Document:

EX-10..9

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.

PACIFIC BIOMETRICS, INC.

Common Stock Purchase Warrant

	 	 	 	 	 
	Date of Issuance: January 31, 2005	 	Number of Shares: 105,263 shares
	 	 	 	 	(subjecttoadjustment)

Pacific Biometrics, Inc., a Delaware corporation (the “Company”), for value received, hereby
certifies that Source Capital Group, Inc., or its registered assigns (the “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company up to 105,263 shares of Company
common stock, $.01 par value per share (the “Common Stock”), at an exercise price of $1.37 per
share on the terms and conditions set forth herein. The number of shares of Common Stock issuable
upon exercise of this Warrant, and the exercise price per share, each as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the “Warrant Stock” and
the “Exercise Price,” respectively. This Warrant is granted to Holder pursuant to the terms of
that certain engagement agreement between the Company and Holder in connection with the Company’s
debt financing with Laurus Master Funds, Ltd., in which the Company issued a convertible promissory
note, dated January 31, 2005, to Laurus in the aggregate principal amount of $1.5 million (the
“Note”).

1. Vesting and Exercisability of Warrant. This Warrant shall be exercisable only as
and to the extent that principal and accrued interest under the Note is converted into shares of
Common Stock. From time to time, as principal and accrued interest under the Note is converted
into Common Stock, this Warrant shall vest and be exercisable into a cumulative number of shares
(less any number of shares previously exercised hereunder) equal to the quotient obtained by
dividing (a) 8% of the dollar amount of any principal and interest under the Note converted into
Common Stock, by (b) $1.17. Only whole shares shall be issuable hereunder; accordingly, in the
event any such calculation results in a fraction, this Warrant shall be exercisable only for such
whole number of shares. By way of example, if $100,000.00 of principal and interest under the Note
is converted into Common Stock, the foregoing calculation would result in 6,837.6, and accordingly
this Warrant would be exercisable only for 6,837 shares. For any amount of principal and interest
under the Note that is paid or settled in cash or otherwise, and that is not converted into Common
Stock, no shares underlying this Warrant shall vest and become exercisable. There are no
assurances as to the amount, if any, of principal and interest under the Note that will be
converted into Common Stock, or as to the number of shares hereunder that will vest and become
exercisable. In no event shall the maximum number of shares exercisable under this Warrant exceed
105,263 shares (subject to adjustment pursuant to Section 6 below).

2. Manner of Exercise; Net Exercise.

(a) This Warrant may be exercised in whole or in part by delivering to the Company at its
principal place of business (i) this Warrant, (ii) the form of Election to Purchase attached hereto
as Exhibit A duly completed and executed by Holder, and (iii) cash, wire transfer, or bank check
payable to the Company, in the amount of the Exercise Price multiplied by the number of shares for
which this Warrant is being exercised (the “Purchase Price”). Each exercise of this Warrant shall
be deemed to have been effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided herein or at such later date as may
be specified in the executed form of Election to Purchase.

(b) Notwithstanding the cash payment provisions set forth above, Holder may elect to exercise
this Warrant by converting this Warrant into shares of Warrant Stock by delivering this Warrant and
the Notice of Net Issuance Exercise attached hereto as Exhibit B duly completed and executed by the
Holder to the Company at its principal place of business, in which case the Company shall issue to
the Holder the number of shares of Warrant Stock determined as follows:

X = (A — B) x C

A

	 	 	 	Where: X = the number of shares of Warrant Stock issuable upon net issuance exercise
pursuant to the provisions of this Section 2(b).	 

	 	 	 	A = the Fair Market Value (as defined below) of one share
of Warrant Stock on the date of net issuance exercise.	 

	 	 	 	B = the Exercise Price for one share of Warrant Stock
under this Warrant.	 

	 	 	 	C = the number of shares of Warrant Stock as to which
this Warrant is exercised.	 

For purposes of the above calculation, the Fair Market Value of a share of Warrant Stock shall
be determined in good faith by the Board of Directors of the Company; provided, however, that if a
public market for the Warrant Stock exists at the time of such exercise, then such Fair Market
Value shall be deemed to be equal to(i) the average of the closing bid and asked prices of the
Warrant Stock as quoted in the Over-the-Counter Market Summary or (ii) the last reported sale price
of the Warrant Stock or the closing price quoted on the Nasdaq National or SmallCap Market System
or on any exchange on which the Warrant Stock is then listed, whichever is applicable, for the five
trading days prior to the date of exercise of this Warrant.

If the foregoing calculation results in a negative number, then no shares of Warrant Stock
shall be issued upon net issuance exercise pursuant to this Section 2(b). Upon net issuance
exercise in accordance with this Section 2(b), the Holder shall be entitled to receive from the
Company a stock certificate in proper form representing the number of shares of Warrant Stock
determined in accordance with the foregoing. Upon any such net issuance exercise, the number of
shares of Warrant Stock purchasable upon subsequent exercise of this Warrant shall be reduced by
the number of shares of Warrant Stock with respect to which this Warrant was exercised in the net
issuance exercise.

3. Delivery of Stock Certificate. As soon as practicable after the exercise of this
Warrant, in full or in part, and in any event within 10 days thereafter, the Company at its expense
will cause to be issued in the name of and deliver to the Holder (a) a certificate or certificates
for the number of fully paid and nonassessable shares of Warrant Stock to which Holder shall be
entitled upon such exercise and (b) if applicable, a new Warrant of like tenor to purchase up to
that number of shares of Warrant Stock, if any, not previously exercised by Holder. Holder shall
for all purposes be deemed to have become the holder of record of such shares of Warrant Stock on
the date on which this Warrant was properly exercised in accordance with Section 2, irrespective of
the date of delivery of the certificate or certificates representing the Warrant Stock; provided
that, if the date of such exercise is a date when the stock transfer books of the Company are
closed, such person shall be deemed to have become the holder of record of such shares of Warrant
Stock at the close of business on the next succeeding date on which the stock transfer books are
open.

4. Reservation of Warrant Stock. The Company covenants and agrees that the Company
will at all times have authorized and reserved a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant.

5. Termination. To the extent not earlier exercised, the Warrant evidenced hereby
shall be void and of no effect and all rights hereunder shall cease upon the earlier of (a) 5:00
p.m. Pacific Time on January 31, 2010, or (b) the closing of any merger, consolidation or other
reorganization of the Company with or into any other corporation or other business entity, or the
sale of all or substantially all of its assets, or the liquidation or dissolution of the Company
(each, a “Transaction”). The Company shall provide Holder with written notice not less than 10
days prior to the closing of any proposed Transaction. All restrictions set forth herein on the
shares of Warrant Stock issued upon exercise of any rights hereunder shall survive such exercise
and expiration of the rights granted hereunder.

6. Adjustments to Warrant. In case the Company shall issue any shares of Common Stock
as a stock dividend or subdivide the number of outstanding shares of Common Stock into a greater
number of shares, then, in either of such cases, the Exercise Price in effect at the time of such
action shall be proportionately reduced and the number of shares of Warrant Stock at that time
purchasable pursuant to this Warrant shall be proportionately increased; and, conversely, in the
event the Company shall contract the number of outstanding shares of Common Stock by combining such
shares into a smaller number of shares, then, in such case, the Exercise Price in effect at the
time of such action shall be proportionately increased and the number of shares of Warrant Stock at
that time purchasable pursuant to this Warrant shall be proportionately decreased. Any
calculations of adjustments shall be made to the nearest cent or to the nearest one whole share, as
the case may be.

7. Restrictions on Transfer. Neither this Warrant nor the Warrant Stock have been
registered under the Securities Act of 1933, as amended (the “Securities Act”), or any applicable
state law, and no interest therein may be sold, distributed, assigned, offered, pledged or
otherwise transferred unless (a) there is an effective registration statement under such Act and
applicable state securities laws covering any such transaction involving said securities, (b) the
Company receives an opinion of legal counsel for Holder (concurred in by legal counsel for the
Company) stating that such transaction is exempt from registration, or (c) the Company otherwise
satisfies itself that such transaction is exempt from registration.

