Exhibit 10.36

 

AVINGER, INC.

 

CHANGE OF CONTROL AND SEVERANCE AGREEMENT

 

This Change of Control and Severance Agreement (the “Agreement”) is entered into
as of October 10, 2013 (the “Effective Date”) by and between Avinger, Inc. (the
“Company”), and Himanshu Patel (“Executive”).

 

1.     Severance.

 

(a)     Termination for other than Cause, Death or Disability or Good Reason in
the Event of a Change of Control. If upon or within eighteen (18) months
following a Change of Control (i) the Company (or any parent or subsidiary or
successor of the Company) terminates Executive’s employment with the Company
other than for Cause, death or disability, or (ii) the Executive resigns from
such employment for Good Reason, then, subject to Section 2, Executive will be
entitled to: (A) receive continuing payments of severance pay at a rate equal to
Executive’s base salary and target bonus, as then in effect, for twelve (12)
months from the date of such termination, which will be paid in accordance with
the Company’s regular payroll procedures; (B) if Executive timely elects
continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended (“COBRA”) for Executive and Executive’s dependents,
within the time period prescribed pursuant to COBRA, the Company will reimburse
Executive for the COBRA premiums for such coverage for Executive and his covered
dependents for twelve (12) months from the date of Executive’s termination of
employment or such earlier date if Executive no longer constitutes a “Qualified
Beneficiary” (as such term is defined in Section 4980B(g) of the Code); (C)
accelerated vesting as to 100% of Executive’s outstanding unvested stock options
and/or restricted stock; and (D) the extension of the post-termination exercise
period for any options held by Executive for a period of one (1) year.

 

(b)     Termination for Cause, Death or Disability; Resignation without Good
Reason. If Executive’s employment with the Company (or any parent or subsidiary
or successor of the Company) terminates voluntarily by Executive (except upon
resignation for Good Reason upon or within eighteen (18) months following a
Change of Control), for Cause by the Company or due to Executive’s death or
disability, then (i) all vesting will terminate immediately with respect to
Executive’s outstanding equity awards, (ii) all payments of compensation by the
Company to Executive hereunder will terminate immediately (except as to amounts
already earned), and (iii) Executive will only be eligible for severance
benefits in accordance with the Company’s established policies, if any, as then
in effect.

 

(c)     Option/Stock Acceleration in the Event of a Change of Control. Upon a
Change of Control of the Company, Executive will be entitled to accelerated
vesting as to 50% of Executive’s outstanding unvested stock options and/or
restricted stock, provided that any remaining shares shall continue to vest per
the schedules previously implemented by the Company.

 

(d)     Exclusive Remedy. In the event of a termination of Executive’s
employment with the Company (or any parent or subsidiary or successor of the
Company), the provisions of this Section 1 are intended to be and are exclusive
and in lieu of any other rights or remedies to which Executive or the Company
may otherwise be entitled, whether at law, tort or contract, in equity, or under
this Agreement. Executive will be entitled to no severance or other benefits
upon termination of employment with respect to acceleration of award vesting or
severance pay other than those benefits expressly set forth in this Section 1.

 

 

--------------------------------------------------------------------------------

 

 

2.     Conditions to Receipt of Severance; No Duty to Mitigate.

 

(a)     Separation Agreement and Release of Claims. The receipt of any severance
pursuant to Section 1(a) will be subject to Executive signing and not revoking a
standard separation agreement and release of claims with the Company (the
“Release”) and provided that such Release becomes effective and irrevocable no
later than sixty (60) days following the termination date (such deadline, the
“Release Deadline”). If the Release does not become effective and irrevocable by
the Release Deadline, Executive will forfeit any rights to severance or benefits
under this Agreement. In no event will severance payments or benefits be paid or
provided until the Release becomes effective and irrevocable.

 

(b)     Nonsolicitation. The receipt of any severance benefits pursuant to
Section 1(a) will be subject to Executive not violating the provisions of
Section 4. In the event Executive breaches the provisions of Section 4, all
continuing payments and benefits to which Executive may otherwise be entitled
pursuant to Section 1(a) will immediately cease.

 

(c)     Section 409A.

