ex10_1.htm


    Exhibit
10.1

    


    SECOND
AMENDMENT TO EMPLOYMENT AGREEMENT

    


    THIS SECOND AMENDMENT TO EMPLOYMENT
AGREEMENT (the “Amendment”) made and entered into effective as of this
19th day of December, 2008 (the “Effective Date”), is by and between Cyberonics, Inc., a Delaware
corporation (the “Company”), and Daniel J. Moore (the
“Executive”).

    


    WHEREAS, Executive is a key
employee of the Company; and

    


    WHEREAS, the Company and
Executive previously entered into an Employment Agreement, as amended (the
“Agreement”) in order to encourage Executive’s attention and dedication to the
Company as a member of the Company’s management, in the best interests of the
Company and its shareholder;

    


    WHEREAS, the Agreement remains
in full force and effect as of this date;

    


    WHEREAS, the Company and
Executive desire to amend the terms and conditions of the Agreement so as to
bring those terms and conditions into documentary compliance with the final
Treasury Regulations under Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and to continue Executive’s employment with the Company
upon those amended terms and conditions.

    


    THEREFORE, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Executive agree to modify the Agreement as
follows:

    


    
      	
               
      

            	
              1.

            	
              Section
      7 shall be amended to replace the last sentence with the
      following:

            


    

    


    “If
awarded, the Annual Bonus for a fiscal year shall be paid in the fiscal year
following such fiscal year after the Compensation Committee determination of the
achievement of the Bonus Objectives but no later than the 15th day of the third
month of such subsequent fiscal year and shall be subject to all amounts
required to be withheld by federal, state or local law and all applicable
deductions properly authorized by Executive or required by law.”

    


    
      	
               
      

            	
              2.

            	
              Section
      8(c) is hereby amended to add the following sentences at the end of the
      section:

            


    

    


    "Executive
shall submit to the Company accounts and records of each such expense within
thirty (30) days after the later of (i) Executive’s incurrence of such expense
or (ii) Executive’s receipt of the invoice for such expense.  If such
expense qualifies for reimbursement, then the Company shall reimburse Executive
the expense within thirty (30) days thereafter.  In no event will such
expense be reimbursed after the close of the calendar year following the
calendar year in which that expense is


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     incurred.  The
amount of reimbursement to which Executive may become entitled in any one
calendar year shall not affect the amount of expenses eligible for reimbursement
hereunder in any other calendar year.  Executive’s right to
reimbursement cannot be liquidated or exchanged for any other benefit or
payment.”

    


    
      	
               
      

            	
              3.

            	
              Section
      14(a) shall be amended to replace the provision in its entirety with the
      following:

            


    

    


    “(a)           Non-Renewal by the
Company.  If the Company elects not to renew or extend the
Employment Period, the Company shall pay and provide to Executive the
compensation and benefits provided under this Agreement for the remainder of the
Employment Period and thereafter, the Company shall pay a lump sum payment in
cash in an amount, if any, determined by multiplying (i) the sum of Executive’s
(A) Base Salary and (B) Target Bonus Amount for the year of termination by (ii) the fraction
obtained by dividing (X) the difference between 365 and the number of days from
the date of the Company’s Non-Renewal Notice to the expiration of the Employment
Period by (Y) 365.  Subject to the holdback and interest provisions of
Section 26, such payment shall be made within sixty (60) days following
Executive’s Separation from Service provided that the Release required under
Section 14(f) has become effective during such sixty (60)-day period following
any applicable revocation period.  Following such payments, the
Company shall have no further obligations to Executive other than as may be
required by law.”

    


    
      	
               
      

            	
              4.

            	
              Section
      14(e) shall be amended to replace the provision in its entirety with the
      following:

            


    

    


    "(e)           By the Company Without Cause
or by the Executive for Good Reason.  Except as otherwise
provided in Section 16, if either the Company terminates the Executive’s
employment Without Cause, or the Executive terminates his employment for Good
Reason, then the Company shall pay and provide to the Executive the following
benefits:

    


    (i)           a
payment equal to two times the sum of (A) Base Salary and (B) the average bonus
amount paid Executive for the past two fiscal years (or, if the termination
occurs prior to the second anniversary of the Start Date, sixty percent (60%) of
the Target Bonus Amount for the year of termination).  Subject to the
holdback and interest provisions of  Section 26, such payment shall be
made within sixty (60) days following the Executive’s Separation from Service
provided that the Release required under Section 14(f) has become effective
during such sixty (60)-day period following any applicable revocation
period;

    


    (ii)           the
restrictions on that number of Time-Vested Shares shall immediately lapse as
would otherwise have lapsed if the Executive had remained employed with the
Company for a period through the date that is twelve
(12) months from the date of termination (or, if the termination occurs prior to
the second anniversary of the Start Date, through the second anniversary of the
Start Date, if later);

