Document:

exv10w65

 

Exhibit 10.65

CYBERONICS, INC.

NEW EMPLOYEE EQUITY INDUCEMENT PLAN AGREEMENT

I. NOTICE OF STOCK OPTION GRANT

     David S. Wise

     You have been granted a Nonstatutory Stock Option to purchase Common Stock of the Company,
subject to the terms and conditions of this Agreement, as follows:

	 	 	 	 	 
	 

	 	Date of Grant
	 	September 17, 2003
	 
	 	 	 	 
	 

	 	Vesting Commencement Date
	 	September 17, 2003
	 
	 	 	 	 
	 

	 	Exercise Price per Share
	 	$28.45 
	 
	 	 	 	 
	 

	 	Total Number of Shares Granted
	 	150,000 
	 
	 	 	 	 
	 

	 	Total Exercise Price
	 	$4,267,500 
	 
	 	 	 	 
	 

	 	Term/Expiration Date;
	 	September 17, 2013
	 
	 	 	 	 
	 

	 	Vesting Schedule:	 	 

     This Option shall vest and may be exercised, in whole or in part, in accordance with
the following schedule;

     l/60th of the Shares subject to the Option shall vest each month after the Vesting
Commencement Date, so that the Option shall be fully vested five (5) years from the Date of Grant,
subject to the Optionee continuing to be a Service Provider on such
dates.

     Termination Period

     This Option may be exercised for ninety (90) days after Optionee ceases to be a Service
Provider in accordance with Section 7 of this Agreement. Upon the death or Disability of the
Optionee, this Option may be exercised for twelve (12) months after the Optionee ceases to be a
Service Provider in accordance with Sections 8 and 9 of this Agreement. In no event shall this
Option be exercised later than the Term/Expiration Date provided.

 

 

II. AGREEMENT

     1. Definitions. As used herein, the following definitions shall apply:

          (a) “Agreement” means this stock option agreement between the Company and
Optionee evidencing the terms and conditions of this Option.

          (b) “Applicable Laws” means the requirements relating to the administration of stock
options under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any
stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable
laws of any foreign country or jurisdiction that may apply to this Option.

          (c) “Board” means the Board of Directors of the Company or any committee of the
Board that has been designated by the Board to administer this Agreement.

          (d)
“Code” means the Internal Revenue Code of 1986, as amended.

          (e) “Common Stock” means the common stock of the Company.

          (f) “Company” means Cyberonics, Inc., a Delaware corporation.

          (g) “Consultant” means any person, including an advisor, engaged by the Company
or a Parent or Subsidiary to render services to such entity.

          (h) “Director” means a member of the Board.

          (i) “Disability” means total and permanent disability as defined in Section 22(e)(3)
of the Code.

          (j) “Employee” means any person, including Officers and Directors, employed by the
Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an
Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary, or any successor.
Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient
to constitute “employment” by the Company.

          (k) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          (l) “Fair Market Value” means, as of any date, the value of Common Stock determined
as follows:

               (1) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National Market or The Nasdaq
Small Cap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or
system on the day of determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;

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               (2) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the mean between the
high bid and low asked prices for the Common Stock on the day of determination; or

               (3) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the Board.

          (m) “Nonstatutory Stock Option” means an Option not intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.

          (n) “Notice of Grant” means a written notice, in Part I of this Agreement, evidencing
certain the terms and conditions of this Option grant. The Notice of Grant is part of the Option
Agreement.

          (o) “Officer” means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

          (p) “Option” means this stock option.

          (q) “Optioned Stock” means the Common Stock subject to this Option.

          (r) “Optionee” means the person named in the Notice of Grant or such person’s
successor.

          (s) “Parent” means a “parent corporation,” whether now or hereafter existing, as
defined in Section 424(e) of the Code.

          (t)
“Service Provider” means an Employee, Director or Consultant.

          (u) “Share” means a share of the Common Stock, as adjusted in accordance with Section
10 of this Agreement.

          (v) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing,
as defined in Section 424(f) of the Code.

