Document:

exv10w37

 

Exhibit 10.37

CONFIDENTIAL SETTLEMENT AGREEMENT AND GENERAL RELEASE

This Confidential Settlement Agreement and General Release
(“AGREEMENT”) is entered into by and between KIM KELDERMAN (“KELDERMAN”)
and OCULUS INNOVATIVE SCIENCES, INC. (“OCULUS” or “DEFENDANT”),
(collectively “PARTIES”), and with respect to the investor representations
and warrants in paragraph 3 and the provisions of paragraph 18 only,
McGuinn, Hllsinan and Paiefsky (“MCGUINN”).

RECITALS 

This AGREEMENT is made with reference to the following facts:

	 	A.	 	WHEREAS, KELDERMAN filed a Lawsuit against OCULUS that is
currently
pending in the Sonoma County Superior Court and that is
designated as Kim
Kelderman v. Oculus Innovative Sciences, Inc. et al., Case No.
SCY 236643 (the
“Lawsuit”); and
	 
	 	B.	 	WHEREAS, DEFENDANT denies the validity of KELDERMAN’s claims and
further denies that it is subject to any liability; and
	 
	 	C.	 	WHEREAS, all wages concededly due to KELDERMAN have been
unconditionally paid other than those wages specifically at issue in the
Lawsuit;
and
	 
	 	D.	 	WHEREAS, the PARTIES wish to settle their differences without resort to
further litigation; and
	 
	 	E.	 	WHEREAS, DEFENDANT is willing to provide KELDERMAN with certain
considerations described below, which it is not ordinarily
required to, provided
certain conditions are met.

     NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the
sufficiency of which are hereby acknowledged by the PARTIES, the PARTIES
agree to be legally bound by the following terms and conditions, which
constitute full settlement of any and all disputes between them:

	 	1.	 	Recitals: The PARTIES acknowledge that the “WHEREAS”
clauses preceding
paragraph 1 are true and correct, and are incorporated herein as
material parts to
this AGREEMENT.
	 
	 	2.	 	Definitions: Throughout this AGREEMENT, the term “DEFENDANT” shall
include the following:

	 	(A)	 	Oculus Innovative Sciences, Inc., MicroMed Laboratories, Inc., as well
as
any subsidiary, parent company, affiliated entity, related entity, operating
entity, franchise, or division of Oculus Innovative Sciences, Inc.; and

			
	 	 	 
	CONFIDENTIAL. SETTLEMENT AGREEMENT
	 	KELDERMAN v. OCULUS, ET AL.

 

 

	 	(13)	 	Any officer, director, trustee, agent, employee, or insurer of an
entity
encompassed by subparagraph (A).

	 	3.	 	Settlement Sum: As consideration for signing this
AGREEMENT and
compliance with the promises made herein, and subject to the
waiver by the
requisite vote of the shareholders of OCULUS of any right
(including right of first
refusal and anti-dilution rights) that could be triggered by
the issuance of the
Warrants (as defined below), DEFENDANT agrees to issue Warrants
in the forms
attached as Exhibit A-1 and A-2 hereto (the “Warrant”)
exercisable at $0.75 per
share for a total of TWO HUNDRED THOUSAND (200,000) shares of
the
Common Stock of Oculus (the “Underlying Shares”). One Warrant
in the form
attached as Exhibit A-1 will be issued to KIM KELDERMAN
exercisable at
$0.75 per share for ONE HUNDRED THIRTY THREE THOUSAND, THREE
HUNDRED AND THIRTY THREE (133,333) Underlying Shares. One
Warrant
in the form attached as Exhibit A-2 will be issued to McGUINN
HILLSMAN &
PALEFSKY exercisable at $0.75 per share for SIXTY SIX THOUSAND,
SIX
HUNDRED AND SIXTY SEVEN (66,667) Underlying Shares. Obtaining
shareholder approval for the issuance of these Warrants is a
material term and
condition of this Agreement. If OCULUS fails to obtain the
requisite permission
from shareholders to issue the Warrants by November 13, 2006,
this Agreement
shall be deemed null and void, regardless of whether the
Agreement has been
executed by the parties.
	 
	 	 	 	DEFENDANT further agrees, in consideration for KELDERMAN’s
signature to
this AGREEMENT and compliance with the promises made herein, to
pay to
KELDERMAN the total sum of TWO HUNDRED FIFTY THOUSAND
DOLLARS and 00/100 CENTS ($250,000.00) in cash if and only if
one of the
following two conditions is satisfied: (1) Beginning July 1,
2006, OCULUS
receives an aggregate $10,000,000 in gross proceeds from
fundraising, debt or
equity, and whether from one funding event or multiple events,
(2) OCULUS
successfully completes an Initial Public Offering of its
securities. Such sum shall
be payable as soon as practicable after the closing of the
earlier event to occur, if
ever, but no later than 15 calendar days after receipt of the
proceeds by OCULUS.
The sum will be distributed as follows: One draft will be made
payable to “Kim
Kelderman” in the amount of ONE HUNDRED AND SIXTY-THREE
THOUSAND EIGHTY SIX DOLLARS AND NINETY-ONE CENTS
($163,086.91), and a second draft will be made payable to “Kim
Kelderman and
the law firm of McGuinn Hillsman & Palefsky” in the amount of
EIGHTY-SIX
THOUSAND NINE HUNDRED THIRTEEN DOLLARS AND NINE CENTS
($86,913,09).
	 
	 	 	 	KELDERMAN and MCGUINN (each a “HOLDER”) each hereby severally
represents and warrants to DEFENDANT as follows as of the date
hereof, and such representations and warranties shall be true as
of the date of issuance and exercise of the Warrant, if ever:

			
	 	 	 
	CONFIDENTIAL SETTLEMENT AGREEMENT
	 	KELDERMAN V. OCULUS, ET AL.

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	 	(A)	 	HOLDER is acquiring the Warrant and, upon exercise of
the Warrant, the
Underlying Shares, for investment for his or its own
respective account
and not with the view to, or for resale in connection with,
any distribution,
assignment or resale within the meaning of the Securities
Act to others,
and no other person has a direct or indirect beneficial
interest, in whole or
in part, in the Warrant or the Underlying Shares. HOLDER
understands
that the Warrant and the Underlying Shares have not been
registered under
the Securities Act by reason of a specific exemption from
the registration
provisions of the Securities Act which depends upon, among
other things,
the bona fide nature of the investment intent as expressed
herein.
	 
	 	(B)	 	HOLDER has a preexisting business or personal relationship
with
OCULUS and its officers, directors or controlling persons
or, by reason of
their business or financial experience has the capacity to
protect his or its
own interests in connection with HOLDER’s acquisition of
the Warrant
and, upon exercise of the Warrant, the Underlying Shares.
HOLDER has
such knowledge and experience in financial, tax and
business matters to
enable HOLDER to utilize the information made available to
HOLDER in
connection with the Placement, to evaluate the merits and
risks of the
prospective investment and to make an informed investment
decision with
respect thereto.
	 
	 	(C)	 	HOLDER acknowledges that the Warrant and the Underlying
Shares must
be held indefinitely unless subsequently registered under
the Securities
Act or OCULUS receives an opinion of counsel satisfactory to
OCULUS
that such registration is not required. HOLDER is aware of
the provisions
of Rule 144 promulgated under the Securities Act which
permit limited
resale of securities purchased in a private placement
subject to the
satisfaction of certain conditions. HOLDER further
acknowledges and
understands that OCULUS may not be satisfying the current
public
information requirement of Rule 144 at the time HOLDER wish
to sell the
Underlying Shares, and, if so, HOLDER would be precluded
from selling
the Underlying Shares under Rule 144 even if the two year
minimum
holding period has been satisfied. HOLDER understands that
no public
market now exists for either of the Warrant held by HOLDER
or the
Underlying Shares, that there can be no assurance that a
public market will
ever exist for the Warrant or the Underlying Shares, and
OCULUS is
under no obligation to register the Warrant or the
Underlying Shares.
HOLDER further acknowledges that, in the event all of the
requirements
of Rule 144 are not met, compliance with Regulation A or
some other
registration exemption will be required; and that, although
Rule 144 is not
exclusive, the staff of the Commission has expressed its
opinion that
persons proposing to sell private placement securities other
than in a
registered offering and other than pursuant to Rule 144 will
have a
substantial burden of proof in establishing that an
exemption from

			
	 	 	 
	CONFIDENTIAL SETTLEMENT AGREEMENT
	 	KELDERMAN V. OCULUS, ET AL.

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	 	 	 	registration is available. HOLDER understands that
there is no assurance that any exemption from registration
under the Securities Act will be available, or if
available, will allow them to dispose of or otherwise
transfer, all or any portion of the Warrant held by HOLDER
or the Underlying Shares.
	 