 

(i)     Notwithstanding anything to the contrary in this Agreement, no severance
pay or benefits to be paid or provided to Executive, if any, pursuant to this
Agreement that, when considered together with any other severance payments or
separation benefits, are considered deferred compensation under Code Section
409A, and the final regulations and any guidance promulgated thereunder
(“Section 409A”) (together, the “Deferred Payments”) will be paid or otherwise
provided until Executive has a “separation from service” within the meaning of
Section 409A. Similarly, no severance payable to Executive, if any, pursuant to
this Agreement that otherwise would be exempt from Section 409A pursuant to
Treasury Regulation Section 1.409A-1(b)(9) will be payable until Executive has a
“separation from service” within the meaning of Section 409A.

 

(ii)     Any severance payments or benefits under this Agreement that would be
considered Deferred Payments will be paid on, or, in the case of installments,
will not commence until, the sixtieth (60th) day following Executive’s
separation from service, or, if later, such time as required by Section
2(c)(iii). Any installment payments that would have been made to Executive
during the sixty (60) day period immediately following Executive’s separation
from service but for the preceding sentence will be paid to Executive on the
sixtieth (60th) day following Executive’s separation from service and the
remaining payments shall be made as provided in this Agreement.

 

(iii)     Notwithstanding anything to the contrary in this Agreement, if
Executive is a “specified employee” within the meaning of Section 409A at the
time of Executive’s termination (other than due to death), then the Deferred
Payments that are payable within the first six (6) months following Executive’s
separation from service, will become payable on the first payroll date that
occurs on or after the date six (6) months and one (1) day following the date of
Executive’s separation from service. All subsequent Deferred Payments, if any,
will be payable in accordance with the payment schedule applicable to each
payment or benefit. Notwithstanding anything herein to the contrary, if
Executive dies following Executive’s separation from service, but prior to the
six (6) month anniversary of the separation from service, then any payments
delayed in accordance with this paragraph will be payable in a lump sum as soon
as administratively practicable after the date of Executive’s death and all
other Deferred Payments will be payable in accordance with the payment schedule
applicable to each payment or benefit. Each payment and benefit payable under
this Agreement is intended to constitute a separate payment for purposes of
Section 1.409A-2(b)(2) of the Treasury Regulations.

 

-2-

--------------------------------------------------------------------------------

 

 

(iv)     Any amount paid under this Agreement that satisfies the requirements of
the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the
Treasury Regulations will not constitute Deferred Payments for purposes of
clause (i) above.

 

(v)     Any amount paid under this Agreement that qualifies as a payment made as
a result of an involuntary separation from service pursuant to Section
1.409A-1(b)(9)(iii) of the Treasury Regulations that does not exceed the Section
409A Limit (as defined below) will not constitute Deferred Payments for purposes
of clause (i) above.

 

(vi)     The foregoing provisions are intended to comply with the requirements
of Section 409A so that none of the severance payments and benefits to be
provided hereunder will be subject to the additional tax imposed under Section
409A, and any ambiguities herein will be interpreted to so comply. The Company
and Executive agree to work together in good faith to consider amendments to
this Agreement and to take such reasonable actions which are necessary,
appropriate or desirable to avoid imposition of any additional tax or income
recognition prior to actual payment to Executive under Section 409A.

 

(d)     No Duty to Mitigate. Executive will not be required to mitigate the
amount of any payment contemplated by this Agreement, nor will any earnings that
Executive may receive from any other source reduce any such payment.

 

3.     Definitions.

 

(a)     Cause. For purposes of this Agreement, “Cause” is defined as (i) an act
of dishonesty made by Executive in connection with Executive’s responsibilities
as an employee, (ii) Executive’s conviction of, or plea of nolo contendere to, a
felony or any crime involving fraud, embezzlement or any other act of moral
turpitude, causing material harm to the standing and reputation of the Company,
in each case as determined in good faith by the board of directors of the
Company (the “Board”); (iii) Executive’s gross misconduct, (iv) Executive’s
unauthorized use or disclosure of any proprietary information or trade secrets
of the Company or any other party to whom Executive owes an obligation of
nondisclosure as a result of Executive’s relationship with the Company;
(v) Executive’s willful breach of any obligations under any written agreement or
covenant with the Company; (vi) Executive’s continued failure to perform his
employment duties after Executive has received a written demand of performance
from the Company which specifically sets forth the factual basis for the
Company’s belief that Executive has not substantially performed his duties and
has failed to cure such non-performance to the Company’s satisfaction within 10
business days after receiving such notice provided that such nonperformance has
resulted or is likely to result in substantial and material damage to the
Company or its subsidiaries; or (vii) Executive’s repeated unexplained or
unjustified absence from the Company.