8. Legend. A legend setting forth or referring to the restrictions stated in Section
7 shall be placed on this Warrant, any replacement hereof and any certificates representing Warrant
Stock, and a stop transfer restriction or order shall be placed on the books of the Company and
with any transfer agents against this Warrant and shares of Warrant Stock until they may be legally
sold or otherwise transferred.

9. Fractional Shares. No fractional shares shall be issued upon the exercise of the
Warrant. In lieu of fractional shares, the Company shall round the number of shares to be issued
upon exercise of this Warrant to the nearest whole share.

10. Holder as Owner. Unless this Warrant is transferred or assigned, the Company may
deem and treat the Holder at all times as the absolute owner of the Warrant evidenced hereby for
all purposes regardless of any notice to the contrary.

11. No Rights as Shareholder. This Warrant shall not entitle Holder to any voting
rights or any other rights as a shareholder of the Company, or to any other rights whatsoever
except the rights stated herein; and no dividend or interest shall be payable or shall accrue in
respect of this Warrant or the shares purchasable hereunder unless, and until, and except to the
extent that, this Warrant shall be exercised.

12. Piggyback Registration Rights. Holder shall be entitled to certain piggyback
registration rights with respect to the Warrant Stock as set forth on the attached Exhibit C.

13. Exchange or Destruction of Warrant. This Warrant is exchangeable, without expense
to Holder and upon delivery hereof to the Company, for Warrants of different denominations
entitling Holder to purchase shares of Warrant Stock equal in total number and identical in type to
the shares of Warrant Stock covered by this Warrant. In addition, upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an affidavit
and indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company at its expense will make and deliver a new
Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant.

14. Notices. Unless otherwise provided, any notice, request or other document
required or permitted to be given or delivered to Holder hereof or the Company shall be given in
writing and shall be deemed effectively given (a) upon personal delivery to the party to be
notified, (b) upon confirmation of receipt by fax by the party to be notified, or (c) upon receipt
if delivered by prepaid overnight delivery, courier service or registered or certified mail
addressed, (i) if to Holder, to the address of Holder most recently furnished in writing to the
Company and (ii) if to the Company, to the address set forth below, or in either case at such other
address as such party may designate by five days’ advance written notice to the other party given
in the foregoing manner.

15. Successors and Assigns. The terms and provisions of this Warrant shall be binding
upon the Company and Holder and their respective successors and assigns, subject at all times to
the restrictions set forth herein.

16. Applicable Law. The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Washington.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

1

EXECUTED as of the day and year first above written.

PACIFIC BIOMETRICS, INC.

	 	 	 
	By: /s/ Ronald R. Helm

	 	

	 
	 	 
	 

	 
	 	 
	Ronald R. Helm, Chief Executive Officer

	 
	 	 
	Address:

	 	220 West Harrison St.

	 	 	 	Seattle, WA 98119

2

Exhibit A to Common Stock Purchase Warrant

ELECTION TO PURCHASE

Pacific Biometrics, Inc.

220 West Harrison St.

Seattle, WA 98119

Attention: Corporate Secretary

The undersigned hereby irrevocably elects to purchase      shares of Common Stock of
Pacific Biometrics, Inc., a Delaware corporation (the “Company”), issuable upon the exercise of the
attached Warrant, and requests that certificates for such shares be issued in the name of and
delivered to the undersigned at the address stated below. If said number of shares shall not be
all the shares which may be purchased pursuant to the attached Warrant, the Company shall issue a
new Warrant to the Holder evidencing the right of the Holder to purchase the balance of such shares
under terms identical to the attached Warrant.

The undersigned hereby agrees with and represents to the Company that such shares of Common
Stock are acquired for investment and not with a view to, or for sale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act of 1933, as
amended, and that the undersigned has no present intention of distributing or reselling such
shares. The undersigned acknowledges and agrees that the exercise of the attached Warrant and the
issuance and transfer of the Common Stock to be purchased are subject to Sections 7 and 8 of the
attached Warrant.

	 	 	 	 	 
	Payment enclosed in the amount of:
	 	$	—	 
	Dated: ______________, 200__
	 	 	 	 
	Name of Holder of Warrant (please
print):
	 	 	—	 
	Address:
	 	 	—	 
	 
	 	 	—	 
	 
	 	 	—	 
	Signature:
	 	 	—	 

3

Exhibit B to Common Stock Purchase Warrant

NOTICE OF NET ISSUANCE EXERCISE

Pacific Biometrics, Inc.

220 West Harrison St.

Seattle, WA 98119

Attention: Corporate Secretary

The undersigned hereby irrevocably elects to convert      % of the attached Warrant into
such number of shares of Common Stock of Pacific Biometrics, Inc. (the “Company”) as is determined
pursuant to Section 2(b) of the attached Warrant. The undersigned requests that certificates for
such net issuance shares be issued in the name of and delivered to the undersigned, at the address
stated below. If the Holder does not elect to convert this entire Warrant, the Company shall issue
a new Warrant to the Holder evidencing the Holder’s right to purchase the remaining portion of
shares under terms identical to the attached Warrant.

The undersigned hereby agrees with and represents to the Company that such shares of Common
Stock are acquired for investment and not with a view to, or for sale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act of 1933, as
amended, and that the undersigned has no present intention of distributing or reselling such
shares. The undersigned acknowledges and agrees that the exercise of the attached Warrant and the
issuance and transfer of the Common Stock to be purchased are subject to Sections 7 and 8 of the
attached Warrant.

	 	 	 	 	 
	Dated: ______________, 200__
	 	 	 	 
	Name of holder of Warrant:
	 	 	—	 
	   (please print)

	Address:
	 	 	—	 
	 
	 	 	—	 
	 
	 	 	—	 
	Signature:
	 	 	—	 

4

Exhibit C to Common Stock Purchase Warrant

PIGGYBACK REGISTRATION RIGHTS

1. Registration Rights. Holder shall be entitled to the following registration rights:

1.1 Definitions

(a) The terms “register,” “registered,” and “registration” refer to a registration effected by
preparing and filing a registration statement or similar document in compliance with the Securities
Act of 1933, as amended (the “Securities Act”), and the declaration or ordering of effectiveness of
such registration statement or document;

(b) The term “Registrable Securities” means (i) the shares of Common Stock issued on exercise
of the common stock purchase warrant by the Holder, and (ii) any other shares of Common Stock of
the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, the Common Stock; provided, however, that the foregoing
definitions of Registrable Securities shall exclude in all cases any Registrable Securities sold by
a person in a transaction in which his or her rights hereunder are not assigned. Notwithstanding
the foregoing, such Common Stock or other securities shall only be treated as Registrable
Securities if and so long as they have not been (A) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of the Securities Act
under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale;

(c) The number of shares of “Registrable Securities then outstanding” shall be determined by
the number of shares of Common Stock outstanding which are, and the number of shares of Common
Stock issuable pursuant to then exercisable or convertible securities which are, Registrable
Securities;

(d) The term “Holder” means any person owning or having the right to acquire Registrable
Securities;

(e) The term “SEC” means the Securities and Exchange Commission.

1.2 Piggy Back Registration Rights. If the Company proposes to register (including
for this purpose a registration effected by the Company for shareholders other than the Holders)
any of its stock or other securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration relating solely to the sale
of securities to participants in a Company stock plan or a transaction covered by Rule 145 under
the Securities Act, a registration in which the only stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered, or any registration on
any form which does not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Registrable Securities, as the case
may be), the Company shall, at such time, promptly give Holder written notice of such registration.
Upon the written request of Holder, as the case may be, given within 20 days after mailing of such
notice by the Company in accordance with Section 14 of the Warrant, the Company shall,
subject to the provisions of Section 1.5, cause to be registered under the Securities Act
all of the Registrable Securities, as the case may be, that such Holder has requested to be
registered.

