Document:

CONFIDENTIAL

                	
                  

                

        

      

    

     

    Supply
Agreement

     

    This Agreement is entered into as of
February 20, 2009 (the “Effective Date”) by and between Oculus Innovative
Sciences, Inc., a Delaware corporation, having its principal place of business
at 1129 N. McDowell Blvd., Petaluma, California 95954 ("Seller"), and BioDrain
Medical, Inc., a Minnesota corporation, having its principal place of business
at 2060 Centre Pointe Boulevard, Suite 7, Mendota Heights, Minnesota
55120  ("Buyer").

     

    WHEREAS, Seller manufactures certain
products which it is willing to provide to Buyer on the terms and subject to the
conditions of this Agreement; and

     

    WHEREAS, Buyer wishes to purchase
certain of such products from Seller for use with its own products, and Seller
is willing to supply Buyer with such products;

     

    NOW, THEREFORE, in consideration of the
foregoing premises and the mutual promises and covenants set forth below, Seller
and Buyer mutually agree as follows:

     

    ARTICLE
1

    DEFINITIONS

     

    1.1 "Agreement " means
this License and Supply Agreement, as amended from time to time.

     

    1.2
“Buyer Product”
means a private labeled liquid, used solely for the “Permitted Use” as that term
is defined below.

     

    1.3  “Contract Year” means
each twelve (12) month period following and having as its anniversary the
Effective Date of the agreement, during the term of the Agreement.

     

    1.4  "EPA" means the United
States Environmental Protection Agency.

     

    1.5  "FDA" means the United
States Food and Drug Administration.

     

    1.6
"First Commercial
Sale" means the first commercial sale of the Buyer Product by Buyer to a
customer.

     

    1.7 "Initial Term" shall
have the meaning set forth in Section 6.1 hereof.

     

    1.8
“Liquid Solution
Specification” means the specifications for the liquid formulation of the
Seller Solutions set forth on Exhibit A, and the
attached Material Safety Data Sheet and Ingredient Sheet.  Exhibit A and the
attached Material Safety Data Sheet and Ingredient Sheet are attached hereto and
by this reference incorporated herein.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        
           

          
            
              	
                      

                    	
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    1.9 “Minimum Order
Requirements” means the minimum quantity for each period to be ordered by
Buyer and manufactured by Seller which are specified on Exhibit B,
incorporation in Buyer Products for sale to customers (purchased under Article
III) received by Seller in a Contract Year.

     

    1.10  “Permitted Use” means
as a liquid used to clean the BioDrain Fluid Management system and future
related products developed or sold by Buyer pertaining to infectious fluid
management applications in hospitals, surgical centers or any other areas where
Buyer products are sold.

     

    1.11  “Proprietary Rights”
means patent rights, copyrights, trade secret rights and all other intellectual
and industrial property rights of any sort.

     

    1.12
"Seller
Solution" means the liquid solution supplied hereunder by Seller, with no
claims made by the Company that conform to the Liquid Solution Specifications as
defined above.

     

    1.13  “Specifications” means
the Liquid Solution Specifications.

     

    1.14
“Technology”
means inventions (whether or not patentable), ideas, processes, formulas and
know-how directly related to the Seller Solution as formulated for the Permitted
Use which are owned by Seller and used by it as of the date of this Agreement,
and improvements thereto which are developed and owned by Seller during the term
of this Agreement.

     

    1.15  “Territory” means the
world.

     

    1.16  “Customer”
means the user of the Seller Solution for the Permitted Use.

     

    ARTICLE
II

    LICENSE
GRANT

     

    2.1 Proprietary Rights
License. On the terms and subject to the conditions of this Agreement,
Seller hereby grants to Buyer an exclusive license under its Proprietary Rights
in the Technology; provided, however, that: (i) if Buyer fails to meet its
Minimum Volume Requirements specified on Exhibit B for any
specified period, Seller may, at its option, terminate the
agreement.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        
          
             

            
              
                	
                        

                      	
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The license is limited to and may be exercised by
Buyer solely for the purpose of using the Technology to make or have made by
Seller or other party Buyer Products and incorporate Seller Solution therein
which are then to be marketed and sold in the Territory solely for the Permitted
Use.  Buyer may not sublicense its rights hereunder, except pursuant
to agreements which shall be in writing and shall contain obligations of the
third party equivalent to the obligations of Buyer hereunder, and no less
favorable to Seller’s rights than the provisions contained in this
Agreement.  The preceding sentence does not, however, create for
Seller any right to compensation or payments from any third party with which
Buyer contracts, nor any right to compensation from Buyer beyond the
compensation and payments provided in this Agreement.  Buyer shall be
liable to Seller for acts or omissions of any sublicensee not in conformity with
the terms of this Agreement or any agreement between Buyer and any sublicensee.
Buyer may export/import Buyer Products incorporating Seller Solution as
necessary to cover the Territory, subject to compliance with all applicable
import and export laws.

    

    2.2 Trademark.  All
promotional materials and Buyer Product packaging may include in easily
readable, non-obscured type that is not less than 25% the size of the other
names and notices the mark “Microcyn” (or for product shipped outside the United
States such other trade name for “Microcyn” that Seller gives Buyer notice as
appropriate for the country into which the Buyer Product will be shipped), and a
legend that Seller owns such mark and any reasonable proprietary markings and
notices of Seller.  Buyer will confer with Seller prior to
distributing Buyer Product outside the United States to determine the
appropriate trade name for use in each country.

    

    Buyer
shall market the Buyer Product under a name agreeable to both parties, and the
associated mark specified by Buyer, and such name and mark shall be exclusively
owned by Buyer.  Seller shall have no rights in the name, mark and
designation that will be specified and used by Buyer for the Buyer
Product.   Seller shall not unreasonably withhold approval on use
of Buyer’s name. Buyer may use the “Microcyn” name and mark to describe the
active ingredient in Buyer Product, but may not use or register the name
”Oculus” or the ”Microcyn” name or any other name or mark of Seller or that is
confusingly similar to any such mark, anywhere in the world.

    

         2.3
No Implied
License.  Buyer acknowledges that Seller grants no license, by
implication or otherwise, except for the licenses expressly set forth in this
Article II.

