Document:

exv10w17

 

Exhibit 10.17

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by and between Bruce
Thornton (the “Executive”), and Oculus Innovative Sciences, Inc., a California corporation
(the “Corporation”), as of June 1, 2005 (the “Effective Date”).

     THE PARTIES ENTER THIS AGREEMENT on the basis of the following facts, understandings and
intentions:

     A. The Corporation desires that the Executive be employed by the Corporation to carryout the
duties and responsibilities described below, all on the terms and conditions hereinafter set forth.

     B. The Executive is willing to accept such employment on such terms and conditions.

     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of the parties, the
parties hereto agree as follows:

1. Retention and Duties.

     1.1 Retention. The Corporation does hereby hire, engage and employ the Executive for
the Period of Employment (as defined in Section 2) on the terms and conditions expressly set forth
in this Agreement. The Executive does hereby accept and agree to such hiring, engagement and
employment, on the terms and conditions expressly set forth in this Agreement.

     1.2 Duties. During the Period of Employment, the Executive shall serve the
Corporation as its ___. The Executive shall, without limitation and without limiting
the Executive’s other duties to the Corporation, and without limiting the authority of the
Corporation’s Board of Directors (the “Board”), be responsible for the general supervision,
direction and control of the operations of the business and affairs of the Corporation and have
such other duties and responsibilities as the Chief Executive Officer (“CEO”) shall designate that
are consistent with the Executive’s position. The Executive shall perform all of such duties and
responsibilities in accordance with the legal directives of the CEO and in accordance with the
practices and policies of the Corporation as in effect from time to time throughout the Period of
Employment (including, without limitation, the Corporation’s insider trading and ethics policies,
as they may change from time to time). While employed as Director of International Operations, the
Executive shall report exclusively to the CEO. Throughout the Period of Employment, the Executive
shall not serve on the boards of directors or advisory boards of any other entity unless such
service is expressly approved by the Board and/or CEO. Executive acknowledges and agrees that he
owes a fiduciary duty of loyalty and to act at all times in the best interest of the Corporation
and to do no act which would injure the business, interests, or reputation of the Corporation of
any of its affiliated companies.

     1.3 No Other Employment; Minimum Time Commitment. Throughout the Period of
Employment, the Executive shall both (i) devote substantially all of the Executive’s business time,
energy and skill to the performance of the Executive’s duties for the Corporation, and (ii) hold no
other job. The Executive agrees that any investment or direct involvement in, or any appointment
to or continuing service on the board of directors or similar body of, any

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corporation or other
entity must be first approved in writing by the Corporation. The foregoing provisions of this
Section 1.3 shall not prevent the Executive from investing in non-competitive publicly-traded
securities to the extent permitted by Section 7. The Executive agrees that, as of the Effective
Date, Exhibit A to this agreement sets forth a complete and accurate description of (i) any
investment or direct involvement of the Executive in any other corporation or business that
reasonably could be construed as falling outside of the scope of the foregoing permitted
investments and involvement, and (b) any board of directors or similar body of any corporation or
other entity on which the Executive is a member. The Corporation may require the Executive to
resign from membership on any board or similar body of any entity, on which he may now or in the
future serve, if the Corporation determines that the Executive’s membership on such board or
similar body interferes (interference shall include, without limitation, giving rise to conflicts
or competitive activity with the performance of the Executive’s duties hereunder.

     1.4 No Breach of Contract. The Executive hereby represents to the Corporation that:
(i) the execution and delivery of this Agreement by the Executive and the Corporation and the
performance by the Executive of the Executive’s duties hereunder shall not constitute a breach of,
or otherwise contravene, the terms of any other agreement or policy to which the Executive is a
party or otherwise bound, and (ii) in the event Executive is bound by any confidentiality, trade
secret or similar agreement (other than this Agreement) with any other person or entity, Executive
will comply with such agreement and not disclose any confidential information or trade secret of
any other party to Corporation.

     1.5 Location. The Executive acknowledges that the Corporation’s principal executive
offices are currently located in Petaluma, California. The Executive’s principal place of
employment shall be the Corporation’s principal executive offices, as they may be moved from time
to time upon mutual agreement by the Executive and the Corporation. The Executive agrees that the
Executive will be regularly present at the Corporation’s principal executive offices and that the
Executive will be required to travel from time to time in the course of performing the Executive’s
duties for the Corporation.

2. Period of Employment. The “Period of Employment” shall commence on June 1,
2005, and shall continue until the date of Executive’s termination pursuant to Section 5.

3. Compensation.

     3.1 Base Salary. Effective June 1, 2005 and during the Period of Employment, the
Corporation shall pay to the Executive a base salary at the rate of $160,000 per year, subject to
increase (but not decrease) by the CEO (the “Base Salary”). The Executive’s Base Salary
shall be paid in accordance with the Corporation’s regular payroll practices in effect from time to
time, but not less frequently than in monthly installments.

     3.2 Options to Purchase Company Stock. Upon approval of the Board of Directors, the
Company will immediately grant you options to purchase an additional eighty thousand (80,000)
shares of common stock, at an exercise price to be determined by the board of Directors, subject to
official approval by the Board of Directors and a five (5) year vesting schedule, and expiring ten
(10) years from the date of the option grant and issuance. Further information regarding this
option grant will be provided to you under a separate document. Additional option

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grants may be
approved at the discretion of the Company. Please, note that the Company is a privately held
California “C” corporation and its shares are not publicly traded on any exchange.

4. Benefits.

     4.1 Health and Welfare. During the Period of Employment, the Executive shall be
entitled to participate in all employee pension and welfare benefit plans and programs made
available by the corporation to the Corporation’s senior-level employees generally, as such plans
or programs maybe in effect from time to time.

     4.2 Reimbursement of Business Expenses. The Executive is authorized to incur
reasonable expenses in carrying out the Executive’s duties for the Corporation under this Agreement
and entitled to reimbursement for all such expenses the Executive incurs during the Period of
Employment in connection with carrying out the Executive’s duties for the Corporation, subject to
the Corporation’s reasonable expense reimbursement policies in effect from time to time. The
Corporation shall reimburse the Executive to the extent required by the preceding sentence.

     4.3 Vacation and Other Leave. During the Period of Employment, the Executive shall
accrue and be entitled to take 15 days of paid vacation per year, in accordance with the
Corporation’s standard vacation policies in effect from time to time, including the Corporation’s
policies regarding vacation accruals. The Executive shall also be entitled to all other holiday
and leave pay generally available to other employees of the Corporation and/or required bylaw.

5. Termination.

     5.1 Termination by the Executive. The Executive may terminate his employment at any
time during the course of this Agreement by giving no less than thirty (30) days prior written
notice (“Notice Period”) to the President of the Corporation and pursuant to Section 25
herein. During the Notice Period, Executive will fulfill any of his duties and responsibilities
set forth herein and use his best efforts to train and support his replacement, if any. Failure to
comply with this requirement may result in Termination for Cause described below, but otherwise
Executive’s salary and benefits will remain unchanged during the Notice Period.

     5.2 Termination by the Corporation Without Cause. The Corporation may terminate
Executive’s employment at anytime for any reason (“Termination Without Cause”) during the
course of this Agreement by giving no less than six (6) months prior written notice (“Notice
Period”) to the Executive. During the Notice Period, Executive must fulfill any of Executive’s
duties and responsibilities set forth herein and use Executive’s best efforts to train and support
Executive’s replacement, if any. Failure of Executive to comply with this requirement may result
in Termination for Cause described below, but otherwise Executive’s salary and benefits
will remain unchanged during the Notice Period. Corporation may, in its sole discretion, give
Executive severance pay in the amount of Executive’s monthly Salary associated with the remaining
months in the Notice Period in lieu of actual employment, and nothing herein shall require
Corporation to maintain Executive in active employment for the duration of the Notice Period.

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     5.3 Termination by the Corporation For Cause. The Corporation may at anytime without
prior written notice, terminate the Executive’s employment for “Cause.” For purposes of this
Agreement, “Cause” shall include but will not be limited to termination based on any of the
following grounds:

          (i) Executive’s failure to perform the duties of his position in a satisfactory manner;

          (ii) Executive is or was in engaged in any act of fraud, misappropriation, embezzlement or
acts of similar dishonesty;

          (iii) Executive being charged or convicted of a felony or entry of a guilty plea or a plea of
nolo contendere under the laws of the United States or any other country;

          (iv) Executive’s inability to perform duties hereunder due to the appearance or actual use of
alcohol or illegal drugs;

          (v) Executive’s intentional and willful misconduct that may subject the Corporation to
criminal or civil liability;

          (vi) Executive’s breach of the Executive’s duty of loyalty, including the diversion or
usurpation of corporate opportunities properly belonging to the Corporation;

          (vii) Executive’s breach of this Agreement or any Corporation policy that remains uncured for
a ten-day period commencing upon Corporation providing notice of such breach to Executive; or

          (viii) Executive’s insubordination or deliberate refusal to follow the instructions of
Executive’s direct supervisor or the President of the Corporation.

     5.4 Termination By Death or Disability. The Executive’s employment and rights to
compensation under this Employment Agreement shall terminate if the Executive is unable to perform
the duties of his position due to death or disability lasting more than ninety (90) days, and the
Executive’s heirs, beneficiaries, successors, or assigns shall not be entitled to any of the
compensation or benefits to which Executive is entitled under this Agreement, except: (i) to the
extent specifically provided in this Employment Agreement (ii) to the extent required by law, or
(iii) to the extent that such benefit plans or policies under which Executive is covered provide a
benefit to the Executive’s heirs, beneficiaries, successors, or assigns.

     5.5 Termination Upon Change of Control. (i) Upon a Termination Upon Change of
Control, (a) Executive shall receive a lump sum payment in an amount equal to twelve (12) months of
Executive’s base salary (less applicable withholding), paid within thirty (30) business
days; and (b) any and all stock options, stock appreciation rights, restricted stock awards,
and similar equity and equity-based awards granted by the Corporation to the Executive outstanding
immediately prior to such termination of employment shall thereupon be deemed fully vested and
shall be exercisable for a period of no less than twelve (12) months thereafter or until the stated
expiration date for such option or award at the end of its maximum term, whichever is earlier.

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          (ii) For purposes of this Agreement “Termination Upon Change of Control” means any
termination of the employment of Executive by the Corporation without Cause during the period
commencing on or after the date that the Corporation first publicly announces that it has
Executive’s failure to perform the duties of his position in a satisfactory signed a definitive
agreement or that the Corporation’s Board of Directors has endorsed an offer for the Corporation’s
stock which in either case when consummated would result in a Change of Control.

          (iii) For purposes of this Agreement, “Change of Control” shall mean:

     (a) any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than a
trustee or other fiduciary holding securities of the Corporation under an employee
benefit plan of the Corporation, becomes the “beneficial owner” (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of
the Corporation representing sixty six percent (66%) or more of (A) the outstanding shares of common stock of the Corporation or (B) the combined voting power of the
Corporation’s then-outstanding securities;

     (b) the Corporation is party to a merger or consolidation, or series of related
transactions, which results in the voting securities of the Corporation outstanding
immediately prior thereto failing to continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving or another
entity) at least sixty-six percent (66%) of the combined voting power of the voting
securities of the Corporation or such surviving or other entity outstanding
immediately after such merger or consolidation; or

     (c) the sale or disposition of all or substantially all of the Corporation’s
assets (or consummation of any transaction, or series of related transactions,
having similar effect), unless at least thirty-three percent (33%) of the combined
voting power of the voting securities of the entity acquiring those assets is held
by persons who held the voting securities of the Corporation immediate prior to such
transaction or series of transactions.

          (iv) Any obligation of the Corporation pursuant to Section 5.5(i), to pay a severance benefit
in the circumstances described therein is further subject to the following two conditions
precedent: (a) such severance obligation shall be paid only if the Executive has remained in
compliance with all of the provisions of Section 5.7 and Sections 7 through 12, and such obligation
shall terminate immediately if the Executive is for any reason not in compliance with one or more
of those provisions; and (b) the Executive’s satisfaction of the release obligations set forth in
Section 5.6. For purposes of the preceding sentence, if the Executive is
not in compliance with one or more provisions of Section 5.7, and Sections 7 though 12, and a
cure is reasonably possible in the circumstances, the Executive will not be deemed to have breached
such provision(s) unless the Executive is given notice and a reasonable opportunity (in no case
shall more than a 10-day cure period be required) to cure such breach and such breach is not cured
within such time period. The parties agree that a cure will not be reasonably possible in all
circumstances including, without limitation, a material breach of confidentiality or similar
occurrence.

