Document:

Exhibit 10.3 to Biodrain Medical, Inc. Form S-1

Exhibit 10.3 

CONFIDENTIAL

Page 1 of 7

June 16, 2008

EMPLOYMENT AGREEMENT

This
Agreement, made and entered into effective the 16th of June 2008 by
and between Chad Ruwe, an individual residing at 5220 Oaklawn Avenue, Edina, MN
55424 (“Employee”), and BioDrain Medical Incorporated, 699 Minnetonka Highlands Lane, Orono, MN 55356-9728, a
Minnesota corporation (“Company”).

          WITNESSETH:

          WHEREAS,
the Company desires to
employ the Employee to render services for the Company as its Executive Vice President of Operations on the
terms and conditions hereinafter set forth, and the Employee desires to
be employed by the Company on such terms and conditions;

          NOW,
THEREFORE, in consideration of the promises and of the mutual
covenants and agreements contained herein, the parties hereby agree as follows:

	
 

	
 

	
 

	
 

	
 

	
1.

	
Employment.
 Upon execution of an investment in the Company by the
 Employee of $200,000, the Company agrees
 to employ the Employee for a period of two (2) years from the date of
 this Agreement: unless Employee violates the terms set forth in Paragraph 7: Termination by the Company for Cause or the
 Employee voluntarily resigns. The term is automatically renewable annually
 except by action of the President or the Board of Directors

	
 

	
 

	
 

	
 

	
2.

	
Duties. The
 Employee will hold the title of Executive Vice President of Operations and
 shall report to the President/CEO
 of the Company. The general scope of the Employee’s duties shall include:
 to oversee and manage all areas relating to interaction with the FDA, all manufacturing functions and capabilities, all
 R&D functions, all operational aspects relating to Intellectual Property,
 all logistical considerations for the Company, including but not limited to service and installation of the FMS (Fluid
 Management System) unit and distribution of cleaning fluid, overseeing all related vendors and consultants, and
 other Operations-related duties and functions that may arise from time
 to time.

	
 

	
 

	
 

	
 

	
 

	
The
 Employee’s duties may be modified from time to time by mutual agreement
 between the Employee and the
 President/CEO as they deem to be in the best interest of the Company, provided that the Employee’s duties shall be
 commensurate with those of a senior executive of the Company.

	
 

	
 

	
 

	
3.

	
Extent of Services. The Employee shall devote his full attention,
 energy and skills to the business
 of the Company and use his best efforts to fully and competently perform the
 duties of his office.

	
 

	
 

	
 

	
 

	
4.

	
Compensation.

	
 

	
 

	
 

	
 

	
 

	
a.

	
Base Salary. $135,000 per year. Initial payment will be monthly and will be
 according to the Company’s salary schedule. Employee will have an informal
 performance review in six (6)
 months and will receive annual salary reviews and potential increases, based
 on Employee’s performance.

CONFIDENTIAL

Page 2 of 7

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
b.

	
Bonus. The
 Employee will receive a one-time signing bonus of $15,000 upon execution of this Agreement in recognition of his investment
 in the Company. The Employee will be eligible
 for participation in the Company’s bonus plan when completed and approved by the Board of Directors and the Compensation
 Committee. Bonus will be paid at the first payroll period after
 employment.

	
 

	
 

	
 

	
 

	
 

	
 

	
c.

	
Stock Options. The Employee will receive total stock options to purchase 250,000
 shares of the Company’s common stock at $.35 per share. This will be governed
 by a Company Stock Option Plan to
 be established by the Company in a timely manner upon hiring of the Employee.
 Vesting of the 250,000 options will be as follows: 50,000 shares upon execution of this Agreement; the balance in
 achievement of the following specific milestones:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
•

	
An
 additional 50,000 shares to vest upon submission of the 510(k) to the FDA for
 approval of the FMS unit,

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
•

	
An
 additional 50,000 shares to vest upon approval of the 510(k) by the FDA,

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
•

	
An
 additional 50,000 shares to vest upon sale of the first commercial-ready FMS unit,

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
•

	
An
 additional 50,000 shares to vest upon sale of the 50th
 commercial-ready FMS unit.