1.3 Obligations of the Company. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the Company shall, as expeditiously as
reasonably possible:

(a) Prepare and file with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to become effective, and
to keep such registration statement continuously effective for a period of 120 days following its
initial effective date.

(b) Prepare and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement.

(c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such other documents as
they may reasonably request in order to facilitate the disposition of Registrable Securities owned
by them.

(d) Use its best efforts to register and qualify the securities covered by such registration
statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions where it has not already done so.

(e) In the event of any underwritten public offering, enter into and perform its obligations
under an underwriting agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

(f) Notify each Holder of Registrable Securities covered by such registration statement at any
time when a prospectus relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.

(g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each
securities exchange on which similar securities issued by the Company are then listed.

(h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant
hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the
effective date of such registration.

(i) Use its best efforts to furnish, at the request of any Holder requesting registration of
Registrable Securities, as the case may be, on the date that such Registrable Securities are
delivered to the underwriters for sale in connection with a registration pursuant to this
Section, if such securities are being sold through underwriters, or, if such securities are
not being sold through underwriters, on the date that the registration statement with respect to
such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities, and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders requesting registration
of Registrable Securities.

1.4 Expenses. All expenses other than underwriting discounts and commissions incurred
in connection with registration pursuant to this Section, including the registration, filing, and
qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the
Company shall be borne by the Company. In addition, each Holder shall be bear and pay all legal
fees and expenses incurred by legal counsel selected by such Holder in connection with the review
of such registration statement, filing or qualification of the Registrable Securities.

1.5 Underwriting Requirements. In connection with any offering involving an
underwriting of shares of the Company’s capital stock, the Company shall not be required to include
any of the Holders’ securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the offering by the Company.

1.6 Delay of Registration. No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result of any controversy
that might arise with respect to the interpretation or implementation of this Section.

1.7 Indemnification

(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder,
the partners, members, officers, directors and shareholders of each Holder, any underwriter (as
defined in the Securities Act) for such Holder, and each person, if any, who controls such Holder
or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements, omissions or
violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company
will pay to each such indemnified person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained in this
subsection 1.7(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that it arises out of or
is based upon a Violation which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by any such indemnified person.

(b) To the extent permitted by law, each selling Holder severally but not jointly will
indemnify and hold harmless the Company, each of its directors, each of its officers who has signed
the registration statement, each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter, any other selling security holder in such registration statement
and any controlling person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons may become
subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified pursuant to this
subsection 1.7(b), in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement contained in this
subsection 1.7(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under
this subsection 1.7(b) exceed the net proceeds from the offering received by such Holder,
except in the case of willful fraud by such Holder.

1.8. No Assignment. The rights to cause the Company to register the Registrable
Securities pursuant hereto may not be assigned to any party without the express written consent of
the Company.

1.9 Termination of Registration Rights. No Holder shall be entitled to exercise any
right provided for in this Section 1 after the earlier of (i) January 31, 2010, or (ii)
such time as Rule 144 or another similar exemption under the Securities Act is available for the
sale of all of such Holder’s Registrable Securities during a three-month period without
registration.

1.10 Amendment or Modification of Registration Rights. The rights granted to Holder
hereunder may not be amended or modified without the written consent of the Company and Holders of
a majority of the then outstanding Registrable Securities. Any amendment approved pursuant to the
terms of this Section 1.10 shall be binding on, and enforceable against, all other Holders.

5EX-10.37

Exhibit 10.37

AMDL, INC.

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is made this 31st day of January, 2005
by and between AMDL, INC., a Delaware corporation (the “Company”) and Gary L. Dreher, (the
“Employee”).

RECITALS

A. Employee is currently the President and Chief Executive Officer of the Company and
Employee’s prior Employment Agreement has expired.

B. Company desires to employ the Employee and the Employee desires to continue his employment
with the Company as of the “Effective Date” hereof, upon the terms and conditions set forth in this
Agreement.

C. Effective November 15, 2001 the Company adopted the AMDL, INC. EXECUTIVE MANAGEMENT CHANGE
IN CONTROL SEVERANCE PAY PLAN (“EMCCSPP”). The EMCCSPP remains in full force and effect and
provides the benefits described therein to “Eligible Participants” (as defined therein) who are
“Qualified Employees” (as defined therein). Employee is an “Eligible Participant” and “Qualified
Employee” for purposes of the EMCCSPP.

AGREEMENT

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

ARTICLE 1

EMPLOYMENT, TERMS AND DUTIES

1.1 Term. The Company agrees to employ the Employee and Employee hereby accepts such
employment in accordance with the terms of this Agreement, for a period of three (3) years
commencing on execution hereof (the “Effective Date”) and ending on January 31, 2008, unless the
Agreement is earlier terminated as provided herein.

1.2 Services and Exclusivity of Services. So long as this Agreement shall continue in
effect, Employee shall devote Employee’s full business time, energy and ability exclusively to the
business, affairs and interests of the Company and matters related thereto; shall use Employee’s
best efforts and abilities to promote the Company’s interests; and shall perform the services
contemplated by this Agreement in accordance with policies established by the Board of Directors of
the Company (the “Board”). Without the prior express written authorization of the Board, Employee
shall not, directly or indirectly, during the term of this Agreement: (a) render services to any
other person or firm for compensation, or (b) engage in any activity competitive with or adverse to
the Company’s business, whether alone, as a partner, officer, director, employee or significant
investor of or in any other entity. (An investment of greater than 5% of the outstanding capital
or equity securities of an entity shall be deemed significant for these purposes.)

1.2.1 Other Business Activities. Company and Employee acknowledge that Employee is a
member of the Board of Directors of Optimumcare Corporation with an equity interest that may exceed
5% if Employee exercises his stock options. Optimumcare Corporation is involved with the care of
psychiatric patients, and is deemed to be an association that is not competitive with the Company,
and will not require any commitment of employee’s business time or effort. Company and Employee
also acknowledge that Employee’s wholly owned company, Medical Market International LLC, is and
will continue to be involved in testing of wine grapes and wine for sugar. This work will be
performed by others, and will not require any of Employee’s business time or effort.

1.3 Duties and Responsibilities. During the term of this Agreement, Employee shall
serve as President and Chief Executive Officer of the Company; shall discharge the obligations and
responsibilities normally associated with such office; and shall use his best efforts to promote
the interests of the Company and refrain from acts which may adversely affect the reputation or
business of the Company.

1.4 Return of Proprietary Property. The Employee agrees that all property in the
Employee’s possession belonging to the Company, including without limitation, all documents,
reports, manuals, memoranda, computer print-outs, customer lists, credit cards, keys,
identification, products, access cards and all other property relating in any way to the business
of the Company that could be used competitively by others is the exclusive property of the Company,
even if the Employee authored, created or assisted in authoring or creating, such property. The
Employee shall return to the Company all such documents that could be used competitively by others
(and copies and summaries thereof) and property immediately upon termination of employment or at
any time upon the request of the Company. All personal property brought by Employee to Company and
all documents of Employee generated by him during his employment which could not be competitively
used by others shall remain the property of Employee and shall be returned to Employee.

ARTICLE 2

COMPENSATION AND BENEFITS

2.1 Base Salary. During the term of this Agreement, the Company will pay the Employee
a base salary at the rate of Thirty-Three Thousand Three Hundred Thirty-Three and 33/100 Dollars
($33,333.33) per month (the “Base Salary”) commencing on the Effective Date, payable in bi-monthly
installments of Sixteen Thousand Six Hundred Sixty-Six and 67/100 Dollars ($16,666.67) in
accordance with the Company’s usual payroll practice. Employee’s Base Salary may be increased in
the future at the discretion of the Board.

