Employment Agreement - Cyberonics Inc. and Michael Cheney
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), entered into effective as
of June 2, 2003 (the "Effective Date"), by and between Cyberonics, Inc. (the
"Company") and Michael Cheney ("Employee").
WITNESSETH:
WHEREAS, the Company desires to secure the experience, abilities and
service of Employee by employing Employee upon the terms and conditions
specified herein; and
WHEREAS, Employee is willing to enter into this Agreement upon the
terms and conditions specified herein;
NOW, THEREFORE, in consideration of the premises, terms and provisions
set forth herein, the mutual benefits to be gained by the performance thereof
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Employment. The Company hereby employs Employee, and
Employee hereby accepts such employment, all upon the terms and conditions set
forth herein.
SECTION 2. Term. Subject to the terms and conditions of this Agreement,
unless sooner terminated pursuant to Section 5 of this Agreement, Employee shall
be employed by the Company commencing on the Effective Date and terminating on
the close of business on the third anniversary of the Effective Date (the
"Term"). Termination of this Agreement shall not alter or impair any rights of
Employee (or his beneficiaries or heirs) with respects to payments, benefits or
other rights provided by the terms of this Agreement, arising before or after
the end of the Term.
SECTION 3. Duties, Responsibilities and Location.
A. Capacity. Employee shall serve as the Senior
Vice President of the Company and shall report to the Chief
Executive Officer of the Company.
B. Full-Time Duties. Employee shall devote his
full business time, attention and energies to the business of
the Company. Notwithstanding anything herein to the contrary,
Employee shall be allowed to (i) manage Employee's personal
investments and affairs and, (ii) with the written consent of
the Chief Executive Officer of the Company, serve on boards or
committees of civic or charitable organizations or trade
associations, provided that such activities do not materially
interfere with his performance of the duties and
responsibilities of his position specified in Section 3.A.
C. Offices. Employee's primary place of work
shall be at the principle executive offices of the Company
located in the greater Houston, Texas
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metropolitan area, but Employee shall be required to travel on
a basis consistent with his position.
SECTION 4. Compensation.
A. Base Salary. During the Term, Employee shall
receive an annual salary of $300,000 (the "Base Salary")
payable in accordance with the Company's general payroll
practices. Employee's Base Salary shall be reviewed prior to
the beginning of each fiscal year of the Company for increase
in the discretion of the Compensation Committee of the Board
of Directors ("Compensation Committee"); provided, however,
that the Base Salary, as it may be increased at any time, may
not thereafter be decreased.
B. Annual Incentive Bonus. During the Term,
Employee shall be eligible to participate in the Annual CEO
Direct Reports Bonus Plan, with a target bonus of 50% of
Employee's annual Base Salary. A bonus, if earned, shall be
payable as soon as reasonably practical following the
completion of the applicable bonus year. Bonuses for Employee
shall be based on the achievement of such Company,
departmental and/or individual performance goals that may be
established for the applicable bonus year by the Compensation
Committee.
C. Annual Overachievement Bonus. During the
Term, Employee shall be eligible to participate in the Annual
CEO Direct Reports Overachievement Bonus Plan as determined by
the Compensation Committee. Overachievement Bonuses shall be
based on the Company's overachievement of the annual Net
Sales, Earnings per Share and Cash Flow objectives included in
the annual budget approved by the Board of Directors at the
beginning of each year.
D. Equity Compensation. Employee will be
eligible for grants of Company stock options (the "Options")
and other equity awards in the discretion of the Compensation
Committee.
E. General Benefits. Upon satisfying applicable
eligibility requirements, if any, Employee will be eligible to
participate in the Company's qualified 401(k) plan, group
health, group life insurance, accidental death and
dismemberment, travel accident, long-term disability and
short-term disability plans and other welfare and similar
plans and vacation policies under terms generally applicable
to other similarly situated employees of the Company and shall
be eligible to receive all perquisites and other benefits
provided or made available by the Company to other similarly
situated executives of the Company.
F. Reimbursements. Employee shall be entitled
to receive prompt reimbursement by the Company in accordance
with its business reimbursement policy in effect from time to
time for all reasonable, out-of-pocket business expenses
incurred by him in performing his duties under this Agreement
upon the submission by Employee of such accounts and records
as may be reasonably required under the Company's business
reimbursement policy.
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SECTION 5. Termination of Employment. Notwithstanding the provisions of
Section 2, Employee's employment hereunder may terminate under any of the
following conditions:
A. Death. Employee's employment under this
Agreement shall terminate automatically upon his death.
B. Disability. Employee's employment under this
Agreement may be terminated due to his Disability.
"Disability" shall mean Employee's inability to substantially
perform his duties hereunder for any period of at least 180
consecutive days due to a physical or mental incapacity. The
date of termination due to Disability shall be the date
Employee elects to terminate his employment service due to
such Disability or, if earlier, the date the Board determines
that Employee has met the definition of Disability and given
written notice of such termination to Employee.
