Exhibit 10.3

 

WORLD HEART CORPORATION

 

CHANGE OF CONTROL AND SEVERANCE AGREEMENT

 

This Change of Control and Severance Agreement (the “Agreement”) is dated as of
September 8, 2009, by and between Morgan R. Brown (“Employee”) and World Heart
Corporation (the “Company”).  This Agreement is intended to provide Employee
with certain benefits described herein upon the occurrence of specific events.

 

RECITALS

 

A.                                    It is expected that another company may
from time to time consider the possibility of acquiring the Company or that a
change in control may otherwise occur, with or without the approval of the
Company’s Board of Directors. The Board of Directors recognizes that such
consideration can be a distraction to Employee and can cause Employee to
consider alternative employment opportunities.  The Board of Directors has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued dedication and objectivity of
the Employee, notwithstanding the possibility, threat or occurrence of a Change
of Control (as defined below) of the Company.

 

B.                                    The Company’s Board of Directors believes
it is in the best interests of the Company and its stockholders to retain
Employee and provide incentives to Employee to continue in the service of the
Company.

 

C.                                    The Board of Directors further believes
that it is imperative to provide Employee with certain benefits upon termination
of Employee’s employment, in connection with a Change of Control and otherwise,
which benefits are intended to provide Employee with financial security and
provide sufficient income and encouragement to Employee to remain with the
Company, notwithstanding the possibility of a Change of Control.

 

D.                                    To accomplish the foregoing objectives,
the Board of Directors has directed the Company, upon execution of this
Agreement by Employee, to agree to the terms provided in this Agreement.

 

Now therefore, in consideration of the mutual promises, covenants and agreements
contained herein, and in consideration of the continuing employment of Employee
by the Company, the parties hereto agree as follows:

 

1.                                      At-Will Employment.  The Company and
Employee acknowledge that Employee’s employment is and shall continue to be
at-will, as defined under applicable law, and that Employee’s employment with
the Company may be terminated by either party at any time for any or no reason. 
If Employee’s employment terminates for any reason, Employee shall not be
entitled to any payments, benefits, award or compensation other than as provided
in this Agreement.  The terms of this Agreement shall terminate upon the earlier
of (i) the date on which Employee ceases to be employed as an officer of the
Company, other than as a result of an

 

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involuntary termination by the Company without Cause (as defined below) or
Employee’s resignation for Good Reason (as defined below); or (ii) the date that
all obligations of the parties hereunder have been satisfied.  A termination of
the terms of this Agreement pursuant to the preceding sentence shall be
effective for all purposes, except that such termination shall not affect the
payment or provision of compensation or benefits on account of a termination of
employment occurring prior to the termination of the terms of this Agreement. 
The rights and duties created by this Section 1 may not be modified in any way
except by a written agreement executed by an officer of the Company upon
direction from the Board of Directors.

 

2.                                      Benefits Upon Termination of Employment;
Change of Control Benefits.

 

(a)                                 Termination In Connection with or Following
a Change of Control.  In the event that Employee’s employment is terminated as a
result of an involuntary termination other than for Cause (and other than as a
result of death or disability as disability is defined for purposes of the
Company’s long-term disability policies) or if Employee resigns for Good Reason,
as of, immediately prior to or at any time within twelve (12) months following
the effective date of a Change of Control, then Employee will be entitled to
receive severance benefits as follows: (i) a lump sum severance payment equal to
nine (9) months of the base salary which Employee was receiving immediately
prior to the Change of Control plus 75% of Employee’s target annual bonus as in
effect immediately prior to the Change of Control, which shall be paid on the
date that is sixty (60) days after the effective date of the termination,
(ii) continuation of the health insurance benefits provided to Employee for
Employee and Employee’s eligible dependents immediately prior to the Change of
Control at Company expense pursuant to the terms of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law
until the earlier of the date nine (9) months after the effective date of the
termination or the date upon which Employee is no longer eligible for such COBRA
or other benefits under applicable law, and (iii) each stock option to purchase
the Company’s common shares (“Common Stock”) and all shares of restricted stock
granted to Employee over the course of Employee’s employment with the Company
and held by Employee on the date of termination of employment shall become
immediately vested as to 75% of each of the then unvested options and shares. 
In addition, Employee will receive payment(s) for all accrued and unpaid salary,
bonuses and PTO as of the date of Employee’s termination of employment.

