EXHIBIT 10.4

SEPARATION AGREEMENT AND RELEASE OF CLAIMS

This Separation Agreement and Release of Claims (“Agreement”) is made by and
between Carmen Diersen (“Employee”), and Tornier, Inc. (“Tornier” or the
“Company”).

Tornier and Employee (collectively the “Parties”) wish to end their employment
relationship in an honorable, dignified, and orderly manner. Recognizing that
termination of employment generally implicates potential personal transition and
legal issues, Tornier is willing to provide Employee with additional benefits to
ease Employee’s transition in exchange for a full and final release of claims.
Toward that end, Tornier and Employee have agreed to separate according to the
terms set forth in this Agreement.

Employee does not believe that she has any claims against the Company, but
Employee nevertheless agrees to resolve any actual and potential claims arising
out of her employment with and separation from the Company by entering into this
Agreement.

IN CONSIDERATION OF THE FOREGOING RECITALS AND THE MUTUAL PROMISES CONTAINED IN
THIS AGREEMENT, EMPLOYEE AGREES AS FOLLOWS:

 

1. Definitions. Subject to the following defined terms, all words used in this
Agreement are to have their plain meanings in ordinary English.

 

  A. Employee includes both Employee and anyone who has or obtains any legal
rights or claims through Employee, including any and all heirs, executors,
administrators and assigns.

 

  B. Released Parties means Tornier, Inc., and its parents, subsidiaries,
affiliates, predecessors, successors, joint venture partners, and divisions;
their present and past officers, directors, committees, shareholders, and
employees, whether in their individual or official capacities; any company
providing insurance to them, in the present or past; present and past
fiduciaries of any employee benefit plan sponsored or maintained by them (other
than multiemployer plans); their attorneys; and anyone who acted on their behalf
or on instructions from them.

 

  C. Termination Date means the date on which Employee’s employment with the
Company ends, as set forth in Exhibit 1 to this Agreement (Notice of Scheduled
Termination Date and Statement of Special Consideration).

 

  D. Claims means any and all actual, suspected or potential claims, suits,
controversies, actions, causes of action, cross-claims, counterclaims, demands,
debts, or liabilities of any nature whatsoever in law and in equity, whether
known or unknown, suspected, or claimed, both past and present through the date
this Release becomes effective, against any of the Released Parties, seeking any
form of relief, whether for compensatory damages, liquidated damages, punitive
or exemplary damages, penalties, fines, assessments, other damages,
reinstatement, back pay, front pay, attorneys’ fees, specific performance,
injunctive relief, or costs, and which arise out of or are connected with
Employee’s employment with, relationship with, or Employee’s separation or
termination from, the Company, including without limitation:

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  (i) Claims arising out of or relating to Employee’s employment with the
Company or the termination of that employment;

 

  (ii) Claims, whether asserted on Employee’s behalf or on behalf of any third
party, arising out of or relating to the statements, actions, or omissions of
the Company;

 

  (iii) Claims for any alleged unlawful discrimination, harassment, retaliation
or reprisal, or other alleged unlawful practices arising under any federal,
state, or local statute, ordinance, rule or regulation, including without
limitation, claims under the Age Discrimination in Employment Act (ADEA), the
Older Workers Benefit Protection Act (OWBPA), Title VII of the Civil Rights Act
of 1964 (Title VII), the Americans with Disabilities Act (ADA), the Genetic
Information Nondiscrimination Act of 2008 (GINA), the Civil Rights Act (42
U.S.C. § 1981), the Family Medical Leave Act (FMLA), the Employee Retirement
Income Security Act (ERISA), Equal Pay Act (EPA), the Worker Adjustment and
Retraining Notification Act (WARN), all fair employment practices, individual
rights, or other statutes including without limitation the Minnesota Human
Rights Act (MHRA), non-interference or non-retaliation statutes and any other
federal, state, or local statute, law, rule, regulation, ordinance or order;

 