     

    ARTICLE
III

    SALE AND
PURCHASE OF SOLUTION

     

     3.1
Sale and
Purchase. On the terms and conditions set forth in this Agreement, Seller
agrees to sell to Buyer such quantities of Seller Solution as Buyer may order to
satisfy 100% of Buyer's requirements for Seller Solution for use in Buyer’s sale
of Buyer Products ("Requirements"), except as provided in Section 6.3
below.

     

    3.2 Quantity;
Forecasts.

     

    (a) Buyer shall deliver to Seller once
every calendar quarter a 12-month forecast of Buyer’s projected Requirements of
Seller Solution (“Forecast”).  The first Forecast shall be provided to
Seller no less than one (1) full calendar quarters prior to the time when the
First Commercial Sale of Buyer Products is projected to
occur.   No Forecast shall be binding or treated as a firm
order.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        
          
             

            
              
                	
                        

                      	
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      Buyer
shall deliver to Seller at least thirty (30) days prior to First Commercial Sale
of Buyer Products or at least thirty (30) days after Execution Date written
below of this Agreement, which ever is first a firm order for the initial
calendar quarter commencing on the First Commercial Sale date.  No
Forecasts or orders need be given for any period after the term of this
Agreement.

       

      (b)
Buyer's forecasts and orders shall reflect its good-faith expectations of
customer demand, and Buyer shall act in a commercially reasonable manner to
schedule orders to avoid creating production capacity problems for
Seller.

    

     

    3.3 Delivery.

     

    (a)  All customs, duties,
costs, taxes, insurance premiums, and other expenses associated with
transportation from Seller’s location to Buyer’s facility shall be at Seller’s
expense.

     

    (b) All customs, duties, costs, taxes,
insurance premiums, and other expenses associated with transportation from
Seller’s location to Buyer’s customers shall be at Seller’s
expense.

     

    (c) Seller shall assist Buyer in
arranging any desired shipping insurance (in amounts that Buyer shall determine)
and transportation, via ground freight unless otherwise specified in writing, to
any destination specified in writing from time to time by Buyer.

     

    (d) Seller shall manufacture Seller
Solution in a facility with a current ISO 13485 certification for medical device
design and manufacturing, and shall be compliant with all US and International
regulations and laws that are applicable and consistent with this
certification.

     

    3.4 Rejection of Seller Solution
in Case of Nonconformity.

     

    (a) On the terms of this Agreement,
Buyer may reject any portion of any shipment of Seller Solution that does not
conform in all material respects with the Specifications.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        
           

          
            
              	
                      

                    	
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    Seller
shall supply to Buyer with each delivery of Seller Solution a document(s)
reflecting, for each batch of Seller Solution, laboratory data substantiating
conformity of the Seller Solution to the appropriate Specifications and shall
retain a sample of each batch of Seller Solution shipped to
Buyer.  Buyer shall have the right, in its discretion but at its
expense, to test Seller Solution within fourteen (14) days of delivery, using a
laboratory of Buyer’s choice, for conformity to the
Specifications.  If Buyer rejects Seller’s Solution due to
non-conformity of the Seller Solution with the appropriate Specifications,
Seller may, within five (5) days of notice of the rejection, request examination
of Seller’s batch sample of Seller Solution by a third-party laboratory chosen
jointly by the parties (an “Independent Lab”), in which event the Independent
Lab shall examine Seller’s batch sample of Seller Solution for conformity to the
Specifications.  The party whose laboratory results are inconsistent
with conformity/non-conformity findings of the Independent Lab shall pay the
costs of the Independent Lab, as well as the laboratory costs of the other party
incurred in testing the disputed batch.

     

    In order
to reject a shipment, Buyer must (i) give notice to Seller of Buyer's rejection
of the shipment within thirty (30) days of receipt together with a reasonably
detailed written indication of the reasons for such rejection. If no such notice
of rejection is timely received, Buyer shall be deemed to have accepted such
delivery of Seller Solution.

     

    (b)  Buyer shall not be
obligated to pay for Seller Solution that is rejected by Buyer unless the
Independent Lab concludes that Seller’s batch sample conformed to the
Specifications. Seller shall be responsible for costs of shipment, insurance,
duties, customs and fees incurred in connection with justifiably rejected Seller
Solution, and Buyer shall be responsible for any costs of shipment, insurance,
duties, customs and fees incurred in connection with wrongfully rejected Seller
Solution.  Seller shall use commercially reasonable efforts to deliver
to Seller no more than fourteen (14) days after the receipt of Buyer’s notice of
rejection and Buyer’s request for re-shipment a replacement shipment of Seller
Solution which, unless justifiably rejected pursuant to the terms of this
Agreement, shall be purchased by Buyer as provided in this
Agreement.  After receipt of Buyer’s notice of rejection, Seller shall
submit a batch sample of the rejected Seller Solution to the Independent Lab or,
if it does not submit the batch sample to the Independent Lab within fifteen
(15) days, Buyer’s rejection shall be deemed to be justifiable.  If
the Independent Lab determines that Seller Solution conformed to the
Specifications and that Buyer improperly rejected Seller Solution, Buyer shall
be obligated to pay for the improperly rejected Seller Solution, and shall be
obligated to pay for any replacement Seller Solution requested by
Buyer.

     

    (c) Unless Seller requests the return
of a rejected batch within thirty (30) days of receipt of Buyer's notice of
rejection, Buyer shall dispose of, at Seller’s cost, such batch promptly and
provide Seller with certification of such disposal.  Buyer shall, upon
receipt of Seller's request for return, promptly dispatch said batch to Seller,
at Seller's cost; provided, however that Buyer may retain a sample of said batch
until conformity of the Seller Solution in finally resolved by the Independent
Lab.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        
          
             

            
              
                	
                        

                      	
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    3.5 Other
Obligations.

     

    (a) Buyer and Seller agree to ascertain
and comply with all applicable laws and regulations and standards of industry or
professional conduct in connection with the use of the Buyer Products and the
distribution and promotion of Buyer Products.

     

    (b) Buyer shall have the right to
perform post-market studies on Buyer Product, however Buyer shall not publish
and shall not authorize the publication of, any post-market study results
without the prior and not unreasonably withheld consent of Seller.  If
Buyer contracts for, or sponsors a post-market study by a third party (if
permitted under this Agreement), such contract shall prohibit the third-party
from publishing such study unless mutually consented and such consent not
unreasonably withheld to by Seller and Buyer in writing.

     

    (c) Buyer agrees to market and label
the Buyer Products consistent with all applicable regulatory label
claims.  Buyer is responsible for obtaining all applicable label
claims, but these claims must apply only to the intended use.

