Sample Business Contracts

Severance Agreement - Cyberonics Inc. and William Steven Jennings

Sponsored Links

                                                                         CLASS I

                               SEVERANCE AGREEMENT

                  THIS AGREEMENT (the "Agreement"), made and entered into
effective as of June 1, 2003 (the "Effective Date"), is by and between
CYBERONICS, INC., a Delaware corporation (the "Company"), and W. STEVEN JENNINGS
(the "Employee").

                  WHEREAS, Employee is a key employee of the Company; and

                  WHEREAS, the Company recognizes that the possibility of a
Change of Control (as defined below) of the Company is unsettling and may result
in the departure of key employees to the detriment of the Company and its
stockholders; and

                  WHEREAS, the Board of Directors of the Company (the "Board")
has authorized this Agreement and certain similar agreements in order to retain
key employees to ensure the continuity of its management;

                  THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and Employee agree
as follows:

         1.       TERM. This Agreement shall commence on the Effective Date and
shall continue until April 30, 2004; provided, however, that commencing on April
30, 2004 and on each April 30th thereafter, the Term of this Agreement shall
automatically be extended for one additional year, unless at least six months
prior to such April 30 date the Board shall give written notice to Employee that
the Term of this Agreement shall cease to be so extended; provided further,
however, that if a Change of Control shall occur during the Term, the Term shall
automatically continue in effect for a period of not less than one year from the
date of such Change of Control. Notwithstanding the foregoing, except as
provided in Section 3, this Agreement shall automatically terminate on
Employee's termination of employment; provided, however, termination of this
Agreement shall not alter or impair any rights of Employee arising hereunder on
or prior to such termination.

         2.       CHANGE OF CONTROL. For purposes of this Agreement, a Change of
Control of the Company shall mean:

                           (i)      the acquisition by any "person," as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), other than the Company, a subsidiary of the
Company or a Company employee benefit plan, of "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities entitled to vote generally in the
election of directors; or


                           (ii)     the consummation of a reorganization,
merger, consolidation or other form of corporate transaction or series of
transactions, in each case, with respect to which persons who were the
shareholders of the Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately thereafter, own more than
50% of the combined voting power entitled to vote generally in the election of
directors of the reorganized, merged or consolidated company's then outstanding
voting securities in substantially the same proportions as their ownership
immediately prior to such event; or

                           (iii)    the sale or disposition by the Company of
all or substantially all the Company's assets; or

                           (iv)     a change in the composition of the Board, as
a result of which fewer than a majority of the directors are Incumbent
Directors. "Incumbent Directors" shall mean directors who either (A) are
directors of the Company as of October 2, 2000, or (B) are elected, or nominated
for election, thereafter to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination,
but "Incumbent Director" shall not include an individual whose election or
nomination is in connection with (i) an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or an actual or threatened solicitation of proxies or consents by
or on behalf of a person other than the Board or (ii) a plan or agreement to
replace a majority of the then Incumbent Directors; or

                           (v)      the approval by the Board or the
stockholders of the Company of a complete or substantially complete liquidation
or dissolution of the Company.

of Control occurs during the Term, Employee shall be entitled to the benefits
provided in Section 4 hereof if, during the Protected Period (as hereinafter
defined), Employee becomes disabled or Employee's employment is terminated,
unless such termination is (a) due to Employee's death, (b) by the Company
either for Cause or Employee's Disability, or (c) by Employee for other than a
Good Reason. Anything in this Agreement to the contrary notwithstanding, if
Employee's employment with the Company is terminated during the Term and prior
to the date on which a Change of Control occurs, and it is reasonably
demonstrated that such termination (i) was at the request of a third party who
has taken steps reasonably calculated to effect the Change of Control, or (ii)
otherwise arose in connection with or anticipation of the Change of Control,
then for all purposes of this Agreement the Change of Control shall be deemed to
have occurred on the date immediately prior to the date of Employee's
termination and Employee shall be deemed terminated by the Company during the
Protected Period other than for Cause. For purposes of this Agreement, the
"Protected Period" shall mean the period of time beginning with the Change of
Control and ending on the first anniversary of such Change of Control or
Employee's death, if earlier.