	 	(D)	 	HOLDER understands that its right to transfer his
or its Warrant and the
Underlying Shares will be subject to restrictions against
transfer under the
Securities Act and applicable federal and state securities
laws (including
investor suitability standards). HOLDER understands that
legends will be
placed on the Warrant and the Underlying Shares with
respect to the above
restrictions on the assignment, resale or other disposition
of the Warrant
and Underlying Shares, and that stop transfer instructions
have been or
will be placed with respect to the Warrant and the
Underlying Shares so as
to restrict the assignment, resale or other dispositions
thereof.
	 
	 	(E)	 	HOLDER is an “accredited investor” (as defined in Rule 501 as
promulgated under the Securities Act), which standards are
set forth on Exhibit B.
	 
	 	(F)	 	OCULUS agrees that HOLDER’s Warrants and/or Underlying Shares
shall be treated similarly to other Warrants and/or Shares
for purposes of
registration in connection with an IPO, and that OCULUS
shall not refuse
to register HOLDER’s Warrants and/or Underlying Shares in a
manner
inconsistent with how other Warrants and/or Shares are
treated.
	 
	 	(G)	 	DEFENDANT shall provide the Warrants identified in this
paragraph 3
after it receives an original of this AGREEMENT
appropriately signed
and dated by KELDERMAN. DEFENDANT will issue the Warrants to
KELDERMAN and deliver them no later than (10) ten business
days after
OCULUS obtains the requisite shareholder approval, subject
to the other
conditions in this paragraph 3. DEFENDANT will tender the
Warrants
via U.S. Certified Mail to plaintiff’s counsel of record.
Upon receipt of the
Warrants, KELDERMAN’s counsel will forward to DEFENDANT’S
counsel a signed Dismissal With Prejudice in the matter of
Kim Kelderman
v. Oculus Innovative Sciences, Inc. et al., Case No.
SCV 236643, currently
pending in the Sonoma County Superior Court for the
state of California.
DEFENDANT’S counsel will file the executed Dismissal for
Prejudice
with the Superior Court.

	 	4.	 	Consideration: KELDERMAN understands and agrees that he
would not
receive the monies, Warrants, and/or benefits specified in
paragraph 3, above, but
for his execution of this AGREEMENT and the fulfillment of the
promises
contained herein. KELDERMAN further understands,
acknowledges and agrees that he has no right, title or interest
in or to any securities of OCULUS (including any options granted
to KELDERMAN during his employment by OCULUS) or

			
	 	 	 
	CONFIDENTIAL SETTLEMENT AGREEMENT
	 	KELDERMAN V. OCULUS, ET AL.

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	 	 	 	any right to receive any securities of OCULUS other than
the Warrants provided for in this Agreement.
	 
	 	5.	 	Mutual General Release of Claims: In exchange for, and in
consideration of
the payments, benefits, and other commitments described above,
KELDERMAN
agrees to secure the dismissal of his Lawsuit filed against
DEFENDANT (and any
other claims or assertions of liability that may exist). In
addition, KELDERMAN and DEFENDANT, their heirs, executors,
administrators, and assigns, hereby fully and mutually release,
acquit, and forever discharge the other’s heirs, executors,
administrators, predecessors, successors and assigns, parent
corporations, subsidiary corporations, affiliated corporations,
and the officers, directors, shareholders, partners, employees,
attorneys and agents, past and present, of each of the aforesaid
entities (“Related Persons”) of and from any and all claims,
liabilities, causes of action, demands to any rights, damages,
costs, attorneys’ fees, expenses, and compensation whatsoever,
of whatever kind or nature, in law, equity or otherwise, whether
known or unknown, vested or
contingent, suspected or unsuspected, that the PARTIES may
now have, has ever had, or hereafter may have relating directly
or indirectly to the allegations in the Lawsuit, including, but
not limited to, claims for wages, which as set forth in “WHEREAS”
clause “C” preceding paragraph 1 of this AGREEMENT have been
fully paid to KELDERMAN prior to the execution of this AGREEMENT, or are fully paid by
way of paragraph 3 of this AGREEMENT; options; back pay; front
pay; reinstatement; damages; or benefits.
	 
	 	 	 	KELDERMAN also releases any and all claims he may have that arose
prior to the date of this AGREEMENT, and hereby specifically
waives and releases all claims, including, but not limited to,
those arising under the California Fair Employment and Housing
Act; the California Labor Code; the Title VII of the Civil Rights
Act of 1964, as amended, the Civil Rights Act of 1991; the Equal
Pay Act; the Americans with Disabilities Act of 1990; the
Rehabilitation Act of 1973, as amended; the Immigration Reform
and Control Act, as amended; the Workers Adjustment and
Retraining Notification Act, as amended; the Occupational Safety
and Health Act, as amended; the Sarbanes-Oxley Act of 2002; the
Consolidated Omnibus Budget Reconciliation Act (COBRA); the
Family and Medical Leave Act; the California Family Rights Act;
the Employee Retirement Income Security Act of 1974, as amended;
the National Labor Relations Act; the Fair Labor Standards Act;
and any and all state or local statutes, ordinances, or
regulations, as well as all claims arising under federal, state,
or local law involving any tort, employment contract (express or
implied), public policy, wrongful discharge, or any other claim.
	 
	 	 	 	This AGREEMENT shall not apply to rights or claims that may arise
after the Effective Date of this AGREEMENT; nor shall any
provision of this AGREEMENT be interpreted to waive, release, or
extinguish any rights that — by express and unequivocal terms of
law — may not under any circumstances be waived, released, or
extinguished.

			
	 	 	 
	CONFIDENTIAL SETTLEMENT AGREEMENT
	 	KELDERMAN V, OCULUS, ET AL.

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	 	6.	 	Tax Liability: KELDERMAN understands that DEFENDANT shall issue an
IRS Form W-2 to KELDERMAN and IRS Form 1099 to KELDERMAN’s
Counsel of Record for DEFENDANT’S payments to KELDERMAN and his
attorney as set forth in Paragraph 3. In providing the benefits
or issuing the Warrants specified in paragraph 3, DEFENDANT
makes no representation regarding the tax consequences or
liability arising from said provision. KELDERMAN understands and
agrees that any and all tax liability that may be due or become
due because of the payment referenced above is his sole
responsibility, and that he will pay any such taxes that may be
due or become due. DEFENDANT has no monetary liability or
obligation regarding any payments whatsoever (other than
delivering valid compensation in the sum referenced in paragraph
3 of this AGREEMENT to KELDERMAN). KELDERMAN and his Counsel of
Record agree to bear all tax consequences, if any, attendant upon
the respective payments to them of the above-recited sums.
	 
	 	7.	 	Affirmations: KELDERMAN represents and affirms that, other
than his Lawsuit
referenced herein against DEFENDANT, he has no suits, claims,
charges,
complaints or demands of any kind whatsoever currently pending
against
DEFENDANT with any local, state, or federal court or any
governmental, administrative, investigative, civil rights or
other agency or board. KELDERMAN further represents and affirms
that he has been paid and/or received. All leave (paid or
unpaid), compensation, wages, bonuses, commissions, and/or
benefits to which he may be entitled and that no other leave
(paid or unpaid), compensation, wages, bonuses, commissions,
and/or benefits are due him, except as provided for in this
AGREEMENT.
	 
	 	8.	 	No Further Employment: KELDERMAN acknowledges that he was
no longer
employed with OCULUS INNOVATIVE SCIENCES, INC. as of January
2005.
KELDERMAN permanently, unequivocally, and unconditionally waives
any and
all rights KELDERMAN may now have, may have had in the past, or
may have in the future to obtain or resume employment with
DEFENDANT. KELDERMAN agrees never to apply for employment with
DEFENDANT, their parent, successors, affiliates, and
subsidiaries. In the event that KELDERMAN is ever mistakenly
employed by DEFENDANT, their parent, successors, affiliates,
and/or subsidiaries, KELDERMAN agrees to have his employment
terminated with no resulting claim or cause of action against
DEFENDANT, their parent, successors, affiliates, and/or
subsidiaries.
	 
	 	9.	 	No Assignment: The PARTIES represent and warrant that no
person other than
the signatories hereto had or has any interest in the matters
referred to in this
AGREEMENT, that the PARTIES have the sole right and exclusive
authority to
execute this AGREEMENT, and that the PARTIES have not sold,
assigned, transferred, conveyed, or otherwise disposed of any
claim, demand or legal right that is the subject of this
AGREEMENT.

			
	 	 	 
	CONFIDENTIAL SETTLEMENT AGREEMENT
	 	KELDERMAN V. OCULUS, ET AL.

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	 	 	 	Plaintiff further agrees that he is solely responsible for
satisfaction of all liens, legal, medical, tax or otherwise,
which may have arisen allegedly as a result of Plaintiff’s
employment with OCULUS INNOVATIVE SCIENCES, INC. or Plaintiffs
lawsuit against DEFENDANT.
	 