     

    Buyer
shall not, and shall cause its sublicensees not, to make any representations or
warranties relating to Seller Solution except for those representations
contained in this Agreement.  Buyer
agrees not to make, and agrees to cause its sublicensees not to make, any
representation or warranty, whether oral or in writing, regarding the Buyer
Product that is not consistent with the label claims authorized in the country
in which Buyer Products are marketed.  Buyer agrees to notify, and to
cause those with whom it contracts to notify, customers that use of the Buyer
Product is restricted to the Permitted Use.

     

    (d) Buyer
and Seller agree to immediately notify one another of any serious adverse event
resulting from use of Buyer Product with Seller Solution, or any actual or
potential government action related to a Seller Solution or Buyer Product (but
in no event later than 24 business hours thereafter) and, if and to the extent
requested by Seller in writing as a result of a communication from the FDA, EPA,
or other regulatory entity, to suspend distribution of the Buyer
Products.

     

    (e) Buyer and Seller agree to keep and
make reasonably available for the other’s use and copying, in connection with an
FDA-recommended recall, for one year after termination of this Agreement (or
longer if required by applicable law or regulation) records of all Buyer Product
and Seller Solution sales and customers sufficient to adequately administer a
recall of any Seller Solution or Buyer Product and to cooperate fully in any
decision by Seller to recall, retrieve and/or replace any Seller Solution based
on communications with the FDA or other regulatory authority.

     

    (f) Buyer agrees to provide to Seller
each month a report of all inventory of Seller Solution in the inventory of
Buyer at each month end.  Such reports shall include the unit count of
all Seller Solution units, and locations of such units, as well as the carrying
value of such units.  Buyer shall provide such a report to Seller
within three (3) business days following each calendar month
end.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        
           

          
            
              	
                      

                    	
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    ARTICLE
IV

    ROYALTIES,
PRICE AND PAYMENTS

     

    4.1 Price. Buyer shall
pay to Seller for Seller Solution the amounts set forth on Exhibit B in United
States dollars.

     

    4.2 Method of Payment.
All payments for the purchase of Seller Solution due hereunder to Seller shall
be paid to Seller in United States dollars in the United States not later than
forty-five (45) days following the invoice date of the applicable
order.

     

    ARTICLE
V

    CONFIDENTIALITY

     

    5.1
Confidentiality.  
Each party recognizes the importance to the other of the other's Proprietary
Information. In particular the parties recognize that the Technology and other
of Proprietary Information (and the confidential nature thereof) are critical to
the business of Buyer and Seller and that Buyer and Seller would not enter into
this Agreement without assurance that such technology and information and the
value thereof will be protected as provided in this Article 5 and elsewhere in
this Agreement.

     

    Accordingly,
each party agrees as follows:

     

    (a)           The
party receiving Proprietary Information (the “Receiving Party”) of the other
party, which information shall be specifically identified as proprietary or
confidential, (the “Disclosing Party”) agrees (i) to hold the Disclosing Party's
Proprietary Information in confidence and to take all reasonable precautions to
protect such Proprietary Information (including, without limitation, all
precautions the Receiving Party employs with respect to its confidential
materials), (ii) not to divulge any such Proprietary Information or any
information derived therefrom to any third person, provided, however, that Buyer
may disclose, subject to a written non-disclosure agreement, Proprietary
Information to third parties with a need to know solely for the purpose of
validating manufacturing, distribution and sale viability, and (iii) not to
remove or export from the United States or reexport any such Proprietary
Information or any direct product thereof (e.g., Products by whomever made)
unless expressly consented to in writing by the other party and except in
compliance with all licenses and approvals required under applicable U.S. and
foreign export laws and regulations, including without limitation, those of the
U.S. Department of Commerce.  Any employee given
access to any such Proprietary Information must have a legitimate “need to know”
and shall be similarly bound in writing. Without granting any right or license,
the Disclosing Party agrees that the foregoing clauses (i), (ii) and (iii) shall
not apply with respect to information the Receiving Party can document (i) is in
or (through no improper action or inaction by the Receiving Party, agent or
employee) enters the public domain (and is readily available without substantial
effort), or (ii) was rightfully in its possession or known by it prior to
receipt from the Disclosing Party, or (iii) was rightfully disclosed to it by
another person without restriction, or (iv) was independently developed by it by
persons without access to such information and without use of any Proprietary
Information of the Disclosing Party. The Receiving Party must promptly notify
the Disclosing Party of any information it believes comes within any
circumstance listed in the immediately preceding sentence and will bear the
burden of proving the existence of any such circumstance by clear and convincing
evidence. Each party’s obligations under this Article 5 shall terminate five (5)
years after the termination or expiration of this Agreement.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        
          
             

            
              
                	
                        

                      	
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    (b)           Immediately
upon termination of the Receiving Party's license under Article 2, the Receiving
Party will turn over, or shall cause to have turned over, to the Disclosing
Party all Proprietary Information of the Disclosing Party and all documents or
media containing any such Proprietary Information and any and all copies or
extracts thereof.  Buyer shall notify Seller of and keep only such
proprietary information as is necessary for legal and or regulatory
purposes.

     

    (c)           The
Receiving Party acknowledges and agrees that due to the unique nature of the
Disclosing Party's Proprietary Information, there can be no adequate remedy at
law for any breach of its obligations hereunder, that any such breach may allow
the Receiving Party or third parties to unfairly compete with the Disclosing
Party resulting in irreparable harm to the Disclosing Party, and therefore, that
upon any such breach or any threat thereof, the Disclosing Party shall be
entitled to appropriate equitable relief (without the posting of any bond) in
addition to whatever remedies it might have at law and to be indemnified by the
Receiving Party from any loss or harm, including, without limitation, lost
profits and attorney's fees, in connection with any breach or enforcement of the
Receiving Party's obligations hereunder or the unauthorized use or release of
any such Proprietary Information. The Receiving Party will notify the Disclosing
Party in writing immediately upon the occurrence of any such unauthorized
release or other breach. Any breach of this Article 5 will constitute a material
breach of this Agreement.