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          (v) Except as expressly provided herein, the foregoing provisions of this Section 5.5 shall
not affect: (a) the Executive’s receipt of benefits otherwise due terminated employees under group
insurance coverage consistent with the terms of the applicable Corporation welfare benefit plan;
(b) the Executive’s rights under COBRA to continue participation in medical, dental,
hospitalization and life insurance coverage; (c) the Executive’s receipt of benefits otherwise due
in accordance with the terms of the Corporation’s 401(k) plan (if any); or (d) any rights that the
Executive may have under and with respect to a stock option, stock appreciation right, restricted
stock award, or similar equity or equity, based award, to the extent that such award was granted
before the date that the Executive’s employment by the Corporation terminates and to the extent
expressly provided in the written agreement evidencing such award.

     5.6 Release; Exclusive Remedy.

          (i) This Section 5.6 shall apply notwithstanding anything else contained in this Agreement to
the contrary. As a condition precedent to any Corporation obligation to the Executive pursuant to
Sections 5.2 or 5.5, the Executive shall, upon or promptly following his last day of employment
with the Corporation, provide the Corporation with a valid, executed, written Release (as defined
in Section 5.6(iii) (in a form provided by the Corporation) and such release shall have not been
revoked by the Executive pursuant to any revocation rights afforded by applicable law. The
Corporation shall have no obligation to make any payment to the Executive pursuant to Sections 5.2
or 5.5 unless and until the Release contemplated by this Section 5.6 becomes irrevocable by the
Executive in accordance with all applicable laws, rules and regulations.

          (ii) The Executive agrees that the payments contemplated by Sections 5.2 or 5.5 shall
constitute the exclusive and sole remedy for any termination of his employment and the Executive
covenants not to assert or pursue any other remedies, at law or in equity, with respect to any
termination of employment. The Corporation and Executive acknowledge and agree that there is no
duty of the Executive to mitigate damages under this Agreement. All amounts paid to the Executive
pursuant to Section 5.2 or 5.5 shall be paid without regard to whether the Executive has taken or
takes actions to mitigate damages.

          (iii) As used herein, “Release” shall mean a written release, discharge and covenant
not to sue entered into by the Executive on behalf of himself, his descendants, dependents, heirs,
executors, administrators, assigns, and successors, and each of them, of and in favor of the
Corporation, its parent (if any), the Corporation’s subsidiaries and affiliates, past and present,
and each of them, as well as its and their trustees, directors, officers, agents, attorneys,
insurers, employees, shareholders, members, representatives, assigns, and successors, past and
present, and each of them (the “releasees”), with respect to and from any and all claims,
wages, demands, rights, liens, agreements, contracts, covenants, actions, suits, causes of action,
obligations, debts, costs, expenses, attorneys’ fees, damages, judgments, orders and liabilities of
whatever kind or nature in law, equity or otherwise, whether now known or unknown, suspected or
unsuspected, and whether or not concealed or hidden, which he may then own or hold or he at anytime
theretofore owned or held or may in the future hold as against any or all of said releasees,
arising out of or in anyway connected with the Executive’s employment relationship with each and
every member of the Corporation Group (as defined in Section 7) with which the

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Executive has had
such a relationship, or the termination of his employment or any other transactions, occurrences,
acts or omissions or any loss, damage or injury whatever, known or unknown, suspected or
unsuspected, resulting from any act or omission by or on the part of said releasees, or any of
them, committed or omitted prior to the date of such release including, without limiting the
generality of the foregoing, any claim under Section 1981 of the Civil Rights Act of 1866, Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Family and Medical Leave Act of 1993, the California Fair Employment and
Housing Act, the California Family Rights Act, any other claim under any other federal, state or
local law or regulation, and any other claim for severance pay, bonus or incentive pay, sick leave,
holiday pay, vacation pay, life insurance, health or medical insurance or any other fringe benefit,
medical expenses, or disability (except that such release shall not constitute a release of any
Corporation obligation to the Executive that may be due to the Executive pursuant to Sections 5.2
or 5.5 upon the Corporation’s receipt of such release). The Release shall also contain the
Executive’s warrant that he has not theretofore assigned or transferred to any person or entity,
other than the Corporation, any released matter or any part or portion thereof and that he will
defend, indemnify and hold harmless the Corporation and the aforementioned releasees from and
against any claim (including the payment of attorneys’ fees and costs actually incurred whether or
not litigation is commenced) that is directly or indirectly based on or in connection with or
arising out of any such assignment or transfer made, purported or claimed.

     5.7 Resignation From Boards. Upon or promptly following any termination of
Executive’s employment with the Corporation, the Executive will resign from (i) each and every
board of directors (or similar body, as the case maybe) of the Corporation and each of its
affiliates on which the Executive may then serve (if any), and (ii) each and every office of the
Corporation and each of its affiliates that the Executive may then hold, and all positions that he
may have previously held with the Corporation and any of its affiliates.

     5.8 Excise Tax Gross-Up. During and after the period of Executive’s employment with
the Corporation, Executive shall be entitled to the excise tax protections set forth in Exhibit B
hereto. The preceding sentence takes precedence over any contrary provision (such as, without
limitation, an excise tax cut-back provision) of any other applicable incentive plan or award
agreement.

6. Means and Effect of Termination. Any termination of the Executive’s employment under
this Agreement shall be communicated by written notice of termination from the terminating party to
the other party. The notice of termination shall indicate the specific provision(s) of this
Agreement relied upon in effecting the termination.

7. Non-Competition. The Executive acknowledges and recognizes the highly competitive
nature of the businesses of the Corporation Group. Executive agrees that his position with
Corporation places him in a position of confidence and trust with clients and employees of
Corporation and that harm to the Corporation would result if any Corporation Group confidential
information, trade secrets, knowledge (including but not limited to any customer account
information) or expertise was disclosed or in anyway made available to a competitor. As part of
the consideration for the compensation benefits to be paid to Executive hereunder and to protect
confidential information, trade secrets, knowledge or expertise of the Corporation Group

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disclosed
to Executive during the Employment Period, and as additional incentive for the Corporation to enter
in to this Agreement, Executive and Corporation hereby expressly agrees as follows:

          (i) As a result of the particular nature of the Executive’s relationship with the Corporation,
in the capacities identified earlier in this Agreement, for the Period of Employment the Executive
hereby agrees that he will not, directly or indirectly, (a) engage in any business for the
Executive’s own account or otherwise derive any personal benefit from any business that competes
with the business of the Corporation or any of its affiliates (the Corporation and its affiliates
are referred to, collectively, as the “Corporation Group”), (b) enter the employ of, or
render any services to, any person engaged in any business that competes with the business of any
entity within the Corporation Group, (c) acquire a financial interest in any person engaged in any
business that competes with the business of any entity within the Corporation Group, directly or
indirectly, as an individual, partner, member, shareholder, officer, director, principal, agent,
trustee or consultant, or (d) interfere with business relationships (whether formed before or after
the Effective Date) between the Corporation, any of its respective affiliates or subsidiaries, and
any customers, suppliers, officers, employees, partners, members or investors of any entity within
the Corporation Group. For purposes of this Agreement, businesses in competition with the
Corporation Group shall include, without limitation, businesses which any entity within the
Corporation Group may conduct operations, and any businesses which any entity within the
Corporation Group has specific plans to conduct operations in the future and as to which the
Executive is aware of such planning, whether or not such businesses have or have not as of that
date commenced operations:

          (ii) Notwithstanding anything to the contrary in this Agreement, the Executive may, directly
or indirectly, own, solely as an investment, securities of any person which are publicly traded on
a national or regional stock exchange or on an over-the-counter market if the Executive (a) is not
a controlling person of, or a member of a group which controls, such person, and (b) does not,
directly or indirectly, beneficially own one percent (1%) or more of any class of securities of
such person.

          (iii) The restrictions set forth above shall apply regardless of whether the termination of
Executive’s employment occurred with or without Cause or Upon a Termination of Change of Control.

8. Confidentiality.

     8.1 Confidential Information. As a material part of the consideration for the
Corporation’s commitment to the terms of this Agreement, the Executive hereby agrees that the
Executive will not at anytime (whether during or after the Executive’s employment with the
Corporation), other in the course of the Executive’s duties hereunder, or unless compelled by
lawful process after written notice to the Corporation of such notice along with sufficient time
for the Corporation to try and overturn such lawful process, disclose or use for the, Executive’s
own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint
venture, association, corporation or other business organization, entity or enterprise, any trade
secrets, or other confidential data or information relating to customers, development programs,
costs, marketing, trading, investment, sales activities, promotion, credit and financial data,

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financing methods, or plans of any entity within the Corporation Group; provided,
however, that the foregoing shall not apply to information which is generally known to the
industry or the public, other than as a result of the Executive’s breach of this covenant. The
Executive further agrees that the Executive will not retain or use for his account, at anytime, any
trade names, trademark or other proprietary business designation used or owned in connection with
the business of any entity within the Corporation Group.

     8.2 Third Party Information. Executive recognizes that the Corporation has received
and in the future will receive from third parties their confidential or proprietary information
subject to a duty on the Corporation’s part to maintain the confidentiality of such information and
to use it only for certain limited purposes. Executive will hold all such confidential or
proprietary information and to use it only for certain limited purposes. Executive will hold all
such confidential or proprietary information in the strictest confidence and not to disclose it to
any person, firm or corporation or to use in except as necessary in carrying out my work for the
Corporation consistent with the Corporation’s agreement with such third party.

9. Inventions and Developments.

     9.1 Assignment of Inventions. (i) All inventions, policies, systems, developments or
improvements conceived, designed, implemented and/or made by the Executive, either alone or in
conjunction with others, at anytime or at any place during the Period of Employment, whether or not
reduced to writing or practice during such Period of Employment, which directly or indirectly
relate to the business of any entity within the Corporation Group, or which were developed or made
in whole or in part using the facilities and/or capital of any entity within the Corporation Group,
shall be the sole and exclusive property of the Corporation Group. The Executive shall promptly
give notice to the Corporation of any such invention, development, patent or improvement, and shall
at the same time, without the need for any request by any person or entity within the Corporation
Group, assign all of the Executive’s rights to such invention, development, patent and/or
improvement to the Corporation Group. The Executive shall sign all instruments necessary for the
filing and prosecution of any applications for, or extension or renewals of, letters patent of the
United States or any foreign country that any entity in the Corporation Group desires to file.

          (ii) All copyrightable work by the Executive during the Period of Employment that relates to
the business of any entity in the Corporation Group is intended to be “work made for hire” as
defined in Section 101 of the Copyright Act of 1976, and shall be the property of the Corporation
Group. Executive will promptly make full written disclosure to the Corporation, will hold in trust
for the sole right and benefit of the Corporation, and hereby assign to the Corporation, or its
designee, all his right, title and interest in and to any and all inventions,
original works of authorship, developments, concepts, improvements or trade secrets, whether
or not patentable or registrable under copyright or similar laws, which Executive may solely or
jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced
to practice, during the Period of Employment (collectively referred to as “Inventions”),
except as provided in Section 9(f) below.

     If the copyright to any such copyrightable work is not the property of the Corporation Group
by operation of law, the Executive will, without further consideration, assign to the

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Corporation
Group all right, title and interest in such copyrightable work and will assist the entities in the
Corporation Group and their nominees in every way, at the Corporation Group’s expense, to secure,
maintain and defend for the Corporation Group’s benefit copyrights and any extensions and renewals
thereof on any and all such work including translations thereof in any and all countries, such work
to be and to remain the property of the Corporation Group whether copyrighted or not.

     9.2 Inventions Retained and Licensed. Attached hereto, as Exhibit C, is a list
describing all inventions, original works of authorship, developments, improvements and trade
secrets which were made by the Executive prior to my employment with the Corporation (collectively
referred to as “Prior Inventions”), which belong to me, which relate to the Corporation’s
proposed business, products or research and development, and which are not assigned to the
Corporation hereunder; or, if no such list is attached, Executive represents that there are no such
Prior Inventions. If during the Period of Employment, Executive incorporates a product or process
a Prior Invention owned by Executive or in which Executive has an interest, Executive hereby grants
the Corporation a nonexclusive, royalty-free, irrevocable, perpetual worldwide license to make,
have made, modify use and sell such Prior Invention as part of or in connection with such product
or process.

     9.3 Inventions Assigned to the United States. Executive will assign to the United
States government any of its right, title and interest in and to any and all Inventions whenever
such full title is required to be in the United States by a contract between the Corporation and
the United States or any of its agencies.