  (iv) Claims for alleged wrongful discharge; breach of contract (including, but
not limited to, claims for breach of any written or verbal employment
agreement); breach of implied contract; failure to keep any promise; breach of
an express or implied covenant of good faith and fair dealing; breach of
fiduciary duty; estoppel; whistleblower or other illegal retaliation or
reprisal; defamation; infliction of emotional distress; fraud;
misrepresentation; negligence; harassment; constructive discharge; assault;
battery; false imprisonment; invasion of privacy; interference with contractual
or business relationships; any other wrongful employment practices; and a
violation of any other principle of common law;

 

  (v) Claims for compensation of any kind (except those expressly provided in or
excepted from this Agreement), including without limitation, salary, bonuses,
commissions, expense reimbursements, stock options or other stock-based
compensation, used or accrued vacation pay, personal time pay, personal time
reservoir, sick pay, severance payments under any past, pending or future
severance pay plans, short and/or long term disability benefits, life insurance
benefits, accidental death and disability insurance benefits, dental, medical
and vision benefits, retirement savings or 401(k) contributions, and payments
for any other type of benefit, leave of absence or time off of work;

 

  (vi) Claims for back pay, front pay, reinstatement, injunctions or other
equitable relief, compensatory damages, damages for alleged personal injury,
liquidated damages, and punitive damages; and

 

  (vii) Claims for attorneys’ fees, disbursements, costs, and interest.

The term “Claims” does not include any applicable claims for: (i) unemployment
insurance benefits; (ii) workers’ compensation benefits to the extent that such
benefits are awarded by a state agency or agreed upon consistent with applicable
state law; (iii) vested post-termination benefits under any employee benefit
plan; (iv) rights and benefits under the Consolidated Omnibus Reconciliation Act
of 1985, as amended, (COBRA); (v) the

 

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right to enforce the terms of this Release; (vi) any right to defense,
indemnification or contribution, whether pursuant to the Company’s certificate
of incorporation or bylaws, contract, applicable law or otherwise for claims
brought against Employee in her capacity as an employee or agent of Employer;
(vii) rights as a shareholder of the Company; (viii) rights under the Uniformed
Services Employment and Reemployment Rights Act (USERRA) 38 U.S.C. § 4301, et
seq.; (ix) events occurring after this Release becomes effective; and (x) any
other rights which cannot be waived or released under applicable law.

 

  E. Special Consideration means the severance pay and other benefits that
Employee is offered as part of this Agreement and as described more fully in
Exhibit 1 to this Agreement. The term Special Consideration does not include the
following amounts which will be paid to Employee regardless of whether Employee
signs this Agreement:

 

  1. Employee’s base salary for the time Employee worked through the end of
business on the Termination Date;

 

  2. Any accrued but unused PTO to which Employee is entitled; or

 

  3. Any unpaid business expenses incurred by Employee through the Termination
Date in the course of and pursuant to the Company’s expense reimbursement
policies and procedures.

 

2. Consulting Agreement. As a condition of this Agreement, Employee agrees to
sign the Consulting Agreement attached hereto as Exhibit 2.

 

3. Agreement to Release Employee’s Claims and Covenant Not to Sue. In exchange
for the Special Consideration to be paid by the Company as provided in Exhibit 1
to this Agreement and the other undertakings of the Company stated in this
Agreement and the Consulting Agreement attached as Exhibit 2, Employee knowingly
and willingly releases, waives and forever discharges all Released Parties from
any and all Claims, and all rights to any legal or equitable relief under any
such Claims. In exchange for Employee’s agreement to release these Claims,
Employee is receiving satisfactory compensation (Special Consideration) from the
Company to which Employee is not otherwise entitled by law, contract, or under
any Company plan, policy or procedure. The Special Consideration that Employee
is receiving is a full and fair payment for the above release of all Claims. The
Released Parties do not owe Employee anything in addition to what Employee is
entitled to receive will receive under this Agreement and the attached
Consulting Agreement.

Except for the exceptions provided below, Employee will not, directly or
indirectly, whether on behalf of herself or any third party, bring any lawsuits
against the Company or make any demands against the Company for any kind
compensation, damages, or other relief. If Employee institutes any claim that is
not excepted or excluded as provided in this Agreement, Employee agrees that the
Company will be entitled to cease all payments to Employee of any unpaid portion
of the Special Consideration, to recoup from Employee the Special Consideration
already paid under this Agreement, to recover all costs and expenses of
defending against the suit incurred by the Company, including reasonable
attorneys’ fees, and to recover any costs and fees, including attorneys’ fees,
incurred in connection with the recoupment of the Special Consideration.