     

    ARTICLE
VI

    TERMINATION,
RIGHTS AND

    OBLIGATIONS
UPON TERMINATION

     

    6.1 Term. Unless
terminated by either party pursuant to the other provisions of this Article VI,
this Agreement shall continue in effect until five (5) years from the Effective
Date  (the "Initial Term"), and shall thereafter continue and
automatically renew on an annual basis unless terminated by either party by
giving thirty (30) days’ written notice prior to the expiration of the Initial
Term or any extension thereof.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        
          
             

            
              
                	
                        

                      	
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    6.2
Termination for
Failure to Commercialize.  Seller may terminate this Agreement
immediately if the First Commercial Sale does not occur within six months
following the Effective Date of this Agreement.

     

    6.3
Termination for
Failure to Meet Minimum Order Requirements.  If Buyer fails to
order from Seller an amount, which is equal to or greater than the Minimum Order
Requirement for such calendar year, then Seller may, in addition to any other
rights it has under this Agreement, terminate the Agreement on thirty (30)
business days’ written notice to Buyer.

     

    If Seller
does not terminate this Agreement following a failure of Buyer to meet the
Minimum Order Requirements within thirty (30) business days following the end of
the calendar year in which the failure occurred, Buyer may request of Seller, in
writing and within sixty (60) business days of the end of the calendar year in
which the failure occurred, a written letter from Seller waiving the rights of
Seller to terminate this Agreement at a later date for that particular failure.
Seller will then respond with such a written waiver within ninety (90) business
days of the calendar year in which the failure occurred.

     

    6.4 Termination by Mutual
Agreement.  This Agreement may be terminated upon mutual
written agreement of the parties.

     

    6.5 Termination for
Default. If either party materially defaults in the performance of any
material agreement, condition or covenant of this Agreement, the defaulting or
non-complying party shall have ninety (90) days to remedy after receipt by the
defaulting party of a notice thereof from the other party.  If the
default or non-compliance has not been remedied in ninety (90) business days (or
thirty (30) business days in the case of non-payment), then the party not in
default may terminate this Agreement without penalty, unless, within said ninety
(90) business days, the defaulting party has initiated remedial action
reasonably satisfactory to the party not in default.

     

    6.6 Rights and Obligations on
Expiration or Termination. Except to the extent expressly provided to the
contrary, the following provisions shall survive the termination of this
Agreement: Article I, Section 3.5(e), Article V, this Section 6.7 and Articles
VII and VIII. Any rights of Seller to payments accrued through termination as
well as obligations of the parties under firm orders for purchase and delivery
of Seller Solutions at the time of such termination shall remain in effect,
except that in the case of termination under Section 6.6, the terminating party
may elect whether obligations under firm orders will remain in effect and except
that Seller will have no obligation with respect to Delivery Dates more than six
(6) months after termination.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        
          
             

            
              
                	
                        

                      	
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    6.7 Continuation of
Supply.

     

    (a)
Following the termination of this Agreement by Seller , Seller shall be
obligated to continue to fulfill Buyer orders on a non-exclusive basis for six
(6) months following the termination under the same terms of this Agreement
other than the exclusive nature of the Agreement assuming the Seller in
compliance with this agreement.

     

    (b)
Following the expiration of this Agreement or non-renewal of this Agreement at
any time by Buyer and or Seller, the Seller shall be obligated to continue to
fulfill Buyer orders on a non-exclusive basis for six (6) months following the
expiration under the same terms of this Agreement other than the exclusive
nature of the Agreement assuming the Seller is in compliance with this
agreement.

     

    ARTICLE
VII

    WARRANTY
AND INDEMNIFICATION

     

    7.1 Warranties. Seller
warrants to Buyer that, when shipped to Buyer by Seller, the Seller Solutions
will conform in all material respects to the applicable Specifications at the
time of shipment to Buyer.  Seller further warrants to Buyer that, to
its knowledge, the Seller Solution does not infringe any third party Proprietary
Rights.

     

    BUYER’S
SOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF THE FOREGOING WARRANTIES OR FOR
SELLER SOLUTION DEFECTS SHALL BE ITS RIGHT TO DEMAND REPLACEMENT OF
NON-CONFORMING UNITS OF SELLER SOLUTION FOR WHICH FULL DOCUMENTATION AND PROOF
OF NONCONFORMITY IS PROVIDED TO SELLER AFTER REJECTION AND TESTING FOR
NONCONFORMITY AS PROVIDED HEREIN.  EXCEPT FOR THE FOREGOING
WARRANTIES, SELLER MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO
SELLER SOLUTIONS.  SELLER HAS NOT AUTHORIZED ANYONE TO MAKE ANY
REPRESENTATION OR WARRANTY OTHER THAN AS PROVIDED ABOVE.

     

    7.2 Seller
Insurance.

     

    Seller
shall carry an insurance policy or policies, which shall name Buyer as an
additional insured, covering, in the following amounts, any and all losses for
death or bodily injury, patent claims, and any costs incurred by Buyer in
connection with any recall of Buyer Product or Seller Solution caused by Seller
for death or bodily injury on account of Seller: $2,000,000/occurrence, and
$2,000,000 general aggregate.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
        
          
             

            
              
                	
                        

                      	
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    7.3 Buyer Indemnification and
Insurance.

     

    (a)  Buyer
shall indemnify Seller against any and all liability, damages and cost and
expenses, including reasonable attorneys' fees, made against or sustained by
Seller arising from the death of, or bodily injury to, any person on account of
use of Buyer Product, provided that such harm is unrelated to Seller Solution
being in Buyer’s Product.

     

    At the
time of First Commercial Sale, Buyer shall carry an insurance policy or
policies, which shall name Seller as an additional insured, covering, in the
following amounts, any and all losses for death or bodily injury caused by Buyer
Product, provided that such loss was solely attributable to the Seller Solution;
$2,000,000/occurrence, and $2,000,000 general aggregate.

     

    (b)  Buyer
will also indemnify Seller from any liability, damages, costs and expenses,
including reasonable attorneys’ fees, that result from Buyer’s or one or more of
Buyer’s sublicensee’s failure to market or label the Buyer Products as required
herein, and Buyer’s failure to effectively notify Buyer’s and its sublicensee’s
customers of the restrictions on use and properly disclaim to its customer all
warranties and liabilities on behalf of Seller to the same extent as disclaimed
herein.