C. Termination by Company Without Cause. The
Company may terminate Employee's employment hereunder without
Cause (as hereinafter defined) on 30 days' prior written
notice to Employee.
D. Termination by Company for Cause. Employee's
employment hereunder may be terminated for Cause by the
Company. For purposes of this Agreement, "Cause" shall mean
(i) the willful and continued failure by Employee to
substantially perform Employee's duties with the Company
(other than any such failure resulting from Employee's
incapacity due to physical or mental illness), (ii) an act or
acts of dishonesty taken by Employee and intended to result in
personal enrichment of Employee at the expense of the Company,
(iii) willful violation by Employee of Employee's material
obligations under this Agreement, (iv) willful violation by
Employee of a material policy of the Company, including its
policies regarding professional and ethical conduct, (v)
Employee's commission of one or more acts that constitute a
felony, (vi) Employee is publicly censured by the Securities
Exchange Commission, or (vii) Employee commits one or more
acts of fraud as regards the Company. For purposes of clause
(i) of this definition, no act, or failure to act, on
Employee's part shall be deemed "willful" unless done, or
omitted to be done, by Employee not in good faith and without
reasonable belief that Employee's act, or failure to act, was
in the best interest of the Company. The determination of
whether Cause exists must be made by a resolution duly adopted
by the affirmative vote of not less than a majority of the
entire membership of the Board of Directors of the Company.
E. Termination by Employee. Employee may
terminate his employment hereunder at any time on 30 days'
prior written notice to the Board.
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SECTION 6. Payments Upon Termination.
A. Upon termination of Employee's employment for any
reason prior to the expiration of the Term, the Company shall be
obligated to pay, and Employee shall be entitled to receive:
1. all accrued and unpaid Base Salary to the
date of termination;
2. any earned, but unpaid, bonuses for the
bonus year ending prior to the date of termination;
3. all incurred but unreimbursed business
expenses for which Employee is entitled to reimbursement; and
4. any benefits to which he is entitled under
the terms of any applicable employee benefit plan or program,
or applicable law.
B. Upon termination of Employee's employment pursuant to
Section 5.C., the Company shall be obligated to pay or provide, and
Employee's estate or beneficiary shall be entitled to receive:
1. all of the amounts and benefits described in
Section 6.A.; and
2. either (a) a lump sum payment equal to 1.5
times the sum of (i) Employee's Base Salary, plus (ii) the
most recent annual bonus earned by Employee or (b) a lump sum
payment equal to 1.5 times Employee's Base Salary and, solely
for purposes of determining Employee's vesting under any
Options, the number of shares that would become vested under
such Options during the 12-month period following Employee's
termination date if Employee's employment had continued during
such period shall become vested on his termination of
employment date, whichever of (a) or (b) is elected by
Employee in writing to the Company within five days of his
termination date.
C. In the event of any termination of employment under
Section 5, Employee shall be under no obligation to seek other
employment, and, except as provided in Section 6.D, there shall be no
offset against amounts due Employee under this Agreement on account of
any remuneration attributable to any subsequent employment or
self-employment that he may obtain.
D. The Company and Employee have previously or
contemporaneously with this Agreement entered into a Severance
Agreement which provides certain payments and benefits to Employee upon
a qualified termination of employment in connection with a change of
control of the Company. Notwithstanding anything in this Agreement to
the contrary, to the extent Employee is entitled to receive any
severance payment or benefits under the Severance Agreement any
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severance payment or benefits to which Employee is otherwise entitled
to receive under this Agreement shall be reduced or offset by the
severance payment or benefit payable under the Severance Agreement in
such manner as is appropriate, as determined in good faith by the
Board, to prevent a duplication of such payment and benefits.
SECTION 7. Indemnification. The Company agrees to indemnify Employee to
the fullest extent permitted by applicable law with respect to any acts or
non-acts he may have committed during the period which he was an officer,
director and/or employee of the Company or any subsidiary or affiliate thereof,
or of any other entity of which he served as an officer, director or employee at
the request of the Company.