     9.4 Maintenance of Records. Executive will keep and maintain adequate and current
written records of all Inventions made by his (solely or jointly with others) during the term of
the Period of Employment. The records will be in the form of notes, sketches, drawings, and any
other format that maybe specified by the Corporation. The records will be available to and remain
the sole property of the Corporation at all times.

     9.5 Exception to Assignments. Executive and Corporation understand that the,
provisions of the Agreement requiring assignment of Inventions to the Corporation do not apply to
any invention which qualifies under any provision of the laws of the state in which Executive is
employed which do not require assignment. Specifically, the provisions of the Agreement requiring
assignment of Invention of the Corporation do not apply to any invention which qualifies under
California Labor Code 2870, which Section is reproduced in full in the attached Written
Notification to Executive. Executive will advise the Corporation promptly in writing of any
inventions that he believes meets the criteria of the laws of the state in which Executive is
employed which to not require assignment and are not otherwise disclosed on Exhibit A.

10. Anti-Solicitation. In light of the amount of sensitive and confidential information
involved in the discharge of the Executive’s duties, and the harm to the Corporation that would
result if such knowledge or expertise were disclosed or made available to a competitor, and as a
reasonable step to help, protect the confidentiality of such information, the Executive promises
and. agrees that during the Period of Employment and for a period of two (2) years thereafter, the
Executive will not, directly or indirectly, individually or as a consultant to, or as an employee,
officer, shareholder, director or other owner or participant in any business, influence or attempt

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to influence customers, vendors, suppliers, joint venturers, associates, consultants, agents, or
partners of any entity within the Corporation Group, either directly or indirectly, to divert their
business away from the Corporation Group, to any individual, partnership, firm, corporation or
other entity then in competition with the business of any entity within the Corporation Group, and
he will not otherwise materially interfere with any business relationship of any entity within the
Corporation Group.

11. Soliciting Employees. In light of the amount of sensitive and confidential information
involved in the discharge of the Executive’s duties, and the harm to the Corporation that would
result if such knowledge or expertise were disclosed or made available to a competitor, and as a
reasonable step to help protect the confidentiality of such information, the Executive promises and
agrees that during the Period of Employment and for a period of two (2) years thereafter, the
Executive will not, directly or indirectly, individually or as a consultant to, or as an employee,
officer, shareholder, director or other owner of or participant in any business, solicit (or assist
in soliciting) any person who is then, or at anytime within six (6) months prior thereto was, an
employee of an entity within the Corporation Group, who earned annually $25,000 or more as an
employee of such entity during the last six (6) months of his or his own employment to work for (as
an employee, consultant or otherwise) any business, individual, partnership, firm, corporation, or
other entity whether or not engaged in competitive business with any entity in the Corporation
Group.

12. Return of Property. The Executive will truthfully and faithfully account for and
deliver to the Corporation all property belonging to the Corporation, any other entity in the
Corporation Group, or any of their respective affiliates, which the Executive may receive from or
on account of the Corporation, any other entity in the Corporation Group, or any of their
respective affiliates, and upon the termination of the Period of Employment, or the Corporation’s
demand, the Executive shall immediately deliver to the Corporation all such property belonging to
the Corporation, any other entity in the Corporation Group, or any of their respective affiliates.

13. Conflict of Interest Guidelines. Executive will diligently adhere to the Conflict of
Interest Guidelines attached hereto as Exhibit E.

14. Compliance with Foreign Corrupt Practices Act. With respect to employment with the
Corporation, Executive will abide by all applicable laws, rules, regulations, ordinances and court
or administrative orders and processes including, without limitations, Title 15 United States Code
Section 78(dd-2) (the Foreign Corrupt Practices Act). Executive will notify the Corporation in
writing of any payment or gifts made to or any plan, intention or promise to make payment or gifts
to any foreign governmental authority or agent thereof.

15. Withholding Taxes. Notwithstanding anything else herein to the contrary, the
Corporation may withhold (or cause there to be withheld, as the case maybe) from any amounts
otherwise due or payable under or pursuant to this Agreement such federal, state and local income,
employment, or other taxes as maybe required to be withheld pursuant to any applicable law or
regulation.

16. Cooperation in Litigation. The Executive agrees that he will reasonably cooperate with
the-Corporation, subject to his reasonable personal and business schedules, in-any litigation

11

 

which
arises out of events occurring prior to the termination of his employment, including but not
limited to, serving as a witness or consultant and producing documents and information relevant to
the case or helpful to the Corporation. The Corporation agrees to reimburse the Executive for all
reasonable costs and expenses he incurs in connection with his obligations under this Section 14
and, in addition, to reasonably compensate the Executive for time actually spent in connection
therewith following the termination of his employment with the Corporation.

17. Assignment. This Agreement is personal in its nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or any rights or
obligations hereunder; provided, however, that in the event of a merger,
consolidation, or transfer or sale of all or substantially all of the assets of the Corporation
with or to any other individual(s) or entity, this Agreement shall, subject to the provisions
hereof, be binding upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of the Corporation
hereunder.

18. Number and Gender. Where the context requires, the singular shall include the plural,
the plural shall include the singular, and any gender shall include all other genders.

19. Section Headings. The Section headings of, and titles of paragraphs and subparagraphs
contained in, this Agreement are for the purpose of convenience only, and they neither form a part
of this Agreement nor are they to be used in the construction or interpretation thereof.

20. Governing Law. This Agreement, and all questions relating to its validity,
interpretation, performance and enforcement, as well as the legal relations hereby created between
the parties hereto, shall be governed by and construed under, and interpreted and enforced in
accordance with, the laws of the State of California, notwithstanding any California or other
conflict of law provision to the contrary.

21. Severability. If any provision of this Agreement or the application thereof is held
invalid, the invalidity shall not affect other provisions or applications of this Agreement which
can be given effect without the invalid provisions or applications and to this end the provisions
of this Agreement are declared to be severable.

22. Entire Agreement. This Agreement embodies the entire agreement of the parties hereto
respecting the matters within its scope. This Agreement supersedes all prior and contemporaneous
agreements of the parties hereto that directly or indirectly bears upon the subject matter hereof.
Any prior negotiations, correspondence, agreements, proposals or understandings relating to the
subject matter hereof shall be deemed to have been merged into this Agreement, and to the extent
inconsistent herewith, such negotiations, correspondence,
agreements, proposals, or understandings shall be deemed to be of no force or effect. There are no
representations, warranties, or agreements, whether express or implied, or oral or written, with
respect to the subject matter hereof, except as expressly set forth herein.

23. Modifications. This Agreement may not be amended, modified or changed (in whole or in
part), except by a formal, definitive written agreement expressly referring to this Agreement,
which agreement is executed by both of the parties hereto.

12

 

24. Waiver. Neither the failure nor any delay on the part of a party to exercise any
right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of
such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be
effective unless it is in writing and is signed by the party asserted to have granted such waiver.

25. Resolution of Disputes.

     25.1 Arbitration. Employee agrees that any and all controversies, claims, or disputes
with anyone (including the Company and any employee, officer, director, shareholder or benefit plan
of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting
from Employee’s employment with the Company or the termination of Employee’s employment with the
Company, including any breach of this Agreement, shall be subject to binding arbitration under the
Arbitration Rules set forth in California Code of Civil Procedure Section 1280 through 1294.2,
including Section 1283.05 (the “Rules”) and pursuant to California law. Corporation agrees to
arbitrate any dispute that the Company may have with Employee.

     Disputes that the parties agree to arbitrate, and thereby, waive any right to a trial by jury,
include any statutory claims under state or federal law, including, but not limited to, claims
under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the
Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the
California Fair Employment and Housing Act, the California Labor Code, claims of harassment,
discrimination or wrongful termination and any statutory claims. By agreeing to have these claims
resolved through binding arbitrate, neither Employee nor the Comp any waive any rights that maybe
available pursuant to federal or state law.

     Any disputes shall be submitted to arbitration in Santa Rosa, California, before a sole
arbitrator (the “Arbitrator”), selected from judicial arbitration mediation services
(“JAMS”), or if JAMS is no longer able to supply the arbitrator, such arbitrator shall be
selected from the American Arbitration Association (“AAA”), and shall be conducted in
accordance with the provisions of California Code of Civil Procedure §§ 1280 et
seq. as the exclusive remedy of such dispute. Final resolution of any dispute through
arbitration may include any remedy or relief that the Arbitrator deems just and equitable,
including any and all remedies provided by applicable state or federal statutes. At the conclusion
of the arbitration, the Arbitrator shall issue a written decision that sets forth the essential
findings and conclusions upon which the Arbitrator’s award or decision is based. Any award or
relief granted by the Arbitrator hereunder
shall be final and binding on the parties hereto and may be enforced by any court of competent
jurisdiction.

     25.2 Waiver of Jury Trial. The parties acknowledge and, agree that they are hereby
waiving any rights to trial by jury in any action, proceeding or counterclaim brought by either of
the parties against the other in connection with any matter whatsoever arising out of or in anyway
connected with any of the matters referenced in the first sentence of the first paragraph of this
Section 24.

13

 

     25.3 Fees. The parties agree that Corporation shall be responsible for payment of the
forum costs of any arbitration hereunder, including the Arbitrator’s Fee. The parties further
agree that in any proceeding with respect to such matters, the prevailing party will be entitled to
recover its reasonable attorney’s fees and costs from the non prevailing party (other than forum
costs, associated with the arbitration which in any event shall be paid by the Corporation).

     25.4 Injunctive Relief. Without limiting the remedies available to the parties and
notwithstanding the foregoing provisions of this Section 23, the Executive and the Corporation
acknowledge that any breach of any of the covenants or provisions contained in Sections 5.6, and 7
through 12 could result in irreparable injury to either of the parties hereto for which there might
be no adequate remedy at law, and that, in the event of such a breach or threat thereof, the
non-breaching party shall be entitled to obtain a temporary restraining order and/or a preliminary
injunction and a permanent injunction restraining the other party hereto from engaging in any
activities prohibited by any covenant or provision in Sections 5.6, and 7 through 12 or such other
equitable relief as may be required to enforce specifically any of the covenants or provisions of
Sections 5.6, and 7 through 12.

26. Notices. (i) All notices, requests, demands and other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have been duly given and
made if (a) delivered by hand, (b) otherwise delivered against receipt therefore, or (iii) sent by
registered or certified nail, postage prepaid, return receipt requested. Any notice shall be duly
addressed to the parties as follows:

(c) if to the Corporation:

Oculus Innovative Services, Inc.

1129 North McDowell Boulevard

Petaluma, California 94954

Attn. Jim Schutz

Fax: +1(707) 782 0705

(d) if to the Executive:

Bruce Thornton

7058 Barranca Drive

El Dorado Hills, CA 95762

+1 (916) 616 0119

          (ii) Any party may alter the address to which communications or copies are to be sent by
giving notice of such change of address in conformity with the provisions of this Section 24 for
the giving of notice. Any communication shall be effective when delivered by hand, when otherwise
delivered against receipt therefore, or five (5) business days after being mailed in accordance
with the foregoing.

27. Legal Counsel; Mutual Drafting. Each party recognizes that this is a legally binding.
contract and acknowledges and agrees that they have had the opportunity to consult with legal
counsel of their choice. Each party has cooperated in the drafting, negotiation and preparation of

14

 

this Agreement. Hence, in any construction to be made of this Agreement, the same shall not be
construed against either party on the basis of that party being the drafter of such language.

28. Provisions that Survive Termination. The provisions of this Agreement that are
intended to survive shall survive any termination of the Period of Employment.

29. Counterparts. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original as against any party whose signature appears thereon, and all of
which together shall constitute one and the same instrument. This Agreement shall become binding
when one or more counterparts hereof, individually or taken together, shall bear the signatures of
all of the parties reflected hereon as the signatories. Photographic copies of such signed
counterparts maybe used in lieu of the originals for any purpose.

[Signature Page Follows]

15

 

     IN WITNESS WHEREOF, the Corporation and the Executive have executed this Agreement as of the
Effective Date.

	 	 	 
	CORPORATION

	 	EXECUTIVE

Oculus Innovative Services, Inc.,

a California corporation

	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Hoji Alimi
	 	 
	 	By:
	 	/s/ Bruce Thornton
	 

	 	 
	 	 	 	 	 	 
	 

	 	Hoji Alimi, CEO and President,
	 	 	 	 	 	Bruce Thornton
	 

	 	Oculus Innovative Sciences, Inc.	 	 	 	 	 	 