 

-3-

--------------------------------------------------------------------------------

 

 

(b)     Change of Control. For purposes of this Agreement, “Change of Control”
of the Company is defined as:

 

(i)     any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) is or becomes the “beneficial
owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing more than 50% of the total voting power
represented by the Company’s then outstanding voting securities; or

 

(ii)     the date of the consummation of a merger or consolidation of the
Company with any other corporation that has been approved by the stockholders of
the Company, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its parent) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation;

 

(iii)     the date of the consummation of the sale or disposition by the Company
of all or substantially all the Company’s assets; or

 

(iv)     the date that a majority of members of the Board is replaced during any
twelve (12) month period by directors whose appointment or election is not
endorsed by a majority of the members of the Board prior to the date of the
appointment or election. For purposes of this clause (iv), if any person is
considered to be in effective control of the Company, the acquisition of
additional control of the Company by the same person will not be considered a
Change of Control.

 

Notwithstanding the foregoing provisions of this definition, a transaction will
not be deemed a Change of Control unless the transaction qualifies as a “change
in control event” within the meaning of Section 409A.

 

Further, notwithstanding the foregoing provisions of this definition, the
following shall not constitute a Change of Control:

 

(w) any transfer by Dr. John B. Simpson or affiliated entities (“Simpson”) of
shares held by Simpson;

 

(x) any bona fide equity financing for capital raising purposes;

 

(y) any merger or acquisition done exclusively to effect a change of domicile of
the Company; and

 

(z) any transfer of assets by the Company to a new company for tax planning
purposes.

 

(c)     Code. For purposes of this Agreement, “Code” means the Internal Revenue
Code of 1986, as amended.

 

-4-

--------------------------------------------------------------------------------

 

 

(d)     Good Reason. For the purposes of this Agreement, “Good Reason” means
Executive’s resignation within ninety (90) days following the expiration of any
Company cure period (discussed below) following the occurrence of one or more of
the following, without Executive’s express written consent: (i) a material
reduction of Executive’s duties, position or responsibilities, or the removal of
Executive from such position and responsibilities, either of which results in a
material diminution of Executive’s authority, duties or responsibilities, unless
Executive is provided with a comparable position (i.e., a position of equal or
greater organizational level, duties, authority, compensation and status);
provided, however, that a reduction in duties, position or responsibilities
solely by virtue of the Company being acquired and made part of a larger entity
(as, for example, when the Chief Executive Officer of the Company remains as
such following a Change of Control but is not made the Chief Executive Officer
of the acquiring corporation) will not constitute “Good Reason”; (ii) a material
reduction in Executive’s base salary (in other words, a reduction of more than
ten percent (10%) of Executive’s base salary in any one year); (iii) a material
change in the geographic location of Executive’s primary work facility or
location; provided, that a relocation of less than fifty (50) miles from
Executive’s then present location will not be considered a material change in
geographic location; or (iv) a material breach of this Agreement by the Company.
Executive will not resign for Good Reason without first providing the Company
with written notice of the acts or omissions constituting the grounds for “Good
Reason” within ninety (90) days of the initial existence of the grounds for
“Good Reason” and a reasonable cure period of not less than thirty (30) days
following the date of such notice.

 

(e)     Section 409A Limit. For purposes of this Agreement, “Section 409A Limit”
will mean the lesser of two (2) times: (i) Executive’s annualized compensation
based upon the annual rate of pay paid to Executive during the Executive’s
taxable year preceding the Executive’s taxable year of his or her termination of
employment as determined under Treasury Regulation Section
1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with
respect thereto; or (ii) the maximum amount that may be taken into account under
a qualified plan pursuant to Section 401(a)(17) of the Internal Revenue Code for
the year in which Executive’s employment is terminated.