	 	10.	 	Confidentiality: In consideration of the obligations under
this AGREEMENT,
the PARTIES agree that this AGREEMENT and the terms and
conditions hereof,
are strictly, and shall forever remain, confidential, and that
neither the PARTIES
nor their respective heirs, agents, executors, administrators,
attorneys, legal
representatives or assigns shall disclose or disseminate,
directly or indirectly, any
information concerning any, such terms to any third person(s),
including, but not
limited to, representatives of the media or other present or
former associates of
OCULUS INNOVATIVE SCIENCES, INC., under any circumstances, except
the
PARTIES may disclose the terms of this AGREEMENT to their
respective
spouses, attorneys, accountants, tax advisors, the Internal
Revenue Service, or as
otherwise required by law (“Third Parties”), provided, however,
that the Third
PARTIES to whom such disclosure is made shall agree in advance to
be bound by
the terms of this paragraph 10 and all of its subparts.

	 	(A)	 	If one of the PARTIES is required to disclose this AGREEMENT
or its
terms pursuant to court order and/or subpoena, the
disclosing party shall
notify the other, in writing via facsimile or overnight
mail, within 24 hours
of him receipt of such court order or subpoena, and
simultaneously
provide the non-disclosing party with a copy of such
court order or
subpoena. The notice shall comply with the notice
requirements set forth
below in paragraph 20. The disclosing party agrees to waive
any
objection to the non-disclosing party’s request that
the document production or testimony be done in camera
and under seal.
	 
	 	(B)	 	The PARTIES acknowledge that a violation of paragraph 10 or
any of its
subparts would cause immeasurable and irreparable damage to
DEFENDANT in an amount incapable of precise determination.
Accordingly, the PARTIES agree that the non-breaching party
shall be
entitled to injunctive relief in any court of
competent jurisdiction for any
actual or threatened violation of paragraph 10 and all
of its subparts, in
addition to any other available remedies.
	 
	 	(C)	 	The PARTIES agree that the terms of paragraph 10 and all of
its subparts
are a material inducement for the execution of this
AGREEMENT. Any
disclosure or dissemination, other than as described above
in paragraph 10
and 10(A) will be regarded as a breach of this AGREEMENT
and a cause
of action shall immediately accrue for damages and
injunctive relief upon
verifiable proof that the breaching party directed the
prohibited disclosure
and such disclosure has indeed occurred. The PARTIES agree
that
damages sustained by such breach would be impractical or
extremely
difficult to determine and, therefore, agree that in the
event that the

			
	 	 	 
	CONFIDENTIAL SETTLEMENT AGREEMENT
	 	KELDERMAN V. OCULUS, ET AL.

7

 

PARTIES or any of the individuals identified in paragraph-10(A),
violate
this paragraph 10 or any of its subparts, the
breaching party shall pay the non breaching party
liquidated damages in the sum of THREE THOUSAND DOLLARS AND
00/100 CENTS ($3,000.00) for each violation upon verifiable
proof that the breaching party has violated paragraph 10
and its subparts and a prohibited disclosure in fact
occurred. The PARTIES further agree that such damages are
not intended to be, and
shall not be construed as, a penalty.

	 	11.	 	Non-Disparagement: The PARTIES agree that none of
them will provide
information, issue statements, or take any action, directly or
indirectly, that would
cause the other to suffer embarrassment or humiliation or
otherwise cause or
contribute to the other being held in disrepute. This provision
specifically
excludes any information that the PARTIES are required
to disclose in any pending or future litigation against OCULUS
INNOVATIVE SCIENCES, INC., or its agents, employees,
subsidiaries, divisions, parent companies, affiliated
entities, related entities, operating entities, franchises.
	 
	 	12.	 	Governing Law and Jurisdiction: This AGREEMENT shall be
governed and
conformed in accordance with the laws of the state in which
KELDERMAN was
employed at the time of his last day of employment with
DEFENDANT without
regard to its conflict of laws provision. In the event KELDERMAN
or DEFENDANT breach any provision of this AGREEMENT, the PARTIES
affirm that either of them may institute an action to
specifically enforce any term or terms of this AGREEMENT.
	 
	 	13.	 	Conditions: Should KELDERMAN or DEFENDANT ever breach any
provision
or obligation under this AGREEMENT, the breaching party
explicitly agrees to
pay all damages (including, but not limited to, litigation
and/or defense costs,
expenses, and reasonable attorneys’ fees) incurred by
the non-breaching party as a result of the other’s breach.
Nothing in this paragraph shall, or is intended to, limit or
restrict any other rights or remedies the PARTIES may have by
virtue of this AGREEMENT or otherwise.
	 
	 	14.	 	No Admission of Liability: The PARTIES agree that neither
this AGREEMENT
nor the furnishing of the consideration for this AGREEMENT shall
be deemed or
construed at any time for any purpose as an admission by
DEFENDANT of any
liability or unlawful conduct of any kind.
	 
	 	15.	 	Headings: The headings of the provisions herein are
intended for convenient
reference only, and the same shall not be, nor be deemed to be,
interpretative of
the contents of such provision.
	 
	 	16.	 	Modification of Agreement: This AGREEMENT may not be
amended,
revoked, changed, or modified in any way, except in writing
executed by all
PARTIES. KELDERMAN agrees not to make any claim at any time or
place that

			
	 	 	 
	CONFIDENTIAL SETTLEMENT AGREEMENT
	 	KELDERMAN V, OCULUS, ET AL.

8

 

	 	 	 	this AGREEMENT has been verbally modified in any
respect whatsoever. No waiver of any provision of this AGREEMENT
will be valid unless it is in a writing and signed by the party
against whom such waiver is charged. The PARTIES acknowledge
that only the assigned legal counsel of DEFENDANT has the
authority to modify this AGREEMENT on behalf of DEFENDANT.
	 
	 	17.	 	Interpretation: 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. This AGREEMENT has been negotiated
by and
between attorneys for the PARTIES and shall not be construed
against the drafter of the AGREEMENT. If any portion or
provision of this AGREEMENT (including, without implication of
limitation, any portion or provision of any section of this
AGREEMENT) is determined to be illegal, invalid, or
unenforceable by any court of competent jurisdiction and cannot
be modified to be legal, valid, or enforceable, the remainder of
this AGREEMENT shall not be affected by such determination and
shall be valid and enforceable to the fullest extent permitted
by law, and said illegal, invalid, or unenforceable portion or
provision shall be deemed not to be a part of this AGREEMENT. To
the extent that the dismissal of KELDERMAN’S Lawsuit or the
general release of claims described in paragraph 5 above is
deemed to be illegal, invalid, or unenforceable, DEFENDANT is
not obligated to honor any of the terms set forth herein and
KELDERMAN and MCGUINN shall return any Warrant and Underlying
Shares issued and all amounts paid by DEFENDANT.
	 
	 	18.	 	Binding Nature of Agreement: This AGREEMENT shall be
binding upon each
of the PARTIES and upon their respective heirs, administrators,
representatives,
executors, successors, and assigns, and shall inure to the
benefit of each party and
to their respective heirs, administrators, representatives,
executors, successors, and assigns.
	 
	 	19.	 	Entire Agreement: This AGREEMENT sets forth the entire
AGREEMENT
between the PARTIES hereto, and fully supersedes any prior
obligation of
DEFENDANT to KELDERMAN. KELDERMAN acknowledges that he has not
relied on any representations, promises, or agreements of any
kind made to him in connection with his decision to accept this
AGREEMENT, except for those set forth in this AGREEMENT.
	 
	 	20.	 	Notice Requirements: Each notice (“Notice”) provided for
under this
AGREEMENT, must comply with the requirements as set forth in this
paragraph.
Each Notice shall be in writing and sent by facsimile or
depositing it with a
nationally recognized overnight courier service that obtains
receipts (such as Federal Express or UPS Next Day Air), addressed
to the appropriate party (and marked to a particular individual’s
attention, if so indicated) as hereinafter provided. Each Notice
shall be effective upon being so telecopied or deposited, but the
time period in which a response to any notice must be given or
any action taken with respect thereto shall commence to run from
the date of receipt of the

			
	 	 	 
	CONFIDENTIAL SETTLEMENT AGREEMENT
	 	KELDERMAN V, OCULUS, ET AL.

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	 	 	 	Notice by the addressee thereof, as evidenced by the return
receipt. Rejection or other refusal by the addressee to accept
or the inability to deliver because of a changed address of
which no Notice was given shall be deemed to be the receipt of
the Notice sent. Any party shall have the right from time to
time to change the address or individual’s attention to which
notices to it shall be sent by giving to the other party at
least ten (10) days prior Notice thereof. The PARTIES’ addresses
for providing Notices hereunder shall be as follows:

Oculus Innovative Sciences, Inc.

c/o Robert K. Phillips, Esq.

Phillips, Spallas & Angstadt LLP

650 California Street, 10th Floor

San Francisco, CA 94108

(415) 278-9400(tel)

(415) 278-9411(fax)

Mr. Kim Kelderman c/o

Cliff Palefsky, Esq.

