(b) The sale, transfer or other disposition of all or substantially all of the Company’sassets; provided, that such transaction does not constitute a transfer to a related party underTreasury Regulation §1.409A-3(i)(5)(vii)(B).     3. Termination.          3.1 Termination by the Company for Cause. Any of the following acts or omissionsshall constitute grounds for the Company to terminate the Executive’s employment pursuant to thisAgreement for “cause”:               (a) Willful misconduct by Executive causing material harm to the Company but only if Executiveshall not have discontinued such misconduct within 30 days after receiving written notice from theCompany describing the misconduct and stating that the Company will consider the continuation ofsuch misconduct as cause for termination of this Agreement;               (b) Any material act or omission by the Executive involving gross negligence in theperformance of the Executive’s duties to, or material deviation from any of the policies ordirectives of, the Company, other than a deviation taken in good faith by the Executive for thebenefit of the Company;               (c) Any illegal act by the Executive which materially and adversely affects the business ofthe Company, provided that the Company may suspend the Executive with pay while any allegation ofsuch illegal act is investigated; or               (d) Any felony committed by Executive, as evidenced by conviction thereof, provided that theCompany may suspend the Executive with pay while any allegation of such felonious act isinvestigated.     Termination by the Company for cause shall be accomplished by written notice to the Executiveand, in the event of a termination pursuant to Sections 3.1(a), 3.1(b), and/or 3.1(c) above, shallbe preceded by a written notice providing a reasonable opportunity for the Executive to correct hisconduct.          3.2 Termination for Death or Disability. In addition to termination for causepursuant to Section 3.1 hereof, the Executive’s employment pursuant to this Agreement shall beimmediately terminated without notice by the Company (i) upon the death of the Executive or (ii)upon the Executive becoming totally disabled. For purposes of this Agreement, the term “totallydisabled” means an inability of Executive, due to a physical or mental illness, injury orimpairment, to perform a substantial portion of his duties for a period of one hundred eighty (180)or more consecutive days, as determined by a competent physician selected by the Company’s Board ofDirectors and reasonably agreed to by the Executive, following such one hundred eighty (180) dayperiod.          3.3 Termination for Good Reason. Executive’s employment pursuant to this Agreementmay be terminated by the Executive for “good reason” if the Executive voluntarily terminates hisemployment as a result of any of the following:               (a) Without the Executive’s prior written consent, a material reduction in his then currentBase Salary;
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               (b) Without the Executive’s prior written consent, a material reduction in the Executive’sauthority, duties, or responsibilities; or               (c) Without Executive’s prior written consent, a material change in the geographic location ofExecutive’s principal place of employment.     In order for any of the foregoing conditions or events to constitute “good reason” under thisAgreement, all of the following must occur: (i) the Executive must provide written notice to theCompany of the occurrence of any of the foregoing events or conditions within ninety (90) days ofthe occurrence of such event or condition; (ii) the Company or any surviving entity shall havefailed to cure such event or condition within the succeeding thirty (30) day period after theCompany’s receipt of written notice of such event or condition from the Executive; and (iii) theExecutive’s termination of employment following such thirty (30) day cure period must occur nolater than the date that is two (2) years following the initial occurrence of one of the foregoingevents or conditions          3.4 Termination Without Cause. The Company may terminate this Agreement, and theemployment of the Executive under this Agreement, without cause, at any time upon at least thirty(30) days’ prior written notice to the Executive. This Section 3.4 shall not apply to atermination of the Executive by the Company as a result of a “Corporate Transaction” or “Change inControl,” but, instead, the provisions of Section 3.5 below shall apply.          3.5 Termination Due to Corporate Transaction or Change in Control. The Company mayterminate this Agreement and the employment of the Executive under this Agreement, upon at leastthirty (30) days’ prior written notice to the Executive in the event of a “Corporate Transaction”or “Change in Control,” as defined in Section 2, during the period of the Executive’s employment.Provided that subsections (i) through (iii) of Section 3.3 are satisfied, the Executive mayterminate this Agreement and the employment of the Executive under this Agreement following theoccurrence of a “Corporate Transaction” or “Change in Control,” as defined in Section 2, during theperiod of Executive’s employment if any of the following occur as a result of the “CorporateTransaction” or “Change in Control”: (i) a material reduction in Executive’s current Base Salary,or (ii) a material reduction in the Executive’s authority, duties, or responsibilities.          3.6 Payments Upon Removal or Termination.               (a) If, during the term of this Agreement, the Executive resigns for one of the reasons statedin Section 3.3, or if the Company terminates Executive’s employment pursuant to Section 3.4 above,the Executive shall be entitled to the following compensation: (i) the portion of his then currentBase Salary which has accrued through his date of termination; (ii) any payments for unusedvacation and reimbursement expenses, which are due, accrued or payable at the date of Executive’stermination; (iii) severance payment in an amount equal to twelve-months of Executive’sthen-current Base Salary (the “Severance Amount”); and (iv) to the extent not already vested underSection 2 or otherwise all of Executive’s options to purchase shares of the Company’s common stockand restricted stock shall fully vest and become immediately exercisable, and such options shallotherwise be exercisable in accordance with their terms. In addition, in such event, Executiveshall be entitled to (a) a prorated payment equal to the target bonus amount for which Executivewould be eligible for the year in which such resignation or termination occurred to be paid in lumpsum within sixty (60) days after the Executive’s date of termination, and (b) continuation of theinsurance benefits set forth in Exhibit A, for twelve-months. The payments provided by thisparagraph 3.6(a) shall be Executive’s complete and exclusive remedy for any such termination.