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
The
 total of these options, assuming all milestones are achieved, will be
 250,000, as described above.

	
 

	
 

	
 

	
 

	
 

	
d.

	
Executive Compensation. The Employee will be eligible for executive
 compensation such as bonus, stock,
 stock options, deferred compensation, life insurance, etc., as approved by
 the Board of Directors and the Compensation Committee when such executive compensation
 plan is completed

	
 

	
 

	
 

	
 

	
 

	
5.

	
Additional Benefits.

	
 

	
 

	
 

	
 

	
 

	
a.

	
Automobile. The Company shall reimburse the Employee for deductible automobile mileage or auto
allowance according to its
 Expense Reporting Procedures.

	
 

	
 

	
 

	
 

	
 

	
 

	
b.

	
Business Expense. The Company will reimburse the Employee for all
 reasonable, deductible and substantiated
 business expenses per its Expense Reporting Procedures. This includes, but is
 not limited to such expenses as telephone, cell phone, home office, business meetings,
 etc.

	
 

	
 

	
 

	
 

	
 

	
 

	
c.

	
Benefits. The Employee will be eligible for the Company’s benefits package and
 executive benefits listed in
 Paragraph 4.d. which will be implemented as funds become available and upon development and approval by the
 Compensation Committee. In lieu of, and until a company-sponsored
 medical benefits program is installed, Employee will receive a monthly
 amount of $1,000.

	
 

	
 

	
 

	
 

	
 

	
 

	
d.

	
Vacation. The Employee will receive a minimum of three (3) weeks’ vacation per
 year or as per the executive
 vacation plan when written, whichever is greater.

CONFIDENTIAL

Page 3 of 7

	
 

	
 

	
 

	
 

	
 

	
 

	
e.

	
Education. The Company will support the Employee in his pursuit of continuing
 education provided sufficient cash flows support tuition reimbursement and he
 meets the conditions and terms of
 the tuition reimbursement guidelines as outlined in the Employee Manual when
 written.

	
 

	
 

	
 

	
 

	
 

	
5.

	
Board of Directors Membership. The Employee, as soon as Myron Schuster is paid
 and removed from the Board, which action is being pursued as of this writing,
 will become a member of the Board
 of Directors of the Company. In any event, regardless of the handling of the situation with Mr. Schuster, Employee shall
 become a Board member within 30 days of this date.

	
 

	
 

	
 

	
 

	
 

	
6.

	
Non-Compete. Throughout the period of Employee’s employment with the Company, and
thereafter for a period of one (1) year,
 Employee shall not, for any reason whatsoever, directly or indirectly, plan, organize, advise, own,
 manage, operate, control, be employed by, participate in or be connected in
 any manner with the ownership, management, operation or control of any business of the following type: the development,
 marketing and sales of medical devises dedicated or designed to safely manage and dispose of contaminated
 fluids generated in the operating
 room and other similar medical locations. For purposes of this Agreement,
 indirect competition shall be
 deemed to include any activity by Employee in aid of a competing Business, including but not limited to, being a
 partner, shareholder, officer, director, member, owner, manager, governor, agent, employee,
 advisor, consultant or independent contractor of any competing
 Business.

	
 

	
 

	
 

	
 

	
 

	
7.

