INDEMNIFICATION AGREEMENT
Exhibit 10.61
This Indemnification Agreement (this “Agreement”) is executed on and effective as of August 1,
2003 (the “Effective Date”), by and between Cyberonics, Inc., a Delaware corporation (the
“Company”), and Xxxxx X. Xxxx (“Officer”).
WHEREAS, the Company and Officer recognize the difficulty in obtaining directors’ and
officers’ liability insurance, the increases in the cost of such insurance, and the general
limitations in the coverage of such insurance;
WHEREAS, the Company and Officer further recognize the substantial increase in corporate
litigation in general, subjecting officers and directors to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been severely limited;
WHEREAS, Officer does not regard the current protection available as adequate under the
present circumstances, and Officer and other officers and directors of the Company may not be
willing to serve or continue to serve as officers and directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of highly qualified
individuals, such as Officer, to serve as officers and directors of the Company and to indemnify
its officers and directors so as to provide them with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Officer hereby agree as follows:
1. Indemnification.
a. Third Party Proceedings. The Company shall indemnify Officer and any partnership,
corporation, trust, or other entity of which Officer is or was a partner, stockholder, trustee,
director, officer, employee, or agent (Officer and each such partnership, corporation, trust, or
other entity being referred to as an “Indemnitee”) if Indemnitee is or was a party or is
threatened to be made a party to any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative (other than an action by or in the right
of the Company) by reason of the fact that Officer is or was a director, officer, employee, or
agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the
part of Officer while an officer or director or by reason of the fact that Officer is or was
serving at the request of the Company as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against expenses (including
attorneys’ fees), judgments, fines, and amounts paid in settlement (if such settlement is approved
in advance by the Company, which approval shall not be unreasonably withheld) actually and
reasonably incurred by Indemnitee in connection with such action, suit, or proceeding, if Officer
acted in good faith and in a manner Officer reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Officer’s conduct was unlawful. The termination of any action, suit,
or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that Officer did not act in good faith and
in a manner that Officer reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe
that Officer’s conduct was unlawful.
b. Proceedings By or in the Right of the Company. The Company shall indemnify
Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the Company or any subsidiary of the
Company to procure a judgment in its favor by reason of the fact that Officer is or was a director,
officer, employee, or agent of the Company, or any subsidiary of the Company, by reason of any
action or inaction on the part of Officer while an officer or director or by reason of the fact
that Officer is or was serving at the request of the Company as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts paid in
settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of such action or suit, if Officer acted in good faith and in a
manner Officer reasonably believed to be in or not opposed to the best interests of the Company,
except that no indemnification shall be made in respect of any claim, issue, or matter as to which
Officer shall have been adjudged to be liable to the Company unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such
expenses that the Court of Chancery of the State of Delaware or such other court shall deem proper.
c. Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on
the merits or otherwise in defense of any action, suit, or proceeding referred to in Sections 1(a)
and (b) or the defense of any claim, issue, or matter therein, Indemnitee shall be indemnified
against expenses (including attorneys’ fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. Expenses; Indemnification Procedure.
a. Advancement of Expenses. The Company shall advance all expenses incurred by
Indemnitee, and, to the fullest extent permitted by law, amounts paid in settlement by Indemnitee,
in connection with the investigation, defense, settlement, or appeal of any civil or criminal
action, suit, or proceeding referenced in Section 1(a) or (b) hereof. Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined
that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances
to be made hereunder shall be paid by the Company to Indemnitee within 20 days following delivery
of a written request therefor by Indemnitee to the Company.
b. Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to
his or its right to be indemnified under this Agreement, give the Company notice in writing as
soon as practicable of any claim made against Indemnitee for which indemnification will or could
be sought under this Agreement. Notice to the Company shall be directed to the President of the
Company at the address shown on the signature page of this Agreement, or such other address as the
Company shall designate in writing to Indemnitee. Notice shall be deemed received three business
days after the date postmarked if sent by domestic certified or registered mail, properly
addressed; otherwise notice shall be deemed received when such notice shall actually be received
by the Company. In addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee’s power.