     

    7.4 Limitations to
Indemnity. The indemnities of Sections 7.2 and 7.3 shall not apply (i) if
the indemnified party fails to give the indemnifying party prompt notice of any
claim it receives and such failure materially prejudices the indemnifying party,
or (ii) unless the indemnifying party is given the opportunity to approve any
settlement.  Furthermore, the indemnifying party shall not be liable
for attorneys' fees or expenses of litigation of the indemnified party unless
the indemnified party gives the indemnifying party the opportunity to assume
control of the defense or settlement.

     

    7.5 Settlement.  The
indemnified party shall not be entitled to settle any of the above-mentioned
claims without the consent of the indemnifying party, which consent shall not be
unreasonably withheld.  However, if for any reason the indemnifying
party refuses to grant consent to the indemnified party to settle a claim, the
indemnifying party shall bear the indemnified party’s legal costs in defending
of the claim.

     

    7.6 Incidental and
Consequential Damages.  EXCEPT  FOR WILLFUL BREACH BY
A PARTY OF ITS OBLIGATIONS UNDER THIS AGREEMENT, OR BREACH OF ARTICLE 5
(CONFIDENTIALITY), NEITHER PARTY WILL BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT.

     

    7.7 Abandonment,
Insolvency.  In the event that, at any time and for any reason,
Seller abandons efforts to produce and supply Seller Solution in liquid form, or
if Seller files for bankruptcy protection and such proceeding is not dismissed
within ninety (90) business days, Buyer has the right to an uninterrupted supply
of Seller Solution from Seller, or the surviving entity of such a transaction
under the same terms of this Agreement.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
         

        
          
            	
                    

                  	
                    CONFIDENTIAL

                  	
                    

                  

          

        

      

       

    

    ARTICLE
VIII

    MISCELLANEOUS

     

    8.1 Entire Agreement.
This Agreement contains the entire agreement of the parties regarding the
subject matter hereof and supersedes all prior agreements, understandings and
negotiations regarding the same. This Agreement may not be modified or
supplemented except by a written instrument signed by both parties. Furthermore,
it is the intention of the parties that this Agreement be controlling over
additional or different terms of any order, confirmation, invoice or similar
document, even if accepted in writing by both parties, and that waivers and
amendments shall be effective only if made by negotiated waiver agreements
clearly understood by both parties to be an amendment or waiver.

     

    8.2 Severability. If any
provision of this Agreement shall be held illegal or unenforceable, that
provision shall be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and
enforceable.

     

    8.3 Further Assurances.
Each party hereto agrees to execute, acknowledge and deliver such further
instruments, and to do all such other acts as may be reasonably necessary or
appropriate in order to carry out the purposes and intent of this
Agreement.

     

    8.4 Use of Party's Name, Press
Release. Except as provided in Article II herein, no right, express or
implied, is granted by this Agreement to either party to use in any manner the
name or trademark of the other.  Within seven (7) business days
following execution of this Agreement, each party may release a mutually
acceptable and approved in advance in writing press release (or other public
announcement) announcing the execution of this Agreement.

     

    8.5 Assignment,
Successorship.  This Agreement may be assigned by either party
to any third  party that succeeds to substantially all of a party’s
assets or business that constitutes the subject matter of this Agreement,
whether by reason of stock sale, merger, or asset sale, so long as the assignee
agrees in writing to be bound by the terms of this Agreement.

     

    8.6 Notice
Delivery.  All notices, consents, or approvals required by this
Agreement shall be in writing sent by certified or registered air mail, postage
prepaid, or by confirmed facsimile to the parties at the addresses set forth in
the preamble of this Agreement or such other addresses as may be designated in
writing by the respective parties.  Notices shall be deemed effective
on the date of mailing.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
         

        
          
            	
                    

                  	
                    CONFIDENTIAL

                  	
                    

                  

          

        

      

       

    

    8.7 Relationships of the
Parties. Both parties are independent contractors under this Agreement.
Nothing contained in this Agreement is intended nor is to be construed so as to
constitute Seller and Buyer as partners, agents or joint venturers with respect
to this Agreement. Neither party hereto shall have any express or implied right
or authority to assume or create any obligations on behalf of or in the name of
the other party or to bind the other party to any contract, agreement or
undertaking with any third party.

     

    8.8 Waiver. The waiver by
either party of a breach of any provisions contained herein shall be in writing
and shall in no way be construed as a waiver of any subsequent breach of such
provision or the waiver of the provision itself.

     

    8.9 Applicable Law. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York without regard to the conflicts of laws provisions thereof or
the United Nations Convention on the International Sale of Goods. The exclusive
jurisdiction and venue of any action with respect to this Agreement shall be in
New York, and each of the parties hereto submits itself to the exclusive
jurisdiction and venue of such courts for the purpose of any such action.
Service of process in any such action may be effected in the manner provided in
Section 8.6 for delivery of notices. The prevailing party in any legal action to
enforce or interpret this Agreement shall be entitled to reasonable costs and
attorneys' fees.

     

    8.10
Captions.
Paragraph captions are for convenience only and in no way are to be construed to
define, limit or affect the construction or interpretation hereof.

     

    8.11
Force Majeure.
A party shall not be liable for nonperformance or delay in performance (other
than of obligations regarding payment of money or confidentiality) caused by any
event reasonably beyond the control of such party including, but not limited to
wars, hostilities, revolutions, riots, civil commotion, national emergency,
strikes, lockouts, epidemics, fire, flood, earthquake, force of nature,
explosion, embargo, or any other Act of God, or any law, proclamation,
regulation, ordinance, or other act or order of any court, government or
governmental agency.

     

    8.12
Export Control;
Corruption.

     

    (a) Buyer shall comply with the U.S.
Foreign Corrupt Practices Act and all applicable export laws, restrictions, and
regulations of the U.S. Department of Commerce, the U.S. Department of Treasury
and any other any U.S. or foreign agency or authority. Buyer will not export or
re-export, or allow the export or re-export of any product, technology or
information it obtains or learns pursuant to this Agreement (or any direct
product thereof) in violation of any such law, restriction or regulation,
including, without limitation, export or re-export to Cuba, Iran, Iraq, Libya,
North Korea, or any other country subject to U.S. trade embargoes, or to any
party on the U.S. Export Administration Table of Denial Orders or the U.S.
Department of Treasury List of Specially Designated Nationals, or to any
prohibited destination in any of the Country Groups specified in the then
current Supplement No. 1 to Part 740 or the Commerce Control List specified in
the then current Supplement No. 1 to Part 738 of the U.S. Export Administration
Regulations (or any successor supplement or regulations).