 

4.     Non-Solicitation. Until the date one (1) year after the termination of
Executive’s employment with the Company for any reason, Executive agrees not,
either directly or indirectly, to solicit, induce, attempt to solicit, recruit,
or encourage any employee of the Company (or any parent or subsidiary of the
Company) to leave his or her employment either for Executive or for any other
entity or person. Executive represents that he (i) is familiar with the
foregoing covenant not to solicit, and (ii) is fully aware of his obligations
hereunder, including, without limitation, the reasonableness of the length of
time, scope and geographic coverage of these covenants. This Section 4
supersedes all prior or contemporaneous agreements whether written or oral as to
the subject matter herein.

 

5.     Assignment. This Agreement will be binding upon and inure to the benefit
of (a) the heirs, executors and legal representatives of Executive upon
Executive’s death and (b) any successor of the Company. Any such successor of
the Company will be deemed substituted for the Company under the terms of this
Agreement for all purposes. For this purpose, “successor” means any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement may be assigned or transferred except by will or the laws of descent
and distribution. Any other attempted assignment, transfer, conveyance or other
disposition of Executive’s right to compensation or other benefits will be null
and void.

 

-5-

--------------------------------------------------------------------------------

 

 

6.     Notices. All notices, requests, demands and other communications called
for hereunder will be in writing and will be deemed given (i) on the date of
delivery if delivered personally, (ii) one (1) day after being sent by a well
established commercial overnight service, or (iii) four (4) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors at the following addresses, or at
such other addresses as the parties may later designate in writing:

 

If to the Company:

 

Avinger, Inc.

Attn: Chief Financial Officer at the time

 

400 Chesapeake Drive

Redwood City, CA 94063

 

If to Executive:

 

at the last residential address known by the Company.

 

7.     Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in full force and effect without said
provision.

 

8.     Arbitration.

 

(a)     Arbitration. In consideration of Executive’s employment with the
Company, its promise to arbitrate all employment-related disputes, and
Executive’s receipt of the compensation, pay raises and other benefits paid to
Executive by the Company, at present and in the future, Executive agrees that
any and all controversies, claims, or disputes with anyone (including the
Company and any employee, officer, director, shareholder or benefit plan of the
Company in their capacity as such or otherwise) arising out of, relating to, or
resulting from Executive’s employment with the Company or termination thereof,
including any breach of this Agreement, will be subject to binding arbitration
under the Arbitration Rules set forth in California Code of Civil Procedure
Section 1280 through 1294.2, including Section 1281.8 (the “Act”), and pursuant
to California law. The Federal Arbitration Act shall also apply with full force
and effect, notwithstanding the application of procedural rules set forth under
the Act.

 

(b)     Dispute Resolution. Disputes that Executive agrees to arbitrate, and
thereby agrees to waive any right to a trial by jury, include any statutory
claims under local, state, or federal law, including, but not limited to, claims
under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities
Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers
Benefit Protection Act, the Sarbanes Oxley Act, the Worker Adjustment and
Retraining Notification Act, the California Fair Employment and Housing Act, the
Family and Medical Leave Act, the California Family Rights Act, the California
Labor Code, claims of harassment, discrimination, and wrongful termination, and
any statutory or common law claims. Executive further understands that this
Agreement to arbitrate also applies to any disputes that the Company may have
with Executive.

 

-6-

--------------------------------------------------------------------------------

 

 

(c)     Procedure. Executive agrees that any arbitration will be administered by
the Judicial Arbitration & Mediation Services, Inc. (“JAMS”), pursuant to its
Employment Arbitration Rules & Procedures (the “JAMS Rules”). The arbitrator
shall have the power to decide any motions brought by any party to the
arbitration, including motions for summary judgment and/or adjudication, motions
to dismiss and demurrers, and motions for class certification, prior to any
arbitration hearing. The arbitrator shall have the power to award any remedies
available under applicable law, and the arbitrator shall award attorneys’ fees
and costs to the prevailing party, except as prohibited by law. The Company will
pay for any administrative or hearing fees charged by the administrator or JAMS,
and all arbitrator’s fees, except that Executive shall pay any filing fees
associated with any arbitration that Executive initiates, but only so much of
the filing fee as Executive would have instead paid had Executive filed a
complaint in a court of law. Executive agrees that the arbitrator shall
administer and conduct any arbitration in accordance with California law,
including the California Code of Civil Procedure and the California Evidence
Code, and that the arbitrator shall apply substantive and procedural California
law to any dispute or claim, without reference to the rules of conflict of law.
To the extent that the JAMS Rules conflict with California law, California law
shall take precedence. The decision of the arbitrator shall be in writing. Any
arbitration under this Agreement shall be conducted in Santa Clara County,
California.