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               (b) If, during the term of this Agreement, the Company terminates Executive’s employmentpursuant to Section 3.5 above or the Executive terminates his employment pursuant to Section 3.5above, the Executive shall be entitled to the following compensation: (i) the portion of his thencurrent Base Salary which has accrued through his date of termination; (ii) any payments for unusedvacation and reimbursement expenses, which are due, accrued or payable at the date of Executive’stermination; (iii) severance payment in an amount equal to twelve-months of Executive’sthen-current Base Salary (the “Severance Amount”); and (iv) to the extent not already vested underSection 2 or otherwise all of Executive’s options to purchase shares of the Company’s common stockand restricted stock shall accelerate and automatically vest, and such options shall otherwise beexercisable in accordance with their terms. In addition, in such event Executive shall be entitledto (a) a prorated payment equal to the target bonus amount for which Executive would be eligiblefor the year in which such resignation or termination occurred to be paid in lump sum within sixty(60) days after the Executive’s date of termination, and (b) continuation of the insurance benefitsset forth in Exhibit A, for twelve-months. The payments provided by this paragraph 3.6(b) shall beExecutive’s complete and exclusive remedy for any such termination.               (c) All payments required to be made by the Company to the Executive pursuant to this Section3 shall be paid on a regular basis in accordance with the Company’s normal payroll procedures andpolicies as in effect as of the date of Executive’s termination, including, without limitation, theSeverance Amount which shall be paid in equal installments on the Company’s regular payroll datesin accordance with the Company’s normal payroll procedures and policies over the number of monthsimmediately succeeding the date of termination that is equal to the number of months of Base Salarypayable as the Severance Amount. For purposes of Section 409A of the Internal Revenue Code of1986, as amended (the “Code”) (including, without limitation, for purposes of Treasury RegulationSection 1.409A-2(b)(2)(iii)), the Executive’s right to receive the installment payments of theSeverance Amount shall be treated as a right to receive a series of separate payments and,accordingly, each installment payment shall at all times be considered a separate and distinctpayment. Amounts payable to Executive under subsections (a)(ii) and (b)(ii) of this Section 3.6, asa reimbursement of expenses, shall be made in accordance with Treasury Regulation Section1.409A-3(i)(1)(iv) and be paid on or before the last day of Executive’s taxable year following thetaxable year in which Executive incurred the expenses. If the Company terminates the Executive’semployment pursuant to Sections 3.1 or 3.2, or if the Executive voluntarily resigns (except asprovided in Section 3.3 or Section 3.5), then the Executive shall be entitled to only thecompensation set forth in items (i) and (ii) of Section 3.6(a).               (d) To the extent that any or all of the payments and benefits provided for in this Agreementconstitute “parachute payments” within the meaning of Section 280G of the Code and, but for thisparagraph, would be subject to the excise tax imposed by Section 4999 of the Code, then at theExecutive’s election:                    (i) The Executive shall receive all such payments and benefits the Executive is entitled toreceive hereunder, and any liability for taxes pursuant to the above shall be the liability solelyof the Executive; or                    (ii) The aggregate amount of such payments and benefits shall be reduced such that the presentvalue thereof (as determined under the Code and applicable regulations) is equal to 2.99 times theExecutive’s “base amount” (as defined in Section 280G of the Code).