     2. Grant of Option. The Board hereby grants to the Optionee named in the Notice of
Grant attached as Part I of this Agreement the Option to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant
(the “Exercise Price”), subject to the terms and conditions
of this Agreement.

     3. Exercise
of Option.

          (a)
Right to Exercise. This Option is exercisable during its term in accordance with
the Vesting Schedule set out in the Notice of Grant and the applicable provisions of this
Agreement.

          (b)
Method of Exercise. This Option is exercisable by delivery of an exercise notice,
in the form attached as Exhibit A (the “Exercise Notice”), which shall state the
election to exercise

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the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised
Shares”), and such other representations and agreements as may be required by the Company. The
Exercise Notice shall be completed by the Optionee and delivered to Secretary of the Company. The
Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by such aggregate Exercise Price.

          (c) Legal Compliance. No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with Applicable
Laws. Assuming such compliance,
for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on
the date the Option is exercised with respect to such Exercised Shares.

     4. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:

          (a) cash or check;

          (b) promissory note;

          (c) consideration received by the Company under a cashless exercise program
implemented by the Company; or

          (d) surrender of other Shares, provided Shares acquired directly from the Company,
(i) have been owned by the Optionee for more than six (6) months on the date of surrender, and
(ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.

     5. Non-Transferability
of Option. This Option may not be transferred in any manner
otherwise than by will or by the laws of descent or distribution and may be exercised during
the lifetime of Optionee only by the Optionee. The terms of this Agreement shall be binding upon
the executors, administrators, heirs, successors and assigns of the Optionee.

     6. Term of Option. This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with the terms of this
Agreement.

     7. Termination
of Relationship as a Service Provider. If the Optionee ceases to be a
Service Provider (other than for death or Disability), this Option may be exercised for a period of
ninety (90) days after the date of such termination (but in no event later than the expiration date of
this Option as set forth in the Notice of Grant) to the extent that the Option is vested on the date of such
termination. To the extent that the Optionee does not exercise this Option within the time
specified herein, the Option shall terminate.

     8. Disability of Optionee. If the Optionee ceases to be a Service Provider as a result
of the Optionee’s Disability, this Option may be exercised for a period of twelve (12) months after
the date
of such termination (but in no event later than the expiration date of this Option as set
forth in the
Notice of Grant) to the extent that the Option is vested on the date of such termination. To
the extent

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that Optionee does not exercise this Option within the time specified herein, the Option shall
terminate.

     9. Death of Optionee. If the Optionee dies while a Service Provider, the Option may
be exercised at any time within twelve (12) months following the date of death (but in no event
later than the expiration date of this Option as set forth in the Notice of Grant), by the
Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only
to the extent that the Optionee was entitled to exercise the Option at the date of death. If, after
death, the Optionee’s estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the Option shall terminate.

     10. Adjustments
Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

          (a) Changes in Capitalization. Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock covered by this Option, as well as the price
per share of Common Stock covered by this Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting from a stock
split,
reverse stock split, stock dividend, combination or reclassification of the Common Stock, or
any
other increase or decrease in the number of issued shares of Common Stock effected without
receipt
of consideration by the Company; provided, however, that conversion of any convertible
securities
of the Company shall not be deemed to have been “effected without receipt of consideration.”
Such
adjustment shall be made by the Board, whose determination in that respect shall be final,
binding
and conclusive. Except as expressly provided herein, no issuance by the Company of shares of
stock
of any class, or securities convertible into shares of stock of any class, shall affect, and
no
adjustment by reason thereof shall be made with respect to, the number or price of shares of
Common Stock subject to this Option.

          (b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation
of the Company, the Board shall notify Optionee as soon as practicable prior to the effective
date of
such proposed transaction. The Board in its discretion may provide for the Optionee to have
the
right to exercise his or her Option until ten (10) days prior to such transaction as to all of
the
Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be
exercisable. To the extent it has not been previously exercised, the Option will terminate
immediately prior to the consummation of such proposed.