16

 

EXHIBIT
A— SECTION 1.3 DISCLOSURE SCHEDULE 1

 

 

EXHIBIT B — SECTION 5.7 EXCISE TAX GROSS-UP

B.1 Equalization Payment. If any payment, distribution, transfer, or benefit (including;
without limitation, any amounts received or deemed received by the Executive within the meaning of
any provision of the Internal Revenue Code of 1986, as amended (the “Code”), or by the Executive as
a result of (and not byway of limitation) any automatic vesting, lapse of restrictions and/or
accelerated target or performance achievement provisions, or otherwise, applicable to outstanding
grants or awards to the Executive under any of the Corporation’s incentive plans) by the
Corporation or a successor, or by a direct or indirect subsidiary or affiliate of the Corporation
(or any successor or affiliate of any of them, and including any benefit plan of any of them),
whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or
otherwise (collectively, the “Total Payments”), is or will be subject to the excise tax imposed
under Section 4999 of the Code or any similar or successor tax (the “Excise Tax”), the Corporation
shall pay in cash to Executive or for Executive’s benefit as provided below an additional amount or
amounts (the “Gross-Up Payment(s)”) such that the net amount retained by the Executive after the
deduction of any Excise Tax on such Total Payments and any Federal, state and local income tax and
Excise Tax upon the Gross-Up Payment(s) provided for by this Section B.1 shall be equal to such
Total Payments had they not been subject to the Excise Tax. Such Gross-Up Payment(s) shall be made
by the Corporation to the Executive or to any applicable taxing authority on behalf of the
Executive as soon as practicable following the receipt or deemed receipt of any such Total Payments
by the Executive, and may be satisfied by the Corporation making a payment or payments on the
Executive’s account in lieu of withholding for tax purposes but in all events shall be made within
thing (30) days of the receipt or deemed receipt by the Executive of any such Total Payment.

B.2 Calculation of Gross-Up Payment. The determination of whether a Gross-Up Payment is
required pursuant to this Exhibit B and the amount of any such Gross-Up Payment shall be determined
in writing (the “Determination”) by a nationally-recognized certified public accounting firm
selected by the Corporation (the “Accounting Firm”). The Accounting Firm shall provide its
Determination in writing, together with detailed supporting calculations and documentation and any
assumptions used in making such computation, to the Corporation and the Executive. In the event of
a termination of the Executive’s employment which reasonably may require the payment of a Gross-Up
Payment or in the event of a Change in Control, such documentation shall be provided no later than
twenty (20) days following such event. Within twenty (20) days following delivery of the
Accounting Firm’s Determination, the Executive shall have the right, at the Corporation’s expense,
to obtain the opinion of an “outside counsel,” which opinion need not be unqualified, which sets
forth: (i) the amount of the Executive’s “annualized includible compensation for the base period”
(as defined in Code Section 280G(d)(1)); (ii) the present value of the Total Payments made to the
Executive; (iii) the amount and present value of any “excess parachute payment;” and (iv) detailed
supporting calculations and documentation and any assumptions used in making such computations.
The opinion of such outside counsel shall be supported by the opinion of a nationally-recognized
certified public accounting firm and, if necessary or required by the Corporation, a firm of
nationally recognized executive compensation consultants. The Executive shall also have the right
to obtain such an opinion of outside counsel in the event that the Corporation has not timely
submitted the initial determination to the Accounting Firm as provided above (including, without
limitation, in the event that the Corporation does not submit such a determination to the
Accounting Firm

 

 

following an event in connection with which the Executive reasonably believes that he maybe
entitled to a Gross-Up Payment). The outside counsel’s opinion shall be binding upon the
Corporation and the Executive and shall constitute the “Determination” for purposes of this Exhibit
B instead of the initial determination by the Accounting Firm. The Corporation shall pay (or, to
the extent paid by the Executive, reimburse the Executive for) the certified public accounting
firm’s and, if applicable, the executive compensation consultant’s reasonable and customary fees
for rendering such opinion. For purposes of this Section B.2, “outside counsel” means a licensed
attorney selected by the Executive who is recognized in the field of executive compensation and has
experience with respect to the calculation of the Excise Tax; provided that the Corporation must
approve the Executive’s selection, which approval shall not be unreasonably withheld.

B.3 Computation Assumptions. For purposes of determining whether any Total Payments will
be subject to Excise Tax, and the amount of any such Excise Tax:

	 	(a)	 	Any other payments, benefits and/or amounts received or to be received by the
Executive in connection with or contingent upon any change in the ownership or
effective control of the Corporation or any change in the ownership of a substantial
portion of the Corporation’s assets or termination of the Executive’s employment
(whether pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Corporation, or with any Person whose actions result in such a
change or any Person affiliated with the Corporation or such Persons) shall be combined
to determine whether the Executive has received any “parachute payment” within the
meaning of Section 280G(b)(2) of the Code, and if so, the amount of any “excess
parachute payments” within the meaning of Section 280G(b)(1) that shall be treated as
subject to the Excise Tax, unless in the opinion of the person or firm rendering the
Determination, such other payments, benefits and/or amounts (in whole or in part) do
not constitute parachute payments, or such excess parachute payments represent
reasonable compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of Section
280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax (for purposes of
this Section B.3(a), “Person” shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
“group” as defined in Section 13(d) thereof);
	 
	 	(b)	 	The value of any non cash benefits or any deferred payment or benefit shall be
determined by the person or firm rendering the Determination in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code;
	 
	 	(c)	 	The compensation and benefits provided for in Section 5 of this Agreement, and
any other compensation earned prior to the termination of the Executive’s employment
pursuant to the Corporation’s compensation programs (if such payments would have been
made in the future in any event, even though the timing of such payment is triggered by
a change in the ownership or effective control of the Corporation or any change in the
ownership of a substantial portion of the Corporation’s assets or a termination of the
Executive’s employment), shall

 

 

for purposes of the calculation pursuant to this Section B.3 be deemed to be
reasonable; and

	 	(d)	 	The Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made. Furthermore, the computation of the Gross-Up Payment shall
assume (and adjust for the fact) that (i) there is a loss of miscellaneous itemized
deductions under Section 67 of the Code (or analogous federal or state provisions) on
account of the Gross-Up Payment and (ii) a loss of itemized deductions under Section 68
of the Code (or analogous federal or state provisions) on account of the Gross-Up
Payment. The computation of the Gross-Up Payment shall take into account any reduction
in the Gross-Up Payment due to the Executive’s share of the hospital insurance portion
of FICA and any state withholding taxes (other than any state withholding tax for
income tax liability). The computation of the state and local income taxes applicable
to the Gross-Up Payment shall be based on the highest marginal rate of taxation in the
state and locality of the Executive’s residence on the date the Executive’s employment
terminates, and shall take into account the in maximum reduction in federal income
taxes that could be obtained from the deduction of such state and local taxes.

B.4 Executive’s Obligation to Notify Corporation. The Executive shall promptly notify the
Corporation in writing of any claim by the Internal Revenue Service (or any successor thereof) or
any state or local taxing authority (individually or collectively, the “Taxing Authority”) that, if
successful, would require the payment by the Corporation of a Gross-Up Payment in excess of any
Gross-Up Payment as originally set forth in the Determination. If the Corporation notifies: the
Executive in writing that it desires to contest such claim, the Executive shall: (a) give the
Corporation any information reasonably requested by the Corporation relating to such claim; (b)
take such action in connection with contesting such claim as the Corporation shall reasonably
request in writing from time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Corporation that is reasonably acceptable
to the Executive; (c) cooperate with the Corporation in good faith in order to effectively contest
such claim; and (d) permit the Corporation to participate in any proceedings relating to such
claim; provided that the Corporation shall bear and pay directly all attorneys fees, costs and
expenses (including additional interest, penalties and additions to tax) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for
all taxes (including, without limitation, income and excise taxes), interest, penalties and
additions to tax imposed in relation to such claim and in relation to the payment of such costs and
expenses or indemnification. Without limitation on the foregoing provisions of this Section B.4,
and to the extent its actions do not unreasonably interfere with or prejudice the Executive’s
disputes with the Taxing Authority as to other issues, the Corporation shall control all
proceedings taken in connection with such contest and, in its reasonable discretion, may pursue or
forego any and all administrative appeals, proceedings, hearings and conferences with the Taxing
Authority in respect of such claim and may, at its sole option, either direct Executive to pay the
tax, interest or penalties claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive will prosecute such contest to, a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the

 

 

Corporation shall determine; provided, however, that if the Corporation directs Executive to pay
such claim and sue for a refund, the Corporation shall advance an amount equal to such payment to
the Executive, on an interest free basis, and shall indemnify and hold the Executive harmless, on
an after-tax basis, from all taxes (including, without limitation, income and excise taxes),
interest, penalties and additions to tax imposed with respect to such advance or with respect to
any imputed income with respect to such advance, as any such amounts are incurred, and, further,
provided, that any extension of the statute of limitations relating to payment of taxes, interest,
penalties or additions to tax for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested amount; and, provided,
further, that any settlement of any claim shall be reasonably acceptable to the Executive and the
Corporation’s control of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as
the case maybe, any other issue.

B.5 Subsequent Recalculation. In the event of a binding or uncontested determination by
the Taxing Authority that adjusts the computation set forth in the Determination so that the
Executive did not receive the greatest net benefit required pursuant to Section B.1, the
Corporation shall reimburse the Executive as provided herein for the full amount necessary to place
the Executive in the same after-tax position as he would have been in had no Excise Tax applied.
In the event of a binding or uncontested determination by the Taxing Authority that adjusts the
computation set forth in the Determination so that the Executive received a payment or benefit in
excess of the amount required pursuant to Section B.1, then the Executive shall promptly pay to the
Corporation (without interest) the amount of such excess.

 

 

EXHIBIT C

LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP

	 	 	 	 	 	 	 	 	 
	Title	 	Date	 	 	Identifying Number or Brief Description	 
	 
	 
	 	 	 	 	 	 	 	 

                     No inventions or improvements

                     Additional Sheets Attached

Date:                                         

Signature of Employee:                                         

Print::                                         

 

 

EXHIBIT D — NOTICE TO EMPLOYEE UNDER LABOR CODE SECTION 2872

     The Employment, Confidential Information, Invention Assignment and Arbitration agreement
between Oculus Innovative Sciences, Inc., (“Oculus”) and you contains a provision requiring you to
assign your right in any invention to Ubiquity subject to the exceptions set forth therein.
Section 2872 of the California Labor Code requires that you be provided with written notification
that the foregoing agreement does not apply to an invention which qualifies fully under the
provisions of Section 2870 of the California Labor Code. Section 2870 of the California Labor Code
reads as follows:

     Section 2870. Employment agreements; assignment of rights

     a. Any provision in an employment agreement which provides that an employee shall assign or
offer to assign any or his or her right in an invention to his or her employer shall not apply to
an invention that the employee developed entirely on his or her own time without using the
employer’s equipment, supplies, facilities, or trade secret information except for those inventions
that either:

     1. Relate at the time of conception or reduction to practice of the invention to the employers
business or actual or demonstrably anticipate research or development of the employer; or

     2. Result from any work performed by employee for the employer.

     b. To the extent a provision in an employment agreement purports to require an employee to
assign an invention otherwise excluded from being required to be assigned under subdivision (a),
the provision is against public policy of the state and is unenforceable.

     I HEREBY ACKNOWLEDGE RECEIPT OF THE FOREGOING NOTICE.

	 	 	 	 	 
	Date:

	 	 
	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	 
	Signature	 	 
	 
	 	 	 	 
	 	 	 
	Print	 	 

 

 

EXHIBIT E — CONFLICT OF INTEREST GUIDELINES

     It is the policy of Oculus Innovative Sciences, Inc., its subsidiaries, affiliates successors
or assigns (together, the “Company”) to conduct its affairs in strict compliance with the letter
and spirit of the law and to adhere to the highest principles of business ethics. Accordingly, all
officers, employees, and independent contractors must avoid activities which are in conflict or
give the appearance of being in conflict, with these principles and with the interests of the
Company. The following are potentially compromising situations which must be avoided. Any
exception must be reported to the President and written approval for continuation must be obtained.

1. Revealing confidential information to outsider or misusing confidential information.
Unauthorized divulging of information is a violation of this policy whether or not for personal
gain and whether or not harm to the Company is intended.

2. Accepting or offering substantial, excessive entertainment, favors or payments which may be
deemed to constitute undue influence or otherwise be improper or embarrassing to the Company.

3. Participating in civic or professional organizations that might involve divulging confidential
information of the Company.

4. Initiating or approving any form of personal or social harassment of employees.

5. Investing or holding outside directorship in suppliers, customers, or competing companies,
including financial speculations, where such investment or directorship might influence in any
manner a decision or course of action of the Company.

