**Exhibit 10.3**

 

**WORLD HEART CORPORATION**

 

**CHANGE OF CONTROL AND SEVERANCE AGREEMENT**

 

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

 

RECITALS

 

A.                                    It is expectedthat another company may from time to time consider the possibility ofacquiring the Company or that a change in control may otherwise occur, with orwithout the approval of the Company’s Board of Directors. The Board ofDirectors recognizes that such consideration can be a distraction to Employeeand can cause Employee to consider alternative employment opportunities.  The Board of Directors has determined that itis in the best interests of the Company and its stockholders to assure that theCompany 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.                                    TheCompany’s Board of Directors believes it is in the best interests of theCompany and its stockholders to retain Employee and provide incentives toEmployee to continue in the service of the Company.

 

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

 

D.                                    To accomplishthe foregoing objectives, the Board of Directors has directed the Company, uponexecution of this Agreement by Employee, to agree to the terms provided in thisAgreement.

 

Now therefore, in consideration of the mutualpromises, covenants and agreements contained herein, and in consideration ofthe continuing employment of Employee by the Company, the parties hereto agreeas follows:

 

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

 

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involuntary termination by theCompany without Cause (as defined below) or Employee’s resignation for GoodReason (as defined below); or (ii) the date that all obligations of theparties hereunder have been satisfied.  Atermination of the terms of this Agreement pursuant to the preceding sentenceshall be effective for all purposes, except that such termination shall notaffect the payment or provision of compensation or benefits on account of atermination of employment occurring prior to the termination of the terms ofthis Agreement.  The rights and dutiescreated by this Section 1 may not be modified in any way except by awritten agreement executed by an officer of the Company upon direction from theBoard of Directors.

 

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

 

(a)                                 **Termination In Connection with or Following a Changeof Control**.  In the eventthat Employee’s employment is terminated as a result of an involuntarytermination other than for Cause (and other than as a result of death ordisability as disability is defined for purposes of the Company’s long-termdisability policies) or if Employee resigns for Good Reason, as of, immediatelyprior to or at any time within twelve (12) months following the effective dateof a Change of Control, then Employee will be entitled to receive severancebenefits as follows: (i) a lump sum severance payment equal to nine (9) monthsof the base salary which Employee was receiving immediately prior to the Changeof Control plus 75% of Employee’s target annual bonus as in effect immediatelyprior 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) continuationof the health insurance benefits provided to Employee for Employee and Employee’seligible dependents immediately prior to the Change of Control at Companyexpense pursuant to the terms of the Consolidated Omnibus Budget ReconciliationAct of 1985, as amended (“COBRA”) or other applicable law until theearlier of the date nine (9) months after the effective date of thetermination or the date upon which Employee is no longer eligible for suchCOBRA or other benefits under applicable law, and (iii) each stock optionto purchase the Company’s common shares (“Common Stock”) and all sharesof restricted stock granted to Employee over the course of Employee’semployment with the Company and held by Employee on the date of termination ofemployment shall become immediately vested as to 75% of each of the thenunvested options and shares.  Inaddition, Employee will receive payment(s) for all accrued and unpaidsalary, bonuses and PTO as of the date of Employee’s termination of employment.

 