2.2 Stock Options. As additional consideration for this Agreement, the Company agrees
to grant to Employee options to purchase an aggregate of 300,000 shares of the Company’s common
stock at an exercise price equal to 100% of the fair market value per share of the Company’s common
stock (the “Options”) under the Company’s 1999 Stock Option Plan. The Options are represented by
an Incentive Stock Option Agreement, Exhibit “A” hereto. Nothing shall prevent the Company from
granting additional stock options to Employee in the future.

2.3 Bonus. Employee shall be entitled to such bonuses, if any, as are awarded by the
Board of Directors of the Company, in the Board of Directors sole and absolute discretion.

2.4 Additional Benefits. Employee and Company agree and acknowledge that Employee
shall be entitled to participate in all of the Company’s benefit programs available to all
employees as they exist from time to time.

2.5 Vacation. Employee shall be entitled to thirty (30) days paid vacation each year
during the term of this Agreement. Vacation time shall accrue at the rate of 2.5 days per month
and at no time shall Employee accrue more than 60 days of vacation.

2.6 Life Insurance. The Company, at the Company’s expense, subject to Employee’s
insurability, will obtain term life insurance on the life of Employee in the amount of $2 million;
$1 million of the benefits shall be payable to the Company and $1 million of the benefits shall be
payable to Employee’s estate. Employee acknowledges that a portion or all of the cost of such
insurance may be deemed compensation to Employee.

2.7 Reimbursement for Dues. The Company shall pay or reimburse Employee for his
monthly dues payable for a club membership. Employee shall be responsible for payment of all taxed
due with respect to this benefit or reimbursements of any such dues.

ARTICLE 3

TERMINATION

3.1 Termination Events. This Agreement and all obligations hereunder (except the
obligations contained in Article 5, which shall survive any termination hereunder and any benefits
under the EMCCSPP), shall terminate upon the earliest to occur of any of the following:

3.1.1 Expiration of Term; Resignation. The expiration of the term provided for in
Section 1.1 or the voluntary termination or resignation by Employee or retirement from the Company
in accordance with the normal retirement policies of the Company or the mutual agreement of the
Company and Employee. In the event of any termination under this Section 3.1.1, Employee will not
be entitled to receive any further payments or benefits from the Company and the Company shall be
released from any and all obligations under this Agreement.

3.1.2 Death or Disability of the Employee. The death or any illness, disability or
other incapacity of Employee that results in Employee being unable to perform Employee’s duties
with the Company on a full-time basis for a period of three (3) consecutive months, or for shorter
periods aggregating ninety (90) or more days in any twelve (12) month period. If Employee shall
become ill, disabled or incapacitated as set forth above, Employee’s employment may be terminated
by written notice from the Company to Employee, after which Employee will not be entitled to
receive any further payments or benefits (except for long term disability benefits) from the
Company and the Company shall be released from any and all obligations under this Agreement.

3.1.3 For Cause. The Company may, by delivering written notice to Employee, terminate
Employee’s employment and all of the Employee’s rights to receive Base Salary, Bonus and any
benefits hereunder for cause. Such written notice shall be effective upon delivery to Employee.
For purposes of this Agreement, the term “cause” shall be defined as any of the following:

(i) Employee’s material breach of any of the duties and responsibilities under
this Agreement (other than as a result of illness, incapacity or disability), which
breach is not cured within ten (10) days after written notice thereof to Employee
which notice specifically identifies the material breach, or engaging in any
activities competitive with or injurious to the Company, in either case in the good
faith reasonable judgment of the Board of Directors;

(ii) Employee’s conviction by, or entry of a plea of guilty or nolo contendere
in, a court of competent and final jurisdiction for a felony or a misdemeanor
involving moral turpitude (other than minor traffic violations or similar offenses);

(iii) Employee’s commission of an act of fraud upon the Company or personal
dishonesty, or willful or negligent misconduct;

(iv) Employee’s willful violation of any duty of loyalty to the Company or a
breach of Employee’s fiduciary duty involving personal profit.

3.1.3.1 Willful Defined. For the purposes of this Agreement, no act, or
failure to act on the Employee’s part shall be considered “willful” unless done or omitted
to be done by the Employee other than in good faith and without reasonable belief that the
Employee’s action or omission was in the best interests of the Company.

3.1.4 Without Cause Termination. At any time, on 30 days prior written notice,
Company or Employee may terminate this Agreement without cause. In the event of termination by
Employee without cause, Employee shall receive his Base Salary and other benefits up to the date of
termination. In the event of termination by Company without cause, Employee shall receive the
severance benefits described in Paragraph 3.2 below.

3.1.5 No Severance on For Cause Termination. In the event Employee’s employment is
terminated at any time for cause, Employee will not be entitled to any further payments or benefits
from the Company and the Company shall be immediately released from any and all obligations under
this Agreement.

3.2 Severance Benefits on Termination Without Cause. Company and Employee understand
and agree that, notwithstanding anything to the contrary contained within this Agreement, both
Company and Employee shall have the right, during the Term and any extensions thereof to elect to
terminate this Agreement. Upon the occurrence of such election by Company, Employee shall be paid
severance compensation, as specified below:

3.2.1 Company agrees to pay to Employee his Base Salary and all Employee Benefits described in
Paragraphs 2.5 through 2.7 above and 4.2 below for a period equal to the remaining term of this
Agreement or for a minimum of twelve (12) months following Company’s election to terminate this
Agreement, whichever is greater.

3.2.2 In consideration of the Severance Amount, Employee agrees to fully execute and sign the
Severance Agreement and General Release set forth in Exhibit “B,” attached hereto, and by this
reference incorporated herein.

3.3 Exclusive Remedy. Employee agrees that the payments expressly provided and
contemplated by Section 3 of this Agreement shall constitute the sole and exclusive obligation of
the Company in respect of Employee’s employment with and relationship to the Company and that the
payment thereof shall be the sole and exclusive remedy for any breach of contract claim which may
be brought as a result of any termination of Employee’s employment.

ARTICLE 4

BUSINESS EXPENSES

4.1 Business Expenses. During the term of this Agreement, to the extent that such
expenditures satisfy the criteria under the Internal Revenue Code for deductibility for federal
income tax purposes as ordinary and necessary business expenses, the Company shall reimburse
Employee promptly for reasonable business expenditures, including travel, entertainment and
parking, made and substantiated in accordance with policies, practices and procedures established
from time to time by the Company and, incurred in the pursuit and furtherance of the Company’s
business and goodwill.

4.2 Car Allowance. Company and Employee acknowledge that Employee will need to use
his personal automobile for business travel and hereby agree that the sum of $750.00 to be paid
monthly shall constitute complete and proper reimbursement for this usage and maintenance expense.
No vouchers need be supplied by Employee.

ARTICLE 5

CONFIDENTIAL INFORMATION

5.1 Confidential Information. At all times during and after the expiration of this
Agreement, the Employee will hold in strict confidence and, without the express prior written
authorization of the Company’s Board of Directors, the Employee shall not disclose to any person or
entity, any financial or marketing data of the Company (including, without limitation, financial
statements of the Company), or any technique, process, formula, developmental or experimental work,
work in progress, business methods, business or marketing plans or trade secrets of or used in the
business of the Company, or any other proprietary or confidential information relating to the
Company or the services, business affairs of the Company, including, without limitation, any
information relating to inquiries made by the Company (collectively, the “Confidential
Information”). The Employee agrees that the Employee will not make use of any of the Confidential
Information during the term of this Agreement other than for the exclusive benefit of the Company
and that the Employee shall not make any use whatsoever of the Confidential Information at any time
after termination of the Employee’s employment with the Company. Upon termination of such
employment, the Employee shall deliver to the Company (i) all documents, records, notebooks, work
papers and all similar repositories containing any Confidential Information or any other
information concerning the Company, whether prepared by the Employee, the Company or anyone else
and (ii) all tangible personal property belonging to the Company that is in the Employee’s
possession. The foregoing restrictions shall not apply to (i) information which is or becomes,
other than as a result of a breach of this Agreement, generally available to the public, (ii)
information related to the terms of the Employee’s compensation or benefits as an employee of the
Company, (iii) information known to the Employee prior to the effective date of this Agreement or
(iv) the disclosure of information required pursuant to a subpoena or other legal process; provided
that the Employee shall notify the Company, in writing, of the receipt of any such subpoena or
other legal process requiring such disclosure immediately after receipt thereof and the Employee
shall assist the Company in any efforts it may undertake to quash such subpoena or other legal
process or obtain an appropriate protective order prior to any such disclosure by the Employee.