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     The determination of any reduction or increase of any payment or benefits under this paragraphpursuant to the foregoing provision shall be made by a nationally recognized public accounting firmchosen by the Company in good faith, and such determination shall be conclusive and binding on theCompany and the Executive.     4. Section 409A.          4.1 Payment Delay. Notwithstanding anything herein to the contrary, to the extent anypayments to Executive pursuant to Section 3 are treated as non-qualified deferred compensationsubject to Section 409A of the Code, then (i) no amount shall be payable pursuant to such sectionunless Executive’s termination of employment constitutes a “separation from service” with theCompany (as such term is defined in Treasury Regulation Section 1.409A-1(h) and any successorprovision thereto) (a “Separation from Service”), and (ii) if Executive, at the time of hisSeparation from Service, is determined by the Company to be a “specified employee” for purposes ofSection 409A(a)(2)(B)(i) of the Code and the Company determines that delayed commencement of anyportion of the termination benefits payable to Executive pursuant to this Agreement is required inorder to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code (any suchdelayed commencement, a “Payment Delay”), then such portion of the Executive’s termination benefitsdescribed in Section 3 shall not be provided to Executive prior to the earlier of (A) theexpiration of the six-month period measured from the date of the Executive’s Separation fromService, (B) the date of the Executive’s death, or (C) such earlier date as is permitted underSection 409A. Upon the expiration of the applicable Code Section 409A(a)(2)(B)(i) deferral period,all payments deferred pursuant to a Payment Delay shall be paid in a lump sum to Executive within30 days following such expiration, and any remaining payments due under the Agreement shall be paidas otherwise provided herein. The determination of whether Executive is a “specified employee” forpurposes of Section 409A(a)(2)(B)(i) of the Code as of the time of his Separation from Serviceshall be made by the Company in accordance with the terms of Section 409A of the Code andapplicable guidance thereunder (including without limitation Treasury Regulation Section1.409A-1(i) and any successor provision thereto).          4.2 Exceptions to Payment Delay. Notwithstanding Section 4.1, to the maximum extentpermitted by applicable law, amounts payable to Executive pursuant to Section 3 shall be made inreliance upon Treasury Regulation Section 1.409A-1(b)(9) (with respect to separation pay plans) orTreasury Regulation Section 1.409A-1(b)(4) (with respect to short-term deferrals). Accordingly,the severance payments provided for in Section 3 are not intended to provide for any deferral ofcompensation subject to Section 409A of the Code to the extent (i) the severance payments payablepursuant to Section 3, by their terms and determined as of the date of Executive’s Separation fromService, may not be made later than the 15th day of the third calendar month followingthe later of (A) the end of the Company’s fiscal year in which Executive’s Separation from Serviceoccurs or (B) the end of the calendar year in which Executive’s Separation from Service occurs; or(ii) (A) such severance payments do not exceed an amount equal to two times the lesser of (1) theamount of Executive’s annualized compensation based upon Executive’s annual rate of pay for thecalendar year immediately preceding the calendar year in which Executive’s Separation from Serviceoccurs (adjusted for any increase during the calendar year in which such Separation from Serviceoccurs that would be expected to continue indefinitely had Executive remained employed with theCompany) or (2) the maximum amount that may be taken into account under a qualified plan pursuantto Section 401(a)(17) for the calendar year in which Executive’s Separation from Service occurs,and (B) such severance payments shall be completed no later than December 31 of
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the second calendar year following the calendar year in which Executive’s Separation fromService occurs.          4.3 Interpretation. To the extent the payments and benefits under this Agreement aresubject to Section 409A of the Code, this Agreement shall be interpreted, construed andadministered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of theCode and the Treasury Regulations thereunder (and any applicable transition relief under Section409A of the Code).     5. Assignment. This Agreement shall not be assignable, in whole or in part, by eitherparty without the written consent of the other party, except that the Company may, without theconsent of the Executive, assign its rights and obligations under this Agreement to an Affiliate orto any corporation, firm or other business entity (i) with or into which the Company may merge orconsolidate, or (ii) to which the Company may sell or transfer all or substantially all of itsassets. After any such assignment by the Company, the Company shall be discharged from all furtherliability hereunder and such assignee shall thereafter be deemed to be the Company for the purposesof all provisions of this Agreement including this Section 5.     