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (iii)           the
restrictions on that number of Performance-Vested Shares shall lapse as
determined by the Board in good faith to represent the extent of progress, if
any, toward attainment of the performance criteria as set in accordance with
Section 10 as of the date of Executive’s termination, based upon the Board’s
good faith application of the principles established in accordance with Section
10 to the appropriate performance criteria;

    


    (iv)           provided
Executive and/or his eligible dependents timely elects to continue their
healthcare coverage under the Company’s group health plan pursuant to the
Consolidated Omnibus Reconciliation Act (“COBRA”), the Company shall reimburse
Executive for the costs he incurs to obtain such continued coverage for himself
and his eligible dependents for a period of eighteen (18)-months measured from
the termination date.  In addition, the Company shall reimburse
Executive for the costs he incurs to obtain continued coverage for himself and
his eligible dependents substantially equivalent to the Company’s group
healthcare benefits for an additional period of up to six months thereafter,
provided that the Company’s obligations during this six month period shall not
exceed 200% of the Company’s applicable COBRA premiums for similarly situated
COBRA beneficiaries.  The benefits outlined in this Section 14(e)(iv)
shall be provided to Executive on a tax-free basis to the maximum extent
permissible by applicable law.  In order to obtain reimbursement for
such healthcare coverage costs, Executive shall  submit appropriate
evidence to the Company of each periodic payment within thirty (30) days after
the payment date, and the Company shall within thirty (30) days after such
submission reimburse Executive for that payment.  During the period
such healthcare coverage remains in effect hereunder, the following provisions
shall govern the arrangement: (a) the amount of coverage costs eligible for
reimbursement in any one calendar year of such coverage shall not affect the
amount of coverage costs eligible for reimbursement in any other calendar year
for which such  reimbursement is to be provided hereunder; (ii) no
coverage costs shall be reimbursed after the close of the calendar year
following the calendar year in which those coverage costs were incurred; and
(iii) Executive’s right to the reimbursement of such coverage costs cannot be
liquidated or exchanged for any other benefit.  To the extent the
reimbursed coverage costs constitute taxable income to Executive, the Company
shall report the reimbursement as taxable W-2 wages and collect the applicable
withholding taxes, and any remaining tax liability shall be Executive’s sole
responsibility, provided that the reimbursed coverage costs shall not be
considered as taxable income to Executive if such treatment is permissible under
applicable law; and


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (v)           if
the termination occurs prior to the second anniversary of the Start Date, waiver
of the requirement, if any, to repay relocation benefits set forth in Section 9
as otherwise required by the Company’s Relocation Policy with such waiver to
occur within sixty (60) days following Executive’s Separation from Service
provided that the Release required under Section 14(f) has become effective
during such sixty (60)-day period following any applicable revocation
period."

    


    For
purposes of this Agreement, "Separation from Service" shall mean Executive’s
separation from service as determined in accordance with Code Section 409A and
the applicable standards of the Treasury Regulations issued thereunder.


    


    
      	
               
      

            	
              5.

            	
              Section
      14(f) shall be amended to replace the provision in its entirety with the
      following:

            


    

    


    “(f)           The
Severance Benefits payable to Executive under subsection (e) shall be in lieu of
any other severance benefits to which the Executive may otherwise be entitled
upon his termination of employment under any severance plan, program, policy,
practice or arrangement of the Company.  Payment of the Severance
Benefits herein is contingent upon (i) Executive’s execution of a full and
complete release substantially in the form set forth in Exhibit A hereto within
twenty-one (21) days (or forty-five (45) days if such longer period is required
under applicable law) after the date of termination and such Release becoming
effective and enforceable in accordance with applicable law after the expiration
of any applicable revocation period and (ii) resignation from the Board as of
the date of termination.”

    


    
      	
               
      

            	
              6.

            	
              Section
      16(b) shall be amended to replace the provision in its entirety with the
      following:

            


    

    


    "If a
Change of Control occurs on or before the second anniversary of the Start Date,
and within one year following the Change of Control, either the Company
terminates Executive’s employment Without Cause, or the Executive terminates his
employment for Good Reason, then the Company shall pay and provide to the
Executive the rights provided in Section 14(e) except that: (i) in lieu of the
amount set forth in Section 14(e)(i), a payment equal to three times the sum of
(A) Base Salary and (B) the Target Bonus Amount in effect at the time of
termination; and (ii) the Company shall make an additional lump sum payment to
Executive in an amount equal to the cost of obtaining continued healthcare
coverage for himself and his eligible dependents substantially equivalent to the
Company's group healthcare benefits for a period of twelve (12) months following
the end of the twenty-four (24)-month period of coverage reimbursed by the
Company pursuant to Section 14(e)(iv).  The amount of the payment
under clause (ii) shall be determined based on the cost of obtaining such
coverage as of the date of Executive's termination and shall be paid within
sixty (60) days following Executive's Separation from Service.  The
continued healthcare coverage shall not be considered as taxable income to
Executive to the extent that such treatment is permissible under applicable
law."