5.2 Solicitation of Employees. In consideration and recognition of the fact that
Employee’s position with the Company is an executive position involving fiduciary responsibility to
the Company and access to the Company’s confidential, proprietary information, Employee agrees that
Employee will not, directly or indirectly, solicit or take away any employees of the Company for
employment by any enterprise that competes with, or is engaged in a substantially similar business
to, the business of the Company as presently conducted or proposed to be conducted. This Section
5.2 shall survive for a period of one (1) year from the date of termination of this Agreement.

ARTICLE 6

DISPUTE RESOLUTION

6.1 Disputes Subject to Arbitration. Except as to any action which requires ex parte
relief, expeditious orders of court, restraining orders, injunctive relief or the like in order to
maintain the status quo or protect a party’s interest, any controversy, dispute or claim arising
out of, in connection with, or in relation to the interpretation, performance or breach of this
Agreement or otherwise arising out of the execution hereof including any claim based on contract,
tort or statute, shall be resolved, at the request of any party, by submission to binding
arbitration at the Orange County, California offices of Judicial Arbitration & Mediation Services,
Inc. (“JAMS”), and any judgment or award rendered by JAMS shall be final, binding and
unappealable, and judgment may be entered by any state or federal court having jurisdiction
thereof. Any party can initiate arbitration by sending written notice of intention to arbitrate
(the “Demand”) by registered or certified mail to all parties and to JAMS. The Demand shall
contain a description of the dispute, the amount involved, and the remedy sought. If and when a
Demand for arbitration is made by any party, the parties agree to execute a Submission Agreement,
provided by JAMS, setting forth the rights of the parties and the rules and procedures to be
followed at the arbitration hearing (the “Rules”). Any controversy concerning whether a dispute is
an arbitrable dispute or as to the interpretation or enforceability of this Section 6.1 shall be
determined by the arbitrator. The arbitrator shall be a retired or former judge agreed to between
the parties from the JAMS’ panel. If the parties are unable to agree, JAMS shall provide a list of
three available judges and each party may strike one. The remaining judge shall serve as the
arbitrator. The parties shall be entitled to full rights of discovery as set forth in the Code of
Civil Procedure for civil actions tried in the Superior Courts of the State of California, subject
to such orders as may be entered by JAMS. Each party hereto intends that the provisions to
arbitrate set forth herein shall be valid, enforceable and irrevocable. The designation of a situs
or a governing law for this undertaking or the arbitration shall not be deemed an election to
preclude application of the Federal Arbitration Act, if it would be applicable. In his or her
award, the arbitrator shall allocate, in his or her discretion, among the parties to the
arbitration all costs of the arbitration, including the fees of the arbitrator and reasonable
attorneys’ fees, costs and expert witness expenses of the parties. The parties hereto agree to
comply with any award made in any such arbitration proceedings that has become final in accordance
with the Rules and agree to the entry of a judgment in any jurisdiction, upon any award rendered in
such proceeding becoming final under the Rules. The arbitrator shall be entitled, if appropriate,
to award any remedy in such proceedings permitted in a civil proceeding under the laws of the State
of California including, if appropriate, monetary damages, specific performance and all other forms
of legal and equitable relief. In the event JAMS is no longer in business and there is no
comparable successor, then the parties shall use the services of the American Arbitration
Association, Inc. (“AAA”), subject to AAA’s Commercial Arbitration Rules and the provisions of this
Section 6.1. In the event the AAA is no longer in business and there is no comparable successor,
then the parties shall agree upon another arbitrator within ten (10) calendar days after receipt of
the Demand. If the parties cannot agree upon another arbitrator, then a single neutral arbitrator
shall be appointed pursuant to Section 1281.6 of the California Code of Civil Procedure.

ARTICLE 7

MISCELLANEOUS

7.1 Modifications. This Agreement supersedes all prior agreements and understandings
between the parties relating to the employment of the Employee by the Company, and it may not be
changed or terminated orally. No modification, termination, or attempted waiver of any other
provisions of this Agreement will be valid unless in writing signed by both parties hereto.

7.2 Enforceability and Severability. If any term of this Agreement is deemed void,
voidable, invalid or unenforceable for any reason by an arbitrator or a court of competent
jurisdiction, such term will be deemed severable from all other terms of this Agreement, which will
continue in full force and effect. In the event that any term is held by an arbitrator or a court
of competent jurisdiction to over broad as written, the term will be deemed amended to narrow its
application to the extent necessary to make the term enforceable.

7.3 Withholding. To the extent required by any applicable law, including, without
limitation, any federal or state income tax or excise tax law or laws, the Federal Insurance
Contributions Act, the Federal Unemployment Tax Act or any comparable federal, state or local laws,
the Company retains the right to withhold such portion of any amount or amounts payable to the
Employee under this Agreement as the Company deems necessary.

7.4 Captions. The various headings or captions in this Agreement are for convenience
only and shall not affect the meaning or interpretation of this Agreement.

7.5 Governing Law. The validity, interpretation, construction, performance,
enforcement and remedies of or relating to this Agreement, and the rights and obligations of the
parties hereunder, shall be governed by the substantive laws of the State of California, and any
and every legal proceeding (other than arbitration proceedings conducted in accordance with Article
5 hereof) arising out of or in connection with this Agreement shall be brought in the appropriate
courts of the State of California, each of the parties hereby consenting to the exclusive
jurisdiction of said courts for this purpose.

7.6 Succession. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns and any such successor or assignee shall be deemed
substituted for the Company under the terms of this Agreement for all purposes. As used herein,
“successor” and “assignee” shall include any person, firm, corporation or other business entity
which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires the
stock of the Company or to which the Company assigns this Agreement by operation of law or
otherwise. The obligations and duties of Employee hereunder are personal and otherwise not
assignable. Employee’s obligations under Sections 1.4, 3.3, 5.1, 5.2 and 6.1 of this Agreement
will survive the termination of Employee’s employment, regardless of the manner of such
termination.

7.7 Waivers. No failure on the part of either party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right or remedy hereunder preclude any other further exercise thereof or
the exercise of any right or remedy granted hereby or by law.

7.8 Injunctive Relief. The Employee acknowledges and agrees that any breach or
threatened breach of this Agreement or the Proprietary Information Agreement might cause
irreparable harm to the Company and that in such case, the Company would have no adequate remedy at
law. In the event of a breach or threatened breach by the Employee of this Agreement, the Company
may, in addition to any other rights and remedies it may have pursuant to this Agreement,
immediately seek any judicial action that the Company may deem necessary or appropriate, including
without limitation, the obtaining of injunctive relief against the Employee without the necessity
of posting a bond or other security and without prejudice to any other remedies which may be
available to the Company at law or in equity.

7.9 Entire Agreement. This Agreement constitutes the entire understanding between the
parties hereto with respect to the subject matter hereof and supersedes all prior or
contemporaneous agreements or understandings, oral or written, between the parties hereto with
respect to the subject matter hereof.

7.10 Representation by Counsel; Interpretation. The Company and Employee each
acknowledges that each party to this Agreement has been represented by counsel in connection with
this Agreement and the matters contemplated by this Agreement. Accordingly, any rule of law or any
legal decision that would require interpretation of any claimed ambiguities in this Agreement
against the party that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to affect the intent of the parties.