McGuinn Hilisman & Palefsky

535 Pacific Avenue

San Francisco, CA 94133

(415) 421-9292(tel)

(415) 403-0202(fax)

	 	21.	 	Selective Enforcement: The PARTIES agree that the failure
of any party to
enforce or exercise any right, condition, term, or provision of
this AGREEMENT
shall not be construed as or deemed a relinquishment or waiver
thereof, and the
same shall continue in full force and effect.
	 
	 	22.	 	Signatures in Counterparts: This AGREEMENT may be
executed in
counterparts, and each counterpart, when executed, shall have the
efficacy of a
signed original. Such counterparts shall together constitute one
and the same
document. The PARTIES agree that facsimile signatures shall be
treated as original signatures.
	 
	 	23.	 	Compliance with California Civil Code: KELDERMAN
agrees that this
AGREEMENT will cover all claims of every nature and kind
whatsoever, which
KELDERMAN may have, known, or unknown, suspected or unsuspected,
past or

			
	 	 	 
	CONFIDENTIAL SETTLEMENT AGREEMENT
	 	KELDERMAN V, OCULUS, ET AL.

10

 

	 	 	 	present, which he may have against DEFENDANT, despite the
fact that California Civil Code Section 1542 (“Section 1542”)
may provide otherwise. KELDERMAN expressly waives any right
or benefit available to him in any capacity under the
provisions of Section 1542, which provides: “A general release
does not extend to the 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 debtor.”

			
	 	 	 
	CONFIDENTIAL SETTLEMENT AGREEMENT
	 	KELDERMAN V, OCULUS, ET AL.

11

 

HAVING ELECTED TO EXECUTE THIS AGREEMENT, TO FULFILL THE PROMISES AND TO
RECEIVE THE SUMS AND BENEFITS IN PARAGRAPH 3 ABOVE PROVIDED THE CONDITIONS
DESCRIBED THEREIN ARE SATISFIED, KELDERMAN FREELY AND KNOWINGLY, AND AFTER
DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT INTENDING TO WAIVE, SETTLE,
AND RELEASE ALL CLAIMS HE HAS OR OUGHT HAVE AGAINST DEFENDANT.

I ACCEPT AND AGREE TO THE ENTIRE AGREEMENT SET FORTH ABOVE:

	 	 	 	 	 	 	 
	By:

	 	     /s/ Kim Kelderman
	 	 
	 	          2006-10-25
	 

	 	 
	 	 	 	 
	 

	 	KIM KELDERMAN
	 	 	 	Date
	 
	 	 	 	 	 	 
	 

	 	OCULUS INNOVATIVE SCIENCES, INC.	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	     /s/ Jim Schutz
	 	 	 	          10/7/06
	 

	 	 
	 	 	 	 
	Print Name:      Jim Schutz	 	 	 	Date
	 

	 	 	 	 	 	 
	Print Title:      Gen. Counsel	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	on behalf of OCULUS INNOVATIVE SCIENCES, INC	 	 	 	 
	 

	 	and MICROMED LABORATORIES, INC. AND THE OTHER	 	 	 	 
	 

	 	PERSONS NAMED HEREIN	 	 	 	 

With respect to the investor representations and warrants in paragraph 3 and the
previous of
paragraph 18 only:

	 	 	 	 	 	 	 
	 

	 	     McGUINN, HILLSMAN & PALEFSKY
	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	     /s/ Cliff Palefsky
	 	 	 	          10/25/06
	 

	 	 
	 	 	 	 
	Print Name:      Cliff Palefsky	 	 	 	Date
	 

	 	 	 	 	 	 
	Print Title:       VP	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Approved as to from:	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	     /s/ Cliff Palefsky
	 	 	 	          10/25/06
	 

	 	 
	 	 	 	 
	 

	 	     Cliff Palefsky
	 	 	 	Date
	 

	 	     Attorney
of record, for plaintiff	 	 	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 

	 	     Robert K. Phillips
	 	 	 	Date
	 

	 	     Attorney
of record for defendant	 	 	 	 

			
	 	 	 
	CONFIDENTIAL SETTLEMENT AGREEMENT
	 	KELDERMAN V, OCULUS, ET AL.

12

 

EXHIBIT A-1

WARRANT

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.

Oculus Innovative Sciences, Inc.

WARRANT TO PURCHASE COMMON STOCK

	 	 	 
	No.                                        

	 	                    , 2006
	 
	 	 
	Void AFTER                      , 2008
	 	 

This CERTIFIES THAT, for value received, Kim Kelderman, or his
designee if and as permitted in this Warrant (the “Holder”), is entitled to
subscribe for. and purchase at the Exercise Price (defined below) from
OCULUS INNOVATIVE SCIENCES, INC., a California
corporation, with its principal office at 1129 N. McDowell Blvd., Petaluma,
CA 94954 (the “Company”) One Hundred Thirty-Three Thousand Three Hundred
Thirty-Three (133,333) shares of the Common Stock of the Company (the
“Common Stock”).

     1. DEFINITIONS. As used herein, the following terms shall have the
following respective meanings:

          (a) “Exercise Period” shall mean the period commencing with the date ‘of the
execution of this Agreement and ending on November -, 2008, unless sooner terminated as
provided below.

          (b) “Exercise Price” shall mean       $0.75 per share, subject to adjustment
pursuant to Section 5 below.

          (c) “Exercise Shares” shall mean the shares of the Company’s
Common Stock issuable upon exercise of this Warrant, subject to adjustment
pursuant to the terms herein, including but not limited to adjustment
pursuant to Section 5 below.

     2. EXERCISE OF WARRANT. The rights represented by this
Warrant may be exercised in whole or in part at any time during the Exercise Period, by
delivery of the following
to the Company at its address set forth above (or at such other address as it may
designate by
notice in writing to the Holder):

          (a) An executed Notice of Exercise in the form attached hereto;

A1-1

 

          (b) Payment of the Exercise Price either (i) in cash or by check, or
(ii) by cancellation of indebtedness; and

          (c) This Warrant.

Upon the exercise of the rights represented by this Warrant, a certificate
or certificates for the Exercise Shares so purchased, registered in the
name of the Holder, if the Holder so designates, shall be issued and
delivered to the Holder within a reasonable time after the rights
represented by this Warrant shall have been so exercised.

The person in whose name any certificate or certificates for Exercise
Shares are to be issued upon exercise of this Warrant shall be deemed to
have become the holder of record of such shares on the date on which this
Warrant was surrendered and payment of the Exercise Price was made,
irrespective of the date of delivery of such certificate or certificates,
except that, if the date of such surrender and payment is a date when the
stock transfer books of the Company are closed, such person shall be deemed
to have become the holder of such shares at the close of business on the
next succeeding date on which the stock transfer books are open.

     3. COVENANTS OT m COMPANY.

          (a) Covenants as to Exercise Shares. The Company covenants and agrees
that all Exercise Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued and
outstanding, fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issuance thereof. The Company further
covenants and agrees that the Company will at all times during the Exercise
Period, have authorized and reserved a sufficient number of shares of
its Common Stock to provide for the exercise of the rights represented by
this Warrant. If at any time during the Exercise Period the number of
authorized but unissued shares of Common Stock shall not be sufficient to
permit exercise of this Warrant, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares
as shall be sufficient for such purposes.

          (b) No Impairment. Except ‘and to the extent as waived or consented to
by the Holder, the Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Company, but will at all times in good faith assist in the carrying out
of all the provisions of this Warrant and in the taking of all such action
as may be necessary or appropriate in order to protect the exercise rights
of the Holder against
impairment.

     4. REPRESENTATIONS OF HOLDER.

          (a) Acquisition of Warrant for Personal Account. The Holder represents
and warrants that it is acquiring the Warrant and the Exercise Shares
solely for its account for investment and not with a view to or for sale or
distribution of said Warrant or Exercise Shares or any part thereof. The
Holder also represents that the entire legal and beneficial interests of the

A1-2

 

Warrant and Exercise Shares the Holder is acquiring is being acquired
for, and will be held for, its account only.

          (b) Securities Are Not Registered.

               (i) The Holder understands that the Warrant and the Exercise Shares
have not been registered under the Act on the basis that no distribution or
public offering of the stock of the Company is to be effected. The Holder
realizes that the basis for the exemption may not be present if,
notwithstanding its representations, the Holder has a present intention of
acquiring the securities for a fixed or determinable period in the future,
selling (in connection with a distribution or otherwise), granting any
participation in, or otherwise distributing the securities. The Holder has
no such present intention.

               (ii) The Holder recognizes that the Warrant and the Exercise Shares
must be held indefinitely unless they are subsequently registered
under the Act or an exemption from such registration is available. The
Holder recognizes that the Company has no obligation to register the
Warrant, or the Exercise Shares of the Company, or to comply with any
exemption from such registration.