Employee agrees that the consideration offered under the Consulting Agreement
attached as Exhibit 2 is in addition to anything owed by the Company to Employee
by law or contract, or under company policy, and it is provided to Employee in
exchange for, and specifically contingent upon, Employee entering into this
Agreement.

 

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The Company has made no representations or warranties to Employee regarding the
tax treatment of the payments provided under this Agreement. Employee
understands that Employee is solely responsible for all federal, state, and
local income and any other taxes that may be due on account of these payments.

 

4. Waiver of Rights to Additional Recovery. Employee understands that she is not
being required to waive, dismiss or withdraw any charges, grievances, petitions,
or complaints that Employee may have filed against any Released Party with the
Equal Employment Opportunity Commission, or local human rights or fair
employment practices agency to the extent that any such charge, grievance,
petition, or complaint claims a violation of Title VII, the ADEA, the ADA, GINA,
the EPA, or other applicable civil rights or fair employment practices statutes,
rules or regulations. Employee understands, however, that Employee is waiving
her right to recover individual relief including, but not limited to, back pay,
front pay, reinstatement, attorneys’ fees, and/or punitive damages, in any
administrative or legal action whether brought by the EEOC or other civil rights
enforcement agency, Employee, or any other party. Nothing in this Agreement
interferes with Employee’s right to file a charge with the EEOC, or participate
in any manner in an EEOC investigation or proceeding under Title VII, the ADA,
the ADEA or the EPA. Employee agrees that Company reserves any and all defenses,
which it has or might have against any claims brought by Employee or on
Employee’s behalf.

Employee represents and warrants that she is aware of no facts, evidence,
allegations, claims, liabilities, or demands relating to alleged or potential
violations of law that may give rise to a claim or liability on the part of any
Released Party under the Securities Exchange Act of 1934, the Sarbanes–Oxley Act
of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any
other federal, state, local or international law, statute or regulation
providing for protection and/or recovery to whistleblowers. Nothing in this
Agreement interferes with Employee’s right to file a complaint or charge with
the SEC or other regulatory body, or to participate in any manner in an SEC or
other governmental investigation or proceeding under any such law, statute or
regulation. Employee understands and agrees, however, that Employee waives her
right to recover any whistleblower award under Section 21F of the Securities
Exchange Act of 1934 or other individual relief in any administrative or legal
action whether brought by the SEC or other law enforcement agency, Employee, or
any other party, unless and only to the extent that such waiver is contrary to
law. Employee agrees that Company reserves any and all defenses that it has or
might have against any such claims brought by Employee or on Employee’s behalf.

 

5. Compliance with Prior Agreements. Employee understands that Employee remains
bound by the terms of all prior agreements which Employee entered into with the
Company. To the extent applicable, such agreements may include without
limitation any agreement relating to: (1) confidential, proprietary or trade
secret information of the Company and its affiliates; (2) assignment, disclosure
or cooperation with respect to inventions, know-how, creations or other
intellectual property; (3) non-competition with the Company; (4) non-competition
and non-solicitation of Company employees, agents, customers or prospective
customers; or (5) any similar obligations, all of which do and will continue in
full force and effect.

 

6. No Right to Reemployment. Employee understands and agrees that her employment
with the Company is terminated effective as of the Termination Date and Employee
has no express or implied right or entitlement to reinstatement or reemployment
with the Company following Employee’s Termination Date. Employee agrees that the
Company may use this Agreement as the sole reason to reject any inquiry or
application for employment Employee may make.