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
         

        
          
            	
                    

                  	
                    CONFIDENTIAL

                  	
                    

                  

          

        

      

       

    

    (b) Buyer shall obtain and bear all
expenses relating to any necessary licenses and/or exemptions with respect to
the export from the U.S. of any Seller Solution to any location in compliance
with all applicable laws and regulations prior to delivery thereof by Seller. If
Buyer is involved in a transaction that gives Buyer reason to suspect that any
product, technology or information it obtains or learns pursuant to this
Agreement will be exported, re-exported, or diverted in violation of any such
laws, restrictions or regulations (including, without limitation, knowledge of
suspect end users, abnormal transaction circumstances, or other Bureau of Export
Administration "red flag" indicators), then Buyer will take appropriate steps to
terminate such transaction, notify the correct U.S. agency, and give notice to
Seller.

     

    IN
WITNESS WHEREOF, the parties have executed this Agreement to be effective as of
the date first written above.

     

    
      
        
          	 
      	
                  SELLER:

                  Oculus
      Innovative Sciences, Inc.

                
	 
      	 
      
	 
      	
                  Signature:
      /s/Robert E. Miller

                
	 
      	
                  Name/Title
      (print): Chief Financial Officer

                
	 	 
	 
      	
                  Date:
      3/12/09

                
	 
      	
                  BUYER:

                  BioDrain
      Medical, Inc.,

                
	 
      	 
      
	 
      	
                  Signature:
      /s/ Kevin Davidson

                
	 
      	
                  Name/Title
      (print): CEO

                
	 
      	
                  Date:
      3/16/09

                

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      
         

        
          
            	
                    

                  	
                    CONFIDENTIAL

                  	
                    

                  

          

        

      

       

    

    Exhibit
A

     

    Seller
Solution (Liquid) Specifications and Claims

     

    Liquid
Solution Specification (including shelf life):

     

    Seller
Solution is a non-regulated superoxidized solution based on the Microcyn
platform technology manufactured with a free available chlorine concentration of
100 ppm to 225 ppm, a pH range of 4 to 6, and a phosphate buffer.

    

    Seller
Solution, in liquid form, shall conform in all respects to the Liquid Solution
Specifications (including the attached Material Safety Data Sheet and Ingredient
Sheet), and shall be shipped in a 32-ounce “ringed carafe” bottle or, if the
parties mutually agree, different containers at prices mutually agreed to by the
parties (the “Package specifications”).

    

    The shelf
life of the product will be at least twenty four (24) months, from the date of
manufacturing.

    

    Liquid
Solution Claims

    

    There are
no EPA or FDA regulated claims, or any unregulated claims, made or implied by
Seller as to the efficacy or use of the Seller Solution.  For clarity,
Seller Solution is void of any claims as to it’s efficacy or
use.  Buyer is responsible for any and all label content and any and
all claims made on the label of the Buyer Products or associated marketing
material of the Buyer Products.  Buyer will provide an electronic
version of the label to Seller for printing purposes only.  Seller
shall not have the obligation or right to review the given label, and will not
be held responsible for any content or claims made on the given label for Buyer
Products.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
       

      
        
          	
                  

                	
                  CONFIDENTIAL

                	
                  

                

        

      

    

     

    Exhibit
B

     

    Prices
and Minimum Order Requirements

     

    Prices:

    The
following prices are for 750ml to 946ml of Seller Solution in a 32-ounce “ringed
carafe” bottle, or different bottle as mutually agreed upon by Buyer and Seller,
including cap, label, and shipping to Buyer or other holding facility in the
US.  Price does not include any additional shipping costs to ship from
Buyer’s or other’s warehouse to the end customer.  All orders shall be
made in case denominations, 32-case denominations, or 768-case denominations,
with unit prices as follows:

    

    For the
first 50,000 bottles ordered by Buyer:

    

    
      
        
          
            
              	 
      	 	
                      Load

                    	 	 	
                      Pallet

                    	 	 	
                      Case

                    	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                      Order
      size (case)

                    	 	 	768	 	 	 	32	 	 	 	1	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                      Order
      size (bottles)

                    	 	 	9,216	 	 	 	384	 	 	 	12	 
	
                      Price
      per case (12 bottles)

                    	 	 	 	 	 	 	 	 	 	 	 	 
	
                      Price
      per unit (bottle)

                    	 	 	 	 	 	 	 	 	 	 	 	 

            

          

        

      

    

    

    After the
first 50,000 bottles have been ordered by Buyer:

    

    
      
        
          
            
              	 
      	 	
                      Load

                    	 	 	
                      Pallet

                    	 	 	
                      Case

                    	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                      Order
      size (cases)

                    	 	 	768	 	 	 	32	 	 	 	1	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                      Order
      size (bottles)

                    	 	 	9,216	 	 	 	384	 	 	 	12	 
	
                      Price
      per case (12 bottles)

                    	 	 	 	 	 	 	 	 	 	 	 	 
	
                      Price
      per bottle

                    	 	 	 	 	 	 	 	 	 	 	 	 

            

          

        

      

    

    

    Minimum
Order Requirements:

    

    
      
        
          
            
              	
                      Calendar

                      Year

                    	 	
                      2009

                    	 	 	
                      2010

                    	 	 	
                      2011

                    	 	 	
                      2012

                    	 	 	
                      2013
      and calendar

                      years
      thereafter

                    	 
	
                      Minimum
      bottles purchased

                    	 	 	15,000	 	 	 	175,000	 	 	 	500,000	 	 	 	1,000,000	 	 	 	1,500,000	 

            

          

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
       

      
        
          	
                  

                	
                  CONFIDENTIAL

                	
                  

                

        

      

    

     

    Incentive
Price Discounts:

    

    Seller
shall grant to Buyer a per-bottle price discount for Buyer reaching the
following purchasing milestones during a calendar year.  Only one of
the following discounts will apply at any time, and will last for the remainder
of that year and the succeeding calendar year in which the milestone was met.
Once the milestone is met and the discount is applied for the following calendar
year, and if in that following year the bottles purchased falls below the
milestone, then the discount applied to the next year can only decrease to the
discount related to the prior milestone.  For example, if in 2011 the
Seller purchases more than 1.5 million bottles, then the discount applied for
calendar year 2012 is $***.Then if the actual amount purchased for 2012 was less
than 0.5 million bottles, then the discount would drop only one level to
$..

