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                                                                    Exhibit 10.3

                              EMPLOYMENT AGREEMENT

                  THIS AGREEMENT (this "Agreement"), dated as of July 29, 2002,
is made by and between Biopure Corporation, a Delaware corporation, having its
principal place of business at 11 Hurley Street, Cambridge, MA 02141 (the
"Company"), and Carl W. Rausch, whose residence address is 592 Pleasant Street,
Belmont, MA 02478 (the "Executive").

                                    RECITALS

                  1.       The Executive is a founder of the Company and has
been its chief executive officer and chairman of the board since the Company's
inception. The Executive has resigned as chief executive officer and chairman of
the board as of the date of this Agreement. The Company desires to continue to
employ the Executive and to enter into an agreement with the Executive embodying
the terms of the ongoing relationship.

                  2.       The Executive wishes to continue his employment by
the Company on the terms set forth herein.

                  3.       The Executive and the Company have agreed to amend
the terms of the Executive's deferred compensation and of his indebtedness to
the Company to be embodied in agreements herein referred to as the Deferred
Compensation Agreement and the Agreement Re Loan.

                                    AGREEMENT

                  NOW, THEREFORE, in consideration of the mutual covenants and
premises herein contained, and other good and valuable consideration, the
Company and the Executive hereby agree as follows.

                  1.       CERTAIN DEFINITIONS.

                           1.1  "EFFECTIVE DATE" shall mean June 25, 2002.

                           1.2  "EMPLOYMENT PERIOD" shall mean the period
commencing on the Effective Date and ending on the third anniversary of such
date, or as further extended in accordance with the provisions of this Section
1.2. The Employment Period (as it may have been extended pursuant to the
provisions of this sentence) shall be extended or further extended, as the case
may be, without any action by the Company or the Executive, on the

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third anniversary of the Effective Date and on each subsequent anniversary
thereof for an additional period of one year, unless and until either party
gives written notice to the other party at least 60 days in advance of the third
anniversary or any subsequent anniversary that the Employment Period in effect
when such notice is given is not to be extended or further extended, as the case
may be.

                           1.3  "BOARD" shall mean the Board of Directors of
the Company.

                  2.       EMPLOYMENT.

                           Subject to the terms and conditions provided herein,
the Company hereby agrees, during the Employment Period, to employ the Executive
as its Chief Technical Officer. The Executive hereby agrees to accept such
employment during the Employment Period. The Company agrees to continue to
nominate Executive as a member of the Board and to use best efforts to cause him
to be elected to serve throughout the Employment Period. The Executive shall
also be Vice Chairman of the Board during the Employment Period.

                  3.       EMPLOYMENT DUTIES. During the Employment Period, the
Executive shall report to the President and shall have such duties and
responsibilities as are assigned to the Executive by the Chief Executive Officer
and are consistent with his status as Chief Technical Officer. During the
Employment Period, the Executive agrees to devote substantially all his business
attention and time to the business and affairs of the Company and its
subsidiaries, and to use the Executive's best efforts to perform faithfully the
duties and responsibilities assigned to the Executive under this Section 3. It
is expressly understood that (a) the Executive may devote a reasonable amount of
time to such industry associations and charitable and civic endeavors as shall
not interfere with the obligation set forth in the preceding sentence, and (b)
with the prior approval of the Board (which shall not be unreasonably withheld),
the Executive may serve as a member of one or more boards of directors of
companies that are not affiliated with the Company and (c) the Executive may
devote a reasonable amount of time during the period ending not later than
December 31, 2002, and use a reasonable amount of assistance from Hazel Forney
in order to liquidate or reorganize Biopure Associate Limited Partnership,
Biopure Associate Limited Partnership II, Biopure Investors Limited Partnership
and Biopure Investors Limited Partnership II.

                  4.       COMPENSATION.

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                           4.1  BASE SALARY.  During the Employment Period, the
Company shall pay the Executive a base salary (the "Base Salary") of no less
than $350,000 per annum, payable in accordance with the Company's normal payroll
practices. The Base Salary shall be considered for increase at least once each
year, in accordance with the Company's regular review of senior executive
salaries and, if so increased, then such increased amount shall become the Base
Salary.