          (c) Merger or Asset Sale. In the event of a merger of the Company with or into
another corporation, or the sale of substantially all of the assets of the Company, the Option
shall be
assumed or an equivalent option substituted by the successor corporation or a Parent or
Subsidiary of
the successor corporation. In the event that the successor corporation refuses to assume or
substitute
for the Option, the Optionee shall fully vest in and have the right to exercise the Option as
to all of
the Optioned Stock, including Shares as to which it would not otherwise be vested or
exercisable. If
the Option becomes fully vested and exercisable in lieu of assumption or substitution in the
event of
a merger or sale of assets, the Board shall notify the Optionee in writing or electronically
that the
Option shall be fully exercisable for a period of fifteen (15) days from the date of such
notice, and
the Option shall terminate upon the expiration of such period. For the purposes of this
paragraph,
the Option shall be considered assumed if, following the merger or sale of assets, the option
confers
the right to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately

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prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities
or property) received in the merger or sale of assets by holders of Common Stock for each Share
held on the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger or sale of assets.

          (d) Change of Control. In the event of a Change of Control (as defined below), the
Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or exercisable, and any
Company reacquisition option applicable to any Shares acquired upon exercise of an Option shall
lapse as to all such Shares. If an Option becomes fully vested and exercisable as the result of a
Change of Control, the Administrator shall notify the Optionee in writing or electronically prior
to the Change of Control that the Option shall be fully vested and exercisable for a period of
fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration
of such period. For purposes of this Plan, a “Change of Control” means the happening of any of the
following events:

               (1) When any “person,” as such term is used in Sections 13(d) and
14(d) of the Exchange Act, other than the Company, a subsidiary of the Company or a Company
employee benefit plan, including any trustee of such plan acting as trustee, is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (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

               (2) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of the Company approve an
agreement for the sale or disposition by the Company of all or substantially all the Company’s
assets; or

               (3) A change in the composition of the Board of Directors of the
Company, 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 the
date the Plan is approved by the shareholders, or (B) are elected, or nominated for election, to
the Board of Directors of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company).

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     11. Notices. Any notice to be given to the Company hereunder shall be in writing and
shall be addressed to the Company at its then current principal executive office or to such other
address as the Company may hereafter designate to the Optionee by notice as provided in this
Section. Any notice to be given to the Optionee hereunder shall be addressed to the Optionee at
the address set forth beneath his signature hereto, or at such other address as the Optionee may
hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have
been duly given when personally delivered or mailed by registered or certified mail to the party
entitled to receive it.

     12. Withholding Taxes. Optionee agrees to make appropriate arrangements with the
Company (or the Parent or Subsidiary employing or retaining Optionee) for the satisfaction of
all
federal, state, and local income and employment tax withholding requirements applicable to the
Option exercise. Optionee acknowledges and agrees that the Company may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not delivered at the
time of
exercise.

     13. Entire
Agreement; Governing Law. This Agreement constitutes the entire agreement
of
the parties with respect to the subject matter hereof and supersedes in its entirety all prior
undertakings and agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee’s interest except by means of a
writing
signed by the Company and Optionee. This agreement is governed by the internal substantive
laws,
but not the choice of law rules, of Texas.

     14. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES
AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING
SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT
THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUES ENGAGEMENT
AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL,
AND SHALL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT
TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME,
WITH OR WITHOUT CAUSE.

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     By your signature and the signature of the Company’s representative below, you and the Company
agree that this Option is granted under and governed by the terms and conditions of this Agreement.
Optionee has reviewed this Agreement in its entirety, has had an opportunity to obtain the advice
of counsel prior to executing this Agreement and fully understands all provisions of this
Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board upon any questions relating to this Agreement. Optionee further agrees
to notify the Company upon any change in the residence address indicated below.

	 	 	 	 	 	 	 
	OPTIONEE

	 	 	 	CYBERONICS, INC.	 	 
	 