7.11 Notices. All notices, requests, demands or other communications under this
Agreement shall be in writing and shall be validly given or made to another party if given by
personal delivery, telex, facsimile, telegram, or if deposited in the United States mail, certified
or registered, postage prepaid, return receipt requested. If such notice, demand or other
communication is given by personal delivery, telex, facsimile or telegram, service shall be
conclusively deemed made at the time of receipt. If such notice, demand or other communication is
given by mail, such notice shall be conclusively deemed given forty-eight (48) hours after the
deposit thereof in the United States mail addressed to the party to whom such notice, demand or
other communication is to be given as hereinafter set forth:

	 	 	 	 	 
	If to Company:
	 	AMDL, Inc.

	 
	 	2492 Walnut Avenue, Suite 100
	 
	 	Tustin, California  92780-7039

	If to Employee:
	 	Gary L. Dreher

6301 Acacia Hill Drive

Yorba Linda, California 92886

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth
above.

“EMPLOYEE”

/s/ Gary L. Dreher

	 	 	 	Gary L. Dreher

“COMPANY”

	 	 	 
	By:

	 	/s/ Arthur S. Rosten
	
 
	 	 
	 
	 	 
	
 
	 	Arthur S. Rosten, Chief Financial Officer

1

EXHIBIT “A”

NON-QUALIFIED STOCK OPTION AGREEMENT

THIS NON-QUALIFIED STOCK OPTION AGREEMENT (“Agreement”) is entered into January 31, 2005, by
and between AMDL, INC., a Delaware corporation (“Corporation”), and GARY L. DREHER (“Optionee”).

R E C I T A L S

A. On June 30, 1999, the Board of Directors of the Corporation adopted, subject to the
approval of the Corporation’s shareholders, the AMDL, Inc. 1999 Stock Option Plan (the “Plan”).

B. Pursuant to the Plan and in accordance with Section 2.2 of the Employment Agreement entered
into on January 31, 2005, the members of the Board of Directors of the Corporation serving on the
Committee authorized granting to Optionee options to purchase 300,000 shares of the common stock,
$.001 par value, of the Corporation (“Shares”) for the term and subject to the terms and conditions
hereinafter set forth.

A G R E E M E N T

It is hereby agreed as follows:

1. CERTAIN DEFINITIONS. Unless otherwise defined herein, or the context otherwise
clearly requires, terms with initial capital letters used herein shall have the meanings assigned
to such terms in the Plan.

2. GRANT OF OPTIONS. The Corporation hereby grants to Optionee, Options to purchase
all or any part of 300,000 Shares, upon and subject to the terms and conditions of the Plan, which
is incorporated in full herein by this reference, and upon the other terms and conditions set forth
herein.

3. OPTION PERIOD. The Options shall be exercisable at any time after the date hereof
(subject to the provisions of Section 16) and expiring on June 30, 2009, the expiration date of the
Plan.

4. METHOD OF EXERCISE. The Options shall be exercisable by Optionee by giving written
notice to the Corporation of the election to purchase and of the number of Shares Optionee elects
to purchase, such notice to be accompanied by such other executed instruments or documents as may
be required by the Committee pursuant to this Agreement, and unless otherwise directed by the
Committee, Optionee shall at the time of such exercise tender the purchase price of the Shares he
has elected to purchase. An Optionee may purchase less than the total number of Shares for which
the Option is exercisable, provided that a partial exercise of an Option may not be for less than
one hundred (100) Shares. If Optionee shall not purchase all of the Shares which he is entitled to
purchase under the Options, his right to purchase the remaining unpurchased Shares shall continue
until expiration of the Options. The Options shall be exercisable with respect of whole Shares
only, and fractional Share interests shall be disregarded.

5. AMOUNT OF PURCHASE PRICE. The purchase price per Share for each Share which
Optionee is entitled to purchase under the Options shall be $0.83 per Share.

6. PAYMENT OF PURCHASE PRICE. At the time of Optionee’s notice of exercise of the
Options, Optionee shall tender in cash or by certified or bank cashier’s check payable to the
Corporation, the purchase price for all Shares then being purchased. Provided, however, the Board
of Directors may, in its sole discretion, permit payment by the Corporation of the purchase price
in whole or in part with Shares. If the Optionee is so permitted, and the Optionee elects to make
payment with Shares, the Optionee shall deliver to the Corporation certificates representing the
number of Shares in payment for new Shares, duly endorsed for transfer to the Corporation, together
with any written representations relating to title, liens and encumbrances, securities laws, rules
and regulatory compliance, or other matters, reasonably requested by the Board of Directors. The
value of Shares so tendered shall be their Fair Market Value Per Share on the date of the
Optionee’s notice of exercise.

7. NONTRANSFERABILITY OF OPTIONS. The Options shall not be transferable, either
voluntarily or by operation of law, otherwise than by will or the laws of descent and distribution
and shall be exercisable during the Optionee’s lifetime only by Optionee.

8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. As used herein, the term “Adjustment
Event” means an event pursuant to which the outstanding Shares of the Corporation are increased,
decreased or changed into, or exchanged for a different number or kind of shares or securities,
without receipt of consideration by the Corporation, through reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split, stock dividend, stock
consolidation or otherwise. Upon the occurrence of an Adjustment Event, (i) appropriate and
proportionate adjustments shall be made to the number and kind and exercise price for the Shares
subject to the Options, and (ii) appropriate amendments to this Agreement shall be executed by the
Corporation and Optionee if the Committee determines that such an amendment is necessary or
desirable to reflect such adjustments. If determined by the Committee to be appropriate, in the
event of an Adjustment Event which involves the substitution of securities of a corporation other
than the Corporation, the Committee shall make arrangements for the assumptions by such other
corporation of the Options. Notwithstanding the foregoing, any such adjustment to the Options
shall be made without change in the total exercise price applicable to the unexercised portion of
the Options, but with an appropriate adjustment to the number of Shares, kind of Shares and
exercise price for each Share subject to the Options. The determination by the Committee as to
what adjustments, amendments or arrangements shall be made pursuant to this Section 8, and the
extent thereof, shall be final and conclusive. No fractional Shares shall be issued on account of
any such adjustment or arrangement.

9. NO RIGHTS TO CONTINUED EMPLOYMENT OR RELATIONSHIP. Nothing contained in this
Agreement shall obligate the Corporation to employ or have another relationship with Optionee for
any period or interfere in any way with the right of the Corporation to reduce Optionee’s
compensation or to terminate the employment of or relationship with Optionee at any time.

10. TIME OF GRANTING OPTIONS. The time the Options shall be deemed granted, sometimes
referred to herein as the “date of grant,” shall be January 27, 2005.

11. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not be entitled to the privileges
of stock ownership as to any Shares not actually issued and delivered to Optionee. No Shares shall
be purchased upon the exercise of any Options unless and until, in the opinion of the Corporation’s
counsel, any then applicable requirements of any laws, or governmental or regulatory agencies
having jurisdiction, and of any exchanges upon which the stock of the Corporation may be listed
shall have been fully complied with.

12. SECURITIES LAWS COMPLIANCE. The Corporation will diligently endeavor to comply
with all applicable securities laws before any stock is issued pursuant to the Options. Without
limiting the generality of the foregoing, the Corporation may require from the Optionee such
investment representation or such agreement, if any, as counsel for the Corporation may consider
necessary in order to comply with the Securities Act of 1933 as then in effect, and may require
that the Optionee agree that any sale of the Shares will be made only in such manner as is
permitted by the Committee. The Committee may in its discretion cause the Shares underlying the
Options to be registered under the Securities Act of 1933, as amended, by filing a Form S-8
Registration Statement covering the Options and the Shares underlying the Options. Optionee shall
take any action reasonably requested by the Corporation in connection with registration or
qualification of the Shares under federal or state securities laws.

