Document:

Exhibit 10.11 to CNS, Inc. Form 10-K for the year ended March 31, 2006

EXHIBIT 10.11

MEDICAL SPECIALTIES 

MATERIAL PURCHASE AGREEMENT

	
            1.
 	
            Parties:  This Agreement is between Minnesota Mining and Manufacturing Company (“3M”), through its Medical Specialties Department, located at 3M Center, Bldg. 275-5W-05, St. Paul, MN 55144-1000) and 3M’s medical Component customer (“Customer”) identified below:
 

	
            CNS. Inc.
 	
             
 
	
            Company Name
7615 Smetana Lane
 	
             
 
	
            Address
 Eden Prairie, MN 55439
 	
            952-229-1500
 
	
            City, State Zip
 	
            Telephone
 

 

	
            2.
 	
            Purpose and Effect:  This Agreement authorizes Customer and its authorized converters (“Converters”) to purchase the 3M Components set forth in Schedule 1 at the prices shown as Contract Price in Schedule 1, meeting the specifications set forth in Schedule 2, and such other materials as the parties may agree in writing to add in the future, (“Components”). Customer agrees to use Components solely for its use or use by Converters in the manufacture of nasal dilators and other products as described in paragraph 5 of this Agreement. This Agreement does not establish Customer or its Converters as a dealer or distributor of the Components. Customer shall direct its Converters not to resell any Components to any third party for resale. In the event a Converter is in breach of Medical
Specialties Terms and Conditions of Sale or any other contractual obligations Converter may have to 3M, 3M reserves the right not to supply Components to such Converter. Customer acknowledges and agrees that it has sole responsibility for testing and evaluating the safety and suitability of use of Components in the product(s) for which Customer or Converters are purchasing Components.
 

	
            3.
 	
            Term:  The term of this Agreement begins on the date the last party signs this Agreement (the “Effective Date”) and will continue for Twenty-four months. (“Term”).
 

	
            4.
 	
            Termination for Cause:  Upon default by either party in the performance of any material obligation in this Agreement, either party may give notice in writing to the other party and the defaulting party shall have thirty (30) days to cure the default. However, if the default is not cured within thirty (30) days, the non-defaulting party may terminate this Agreement by providing notice of termination, which shall take effect no earlier than ten (10) days from the receipt of such notice. Termination under this paragraph shall not relieve either party of an obligation existing upon the date of termination or relieve either party from liability for breach of this Agreement subject to the terms of this Agreement.
 

	
            5.
 	
            Exclusive Sale and Purchase; Exceptions; First Right of Refusal:
 

	
             
  	
            a)
 	
            
Customer  agrees that during the Term of this  Agreement  it will  purchase  and
direct its  Converters  to purchase  all of its global  requirements  of medical
grade adhesive tapes used in the manufacturing of external nasal dilators,  with
the exception of Items in Exhibit A.
 

 

	
             
  	
            b)
 	
            If Customer develops or has an opportunity to obtain a new or modified external nasal dilator or any other product that requires the use of medical grade adhesives or tapes not included as Components in this Agreement, then Customer agrees to provide specifications, including but not limited to performance, color, adhesive, and price to 3M. 3M will then determine its ability to supply such medical grade adhesives or tapes. If 3M agrees to supply such new medical grade adhesives or tapes, then these new adhesives or tapes would become Components and would be added to Schedule 1 by addendum. Purchases of such new Components would be included in total purchases to determine if Customer meets minimum purchase quantities. If 3M cannot or does not choose to supply the requested new medical grade adhesives or tapes to Customer, then 3M
will provide such notice to Customer within 60 days and Customer can purchase the requested medical grade adhesives or tapes from another source. However, if no other supplier can supply medical grade adhesives or tapes that meet the specifications, and Customer changes the specifications in order to purchase a medical grade adhesive or tape for these new or modified products, then Customer agrees to give 3M Medical Specialties the first right of refusal to supply such adhesives or tapes using the new specifications under the same conditions described earlier in this paragraph. Customer reserves the right to determine if the 3M medical grade adhesive tapes meet the new or revised specifications.
 

	
             
  	
            c)
 	
            During the Term 3M Medical Specialties Department will not supply finished external nasal dilators or Components for use in the manufacture of external nasal dilators to any third party(s) other than Customer and its Converters nor will 3M Medical Specialties sell nasal dilators in the retail market.
 

	
             
  	
            d)
 	
            3M agrees to give Customer a right of first refusal for any new tapes or adhesives 3M might develop which could be useful for external nasal dilators (“New Components”). Customer will have 60 days to commit to using such a New Component(s) and introducing a product containing such New Component(s) within eighteen (18) months. Customer agrees to provide to 3M, regular, timely progress reports regarding the development and introduction of new or modified products using these New Components. If satisfactory progress is not made by Customer toward introduction of such new or modified products, as determined solely by 3M, then 3M shall have the right to sell New Components, after notification to Customer in writing, to any other customer for any applications without exceptions. In like manner, if Customer decides to cease
efforts to develop and introduce new or modified products using New Components, then Customer shall immediately notify 3M of such decision in writing. 3M will then have the right to sell New Components to any other customer for use in any product without restrictions. If a third party approaches 3M for any New Components not already offered to Customer, with the intent to use the New Components in external nasal dilators, 3M will provide Customer with a right of first refusal to purchase such New Component under the terms proposed by such third party and Customer will have 60 days to accept or reject such offer. If Customer accepts the offer, then Customer commits to purchase and use New Component(s) in the same manner as described earlier in this paragraph.
 

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            6.
 	
            Forecasts, Binding Purchase Orders, Minimum Purchase Requirement:  Throughout the Term of this Agreement, Customer shall deliver to 3M on a monthly basis a forecast showing its estimated requirements for Components stated in number of strips, for the succeeding two calendar quarters (“Rolling Forecast”). Customer, through its converters, will assist 3M in translating the number of required finished strips into the equivalent number of square yards of Components required to produce the forecasted strips. Customer agrees that it is bound to purchase, or to direct its Converters to purchase, the first 60 days of forecasted Component requirements in the months such quantities were forecast. Binding purchase orders for requirements for Components shall be placed at least twenty-eight (28) days in
advance of the requested ship date. If an order has been received and accepted by 3M for Components and Customer’s converter(s) request to alter the order quantity of Components or any original requested ship date(s) for Components, 3M will not be obliged to accept such requests without prior approval of Customer and agreement by 3M. 3M will not be obliged to fulfill orders received less than 28 days from the requested ship date or for quantities more than 10% above the applicable Rolling Forecast. If however, Component requirements exceed 10% of Rolling Forecast, 3M shall meet with Customer to discuss if and how Customer’s production needs can be met. 3M will use reasonable efforts to meet such increased requirements.
 

	
            7.
 	
            Use of Name and Trademarks:  Neither party will make any use whatsoever of the other party’s name without its written permission. The decision to grant such permission is within sole discretion of the non-requesting party. Neither party will use or reproduce any of the other party’s trademarks or logos in any manner without prior written approval. To request this approval, the requesting party must forward to the other party a complete and accurate specimen copy of the proposed use. The non-requesting party agrees to reply to the requesting party within thirty (30) days of receipt of such proposed use. Any permitted use extends only to authorized materials. 3M agrees to keep prices, forecast volumes, quantity of purchases and other material information related to this Agreement confidential
during the Term and for a period of two (2) years thereafter.
 

	
            8.
 	
            Other Terms and Conditions:  Payment shall be according to the price set forth on Schedule 1 subject to the following. In each twelve-month period during the Term, the first period beginning upon the first day of the month of the Effective Date and ending twelve months thereafter, the Customer alone or together with its Converters shall purchase Components in an amount equal to at least 95% of the dollar value of Components purchased during the previous 12 month period (the first 12 month period in the Term shall be measured against the 12 month period prior to the Effective Date) (Minimum Purchase Requirement). In the event Customer, together with its Converters do not purchase the Minimum Purchase Requirement in any successive twelve-month period of the Term, pricing for the subsequent 12 month period
shall revert back to the order volume prices based on unit volume per order as shown in Schedule 1. Failure to purchase the Minimum Purchase Requirement shall not constitute a breach of this agreement. A price change will not affect any order properly placed before the effective date of such change. Customer shall direct its Converters to make payment within 30 days of the date of invoice. 3M reserves the right to not ship Components to any Converter whose accounts payable for Components are not current. The price for product set forth in Schedule 1 includes the cost of standard freight to one destination in the U.S. 3M and Customer will work together in good faith to try to find opportunities for reducing the cost of Customer’s external nasal dilators that use Components.
 

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            9.
 	
            Shipment Deadlines; Risk of Loss; Title:  3M will ship Components to Customer or its authorized converter FOB Point of Shipment, freight and insurance prepaid and allowed to the first U.S. destination specified in Customer’s or its authorized converter’s purchase order. 3M shall make reasonable efforts to meet any shipping dates specified in purchase orders, but failure to meet any particular shipping deadline less than 21 days from promised ship date will not constitute a breach of this Agreement. Risk of loss passes to Customer when Components are delivered to designated ship-to dock. For all Components contained in any single shipment, title passes to Customer’s Converters only when Customer’s Converters have fully paid for the shipment.
 

	
            10.
 	
            Regulatory Approvals:  Customer shall be responsible for obtaining and maintaining all necessary regulatory approvals for Customer’s products that incorporate Components in the country where products are sold.
 

	
            11.
 	
            Warranties Limited; Indemnification:  All statements, technical information and recommendations contained in any specifications are based on tests 3M believes to be reliable. 3M warrants only that at the time of shipment the Components will meet the Component specifications in effect at the time of ordering and it has the right and authority to sell the Components pursuant to the terms and conditions of the Agreement. 3M DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES WITH RESPECT TO COMPONENTS, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND FREEDOM FROM INFRINGEMENT. 3M specifically DOES NOT warrant the Components for any intended or unintended uses (whether or not foreseeable); for compatibility
or suitability with other materials; for a customers or Third party’s negligence in handling or storage; or for the suitability or acceptability of the Component specifications or test methods. Nor does 3M warrant that the Component will perform as anticipated as assembled. 3M also disclaims all warranties against infringement of any third party patent, in combination with any other materials or in any process of manufacture or use alone or in combination with any other materials. Customer shall indemnify and hold 3M harmless from any and all loss or liability for any and all claims, causes of action, suits, proceedings, damages, demands, fees, expenses, fines, penalties and costs (including without limitation, attorney’s fees, costs and disbursements) arising from any injury or alleged injury to any person or business for property damage, personal injury or incidental, special or consequential damages made against Customer or 3M for liability arising from or caused by
Customer’s use of Components in Customer’s products except to the extent such liability is caused by the negligence of 3M in the production, handling or distribution of Components prior to receipt by Customer or its Converter or by 3M’s failure to supply Components in accordance with the warranty set forth in Paragraph 11.
 

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            12.
 	
            Limitation of Remedies:  If properly and promptly notified (see Paragraph 13), 3M will, at its option, replace or refund the purchase price of any Component that is proved not to conform to 3M’s express limited warranty at the time of shipment. THESE REMEDIES ARE EXCLUSIVE REMEDIES AGAINST 3M FOR ANY ALLEGED OR ACTUAL NONCONFORMANCE TO SPECIFICATIONS OR DEFECT OR OTHER FAILURE IN THE COMPONENTS OR FOR 3M’S PERFORMANCE OF THIS AGREEMENT. UNDER NO CIRCUMSTANCES IS 3M LIABLE TO CUSTOMER OR CUSTOMER’S DESIGNATED CONVERTER FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) IN ANY WAY RELATED TO THE COMPONENTS OR TO PERFORMANCE OF THIS AGREEMENT UNDER ANY THEORY OF LAW INCLUDING, BUT NOT LIMITED TO, NEGLIGENCE AND STRICT LIABILITY.
 

	
            13.
 	