6. Borrowing or lending to employees, customers or suppliers.

7. Acquiring real estate of interest to the Company.

8. Improperly using or disclosing to the Company any proprietary information or trade secrets of
any former of concurrent employer or other person or entity with whom obligations or
confidentiality exist.

9. Unlawfully discussing prices, costs, customers, sales or markets with competing companies or
their employees.

10. Making any unlawful agreement with distributors with respect to prices.

11. Engaging in any conduct which is not in the best interest of the Company.

 

 

     Each officer, employee and independent contractor must take every necessary action to ensure
compliance with these guidelines and to bring problem areas to the attention of higher management
for review. Violations of the conflict of interest policy may result in discharge without warning.

	 	 	 	 	 
	Date:

	 	 
	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	 
	Signature	 	 
	 
	 	 	 	 
	 	 	 
	Printexv10w18

 

Exhibit 10.18

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by and between Theresa
Mitchell (the “Executive”), and Oculus Innovative Sciences, Inc., a California corporation
(the “Corporation”), as of March 23, 2005 (the “Effective Date”).

     THE PARTIES ENTER THIS AGREEMENT on the basis of the following facts, understandings and
intentions:

          A. The Corporation desires that the Executive be employed by the Corporation to carry out the
duties and responsibilities described below, all on the terms and conditions hereinafter set forth.

          B. The Executive is willing to accept such employment on such terms and conditions.

     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of the parties, the
parties hereto agree as follows:

1. Retention and Duties.

     1.1 Retention. The Corporation does hereby hire, engage and employ the Executive for the
Period of Employment (as defined in Section 2) on the terms and conditions expressly set forth in
this Agreement. The Executive does hereby accept and agree to such hiring, engagement and
employment, on the terms and conditions expressly set forth in this Agreement.

     1.2 Duties. During the Period of Employment, the Executive shall serve the Corporation as
its VP, Regulatory/Clinical/Quality. The Executive shall, without limitation and without limiting
the Executive’s other duties to the Corporation, and without limiting the authority of the
Corporation’s Board of Directors (the “Board”), be responsible for the general supervision,
direction and control of the clinical, regulatory and quality assurance departments of the
Corporation and have such other duties and responsibilities as the Chief Executive Officer
(“CEO”) shall designate that are consistent with the Executive’s position. The Executive
shall perform all of such duties and responsibilities in accordance with the legal directives of
the CEO and in accordance with the practices and policies of the Corporation as in effect from time
to time throughout the Period of Employment (including, without limitation, the Corporation’s
insider trading and ethics policies, as they may change from time to time). While employed as VP,
RA/CA/QA, the Executive shall report exclusively to the CEO. Throughout the Period of Employment,
the Executive shall not serve on the boards of directors or advisory boards of any other entity
unless such service is expressly approved by the Board and/or CEO. Executive acknowledges and
agrees that he owes a fiduciary duty of loyalty and to act at all times in the best interest of the
Corporation and to do no act which would injure the business, interests, or reputation of the
Corporation of any of its affiliated companies.

     1.3 No Other Employment; Minimum Time Commitment. Throughout the Period of Employment, the
Executive shall both (i) devote substantially all of the Executive’s business time, energy and
skill to the performance of the Executive’s duties for the Corporation, and (ii) hold no other job.
The Executive agrees that any investment or direct involvement in, or any

1

 

appointment to or
continuing service on the board of directors or similar body of, any corporation or other entity
must be first approved in writing by the Corporation. The foregoing provisions of this Section 1.3
shall not prevent the Executive from investing in non-competitive publicly-traded securities to the
extent permitted by Section 7. The Executive agrees that, as of the Effective Date, Exhibit A to
this Agreement sets forth a complete and accurate description of (i) any investment or direct
involvement of the Executive in any other corporation or business that reasonably could be
construed as falling outside of the scope of the foregoing permitted investments and involvement,
and (b) any board of directors or similar body of any corporation or other entity on which the
Executive is a member. The Corporation may require the Executive to resign from membership on any
board or similar body of any entity, on which he may now or in the future serve, if the Corporation
determines that the Executive’s membership on such board or similar body interferes (interference
shall include, without limitation, giving rise to conflicts or competitive activity) with the
performance of the Executive’s duties hereunder.

     1.4 No Breach of Contract. The Executive hereby represents to the Corporation that: (i)
the execution and delivery of this Agreement by the Executive and the Corporation and the
performance by the Executive of the Executive’s duties hereunder shall not constitute a breach of,
or otherwise contravene, the terms of any other agreement or policy to which the Executive is a
party or otherwise bound; and (ii) in the event Executive is bound by any confidentiality, trade
secret or similar agreement (other than this Agreement) with any other person or entity, Executive
will comply with such agreement and not disclose any confidential information or trade secret of
any other party to Corporation.

     1.5 Location. The Executive acknowledges that the Corporation’s principal executive
offices are currently located in Petaluma, California. The Executive’s principal place of
employment shall be the Corporation’s principal executive offices, as they may be moved from time
to lime upon mutual agreement by the Executive and the Corporation. The Executive agrees that the
Executive will be regularly present at the Corporation’s principal executive offices and that the
Executive will be required to travel from time to time in the course of performing the Executive’s
duties for the Corporation.

2. Period of Employment. The “Period of Employment” shall commence on June
23, 2005, and shall continue until the date of Executive’s termination pursuant to Section 5.

3. Compensation.

     3.1 Base Salary. Effective March 23, 2005 and during the Period of Employment, the Corporation shall pay to the
Executive a base salary at the rate of $165,000 per year, subject to increase (but not decrease) by
the CEO (the “Base Salary”). The Executive’s Base Salary shall be paid in accordance with the
Corporation’s regular payroll practices in effect from the to time, but not less frequently than in
monthly installments.

     3.2 Options to Purchase Company Stock: Upon approval of the Board of Directors, the
Company will immediately grant you options to purchase an aggregate of two hundred thousand
(200,000) shares of common stock, at an exercise price to be determined by the Board of Directors,
subject to a five (5) year vesting schedule, and expiring ten (10) years from the date of the
option grant and issuance. Further information regarding this option grant will be provided to you
under a separate document. Additional option grants may be approved at the

2

 

discretion of the
Company. Please, note that the Company is a privately held California “C” corporation and its
shares are not publicly traded on any exchange.

4. Benefits.

     4.1 Health and Welfare. During the Period of Employment, the Executive shall be entitled
to participate in all employee pension and welfare benefit plans and programs made available by the
Corporation to the Corporation’s senior-level employees generally, as such plans or programs may be
in effect from time to time.

     4.2 Reimbursement of Business Expenses. The Executive is authorized to incur reasonable
expenses in carrying out the Executive’s duties for the Corporation under this Agreement and
entitled to reimbursement for all such expenses the Executive incurs during the Period of
Employment in connection with carrying out the Executive’s duties for the Corporation, subject to
the Corporation’s reasonable expense reimbursement policies in effect from time to time. The
Corporation shall reimburse the Executive to the extent required by the preceding sentence.

     4.3 Vacation and Other Leave. During the Period of Employment, the Executive shall accrue
and be entitled to take 15 days of paid vacation per year, in accordance with the Corporation’s
standard vacation policies in effect from time to time, including the Corporation’s policies
regarding vacation accruals. The Executive shall also be entitled to all other holiday and leave
pay generally available to other employees of the Corporation and/or required by law.

5. Termination.

     5.1 Termination by the Executive. The Executive may terminate his employment at any time
during the course of this Agreement by giving no less than thirty (30) days prior written notice
(“Notice Period”) to the President of
the Corporation and pursuant to Section 25 herein. During the Notice Period, Executive will
fulfill any of his duties and responsibilities set forth herein and use his best efforts to train
and support his replacement, if any. Failure to comply with this requirement may result in
Termination for Cause described below, but otherwise Executive’s salary and benefits will remain
unchanged during the Notice Period.

     5.2 Termination by the Corporation Without Cause. The Corporation may terminate
Executive’s employment at any time for any reason (“Termination Without Cause”) during the course
of this Agreement by giving no less than twelve (12) months prior written notice (“Notice Period”)
to the Executive. During the Notice Period, Executive must fulfill any of Executive’s duties and
responsibilities set forth herein and use Executive’s best efforts to train and support Executive’s
replacement, if any. Failure of Executive to comply with this requirement may result in
Termination for Cause described below, but otherwise Executive’s salary and benefits will remain
unchanged during the Notice Period. Corporation may, in its sole discretion, give Executive
severance pay in the amount of Executive’s monthly Salary associated with the remaining months in
the Notice Period in lieu of actual employment, and nothing herein shall require Corporation to
maintain Executive in active employment for the duration of the Notice Period.

     5.3 Termination by the Corporation For Cause. The Corporation may at any time without
prior written nonce, terminate the Executive’s employment for “Cause.” For purposes of

3

 

this
Agreement, “Cause” shall include but will not be limited to termination based on any of the
following grounds:

          (i) Executive refuses to comply in any material respect wid1 the legal directives of the
Company’s CEO or President so long as the directives are not inconsistent with Executive’s position
and duties, which is not remedied (if remediable) with twenty (20) working days after written
notice from the Company, which written notice shall state that failure to remedy such conduct may
result in termination for cause;

          (ii) Executive is or was in engaged in any act of fraud, misappropriation, embezzlement or
acts of similar dishonesty;

          (iii) Executive being charged or convicted of a felony or entry of a guilty plea or a plea of
nolo contendere under the laws of the United States or any other country;

          (iv) Executive’s inability to perform duties hereunder due to the appearance or actual use of
alcohol or illegal drugs;

          (v) Executive’s intentional and willful misconduct that may subject the Corporation to
criminal or civil liability;

          (vi) Executive’s breach of the Executive’s duty of loyalty, including the diversion or
usurpation of corporate opportunities properly belonging to the Corporation;

          (vii) Executive’s breach of this Agreement or any Corporation policy that remains uncured for
a ten-day period commencing upon Corporation providing notice of such breach to Executive; or

          (viii) Executive’s insubordination or deliberate refusal to follow the instructions of
Executive’s direct supervisor or the President of the Corporation.

     5.4 Termination By Death or Disability. The Executive’s employment and rights to
compensation under this Employment Agreement shall terminate if the Executive is unable to perform
the duties of his position due to death or disability lasting more than ninety (90) days, and the
Executive’s heirs, beneficiaries, successors, or assigns shall not be entitled to any of the
compensation or benefits to which Executive is entitled under this Agreement, except: (i) to the
extent specifically provided in this Employment Agreement (ii) to the extent required by law; or
(iii) to the extent that such benefit plans or policies under which Executive is covered provide a
benefit to the Executive’s heirs, beneficiaries, successors, or assigns.

     5.5 Termination Upon Change of Control. (i) Upon a Termination Upon Change of Control, (a)
Executive shall receive a lump sum payment in an amount equal to twelve (12) months of Executive’s
base salary (less applicable withholding), paid within thirty (30) business days; and (b) any and
all stock options, stock appreciation rights, restricted stock awards, and similar equity and
equity-based awards granted by the Corporation to the Executive outstanding immediately prior to
such termination of employment shall thereupon be deemed fully vested and shall be exercisable for
a period of no less than twelve (12) months thereafter or until the stated expiration date for such
option or award at the end of its maximum term, whichever is earlier.

4

 

          (ii) For purposes of this Agreement “Termination Upon Change of Control” means any
termination of the employment of Executive by the Corporation without Cause during the period
commencing on or after the date that the Corporation first publicly announces that it has signed a
definitive agreement or that the Corporation’s Board of Directors has endorsed an offer for the
Corporation’s stock which in either case when consummated would result in a Change of Control.

          (iii) For purposes of this Agreement, “Change of Control” shall mean:

     (a) any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than a
trustee or other fiduciary holding securities of the Corporation under an employee benefit
plan of the Corporation, becomes the “beneficial owner” (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of the
Corporation representing sixty- six percent (66%) or more of (A) the outstanding shares of
common stock of the Corporation or (B) the combined voting power of the Corporation’s
then-outstanding securities;

     (b) the Corporation is party to a merger or consolidation, or series of related
transactions, which results in the voting securities of the Corporation outstanding
immediately prior thereto failing to continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving or another entity)
at least sixty-six percent (66%) of the combined voting power of the voting securities of
the Corporation or such surviving or other entity outstanding immediately after such merger
or consolidation; or

     (c) the sale or disposition of all or substantially all of the Corporation’s assets (or
consummation of any transaction, or series of related transactions, having similar effect),
unless at least thirty-three percent (33%) of the combined voting power of the voting
securities of the entity acquiring those assets is held by persons who held the voting
securities of the Corporation immediate prior to such transaction or series of transactions.