(b)                                 **Termination Not In Connection with or Following aChange of Control**.  In theevent that Employee’s employment is terminated as a result of an involuntarytermination other than for Cause (and other than as a result of death ordisability as disability is defined for purposes of the Company’s long-termdisability policies) or if Employee resigns for Good Reason at any time otherthan as of, immediately prior to, or within twelve (12) months following, theeffective date of a Change of Control, then Employee will be entitled toreceive severance benefits as follows: (i) severance payments during theperiod from the date of Employee’s termination until the date nine (9) monthsafter the effective date of the termination (the “Benefit Period”) equalto the base salary which Employee was receiving immediately prior to thetermination date, which shall be paid during the Benefit Period in equalinstallments in accordance with the Company’s standard payroll practices,except that any and all payments that would otherwise have been made before thesixtieth (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) continuationof the health insurance benefits provided to Employee and Employee’s eligibledependents immediately prior to the termination date at Company expensepursuant to COBRA or other applicable law until the earlier of the date nine (9) monthsafter the effective date of the termination or the date upon which Employee isno longer eligible for such COBRA or other benefits under applicable law, and (iii) ifEmployee holds any outstanding options that have not reached the option’sone-year cliff vesting requirement, the Company will waive the one-year cliffvesting requirement of each such option and Employee will be credited with vestingon the Employee’s termination date equal to 1/48th of the option shares multiplied by each fullmonth of Employee’s employment since the vesting commencement date of theoption.  In addition, Employee willreceive payment(s) for all accrued and unpaid salary, bonuses and PTO asof the date of Employee’s termination of employment.  Notwithstanding the foregoing, no severancebenefits shall be paid under this Section 2(b) if at or prior to thetime of the Employee’s termination or if in connection with the Employee’stermination, the Company (i) is in a bankruptcy proceeding, whethervoluntary or involuntary, (ii) is in the process of liquidating ordissolving, whether voluntary or involuntary, or (iii) the Board ofDirectors has approved the liquidation, dissolution or winding down of theCompany.

 

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

 

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

 

(a)                                 **Change of Control**.  “Change of Control” shall mean theoccurrence, in a single transaction or in a series of related transactions, ofany one or more of the following events: (i)  a sale or other disposition of all orsubstantially all, as determined by the Board of Directors of the Company inits sole discretion, of the consolidated assets of the Company and itssubsidiaries; (ii) amerger, consolidation or similar transaction following which the Company is notthe surviving corporation; or (iii) amerger, consolidation or similar transaction following which the Company is thesurviving corporation but the shares of the Company’s Common Stock outstandingimmediately preceding the merger, consolidation or similar transaction areconverted or exchanged by virtue of the merger, consolidation or similartransaction into other property, whether in the form of securities, cash orotherwise.  Notwithstanding the foregoing, a Change of Control shall not be deemed tooccur (A) on account of the acquisition of securities of the Company by aninvestor, any affiliate thereof or any other person that acquires the Company’ssecurities in a transaction or series of related transactions the primarypurpose of which is to obtain financing for the Company through the issuance ofequity securities or (B) on account of a sale of assets, merger orother transaction effected exclusively for the purpose of changing the domicileof the Company.

 

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(b)                                 **Cause**.  “Cause”shall mean the occurrence of any one or more of the following: (i) Employee’sconviction of any felony or crime involving fraud, dishonesty or moralturpitude; (ii) Employee’s participation in a fraud or act of dishonestyagainst the Company, an affiliate of the Company or any successor to theCompany that results in material harm to the business of the Company, anaffiliate of the Company or any successor to the Company; or (iii) Employee’sintentional, material violation of any contract between the Company, anaffiliate of the Company or any successor to the Company and Employee or anystatutory duty Employee owes to the Company, an affiliate of the Company or anysuccessor to the Company that Employee does not correct within thirty (30) daysafter written notice thereof has been provided to Employee.

 

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

 

4.                                      **Parachute Payments.**  Inthe event that the acceleration and severance benefits provided for in thisAgreement (A) constitute “parachute payments” within the meaning of Section 280Gof the Internal Revenue Code of 1986, as amended (the “Code”) and (B) butfor this paragraph, would be subject to the excise tax imposed by Section 4999of the Code, then Employee’s benefits hereunder shall be payable either: (X) infull, or (Y) as to such lesser amount which would result in no portion ofsuch severance benefits being subject to excise tax under Section 4999 ofthe Code, whichever of the foregoing amounts, taking into account theapplicable 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 greatestamount of benefits hereunder, notwithstanding that all or some portion of suchbenefits may be taxable under Section 4999 of the Code.  Any determination required under thisparagraph shall be made in writing by the public accountants designated by theCompany (the “Accountants”), whose determination shall be conclusive andbinding upon Employee and the Company for all purposes.  For purposes of making the calculationsrequired by this paragraph, the Accountants may make reasonable assumptions andapproximations concerning applicable taxes and may rely on reasonable, goodfaith interpretations concerning the application of Section 280G and 4999of the Code.  The Company and Employeeshall furnish to the Accountants such information and documents as theAccountants may reasonably request in order to make a determination under thisparagraph.  The Company shall bear allcosts the Accountants may reasonably incur in connection with any calculationscontemplated by this paragraph.  In theevent that a reduction in payments and/or benefits is required under thissection 4, such reduction shall occur in the