 

(b)                                 Termination Not In Connection with or
Following a Change of Control.  In the event that Employee’s employment is
terminated as a result of an involuntary termination other than for Cause (and
other than as a result of death or disability as disability is defined for
purposes of the Company’s long-term disability policies) or if Employee resigns
for Good Reason at any time other than as of, immediately prior to, or within
twelve (12) months following, the effective date of a Change of Control, then
Employee will be entitled to receive severance benefits as follows:
(i) severance payments during the period from the date of Employee’s termination
until the date nine (9) months after the effective date of the termination (the
“Benefit Period”) equal to the base salary which Employee was receiving
immediately prior to the termination date, which shall be paid during the
Benefit Period in equal installments in accordance with the Company’s standard
payroll practices, except that any and all payments that would otherwise have
been made before the sixtieth (60th) day after the date of Employee’s

 

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effective date of termination (the “First Payment Date”) shall be made on the
First Payment Date, (ii) continuation of the health insurance benefits provided
to Employee and Employee’s eligible dependents immediately prior to the
termination date at Company expense pursuant to COBRA or other applicable law
until the earlier of the date nine (9) months after the effective date of the
termination or the date upon which Employee is no longer eligible for such COBRA
or other benefits under applicable law, and (iii) if Employee holds any
outstanding options that have not reached the option’s one-year cliff vesting
requirement, the Company will waive the one-year cliff vesting requirement of
each such option and Employee will be credited with vesting on the Employee’s
termination date equal to 1/48th of the option shares multiplied by each full
month of Employee’s employment since the vesting commencement date of the
option.  In addition, Employee will receive payment(s) for all accrued and
unpaid salary, bonuses and PTO as of the date of Employee’s termination of
employment.  Notwithstanding the foregoing, no severance benefits shall be paid
under this Section 2(b) if at or prior to the time of the Employee’s termination
or if in connection with the Employee’s termination, the Company (i) is in a
bankruptcy proceeding, whether voluntary or involuntary, (ii) is in the process
of liquidating or dissolving, whether voluntary or involuntary, or (iii) the
Board of Directors has approved the liquidation, dissolution or winding down of
the Company.

 

(c)                                  Termination for Cause or Voluntary
Resignation other than for Good Reason.  If Employee’s employment is terminated
for Cause at any time or if Employee voluntarily resigns from the Company at any
time for any reason other than Good Reason, then Employee shall not be entitled
to receive payment of any severance benefits under this Agreement.  Employee
will receive payment(s) for all accrued and unpaid salary and PTO as of the date
of Employee’s termination of employment and Employee’s benefits will be
continued under the Company’s then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination and
in accordance with applicable law.

 

3.                                           Definition of Terms.  The following
terms referred to in this Agreement shall have the following meanings:

 

(a)                                 Change of Control.  “Change of Control”
shall mean the occurrence, in a single transaction or in a series of related
transactions, of any one or more of the following events:  (i)  a sale or other
disposition of all or substantially all, as determined by the Board of Directors
of the Company in its sole discretion, of the consolidated assets of the Company
and its subsidiaries; (ii) a merger, consolidation or similar transaction
following which the Company is not the surviving corporation; or (iii) a merger,
consolidation or similar transaction following which the Company is the
surviving corporation but the shares of the Company’s Common Stock outstanding
immediately preceding the merger, consolidation or similar transaction are
converted or exchanged by virtue of the merger, consolidation or similar
transaction into other property, whether in the form of securities, cash or
otherwise.  Notwithstanding the foregoing, a Change of Control shall not be
deemed to occur (A) on account of the acquisition of securities of the Company
by an investor, any affiliate thereof or any other person that acquires the
Company’s securities in a transaction or series of related transactions the
primary purpose of which is to obtain financing for the Company through the
issuance of equity securities or (B) on account of a sale of assets, merger or
other transaction effected exclusively for the purpose of changing the domicile
of the Company.