          (iv) Any obligation of the Corporation pursuant to Section 5.5(i) to pay a severance benefit
in the circumstances described therein is further subject to the following two conditions
precedent: (a) such severance obligation shall be paid only if the Executive has remained in
compliance with all of the provisions of Section 5.7 and Sections 7 through 12, and such obligation
shall terminate immediately if the Executive is for any reason not in compliance with one or more
of those provisions; and (b) the Executive’s satisfaction of the release obligations set forth in
Section 5.6. For purposes of the preceding sentence, if the Executive is not in compliance with
one or more provisions of Section 5.7, and Sections 7 though 12, and a cure is reasonably possible
in the circumstances, the Executive will not be deemed to have breached such provision(s) unless
the Executive is given notice and a reasonable opportunity (in no case shall more than a 10-day
cure period be required) to cure such breach and such breach is not cured within such time period.
The parties agree that a cure will not be reasonably possible in all circumstances including,
without limitation, a material breach of confidentiality or similar occurrence.

5

 

          (v) Except as expressly provided herein, the foregoing provisions of this Section 5.5 shall
not affect: (a) the Executive’s receipt of benefits otherwise due terminated employees under group
insurance coverage consistent with the terms of the applicable Corporation welfare benefit plan;
(b) the Executive’s rights under COBRA to continue participation in medical, dental,
hospitalization and life insurance coverage; (c) the Executive’s receipt of benefits otherwise due
in accordance with the terms of the Corporation’s 401(k) plan (if any); or (d) any rights that the
Executive may have under and with respect to a stock option, stock appreciation right, restricted
stock award, or similar equity or equity-based award, to the extent that such award was granted
before the date that the Executive’s employment by the Corporation terminates and to the extent
expressly provided in the written agreement evidencing such award.

     5.6 Release: Exclusive Remedy.

          (i) This Section 5.6 shall apply notwithstanding anything else contained in this Agreement to
the contrary. As a condition precedent to any Corporation obligation to the Executive pursuant to
Sections 5.2 or 5.5, the Executive shall, upon or promptly following his last day of employment
with the Corporation, provide the Corporation with a valid, executed, written Release (as defined
in Section 5.6(iii) (in a form provided by the Corporation) and such release shall have not been
revoked by the Executive pursuant to any revocation rights afforded
by applicable law. The Corporation shall have no obligation to make any payment to the
Executive pursuant to Sections 5.2 or 5.5 unless and until the Release contemplated by this Section
5.6 becomes irrevocable by the Executive in accordance with all applicable laws, rules and
regulations.

          (ii) The Executive agrees that the payments contemplated by Sections 5.2 or 5.5 shall
constitute the exclusive and sole remedy for any termination of his employment and the Executive
covenants not to assert or pursue any other remedies, at law or in equity, with respect to any
termination of employment. The Corporation and Executive acknowledge and agree that there is no
duty of the Executive to mitigate damages under this Agreement. All amounts paid to the Executive
pursuant to Section 5.2 or 5.5 shall be paid without regard to whether the Executive has taken or
takes actions to mitigate damages.

          (iii) As used herein, “Release” shall mean a written release, discharge and covenant not to
sue entered into by the Executive on behalf of himself, his descendants, dependents, heirs,
executors, administrators, assigns, and successors, and each of them, of and in favor of the
Corporation, its parent (if any), the Corporation’s subsidiaries and affiliates, past and present,
and each of them, as well as its and their trustees, directors, officers, agents, attorneys,
insurers, employees, shareholders, members, representatives, assigns, and successors, past and
present, and each of them (the “releasees”), with respect to and from any and all claims,
wages, demands, rights, liens, agreements, contracts, covenants, actions, suits, causes of action,
obligations, debts, costs, expenses, attorneys’ fees, damages, judgments, orders and liabilities of
whatever kind or nature in law, equity or otherwise, whether now known or unknown, suspected or
unsuspected, and whether or not concealed or hidden, which he may then own or hold or he at any
time theretofore owned or held or may in the future hold as against any or all of said releasees,
arising out of or in any way connected with the Executive’s employment relationship with each and
every member of the Corporation Group (as defined in Section 7) with which the Executive has had
such a relationship, or the termination of his employment or any other

6

 

transactions, occurrences,
acts or omissions or any loss, damage or injury whatever, known or unknown, suspected or
unsuspected, resulting from any act or omission by or on the part of said releasees, or any of
them, committed or omitted prior to the date of such release including, without limiting the
generality of the foregoing, any claim under Section 1981 of the Civil Rights Act of 1866, Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Family and Medical Leave Act of 1993, the California Fair Employment and
Housing Act, the California Family Rights Act, any other claim under any other federal, state or
local law or regulation, and any other claim for severance pay, bonus or incentive pay, sick leave,
holiday pay, vacation pay, life insurance, health or medical insurance or any other fringe benefit,
medical expenses, or disability (except that such release shall not constitute a release of any
Corporation obligation to the Executive that may be due to the Executive pursuant to Sections 5.2
or 5.5 upon the Corporation’s receipt of such release). The Release shall also contain the
Executive’s warrant that he has not theretofore assigned or transferred to any person or entity,
other than the Corporation, any released matter or any part or portion thereof and that he will
defend, indemnify and hold harmless the Corporation and the aforementioned releasees from and
against any claim (including the payment of attorneys’ fees and costs actually incurred whether or
not litigation is commenced) that is directly or indirectly based on or in connection with or
arising out of any such assignment or transfer made, purported or claimed.

     5.7 Resignation From Boards. Upon or promptly following any termination of Executive’s
employment with the Corporation, the Executive will resign from (i) each and every board of
directors (or similar body, as the case may be) of the Corporation and each of its affiliates on
which the Executive may then serve (if any), and (ii)each and every office of the Corporation and
each of its affiliates that the Executive may then hold, and all positions that he may have
previously held with the Corporation and any of its affiliates.

     5.8 Excise Tax Gross-Up. During and after the period of Executive’s employment with the
Corporation, Executive shall be entitled to the excise tax protections set forth in Exhibit B
hereto. The preceding sentence takes precedence over any contrary provision (such as, without
limitation, an excise tax cut-back provision) of any other applicable incentive plan or award
agreement.

6. Means and Effect of Termination. Any termination of the Executive’s employment
under this Agreement shall be communicated by written notice of termination from the terminating
party to the other party. The notice of termination shall indicate the specific provision(s) of
this Agreement relied upon in effecting the termination.

7. Non-Competition. The Executive acknowledges and recognizes the highly competitive
nature of the businesses of the Corporation Group. Executive agrees that his position with
Corporation places him in a position of confidence and trust with clients and employees of
Corporation and that harm to the Corporation would result if any Corporation Group confidential
information, trade secrets, knowledge (including but not limited to any customer account
information) or expertise was disclosed or in any way made available to a competitor. As part of
the consideration for the compensation benefits to be paid to Executive hereunder and to protect
confidential information, trade secrets, knowledge or expertise of the Corporation Group disclosed
to Executive during the Employment Period, and as additional incentive for the

7

 

Corporation to enter
in to this Agreement, Executive and Corporation hereby expressly agrees as follows:

          (i) As a result of the particular nature of the Executive’s relationship with the Corporation,
in the capacities identified earlier in this Agreement, for the Period of Employment the Executive
hereby agrees that he will not, directly or indirectly, (a) engage in any business for the
Executive’s own account or otherwise derive any personal benefit from any business that competes
with the business of the Corporation or any of its affiliates (the Corporation and its affiliates
are referred to, collectively, as the “Corporation Group”), (b) enter the employ of, or
render any services to, any person engaged in any business that competes with the business of any
entity within the Corporation Group, (c) acquire a &cia1 interest in any person engaged in any
business that competes with the business of any entity within the Corporation Group, directly or
indirectly, as an individual, partner, member, shareholder, officer, director, principal, agent,
trustee or consultant, or (d) interfere with business relationships (whether formed before or after
the Effective Date) between the Corporation, any of its respective affiliates or subsidiaries, and
any customers, suppliers, officers, employees, partners, members or investors
of any entity within the Corporation Group. For purposes of this Agreement, businesses in
competition with the Corporation Group shall include, without limitation, businesses which any
entity within the Corporation Group may conduct operations, and any businesses which any entity
within the Corporation Group has specific plans to conduct operations in the future and as to which
the Executive is aware of such planning, whether or not such businesses have or have not as of that
date commenced operations.

          (ii) Notwithstanding anything to the contrary in this Agreement, the Executive may, directly
or indirectly, own, solely as an investment, securities of any person which are publicly traded on
a national or regional stock exchange or on an over-the-counter market if the Executive (a) is not
a controlling person of, or a member of a group which controls, such person, and (b) does not,
directly or indirectly, beneficially own one percent (1%)or more of any class of securities of such
person.

          (iii) The restrictions set forth above shall apply regardless of whether the termination of
Executive’s employment occurred with or without Cause or Upon a Termination of Change of Control

8. Confidentiality.

     8.1 Confidential Information. As a material part of the consideration for the
Corporation’s commitment to the terms of this Agreement, the Executive hereby agrees that the
Executive will not at any time (whether during or after the Executive’s employment with the
Corporation), other in the course of the Executive’s duties hereunder, or unless compelled by
lawful process after written notice to the Corporation of such notice along with sufficient time
for the Corporation to try and overturn such lawful process, disclose or use for the Executive’s
own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint
venture, association, corporation or other business organization, entity or enterprise, any trade
secrets, or other confidential data or information relating to customers, development programs,
costs, marketing, trading, investment, sales activities, promotion,
credit and financial data,
financing methods, or plans of any entity with the Corporation Group; provided, however, that the
foregoing shall not apply to information which is generally known to the industry or the

8

 

public,
other than as a result of the Executive’s breach of this covenant. The Executive further agrees
that the Executive will not retain or use for his account, at any time, any trade names, trademark
or other proprietary business designation used or owned in connection with the business of any
entity with the Corporation Group.

     8.2 Third Party Information. Executive recognizes that the Corporation has received and in
the future will receive from third parties their confidential or proprietary information subject to
a duty on the Corporation’s part to maintain the confidentiality of such information and to use it
only for certain limited purposes. Executive will hold all such confidential or proprietary
information and to use it only for certain limited purposes. Executive will hold all such
confidential or proprietary information in the strictest confidence and not to disclose it to any
person, firm or corporation or to use in except as
necessary in carrying out my work for the Corporation consistent with the Corporation’s agreement
with such third party.

9. Inventions and Developments. 

     9.1 Assignment of Inventions. (i) All inventions, policies, systems, developments or
improvements conceived, designed, implemented and/or made by the Executive, either alone or in
conjunction with other, at any time or at any place during the Period of Employment, whether or not
reduced to writing or practice during such Period of Employment, which directly or indirectly
relate to the business of any entity within the Corporation Group, or which were developed or made
in whole or in part using the facilities and/or capital of any entity within the Corporation Group,
shall be the sole and exclusive property of the Corporation Group. The Executive shall promptly
give notice to the Corporation of any such invention, development, patent or improvement, and shall
at the same time, without the need for any request by any person ‘ or entity within the Corporation
Group, assign all of the Executive’s rights to such invention, development, patent and/or
improvement to the Corporation Group. The Executive shall sign all instruments necessary for the
filing and prosecution of any applications for, or extension or renewals of, letters patent of the
United States or any foreign country that any entity in the Corporation Group desires to file.

          (ii) All copyrightable work by the Executive during the Period of Employment that relates to
the business of any entity in the Corporation Group is intended to be “work made for hire” as
defined in Section 101 of the Copyright Act of 1976, and shall be the property of the Corporation
Group. Executive will promptly make full written disclosure to the Corporation, will hold in trust
for the sole right and benefit of the Corporation, and hereby assign to the Corporation, or its
designee, all his right, title and interest in and to any and all inventions, original works of
authorship, developments, concepts, improvements or trade secrets, whether or not patentable or
registrable under copyright or similar laws, which Executive may solely or jointly conceive or
develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during
the Period of Employment (collectively referred to as “Inventions”), except as provided in
Section 9(f) below.

     If the copyright to any such copyrightable work is not the property of the Corporation Group
by operation of law, the Executive will, without further consideration, assign to the Corporation
Group all right, title and interest in such copyrightable work and will assist the entities in the
Corporation Group and their nominees in every way, at the Corporation Group’s expense, to secure,
maintain and defend for the Corporation Group’s benefit copyrights and any

9

 

extensions and renewals
thereof on any and all such work including translations thereof in any and all countries, such work
to be and to remain the property of the Corporation Group whether copyrighted or not.