    

    
      
        
          
            
              	
                      Bottles

                      Purchased

                    	 	
                      Per-Bottle

                      Discount

                    
	 
      	 	 
      
	
                      500,000

                    	 	*** 
      
	
                      1,000,000

                    	 	*** 
      
	
                      1,500,000

                    	 	*** 
      
	
                      2,000,000

                    	 	*** 
      

            

          

        

      

    

     

    
      

    

    
      *** This
material has been omitted pursuant to a request for confidential treatment and
filed separately with the Securities and Exchange Commission.CONFIDENTIAL

    Page  of
6

     

    February
1, 2009

    

    EMPLOYMENT
AGREEMENT

    

    This
Agreement made and entered into effective the 1st of February, 2009 by and
between Kirsten Doerfert, an individual residing at 2500 Princeton Court,
Minneapolis, Minnesota 55416 (“Employee”), and BioDrain Medical Incorporated,
2060 Centre Pointe Boulevard, Suite 7, Mendota Heights, Minnesota 55120, a
Minnesota corporation (“Company”).

    

    WITNESSETH:

    

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

    

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

    

    
      	
               
      

            	
              1.

            	
              Employment.  The
      Company agrees to employ the Employee for a period of two (2) years,
      commencing on February 1, 2009, unless Employee violates the terms set
      forth in Paragraph 6: Termination by the Company for Cause, or the
      Employee voluntarily resigns.  The Agreement shall be
      automatically renew annually except by action of the President & CEO
      or the Board of Directors.

            

    

    

    
      	
               
      

            	
              2.

            	
              Duties. The Employee
      will hold the title of Vice President, Sales and Marketing and shall
      report to the President & CEO of the Company.  The general
      scope of the Employee’s duties shall include but not be limited to
      responsibility for developing and implementing the overall sales and
      marketing strategy and tactical plans to grow sales revenue and account
      penetration supporting the overall business strategy.  Sales
      channel identification and establishment are key priorities including the
      advancement of the Company website and development of Company marketing
      collateral.   The Employee will be decisive, driven,
      hands-on and results-oriented.   Market segmentation,
      positioning, branding, and business development will be additional
      responsibilities for the Employee.  The Vice President, Sales
      and Marketing will play a significant role in establishing and managing
      beta sites for the Company’s product(s).  Additionally, the
      Employee will drive securing initial purchase orders and obtaining initial
      sales and sustaining growth in revenues from the Company’s
      product(s).

            

    

    

    The
Employee’s duties may be modified from time to time by mutual agreement between
the Employee and the President & CEO as they deem to be in the best
interests of the Company.

    

    
      	
               
      

            	
              3.

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

            

    

    

    
      	
               
      

            	
              4.

            	
              Compensation.

            

    

    

    
      	
               
      

            	
              a.

            	
              Base Salary. $135,000
      annual base salary to be
      paid through 3 months after both the product’s receipt of FDA approval and
      the product being commercially ready and available for sale. At the 3 month timeframe after
      both FDA approval and commercially ready and available product has been
      secured, annual base salary will move to
      $125,000.  Payment will be monthly and will be according
      to the Company’s salary schedule.  Employee will receive annual
      salary reviews and potential increases, based on Employee’s
      performance.

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    CONFIDENTIAL

    Page 2 of
6

    

    
      	
               
      

            	
              b.

            	
              Commission.  Commissions of 7.5% of total
      worldwide sales will be paid for sales made in the first 12 months after
      both FDA approval and product being commercially ready and available.
      Commissions of 5% of total worldwide sales will be paid for sales made in
      the second 12 months after both FDA approval and product being
      commercially ready and available. Commission to be paid on a monthly basis
      in conjunction with scheduled payroll.  For purposes of this
      Paragraph, “sales made” shall mean sales for which revenues are
      booked.  Commissions shall be deemed earned, and paid, on booked
      revenues with subsequent adjustments made for uncollectible
      balances.  

            

    

    

    
      	
               
      

            	
              c.

            	
              Stock
      Options/Warrants.  The Employee will receive total stock
      options to purchase 100,000 shares of the Company’s common stock at $.35
      per share.  In addition, Employee will receive 15,000 warrants
      to purchase Company stock at $.46 per share.  The 15,000
      warrants will vest as of February 1, 2009 and will have a five-year
      term.  The options will vest as follows:  20,000 upon
      execution of this Agreement, 20,000 upon securing four Beta
      sites/POs/testimonials/Letters of Intent, 20,000 upon FDA approval, 20,000
      upon sale of the first FMS unit, and 20,000 upon sale of the 50th
      FMS unit.

            

    

    

    The total
of these options plus warrants, assuming all milestones are achieved, will be
115,000, as described above.  Employee and Company will cooperate in
drafting and executing such additional documents as may be necessary to
effectuate the grants, vesting schedule and pricing arrangements detailed in
this Paragraph.

    

    
      	
               
      

            	
              5.

            	
              Additional
      Benefits.

            

    

    

    
      	
               
      

            	
              a.

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

            

    

    

    
      	
               
      

            	
              b.

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

            

    

    

    
      	
               
      

            	
              c.

            	
              Benefits.  The
      Employee will be eligible for the Company’s benefits package effective on
      February 1, 2009.

            

    

    

    
      	
               
      

            	
              d.

            	
              Vacation.  The
      Employee will receive a minimum of three (3) weeks of paid vacation per
      year.

            

    

    

    
      	
               
      

            	
              e.

            	
              Education. The Company
      will support the Employee in her pursuit of continuing education provided
      sufficient cash flows support tuition reimbursement and she meets the
      conditions and terms of the tuition reimbursement guidelines as outlined
      in the Employee Manual when written.  Company and Employee will
      annually discuss and mutually determine the affordability to Company of
      tuition reimbursement for Employee.

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    CONFIDENTIAL

    Page 3 of
6

     

    
      	
               
      

            	
              6.