SECTION 8. Covenants of Employee. Employee covenants as follows:
A. Confidentiality. During and after his employment with
the Company and its affiliates, Employee will hold in confidence all
confidential information and will not disclose it to any person other
than in connection with the performance of his duties and obligations
hereunder, except with the specific prior written consent of the Board
of Directors or the Chief Executive Officer; provided, however, that
the parties agree that this Agreement does not prohibit the disclosure
of confidential information where applicable law requires, including,
but not limited to, in response of subpoenas and/or orders of a
governmental agency or court of competent jurisdiction. In the event
that Employee is requested or becomes legally compelled under the terms
of a subpoena or order issued by a court of competent jurisdiction or
by a governmental body to make any disclosure of confidential
information, Employee agrees that he will (i) immediately provide the
Company with written notice of the existence, terms and circumstances,
surrounding such request(s) so that the Company may seek an appropriate
protective order or other appropriate remedy, (ii) cooperate with the
Company in its efforts to decline, resist or narrow such requests and
(iii) if disclosure of such confidential information is required in the
opinion of counsel, exercise reasonable efforts to obtain an order or
other reliable assurance that confidential treatment will be accorded
to such disclosed information. "Confidential information" means any and
all intellectual property of the Company (or any of its affiliates),
including but not limited to: (a) trade secrets concerning the business
and affairs of the Company (or any of its affiliates), product
specifications, data, know-how, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and development, current
and planned manufacturing or distribution methods and processes,
customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, computer software and programs
(including object code and source code), computer software and database
technologies, systems, structures, and architectures (and related
formulae, compositions, processes, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and
information), and any other information, however documented, that is a
trade secret under federal, state or other applicable law; and (b)
information concerning
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the business and affairs of the Company (or any of its affiliates)
(which includes historical financial statements, financial projections
and budgets, historical and projected sales, capital spending budgets
and plans, the names and backgrounds of key personnel, personnel
training and techniques and materials), however documented; and notes,
analysis, compilations, studies, summaries, and other material prepared
by or for the Company (or any of its affiliates) containing or based,
in whole or in part, on any information included in the foregoing.
B. Trade Secrets. Any trade secrets of the Company will
be entitled to all of the protections and benefits under the federal
and state trade secret and intellectual property laws and any other
applicable law. If any information that the Company deems to be a trade
secret is found by a court of competent jurisdiction not to be a trade
secret for purposes of this Agreement, such information will,
nevertheless, be considered confidential information for purposes of
this Agreement, so long as it otherwise meets the definition of
confidential information. Employee hereby waives any requirement that
the Company submit proof of the economic value of any trade secret or
post a bond or other security.
C. Proprietary Items. Employee will not remove from the
Company's premises (except to the extent such removal is for purposes
of the performance of Employee's duties at home or while traveling, or
except as otherwise specifically authorized by the Company) any
document, record, notebook, plan, model, component, device, or computer
software or code, whether embodied in a disk or in any other form
belonging to the Company or used in the Company's business
(collectively, the "Proprietary Items"). All of the Proprietary Items,
whether or not developed by Employee, are the exclusive property of the
Company. Upon termination of his employment, or upon the request of the
Company during the Term, Employee will return to the Company all of the
Proprietary Items and confidential information in Employee's possession
or subject to Employee's control, and Employee shall not retain any
copies, abstracts, sketches, or other physical embodiment, including
electronic or otherwise, of any of the Proprietary Items or
confidential information.
D. Non-Competition and Non-Interference. During the
period of his employment with the Company or its affiliates and for the
one-year period after the termination of his employment with the
Company and its affiliates, Employee will not, directly or indirectly:
1. without the express prior written consent of
the Board of Directors, own an interest in, manage, operate,
join, control, lend money or render financial or other
assistance to or participate in or be connected with, as an
officer, employee, partner, stockholder, consultant or
otherwise, any person that competes with the Company in the
field of neurostimulation in a matter covered by a patent
assigned to or held by the Company; provided, however, that
following Employee's termination of employment with the
Company the foregoing restriction shall apply only
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to those areas where the Company is actually doing business on
the date of such termination of employment; provided, further,
that Employee may purchase or otherwise acquire for passive
investment up to 3% of any class of securities of any such
enterprise if such securities are listed on any national or
regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934;
2. whether for Employee's own account or for
the account of any other person, (except for the account of
the Company and its affiliates), solicit Business from any
person known by Employee to be a customer of the Company or
its affiliates, whether or not Employee had personal contact
with such person during Employee's employment with the Company
and its affiliates;
3. whether for Employee's own account or the
account of any other person, (i) solicit, employ, or otherwise
engage as an employee, independent contractor, or otherwise,
any person who is an employee of the Company or an affiliate,
or in any manner induce, or attempt to induce, any employee of
the Company or its affiliate to terminate his employment with
the Company or its affiliate; or (ii) interfere with the
Company's or its affiliate's relationship with any person who
at any time during the Term, was an employee, contractor,
supplier, or customer of the Company or its affiliate; or
4. at any time after the termination of his
employment, disparage the Company or its affiliates or any
shareholders, directors, officers, employees, or agents of the
Company or any of its affiliates, so long as the Company does
not disparage Employee.