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c. Procedure. Any indemnification and advances provided for in Section 1 and this
Section 2 shall be made no later than 45 days after receipt of the written request of Indemnitee.
If a claim under this Agreement, under any statute, or under any provision of the Company’s
Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the
Company within 45 days after a written request for payment thereof has first been received by the
Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company
to recover the unpaid amount of the claim and, subject to Section 12 of this Agreement, Indemnitee
shall also be entitled to be paid for the expenses (including attorneys’ fees) of bringing such
action. It shall be a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in connection with any action, suit, or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct that make it permissible under
applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim
payments of expenses pursuant to Subsection 2(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal exists. It is the
parties’ intention that if the Company contests Indemnitee’s right to indemnification, the question
of Indemnitee’s right to indemnification shall be for the court to decide, and neither the failure
of the Company (including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a determination that
indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual determination by the
Company (including its Board of Directors, any committee or subgroup of the Board of Directors,
independent legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
d. Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant
to Section 2(b) hereof, the Company has directors’ and officers’ liability insurance in effect, the
Company shall give prompt notice of the commencement of such proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee,
all amounts payable as a result of such proceeding in accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be obligated under Section
2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee
(whose approval shall not be unreasonably withheld), upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his
counsel in any such proceeding at Indemnitee’s expense; and (ii) if (A) the employment of counsel
by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and Indemnitee in the
conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume
the defense of such proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the
expense of the Company.
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3. Additional Indemnification Rights; Nonexclusivity.
a. Scope. Notwithstanding any other provision of this Agreement, the Company hereby
agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that
such indemnification is not specifically authorized by the other provisions of this Agreement, the
Company’s Certificate of Incorporation, the Company’s Bylaws, or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or rule that expands the
right of a Delaware corporation to indemnify a member of its board of directors or an officer, such
changes shall be, ipso facto, within the purview of Indemnitee’s rights and Company’s obligations
under this Agreement. In the event of any change in any applicable law, statute, or rule that
narrows the right of a Delaware corporation to indemnify a member of its board of directors or an
officer, such changes, to the extent not otherwise required by such law, statute, or rule to be
applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and
obligations hereunder.
b. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Officer or any other Indemnitee may be entitled under the
Company’s Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of Delaware, or otherwise, both
as to action in Officer’s official capacity and as to action in another capacity while holding
such office. The indemnification provided under this Agreement shall continue as to Officer and
each other Indemnitee for any action taken or not taken while Officer is or was serving in an
indemnified capacity even though he may have ceased to serve in such capacity at the time of any
action, suit, or other covered proceeding.
4. Partial Indemnification. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the expenses, judgments,
fines, or penalties actually or reasonably incurred by Indemnitee in the investigation, defense,
appeal, or settlement of any civil or criminal action, suit, or proceeding, but not, however, for
the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines, or penalties to which Indemnitee is entitled.
5. Mutual Acknowledgment. Both the Company and Officer acknowledge that in certain
instances Federal law or applicable public policy may prohibit the Company from indemnifying its
directors and officers under this Agreement or otherwise, in which event, notwithstanding any other
provisions of this Agreement to the contrary, the indemnification provided by this Agreement shall
be limited to such extent as is necessary to comply with applicable Federal law or public policy.
For example, the Company and Officer acknowledge that the Securities and Exchange Commission (the
“SEC”) has taken the position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits indemnification for certain
violations of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Officer
understands and acknowledges that in the event the Company undertakes a public offering of its
securities pursuant to a registration with the SEC, the Company may be required to undertake with
the SEC to submit the question of indemnification to a court in certain circumstances for a
determination of the Company’s right under public policy to indemnify Officer or any other
Indemnitee.