6. Successors. This Agreement shall inure to the benefit of and be enforceable by theExecutive’s personal and legal representatives, executors, administrators, successors, heirs,distributees, devisees and legatees. If the Executive should die while any amounts are stillpayable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid inaccordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designeeor, if there be no such designee, to the Executive’s estate.     7. Miscellaneous.          7.1 Governing Law. This Agreement is made under and shall be governed by andconstrued in accordance with the laws of the State of California.          7.2 Prior Agreements. This Agreement contains the entire agreement of the partiesrelating to the subject matter hereof and supersedes all prior agreements and understanding withrespect to such subject matter, including that certain Employment Agreement by and between theCompany and Executive (the “Prior Employment Agreement”), and the parties hereto have made noagreements, representations or warranties relating to the subject matter of this Agreement whichare not set forth herein. In addition, upon the execution of this Agreement, the Prior EmploymentAgreement shall automatically terminate and become null and void and of no force and effect withoutany further action by the parties thereto, and any rights or claims that Executive may have withrespect to his employment shall be governed by this Agreement.          7.3 Arbitration. In the event of any controversy, claim or dispute between theparties hereto arising out of or relating to this Agreement, the matter shall be determined byarbitration, which shall take place in Orange County, California, under the rules of the AmericanArbitration Association. The arbitrator shall be a retired Superior Court judge mutually agreeableto the parties and if the parties cannot agree such person shall be chosen in accordance with therules of the American Arbitration Association. The arbitrator shall be bound by applicable legalprecedent in reaching his or her decision. Any judgment upon such award may be entered in anycourt having jurisdiction thereof. Any decision or award of such arbitrator shall be final andbinding upon the parties and shall not be appealable. The parties hereby consent to thejurisdiction of such arbitrator
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and of any court having jurisdiction to enter judgment upon and enforce any action taken bysuch arbitrator. The fees payable to the American Arbitration Association and the arbitrator shallbe paid by the Company.          7.4 Withholding Taxes. The Company may withhold from any salary and benefits payableunder this Agreement all federal, state, city or other taxes or amounts as shall be required to bewithheld pursuant to any law or governmental regulation or ruling.          7.5 Amendments. No amendment or modification of this Agreement shall be deemedeffective unless made in writing signed by the parties hereto.          7.6 No Waiver. No term or condition of this Agreement shall be deemed to have beenwaived nor shall there be any estoppel to enforce any provisions of this Agreement, except by astatement in writing signed by the party against whom enforcement of the waiver or estoppel issought. Any written waiver shall not be deemed a continuing waiver unless specifically stated,shall operate only as to the specific term or condition waived and shall not constitute a waiver ofsuch term or condition for the future or as to any act other than that specifically waived.          7.7 Severability. To the extent any provision of this Agreement shall be invalid orunenforceable, it shall be considered deleted herefrom and the remainder of such provision and ofthis Agreement shall be unaffected and shall continue in full force and effect.          7.8 Counterpart Execution. This Agreement may be executed by facsimile and incounterparts, each of which shall be deemed an original and all of which when taken together shallconstitute but one and the same instrument.          7.9 Attorneys’ Fees. Should any legal action or arbitration be required to resolveany dispute over the meaning or enforceability of this Agreement or to enforce the terms of thisAgreement, the prevailing party shall be entitled to recover its or his reasonable attorneys feesand costs incurred in such action, in addition to any other relief to which that party may beentitled.          7.10 Notices. Any notice required or permitted to be given hereunder shall be inwriting and may be personally served or sent by United States Mail, and shall be deemed to havebeen given when personally served or two days after having been deposited in the United StatesMail, registered mail, return receipt requested, with first class postage prepaid and properlyaddressed as follows:        If to Executive: John McDermott  11 Studebaker  Irvine, CA 92618        If to the Company: Endologix, Inc.  11 Studebaker  Irvine, CA 92618  Attn: Chief Executive Officer          7.11 Proprietary Information and Inventions Agreement. Executive agrees to sign theCompany’s standard form of employee proprietary information and inventions agreement.
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     IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year set forthabove.         **“COMPANY”**           ENDOLOGIX, INC., a Delaware corporation           By: