EX-10.2






EXHIBIT 10.2




SEVERANCE AGREEMENT




THIS AGREEMENT (the “Agreement”), made and entered into effective as of July 9, 2007 (the
“Effective Date”), is by and between Cyberonics, Inc., a Delaware corporation (the “Company”), and
Gregory H. Browne (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 April
30, 2008; provided, however, that commencing on April 30, 2008 and on each April 30th thereafter,
the Term of this Agreement shall automatically be extended for one additional year, unless at least
six months prior to such April 30 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 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 July 9, 2007, 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 becomes disabled or 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, 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,
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 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);




(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 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 as a
result of incapacity due to physical or mental illness, Employee shall continue during the
period of such disability 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.




(ii) If, during the Protected Period, Employee’s employment shall be terminated (x) by the
Company for Cause, (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, the Company shall 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)
three times the sum of Employee’s Base Salary and Bonus Amount; 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.




(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.




(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. 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) at the time that the amount of such excess if finally determined. 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.



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. 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, except that for purposes of implementing
the foregoing, the date on which any such succession becomes effective shall be deemed the
Date of Termination. 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.



7. 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.


Vice President, Human Resources


100 Cyberonics Boulevard


Houston, TX 77058


Facsimile No.: 281-228-7535



If to Employee:




Gregory H. Browne



1300 Woodhollow Drive, Apt. 22201




Houston, TX 77057



8. 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.



9. 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
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.



10. 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.



11. Descriptive Headings. Descriptive headings are for convenience only and shall not control
or affect the meaning or construction of any provision of this Agreement.



12. 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.



13. 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.



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/ George E. Parker, III

George E. Parker III

Interim Chief Operating Officer




EMPLOYEE



/s/ Gregory H. Browne


Gregory H. Browne