 

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7. Agreement to Cooperate in Transition; Return of Property. In exchange for the
Special Consideration to be paid by the Company and other undertakings of the
Company stated in this Agreement, Employee also agrees to cooperate with the
Company in its transition efforts as follows: (1) Employee agrees to be
available, on a reasonable basis, to answer questions that may arise relating to
Employee’s employment with or duties to the Company; (2) Employee shall return,
on or before Employee’s Termination Date, and will not retain in any form or
format, all Company documents, data, trunk stock, and other property in
Employee’s possession or control, with the exception of Employee’s
company-issued laptop computer and mobile phone, which Employee may retain and
use during term of her Consulting Agreement, at the conclusion of which Employee
will return these two items, as well; (3) after returning Employee’s
company-issued laptop computer and mobile phone, Employee will permanently
delete from any electronic media in Employee’s possession, custody, or control
(such as computers, smart phones, cell phones, hand-held devices, back-up
devices, zip drives, etc.) or to which Employee has or may have had access (such
as remote e-mail exchange servers, back-up servers, off-site storage, etc.), all
documents or electronically stored images of the Company, including writings,
drawings, graphs, charts, sound recordings, images, and other data or data
compilations stored in any medium from which such information can be obtained;
and (4) Employee agrees to provide the Company with a list of any documents that
Employee created or is otherwise aware that are password-protected and the
password(s) necessary to access such password-protected documents. Company
“documents, data, and other property” includes, without limitation, computers,
fax machines, cell phones, access cards, keys, reports, manuals, records,
product samples, trunk stock, correspondence and/or other documents or materials
related to the business of the Company or its affiliates that Employee has
compiled, generated or received while working for the Company, including all
copies, samples, computer data, disks, or records of such material. Employee
understands and agrees that the Company’s obligations under this Agreement and
the Consulting Agreement are contingent upon Employee returning all Company
documents, data, trunk stock, and other property and cooperating with the
Company as set forth above.

 

8. Agreement to Cooperate in Investigations and Litigation. Employee agrees that
Employee will, at any future time, be available upon reasonable notice from the
Company, with or without a subpoena, to be interviewed, review documents or
things, give depositions, testify, or engage in other reasonable activities,
with respect to matters and/or disputes concerning which Employee has or may
have knowledge as a result of or in connection with Employee’s employment by the
Company. In performing Employee’s obligations under this paragraph to testify or
otherwise provide information, Employee will honestly, truthfully, forthrightly,
and completely provide the information requested. Employee will comply with this
Agreement upon notice from the Company that the Company or its attorneys believe
that Employee’s compliance will assist in the resolution of an investigation or
the prosecution or defense of claims. Employee understands and agrees that the
Company’s obligations under this Agreement and the Consulting Agreement are
contingent upon Employee cooperating with the Company in investigations and
litigation.

 

9. Non-Disparagement. The parties each agree that neither will make any
defamatory, disparaging, critical, derogatory or negative oral or written
comments regarding the other party, or the Company’s products or services.
Employee understands and agrees that the Company’s obligations under this
Agreement and the Consulting Agreement are contingent upon Employee’s compliance
with this non-disparagement requirement.

 

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10. Advice to Consult with an Attorney. Employee understands and acknowledges
that Employee hereby is being advised by the Company to consult with an attorney
prior to signing this Agreement. Employee’s decision whether to sign this
Agreement is Employee’s own voluntary decision made with full knowledge that the
Company has advised Employee to consult with an attorney. The Company will not
advance or reimburse any attorneys fees, costs, or expenses incurred by Employee
in connection with any such review.

 

11. Older Workers Benefit Protection Act. Employee has been advised and
understands that the waiver and release of Claims being granted hereunder is
subject to the terms of the Older Workers Benefit Protection Act (“OWBPA”). The
OWBPA provides that an individual cannot waive a right or claim under the ADEA
unless the waiver is knowing and voluntary. Nothing in this Agreement interferes
with Employee’s right to challenge the knowing and voluntary nature of the
waiver and release under the ADEA and/or OWBPA. Employee has been advised of
this law, and Employee agrees that she is signing this Agreement of Employee’s
own free will, and with full knowledge of its consequences. Employee understands
that the Company is giving Employee at least 21 days from the date she received
a copy of this Agreement to decide whether she wishes to sign it. Employee
acknowledges that the Company has advised Employee to use this time to consult
with an attorney about the effect of the waiver and release. If Employee signs
this Agreement before the end of the 21-day period, it will be Employee’s
personal, voluntary decision to do so, and shall be done with full knowledge of
Employee’s legal rights. Employee agrees that any changes to this Agreement will
not restart the running of this consideration period.