     9.2 Inventions Retained and Licensed. Attached hereto, as Exhibit C, is a list describing
all inventions, original works of authorship, developments, improvements and trade secrets which
were made by the Executive prior to my employment with the Corporation (collectively referred to as
“Prior Inventions”), which belong to me, which relate to the Corporation’s proposed business,
products or research and
development, and which are not assigned to the Corporation hereunder; or, if no such list is
attached, Executive represents that there are no such Prior Inventions. If during the Period of
Employment, Executive incorporates a product or process a Prior Invention owned by Executive or in
which Executive has an interest, Executive hereby grants the Corporation a nonexclusive,
royalty-free, irrevocable, perpetual world- wide license to make, have made, modify use and sell
such Prior Invention as part of or in connection with such product or process.

     9.3 Inventions Assigned to the United States. Executive will assign to the United States
government any of its right, title and interest in and to any and all Inventions whenever such full
title is required to be in the United States by a contract between the Corporation and the United
States or any of its agencies.

     9.4 Maintenance of Records. Executive will keep and maintain adequate and current written
records of all Inventions made by his (solely or jointly with others) during the term of the Period
of Employment. The records will be in the form of notes, sketches, drawings, and any other format
that may be specified by the Corporation. The records will be available to and remain the sole
property of the Corporation at all times.

     9.5 Exception to Assignments. Executive and Corporation understand that the provisions of
the Agreement requiring assignment of Inventions to the Corporation do not apply to any invention
which qualifies under any provision of the laws of the state in which Executive is employed which
do not require assignment. Specifically, the provisions of the Agreement requiring assignment of
Invention of the Corporation do not apply to any invention which qualifies under California Labor
Code 2870, which Section is reproduced in full in the attached Written Notification to Executive.
Executive will advise the Corporation promptly in writing of any inventions that he believes meets
the criteria of the laws of the state in which Executive is employed which to not require
assignment and are not otherwise disclosed on Exhibit A.

10. Anti-Solicitation. In light of the amount of sensitive and confidential
information involved in the discharge of the Executive’s duties, and the harm to the Corporation
that would result if such knowledge or expertise were disclosed or made available to a competitor,
and as a reasonable step to help protect the confidentiality of such information, the Executive
promises and agrees that during the Period of Employment and for a period of one (1)year
thereafter, the Executive will no< directly or indirectly, individually or as a consultant to,
or as an employee, officer, shareholder, director or other owner or participant in any business,
influence or attempt to influence customers, vendors, suppliers, joint venturers, associates,
consultants, agents, or partners of any entity within the Corporation Group, either directly or
indirectly, to divert their business away from the Corporation Group, to any individual,
partnership, firm, corporation or other entity then in competition with the business of any entity
within the Corporation Group,

10

 

and he will not otherwise materially interfere wid1 any business
relationship of any entity within the Corporation Group.

11. Soliciting Employees. In light of the amount of sensitive and confidential
information involved in the discharge of the Executive’s duties, and the harm to the Corporation
that would result if such knowledge or expertise were disclosed or made available to a competitor,
and as a reasonable step to help protect the confidentiality of such information, the Executive
promises and agrees that during the Period of Employment and for a period of one (1)year
thereafter, the Executive will not, directly or indirectly, individually or as a consultant to, or
as an employee, officer, shareholder, director or other owner of or participant in any business,
solicit (or assist in soliciting) any person who is then, or at any time within six (6) months
prior thereto was, an employee of an entity within the Corporation Group, who earned annually
$25,000 or more as an employee of such entity during the last six (6) months of his or his own
employment to work for (as an employee, consultant or otherwise) any business, individual
partnership, firm, corporation, or other entity whether or not engaged in competitive business with
any entity in the Corporation Group.

12. Return of Property. The Executive will truthfully and faithfully account for and
deliver to the Corporation all property belonging to the Corporation, any other entity in the
Corporation Group, or any of their respective affiliates, which the Executive may receive from or
on account of the Corporation, any other entity in the Corporation Group, or any of their
respective affiliates, and upon the termination of the Period of Employment, or the Corporation’s
demand, the Executive shall immediately deliver to the Corporation as such property belonging to
the Corporation, any other entity in the Corporation Group, or any of their respective affiliates.

13. Conflict of Interest Guidelines. Executive will diligently adhere to the Conflict
of Interest Guidelines attached hereto as Exhibit E.

14. Compliance with Foreign Corrupt Practices Act. With respect to employment with
the Corporation, Executive will abide by all applicable laws, rules, regulations, ordinances and
court or administrative orders and processes including, without limitations, Title 15 United States
Code Section 78(dd-2) (the Foreign Corrupt Practices Act). Executive will not* the Corporation in
writing of any payment or gifts made to or any plan, intention or promise to make payment or gifts
to any foreign governmental authority or agent thereof.

15. Withholding Taxes. Notwithstanding anything else herein to the contrary, the
Corporation may withhold (or cause there to be withheld, as the case may be) from any amounts
otherwise due or payable under or pursuant to this Agreement such federal, state and local income,
employment, or other taxes as may be required to be withheld pursuant to any applicable law or
regulation.

16. Cooperation in Litigation. The Executive agrees that he will reasonably cooperate with the Corporation, subject to his
reasonable personal and business schedules, in any litigation which arises out of events occurring
prior to the termination of his employment, including but not limited to, serving as a witness or
consultant and producing documents and information relevant to the case or helpful to the
Corporation. The Corporation agrees to reimburse the Executive for all reasonable costs and
expenses he incurs in connection with his obligations

11

 

under this Section 14 and, in addition, to
reasonably compensate the Executive for time actually spent in connection therewith following the
termination of his employment with the Corporation.

17. Assignment. This Agreement is personal in its nature and neither of the parties
hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or
obligations hereunder; provided, however, that in the event of a merger,
consolidation, or transfer or sale of all or substantially all of the assets of the Corporation
with or to any other individual(s) or entity, this Agreement shall, subject to the provisions
hereof, be binding upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of the Corporation
hereunder.

18. Number and Gender. Where the context requires, the singular shall include the
plural, the plural shall include the singular, and any gender shall include all other genders.

19. Section Headings. The section headings of, and titles of paragraphs and
subparagraphs contained in, this Agreement are for the purpose of convenience only, and they
neither form a pas of this Agreement nor ate they to be used in the construction or interpretation
thereof.

20. Governing Law. This Agreement, and all questions relating to its validity,
interpretation, performance and enforcement, as well as the legal relations hereby created between
the parties hereto, shall be governed by and construed under, and interpreted and enforced in
accordance with, the laws of the State of California, notwithstanding any California or other
conflict of law provision to the contrary.

21. Severability. If any provision of this Agreement or the application thereof is
held invalid, the invalidity shall not affect other provisions or applications of this Agreement
which can be given effect without the invalid provisions or applications and to this end the
provisions of this Agreement are declared to be severable.

22. Entire Agreement. This Agreement embodies the entire agreement of the parties
hereto respecting the matters within its scope. This Agreement supersedes all prior and
contemporaneous agreements
of the parties hereto that directly or indirectly bears upon the subject matter hereof. Any
prior negotiations, correspondence, agreements, proposals or understandings relating to the subject
matter hereof shall be deemed to have been merged into this Agreement, and to the extent
inconsistent herewith, such negotiations, correspondence, agreements, proposals, or understandings
shall be deemed to be of no force or effect. There are no representations, warranties, or
agreements, whether express or implied, or oral or written, with respect to the subject matter
hereof, except as expressly set forth herein.

23. Modifications. ‘Ibis Agreement may not be amended, modified or changed (in whole
or in part), except by a formal, definitive written agreement expressly referring to this
Agreement, which agreement is executed by both of the parties hereto.

24. Waiver. Neither the failure nor any delay on the part of a party to exercise any
right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of
such

12

 

right, remedy, power or privilege with respect to any other occurrence. No waiver shall be
effective unless it is in writing and is signed by the party asserted to have granted such waiver.

25. Resolution of Disputes.

     25.1 Arbitration. Employee agrees that any and all controversies, claims, or disputes with
anyone (including the Company and any employee, officer, director, shareholder or benefit plan of
the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from
Employee’s employment with the Company or the termination of Employee’s employment with the
Company, including any breach of this Agreement, shall be subject to binding arbitration under the
Arbitration Rules set forth in California Code of Civil Procedure Section 1280 through 1294.2,
including section 1283.05 (the “Rules”) and pursuant to California law. Corporation agrees to
arbitrate any dispute that the Company may have with Employee.

     Disputes that the parties agree to arbitrate, and thereby, waive any right to a trial by jury,
include any statutory claims under state or federal law, including, but not limited to, claims
under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the
Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the
California Fair Employment and Housing Act, the California Labor Code, claims of harassment,
discrimination or wrongful termination and any statutory claims. By agreeing to have these claims
resolved through binding arbitrate, neither Employee nor the Company waive any rights that may be
available pursuant to federal or state law.

     Any disputes shall be submitted to arbitration in Santa Rosa, California, before a sole
arbitrator (the “Arbitrator”) selected from judicial arbitration mediation services
(“JAMS”), or if JAMS is no longer able to supply the arbitrator, such arbitrator shall be
selected from the
American Arbitration Association (“AAA”),and shall be conducted in accordance with the
provisions of California Code of Civil Procedure §§ 1280 et seq. as the exclusive remedy of such
dispute. Final resolution of any dispute through arbitration may include any remedy or relief that
the Arbitrator deems just and equitable, including any and all remedies provided by applicable
state or federal statutes. At the conclusion of the arbitration, the Arbitrator shall issue a
written decision that sets forth the essential findings and conclusions upon which the Arbitrator’s
award or decision is based. Any award or relief granted by the Arbitrator hereunder shall be final
and binding on the parties hereto and may be enforced by any court of competent jurisdiction.

     25.2 Waiver of Jury Trial. The parties acknowledge and agree that they are hereby waiving
any rights to trial by jury in any action, proceeding or counterclaim brought by either of the
parties against the other in connection with any matter whatsoever arising out of or in any way
connected with any of the matters referenced in the first sentence of the first paragraph of this
Section 24.

     25.3 Fees. The parties agree that Corporation shall be responsible for payment of the
forum costs of any arbitration hereunder, including the Arbitrator’s fee. The parties further
agree that in any proceeding with respect to such matters, the prevailing party will be entitled to
recover its reasonable attorney’s fees and costs from the non-prevailing party (other than forum
costs associated with the arbitration which in any event shall be paid by the Corporation).

13

 

     25.4 Injunctive Relief. Without limiting the remedies available to the parties and
notwithstanding the foregoing provisions of this Section 23, the Executive and the Corporation
acknowledge that any breach of any of the covenants or provisions contained in Sections 5.6, and 7
through 12 could result in irreparable injury to either of the parties hereto for which there might
be no adequate remedy at law, and that, in the event of such a breach or threat thereof, the
non-breaching party shall be entitled to obtain a temporary restraining order and/or a preliminary
injunction and a permanent injunction restraining the other party hereto from engaging in any
activities prohibited by any covenant or provision in Sections 5.6, and 7 through 12 or such other
equitable relief as may be required to enforce specifically any of the covenants or provisions of
Sections 5.6, and 7 through 12.

26. Notices. (i) All notices, requests, demands and other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have been duly given and
made if (a) delivered by hand, (b) otherwise delivered against receipt therefore, or (iii)sent by
registered or certified mail, postage prepaid, return receipt requested. Any notice shall be duly
addressed to the parties as follows:

(c) if to the Corporation:

Oculus Innovative Services, Inc.

1129 North McDowell Boulevard

Petaluma, California 94954

Attn: Jim Schutz

Fax: +1 (707) 782 0705

(d) if to the Executive:

Theresa Mitchell

10751 Green Valley Road

Sebastopol, CA 95472

+1 (707) 823 5995

          (ii) Any party may alter the address to which communications or copies are to be sent by
giving notice of such change of address in conformity with the provisions of this Section 24 for
the giving of notice. Any communication shall be effective when delivered by hand, when otherwise
delivered against receipt therefore, or five (5) business days after being mailed in accordance
with the foregoing.

     Legal Counsel: Mutual Drafting. Each party recognizes that this is a legally binding contract
and acknowledges and agrees that they have had the opportunity to consult with legal counsel of
their choice. Each party has cooperated in the drafting, negotiation and preparation of this
Agreement. Hence, in any construction to be made of this Agreement, the same shall not be
construed against either party on the basis of that party being the drafter of such language.

     Provisions that Survive Termination. The provisions of this Agreement that are intended to
survive shall survive any termination of the Period of Employment.