               (iii) The Holder is aware that neither the Warrant nor the Exercise
Shares may be sold pursuant to Rule 144 adopted under the Act unless
certain conditions are met, including, among other things, the existence of
a public market for the shares, the availability of certain current public
information about the Company, the resale following the required holding
period under Rule 144 and the number of shares being sold during, any three
month period not exceeding specified limitations. Holder is aware that the
conditions for resale set forth in Rule 144 have not been satisfied and
that the Company may not presently have any plans to satisfy these
conditions in the foreseeable future.

          (c) Disposition of Warrant and Exercise Shares.

               (i) The Holder further agrees not to make any disposition of all or any
part of the Warrant or Exercise Shares in any event unless and until:

                    (A) The Company shall have received a letter secured by the
Holder from the Securities and Exchange Commission stating that no
action will be recommended to the Commission with respect to the proposed
disposition;

                    (B) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with said registration statement and applicable securities
laws;

                    (C) The Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the
circumstances surrounding the proposed disposition, and if reasonably
requested by the
Company, the Holder shall have furnished the Company with an opinion of
counsel, reasonably
satisfactory to the Company, for the Holder to the effect that such
disposition will not require
registration of such Warrant or Exercise Shares under the Act or any
applicable state securities
laws; or

A1-3

 

                    (D) The Warrant may not be exercised if the issuance of the
Exercise Shares upon such exercise would constitute a violation of any
applicable federal or state securities law or the laws or regulations or
would not be exempt from federal securities law registration and
qualification under applicable state law. As a condition to the exercise of
the Warrant, the Company may require Holder to make such representations
and warranties to the Company as may be required by applicable law or
regulation.

               (ii) The Holder understands and agrees that all certificates evidencing
the shares to be issued to the Holder may bear the following legend:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.

     5. ADJUSTMENT OF EXERCISE PRICE. In the event of changes in the
outstanding Common Stock of the Company by reason of stock dividends,
split-ups, recapitalizations, reclassifications, combinations or exchanges
of shares, separations, reorganizations, liquidations, or the like, the
number and class of shares available under the Warrant in the aggregate and
the Exercise Price shall be correspondingly adjusted to give the Holder of
the Warrant, on exercise for the same aggregate Exercise Price, the total
number, class, and kind of shares as the Holder would have owned had the
Warrant been exercised • prior to the event and. had the Holder continued
to hold such shares until after the event requiring adjustment; provided,
however, that such adjustment shall not be made with respect to, and this
Warrant shall terminate if not exercised prior to, the events set forth in
Section 7 below. The form of this Warrant need not be changed because of
any adjustment in the number of Exercise Shares subject to this Warrant.

     6. FRACTIONAL SHARES. No fractional shares shall be issued
upon the exercise of
this Warrant as a consequence of any adjustment pursuant hereto. All
Exercise Shares (including
fractions) issuable upon exercise of this Warrant may be aggregated for
purposes of determining
whether the exercise would result in the issuance of any fractional
share. If, after aggregation,
the exercise would result in the issuance of a fractional share, the
Company shall, in lieu of
issuance of any fractional share, pay the Holder otherwise entitled to
such fraction a sum in cash
equal to the product resulting from multiplying the then current fair
market value of an Exercise Share by such fraction.

     7. MARKET STAND-OFF AGREEMENT. Holder shall not sell, dispose of,
transfer, make any short sale of, grant any option for the purchase of or
enter into any hedging or similar transaction with the same economic effect
as a sale, any Common Stock (or other securities) of the Company held by
Holder, for a period. of time specified by the managing underwriter(s) not
to exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Act. Holder agrees to
execute and deliver such other agreements as may be reasonably requested by
the Company and/or the managing underwriter(s) which are consistent with the
foregoing or which are necessary to give further effect thereto. In order to

A1-4

 

enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to such Common Stock (or other
securities) until the end of such period. The underwriters of the Company’s
stock are intended third party beneficiaries of this Section 8 and shall
have the right, power and authority to enforce the provisions hereof as
though they were a party hereto.

     8. No STOCKHOLDER RIGHTS. This Warrant in and of itself
shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.

     9. No TRANSFER OF WARRANT. This Warrant may not be
transferred, assigned, pledged or hypothecated without the prior
written consent of the Company, and any purported transfer, assignment,
pledge or hypothecation in contravention of this Section 1.0 shall be of no
force or effect.

     10. LOST,
STOLEN, MUTILATED OR DESTROYED WARRANT. If this
Warrant is lost, stolen, mutilated or destroyed, the Company may, on
such terms as to indemnity or otherwise as it may reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof),
issue a new Warrant of like denomination and tenor as the Warrant so lost,
stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Company, whether or not the
allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time
enforceable by anyone.

     11. NOTICES, ETC. All notices required or permitted hereunder
shall be in writing and
shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when
sent by confirmed telex or facsimile if sent during normal business
hours of the recipient, if not,
then on the next business day, (c) five (5) days after having been sent
by registered or certified
mail, return receipt requested, postage prepaid, or (d) one (1) day
after deposit with a nationally
recognized overnight courier, specifying next day delivery, with
written verification of receipt.
All communications shall be sent to the Company at the address listed
on the signature page and
to Holder at 1129 N. McDowell Blvd., Petaluma, California 94954 or at
such other address as the
Company or Holder may designate by ten (10) days advance written notice
to the other PARTIES hereto.

     12. ACCEPTANCE. * Receipt of this Warrant by the Holder shall
constitute acceptance of and agreement to all of the terms and conditions
contained herein.

     13. GOVERNING LAW. This Warrant and all rights, obligations and
liabilities hereunder shall be governed by the laws of the State of
California.

A1-5

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly
authorized officer as of                     , 2006.

	 	 	 	 	 	 	 
	 	 	OCULUS INNOVATIVE SCIENCES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	Hoji Alimi	 	 
	 
	 	 	 	 	 	 
	 	 	President and. CEO	 	 

	 	 	 
	 
	 	 
	ACKNOWLEDGED AND AGREED:
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	 

Kim Kelderman

	 	 

A1-6

 

NOTICE OF EXERCISE

TO: OCULUS INNOVATIVE SCIENCES, INC.

     (1) The undersigned hereby elects to purchase                     shares of Common Stock of
OCULUS INNOVATIVE SCIENCES, INC. (the “Company”) pursuant to the terms of
the attached Warrant, and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.

     (2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name
as is specified below:

	 	 	 	 	 
	 

	 	 

(Name)
	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	(Address)	 	 

     (3) The undersigned represents that (i) he is an accredited investor,
as defend in Regulation D promulgated under the Securities Act of 1933, as
amended; (ii) the aforesaid shares of Common Stock are being acquired for
the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned
has no present intention of distributing or reselling such shares; (iii) the
undersigned is aware of the Company’s business affairs and financial
condition and has acquired sufficient information about the Company to reach
an informed and knowledgeable decision regarding its investment in the
Company; (iv) the undersigned is experienced in making investments of this
type and has such knowledge and background in financial and business matters
that the undersigned is capable of evaluating the merits and risks of this
investment and protecting the undersigned’s own interests; (v) the
undersigned understands that the shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act
of 1933, as amended (the “Securities Act”), by reason of a specific
exemption from the registration provisions of the Securities Act, which
exemption depends upon, among other things, the bona fide nature of the
investment intent as expressed herein, and, because such securities have not
been registered under the Securities Act, they must be held indefinitely
unless subsequently registered under the Securities Act or an exemption from
such registration is available; (vi) the undersigned is aware that the
aforesaid shares of Series A Preferred Stock may not be sold pursuant to
Rule 144 adopted under the Securities Act unless certain conditions are met
and until the undersigned has held the shares for the number of years
prescribed by Rule 144, that among the conditions for use of the Rule is the
availability of current information to the public about the Company and the
Company has not made such information available and has no present plans to
do so; and (vii) the undersigned agrees not to make any disposition of all
or any part of the aforesaid shares of Common Stock unless and until there
is then in effect a registration statement

A1-7

 

under the Securities Act covering such proposed disposition and such
disposition is made in accordance with said registration statement, or
the undersigned has provided the Company with an opinion of counsel
satisfactory to the Company, stating that such registration is not
required.

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

(Date)

	 	 
	 	 

(Signature)
	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	(Print name)	 	 

A1-8

 

EXHIBIT A-2 

Warrant

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.

Oculus Innovative Sciences, Inc.

WARRANT TO PURCHASE COMMON STOCK

	 	 	 	 	 	 	 	 	 
	No.

	 	 
	 	 
	 	 
	 	, 2006
	 

	 	 
	 	 	 	 	 	 

VOID AFTER                     , 2008

     This Certifies That, for value received, McGuinn, Hillsman and Palefsky, or its
designee if and as permitted in this Warrant (the “Holder”), is entitled to
subscribe for and purchase at the Exercise Price (defined below) from Oculus
Innovative Sciences, Inc., a California corporation, with its principal office
at 1129 N. McDowell Blvd., Petaluma, CA 94954 (the “Company”). Sixty-Six
Thousand Six Hundred Sixty-Seven (66,667) shares of the Common Stock of the
Company (the “Common Stock”).