            	
              Non-Compete.   Throughout
      the period of Employee’s employment with the Company, and thereafter for a
      period of two (2) years, Employee shall not, for any reason whatsoever,
      directly or indirectly, plan, organize, advise, own, manage, operate,
      control, be employed by, participate in or be connected in any manner with
      the ownership, management, operation or control of any business of the
      following type: the development, marketing and sales of medical devises
      dedicated or designed to safely manage and dispose of contaminated fluids
      generated in the operating room and other similar medical locations, or
      any business relating to cleaning, disinfecting or sterilizing of medical
      instruments or products using fluids similar to those utilized by the
      Company.  For purposes of this Agreement, indirect competition
      shall be deemed to include any activity by Employee in aid of a competing
      Business, including but not limited to, being a partner, shareholder,
      officer, director, member, owner, manager, governor, agent, employee,
      advisor, consultant or independent contractor of any competing Business,
      except that the foregoing will not prevent Employee from holding less than
      five percent (5%) of the outstanding capital stock of any publicly traded
      company.

            

    

    

    
      	
               
      

            	
              7.

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

            

    

    

    
      	
               
      

            	
              8.

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

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    CONFIDENTIAL

    Page 4 of
6

    

    
      	
               
      

            	
              o

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

            

    

    

    
      	
               
      

            	
              o

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

            

    

    

    
      	
               
      

            	
              o

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

            

    

    

    
      	
               
      

            	
              o

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

            

    

    

    In the
event of a termination for cause, as defined herein, the Employee shall only be
entitled to receive payment of base salary, adjusted pro-rata to the date of
such termination, along with unused vacation pay and commissions earned to the
date of termination.  The Employee shall have absolutely no right to
receive or retain any other payment or compensation whatsoever under this
Agreement, regardless of the term of the employment then elapsed.  The
Employee’s rights and obligations regarding stock options and shares of the
Company’s common stock owned by Employee shall be determined in accordance with
and be governed by the Company’s Stock Option Plan as well as Employee’s stock
option agreements.  Only options that have vested as of Employee’s
termination date shall be exercisable by Employee.

    

    
      
        	
              	
                9.

              	
                Termination by Company without
      Cause.  In the event the Employee’s employment is
      terminated by the Company without cause, as “cause” is defined in
      Paragraph 8 hereof, Employee shall be entitled to receive from the Company
      as severance pay an amount equal to twelve (12) months of Employee’s Base
      Salary then in effect at the time of termination, payable in twelve (12)
      equal monthly installments, in accordance with the Company’s payroll cycle
      until paid in full, along with unused vacation pay and commissions earned
      to the date of termination.  Employee’s vested options shall be
      exercisable, and any unvested options shall immediately vest and become
      exercisable, upon termination under this Paragraph.  The
      consideration provided in this section is conditioned upon the Employee’s
      return to the Company of any and all property belonging to the Company in
      Employee’s possession or control and Employee’s disclosure to the Company
      of any information known to Employee and necessary for the Company to
      access any computer software or programs of the Company controlled by
      Employee.

              

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    CONFIDENTIAL

    Page 5 of
6

    

    
      
        	
              	
                10.

              	
                Termination by Employee for
      Good Reason.  Employee may, at her option, terminate her
      employment at any time during the Term for good reason.  For
      purposes of this Agreement, “good reason” shall mean (i) any material
      breach by the Company of this Agreement that is not cured by the Company
      within thirty (30) days after receipt of written notice from Employee of
      such material breach, (ii) any material diminution or adverse (to
      Employee) change in the duties, responsibilities, rights, privileges or
      the reporting relationships, which were applicable to and enjoyed by the
      Employee at the time of such diminution of change, without the consent of
      the Employee, except as a result of the termination of Employee’s
      employment by the Company as provided in Paragraph 8 hereof, (iii) any
      requirement from the Board of Directors that the Employee must relocate
      her office outside the Twin Cities metropolitan area, or (iv) occurrence
      of any event described in Paragraph 12. In the event of a termination by
      Employee of her employment as provided in this Paragraph 10, Employee
      shall be entitled to severance pay and benefits as provided in Paragraph 9
      hereof.

              

      

    

    

    
      
        	
              	
                11.

              	
                Termination by
      Employee.   Employee may terminate employment at any
      time during the Term for any reason with one (1) month
      notice.  In the event of termination under this Paragraph,
      Employee shall be paid her base salary, adjusted pro-rata to the date of
      such termination, along with unused vacation pay and commissions earned to
      the date of termination.  Employee agrees to aid in transition
      and exit from the Company causing no harm or hardship during such
      transition.  Employee is bound by Paragraph 6 of this
      Agreement.  Employee is not eligible for salary continuation or
      bonus or additional stock option vesting if she voluntarily resigns for
      reasons other than “good reason” as defined in Paragraph
    10.

              

      

    

    

    
      
        	
              	
                12.

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

              

      

    

    

    
      
        	
              	
                13.

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

              

      

    

    

    
      
        	
              	
                14.

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

              

      

    

    

    
      
        	
              	
                15.

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

              

      

    

    

    
      
        	
                Company:

              	
                BioDrain
      Medical Inc.

              
	 
      	
                Attention:  Kevin
      R. Davidson, President & CEO

              
	 
      	
                2060
      Centre Pointe Blvd., Suite 7

              
	 
      	
                Mendota
      Heights, MN 55120

              
	 
      	 
      
	
                Employee:

              	
                Kirsten
      Doerfert

              
	 
      	
                2500
      Princeton Court

              
	 
      	
                Minneapolis,
      MN 55416

              

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    CONFIDENTIAL

    Page 6 of
6

    

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

    

    
      
        	
              	
                16.

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

              

      

    

    

    
      
        	
              	
                17.

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

              

      

    

    

    
      
        	
              	
                18.

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

              

      

    

    

    
      
        	
              	
                19.

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

              

      

    

    

    
      
        	
              	
                20.

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

              

      

    

    

    
      
        	
              	
                21.

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

              

      

    

    

    
      
        	
              	
                22.

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

              

      

    

    

    
      
        	
              	
                23.

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

              

      

    

    

    
      
        	
              	
                24.

              	
                Confidential.  Company
      and Employee agree to keep the terms and conditions of this Agreement
      confidential during the terms of the Agreement and for one (1) year after
      termination of Agreement, except to the extent that Employee may be
      required to disclose the Agreement or its terms by force of law or in
      connection with a prospective employment
search.

              

      

    

    

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

    
      
        
          
            
              	
                      BioDrain Medical Incorporated

                    
	 
      	 
      
	
                      By:

                    	/s/
      Kevin R. Davidson
	 
      	
                      Kevin
      R. Davidson, President & CEO

                    
	 
      	 
      
	
                      By:

                    	/s/
      Kirsten Doerfert
	 
      	
                      Kirsten
      Doerfert,
Employee

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