                           4.2  INCENTIVE, SAVINGS AND RETIREMENT PLANS. During
the Employment Period, the Executive shall be eligible to participate in all
bonus and short- or long-term incentive plans and programs, including option
plans, maintained by the Company from time to time on or after the Effective
Date for the benefit of senior executives of the Company. During the Employment
Period, the Executive shall be eligible to participate in and receive all
benefits under all savings and retirement plans and programs maintained by the
Company from time to time on or after the Effective Date for the benefit of
senior executives of the Company.

                           4.3  WELFARE BENEFIT PLANS.  During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible to participate in and receive all benefits under all welfare benefit
plans and programs maintained by the Company from time to time on or after the
Effective Date for the benefit of senior executives of the Company.

                           4.4  VACATION; FRINGE BENEFITS. During the Employment
Period, the Executive shall be entitled to paid vacation in accordance with the
vacation policy maintained by the Company from time to time on or after the
Effective Date for senior executives of the Company. Any accrued and unused
vacation shall be carried over to the next year without any reduction, provided
that the maximum carryover on a year-to-year basis shall be one year's vacation.
During the Employment Period, the Executive shall receive such perquisites and
fringe benefits as are generally provided to senior executives of the Company.

                           4.5   BUSINESS EXPENSES. The Executive shall be
reimbursed for reasonable business expenses in accordance with Company policy.
Air travel shall be business class and if business class is not available, then
the Executive may travel first class if the flight is outside of the contiguous
United States.

                  5.       TERMINATION.

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                           5.1  DEATH OR DISABILITY.  The Employment Period
shall terminate automatically upon the Executive's death. If, during the
Employment Period, the Disability (as defined below) of the Executive has
occurred, the Company may give to the Executive written notice of its intention
to terminate the Executive's employment due to such Disability. The Executive's
employment with the Company shall be terminated by the Company on the 30th day
after receipt by the Executive of such notice (the "Disability Effective Date"),
if, within such thirty (30) day period, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" means a physical or mental disability resulting in the complete,
total and permanent inability of the Executive to perform his duties under this
Agreement, as determined by a physician selected in good faith by the Company
and approved in good faith by the Executive.

                           5.2  CAUSE.  During the Employment Period, the
Company may terminate the Executive's employment hereunder for "Cause". For
purposes of this Agreement, "Cause" means (a) an act or acts of material
personal dishonesty taken by, or committed at the request of, the Executive,
intended to result in the personal enrichment of the Executive at the expense of
the Company, or any of its subsidiaries, which results in material damage to the
Company, (b) repeated willful violations by the Executive of the Executive's
obligations under this Agreement which have not been cured within thirty (30)
days after a written Notice of Termination setting forth such violations has
been given by the Board to the Executive, or (c) the conviction of the Executive
of a felony.

                           5.3  WITHOUT CAUSE.  During the Employment Period,
the Company may terminate, upon advance written notice given to the Executive,
the Executive's employment hereunder other than for Cause.

                           5.4 VOLUNTARY TERMINATION BY EXECUTIVE. During the
Employment Period the Executive may terminate employment hereunder for any
reason or no reason.

                           5.5  DATE OF TERMINATION.  "Date of Termination"
shall mean the date of receipt of a notice of termination or any later date
specified therein (which date shall be not more than fifteen (15) days after the
giving of such notice); PROVIDED, HOWEVER, that

         (a) if the Executive's employment is terminated by the Company, other
than for Cause or Disability, the Date of Termination shall be the fifteenth day
after the date on which

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the Company notifies the Executive in writing of such termination under Section
5.3,

         (b)      if the Executive's employment is terminated by the Company for
Cause as defined in clause (a) or (c) of the second sentence of Section 5.2, the
Date of Termination shall be the date Notice of Termination is given, and in the
case of Cause described in Section 5.2(b), the thirtieth day after the Notice of
Termination is given (provided that the Executive has not cured his violations
of his obligations under this Agreement prior to such thirtieth day),

         (c)      if the Executive resigns his employment voluntarily, the Date
of Termination shall be (i) the date specified in the Notice of Termination but
not later than the thirtieth day after the date of the Notice of Termination, or
(ii) the date on which the Company otherwise first learns of such voluntary
termination, and

         (d)      if the Executive's employment is terminated by reason of death
or Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.