         (i)      DISABILITY. If, as a result of Employee's incapacity due to
         physical or mental illness, Employee shall have been absent from
         Employee's duties with the Company on a full-time basis for 150
         consecutive calendar days, and within 30 days after written Notice of
         Termination (as defined hereinafter) Employee shall not have returned
         to the full-time performance of Employee's duties, the Company may
         terminate Employee's employment for "Disability"; provided, however, a
         termination of Employee's employment for Disability



         under this Agreement shall not alter or impair Employee's rights as a
         "disabled employee" under any of the Company's employee benefit plans.

         (ii)     CAUSE. The Company may terminate Employee's employment for
         Cause. For the purposes of this Agreement, the Company shall have
         "Cause" to terminate Employee's employment hereunder only upon (A) the
         willful and continued failure by Employee to perform substantially
         Employee's duties with the Company, other than any such failure
         resulting from Employee's incapacity due to physical or mental illness,
         which continues unabated after a written demand for substantial
         performance is delivered to Employee by the Board that specifically
         identifies the manner in which the Board believes that Employee has not
         substantially performed Employee's duties or (B) Employee willfully
         engaging in gross misconduct that is materially and demonstrably
         injurious to the Company. For purposes of this paragraph, an act or
         failure to act on Employee's part shall be considered "willful" only if
         done or omitted to be done by Employee otherwise than in good faith and
         without reasonable belief that Employee's action or omission was in the
         best interest of the Company. Notwithstanding the foregoing, Employee
         shall not be deemed to have been terminated for Cause unless and until
         there shall have been delivered to Employee a copy of a resolution duly
         adopted by the affirmative vote of not less than three-quarters of the
         entire membership of the Board, at a meeting of the Board called and
         held for such purpose (after reasonable notice to Employee and an
         opportunity for Employee, together with Employee's counsel, to be heard
         before the Board), finding that in the good faith opinion of the Board
         Employee was guilty of conduct set forth in clauses (A) or (B) of this
         subsection (ii) and specifying the particulars thereof in reasonable

         (iii)    GOOD REASON. Employee may terminate Employee's employment for
         Good Reason. For purposes of this Agreement, "Good Reason" shall mean
         the occurrence of any of the following without Employee's express
         written consent:

                  (A)      an adverse change (as determined by Employee in good
                  faith, which determination shall be controlling for all
                  purposes under this Agreement) in Employee's (i) positions,
                  duties, responsibilities or status with the Company from that
                  in effect immediately prior to the Change of Control, or (ii)
                  reporting responsibilities, titles or offices as in effect
                  immediately prior to the Change of Control; or any removal of
                  Employee from, or any failure to re-elect or appoint Employee
                  to, any of such responsibilities, titles, offices or
                  positions, except in connection with the termination of
                  Employee's employment for Cause or Disability, or as a result
                  of Employee's death, or by Employee for other than a Good

                  (B)      a reduction in Employee's annual rate of base salary
                  as in effect immediately prior to the Change of Control or as
                  the same may be increased from time to time thereafter (the
                  "Base Salary");

                  (C)      a failure by the Company to continue the Company's
                  Annual Incentive Compensation Plan as the same may be modified
                  from time to time, but substantially in the form in effect
                  immediately prior to the Change of Control (the "Bonus Plan"),
                  or a failure by the Company to continue Employee as a
                  participant in the Bonus Plan



                  in at least the same amount (the "Bonus Amount" ) as
                  Employee's target bonus amount under the Bonus Plan with
                  respect to the fiscal year ending immediately prior to the
                  Change of Control or with respect to the current fiscal year
                  if Employee has been employed by the Company for a shorter
                  period (Bonus Amounts related to less than a full fiscal year
                  shall be annualized for this purpose);