     1. Definitions. As used herein, the following terms shall have the
following respective meanings:

          (a) “Exercise Period” shall mean the period commencing with the date of
the execution of this Agreement and ending on November ___, 2008, unless sooner
-terminated as provided below.

          (b) “Exercise Price” shall mean $0.75 per share, subject to adjustment
pursuant to Section 5 below.

          (c) “Exercise Shares” shall mean the shares of the Company’s Common Stock
issuable upon exercise of this Warrant, subject to adjustment pursuant to the
terms herein, including but not limited to adjustment pursuant to Section 5
below.

     2. Exercise of Warrant. The rights represented by this Warrant may be
exercised in whole or in part at any time during the Exercise Period, by
delivery of the following to the Company at its address set forth above (or at
such other address as it may designate by notice in writing to the Holder):

          (a) An executed Notice of Exercise in the form attached hereto;

A2-1

 

          (b) Payment of the Exercise Price either (i) in cash or by check, or (ii)
by cancellation of indebtedness; and

          (c) This Warrant.

Upon the exercise of the rights represented by this Warrant, a certificate
or certificates for the Exercise Shares so purchased, registered in the name of
the Holder, if the Holder so designates, shall be issued and delivered to the
Holder within a reasonable time after the rights represented by this Warrant
shall have been so exercised.

The person in whose name any certificate or certificates for Exercise
Shares are to be issued upon exercise of this Warrant shall be deemed to have
become the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate or certificates, except that, if the date of
such surrender and payment is a date when the stock transfer books of the
Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.

     3. Covenants of the Company.

          (a) Covenants as to Exercise Shares. The Company covenants and agrees that
all Exercise Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued and
outstanding, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issuance thereof. The Company further covenants and
agrees that the Company will at all times during the Exercise Period, have
authorized and reserved a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant. If at any
time during the Exercise Period the number of authorized but unissued shares of
Common Stock shall not be sufficient to permit exercise of this Warrant, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes.

          (b) No Impairment. Except and to the extent as waived or consented to by
the Holder, the Company will not, by amendment of its Articles of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder-by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may be necessary or appropriate in order to protect
the exercise rights of the Holder against impairment.

     4. Representations of Holder.

          (a) Acquisition of Warrant for Personal Account. The Holder represents
and warrants that it is acquiring the Warrant and the Exercise Shares solely
for its account for investment and not with a view to or for sale or
distribution of said Warrant or Exercise Shares or any part thereof. The Holder
also represents that the entire legal and beneficial interests of the

A2-2

 

          Warrant and Exercise Shares the Holder is acquiring is being acquired for, and
will be held for, its account only.

          (b) Securities are Not Registered.

               (i) The Holder understands that the Warrant and the Exercise Shares have
not been registered under the Act on the basis that no distribution or public
offering of the stock of the Company is to be effected. The Holder realizes that
the basis for the exemption may not be present if, notwithstanding its
representations, the Holder has a present intention of acquiring the securities
for a fixed or determinable period in the future, selling (in connection with a
distribution or otherwise), granting any participation in, or otherwise
distributing the securities. The Holder has no such present intention.

               (ii) The Holder recognizes that the Warrant and the Exercise Shares must
be held indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. The Holder recognizes that the
Company has no obligation to register the Warrant or the Exercise Shares of the
Company, or to comply with any exemption from such registration.

               (iii) The Holder is aware that neither the Warrant nor the Exercise Shares
may be sold pursuant to Rule 144 adopted under the Act unless certain conditions
are met, including, among other things, the existence of a public market for the
shares, the availability of certain current public information about the
Company, the resale following the required holding period under Rule 144 and
the number of shares being sold during any three month period not exceeding
specified limitations. Holder is aware that the conditions for resale set forth
in Rule 144 have not been satisfied and that the Company may not presently have
any plans to satisfy these conditions in the foreseeable future.

          (c) Disposition of Warrant and Exercise Shares.

               (i) The Holder further agrees not to make any disposition of all or any
part of the Warrant or Exercise Shares in any event unless and until:

                    (A) The Company shall have received a letter secured by the Holder from
the Securities and Exchange Commission stating that no action will be
recommended to the Commission with respect to the proposed disposition;

                    (B) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with said registration statement and applicable securities laws;

                    (C) The Holder shall have notified the Company of the proposed disposition
and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and if reasonably requested
by the Company, the Holder shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, for the Holder to the effect
that such disposition will not require registration of such Warrant or Exercise
Shares under the Act or any applicable state securities laws; or

A2-3

 

                    (D) The Warrant may not be exercised if the issuance of the Exercise
Shares upon such exercise would constitute a violation of any applicable federal
or state securities law or the laws or regulations or would not be exempt from
federal securities law registration and qualification under applicable state
law. As a condition to the exercise of the Warrant, the Company may require
Holder to make such representations and warranties to the Company as may be
required by applicable law or regulation.

               (ii) The Holder understands and agrees that all certificates evidencing
the shares to be issued to the Holder may bear the following legend:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

     5. ADJUSTMENT OF EXERCISE PRICE. In the event of changes in the
outstanding Common Stock of the Company by reason of stock dividends, split-ups, recapitalizations, reclassifications, combinations or exchanges of
shares, separations, reorganizations, liquidations, or the like, the number
and class of shares available under the Warrant in the aggregate and the Exercise
Price shall be correspondingly adjusted to give the Holder of the Warrant, on
exercise for the same aggregate Exercise Price, the total number, class, and
kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment; provided, however, that such adjustment shall
not be made with respect to, and this Warrant shall terminate if not exercised
prior to, the events set forth in Section 7 below. The form of this Warrant
need not be changed because of any adjustment in the number of Exercise Shares
subject to this Warrant.

     6. FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant as a consequence of any adjustment pursuant hereto. All
Exercise Shares (including fractions) issuable upon exercise of this Warrant
may be aggregated for purposes of determining whether the exercise would result
in the issuance of any fractional share. If, after aggregation, the exercise
would result in the issuance of a fractional share, the Company shall, in lieu
of issuance of any fractional share, pay the Holder otherwise entitled to
such fraction a sum in cash equal to the product resulting from multiplying
the then current fair market value of an Exercise Share by such fraction.

     7. MARKET STAND-OFF AGREEMENT. Holder shall not sell, dispose of transfer,
make any short of, grant any option for the purchase of or enter into any
hedging or similar transaction with the same economic effect as a sale, any
Common Stock (or other securities) of the Company held by Holder, for a period
of time specified by the managing underwriter(s) not to exceed one hundred
eighty (180) days following the effective date of a registration statement of
the Company filed under the Act. Holder agrees to execute and deliver such
other agreements as may be reasonably requested by the Company and/or the
managing underwriter(s) which are consistent with the foregoing or which are
necessary to give further effect thereto. In order to

A2-4

 

enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to such Common Stock (or other securities) until the
end of such period. The underwriters of the Company’s stock are intended third
party beneficiaries of this Section 8 and shall have the right, power and
authority to enforce the provisions hereof as though they were a party hereto.

     8. No Stockholder Rights. This Warrant in and of itself shall not entitle
the Holder to any voting rights or other rights as a stockholder of the Company:

     9. No Transfer of Warrant. This Warrant may not be transferred, assigned,
pledged or hypothecated without the prior written consent of the Company, and
any purported transfer, assignment, pledge or hypothecation in contravention of
this Section 10 shall be of no force or effect.

     10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may reasonably impose (which shall, in the case of
a mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.

     11. Notices, RTC. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address listed on the signature page and to Holder at 1129 N. McDowell
Blvd., Petaluma, California 94954 or at such other address as the Company or
Holder may designate by ten (10) days advance written notice to the other
PARTIES hereto.

     12. Acceptance. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.

     13. Governing Law. This Warrant and all rights, obligations and
liabilities hereunder shall be governed by the laws of the State of California.

A2-5

 

In Witness Whereof, the Company has caused this Warrant to be executed by its
duly authorized officer as of                 , 2006.

	 	 	 	 	 	 	 
	 	 	 	 	Oculus Innovative Sciences, Inc.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	Hoji Alimi
	 
	 	 	 	 	 	 
	 	 	 	 	President and CEO
	 
	 	 	 	 	 	 
	ACKNOWLEDGED AND AGREED:	 	 	 	 
	 
	 	 	 	 	 	 
	Mcguinn, Hillsman & Palefsky	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

A2-6

 

NOTICE OF EXERCISE

TO: OCULUS INNOVATIVE SCIENCES, INC.

     (1) The undersigned hereby elects to purchase                 shares of Common Stock of
OCULUS INNOVATIVE SCIENCES, INC. (the “Company”) pursuant to the terms of the
attached Warrant, and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.