	 	 	 	 	 	 
	/s/ David S. Wise
 

Signature

	 	 	 	 
 

Robert P. Cummins
	 	 
	 
	 	 	 	 	 	 
	  

David S. Wise

	 	 	 	/s/ Robert P. Cummins 

Chairman & Chief Executive Officer
	 	 
	 
	 	 	 	 	 	 
	11922 Homewood Lane, Houston. TX 77024
	 	 	 	 	 	 
	Residence Address
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 
	 	 

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EXHIBIT A

CYBERONICS, INC.

EXERCISE NOTICE

Cyberonics, Inc.

16511 Space Center Boulevard #600

Houston, Texas 77062

Attention:

     1. Exercise of Option, Effective as of today,   
                  
                    ,
 20             , the undersigned
(“Purchaser”) hereby elects to purchase              shares (the “Shares”) of the Common
Stock of Cyberonics, Inc. (the “Company”) under and pursuant to the New Employee Equity
Inducement Plan Agreement dated [             
       ] (the “Equity Inducement Agreement”). The
purchase price for the Shares shall be [$          
          ], as required by the Option Agreement.

     2. Delivery
of Payment. Purchaser herewith delivers to the Company the full purchase
price for the Shares.

     3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received,
read and understood the Equity Inducement Agreement and agrees to abide by and be bound by their
terms and conditions.

     4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the Company) of the Shares,
no right to vote or receive dividends or any other rights as a stockholder shall exist with
respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be
issued
to the Optionee as soon as practicable after exercise of the Option. No adjustment will be
made for a
dividend or other right for which the record date is prior to the date of issuance, except as
provided
in Section 10 of the Option Agreement.

     5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser
represents
that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection
with
the purchase or disposition of the Shares and that Purchaser is not relying on the Company for
any
tax advice.

     6. Successors and Assigns. The Company may assign any of its rights under this
Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the
benefit of
the successors and assigns of the Company. Subject to the restrictions on transfer herein set
forth,
this Exercise Notice shall be binding upon Optionee and his or her heirs, executors,
administrators,
successors and assigns.

 

 

     7. Interpretation. Any dispute regarding the interpretation of this Exercise
Notice shall
be submitted by Optionee or by the Company forthwith to the Board which shall review such
dispute
at its next regular meeting. The resolution of such a dispute by the Board shall be final
and binding on all parties.

     8. Entire
Agreement; Governing Law. The Agreement is incorporated herein by
reference. This Agreement, and the Equity Inducement Agreement constitute the entire
agreement
of the parties with respect to the subject matter hereof and supersede in their entirety
all prior
undertakings and agreements of the Company and Purchaser with respect to the subject
matter
hereof, and may not be modified adversely to the Purchaser’s interest except by means of
a writing
signed by the Company and Purchaser. This agreement is governed by the internal
substantive laws,
but not the choice of law rules, of Texas.

	 	 	 	 	 	 	 
	Submitted by:

	 	 	 	Accepted by:	 	 
	 
	 	 	 	 	 	 
	OPTIONEE

	 	 	 	CYBERONICS, INC.	 	 
	 
	 	 	 	 	 	 
	 

Signature

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

Print Name

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

Address

	 	 	 	 

Address
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Date Received:	 	 	 
	 

	 	 	 	 	 	 

	 	 

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Exhibit 10.66

INDEMNIFICATION AGREEMENT

     This Indemnification Agreement (this “Agreement”) is executed on and effective as of November
13, 2001 (the “Effective Date”), by and between Cyberonics, Inc., a Delaware corporation (the
“Company”), and                      (“Director”).

     WHEREAS, the Company and Director recognize the difficulty in obtaining directors’ and
officers’ liability insurance, the increases in the cost of such insurance, and the general
limitations in the coverage of such insurance;

     WHEREAS, the Company and Director further recognize the substantial increase in corporate
litigation in general, subjecting officers and directors to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been severely limited;

     WHEREAS, Director does not regard the current protection available as adequate under the
present circumstances, and Director and other officers and directors of the Company may not be
willing to serve or continue to serve as officers and directors without additional protection; and

     WHEREAS, the Company desires to attract and retain the services of highly qualified
individuals, such as Director, to serve as officers and directors of the Company and to indemnify
its officers and directors so as to provide them with the maximum protection permitted by law.