                  (D)      the failure by the Company to continue in effect any
                  other employee benefit or compensation plan program or policy,
                  in which Employee is participating immediately prior to the
                  Change of Control, unless the Company establishes such new
                  plans, programs or policies as is necessary to provide
                  Employee with substantially comparable benefits; the taking of
                  any action by the Company not required by law that would
                  adversely affect Employee's participation in or reduce
                  Employee's benefits under any of such plans, programs or
                  policies or deprive Employee of any material fringe benefit
                  enjoyed by Employee immediately prior to the Change of

                  (E)      the Company's requiring Employee to relocate to an
                  office more than 25 miles from the Company's office to which
                  Employee was assigned immediately prior to the Change of
                  Control, except for required travel on the Company's business
                  to an extent substantially consistent with Employee's business
                  travel obligations immediately prior to the Change of Control;

                  (F)      the amendment, modification or repeal of any
                  provision of the Company's Certificate of Incorporation, as
                  amended, or the Bylaws of the Company which was in effect
                  immediately prior to such Change of Control, if such
                  amendment, modification or repeal would adversely effect
                  Employee's right to indemnification by the Company;

                  (G)      the failure of the Company to obtain the assumption
                  of this Agreement by any successor as contemplated in Section
                  6 hereof; or

                  (H)      any purported termination of Employee's employment
                  that is not effected pursuant to a Notice of Termination
                  satisfying the requirements of subparagraph (iv) below and, if
                  applicable, subparagraph (ii) above; and for purposes of this
                  Agreement, no such purported termination shall be effective.

         Employee's right to terminate employment for a Good Reason hereunder
         shall not be affected by Employee's incapacity due to a physical or
         mental illness nor shall Employee's continued employment following any
         circumstance that constitutes a Good Reason hereunder, regardless of
         the length of such continued employment, constitute a consent to or a
         waiver of Employee's rights hereunder with respect to such

         (iv)     NOTICE OF TERMINATION. Any termination by the Company pursuant
         to subparagraphs (i) or (ii) above, or by Employee pursuant to
         subparagraph (iii) above, shall be communicated by written Notice of
         Termination to the other party hereto. For purposes of this Agreement,
         a "Notice of Termination" shall mean a notice that shall indicate the



         termination provision in this Agreement relied upon and shall set forth
         in reasonable detail the facts and circumstances claimed to provide a
         basis for termination of Employee's employment under the provision so

         (v)      DATE OF TERMINATION. "Date of Termination" shall mean (A) if
         Employee is terminated for Disability, 30 days after Notice of
         Termination is given, provided that Employee shall not have returned to
         the performance of Employee's duties on a full-time basis during such
         30-day period, (B) if Employee's employment is terminated pursuant to
         subparagraph (iii) above, the date specified in the Notice of
         Termination, (C) with respect to a termination prior to a Change of
         Control, which is deemed to be after such Change of Control as provided
         in Section 3, the date of such termination, and (D) if Employee's
         employment is terminated for any other reason on or after a Change of
         Control, the date of such termination.


         (i)      If, during the Protected Period, Employee fails to perform
         Employee's normal duties as a result of incapacity due to physical or
         mental illness, Employee shall continue during the period of such
         disability to receive Employee's full Base Salary and any awards,
         deferred and nondeferred, payable during such period under the Bonus
         Plan, less any amounts paid to Employee during such period of
         disability pursuant to the Company's short term disability or
         sick-leave program(s) until Employee's employment is terminated or such
         Disability ends. This Section 4(i) shall not reduce or impair
         Employee's rights to terminate employment for a Good Reason as
         otherwise provided herein.

         (ii)     If, during the Protected Period, Employee's employment shall
         be terminated (x) by the Company for Cause, (y) by Employee's death, or
         (z) by Employee other than for a Good Reason, the Company shall pay
         Employee's earned but unpaid Base Salary through the Date of
         Termination and the Company shall have no further obligations to
         Employee under this Agreement.