 

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(b)                                 Cause.  “Cause” shall mean the occurrence of
any one or more of the following: (i) Employee’s conviction of any felony or
crime involving fraud, dishonesty or moral turpitude; (ii) Employee’s
participation in a fraud or act of dishonesty against the Company, an affiliate
of the Company or any successor to the Company that results in material harm to
the business of the Company, an affiliate of the Company or any successor to the
Company; or (iii) Employee’s intentional, material violation of any contract
between the Company, an affiliate of the Company or any successor to the Company
and Employee or any statutory duty Employee owes to the Company, an affiliate of
the Company or any successor to the Company that Employee does not correct
within thirty (30) days after written notice thereof has been provided to
Employee.

 

(c)                                  Good Reason.  “Good Reason” for Employee’s
resignation of Employee’s employment will exist following the occurrence of any
of the following without Employee’s consent:  (i) a material diminution of
Employee’s authority or responsibilities as Chief Financial Officer; (ii) a
material decrease of Employee’s compensation or benefits, unless the decrease is
proportional to an across-the-board decrease affecting all senior executives;
(iii) a material breach by the Company of any material provision of this
Agreement or any written employment agreement with Employee; or (iv) an
involuntary relocation of Employee’s principal work location for the Company
outside of Salt Lake City, Utah.  Before any resignation for Good Reason,
Employee will provide the Company with specific written notice about the
circumstances allegedly constituting Good Reason within ninety (90) days after
the occurrence of the circumstances, and the Company will have thirty (30) days
to cure, if such conduct is reasonably susceptible to being cured.  A
resignation for Good Reason must take place within sixty (60) days after the end
of the cure period.

 

4.                                      Parachute Payments.  In the event that
the acceleration and severance benefits provided for in this Agreement
(A) constitute “parachute payments” within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the “Code”) and (B) but for this
paragraph, would be subject to the excise tax imposed by Section 4999 of the
Code, then Employee’s benefits hereunder shall be payable either: (X) in full,
or (Y) as to such lesser amount which would result in no portion of such
severance benefits being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by Employee on an after-tax basis, of the greatest amount of
benefits hereunder, notwithstanding that all or some portion of such benefits
may be taxable under Section 4999 of the Code.  Any determination required under
this paragraph shall be made in writing by the public accountants designated by
the Company (the “Accountants”), whose determination shall be conclusive and
binding upon Employee and the Company for all purposes.  For purposes of making
the calculations required by this paragraph, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of
Section 280G and 4999 of the Code.  The Company and Employee shall furnish to
the Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this paragraph.  The Company
shall bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this paragraph.  In the event that a reduction in
payments and/or benefits is required under this section 4, such reduction shall
occur in the

 

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following order: (1) reduction of cash payments; (2) reduction of acceleration
of vesting of options and shares; and (3) reduction of other benefits paid to
Employee. If the acceleration of vesting of options and shares is to be reduced,
such acceleration of vesting shall be cancelled in the reverse order of the
highest price option grant or highest purchase price per share down to the
lowest priced option grant or lowest purchase price per share.

 

5.                                      Limitations and Conditions on Benefits

 

(A)                                 INCOME AND EMPLOYMENT TAXES.  EMPLOYEE
AGREES THAT EMPLOYEE SHALL BE RESPONSIBLE FOR ANY APPLICABLE TAXES OF ANY NATURE
(INCLUDING ANY PENALTIES OR INTEREST THAT MAY APPLY TO SUCH TAXES) THAT THE
COMPANY REASONABLY DETERMINES APPLY TO ANY PAYMENT MADE HEREUNDER, THAT
EMPLOYEE’S RECEIPT OF ANY BENEFIT HEREUNDER IS CONDITIONED ON EMPLOYEE’S
SATISFACTION OF ANY APPLICABLE WITHHOLDING OR SIMILAR OBLIGATIONS THAT APPLY TO
SUCH BENEFIT, AND THAT ANY CASH PAYMENT OWED HEREUNDER WILL BE REDUCED TO
SATISFY ANY SUCH WITHHOLDING OR SIMILAR OBLIGATIONS THAT MAY APPLY.