 

12. Rights and Procedure for Accepting or Revoking this Agreement. Employee has
been advised that this Agreement shall be signed by Employee no earlier than
Employee’s Termination Date. Employee understands that insofar as this Agreement
relates to Employee’s rights under the ADEA, she has the right to revoke that
aspect of the release by written notice of such to the Company within 7 calendar
days following Employee’s signing this Agreement. Employee understands that
insofar as it extends to Employee’s rights under the MHRA, she has the right to
rescind that aspect of the release by written notice of such to the Company
within 15 calendar days of Employee’s signing this Agreement. Any such
revocation or rescission must be in writing and hand-delivered to Tornier’s Vice
President, Human Resources, Mr. Greg Morrison, or, if sent by mail, post-marked
within the 7-day revocation or 15-day rescission period, addressed to Mr. Greg
Morrison, Senior Vice President, Human Resources, Tornier, Inc., 7701 France
Avenue S., Suite 600, Edina, MN 55435, and sent by certified mail, return
receipt requested.

Employee understands that the Special Consideration she is receiving for
settling and releasing Employee’s Claims and the Company’s performance per the
Consulting Agreement attached to this Agreement as Exhibit 2 are contingent upon
Employee’s agreement to be bound by the terms of this Agreement. Accordingly, if
Employee decides to revoke or rescind any release portion of this Agreement:
(a) Employee is not entitled to the Special Consideration offered in this
Agreement; (b) Employee must immediately return to the Company any Special
Consideration she may have received under this Agreement, (c) the Parties’
Consulting Agreement will be considered as rescinded effective immediately; and
(d) any unvested equity interests or employee benefits that Employee has at the
time of the revocation or rescission will be forfeited.

 

13. No Admission of Wrongdoing. Nothing in this Agreement shall be construed as
an admission of liability for any of the Claims released by Employee in
connection with any other matter.

 

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14. Successors and Assigns. Employee agrees that the promises in this Agreement
benefit the Company and also any successor or assignee of the Company’s business
or operations. The Company agrees that its promises in this Agreement shall be
binding on any successor or assignee of its business or operations. Employee
warrants and represents that Employee has not assigned or transferred in any
manner, or purported to assign or transfer in any manner, to any person or
entity, any claim or interest that is the subject of this Agreement.

 

15. Entire Agreement/Merger; Other Written Agreements. Subject to Employee’s
agreement, as set forth above, to abide by other agreements with the Company,
this is the entire agreement between Employee and the Company relating to
Employee’s employment and Employee’s termination from employment. Except as
expressly provided otherwise in this Agreement, this Agreement supersedes all
prior oral and written agreements and communications between the Parties. This
Agreement shall not be modified, amended, or terminated except by a written
agreement manually signed by both Parties.

 

16. Interpretation of the Agreement. This Agreement is to be interpreted as
broadly as possible to achieve Employee’s intention to resolve all of Employee’s
Claims against the Company. If this Agreement is held by a court to be
inadequate to release a particular claim encompassed within Employee’s Claims,
this Agreement will remain in full force and effect with respect to all the rest
of Employee’s Claims. In case any one or more of the provisions of this
Agreement shall be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions will not in
any way be affected or impaired.

 

17. Governing Law and Venue. Employee understands and that Tornier’s principal
place of business is Edina, Minnesota, and accordingly, Employee agrees that
this Agreement shall be governed by, and be construed and enforced in accordance
with Minnesota law, without reference to choice of law, except to the extent it
is pre-empted by federal law. Employee agrees that any dispute relating to this
Agreement must be brought in the state or federal court within the State of
Minnesota, Hennepin County.

 

18. Remedies. In the event that Employee breaches Employee’s obligations under
this Agreement or the Company learns that Employee’s representations and
warranties contained in this Agreement are false, the Company will have the
right to bring a legal action for appropriate equitable relief as well as
damages, including reasonable attorneys’ fees, and will also have to right to
suspend payment of the Special Consideration set forth in this Agreement and/or
to recover, in addition to any equitable relief and damages allowed by law, the
Special Consideration Employee has received under this Agreement.