         (iii)    If, during the Protected Period, (1) the Company shall
         terminate Employee other than for Cause or Disability or (2) Employee
         shall terminate Employee's employment for a Good Reason, the Company
         shall pay to Employee, by certified or bank cashier's check or wire
         transfer within five business days after the Date of Termination, an
         amount equal to: (A) three times the sum of Employee's Base Salary and
         Bonus Amount; plus (B) that portion of Employee's Base Salary earned,
         and vacation pay vested for the prior year and accrued for the current
         year to the Date of Termination, but not paid or used, and all other
         amounts previously deferred by Employee or earned but not paid as of
         such date under all Company bonus or pay plans or programs.

         (iv)     If any payment due under the terms of this Agreement is not
         timely made or otherwise withheld by the Company, its successors or
         assigns, interest shall accrue on such payment at the highest maximum
         legal rate permissible under applicable law from the date such payment
         first became due through the date of payment thereof.



         (v)      In the event that any payment or benefit received or to be
         received by Employee pursuant to the terms of this Agreement or any
         other plan, arrangement or agreement with (A) the Company, (B) any
         Person whose actions result in a "change in control" (for purposes of
         Section 280G of the Internal Revenue Code (the "Code")) or (C) any
         Person affiliated with the Company or such Person) (all such payments
         and benefits being hereinafter called "Total Payments") would be
         subject to the excise tax imposed under Section 280G of the Code, the
         Company shall pay to Employee such additional amount (the "Gross-Up
         Payment") such that the net amount retained by Employee, after
         deduction of any excise tax imposed under Section 4999 of the Code (the
         "Excise Tax") on the Total Payments and all federal, state and local
         taxes, including the Excise Tax, upon the Gross-Up Payment, shall be
         equal to the Total Payments. For purposes of determining the amount of
         the Gross-Up Payment, Employee shall be deemed to pay federal income
         tax at the highest marginal rate of federal income taxation in the
         calendar year in which the Gross-Up Payment is to be made and state and
         local income taxes at the highest marginal rate of taxation in the
         state and locality of Employee's residence on the date on which the
         Gross-Up Payment is calculated for purposes of this subparagraph. In
         the event that the Excise Tax is subsequently determined to be less
         than the amount taken into account hereunder, Employee shall repay to
         the Company, at the time that the amount of such reduction in Excise
         Tax is finally determined, the portion of the Gross-Up Payment
         attributable to such reduction (plus that portion of the Gross-Up
         Payment being repaid by Employee to the extent that such repayment
         results in a reduction in Excise Tax and/or a federal, state or local
         income tax deduction) plus interest on the amount of such repayment at
         the rate provided in Section 1274(b)(2)(B) of the Code. In the event
         that the Excise Tax is determined to exceed the amount taken into
         account hereunder (including by reason of any payment the existence or
         amount of which cannot be determined at the time of the Gross-Up
         Payment), the Company shall make an additional Gross-Up Payment in
         respect of such excess (plus any interest, penalties or additions
         payable by Employee with respect to such excess) at the time that the
         amount of such excess if finally determined. Employee and the Company
         shall each reasonably cooperate with the other in connection with any
         administrative or judicial proceedings concerning the existence or
         amount of liability for Excise Tax with respect to the Total Payments.
         The parties intend that the Gross-Up Payment be determined in a manner
         that is most favorable to Employee.

         5.       NO MITIGATION OR OFFSET. The provisions of this Agreement are
not intended to, nor shall they be construed to, require that Employee mitigate
the amount of any payment provided for in this Agreement by seeking or accepting
other employment, nor shall the amount of any payment provided for in this
Agreement be reduced by any compensation earned by Employee as the result of
employment by another employer or otherwise. Without limitation of the
foregoing, the Company's obligations to make the payments to Employee required
under this Agreement shall not be affected by any set off, counterclaim,
recoupment, defense or other claim, right or action that the Company may have
against Employee.