 

(b)                                 Code Section 409A.  All severance benefits
to be paid upon a termination of employment under this Agreement may be made
only upon a  “separation of service” within the meaning of Section 409A of the
Code and the Department of Treasury regulations and other guidance promulgated
thereunder (a “Separation from Service”).  Notwithstanding any provision to the
contrary in this Agreement, if Employee is deemed by the Company at the time of
Employee’s Separation from Service to be a “specified employee” for purposes of
Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any
portion of the benefits to which Employee is entitled under this Agreement is
required in order to avoid a prohibited distribution under
Section 409A(a)(2)(B)(i) of the Code, such portion of Employee’s benefits will
not be provided to Employee prior to the earlier of (i) the expiration of the
six-month period measured from the date of the Employee’s Separation from
Service or (ii) the date of Employee’s death.  Upon the first business day
following the expiration of the applicable Code Section 409A(a)(2)(B)(i) period,
all payments deferred pursuant to this Section 5(b) will be paid in a lump sum
to Employee (or Employee’s estate or beneficiaries), and any remaining payments
due under the Agreement will be paid as otherwise provided herein.  For purposes
of Section 409A of the Code, Employee’s right to receive the payments of
compensation pursuant to the Agreement will be treated as a right to receive a
series of separate payments and accordingly, each payment will at all times be
considered a separate and distinct payment.  This paragraph is intended to
comply with the requirements of Section 409A of the Code so that none of the
severance payments and benefits to be provided hereunder will be subject to the
additional tax imposed under Section 409A of the Code and any ambiguities herein
will be interpreted to so comply.  Employee and the Company agree to work
together in good faith to consider amendments to this Agreement and to take such
reasonable actions which are necessary, appropriate or desirable to avoid
imposition of any additional tax or income recognition prior to actual payment
to Employee under Section 409A of the Code.

 

(C)                                  RELEASE PRIOR TO RECEIPT OF BENEFITS.  THE
COMPANY’S OBLIGATION TO MAKE THE PAYMENTS AND PROVIDE THE BENEFITS HEREUNDER
SHALL BE CONDITIONED UPON (I) EMPLOYEE’S EXECUTION AND DELIVERY TO THE COMPANY
OF A RELEASE OF ALL CLAIMS THAT EMPLOYEE THEN MAY HAVE, IN STANDARD FORM AND
CONTENT, WITHIN FIFTY (50) DAYS FOLLOWING EMPLOYEE’S SEPARATION FROM

 

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SERVICE AND (II) SUCH RELEASE SHALL NOT HAVE BEEN REVOKED BY EMPLOYEE WITHIN ANY
PERIOD PERMITTED UNDER APPLICABLE LAW.

 

6.                                      CONFLICTS.  EMPLOYEE REPRESENTS THAT
EMPLOYEE’S PERFORMANCE OF ALL THE TERMS OF THIS AGREEMENT WILL NOT BREACH ANY
OTHER AGREEMENT TO WHICH EMPLOYEE IS A PARTY.  EMPLOYEE HAS NOT, AND WILL NOT
DURING THE TERM OF THIS AGREEMENT, ENTER INTO ANY ORAL OR WRITTEN AGREEMENT IN
CONFLICT WITH ANY OF THE PROVISIONS OF THIS AGREEMENT.  EMPLOYEE FURTHER
REPRESENTS THAT EMPLOYEE IS ENTERING INTO OR HAS ENTERED INTO AN EMPLOYMENT
RELATIONSHIP WITH THE COMPANY OF EMPLOYEE’S OWN FREE WILL.

 

7.                                      Successors.  Any successor to the
Company (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company’s business and/or assets shall assume the obligations under this
Agreement and agree expressly to perform the obligations under this Agreement in
the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession.  The terms of this
Agreement and all of Employee’s rights hereunder and thereunder shall inure to
the benefit of, and be enforceable by, Employee’s personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.

 

8.                                      Notice.  Notices and all other
communications contemplated by this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by U.S.
registered or certified mail, return receipt requested and postage prepaid. 
Mailed notices to Employee shall be addressed to Employee at the home address
which Employee most recently communicated to the Company in writing.  In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.

 

9.                                      Miscellaneous Provisions.

 

(a)                                 No Duty to Mitigate.  Employee shall not be
required to mitigate the amount of any payment contemplated by this Agreement
(whether by seeking new employment or in any other manner), nor shall any such
payment be reduced by any earnings that Employee may receive from any other
source.

 

(b)                                 Waiver.  No provision of this Agreement
shall be modified, waived or discharged unless the modification, waiver or
discharge is agreed to in writing and signed by Employee and by an authorized
officer of the Company (other than Employee).   No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.