	
Intellectual Property. Employee agrees that all right, title and
 interest of every kind and nature
 whatsoever, whether now known or unknown, in and to any “Intellectual
 Property,” defined to
 include, but not be limited to, any patent rights, trademarks, copyrights,
 ideas, creations and properties
 invented, created, written, developed, furnished, produced or disclosed by
 Employee in the course of rendering his/her services to Company (both before
 the execution of this Agreement
 and thereafter) shall, as between the parties, be and remain the sole and exclusive property of Company for any and all
 purposes and uses whatsoever, and Employee shall have no right, title or interest of any kind or nature therein
 or thereto, or in and to any results and proceeds therefrom. Employee
 agrees to assign, and hereby expressly and irrevocably
 assigns, to Company all worldwide rights, title and interest, in perpetuity,
 in respect of any and all rights Employee may have or acquire in the
 Intellectual Property. The assignment of
 the rights as above shall not lapse if Company has not exercised its rights
 under the assignment for any
 period of time or in any jurisdiction or territory. Pursuant to Section
 181.78 of the Minnesota Statutes, the preceding sentence does not apply to an
 invention for which no equipment
 supplies, facility or trade secret information of Company was used and which
 was developed entirely on the Employee’s own time, and (1) which does not
 relate (a) directly to the business of Company or (b) to Company’s actual or
 demonstrably anticipated research or development, or (2) which does not
 result from any work performed by Employee for Company. To the extent any of the rights, title, and interest in
 and to the Intellectual Property
 cannot be assigned to Company (and to the extent any of Employee’s retained
 rights under Section 181.78 were incorporated by Employee (directly or
 indirectly) in any of Company’s past,
 current or future products or services), Employee hereby grants to Company an exclusive, royalty-free, transferable,
 perpetual, irrevocable, unrestricted, worldwide license (with rights to sublicense through one or more
 tiers of sublicensees) to such non-assignable (or non-assigned) rights. To the extent any rights,
 title and interest in and to Intellectual Property rights can be neither assigned nor so licensed
 by Employee to Company, Employee hereby irrevocably waives and agrees never to assert such non-assignable and
 non-licensable rights, title and
 interest against Company, any of Company’s successors in interest, and the
 customers

CONFIDENTIAL

Page 4 of 7

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
and
 licensees of either. Further, Employee agrees to waive, and hereby waives,
 any “moral rights” Employee may
 have or may obtain in the Intellectual Property. Employee further agrees to assist Company in every proper way to apply
 for, obtain, perfect and enforce rights in the Intellectual Property
 in any and all countries, and to that end Employee will execute all documents
 for use in applying for, obtaining and perfecting such rights and enforcing
 same, as Company may desire, together with any assignments thereof to Company
 or persons designated by it. Employee
 appoints Company as its attorney in fact to execute any documents necessary to achieve such results. To the
 maximum extent possible, Company shall be shown in all documentation as the owner of all rights
 in the Intellectual Property

	
 

	
 

	
 

	
 

	
8.

	
Termination by Company for Cause. The Company may terminate Employee’s
 employment for “cause” at any time during the Term. For purposes of this
 section 8., the term “cause” shall mean any of the following:

	
 

	
 

	
 

	
 

	
 

	
 

	
o

	
The
 material non-compliance by the Employee with written instructions, directions
 or regulations of the Board of Directors applicable to Employee, the breach
 by Employee of any material term of this Agreement, or the unsatisfactory
 performance by Employee of Employee’s
 duties, obligations, work and production standards, and the failure of Employee to correct such non-compliance,
 breach or unsatisfactory performance within thirty (30) days after receipt by
 Employee of written notice of the same by the Company;

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
o

	
Any willful or grossly
 negligent act by the Employee having the effect of injuring in a material way
 the Company as determined by the affirmative vote of the majority of the members of the Board of
 Directors (excluding Employee);

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
o

	
The
 commission by the Employee of fraud or a criminal act that adversely affects
 the business of the Company; or,

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
o

	
The determination by an
 affirmative vote of the majority of the members of the Board
 of Directors (excluding Employee), after a reasonable and good faith investigation by the Company following a written
 allegation by another employee of
 the Company, that Employee engaged in some form of harassment or other improper conduct prohibited by law, unless such
 actions were specifically directed by the Board.

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
In
 the event of a termination for cause, as defined herein, the Employee shall
 only be entitled to receive
 payment of base salary, adjusted pro-rata to the date of such termination, subject
 to offset, and to the extent
 permitted, for any amounts then owed to the Company by Employee. The
 Employee shall have absolutely no right to receive or retain any other
 payment or compensation whatsoever under
 this Agreement, regardless of the term of the employment then elapsed. The Employee’s rights and obligations
 regarding stock options and shares of the Company’s common stock owned by Employee shall be determined in
 accordance with and be governed by the Shareholder Agreement and the
 Company’s Stock Option Plan as well as taking into account the completion (or
 non-completion) of the aforementioned milestones. Only options that have
 vested as a result of completed milestones shall be eligible for ownership by
 Employee.

