RETENTION AGREEMENT
Exhibit 10.63
THIS RETENTION AGREEMENT (the “Agreement”), made and entered into
effective as of November 14, 2005 (the “Effective Date”), is by and between
Cyberonics, Inc., a Delaware corporation (the “Company”), Xxxx Xxxxxxxx (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 December 31, 2005; provided, however, that commencing on
December 31, 2005 and on each December 31st thereafter, the Term of
this Agreement shall automatically be extended for one additional year, unless
at least six months prior to such December 31 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
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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.
3. Termination on or Following a Change of Control. If a Change 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’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 (as defined below), 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
(“Disability”), 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
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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 detail.
(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 Reason;
(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);
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(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 Control;
(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 circumstance.
(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 specific 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 indicated.
(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
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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.
4. Compensation During Disability or Upon Termination.
(i) If, during the Protected Period, Employee fails to perform Employee’s normal duties due
to Disability, Employee shall continue during the period of such Disability to receive Employee’s
full Base Salary and any awards, deferred and non-deferred, 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
as provided herein 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 or Disability, (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,
then subject to subparagraph (v) below, the Company shall forgive any amount payable by the
Employee to the Company under the Relocation Agreement, if applicable, and 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) the sum of Employee’s Base Salary, Annual Bonus and Annual
Targeted Commission amount where applicable; 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. As used herein,
“Annual Earned Commission” means the total commissions actually paid to Employee during the four
fiscal quarters immediately preceding the Date of Termination. If Employee has been employed for
at least one fiscal quarter and less than four fiscal quarters as of the Date of
Termination, the “Annual Earned Commission” shall be equal to four times the quarterly
average of commissions actually paid to Employee during the relevant fiscal quarters. If Employee
has been employed less than one fiscal quarter as of the Date of Termination, the “Annual Earned
Commission” shall be the total amount of Employee’s commissions targeted for the four fiscal
quarters following the Date of Termination.
(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.
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(v) It is the intent of the parties hereto that, notwithstanding any provision of this
Agreement to the contrary, in the event any payment to be made to or on behalf of Employee pursuant
to this Agreement, when aggregated with any other payments and benefits to or on behalf of Employee
outside of this Agreement, would constitute an “excess parachute payment”, within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended, Employee shall elect (absent an
Employee election, the Company shall elect) which payment(s) and/or benefit(s) will be reduced in
whole or in part so that no part of the payments received hereunder will constitute excess
parachute payments. However, any such reduction(s) shall be made only if by reason of such
reduction(s) Employee’s net after-tax benefit, after such reductions, shall exceed Employee’s net
after-tax benefit if such reduction(s) were not made. The determination of whether any amount or
benefit would be an “excess parachute payment” shall be made by an independent certified public
accounting firm mutually agreed upon by the Company and Employee. The costs of obtaining such
determination shall be borne solely by the Company.
(vi) Compensation paid pursuant to this Section 4 or otherwise under the terms of this
Agreement shall be in lieu of any other severance or separation payments Employee may be otherwise
entitled to under the Company’s policies, procedures or practices.
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.
6. At-Will Employment. Nothing contained in this Agreement is intended to or shall (i)
guarantee Employee’s employment for any specified term; or (ii) be construed as a contract
limiting the prerogative of the Company or Employee to terminate the employment relationship,
with or without cause, or, with or without notice.
7. Successors; Binding Agreement.
(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, provided that Employee first notifies the Company in writing of the
Employee’s election to either (A) terminate employment effective as of the date on which any such
succession becomes effective; or (B) maintain the employment relationship, subject to reducing
any
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obligation of Company or its successor to pay severance or separation payments to Employee at
any point thereafter by the full value of any payment hereunder. 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 estate.
8. 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.
000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxx, XX 00000
Facsimile No.: 000-000-0000
000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxx, XX 00000
Facsimile No.: 000-000-0000
If to Employee:
Xxxx Xxxxxxxx
XX Xxx 0000
Xxxxxx Xxxx, XX 00000
XX Xxx 0000
Xxxxxx Xxxx, XX 00000
9. 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.
10. 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
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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.
11. 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.
12. Descriptive Headings. Descriptive headings are for convenience only and shall not control
or affect the meaning or construction of any provision of this Agreement.
13. 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.
14. 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 Agreement.
15. Taxes. The Company may withhold from any amounts payable under this Agreement such
federal, state or local taxes as shall be required to be withheld pursuant to any applicable law
or regulation.
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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/ Xxxxxx X. Xxxxxx | ||||
| Name: | Xxxxxx X. Xxxxxx | ||||
| Title: | Vice President, Human Resources | ||||
| EMPLOYEE |
|||||
| /s/ Xxxx Xxxxxxxx | 3/6/06 | ||||
| Xxxx Xxxxxxxx | Date | ||||
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