     (2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:

	 	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 
	 	(Name)
	 	 
	 	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 
	 
	 	(Address)	 	 

     (3) The undersigned represents that (i) he is an accredited investor, as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended; (ii) the aforesaid shares of Common Stock are being acquired for the
account of the undersigned for investment and not with a view to, or for resale
in connection with, the distribution thereof and that the undersigned has no
present intention of distributing or reselling such shares; (iii) the
undersigned is aware of the Company’s business affairs and financial condition
and has acquired sufficient information about the Company to reach an informed
and knowledgeable decision regarding its investment in the Company; (iv) the
undersigned is experienced in making investments of this type and has such
knowledge and background in financial and business matters that the undersigned
is capable of evaluating the merits and risks of this investment and protecting
the undersigned’s own interests; (v) the undersigned understands that the shares
of Common Stock issuable upon exercise of this Warrant have not been registered
under the Securities Act of 1933, as amended (the “Securities Act”), by reason
of a specific exemption from the registration provisions of the Securities Act,
which exemption depends upon, among other things, the bona fide nature of the
investment intent as expressed herein, and, because such securities have not
been registered under the Securities Act, they must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available; (vi) the undersigned is aware that the aforesaid
shares of Series A Preferred Stock may not be sold pursuant to Rule 144 adopted
under the Securities Act unless certain conditions are met and until the
undersigned has held the shares for the number of years prescribed by Rule 144,
that among the conditions for use of the Rule is the availability of current
information to the public about the Company and the Company has not made such
information available and has no present plans to do so; and (vii) the
undersigned agrees not to make any disposition of all or any part of the
aforesaid shares of Common Stock unless and until there is then in effect a
registration statement

A2-7

 

under the Securities Act covering such proposed disposition and such disposition
is made in accordance with said registration statement, or the undersigned has
provided the Company with an opinion of counsel satisfactory to the Company,
stating that such registration is not required.

	 	 	 
	 
	 	 
	 

	 	 
	(Date)

	 	(Signature)
	 
	 	 
	 

	 	 
	 

	 	(Print name)

A2-8

 

EXHIBIT B 

Accredited Investor Standards

     Regulation D of the Securities and Exchange Commission defines an
“accredited investor” as any person coming within any of the following
categories:

     (1) Any bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A) of the
Act whether acting in its individual or fiduciary capacity; any broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934;
insurance company as defined in section 2(13) of the Securities Act; investment
company registered under the Investment Company Act of 1940 or a business
development company as defined in section 2(a)(48) of that Act; Small Business
Investment Company licensed by the U.S. Small Business Administration under
section 3.01(c) or (d) of the Small Business Investment Act of 1958; employee
benefit plan within the meaning of Title I of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan fiduciary, as
defined in section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a self
directed plan, with investment decisions made solely by persons that are
accredited investors;

     (2) Any private business development company as defined in section
202(a)(22) of the Investment Advisors Act of 1940;

     (3) Any organization described in section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;

     (4) Any director, executive officer, or general partner of the issuer of
the securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer:

     (5) Any natural person whose individual net worth, or joint net worth with
that person’s spouse, at the time of his purchase exceeds $1,000,000;

     (6) Any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person’s spouse
in excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year; and

     (7) Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii); and

B-1

 

     (8) Any entity in which all of the equity owners are accredited investors.

     With regard to category (5), the term “net worth” means the excess of
total assets over total liabilities. In computing net worth for the purposes of
category (5) above, the undersigned’s principal residence must be valued either
at (A) cost, including the cost of improvements, net of current encumbrances
upon the property or (B) the appraised value of the property as determined upon
a written appraisal used by an institutional lender making a loan to the
individual secured by the property, including the cost of subsequent
improvements, net of current encumbrances upon the property. In determining
income, the undersigned should add to his adjusted gross income any amounts
attributable to tax exempt income received, losses claimed as a limited partner
in any limited partnership, deductions claimed for depletion, contributions to
an IRA or Keogh retirement plan, alimony payments, and any amount by which
income from long-term capital gains has been reduced in arriving at adjusted
gross income.

B-2EXHIBIT 10.1
------------

December 1, 2006

Mr. James M. O'Connell
1 Sorrel Lane
Lemont, Illinois  60439

Dear Jim:

This letter agreement confirms the terms and conditions agreed to
concerning your retirement from Landauer, Inc. ("Landauer") effective on
January 31, 2007.  Until such date, you will retain the title of Vice
President, although such title confers no executive officer powers to you
nor does it enhance, alter or diminish any benefits to which you are
otherwise entitled pursuant to your Employment Agreement dated February 29,
1996.

In consideration of the mutual promises and agreements contained in this
letter agreement, the adequacy and receipt of which all parties
acknowledge, you and Landauer agree as follows:

1.    Landauer will pay that portion of your regular bi-weekly salary in
      the amount of $7,803.85, less customary deductions, through your
      January 31, 2007 retirement date.

2.    Landauer will pay your accrued but unused vacation through your
      January 31, 2007 retirement date on or before February 1, 2007.

3.    Landauer will make a lump sum payment to you in the amount of
      $103,500, less customary deductions, representing incentive
      compensation for fiscal 2006 determined on the basis of your target
      incentive compensation plan participation (40%) and the actual ratio
      of incentive operating income to plan incentive operating income for
      such fiscal year applicable to all plan participants on or about
      November 30, 2006 (or such later date on which incentive compensation
      is paid to Landauer's executive officers for fiscal 2006).  The lump
      sum payment to you provided in paragraph 4 below represents the only
      payment you will be entitled to receive in respect of bonus or
      incentive compensation for any period of employment after
      September 30, 2006.

4.    Landauer will make a lump sum payment to you in the amount of
      $431,234, less customary deductions, representing eighteen month's
      salary and bonus for the period February 1 2007 through July 31, 2008
      (the "Severance Period") calculated pursuant to Section 4 (d) (ii) of
      your Employment Agreement.  Such lump sum payment shall be made on
      August 10, 2007 (but, in any event, not sooner than six months
      following your retirement date).  Additionally, Landauer waives any
      right of offset of employment income against such payment and
      benefits (pursuant to Section 4 (d) (ii) of your Employment
      Agreement) in the event you obtain employment with another employer
      or have earnings from self-employment.

5.    From and after your retirement date, Landauer may, from time-to-time,
      require your services to assist in any transition matters or for
      other issues that may arise.  You agree to provide such services at
      mutually agreeable times upon reasonable notice at a rate of $800 per
      day or part thereof that you actually provide such services.  Your
      provision of such services will be as an "independent contractor" and
      not as an employee.

<PAGE>

Mr. James M. O'Connell
December 1, 2006
Page 2

6.    Medical and other insurance benefits for you and your dependent(s)
      will continue during the severance period through July 31, 2008.
      After that date, you and your dependent(s) will be eligible for
      benefits under the company's current retiree medical and insurance
      benefits plan through your 65th birthday.  Your eligibility shall not
      be subject to the entry age requirement contained in such plan.  Your
      cost for such coverage through your 65th birthday will be no higher
      than the amount paid by full-time employees from time to time for
      coverage under the Landauer medical benefits plan.  Participation for
      you and your dependent(s) in the retiree medical and insurance
      benefits plan will be subject to enrollment in the plan.  In the
      event Landauer materially amends or terminates the retiree medical
      and insurance benefit plan, Landauer shall use reasonable efforts to
      continue to provide you and your dependent(s) with benefits
      comparable to those under the current plan; provided, however, that
      Landauer shall not be required to expend any amount in excess of the
      "average per retiree amount" it was spending, at the time of such
      amendment or termination, to provide retiree medical and insurance
      benefits to retirees covered by such plan.  At termination of
      coverage for you and your dependent(s) under the retiree medical and
      insurance benefits plan upon your attainment of age 65, continuation
      of medical insurance benefits for dependent(s) shall be available
      under C.O.B.R.A.

7.    Your right to purchase the shares of Landauer common stock under
      previously granted stock option awards shall be exercisable in
      accordance with the terms of the individual grant agreements to the
      extent of all shares granted thereunder.  Please advise Landauer's
      Human Resources Department in writing of your intent to exercise such
      options at the appropriate time in order that such exercise(s) may be
      completed in a timely manner.

8.    The one thousand two hundred (1,200) Performance Shares awarded to
      you on February 14, 2006 shall vest in full on the date Performance
      Share awards granted in February vest for other recipients of such
      awards.