     NOW, THEREFORE, the Company and Director hereby agree as follows:

     1. Indemnification.

     (a) Third Party Proceedings. The Company shall indemnify Director and any partnership,
corporation, trust, or other entity of which Director is or was a partner, stockholder,
trustee, director, officer, employee, or agent (Director and each such partnership,
corporation, trust, or other entity being referred to as an “Indemnitee”) if Indemnitee is
or was a party or is threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the Company) by reason of the fact that Director is or
was a director, officer, employee, or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Director while an officer or
director or by reason of the fact that Director is or was serving at the request of the
Company as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including attorneys’ fees),
judgments, fines, and amounts paid in settlement (if such settlement is approved in advance
by the Company, which approval shall not be unreasonably withheld) actually and reasonably
incurred by Indemnitee in connection with such action, suit, or proceeding, if Director
acted in good faith and in a manner Director reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe Director’s conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption that Director
did not act in good faith and in a manner that

 

 

Director reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable cause to
believe that Director’s conduct was unlawful.

     (b) Proceedings By or in the Right of the Company. The Company shall indemnify
Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the Company or any
subsidiary of the Company to procure a judgment in its favor by reason of the fact that
Director is or was a director, officer, employee, or agent of the Company, or any subsidiary
of the Company, by reason of any action or inaction on the part of Director while an officer
or director or by reason of the fact that Director is or was serving at the request of the
Company as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including attorneys’ fees) and,
to the fullest extent permitted by law, amounts paid in settlement, in each case to the
extent actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of such action or suit, if Director acted in good faith and in a manner Director
reasonably believed to be in or not opposed to the best interests of the Company, except
that no indemnification shall be made in respect of any claim, issue, or matter as to which
Director shall have been adjudged to be liable to the Company unless and only to the extent
that the Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such expenses that the Court of Chancery of the State
of Delaware or such other court shall deem proper.

     (c) Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on
the merits or otherwise in defense of any action, suit, or proceeding referred to in
Sections 1(a) and (b) or the defense of any claim, issue, or matter therein, Indemnitee
shall be indemnified against expenses (including attorneys’ fees) actually and reasonably
incurred by Indemnitee in connection therewith.

     2. Expenses: Indemnification Procedure.

     (a) Advancement of Expenses. The Company shall advance all expenses incurred by
Indemnitee, and, to the fullest extent permitted by law, amounts paid in settlement by
Indemnitee, in connection with the investigation, defense, settlement, or appeal of any
civil or criminal action, suit, or proceeding referenced in Section 1(a) or (b) hereof.
Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that,
it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the
Company as authorized hereby. The advances to be made hereunder shall be paid by the Company
to Indemnitee within 20 days following delivery of a written request therefor by Indemnitee
to the Company.

     (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his
or its right to be indemnified under this Agreement, give the Company notice in writing as
soon as practicable of any claim made against Indemnitee for which indemnification will or
could be sought under this Agreement. Notice to the Company

 

 

shall be directed to the President of the Company at the address shown on the signature
page of this Agreement, or such other address as the Company shall designate in writing to
Indemnitee. Notice shall be deemed received three business days after the date postmarked if
sent by domestic certified or registered mail, properly addressed; otherwise notice shall be
deemed received when such notice shall actually be received by the Company. In addition,
Indemnitee shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee’s power.