13. INTENDED TREATMENT AS NON-QUALIFIED STOCK OPTIONS. The Options granted herein are
intended to be non-qualified stock options described in U.S. Treasury Regulation (“Treas. Reg.”)
§1.83-7 to which Sections 421 and 422 of the Internal Revenue Code of 1986, as amended from time to
time (“Code”) do not apply, and shall be construed to implement that intent. If all or any part of
the Options shall not be described in Treas. Reg. §1.83-7 or be subject to Sections 421 and 422 of
the Code, the Options shall nevertheless be valid and carried into effect.

14. PLAN CONTROLS. The Options shall be subject to and governed by the provisions of
the Plan. All determinations and interpretations of the Plan made by the Committee shall be final
and conclusive.

15. SHARES SUBJECT TO LEGEND. If deemed necessary by the Corporation’s counsel, all
certificates issued to represent Shares purchased upon exercise of the Options shall bear such
appropriate legend conditions as counsel for the Corporation shall require.

16. CONDITIONS TO OPTIONS.

16.1 Compliance with Applicable Laws. The Corporation’s obligation to issue Shares
upon exercise of the Options is expressly conditioned upon the completion by the Corporation of any
registration or other qualification of such Shares under any state and/or Federal law or rulings or
regulations of any governmental regulatory body, or the making of such investment representations
or other representations and undertakings by the Optionee or any person entitled to exercise the
Option in order to comply with the requirements of any exemption from any such registration or
other qualification of such Shares which the Committee shall, in its sole discretion, deem
necessary or advisable. Such required representations and undertakings may include representations
and agreements that the Optionee or any person entitled to exercise the Option (i) is not
purchasing such Shares for distribution and (ii) agrees to have placed upon the face and reverse of
any certificates a legend setting forth any representations and undertakings which have been given
to the Committee or a reference thereto.

16.2 Shareholder Approval of Plan. If the Options granted hereby are granted prior to
approval of the Plan by the shareholders of the Corporation pursuant to Section 8 of the Plan, the
grant of the Options made hereby is expressly conditioned upon and such Options shall not be
exercisable until the approval of the Plan by the shareholders of the Corporation in accordance
with the provisions of Section 8 of the Plan.

17. MISCELLANEOUS.

17.1 Binding Effect. This Agreement shall bind and inure to the benefit of the
successors, assigns, transferees, agents, personal representatives, heirs and legatees of the
respective parties.

17.2 Further Acts. Each party agrees to perform any further acts and execute and
deliver any documents which may be necessary to carry out the provisions of this Agreement.

17.3 Amendment. This Agreement may be amended at any time by the written agreement of
the Corporation and the Optionee.

17.4 Syntax. Throughout this Agreement, whenever the context so requires, the
singular shall include the plural, and the masculine gender shall include the feminine and neuter
genders. The headings and captions of the various Sections hereof are for convenience only and
they shall not limit, expand or otherwise affect the construction or interpretation of this
Agreement.

17.5 Choice of Law. The parties hereby agree that this Agreement has been executed
and delivered in the State of California and shall be construed, enforced and governed by the laws
thereof. This Agreement is in all respects intended by each party hereto to be deemed and
construed to have been jointly prepared by the parties and the parties hereby expressly agree that
any uncertainty or ambiguity existing herein shall not be interpreted against either of them.

17.6 Severability. In the event that any provision of this Agreement shall be held
invalid or unenforceable, such provision shall be severable from, and such invalidity or
unenforceability shall not be construed to have any effect on, the remaining provisions of this
Agreement.

17.7 Notices. All notices and demands between the parties hereto shall be in writing
and shall be served either by registered or certified mail, and such notices or demands shall be
deemed given and made forty-eight (48) hours after the deposit thereof in the United States mail,
postage prepaid, addressed to the party to whom such notice or demand is to be given or made, and
the issuance of the registered receipt therefor. If served by telegraph, such notice or demand
shall be deemed given and made at the time the telegraph agency shall confirm to the sender,
delivery thereof to the addressee. All notices and demands to Optionee or the Corporation may be
given to them at the following addresses:

	 	 	 	 	 
	If to Optionee:
	 	Gary L. Dreher

	 
	 	6301 Acacia Hill Drive
	 
	 	Yorba Linda, California  92886

	If to Corporation:
	 	AMDL, Inc.

2492 Walnut Avenue, Suite 100

Tustin, California 92780

Such parties may designate in writing from time to time such other place or places that such
notices and demands may be given.

17.8 Entire Agreement. This Agreement constitutes the entire agreement between the
parties hereto pertaining to the subject matter hereof, this Agreement supersedes all prior and
contemporaneous agreements and understandings of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the subject matter
hereof except as set forth or referred to herein. No supplement, modification or waiver or
termination of this Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall constitute a waiver of any
other provision hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.

17.9 Attorneys’ Fees. In the event that any party to this Agreement institutes any
action or proceeding, including, but not limited to, litigation or arbitration, to preserve, to
protect or to enforce any right or benefit created by or granted under this Agreement, the
prevailing party in each respective such action or proceeding shall be entitled, in addition to any
and all other relief granted by a court or other tribunal or body, as may be appropriate, to an
award in such action or proceeding of that sum of money which represents the attorneys’ fees
reasonably incurred by the prevailing party therein in filing or otherwise instituting and in
prosecuting or otherwise pursuing or defending such action or proceeding, and, additionally, the
attorneys’ fees reasonably incurred by such prevailing party in negotiating any and all matters
underlying such action or proceeding and in preparation for instituting or defending such action or
proceeding.

2

IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date first set
forth above.

“CORPORATION”

AMDL, INC.,

a Delaware corporation

By: /s/ Arthur S. Rosten

	 	 	 	Arthur S. Rosten, Chief Financial Officer

“OPTIONEE”

/s/ Gary L. Dreher

	 	 	 	Gary L. Dreher

3

EXHIBIT “B”

SEVERANCE AGREEMENT AND GENERAL RELEASE

THIS SEVERANCE AGREEMENT AND GENERAL RELEASE (the “Agreement”) is made and entered into by and
between GARY L. DREHER (“Employee”) and AMDL, INC., a Delaware corporation (the “Company”).

RECITALS

A. On January 31, 2005, Employee entered into an Employment Agreement with the Company (the
“Employment Agreement”).

B. {Employee has advised the Company that he has resigned his employment with the Company,
effective upon the close of business on      ; or Employee has been terminated
pursuant to Paragraph      of the Employment Agreement, effective as of      ; or
Employee’s employment has terminated pursuant to Paragraph      of the Employment Agreement.}

C. Employee and the Company want to settle fully and finally all potential differences and/or
differences between them, including all potential differences and/or differences which arise out of
and/or relate to Employee’s employment and/or separation of employment with the Company.

NOW, THEREFORE, Employee and the Company understand and agree as follows:

1. Non-Admission of Wrongdoing. This Agreement shall not in any way be construed as
an admission that the Company or any individual has any liability to or acted wrongfully in any way
with respect to Employee or any other person. The Company specifically denies that it has any
liability to or that it has done any wrongful or discriminatory acts against Employee or any other
person on the part of itself or its officers, employees and/or agents.

2. Separation of Employment. Employee acknowledges that his employment with the
Company ended as an Employee of the Company, effective upon the close of business on
     .

3. Company Property. Employee represents and agrees that he has turned over to the
Company all files, memoranda, records and other documents, and any other personal property which is
the property of the Company and which he had in his possession, custody or control at the time he
signed this Agreement.

(a) Employee agrees and covenants not to file a lawsuit, administrative complaint, or charge
of any kind with any court, governmental or administrative agency and/or arbitrator asserting any
claims that are released in this Agreement.

(b) Employee represents and agrees that, prior to signing this Agreement, he has not filed
and/or pursued any complaints, charges or lawsuits of any kind with any court, governmental or
administrative agency and/or arbitrator against the Company and/or its shareholders, officers,
directors, agents or employees, asserting any claims that are released in this Agreement.