            Customer’s Duty to Inspect; Returns:  Customer will direct its Converters to promptly inspect any shipment of Components received from 3M and to promptly notify 3M in writing of any defects. The notice must specify the defects in detail; any defect not specified is waived. Any goods not rejected within fifteen 15 days of delivery are accepted. After sending the notice, Customer will direct its Converters to follow the 3M Return Goods Policy then in effect, or any specific and reasonable instructions that 3M may issue. Customer will allow or will direct its Converters to allow 3M to inspect any allegedly defective goods at Customers’ or its Converters’ site or direct that a sample be provided to 3M for Investigation. For any goods which 3M determines are defective, Customer and/or its
Converters will follow the 3M instructions and either return the goods to 3M, with 3M responsible for the return freight, or dispose of the goods in a safe manner as directed by 3M. Reasonable costs for such disposal will be paid by 3M.
 

	
            14.
 	
            Proper Use of Components:  Customer will direct its Converters that they will not process handle or package the Components in any way that might compromise the Components efficacy or safety. Customer will not and will direct its Converters to not misuse or mishandle the Components or treat or deal with the Components in any way that might misrepresent the characteristics and capabilities of such Components. It is understood and agreed that the application of mentholated encapsulated slurry to manufacture mentholated nasal strips does not create a breach of this agreement. It is further understood that the application of such slurry to any Component is solely the decision of Customer and 3M’s warranty obligations are limited as provided in paragraph 11 or this agreement.
 

	
            15.
 	
            Intellectual Property; No Exclusive Rights:  Nothing herein shall grant to Customer or any of its Converters any patent, license, right or assignment in any patent, trade secret or other intellectual property owned or controlled by 3M or its affiliated companies. Likewise, nothing herein shall grant to 3M any patent, license, right or assignment in any patent, trade secret or other intellectual property owned or controlled by Customer or its Converters.
 

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            16.
 	
            Component Discontinuance:  3M may discontinue its production or sale of Components at any time during the Term of this Agreement if 3M has reasonable grounds to believe the Components or Customer’s products that use Components present a serious health, safety or environmental risk.
 

	
            17.
 	
            Miscellaneous:
 

	
             
  	
            a)
 	
            Insurance:  Customer will maintain a liability insurance program covering such risks (including, but not limited, to products liability and contractual liability) as are appropriate in accordance with the sound business practice and Customer’s obligations under this Agreement, including, but not limited to, at least $5,000,000 in product liability and $5,000,000 in general liability coverage. At the request of 3M, Customer shall provide a certificate of insurance evidencing the existence of these coverages on an annual basis.
 

	
             
  	
            b)
 	
            Events of excused performance:  Neither 3M nor Customer shall be considered in default or be liable to the other for any delay beyond the reasonable control of such party, including, but not limited to, acts of God, explosion, earthquake, fire, flood, war whether declared or not, accident, strikes, labor disturbances, inability to procure supplies from third party vendors, sabotage, or order or decrees of any court or action of a governmental authority. If such delay continues for a period of more than 30 consecutive days Customer is relieved of its obligation to purchase exclusively from 3M for the period of 3M’s inability to supply and such longer period as may be reasonably necessary to secure a supply of similar components from a third party. 3M agrees to use reasonable commercial efforts to
help Customer identify such a supplier.
 

	
             
  	
            c)
 	
            No assignment or delegation:  Neither this Agreement nor any of the rights and obligations of a party hereunder shall be assigned, delegated, sold, transferred, sublicensed or otherwise disposed of, by operation of law or otherwise, to any third party without the prior written consent of the other party not to be unreasonably withheld; provided, however, that either party may, without such consent, assign this Agreement and its rights and obligations hereunder in connection with the sale of all or substantially all of its assets related to the business for the ingredients or the products, or in the event of its merger or consolidation or change in control or similar transaction. This paragraph does not prevent Customer from using a designated converter to process some or all of Components for
Customer.
 

	
             
  	
            d)
 	
            Notices:  Any notice, order or other communication required by this Agreement must be in writing, sent by first class mail or faster written means, and addressed to the address listed on Attachment 1. A party may designate in writing a substitute address.
 