     (c) Procedure. Any indemnification and advances provided for in Section 1 and this
Section 2 shall be made no later than 45 days after receipt of the written request of
Indemnitee. If a claim under this Agreement, under any statute, or under any provision of
the Company’s Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within 45 days after a written request for payment thereof has
first been received by the Company, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim and, subject
to Section 12 of this Agreement, Indemnitee shall also be entitled to be paid for the
expenses (including attorneys’ fees) of bringing such action. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit, or proceeding in advance of its final disposition) that
Indemnitee has not met the standards of conduct that make it permissible under applicable
law for the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to receive
interim payments of expenses pursuant to Subsection 2(a) unless and until such defense may
be finally adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties’ intention that if the Company contests Indemnitee’s right to
indemnification, the question of Indemnitee’s right to indemnification shall be for the
court to decide, and neither the failure of the Company (including its Board of Directors,
any committee or subgroup of the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of Indemnitee is proper in
the circumstances because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board of
Directors, any committee or subgroup of the Board of Directors, independent legal counsel,
or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall
create a presumption that Indemnitee has or has not met the applicable standard of conduct.

     (d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant
to Section 2(b) hereof, the Company has directors’ and officers’ liability insurance in
effect, the Company shall give prompt notice of the commencement of such proceeding to the
insurers in accordance with the procedures set forth in the respective policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers to pay, on
behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance
with the terms of such policies.

     (e) Selection of Counsel. In the event the Company shall be obligated under Section
2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding, with

 

 

counsel approved by Indemnitee (whose approval shall not be unreasonably withheld),
upon the delivery to Indemnitee of written notice of its election so to do. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such counsel by
the Company, the Company will not be liable to Indemnitee under this Agreement for any fees
of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided
that (i) Indemnitee shall have the right to employ his counsel in any such proceeding at
Indemnitee’s expense; and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not, in fact, have employed counsel to assume the
defense of such proceeding, then the fees and expenses of Indemnitee’s counsel shall be at
the expense of the Company.

     3. Additional Indemnification Rights; Nonexclusivity.

     (a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby
agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding
that such indemnification is not specifically authorized by the other provisions of this
Agreement, the Company’s Certificate of Incorporation, the Company’s Bylaws, or by statute.
In the event of any change, after the date of this Agreement, in any applicable law,
statute, or rule that expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be, ipso facto, within the purview
of Indemnitee’s rights and Company’s obligations under this Agreement. In the event of any
change in any applicable law, statute, or rule that narrows the right of a Delaware
corporation to indemnify a member of its board of directors or an officer, such changes, to
the extent not otherwise required by such law, statute, or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties’ rights and obligations
hereunder.

     (b) Nonexclusivity. The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Director or any other Indemnitee may be entitled under the
Company’s Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders
or disinterested directors, the General Corporation Law of the State of Delaware, or
otherwise, both as to action in Director’s official capacity and as to action in another
capacity while holding such office. The indemnification provided under this Agreement shall
continue as to Director and each other Indemnitee for any action taken or not taken while
Director is or was serving in an indemnified capacity even though he may have ceased to
serve in such capacity at the time of any action, suit, or other covered proceeding.

     4. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the expenses, judgments, fines, or
penalties actually or reasonably incurred by Indemnitee in the investigation, defense, appeal, or
settlement of any civil or criminal action, suit, or proceeding, but not, however, for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such
expenses, judgments, fines, or penalties to which Indemnitee is entitled.

 

 

     5. Mutual Acknowledgment. Both the Company and Director acknowledge that in certain instances
Federal law or applicable public policy may prohibit the Company from indemnifying its directors
and officers under this Agreement or otherwise, in which event, notwithstanding any other
provisions of this Agreement to the contrary, the indemnification provided by this Agreement shall
be limited to such extent as is necessary to comply with applicable Federal law or public policy.
For example, the Company and Director acknowledge that the Securities and Exchange Commission (the
“SEC”) has taken the position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits indemnification for certain
violations of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Director
understands and acknowledges that in the event the Company undertakes a public offering of its
securities pursuant to a registration with the SEC, the Company may be required to undertake with
the SEC to submit the question of indemnification to a court in certain circumstances for a
determination of the Company’s right under public policy to indemnify Director or any other
Indemnitee.