                  6.       OBLIGATIONS UPON TERMINATION.

                           6.1      ACCRUED OBLIGATIONS. If the Executive's
employment is terminated by reason of the Executive's death or Disability, by
the Company with Cause or without Cause, by the Executive voluntarily or by
expiration of the Employment Period in accordance with the terms of Section 1.2
of this Agreement, the Employment Period shall terminate at the time provided in
Section 5.5, and the Executive, or the Executive's legal representatives, as the
case may be, shall be entitled to receive:

                                    6.1.1 (a) the Executive's Base Salary
through the Date of Termination, (b) any vacation pay accrued through the date
of termination and not yet paid by the Company (such amounts specified in
clauses (a) and (b) are hereinafter referred to as the "Accrued Obligations")
and (c) a PRO RATA bonus for the year of termination calculated and payable
after year-end, if any, provided, however, that no such PRO RATA bonus shall be
paid to the Executive if his employment is terminated for Cause or voluntarily
by the Executive. All such Accrued Obligations shall be paid to the Executive's
estate or beneficiary, as applicable, in a lump sum in cash within thirty (30)
days after the Date of Termination. In addition, if Executive's employment is
terminated by reason of the Executive's death, the Executive's family shall be
entitled to receive any family death benefits

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provided by the Company to surviving families of senior executives (or, if more
favorable, other employees) of the Company under the plans and programs, if any,
then maintained by the Company;

                                    6.1.2 An amount equal to three times Base
Salary in effect on the Date of Termination payable in accordance with the
Company's normal payroll practices over the three years beginning on the Date of
Termination;

                                    6.1.3 Payment of the Company's proportionate
share, in accordance with the practice for senior executives of the cost of the
Executive COBRA continuation coverage for one year following the Date of
Termination.

                           6.2      DISABILITY.  If the Executive's employment
is terminated by reason of the Executive's Disability, in addition to the
Accrued Obligations, the Executive shall be entitled as of the Disability
Effective Date to receive the disability benefits provided by the Company to
disabled senior executives of the Company under the plans and programs, if any,
then maintained or provided by the Company, as if the Executive were disabled as
of the Disability Effective Date within the meaning of such plans and programs
and regardless of whether the Executive is actually disabled within the meaning
of such plans and programs.

                           6.3      STOCK OPTIONS.  The Company has previously
issued to the Executive and may in the future issue additional stock options
pursuant to agreements (the "Option Agreements") that set forth various vesting
schedules with respect to the stock options granted under the Option Agreements.
Notwithstanding any inconsistent terms of the Option Agreements, all options
granted to the Executive that have not vested by the terms of the Option
Agreements on or prior to the termination date shall vest on the Date of
Termination. All of Executive's options, whether previously vested or that vest
pursuant to the preceding sentence of this Agreement, may be exercised by the
Executive at any time or from time to time during the three years (36 months)
following the Date of Termination or until the date the respective option
terminates by its terms, whichever is earlier.

                           6.4      LIQUIDATED DAMAGES.  The Executive agrees
that if the Company terminates his employment during the Employment Period, the
actual damages to the Executive would be difficult if not impossible to
ascertain and agrees that the Executive's sole remedy shall be a right to
receive amounts determined and paid in accordance with the provisions of this
Agreement. The Executive shall not be required to mitigate the amount of any
payment

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provided for in this Agreement by seeking other employment or otherwise, nor
shall any compensation earned by the Executive in other employment or otherwise
reduce the amount of any payment provided for in this Agreement

                           6.5  FULL SATISFACTION.  The payments and option
benefits received by the Executive (or his legal representatives) under this
Agreement that are attributable to the termination of the Executive's employment
shall be in full and complete satisfaction of any and all claims the Executive
(or his legal representatives) may have against the Company which are, in any
way, related to the employment relationship or the termination of the employment
relationship between the Executive and the Company.

                  7.       NON-DISPARAGEMENT. The Executive agrees neither he
nor anyone acting at his behest or on his behalf shall disparage, defame,
criticize or comment in any negative manner on the business, employment or
personnel practices of the Company or any of its subsidiaries or affiliates, or
any of its or their current, former or future officers, directors, shareholders,
investors, employees, representatives, agents or attorneys.