 

(c)                                  Whole Agreement.  No agreements,
representations or understandings (whether oral or written and whether express
or implied) which are not expressly set forth in this Agreement have been made
or entered into by either party with respect to the subject matter hereof.  This
Agreement supersedes any agreement concerning similar subject matter dated prior

 

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to the date of this Agreement and by execution of this Agreement both parties
agree that any such predecessor agreement shall be deemed null and void.

 

(d)                                 Choice of Law.  The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Utah without reference to conflict of laws
provisions.

 

(e)                                  Severability.  If any term or provision of
this Agreement or the application thereof to any circumstance shall, in any
jurisdiction and to any extent, be invalid or unenforceable, such term or
provision shall be ineffective as to such jurisdiction to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining terms and provisions of this Agreement or the application of such
terms and provisions to circumstances other than those as to which it is held
invalid or unenforceable, and a suitable and equitable term or provision shall
be substituted therefor to carry out, insofar as may be valid and enforceable,
the intent and purpose of the invalid or unenforceable term or provision.

 

(f)                                   Arbitration.  To ensure the rapid and
economical resolution of any and all disputes that arise in connection with this
Agreement or Employee’s termination with the Company, Employee and the Company
agree that any and all disputes, claims, or causes of action, in law or equity,
arising from or relating to the enforcement or interpretation of this Agreement
or the termination of Employee’s employment (collectively, “Claims”), will be
resolved to the fullest extent permitted by law exclusively by final, binding,
and confidential arbitration in Salt Lake City, Utah, conducted by the American
Arbitration Association (“AAA”) or its successors, under the then applicable AAA
rules by a single arbitrator.  Claims subject to this arbitration provision will
(i) include, but not be limited to, Claims pursuant to any federal, state or
local law or statute, including (without limitation) the Age Discrimination in
Employment Act, as amended; Title VII of the Civil Rights Act of 1964, as
amended; the Americans With Disabilities Act of 1990; the federal Fair Labor
Standards Act; and state anti-discrimination statutes; and Claims pursuant to
any common law, tort law or contract law, including (without limitation) breach
of contract or other promise, discrimination, harassment, retaliation, wrongful
discharge, fraud, misrepresentation, defamation, and emotional distress; and
(ii) exclude Claims that by law are not subject to arbitration.  The arbitrator
will:  (1) have the authority to compel adequate discovery for the resolution of
all Claims and to award such relief as would otherwise be permitted by law; and
(2) issue a written arbitration decision including the arbitrator’s essential
findings and conclusions and a statement of the award.  The Company will pay all
of the arbitrator’s fees.  Employee and the Company acknowledge that, by
agreeing to this arbitration procedure, both Employee and the Company waive the
right to resolve any Claims through a trial by jury or judge or by
administrative proceeding.  Nothing in this Agreement is intended to prevent
Employee or the Company from obtaining injunctive relief in court if the award
to which such party might obtain in arbitration may be rendered ineffectual
without provisional relief.  As provided in the AAA rules, any arbitration award
may be enforced by any court of competent jurisdiction.

 

(g)                                  Legal Fees and Expenses.  The parties shall
each bear their own expenses, legal fees and other fees incurred in connection
with the execution of this Agreement.

 

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(h)                                 No Assignment of Benefits.  The rights of
any person to payments or benefits under this Agreement shall not be made
subject to option or assignment, either by voluntary or involuntary assignment
or by operation of law, including (without limitation) bankruptcy, garnishment,
attachment or other creditor’s process, and any action in violation of this
Section 9(h) shall be void.

 

(i)                                     Assignment by Company.  The Company may
assign its rights under this Agreement to an affiliate, and an affiliate may
assign its rights under this Agreement to another affiliate of the Company or to
the Company.   In the case of any such assignment, the term “Company” when used
in a section of this Agreement shall mean the corporation that actually employs
the Employee.

 

(j)                                    Counterparts.  This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together will constitute one and the same instrument.

 

The parties have executed this Agreement on the date first written above.

 

 

WORLD HEART CORPORATION

 

 

 

 

 

 

By:

/s/ Michael Sumner Estes

 

Title:

Chairman, Board of Directors

 

Address:

1173 Brown Avenue, Lafayette, CA  94549

 

 

 

 

 

 

 

MORGAN R BROWN

 

 

 

 

 

 

Signature:

/s/ Morgan R. Brown

 

Address:

241 E 2450 S

 

 

Bountiful, Utah 84010

 

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