exv10w42



 





Exhibit 10.42




EMPLOYMENT AGREEMENT




     This Employment Agreement (the “Agreement”), entered into effective as of June 15, 2006 (the “Effective Date”), by and between Cyberonics, Inc. (the “Company”)
and Shawn P. Lunney (“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 June 1, 2009 (the “Term”). Termination of this Agreement shall not
alter or impair any rights of Employee (or his beneficiaries or heirs) with respect
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 Vice President, Market
Development 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



 









 






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 $260,000 (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 fiscal 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 such Company, departmental and/or
individual performance goals that may be established for the applicable bonus
year by the Compensation Committee.




     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 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, 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: Vice President of Human Resources

100 Cyberonics Blvd., Suite 600

Houston, Texas 77058






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To Employee:



Shawn
P. Lunney

901 Kipp Avenue

Kemah, TX 77565



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.



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     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.



     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.

 	 
	 	/s/ Robert P. Cummins
 	 
	 	Robert P. Cummins 	 
	 	Chairman of the Board of Directors

and Chief Executive Officer 	 
	 



	 	 	 	 	 
	 	EMPLOYEE 

 	 
	 	
/s/ Shawn P. Lunney
 	 
	 	Shawn P. Lunney       	 
	 	 	 
	 




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