	
 

	
 

	
 

	
 

	
9.

	
Termination
 by Company without Cause. In the event the Employee’s
 employment is terminated by the Company
 without cause, as “cause” is defined in section 8 hereof, Employee

CONFIDENTIAL

Page 5 of 7

	
 

	
 

	
 

	
 

	
 

	
shall
 be entitled to receive from the Company as severance pay in an amount equal
 to twelve (12) months of
 Employee’s Base Salary then in effect at the time of termination, payable in
 six (6) equal monthly installments, commencing on the first day of the
 month following termination and
 continuing on the same day of each month thereafter until paid in full. The
 Employee shall receive bonus payment on a pro-rata basis for the portion of
 the fiscal year at termination.
 The consideration provided in this section is conditioned upon the Employee’s
 return to the Company of any and all property belonging to the Company in
 Employee’s possession or control
 and Employee’s disclosure to the Company of any information known to Employee
 and necessary for the Company to access any computer software or programs of
 the Company controlled by Employee. In lieu of a Shareholders Agreement all
 non-vested stock options shall
 immediately be vested. Outplacement services (Lee Hecht Harrison or similar) shall be available for Employee and paid by
 Company upon mutual agreement between Employee and President & CEO for an amount of $15,000.00 or one
 (1) year. Outplacement services
 will be paid by the Company directly unless otherwise determined then from
 the Company to the Employee.

	
 

	
 

	
 

	
 

	
10.

	
Termination by Employee for Good Reason. Employee may terminate his employment at any time
during the Term for good reason. For
 purposes of this Agreement, “good reason” shall mean (i) any material breach by the Company of this Agreement
 that is not cured by the Company
 within thirty (30) days after receipt of written notice from Employee of such
 material breach, (ii) any material diminution or adverse (to Employee)
 change in the duties, responsibilities,
 rights, privileges or the reporting relationships, which were applicable to
 and enjoyed by the Employee at the
 time of such diminution of change, without the consent of the Employee, except as a result of the termination
 of Employee’s employment by the Company as provided in section 8. hereof, (iii) any requirement from the Board
 of Directors that the Employee must relocate his office outside the Twin
 Cities metropolitan area, or (iv) by Employee
 giving a Notice of Termination during the year immediately following a Change
 in Control of more than 40% of the
 Company’s outstanding stock (a “Special Termination”), with the exception of
 stock issued by the Company, provided that, with the exception of dilution,
 Employee is adversely affected by such Change in Control. In the event of a
 termination by Employee of his
 employment as provided in this section 11, Employee shall be entitled to severance
 pay and benefits as provided in section 9 hereof.

	
 

	
 

	
 

	
 

	
11.

	
Termination
 by Employee. Employee may terminate employment at any time
 during the Term for any reason with one
 (1) month notice. Employee agrees to aid in transition and exit from the Company causing no harm or hardship
 during such transition. Employee is bound by Paragraph 6 of this Agreement. Employee is not eligible for salary
 continuation or bonus if he voluntarily resigns for reasons other than “good
 reason” as defined in section 10.

	
 

	
 

	
 

	
 

	
12.

	
Sale,
 Reorganization or Transfer of Ownership. In the event the
 Company is sold, or if majority ownership
 of the Company should pass from the existing majority shareholders, the terms of this Agreement shall remain in force.
 Terms of all executive employment agreements will identify the specifics for sale, reorganization or transfer of
 ownership, to be approved by the
 Compensation Committee. All non-vested stock options, whether milestone has
 been achieved or not, shall become vested with the completion of the
 sale.

	
 

	
 

	
 

	
 

	
13.

	
Insolvency or Cessation of Business. In the event the Company becomes insolvent or
 ceases business due to lack of
 funds, this Agreement is immediately null and void and the terms and conditions are rendered non-enforceable,
 specifically those clauses associated with non-disclosure and
 non-competition.

CONFIDENTIAL

Page 6 of 7

	
 

	
 

	
 

	
 

	
14.

	
Governing
 Law. This agreement will be governed by and construed in
 accordance with the laws of the State of Minnesota.