         (i)      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/or assets of



         the Company, by agreement in form and substance reasonably satisfactory
         to Employee, expressly to assume and agree to perform this Agreement in
         the same manner and to the same extent as the Company would have been
         required if no such succession had taken place. Failure of the Company
         to obtain such agreement prior to the effectiveness of any such
         succession shall be a breach of this Agreement and shall entitle
         Employee to payment from the Company in the same amount and on the same
         terms as Employee would be entitled hereunder if Employee had
         terminated Employee's employment for Good Reason, except that for
         purposes of implementing the foregoing, the date on which any such
         succession becomes effective shall be deemed the Date of Termination.
         As used in this Agreement, "Company" shall mean the Company as
         hereinbefore defined and any successor to its business and/or assets as
         aforesaid that executes and delivers the agreement provided for in this
         Section 6 or which otherwise becomes bound by all the terms and
         provisions of this Agreement by operation of law.

         (ii)     This Agreement shall inure to the benefit of and be
         enforceable by Employee's personal or legal representatives, executors,
         administrators, successors, heirs, distributees, devisees and legatees.
         If Employee should die while any amounts would still be payable to
         Employee hereunder if Employee had continued to live, all such amounts
         shall be paid in accordance with the terms of this Agreement to
         Employee's beneficiary as filed with the Company pursuant to this
         Agreement or, if there be no such designated beneficiary, to Employee's

         7.       NOTICE. All notices, consents, waivers, and other
communications required under this Agreement must be in writing and will be
deemed to have been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by facsimile (with confirmation of receipt),
provided that a copy is mailed by certified mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service, in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):

         If to the Company:

                  Cyberonics, Inc.
                  Facsimile No.:  ____________

         If to Employee:




         8.       MISCELLANEOUS. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Employee and by the Chairman of the Board or an
authorized officer of the Company. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.

         9.       VALIDITY. The interpretation, construction and performance of
this Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Texas without regard to conflicts of laws
principles. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, each of which shall remain in full force and effect.

         10.      COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

         11.      DESCRIPTIVE HEADINGS. Descriptive headings are for convenience
only and shall not control or affect the meaning or construction of any
provision of this Agreement.

         12.      CORPORATE APPROVAL. This Agreement has been approved by the
Board, and has been duly executed and delivered by Employee and on behalf of the
Company by its duly authorized representative.

         13.      DISPUTES. The parties agree to resolve any claim or
controversy arising out of or relating to this Agreement by binding arbitration
under the Federal Arbitration Act before one arbitrator in the City of Houston,
State of Texas, administered by the American Arbitration Association under its
Commercial Arbitration Rules, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The Company
shall reimburse Employee, on a current basis, for all legal fees and expenses
incurred by Employee in connection with any dispute arising under this
Agreement, including, without limitation, the fees and expenses of the
arbitrator, unless the arbitrator finds Employee brought such claim in bad
faith, in which event each party shall pay its own costs and expenses and
Employee shall repay to the Company any fees and expenses previously paid on
Employee's behalf by the Company.

                  The parties stipulate that the provisions hereof shall be a
complete defense to any suit, action, or proceeding instituted in any federal,
state, or local court or before any administrative tribunal with respect to any
controversy or dispute arising during the period of this Agreement and which is
arbitrable as herein set forth. The arbitration provisions hereof shall, with
respect to such controversy or dispute, survive the termination of this



                  IN WITNESS WHEREOF, the Company and Employee have executed
this Agreement in multiple counterparts effective for all purposes as of the
Effective Date.

                                   CYBERONICS, INC.

                                   By: /s/ Robert P. Cummins
                                   Name:  Robert P. Cummins
                                   Title: Chief Executive Officer and Chairman
                                          of the Board


                                   /s/ William Steven Jennings
                                   William Steven Jennings