 

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

 

5.                                      **Limitations and Conditions on Benefits**

 

## (a)                                 **Income and EmploymentTaxes**.  Employee agrees thatEmployee shall be responsible for any applicable taxes of any nature (includingany penalties or interest that may apply to such taxes) that the Companyreasonably determines apply to any payment made hereunder, that Employee’sreceipt of any benefit hereunder is conditioned on Employee’s satisfaction ofany applicable withholding or similar obligations that apply to such benefit,and that any cash payment owed hereunder will be reduced to satisfy any suchwithholding or similar obligations that may apply.

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(b)                                 **Code****Section 409A**.  All severancebenefits to be paid upon a termination of employment under this Agreement maybe made only upon a  “separation ofservice” within the meaning of Section 409A of the Code and the Departmentof Treasury regulations and other guidance promulgated thereunder (a “Separationfrom Service”).  Notwithstanding anyprovision to the contrary in this Agreement, if Employee is deemed by theCompany at the time of Employee’s Separation from Service to be a “specifiedemployee” for purposes of Section 409A(a)(2)(B)(i) of the Code, to theextent delayed commencement of any portion of the benefits to which Employee isentitled under this Agreement is required in order to avoid a prohibiteddistribution under Section 409A(a)(2)(B)(i) of the Code, such portionof 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 theEmployee’s Separation from Service or (ii) the date of Employee’sdeath.  Upon the first business dayfollowing 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 alump sum to Employee (or Employee’s estate or beneficiaries), and any remainingpayments due under the Agreement will be paid as otherwise providedherein.  For purposes of Section 409Aof the Code, Employee’s right to receive the payments of compensation pursuantto the Agreement will be treated as a right to receive a series of separatepayments and accordingly, each payment will at all times be considered aseparate and distinct payment.  Thisparagraph is intended to comply with the requirements of Section 409A ofthe Code so that none of the severance payments and benefits to be providedhereunder will be subject to the additional tax imposed under Section 409Aof the Code and any ambiguities herein will be interpreted to so comply.  Employee and the Company agree to worktogether in good faith to consider amendments to this Agreement and to takesuch reasonable actions which are necessary, appropriate or desirable to avoidimposition of any additional tax or income recognition prior to actual paymentto Employee under Section 409A of the Code.

 

## (c)                                  **Release Prior to Receipt of Benefits**.  The Company’s obligation to make the paymentsand provide the benefits hereunder shall be conditioned upon (i) Employee’sexecution and delivery tothe Company of a release of all claims that Employee then may have, in standardform 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 byEmployee within any period permitted under applicable law.

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## 6.                                      **Conflicts****. **Employee represents thatEmployee’s performance of all the terms of this Agreement will not breach anyother agreement to which Employee is a party. Employee has not, and will not during the term of this Agreement, enterinto any oral or written agreement in conflict with any of the provisions ofthis Agreement.  Employee furtherrepresents that Employee is entering into or has entered into an employmentrelationship with the Company of Employee’s own free will.

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7.                                      **Successors**.  Any successor to the Company (whether director indirect and whether by purchase, lease, merger, consolidation, liquidationor otherwise) to all or substantially all of the Company’s business and/orassets shall assume the obligations under this Agreement and agree expressly toperform the obligations under this Agreement in the same manner and to the sameextent as the Company would be required to perform such obligations in theabsence of a succession.  The terms ofthis Agreement and all of Employee’s rights hereunder and thereunder shallinure to the benefit of, and be enforceable by, Employee’s personal or legalrepresentatives, executors, administrators, successors, heirs, distributees,devisees and legatees.