     Counterparts. This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original as against any party whose signature appears thereon, and all

14

 

of which
together shall constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the signatures of all
of the parties reflected hereon as the signatories. Photographic copies of such signed
counterparts may be used in lieu of the originals for any purpose.

     IN WITNESS WHEREOF, the Corporation and the Executive have executed this Agreement as of the
Effective Date.

	 	 	 	 	 	 	 	 	 
	CORPORATION	 	 	 	EXECUTIVE
	 
	 	 	 	 	 	 	 	 
	Oculus Innovative Services, Inc., a

California corporation	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Hoji Alimi	 	 	 	By:	 	/s/ Theresa Mitchell
	 

	 	 
	 	 	 	 	 	 
	 

	 	Hoji Alimi, CEO and President,
	 	 	 	 	 	Theresa Mitchell
	 

	 	Oculus Innovative Sciences, Inc.	 	 	 	 	 	 

15

 

EXHIBIT A — SECTION 1.3 DISCLOSURE SCHEDULE 

16

 

EXHIBIT
B —SECTION 5.7 EXCISE TAX GROSS-UP 

B.1 Equalization Payment. If any payment, distribution, transfer, or benefit (including,
without limitation, any amounts received or deemed received by the Executive within the meaning of
any provision of the Internal Revenue Code of 1986, as amended (the “Code”), or by the
Executive as a result of (and not by way of limitation) any automatic vesting, lapse of
restrictions and/or accelerated target or performance achievement provisions, or otherwise,
applicable to outstanding grants or awards to the Executive under any of the Corporation’s
incentive plans) by the Corporation or a successor, or by a direct or indirect subsidiary or
affiliate of the Corporation (or any successor or affiliate of any of them, and including any
benefit plan of any of them), whether paid or payable or distributed or distributable pursuant to
the terms of this, Agreement or otherwise (collectively, the “Total Payments”), is or will
be subject to 6e excise tax imposed under Section 4999 of the Code or any similar or successor tax
(the “Excise Tax”), the Corporation shall pay in cash to Executive or for Executive’s
benefit as provided below an additional amount or amounts (the “Gross-Up Payment(s)”) such
that the net amount retained by the Executive after the deduction of any Excise Tax on such Total
Payments and any Federal, state and local income tax and Excise Tax upon the Gross-Up payment(s)
provided for by this Section B.1 shall be equal to such Total Payments bad they not been subject to
the Excise Tax. Such Gross-Up Payment(s) shall be made by the Corporation to the Executive or to
any applicable taxing authority on behalf of the Executive as soon as practicable following the
receipt or deemed receipt of any such Total Payments by the Executive, and may be satisfied by the
Corporation making a payment or payments on the Executive’s account in lieu of withholding for tax
purposes but in all events shall be made within thirty (30) days of the receipt or deemed receipt
by the Executive of any such Total Payment.

B.2 Calculation of Gross-Up Payment. The determination of whether a Gross-Up Payment is
required pursuant to this Exhibit B and the amount of any such Gross-Up Payment shall be determined
in writing (the “Determination”) by a nationally-recognized certified public accounting
firm selected by the Corporation (the “Accounting Firm”). The Accounting Firm shall
provide its Determination in writing, together with detailed supporting calculations and
documentation and any assumptions used in making such computation, to the Corporation and the
Executive. In the event of a termination of the Executive’s employment which reasonably may
require the payment of a Gross-Up Payment or in the event of a Change in Control such documentation
shall be provided no later than twenty (20) days following such event. Within twenty (20) days
following delivery of the Accounting Firm’s Determination, the Executive shall have the right, at
the Corporation’s expense, to obtain the opinion of an “outside counsel” which opinion need not be
unqualified, which sets forth: (i) the amount of the Executive’s “annualized includible
compensation for the base period” (as defined in Code Section 280G(d)(1)); (ii) the present value
of the Total Payments made to the Executive; (iii)the amount and present value of any “excess
parachute payment;” and (iv) detailed supporting calculations and documentation and any assumptions
used in making such computations. The opinion of such outside counsel shall be supported by the
opinion of a nationally-recognized certified public accounting firm and, if necessary or required
by the Corporation, a firm of nationally-recognized executive compensation consultants. The
Executive shall also have the right to obtain such an opinion of outside counsel in the event that
the Corporation has not timely submitted the initial determination to the Accounting Firm as
provided above (including, without limitation, in the event that the Corporation does not submit
such a determination to the Accounting Firm following an event in connection with which the
Executive reasonably believes that he may be

 

 

entitled to a Gross-Up Payment). The outside counsel’s opinion shall be binding upon the
Corporation and the Executive and shall constitute the “Determination” for purposes of this Exhibit
B instead of the initial determination by the Accounting Firm. The Corporation shall pay (or, to
the extent paid by the Executive, reimburse the Executive for) the certified public accounting
firm’s and, if applicable, the executive compensation consultant’s reasonable and customary fees
for rendering such opinion. For purposes of this Section B.2, “outside counsel” means a licensed
attorney selected by the Executive who is recognized in the field of executive compensation and has
experience with respect to the calculation of the Excise Tax; provided that the Corporation must
approve the Executive’s selection, which approval shall not be unreasonably withheld.

     B.3 Computation Assumptions. For purposes of determining whether any Total Payments will
be subject to Excise Tax, and the amount of any such Excise Tax:

	 	(a)	 	Any other payments, benefits and/or amounts received or to be received by the
Executive in connection wid1 or contingent upon any change in the ownership or
effective control of the Corporation or any change in the ownership of a substantial
portion of the Corporation’s assets or termination of the Executive’s employment
(whether pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Corporation, or with any Person whose actions result in such a
change or any Person affiliated with the Corporation or such Persons) shall be combined
to determine whether the Executive has received any “parachute payment” within the
meaning of Section 280G(b)(2) of the Code, and if so, the amount of any “excess
parachute payments” within the meaning of Section 280G(b)(1) that shall be treated as
subject to the Excise Tax, unless in the opinion of the person or firm rendering the
Determination, such other payments, benefits and/or amounts (in whole or in part) do
not constitute parachute payments, or such excess parachute payments represent
reasonable compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of Section
280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax(for purposes of
this Section B.3(a), “Person” shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
“group” as defined in Section 13(d) thereof);
	 
	 	(b)	 	The value of any non-cash benefits or any deferred payment or benefit shall be
determined by the person or firm rendering the Determination in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code;
	 
	 	(c)	 	The compensation and benefits provided for in Section 5 of this Agreement, and
any other compensation earned prior to the termination of the Executive’s employment
pursuant to the Corporation’s compensation programs (if such payments would have been
made in the future in any event, even though the timing of such payment is triggered by
a change in the ownership or effective control of the Corporation or any change in the
ownership of a substantial portion of the Corporation’s assets or a termination of the
Executive’s employment), shall for purposes of the calculation pursuant to this Section
B.3 be deemed to be reasonable; and

 

 

	 	(d)	 	The Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made. Furthermore, the computation of the Gross-Up Payment shall
assume (and adjust for the fact) that (i) there is a loss of miscellaneous itemized
deductions under Section 67 of the Code (or analogous federal or state provisions) on
account of the Gross-Up Payment and (ii) a loss of itemized deductions under Section 68
of the Code (or analogous federal or state provisions) on account of the Gross-Up
Payment. The computation of the Gross-Up Payment shall take into account any reduction
in the Gross-Up Payment due to the Executive’s share of the hospital insurance portion
of FICA and any state withholding taxes (other than any state withholding tax for
income tax liability). The computation of the state and local income taxes applicable
to the Gross-Up Payment shall be based on the highest marginal rate of taxation in the
state and locality of the Executive’s residence on the date the Executive’s employment
terminates, and shall take into account the maximum reduction in federal income taxes
that could be obtained from the deduction of such state and local taxes.

B.4 Executive’s Obligation to Notify Corporation. The Executive shall promptly notify the
Corporation in writing of any claim by the Internal Revenue Service (or any successor thereof) or
any state or local taxing authority (individually or collectively, the “Taxing Authority”)
that, if successful, would require the payment by the Corporation of a Gross-Up Payment in excess
of any Gross-Up Payment as originally set forth in the Determination. If the Corporation notifies
the Executive in writing that it desires to contest such claim, the Executive shall: (a) give the
Corporation any information reasonably requested by the Corporation relating to such claim; (b)
take such action in connection with contesting such claim as the Corporation shall reasonably
request in writing from time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Corporation that is reasonably acceptable
to the Executive; (c) cooperate with the Corporation in good faith in order to effectively contest
such claim; and (d) permit the Corporation to participate in any proceedings relating to such
claim; provided that the Corporation shall bear and pay directly all attorneys fees, costs and
expenses (including additional interest, penalties and additions to tax) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for
all taxes (including, without limitation, income and excise taxes), interest, penalties and
additions to tax imposed in relation to such claim and in relation to the payment of such costs and
expenses or indemnification. Without limitation on the foregoing provisions of this Section B.4,
and to the extent its actions do not unreasonably interfere with or prejudice the Executive’s
disputes with the Taxing Authority as to other issues, the Corporation shall control all
proceedings taken in connection with such contest and, in its reasonable discretion, may pursue or
forego any and all, administrative appeals, proceedings, hearings and conferences with the Taxing
Authority in respect of such claim and may, at its sole option, either direct Executive to pay the
tax, interest or penalties claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive will prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the
Corporation shall determine; provided, however, that if the Corporation directs
Executive t6 pay such claim and sue for a refund, the Corporation shall advance an amount equal to
such payment to the Executive, on an interest-free basis, and shall indemnify and hold the
Executive harmless, on an after-tax basis, from all taxes (including, without limitation, income
and excise taxes), interest, penalties and additions to tax imposed with respect to such advance or
with respect to

 

 

any imputed income with respect to such advance, as any such amounts are incurred; and, further,
provided, that any extension of the statute of limitations relating to payment of taxes, interest,
penalties or additions to tax for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested amount; and,
provided, further, that any settlement of any claim shall be reasonably acceptable
to the Executive and the Corporation’s control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder, and the Executive shall be entitled
to settle or contest, as the case may be, any other issue.

B.5 Subsequent Recalculation. In the event of a binding or uncontested determination by
the Taxing Authority that adjusts the computation set forth in the Determination so that the
Executive did not receive the greatest net benefit required pursuant to Section B.1, the
Corporation shall reimburse the Executive as provided herein for the full amount necessary to place
the Executive in the same after-tax position as he would have been in had no Excise Tax applied.
In the event of a binding or uncontested determination by the Taxing Authority that adjusts the
computation set forth in the Determination so that the Executive received a payment or benefit in
excess of the amount required pursuant to Section B.1, then the Executive shall promptly pay to the
Corporation (without interest) the amount of such excess.

 

 

EXHIBIT C 

LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP 

	 	 	 	 	 
	Title

	 	Date
	 	Identifying Number or Brief Description
	 

     P      No inventions or improvements

              Additional Sheets Attached

Date:
June 8,
2005                              

Signature:
/s/ T. Mitchell                  

Print:
T.
Mitchell                                

 

 

EXHIBIT D — NOTICE TO EMPLOYEE UNDER LABOR CODE SECTION 2872 

     The Employment, Confidential Information, Invention Assignment and Arbitration agreement
between Oculus Innovative Sciences, Inc., (“Oculus”) and you contains a provision requiring you to
assign your light in any invention to Ubiquity subject to the exceptions set forth therein.
Section 2872 of the California Labor Code requires that you be provided with written notification
that the foregoing agreement does not apply to an invention which qualifies fully under the
provisions of Section 2870 of the California Labor Code. Section 2870 of the California Labor Code
reads as follows:

Section 2870. Employment agreements; assignment of rights

     a. Any provision in an employment agreement which provides hat an employee shall assign or
offer to assign any or his or her right in an invention to his or her employer shall not apply to
an invention that the employee developed entirely on his or her own time without using the
employer’s equipment, supplies, facilities, or trade secret information except for those inventions
that either:

     1. Relate at the time of conception or reduction to practice of the invention to file
employers business or actual or demonstrably anticipate research or development of the employer; or

     2. Result from any work performed by employee for the employer.

     b. To the extent a provision in an employment agreement purports to require an employee to
assign an invention otherwise excluded horn being required to be assigned under subdivision (a),
the provision is against public policy of the state and is unenforceable.

     I HEREBY ACKNOWLEDGE RECEIPT OF THE FOREGOING NOTICE.

Date:
June 8,
2005                             

Signature:
/s/ T.
Mitchell                 

Print: T. Mitchell

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