                  8.       OTHER PAYMENTS. Notwithstanding anything to the
contrary contained herein (including without limitation Section 6.5), any
compensation or benefits, if any, which are vested in the Executive or which the
Executive is otherwise entitled to receive under any plan or program of the
Company before, at or subsequent to the Date of Termination shall be payable in
accordance with the terms and provisions of such plan or program.

                  9.       PRIOR AGREEMENT. The Executive and the Company are
parties to an Employment Agreement Concerning Protection of Company Property and
the Arbitration of Legal Disputes (the "Old Company Property and Arbitration
Agreement") dated February 1, 1995. The Old Company Property and Arbitration
Agreement is hereby terminated and superseded by the Company Property and
Arbitration Agreement referenced in Section 10, but without relieving either
party of any liabilities thereunder arising prior to the date hereof.

                  10.      CONFIDENTIAL INFORMATION AND NON-COMPETITION AND
ARBITRATION. The Executive shall execute and deliver to the Company on the date
hereof an Employee Agreement Concerning Protection of Company Property and the
Arbitration of Legal Disputes ("Protection of Company Property Agreement") in
the form attached hereto, the terms of which are incorporated herein by
reference; provided, however, that to the extent a term or

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provision of this Agreement conflicts with any term or provision of the
Protection of Company Property Agreement, such term or provision of this
Agreement shall prevail over such term or provision of the Protection of Company
Property Agreement. Disputes under this Agreement shall be resolved as provided
in the Protection of Company Property Agreement. The Executive understands and
acknowledges that certain terms and conditions of the Protection of Company
Property Agreement (including but not limited to non-compete, non-solicitation,
confidentiality, agreement to arbitrate claims) which, by the terms of the
agreement, survive the termination of his employment relationship with the
Company except as aforesaid are unaffected by this Agreement.

                  11.      SUCCESSORS. This Agreement is personal to the
Executive. Without the prior written consent of the Company it shall not be
assignable by the Executive. This Agreement shall inure to the benefit of, and
be enforceable by, the Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its successors and
assigns. The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and assets of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.

                  12.      MISCELLANEOUS. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts,
without reference to principles of conflict of laws thereunder. The captions of
this Agreement are not part of the provisions hereof and shall not have any
force or effect. This Agreement may not be amended or modified otherwise than by
a written agreement executed by the parties hereto or their respective
successors and legal representatives. All notices and other communications
hereunder shall be in writing and shall be given by facsimile transmission, hand
delivery to the other party or by registered or certified mail, return receipt
requested, postage prepaid, to the addresses set forth above (in the case of the
Company, to the attention of the Chief Executive Officer) or to such other
address as either party shall have furnished to the other in writing in
accordance herewith. Any such notice and communications shall be effective when
actually received by the addressee. The Company may withhold from any amounts
payable under this Agreement such federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation. This
Agreement, the Protection of Company Property Agreement, the Deferred
Compensation Agreement and the Agreement

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Re Loan contain the entire understanding of the Company and the Executive with
respect to the subject matter hereof.

                  13.      PREPARATION OF AGREEMENT. The Company shall, upon the
submission of appropriate itemized invoices by the Executive, pay all reasonable
attorney and accountant fees and disbursements incurred by the Executive in
connection with the preparation of this Agreement up to an aggregate maximum of
$40,000.

                  14.      INDEMNIFICATION.

                           (a)      The Company agrees that if the Executive is
at present, or is made a party hereafter, or is threatened to be made a party,
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he is or was a
director, officer or employee of the Company or is or was serving at the request
of the Company as a director, officer, member, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether or not the basis of such
Proceeding is the Executive's alleged action in an official capacity while
serving as a director, officer, member, employee or agent, the Executive shall
be indemnified and held harmless by the Company to the fullest extent legally
permitted or authorized by the Company's certificate of incorporation or bylaws
or resolutions of the Board or, if greater, by the laws of the State of
Delaware, against all cost, expense, liability and loss (including, without
limitation, attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
the Executive in connection therewith, and such indemnification shall continue
as to the Executive even if he has ceased to be a director, member, employee or
agent of the Company or other entity and shall inure to the benefit of the
Executive's heirs, executors and administrators. The Company shall advance to
the Executive all reasonable costs and expenses incurred by him in connection
with a Proceeding within 20 days after receipt by the Company of a written
request for such advance. Such request shall include an undertaking by the
Executive to repay the amount of such advance if it shall ultimately be
determined that he is not entitled to be indemnified against such costs and
expenses.