    


    
      	
               
      

            	
              7.

            	
              Section
      16(c) shall be amended to include the following sentence at the
      end:

            


    

    


    “The
Gross-Up Payment (including any additional Gross-Up Payment) shall be paid when
the related Excise Taxes are remitted to the tax authorities but no later than
the close of the calendar year following the calendar year in which the taxes
are remitted to the tax authorities.  Notwithstanding anything to the
contrary in the foregoing, any Gross-Up Payment due Executive under this Section
16(c) shall be subject to the holdback and interest provisions of Section 26, to
the extent such payment relates to any amounts and benefits provided to
Executive that  are attributable to his Separation from
Service."

    


    
      	
               
      

            	
              9.

            	
              Section
      26 shall be amended to replace the provision in its entirety with the
      following:

            


    

    


    
      	 
      	
              “SECTION
      20.

            	
              Section
      409A.

            	 
      


    

    


    (a)           This
Agreement is intended to comply with the requirements of Section 409A of the
Code.  Accordingly, all provisions herein shall be construed and
interpreted to comply with Code Section 409A and if necessary, any such
provision shall be deemed amended to comply with Code Section 409A and the
regulations thereunder.

    


    (b)           Notwithstanding
any provision to the contrary in this Agreement, no payments or benefits to
which Executive becomes entitled under this Agreement in connection with the
termination of Executive’s employment with the Company shall be made or paid to
Executive prior to the earlier of (i) the first day
of the seventh (7th) month following the date of Executive’s Separation from
Service due to such termination of employment or (ii) the date of Executive’s
death, if Executive is deemed, pursuant to the procedures established by the
Board in accordance with the applicable standards of Code Section 409A and the
Treasury Regulations thereunder and applied on a consistent basis for all for
all non-qualified deferred compensation plans subject to Code Section 409A, to
be a “specified  employee” at the time of such Separation from
Service  and such delayed commencement is otherwise required in order
to avoid a prohibited distribution under Code Section
409A(a)(2).  Upon the expiration of the applicable Code Section
409A(a)(2) deferral period, all payments deferred pursuant to this Section 26(b)
shall be paid in a lump sum to Executive together with interest for the period
of the delay at the prime rate in effect on the date such payment was first due,
and any remaining payments due under this Agreement shall be paid in accordance
with the
normal payment dates specified for them herein.  In addition, if
Executive is deemed to be a specified employee at the time of Separation from
Service and there is an amount payable by Executive to the Company under the
Relocation Policy (the "Relocation Amount"), then notwithstanding Section
14(e)(v), the following provisions shall apply:  (i) the Company shall
waive the requirement to repay the portion of the Relocation Amount up to the
applicable dollar amount under Code Section 402(g)(1)(B), (ii) Executive shall
repay to the Company any Relocation Amounts in excess of such limit (the "Repaid
Amount") and (iii) upon the expiration of the applicable Code Section 409A(a)(2)
deferral period, the Company shall pay to Executive the Repaid Amount in a lump
sum together with interest for the period from the date of Executive’s payment
at the prime rate in effect on the date of such payment.  The
specified employees subject to a delayed commencement date shall be identified
on December 31 of each calendar year.  If Executive is so identified
on any such December 31, he shall have specified employee status for the twelve
(12)-month period beginning on April 1 of the following calendar
year.”

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               
      

            	
              10.

            	
              Exhibit
      A to the Agreement shall be amended to include the following sentence
      above the phrase “AGREED AND ACCEPTED, on this _____ day of
      ______________________, 20___”:

            


    

    


    “Executive
further represents and acknowledges that Executive has twenty-one (21) days to
consider this Release prior to signing.  Executive further understands
that Executive may revoke this Agreement within seven (7) days of its
execution.  This Release shall not become effective or enforceable
until the seven-day revocation period has expired.”

    


    
      	
               
      

            	
              11.

            	
              Right to Advice of
      Counsel.   Executive acknowledges that Executive has
      had the right to consult with counsel and is fully aware of his rights and
      obligations under Agreement and this
Amendment.

            


    

    


    
      	
               
      

            	
              12.

            	
              Except
      as expressly modified by this Amendment, the provisions of the Agreement
      remain unchanged and in full force and
effect.

            


    

    


    IN
WITNESS WHEREOF, Company and Executive have caused this Amendment to be executed
by their duly authorized representative as of the date and year set forth
above.

    


    
      	
              Cyberonics,
      Inc.

            	
              Daniel
      J. Moore

            
	 
      	 
      
	
              By:  /s/ Gregory H. Browne                                

            	
              By:  /s/ Daniel J. Moore                                    

            
	
              Title:
      Vice President, Finance and
      Chief Financial Officer

            	 
      
	 
      	 
      
	
              Date:  December
      19, 2008

            	
              Date:  December
      19, 2008