9.    Pursuant to the terms of the Landauer, Inc. Retirement Plan
      ("Retirement Plan") and the Supplemental Key Executive Retirement
      Plan of Landauer, Inc. (amended and restated as of October 1, 2002)
      ("Supplemental Plan") you will be entitled to a combined annual
      retirement benefit of $109,822.71, payable in monthly installments in
      the form of a 50% joint and survivor annuity if married, otherwise in
      the form of a single life annuity, commencing on April 1, 2012.  The
      combined retirement benefit is calculated on the basis of and credits
      you with service of twenty (20) years under the Supplemental Plan.
      The portion of this benefit payable by the Retirement Plan represents
      a non-forfeitable right to receive a pension commencing on April 1,
      2012 and the accrued annual benefit (paid in the form of a 50% joint
      and survivor annuity) amounts to $47,038.96 at January 31, 2007.  The
      amount payable by Landauer under the terms of the Supplemental Plan
      shall be the excess of the combined annual retirement benefit of
      $109,822.71 over the accrued Retirement Plan benefit of $47.038.96,
      or $62,783.75 per year.  The precise amount payable from the
      respective plans are estimated and are subject to certain elections
      and actuarial assumptions that can only be determined at the payment
      date.  The aggregate amount of the combined benefit, however, is
      fixed at $109,822.71.  Additionally, you may elect to receive such
      benefits at an earlier date under the provisions of each of the
      plans, which benefit shall be actuarially adjusted (as determined by
      the provisions of the Retirement Plan) to reflect your election to
      begin benefit(s) at an earlier age.

<PAGE>

Mr. James M. O'Connell
December 1, 2006
Page 3

10.   Upon the presentation of appropriate documentation, Landauer will
      reimburse you for customary business expenses incurred prior to your
      retirement, but not previously submitted.  You will also be entitled
      to be reimbursed for business expenses incurred with the approval of
      Landauer in performing services at the request of Landauer in
      accordance with Section 5 above.

11.   You acknowledge that you served as Landauer's Chief Financial Officer
      during the fiscal year ended September 30, 2006, the financial
      results of which are currently being audited by Pricewater-
      houseCoopers ("PWC").  In light of your position during such fiscal
      year, you will provide reasonable cooperation to Landauer and PWC, in
      connection with such audit, including signing (or co-signing) any
      management representation letter or "404" compliance certification
      which Landauer determines is appropriate to be provided to PWC and a
      customary back-up certificate in connection with Landauer's
      Disclosure Committee process with respect to such audit and
      Landauer's Annual Report on Form 10-K filed with the SEC in
      connection therewith.  You may limit your responses in any such
      letter or certificate to events occurring prior to October 16, 2006.

12.   Should you desire to pursue further career opportunities, Landauer
      will arrange for the payment of or reimburse you for the cost of
      outplacement services in an amount not to exceed $15,000.

13.   Landauer will reimburse you for legal expenses associated with the
      negotiation of this agreement in an amount not to exceed $7,500.

14.   Please direct any employment reference requests to Landauer's
      President and Chief Executive Officer.

15.   You acknowledge that your employment with Landauer will end on
      January 31, 2007.  You agree to vacate your office and return to
      Landauer all of its property in your possession including, but not
      limited to, Landauer's files, customer lists, equipment (other than
      laptop computer and related peripheral equipment), keys, credit
      cards, tapes, records, manuals, employee lists, brochures, files,
      catalogs, price lists, cost information, financial records, and all
      copies thereof on or before January 31, 2007.  If, during the period
      between the date hereof and your retirement date, Landauer determines
      that your services to Landauer can be adequately performed from your
      residence, you agree to provide any such services from such location.

16.   You acknowledge that your position with Landauer resulted in your
      exposure and access to confidential and proprietary information which
      you did not have access to prior to holding this position and which
      information is of great value to Landauer.  The disclosure of such
      information by you would cause irreparable damage to Landauer.  You
      will use your best efforts and the utmost diligence not to disclose
      any and all confidential and proprietary information related to
      Landauer.

17.   You acknowledge that the terms and conditions of the Landauer Non-
      Competition and Confidentiality Agreement that you executed on
      September 10, 1990, remain in full force and effect.

<PAGE>

Mr. James M. O'Connell
December 1, 2006
Page 4

18.   You, and anyone claiming through you, waive  and release Landauer and
      any and all parents, divisions, subsidiaries, partnerships,
      affiliates and/or other related entities of Landauer (whether or not
      such entities are wholly owned) and each of those entities' past,
      present, and future owners, trustees, fiduciaries, shareholders,
      directors, officers, administrators, agents, partners, employees,
      attorneys, and the predecessors, successors, and assigns of each of
      them (collectively, the "Released Parties"), from any and all claims,
      whether known or unknown, which you have, have ever had, or may ever
      have against any of the Released Parties arising from or related to
      any act, omission, or thing occurring at any time prior to your
      signing this letter agreement including, but not limited to, any and
      all claims that in any way result from, or relate to, your employment
      or cessation of employment with any of the Released Parties.  These
      released claims further include, but are not limited to, any and all
      claims that you could assert or could have asserted in any federal,
      state, or local court, commission, department, or agency under any
      common law theory, or under any fair employment, employment,
      contract, tort, federal, state, or local law, regulation, ordinance,
      or executive order including under the following laws as amended from
      time to time:  the Age Discrimination in Employment Act, the Older
      Workers' Benefit Protection Act, the Civil Rights Act of 1866, the
      Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans
      With Disabilities Act, the Illinois Human Rights Act, and the Cook
      County Human Rights Ordinance.  This release shall not apply with
      respect to the obligations of Landauer under this letter agreement or
      (to the extent not relating to compensation, incentive pay,
      retirement benefits, severance pay and health and related benefits)
      your Employment Agreement dated February 29, 1996, or any claims you
      may have under ERISA with respect to any employee benefit plan of
      Landauer.

19.   Landauer, on behalf of itself and any and all of its shareholders,
      parents, divisions, subsidiaries, partnerships, and affiliates and
      its and each of their past, present and future owners, trustees,
      fiduciaries, shareholders, directors, officers, employees, agents,
      attorneys, successors and assigns ("Releasing Parties"), agrees not
      to sue and hereby releases you and your heirs, successors and assigns
      (collectively, the "Released Parties"), from any and all claims,
      whether known or unknown, which any Releasing Party has, ever had, or
      may ever have against any of the Release Parties arising from or
      related to your employment by Landauer or any act, omission, or thing
      occurring during the course of your employment with Landauer, except
      for claims arising out of your gross negligence or willful
      misconduct.  For purposes of this provision, no action or omission
      shall be considered "willful" unless taken without a reasonable
      belief that such action or omission was in the best interests of
      Landauer.

20.   You acknowledge that the existence and terms of this letter agreement
      are confidential and that you will not disclose the terms or
      existence of this letter agreement to anyone other than to your
      attorney, accountant, and immediate family, whom you shall ensure
      will comply with the terms of this confidentiality provision.

21.   You acknowledge that you have been informed that you may consult with
      a lawyer of your choice and that you have had sufficient time to
      consult with a lawyer before executing this letter agreement.  You
      also acknowledge that you are entitled to a period of at least 21
      days within which to consider this letter agreement.

<PAGE>

Mr. James M. O'Connell
December 1, 2006
Page 5

22.   Within seven days following the date of your execution of this letter
      agreement, you shall have the right to revoke this letter agreement
      by serving within such seven-day period written notice of your
      revocation upon Landauer's Senior Vice President and Chief Financial
      Officer.  If you do not revoke this letter agreement during this
      seven-day period, this letter agreement shall become effective on the
      eighth day after the date of your execution of this letter agreement
      and you shall have no further right to revoke this letter agreement.

23.   All notices and other communications required or permitted under this
      letter agreement shall be deemed to have been duly given and made if
      in writing and if served personally on the party for whom intended or
      deposited, postage prepaid, certified or registered mail, return
      receipt requested, in the United States mail to your address above,
      if the notice is to you, or if the notice is to Landauer, to
      Landauer's Senior Vice President and Chief Financial Officer at the
      address on this letterhead, or to such other address as either party
      may designate in writing thereafter.

24.   The obligations and rights undertaken by Landauer and Executive
      pursuant to this letter agreement and other agreements referred to
      herein shall inure to the obligation and benefit of successors and
      assigns of each of the parties.

25.   This letter agreement, the Employment Agreement between you and
      Landauer dated February 29, 1996 and the Landauer Non-Competition and
      Confidentiality Agreement that you executed on September 10, 1990,
      embody the entire agreement and understanding of you and Landauer
      with regard to all matters and those documents supersede any and all
      prior and/or contemporaneous agreements and understandings, oral or
      written, between you and Landauer.  From and after the date of your
      acceptance of this letter agreement, all of your rights to receive
      compensation, incentive pay, retirement benefits, severance pay or
      health or related benefits in connection with your retirement and
      separation from Landauer shall be only as set forth in this letter
      agreement and Landauer shall have no further obligations to you with
      respect to such matters under the Employment Agreement or Landauer's
      Executive Special Severance Plan.

Please sign one original of this letter agreement and return it to me in
the enclosed FedEx envelope.  You may retain the other original for your
file.

Jim, we wish you the best of luck in your retirement or any future
endeavors that you may pursue.

Very truly yours,

William E. Saxelby
President and Chief Executive Officer

I have read, understand, and voluntarily agree to be bound by each of the
terms contained in this letter.

______________________        Dated:  December 1, 2006
James M. O'Connell

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