	
 

	
 

	
 

	
 

	
15.

	
Notices.
 Any notice or other communication required or permitted
 hereunder shall be in writing and shall be deemed to have been given, when
 received, if delivered by hand or by telegram, or three (3) working days
 after deposited, if placed in the mails for delivery by certified mail,
 return receipt requested, postage prepaid and addressed to the appropriate
 party at the following address:

	
 

	
 

	
 

	
 

	
 

	
Company:

	
 

	
BioDrain Medical Inc.

	
 

	
 

	
 

	
Attention: Lawrence W. Gadbaw, Chairman

	
 

	
 

	
 

	
699 Minnetonka Highlands Lane

	
 

	
 

	
 

	
Orono, MN 55356-9728

	
 

	
 

	
 

	
 

	
 

	
Employee:

	
 

	
Chad Ruwe

	
 

	
 

	
 

	
5220 Oaklawn Avenue

	
 

	
 

	
 

	
Edina, MN 55424

	
 

	
 

	
 

	
 

	
 

	
Addresses may be
 changed by written notice given pursuant to this Section; however any such
 notice shall not be effective, if mailed, until three (3) working days after
 depositing in the mails or when actually received, whichever occurs first.

	
 

	
 

	
 

	
 

	
16.

	
Other
 Agreements. This Agreement contains the entire agreement
 between the parties concerning terms of employment and supersedes at the
 effective date hereof any other agreement, written or oral.

	
 

	
 

	
 

	
 

	
17.

	
Parties
 and Interest. This Agreement is personal to Executive, and
 Executive may not delegate his duties or assign his rights hereunder. This
 Agreement shall inure to the benefit of, and be binding upon, the parties
 hereto and their respective heirs, legal representatives, successors and
 permitted assigns.

	
 

	
 

	
 

	
 

	
18.

	
Modification
 and Waiver. A waiver by either party of a breach of any
 provision of this Agreement shall not operate as or be construed as a waiver
 of any subsequent breach thereof.

	
 

	
 

	
 

	
 

	
19.

	
Binding
 Effect, Assigns, Successors, Etc. This Agreement shall be
 binding upon the parties hereto and their respective heirs, representatives,
 successors and assigns, and shall continue in full force unless and until
 terminated by the mutual agreement of all parties hereto.

	
 

	
 

	
 

	
 

	
20.

	
Savings
 Clause. If any provision, portion or aspect of this
 Agreement is determined to be void, or voidable by any legislative, judicial
 or administrative action as properly applied to this Agreement, then this
 Agreement shall be construed to so limit such provision, portion or aspect
 thereof to render same enforceable to the greatest extent permitted by or in
 the relevant jurisdiction.

	
 

	
 

	
 

	
 

	
21.

	
Headings.
 The headings of this Agreement are intended solely for
 convenience and reference, and shall give no effect in the construction or
 interpretation of this Agreement.

	
 

	
 

	
 

	
 

	
22.

	
Survival.
 Employee understands and agrees that portions of the
 provisions of this Agreement extend beyond termination of the Employee’s
 employment and shall continue in full force and effect after such termination
 of employment or termination of this Agreement.

CONFIDENTIAL

Page 7 of 7

	
 

	
 

	
 

	
 

	
23.

	
Execution. This Agreement may be executed in two (2) or more counterparts, and
 each such counterpart deemed an
 original. Original signatures on copies of the Agreement transmitted by facsimile
 will be deemed originals for all purposes hereunder.

	
 

	
 

	
 

	
 

	
24.

	
Confidential.
 Company and Employee agree to keep the terms and conditions
 of this Agreement confidential during the terms of the Agreement and for two
 (2) years after termination of Agreement.

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

	
 

	
 

	
 

	
 

	
BioDrain Medical Incorporated

	
 

	
 

	
 

	
 

	
By:

	

	
 

	
 

	 

	
 

	
 

	
Kevin R. Davidson, President & CEO

	
 

	
 

	
 

	
By:

	

	
 

	
 

	 

	
 

	
 

	
Chad A. Ruwe, EmployeeExhibit 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

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