 

19. Representations and Warranties. Employee represents and warrants that she is
aware of no alleged or potential violations of law, liabilities, claims, or
demands of any kind or nature that have been or could be made against the
Company by Employee or any other person or entity. Employee represents that she
has carefully read this entire Agreement and understand all of its terms.
Employee represents that no promise or inducement has been offered to Employee
except as set forth herein, and that this Agreement is executed without reliance
upon any statement or representation by the Company or any representative or
agent of the Company. Employee warrants that she has full legal authority to
release any and all claims as specified herein and to undertake all other
obligations as specified herein. Employee warrants that she enters into this
Agreement voluntarily and with full knowledge and understanding of Employee’s
legal rights and obligations. Employee understands that this Agreement will have
a final and binding effect and that by executing this Agreement she may be
giving up legal rights. Employee intends this Agreement to be legally binding.

 

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Dated: July 17, 2012       CARMEN DIERSEN       /s/ Carmen Diersen      
Signature

 

Accepted by Tornier, Inc.:

 

By: /s/ Douglas W. Kohrs                        

Its President and Chief Executive Officer

 

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EXHIBIT 1

NOTICE OF SCHEDULED TERMINATION DATE AND

STATEMENT OF SPECIAL CONSIDERATION

This document, which is Exhibit 1 to the Severance Agreement and Release of
Claims (“Agreement”) naming as the releasing party the employee identified below
(“Employee”), constitutes a statement of the Special Consideration that Employee
will receive pursuant to the terms of the Agreement, provided Employee signs and
does not revoke or rescind the release in the Agreement and otherwise complies
with the terms and conditions of the Agreement.

Statement of Special Consideration for Carmen Diersen:

Termination Date: July 17, 2012

1. Severance Pay: Employer will provide Employee with up to 12 months of
severance pay, in the form of salary continuation commencing effective
immediately upon termination, in the maximum gross amount of Three Hundred Forty
Two Thousand Two Hundred Eighty Five -Dollars ($342,285.00) (“Severance Pay”),
less payroll withholdings that Employer reasonably believes are required by law
or elected by Employee for state and federal income taxes, FICA, and other
applicable payroll deductions, payable in accordance with Employer’s normal
payroll practices. The Severance Pay will be distributed to Employee as
continuation of base salary paid to Employee at the rate paid to Employee on her
Termination Date.

2. Health Insurance Benefits. If Employee timely elects continued coverage under
the Company’s group medical plan or group dental plan pursuant to section 4980B
of the Internal Revenue Code of 1986, as amended (“COBRA”), in accordance with
ordinary plan practices: (a) from the Termination Date through the last day of
the month in which the above-described salary continuation is credited, (b) the
Company will reimburse Employee in an amount equal to the difference between the
amount Employee in fact pays for such COBRA continuation coverage and the amount
paid by an full-time active employee for the same level of coverage elected by
Employee.

3. Outplacement Services. The Company will provide up to six-months in
pre-approved outplacement assistance in an amount to be determined in the sole
discretion of the Company; please see Greg Morrison for details.

Conditions. In the event that Employee accepts other full-time employment,
full-time engagement as an independent contractor or otherwise engages in her
own business on a full-time basis prior to July 17, 2013, Employee will promptly
notify the Company and the Company shall be entitled to deduct from the
Severance Pay and Health Insurance Benefits referenced above the compensation
paid to and the value of the benefits received by Employee in respect of such
other employment or business activity.

All Special Consideration will be made only if: (i) Employee has provided the
Company with an original executed Separation Agreement and Release of Claims;
(ii) Employee has provided the Company with an original executed Consulting
Agreement in the form attached to this Agreement as Exhibit 2; (iii) any
applicable revocation or rescission period set forth in the Agreement has
expired and Employee has not revoked, rescinded or attempted to revoke or
rescind the Release; and (iv) Employee has returned all of the Company’s
property.

 

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