4. Compensation. For and in consideration of the following payments of compensation,
after applicable payroll deductions, Employee and Company has entered into this Agreement:

(i) Current “Base Salary” through      , and pro-rated vacation pay and
prorated sick pay due through      , in the amount of      , Dollars
($     ), receipt of which is hereby acknowledged.

(ii) Pursuant to Paragraph      of the Employment Agreement, severance compensation in the
amount of      Dollars ($     ), payable concurrently upon the
Execution Date of this Agreement.

5. Complete Release. In exchange for the consideration provided by the Company,
Employee agrees for Employee, Employee’s heirs, executors, administrators, spouse, successors and
assigns to forever release and discharge the Company, the Company’s subsidiaries, the Company’s
related companies, parents, successors and assigns, officers, directors, agents, attorneys,
insurers, underwriters, employees and former employees from any and all claims, debts, promises,
agreements, demands, causes of action, attorneys’ fees, losses and expenses of every nature
whatsoever, known or unknown, suspected or unsuspected, filed or unfiled (including but not limited
to the Civil Action), arising prior to the effective date of this Agreement, or arising out of or
in connection with Employee’s employment by and cessation of same with the Company or any affiliate
of the Company. This total release includes, but is not limited to, all claims, liabilities,
obligations, promises, agreements, contracts, controversies, damages, actions, causes of action,
suits, rights demands, costs, losses, debts and expenses of Employee or any claims arising directly
or indirectly from Employee’ employment with the Company including claims or demands related to any
federal, state or local law or cause of action, including, but not limited to, retaliation,
negligence, breach of contract, breach of the implied covenant of good faith and fair dealing,
infliction of emotional distress, fraud, wrongful discharge, violation of public policy,
defamation, assault, impairment of economic opportunity; violation of the California Fair
Employment and Housing Act, Business & Professions Code Section 17200, the California Labor Code,
the California Constitution; and any claims for violation of the Civil Rights Act of 1866, Title
VII of the Civil Rights Act of 1964, the Family Medical Leave Act, the Employee Retirement Income
Security Act, the Equal Pay Act, the Fair Labor Standards Act, the Rehabilitation Act of 1974, the
California Family Rights Act (CFRA), and the Americans With Disabilities Act of 1990.

Employee hereby states that it is his intention in executing this Agreement that the same
shall be effective as a bar to each and every claim, demand, cause of action, obligation, damage,
liability, charge, attorneys’ fees and costs hereinabove released. Employee hereby expressly
waives and relinquishes all rights and benefits, if any, arising under the provisions of Section
1542 of the Civil Code of the State of California, which provides:

Section 1542. [Certain Claims Not Affected By General
Release.] A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time
of executing the release, which if known by him must have materially
affected his settlement with the debtor.

6. Ownership of Claims. Employee represents and agrees that he has not assigned or
transferred, or attempted to assign or transfer, to any person or entity, any of the claims he is
releasing in this Agreement.

7. No Representations. Employee represents and agrees that no promises, statements or
inducements have been made to him which caused him to sign this Agreement other than those
expressly stated in this Agreement.

8. Successors. This Agreement shall be binding upon Employee and upon his heirs,
administrators, representatives, executors, successors and assigns, and shall inure to the benefit
of the Company and to its administrators, representatives, successors and assigns.

9. Arbitration. Any dispute regarding any aspect of this Agreement or any act which
would violate any provision in this Agreement (hereafter referred to as “arbitratable dispute”)
shall be resolved by binding arbitration under the Federal Arbitration Act, in conformity with the
procedures of the California Arbitration Act (Cal. Code Civ. Proc. sec 1280 et seq., including
section 1283.05 and all of the Act’s other mandatory and permissive rights to discovery). In
addition to any other requirements imposed by law, the arbitrator selected shall be a retired
California Superior Court Judge, or otherwise qualified individual to whom the parties mutually
agree, and shall be subject to disqualification on the same grounds as would apply to a judge of
such court. All rules of pleading (including the right of demurrer), all rules of evidence, all
rights to resolution of the dispute by means of motions for summary judgment, judgment on the
pleadings, and judgment under Code of Civil Procedure Section 631.8 shall apply and be observed.
Resolution of the dispute shall be based solely upon the law governing the claims and defenses
pleaded, and the arbitrator may not invoke any basis (including but not limited to, notions of
“just cause”) other than such controlling law. The arbitrator shall have the immunity of a
judicial officer from civil liability when acting in the capacity of an arbitrator, which immunity
supplements any other existing immunity. Likewise, all communications during or in connection with
the arbitration proceedings are privileged in accordance with Cal. Civil Code Section 47(b). As
reasonably required to allow full use and benefit of this agreement’s modifications to the Act’s
procedures, the arbitrator shall extend the times set by the Act for the giving of notices and
setting of hearings. Awards shall include the arbitrator’s written reasoned opinion. Employee
understands and agrees to this binding arbitration provision, and both Employee and Employer give
up any right to trial by jury of any claim Employee or Employer may have against each other.

Should Employee or the Company institute any legal action or administrative proceeding with
respect to any claim waived by this Agreement or pursue any dispute or matter covered by this
paragraph by any method other than said arbitration, the responding party shall be entitled to
recover from the other party all damages, costs, expenses and actual attorneys’ fees incurred as a
result of such action.

10. Consultation with Counsel: Reasonable Time to Consider Agreement: Voluntary
Participation in this Agreement. Employee acknowledges that he has been advised of the
opportunity to review this Agreement with an attorney, that he has had the opportunity to
thoroughly discuss all aspects of his rights and this Agreement with an attorney to the extent
Employee elected to do so, that he has carefully read and fully understands all of the provisions
of this Agreement, that he has been given a reasonable period to consider signing this Agreement,
and that he is voluntarily signing this Agreement.

11. Severability and Governing Law. Should any of the provisions of this Agreement be
declared or be determined to be illegal, or invalid, all remaining parts, terms or provisions shall
be valid, and the illegal or invalid part, term or provision shall be deemed not to be a part of
this Agreement.

This Agreement is made and entered into in the State of California and shall in all respects
be interpreted, enforced and governed under the laws of California.

12. Proper Construction. The language of all parts of this Agreement shall in all
cases be construed as a whole according to its fair meaning, and not strictly for or against any of
the parties. It is the intention of the parties hereto that if any provision of this Agreement is
capable of two (2) constructions, one of which would render the provision void and the other of
which would render the provision valid, then the provision shall have the meaning which renders it
valid. As used in this Agreement, the term “or” shall be deemed to include the term and/or the
singular or plural number shall be deemed to include the other whenever the context so indicates or
requires. The paragraph headings used in this Agreement are intended solely for convenience of
reference and shall not in any manner amplify, limit, modify or otherwise be used in the
interpretation of any of the provisions hereof.

13. Entire Agreement. This Agreement is the entire agreement between Employee and the
Company and fully supersedes any and all prior agreements, representation, negotiations and/or
understandings between the parties pertaining to its subject matter, whether oral, written or both.

14. Execution Date. For purposes of this Agreement, the phrase “Execution Date” or
the phrase “Effective Date of Execution” shall mean the most current date set forth adjacent to the
respective signatures of the parties hereto.

15. Counterparts. This Agreement may be executed in counterparts by the respective
parties hereto, each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument and shall be valid and effective as if executed in the
presence of each other.

4

IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement on the date set
forth adjacent to their respective signatures.

	 	 	 	 	 
	Dated:	 	“COMPANY”	 	 
	 	 	AMDL, INC., a Delaware corporation

	 
	 	 	 	 
	
 
	 	By:
	 	

	
 
	 	 	 	 
	
 
	 	 	 	     , (title)
	 
	 	 	 	 
	Dated:

	 	“EMPLOYEE”
	 	

	 
	 	 	 	 
	
 
	 	By:
	 	

	
 
	 	 	 	 
	
 
	 	 	 	GARY L. DREHER
	 
	 	 	 	 

5

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