     6. Directors and Officers Liability Insurance. The Company has applied for and will use its
best efforts to obtain and maintain in force with a financially sound and reputable insurer a
directors, officers, and corporate liability insurance policy having a limit which the Company,
together with the Board of Directors, approves as providing coverage appropriate and acceptable to
the Board of Directors. In all policies of directors and officers liability insurance, Director and
each other Indemnitee shall be named as an insured in such a manner as to provide Director the same
rights and benefits as are accorded to the most favorably insured of the Company’s directors.

     7. Severability. Nothing in this Agreement is intended to require or shall be construed as
requiring the Company to do or fail to do any act in violation of applicable law. The Company’s
inability, pursuant to court order, to perform its obligations under this Agreement shall not
constitute a breach of this Agreement. The provisions of this Agreement shall be severable as
provided in this Section 7. If this Agreement or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify
Director and each other Indemnitee to the full extent permitted by any applicable portion of this
Agreement that shall not have been invalidated, and the balance of this Agreement not so
invalidated shall be enforceable in accordance with its terms.

     8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall
not be obligated pursuant to the terms of this Agreement:

     (a) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with
respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by
way of defense, except with respect to proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other statute or law or otherwise as required
under Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the Board of
Directors finds it to be appropriate;

     (b) Lack of Good Faith. To indemnify Indemnitee for any expensesincurred by the
Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or

 

 

interpret this Agreement, if a court of competent jurisdiction determines that each of
the material assertions made by the Indemnitee in such proceeding was not made in good faith
or was frivolous;

     (c) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA, excise taxes or
penalties, and amounts paid in settlement) that have been paid directly to Indemnitee by an
insurance carrier under a policy of officers’ and directors’ liability insurance maintained
by the Company; or

     (d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of
profits arising from the purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor
statute.

     9. Construction of Certain Phrases.

     (a) For purposes of this Agreement, references to the “Company” shall include, in
addition to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger, so that if Indemnitee
is or was a director, officer, employee, or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other enterprise,
Indemnitee shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with respect to
such constituent corporation if its separate existence had continued.

     (b) For purposes of this Agreement, references to “other enterprises” shall include
employee benefit plans; references to “fines” shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to “serving at the
request of the Company” shall include any service as a director, officer, employee, or agent
of the Company that imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best
interests of the Company” as referred to in this Agreement.

     10. Counterparts. This Agreement may be executed in one or more counterparts, each of which
shall constitute an original.

     11. Successors and Assigns. This Agreement shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of Director and each other Indemnitee and
their respective estates, heirs, successors, legal representatives, and assigns.

     12. Attorneys’ Fees. In the event that any action is instituted by Indemnitee under this
Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid

 

 

all court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee
with respect to such action, unless as a part of such action, the court of competent jurisdiction
determines that each of the material assertions made by Indemnitee as a basis for such action was
not made in good faith or was frivolous. In the event of an action instituted by or in the name of
the Company under this Agreement or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys’ fees,
incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s
counterclaims and cross-claims made in such action), unless as a part of such action the court
determines that each of Indemnitee’s material defenses to such action was made in bad faith or was
frivolous.

     13. Notice. All notices, requests, demands, and other communications under this Agreement
shall be in writing and shall be deemed duly given on the third business day after the date
postmarked, if delivered by domestic certified or registered mail with postage prepaid, or, if
delivered by other means, on the date actual notice is received. Addresses for notice to either
party are as shown on the signature page of this Agreement, or as subsequently modified by written
notice.

     14. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the
non-exclusive jurisdiction of the courts of the State of Delaware for all purposes in connection
with any action or proceeding that arises out of or relates to this Agreement and agree that any
action instituted under this Agreement may be brought in any court of competent jurisdiction in the
State of Delaware.

     15. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND ITS PROVISIONS CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AS APPLIED TO CONTRACTS BETWEEN DELAWARE
RESIDENTS ENTERED INTO AND TO BE PERFORMED ENTIRELY WITHIN DELAWARE.

[Signature page follows.]

 

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

	 	 	 	 	 	 	 
	 	 	COMPANY:  
	 
	 	 	 	 	 	 
	 	 	Cyberonics, Inc.
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	DIRECTOR:

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