E. Acknowledgements. The Company acknowledges that it is
providing Employee with confidential information in order for Employee
to perform his duties under this Agreement. Employee acknowledges that
(a) the services to be performed by him under this Agreement are of a
special, unique, unusual, extraordinary, and intellectual character,
and (b) the provisions of this Section 8 are reasonable and necessary
to protect the confidential information, goodwill and other business
interests of the Company. If any covenant in this Section 8 is held to
be unreasonable, arbitrary, or against public policy, such covenant
will be considered to be divisible with respect to scope, time, and
geographic area, and such lesser scope, time, or geographic area, or
all of them, as a court of competent jurisdiction may determine to be
reasonable, not arbitrary, and not against public policy, will be
effective, binding, and enforceable against Employee. Employee hereby
agrees that this covenant is a material and substantial part of this
Agreement and that: (i) the geographic limitations are reasonable; (ii)
the term of the covenant is reasonable; and (iii) the covenant is not
made for the purpose of limiting competition per se and is reasonably
related to a protectable business interest of the Company. The period
of time applicable to any covenant in this Section 8 will be extended
by the duration of any violation
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by Employee of such covenant. The provisions of this Section 8 shall
survive the termination of the Term of this Agreement.
SECTION 9. Injunctive Relief and Additional Remedy. Employee
acknowledges that the injury that would be suffered by the Company as a result
of a breach of the provisions of Section 8 of this Agreement would be
irreparable and that an award of monetary damages to the Company for such a
breach would be an inadequate remedy. Consequently, the Company will have the
right, in addition to any other rights it may have, to obtain a temporary
restraining order and/or injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provision of this Agreement.
Employee waives any requirement for the Company's securing or posting of any
bond in conjunction with any such remedies. Employee further agrees to and
hereby does submit to in personam jurisdiction before each and every court for
that purpose. Without limiting the Company's rights under this Section or any
other remedies of the Company, if Employee breaches any of the provisions of
Section 8 and such breach is proven in a court of competent jurisdiction, the
Company will have the right to cease making any payments or providing other
benefits otherwise due Employee under this Agreement.
SECTION 10. Amendment; Waiver. The terms and provisions of this
Agreement may be modified or amended only by a written instrument executed by
each of the parties hereto, and compliance with the terms and provisions hereof
may be waived only by a written instrument executed by each party entitled to
the benefits thereof. No failure or delay on the part of any party in exercising
any right, power or privilege granted hereunder shall constitute a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power or privilege granted hereunder.
SECTION 11. Entire Agreement. Except as contemplated herein and the
Severance Agreement referenced in Section 6.D., this Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes any and all prior or contemporaneous written or oral agreements,
arrangements or understandings between the Company and Employee.
SECTION 12. Notices. All notices or communications hereunder shall be
in writing, addressed as follows or to any address subsequently provided to the
other party:
To the Company:
Cyberonics, Inc.
Attention: Chief Executive Officer
16511 Space Center Blvd., Suite 600
Houston, Texas 77058
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To Employee:
_________________________
_________________________
_________________________
All such notices shall be conclusively deemed to be received and shall be
effective, (i) if sent by hand delivery or overnight courier, upon receipt, (ii)
if sent by telecopy or facsimile transmission, upon confirmation of receipt by
the sender of such transmission or (iii) if sent by registered or certified
mail, on the fifth day after the day on which such notice is mailed.
SECTION 13. Severability. In the event that any term or provision of
this Agreement is found to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining terms and provisions hereof shall
not be in any way affected or impaired thereby, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained therein.
SECTION 14. Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns (it being understood and agreed that, except as expressly provided
herein, nothing contained in this Agreement is intended to confer upon any other
person or entity any rights, benefits or remedies of any kind or character
whatsoever). No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company, provided that the assignee or
transferee is the successor to all or substantially all of the assets of the
Company and such assignee or transferee assumes the liabilities, obligations and
duties of the Company, as contained in this Agreement, either contractually or
as a matter of law. The Company further agrees that, in the event of a sale of
assets or liquidation as described in the preceding sentence, it shall take
whatever action it legally can in order to cause such assignee or transferee to
expressly assume the liabilities, obligations and duties of the Company
hereunder.
SECTION 15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas (except that no
effect shall be given to any conflicts of law principles thereof that would
require the application of the laws of another jurisdiction).
SECTION 16. Submission to Jurisdiction. EACH PARTY HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS IN HARRIS
COUNTY, TEXAS, FOR THE PURPOSES OF ANY PROCEEDING ARISING OUT OF THIS AGREEMENT.
SECTION 17. Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
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SECTION 18. Tax Withholdings. The Company shall withhold from all
payments hereunder all applicable taxes that it is required to withhold with
respect to payments and benefits provided under this Agreement.
SECTION 19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
effective as of the date set forth above.
CYBERONICS, INC.
By: /s/ Robert P. Cummins
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Robert P. Cummins
Chairman of the Board of Directors
and Chief Executive Officer
EMPLOYEE
/s/ Michael Cheney
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Michael Cheney
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