject to penalty under Section 409A.  In any event, the Company makes no
representation or warranty and shall have no liability to the Executive or to
any other person if any provisions of this agreement are determined to
constitute “nonqualified deferred compensation” subject to Section 409A but do
not satisfy the requirements of that section.”



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3.             The
parties acknowledge and agree that all other provisions of the Employment
Agreement and Retention Agreement shall remain in full force and effect.


4.             This
Acknowledgement shall be governed by and construed and interpreted in
accordance with the substantive laws of the Commonwealth of Massachusetts
without regard to its principles of conflicts of law.


5.             This
Acknowledgement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.


[Remainder of Page Intentionally Left Blank]



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IN WITNESS WHEREOF, the Parties have executed this
Third Acknowledgement and Amendment Agreement as of the date first above
written.


	
  

  	
  BIOSPHERE MEDICAL, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Riccardo Pigliucci

  
	
   

  	
  Title:

  	
  Riccardo Pigliucci

  
	
   

  	
   

  	
  Chairman, Compensation Committee of the 

  
	
   

  	
   

  	
  Board of Directors

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EMPLOYEE

  
	
   

  	
   

  
	
   

  	
  /s/ Richard J.
  Faleschini

  
	
   

  	
  Name: Richard J.
  Faleschini

  
	
   

  	
  Title: President
  and Chief Executive Officer

  



 



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