AMENDMENT TO SEVERANCE AGREEMENT
Exhibit
10.4
AMENDMENT
TO SEVERANCE AGREEMENT
THIS AMENDMENT TO SEVERANCE
AGREEMENT (the “Amendment”), made and entered into effective as of this
______ day of _________________, 2008 (the “Effective Date”), is by and between
Cyberonics, Inc., a
Delaware corporation (the “Company”), and _______________________ (the
“Employee”).
WHEREAS, Employee is a key
employee of the Company; and
WHEREAS, the Company and
Employee previously entered into a Severance Agreement (the “Agreement”) seeking
to retain Employee despite the possibility of a Change of Control (as defined in
the Agreement) and the fact that this possibility is unsettling and may result
in the departure of key employees to the detriment of the Company and its
stockholders;
WHEREAS, the Agreement remains
in full force and effect as of this date; and
WHEREAS, the Company and
Employee desire to amend the terms and conditions of the Agreement so as to
bring the Agreement into documentary compliance with the final Treasury
Regulations under Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”);
THEREFORE, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Employee agree to modify the Agreement as
follows:
1. The
first paragraph of Section 3 shall be amended to delete the following
language:
“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.”
|
|
2.
|
Section
3(v) shall be amended to replace the provision in its entirety with the
following:
|
“(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 which is thirty (30) days from
the date of the Notice of Termination, and (C) if Employee’s employment is
terminated for any other reason on or after a Change of Control, the date of
such termination.”
|
|
3.
|
Section
4(i) shall be amended to replace the provision in its entirety with the
following:
|
“(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 (prior to termination of
employment) 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.”
|
|
4.
|
Section
4(ii) shall be amended to replace the provision in its entirety with the
following:
|
"(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."
|
|
5.
|
Section
4(iii) shall be amended to replace the provision in its entirety with the
following:
|
“(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, Company shall pay to Employee an amount
equal to (A) three times the sum of Employee’s Base Salary and Bonus Amount at
the time of termination; 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 (C) 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. Subject to Section 14, the
payments under clause (A) above shall be paid within five business days after
Employee’s Separation from Service resulting from Employee’s termination under
this Section 4(iii). The payment under clause (B) above shall be made
within five business days after the Date of Termination. Any payments
under clause (C) above shall be paid at such time and in such manner as set
forth in such plans or programs subject to compliance with Code Section
409A. For purposes of this Agreement, Employee's "Separation from
Service" shall mean
a separation from service as determined in accordance with Code Section 409A and
the applicable standards of the Treasury Regulations issued
thereunder.”
|
|
6.
|
Section
4(v) shall be amended to replace the provision in its entirety with the
following:
|
“(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. Such payment shall be made within ten
(10) business days following the date that the Excise Taxes are remitted to the
tax authorities but no later than the close of the calendar year following the
calendar year in which the taxes are remitted to the tax authorities. 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) within
ten (10) business days following the date that the Excise Taxes are remitted to
the tax authorities but no later than the close of the calendar year following
the calendar year in which the taxes are remitted to the tax authorities.
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.”
|
|
7.
|
The
Agreement shall be amended to include the following as a new Section
14:
|
“14. Section 409A.
(i) This
Agreement is intended to comply with the requirements of Section 409A of the
Code. Accordingly, all provisions herein shall be construed and
interpreted to comply with Code Section 409A and if necessary, any such
provision shall be deemed amended to comply with Code Section 409A and the
regulations thereunder.
(ii) Notwithstanding
any provision to the contrary in this Agreement, no payments or benefits to
which Employee becomes entitled under this Agreement in connection with the
termination of Employee’s employment with the Company shall be made or paid to
Employee prior to the earlier of (i) the first day
of the seventh (7th) month following the date of Employee’s Separation from
Service due to such termination of employment or (ii) the date of Employee’s
death, if Employee is deemed, pursuant to the procedures established by the
Board in accordance with the applicable standards of Code Section 409A and the
Treasury Regulations thereunder and applied on a consistent basis for all for
all non-qualified deferred compensation plans subject to Code Section 409A, to
be a “specified employee” at the time of such Separation from
Service and such delayed commencement is otherwise required in order
to avoid a prohibited distribution under Code Section
409A(a)(2). Upon the expiration of the applicable Code Section
409A(a)(2) deferral period, all payments deferred pursuant to this Section
14(ii) shall be paid in a lump sum to Employee, and any remaining payments due
under this Agreement shall be paid in accordance with the normal payment dates
specified for them herein. The specified employees subject to a
delayed commencement date shall be identified on December 31 of each calendar
year. If Employee is so identified on any such December 31, he shall
have specified employee status for the twelve (12)-month period beginning on
April 1 of the following calendar year.”
8. Employee
acknowledges that Employee has had the right to consult with counsel and is
fully aware of his rights and obligations under Agreement and this
Amendment.
9. Except
as expressly modified by this Amendment, the provisions of the Agreement remain
unchanged and in full force and effect.
IN
WITNESS WHEREOF, Company and Employee have caused this Amendment to be executed
by their duly authorized representative as of the date and year set forth
above.
|
Cyberonics,
Inc.
|
Employee
|
|
By:___________________________________
|
By:__________________________________
|
|
Date:_________________________________
|
Date:_________________________________
|