                           (b)      Neither the failure of the Company
(including its Board, independent legal counsel or stockholders) to have made a
determination prior to the commencement of any proceeding concerning payment of
amounts claimed by the Executive under Section 14(a) that indemnification of the
Executive is proper because he has met the applicable standard of conduct, nor a

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determination by the Company (including its Board, independent legal counsel or
stockholders) that the Executive has not met such applicable standard of
conduct, shall create a presumption that the Executive has not met the
applicable standard of conduct.

                       (c) The Company agrees to continue and maintain a
directors and officers' liability insurance policy covering the Executive to the
extent the Company provides such coverage for its other executive officers or
directors.

                  IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the Company has
caused these presents to be executed in its name and on its behalf, all as of
the day and year first above written.

                                      BIOPURE CORPORATION

                                      By: ______________________________________

                                          Title: _______________________________

                                          Name:  _______________________________

                                      __________________________________________
                                                   Carl W. Rausch

                                      -10-<PAGE>
                                                                    Exhibit 10.4

                                 PROMISSORY NOTE

$233,100                                                           July 29, 2002

FOR VALUE RECEIVED, the undersigned, Carl W. Rausch, an individual residing at
592 Pleasant Street, Belmont, MA 02478 (the "Obligor"), hereby absolutely and
unconditionally promises to pay to the order of Biopure Corporation, a Delaware
corporation ("Biopure"), at the office of Biopure located at 11 Hurley Street,
Cambridge, MA 02141, on or before July 31, 2007, the principal sum of Two
Hundred Thirty-three Thousand One Hundred Dollars ($233,100), with interest
thereon, or on such part thereof as shall from time to time remain unpaid, at a
rate per annum equal to the prime rate, from time to time, of Fleet Bank N.A.
Overdue interest and principal shall bear interest at such prime rate plus 2%.
Interest shall be paid monthly in arrears, commencing on August 29, 2002.

The Obligor has the absolute right to prepay in whole or in part the principal
of this Note and any accrued interest without penalty.

If the Obligor shall fail to pay the interest due under this note for a period
of 60 days after written notice of such failure has been given by certified
mail, return receipt requested, sent to the address set out above or such other
address as may from time to time be provided to Biopure, then, at the option of
the holder, all obligations of the Obligor shall become immediately due and
payable without further notice or demand and the holder of this Note shall then
have in any jurisdiction where enforcement hereof is sought, in addition to all
other rights and remedies, the rights and remedies of a secured party under the
Uniform Commercial Code of Massachusetts.

The Obligor will pay on demand all reasonable costs of collection and reasonable
attorneys fees paid or incurred by the holder hereof in enforcing the
obligations of the Obligor.

The Obligor and all endorsers, guarantors and pledgors hereby waive presentment,
demand, notice of dishonor, protest and all other demands and notices (other
then the notive provided for above), in connection with the delivery,
acceptance, performance, default or enforcement of this Note, assent to any
extension or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition of release
of any other party or person primarily or secondarily liable.

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THIS NOTE SHALL BE DEEMED TO TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND FOR ALL PURPOSES SHALL BE
GOVERNED BY AND INTERPRETED AND DETERMINED IN ACCORDANCE WITH SUCH LAWS.

This Note amends, restates and replaces a promissory note of like tenor dated
July 31, 1995, representing a replacement of a promissory note dated August 8,
1990, in the original principal amount of $700,000. By its acceptance of this
note, Biopure releases and forever discharges the Obligor from all obligations
under or derived from the Replacement Note or such prior note dated August 8,
1990 and agrees to promptly return to the Obligor the Replacement Note and the
noted dated August 8, 1990; marked in each case as paid in full.

IN WITNESS WHEREOF, the undersigned has executed this Note as of the day and the
year first above written.

                                               _________________________________
                                               Carl W. Rausch

Accepted by Biopure Corporation:

By:___________________

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