 

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

 

9.                                      **Miscellaneous Provisions**.

 

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

 

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

 

(c)                                  **Whole Agreement**.  Noagreements, representations or understandings (whether oral or written andwhether express or implied) which are not expressly set forth in this Agreementhave been made or entered into by either party with respect to the subjectmatter hereof.  This Agreement supersedesany agreement concerning similar subject matter dated prior

 

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tothe date of this Agreement and by execution of this Agreement both partiesagree that any such predecessor agreement shall be deemed null and void.

 

(d)                                 **Choice of Law**.  Thevalidity, interpretation, construction and performance of this Agreement shallbe governed by the laws of the State of Utah without reference to conflict oflaws provisions.

 

(e)                                  **Severability**.  Ifany term or provision of this Agreement or the application thereof to anycircumstance shall, in any jurisdiction and to any extent, be invalid orunenforceable, such term or provision shall be ineffective as to suchjurisdiction to the extent of such invalidity or unenforceability withoutinvalidating or rendering unenforceable the remaining terms and provisions ofthis Agreement or the application of such terms and provisions to circumstancesother than those as to which it is held invalid or unenforceable, and asuitable and equitable term or provision shall be substituted therefor to carryout, insofar as may be valid and enforceable, the intent and purpose of theinvalid or unenforceable term or provision.

 

(f)                                   **Arbitration**.  Toensure the rapid and economical resolution of any and all disputes that arisein connection with this Agreement or Employee’s termination with the Company,Employee and the Company agree that any and all disputes, claims, or causes ofaction, in law or equity, arising from or relating to the enforcement orinterpretation of this Agreement or the termination of Employee’s employment(collectively, “Claims”), will be resolved to the fullest extentpermitted by law exclusively by final, binding, and confidential arbitration inSalt Lake City, Utah, conducted by the American Arbitration Association (“AAA”)or its successors, under the then applicable AAA rules by a singlearbitrator.  Claims subject to thisarbitration provision will (i) include, but not be limited to, Claimspursuant to any federal, state or local law or statute, including (withoutlimitation) the Age Discrimination in Employment Act, as amended; Title VII ofthe Civil Rights Act of 1964, as amended; the Americans With Disabilities Actof 1990; the federal Fair Labor Standards Act; and state anti-discriminationstatutes; 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 laware not subject to arbitration.  Thearbitrator will:  (1) have theauthority to compel adequate discovery for the resolution of all Claims and toaward such relief as would otherwise be permitted by law; and (2) issue awritten arbitration decision including the arbitrator’s essential findings andconclusions and a statement of the award. The Company will pay all of the arbitrator’s fees.  **Employee and the Companyacknowledge that, by agreeing to this arbitration procedure, both Employee andthe Company waive the right to resolve any Claims through a trial by jury orjudge or by administrative proceeding.**  Nothing in this Agreement is intended toprevent Employee or the Company from obtaining injunctive relief in court ifthe award to which such party might obtain in arbitration may be renderedineffectual without provisional relief. As provided in the AAA rules, any arbitration award may be enforced byany court of competent jurisdiction.

 

(g)                                  **Legal Fees and Expenses**.  The parties shall each bear their ownexpenses, legal fees and other fees incurred in connection with the executionof this Agreement.

 

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

 

(i)                                     **Assignment by Company**.  The Company may assign its rights under thisAgreement to an affiliate, and an affiliate may assign its rights under thisAgreement 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 corporationthat actually employs the Employee.

 

(j)                                    **Counterparts**.  ThisAgreement may be executed in counterparts, each of which shall be deemed anoriginal, but all of which together will constitute one and the sameinstrument.

 

The partieshave 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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