 

(d)     Remedy. Except as provided by the Act, arbitration shall be the sole,
exclusive, and final remedy for any dispute between Executive and the Company.
Accordingly, except as provided by the Act and this Agreement, neither Executive
nor the Company will be permitted to pursue court action regarding claims that
are subject to arbitration. Notwithstanding, the arbitrator will not have the
authority to disregard or refuse to enforce any lawful Company policy, and the
arbitrator will not order or require the Company to adopt a policy not otherwise
required by law which the Company has not adopted.

 

(e)     Administrative Relief. Executive is not prohibited from pursuing an
administrative claim with a local, state, or federal administrative body or
government agency that is authorized to enforce or administer laws related to
employment, including, but not limited to, the Department of Fair Employment and
Housing, the Equal Employment Opportunity Commission, the National Labor
Relations Board, or the Workers’ Compensation Board. However, Executive may not
pursue court action regarding any such claim, except as permitted by law.

 

(f)     Voluntary Nature of Agreement. Executive acknowledges and agrees that
Executive is executing this Agreement voluntarily and without any duress or
undue influence by the Company or anyone else. Executive further acknowledges
and agrees that Executive has carefully read this Agreement and that Executive
has asked any questions needed for Executive to understand the terms,
consequences and binding effect of this Agreement and fully understands it,
including that EXECUTIVE IS WAIVING EXECUTIVE’S RIGHT TO A JURY TRIAL. Finally,
Executive agrees that Executive has been provided an opportunity to seek the
advice of an attorney of Executive’s choice before signing this Agreement.

 

9.     Integration. This Agreement represents the entire agreement and
understanding between the parties as to the subject matter herein and supersedes
all prior or contemporaneous agreements whether written or oral. With respect to
stock options granted on or after the date of this Agreement, the acceleration
of vesting provisions provided herein will apply to such stock options except to
the extent otherwise explicitly provided in the applicable stock option
agreement. This Agreement may be modified only by agreement of the parties by a
written instrument executed by the parties that is designated as an amendment to
this Agreement.

 

-7-

--------------------------------------------------------------------------------

 

 

10.     Waiver of Breach. The waiver of a breach of any term or provision of
this Agreement, which must be in writing, will not operate as or be construed to
be a waiver of any other previous or subsequent breach of this Agreement.
Notwithstanding anything to the contrary in this Agreement, the failure of the
Company to obtain the assumption of this Agreement by a successor and/or
acquirer shall be a material breach of this Agreement.

 

11.     Headings. All captions and section headings used in this Agreement are
for convenient reference only and do not form a part of this Agreement.

 

12.     Tax Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable taxes.

 

13.     Governing Law. This Agreement will be governed by the laws of the State
of California (with the exception of its conflict of laws provisions).

 

14.     Acknowledgment. Executive acknowledges that he has had the opportunity
to discuss this matter with and obtain advice from his private attorney, has had
sufficient time to, and has carefully read and fully understands all the
provisions of this Agreement, and is knowingly and voluntarily entering into
this Agreement.

 

15.     Counterparts. This Agreement may be executed in counterparts, and each
counterpart will have the same force and effect as an original and will
constitute an effective, binding agreement on the part of each of the
undersigned.

 

[Signature Page Follows]

 

-8-

--------------------------------------------------------------------------------

 

 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by their duly authorized officers, as of the day and year first
above written.

 

COMPANY:

 

AVINGER, INC.

 

By: /s/ John B. Simpson   Date: October 11, 2013           Title: Founder &
Chief Executive Officer       

 

 

EXECUTIVE:

 

/s/ Himanshu Patel    Date: October 11, 2013

Himanshu Patel

 

 

 

[SIGNATURE PAGE TO AVINGER, INC. CHANGE OF CONTROL AND SEVERANCE AGREEMENT]

 

-9-