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6. Directors and Officers Liability Insurance. The Company has applied for and will
use its best efforts to obtain and maintain in force with a financially sound and reputable insurer
a directors, officers, and corporate liability insurance policy having a limit which the Company,
together with the Board of Directors, approves as providing coverage appropriate and acceptable to
the Board of Directors. In all policies of directors and officers liability insurance, Officer and
each other Indemnitee shall be named as an insured in such a manner as to provide Officer the same
rights and benefits as are accorded to the most favorably insured of the Company’s directors.
7. Severability. Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or fail to do any act in violation of applicable law. The
Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall
not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as
provided in this Section 7. If this Agreement or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify
Officer and each other Indemnitee to the full extent permitted by any applicable portion of this
Agreement that shall not have been invalidated, and the balance of this Agreement not so
invalidated shall be enforceable in accordance with its terms.
8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:
a. Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with
respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of
defense, except with respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of
expenses may be provided by the Company in specific cases if the Board of Directors finds it to be
appropriate;
b. Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the
Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this
Agreement, if a court of competent jurisdiction determines that each of the material assertions
made by the Indemnitee in such proceeding was not made in good faith or was frivolous;
c. Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA, excise taxes or penalties, and
amounts paid in settlement) that have been paid directly to Indemnitee by an insurance carrier
under a policy of officers’ and directors’ liability insurance maintained by the Company; or
d. Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of
profits arising from the purchase and sale by Indemnitee of securities in violation of Section
16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.
9. Construction of Certain Phrases.
a. For purposes of this Agreement, references to the “Company” shall include, in addition to
the resulting corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger, so that if Indemnitee is or was a director,
officer,
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employee, or agent of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent corporation if its separate
existence had continued.
b. For purposes of this Agreement, references to “other enterprises” shall include employee
benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with
respect to an employee benefit plan; and references to “serving at the request of the Company”
shall include any service as a director, officer, employee, or agent of the Company that imposes
duties on, or involves services by, such director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner
“not opposed to the best interests of the Company” as referred to in this Agreement.
10. Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall constitute an original.
11. Successors and Assigns. This Agreement shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of Officer and each other Indemnitee and
their respective estates, heirs, successors, legal representatives, and assigns.
12. Attorneys’ Fees. In the event that any action is instituted by Indemnitee under
this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be
paid all court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee
with respect to such action, unless as a part of such action, the court of competent jurisdiction
determines that each of the material assertions made by Indemnitee as a basis for such action was
not made in good faith or was frivolous. In the event of an action instituted by or in the name of
the Company under this Agreement or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys’ fees,
incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s
counterclaims and cross-claims made in such action), unless as a part of such action the court
determines that each of Indemnitee’s material defenses to such action was made in bad faith or was
frivolous.
13. Notice. All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed duly given on the third business day after the
date postmarked, if delivered by domestic certified or registered mail with postage prepaid, or, if
delivered by other means, on the date actual notice is received. Addresses for notice to either
party are as shown on the signature page of this Agreement, or as subsequently modified by written
notice.
14. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably
consent to the non-exclusive jurisdiction of the courts of the State of Delaware for all purposes
in connection with any action or proceeding that arises out of or relates to this Agreement and
agree that any action instituted under this Agreement may be brought in any court of competent
jurisdiction in the State of Delaware.
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15. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND ITS PROVISIONS CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AS APPLIED TO CONTRACTS BETWEEN DELAWARE
RESIDENTS ENTERED INTO AND TO BE PERFORMED ENTIRELY WITHIN DELAWARE.
[Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective
Date.
| COMPANY: | ||||||
| Cyberonics, Inc. | ||||||
| By: | /s/ Xxxxxx X. Xxxxxxx | |||||
| Xxxxxx X. Xxxxxxx, | ||||||
| Chief Executive Officer | ||||||
| OFFICER: | ||||||
| /s/ Xxxxx X. Xxxx | ||||||
| Xxxxx X. Xxxx | ||||||
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