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            e)
 	
            Entire agreement; no waiver. This Agreement, the schedules attached hereto, as well as any 3M Component specifications, state the complete understanding between 3M and Customer on this subject and replace any statements, communications or understandings, whether oral or written, made before, during or after this Agreement is signed. Customer or its Converters may place orders under this Agreement using Customer’s or Converters’ regular purchase order form. The only function of such purchase order shall be to communicate the quantity of Components desired and any delivery instructions. Any other terms on such forms are void and of no effect. This Agreement cannot be modified except in wilting, signed by both parties. No sales representative of 3M may orally or in writing modify this Agreement. A
course of dealing or of performance or usage of trade does not effect a waiver or modification unless ratified in writing. A party’s failure to exercise a right in one instance does not waive that party’s right to later exercise that right.
 

	
             
  	
            f)
 	
            Governing law and venue:  Any questions, claims or disputes concerning or related to this Agreement are governed by the laws of Minnesota, notwithstanding any conflict of law principle to the contrary. The parties consent to jurisdiction and venue in the State of Minnesota.
 

	
             
  	
            g)
 	
            Converters:  It is acknowledged and agreed that Customer shall not be liable for the performance of any obligation that may be undertaken by any of the Converters to 3M in connection with the purchase of Components pursuant to this agreement or otherwise including, without limitation, the payment for Components pursuant to any orders placed by such Converters with 3M. Not withstanding the foregoing, Customer agrees to cooperate with 3M and render all assistance that may be reasonably requested with respect to any default by Converter in connection with its purchase of Components from 3M.
 

	
             
  	
            h)
 	
            National Account Representation:  3M agrees during the term of the agreement to provide Customer with National Account or similar status and to designate individual(s) where one or more of their responsibilities is to represent 3M and be a primary contact person for Customer’s staff for, but not limited to the following purposes:  new business opportunities, periodic forecast submissions, material lead-time and delivery or quantity Issues; etc.
 

	
             
  	
            i)
 	
            Both parties agree not to disclose the terms or existence of this agreement to any third party, other than Customer’s Converters, except to the extent such disclosure is required by law or a valid court order.
 

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            Accepted and Agreed to:

MINNESOTA, MINING AND 
 MANUFACTURING COMPANY
 	
             
 	
            CUSTOMER
 
	
             
 	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 	
             
 
	
            By
 	
            /s/  JM McQuade
 	
             
 	
            /s/  Larry Muma
 
	
             
 	
             
 	
             
 	
             
 
	
             
 	
            J. Michael McQuade
 	
             
 	
            Larry Muma
 
	
             
 	
            Print Name
 	
             
 	
            Print Name
 
	
             
 	
             
 	
             
 	
             
 
	
             
 	
            Vice President, 3M Medical
 	
             
 	
            VP Operations
 
	
             
 	
            Title
 	
             
 	
            Title
 
	
             
 	
             
 	
             
 	
             
 
	
             
 	
            11/16/04
 	
             
 	
            11/22/04
 
	
             
 	
            Date
 	
             
 	
            Date
 
	
             
 	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 	
            CNS, Inc.
 
	
             
 	
             
 	
             
 	
            Company Name
 

8Exhibit 10.16 to CNS, Inc. Form 10-K for the year ended March 31, 2006

EXHIBIT 10.16

EXECUTIVE EMPLOYMENT AGREEMENT

This Agreement is made as of May 3, 2006 (the “Effective Date”) between CNS, Inc. a Delaware corporation (“CNS”) and Samuel E. Reinkensmeyer (“Employee”). 

WHEREAS, CNS considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of CNS and its shareholders; and

WHEREAS, Employee has made and is expected to continue to make, due to Employee’s experience and knowledge, a significant contribution to the profitability, growth and financial strength of CNS; and

WHEREAS, CNS, as a publicly held corporation, recognizes that the possibility of a change in control may exist and that such possibility and the uncertainty and questions which it may raise among management may result in the departure of Employee or distraction to the performance of Employee’s duties to the detriment of CNS and its shareholders; and

WHEREAS, Employee is willing to continue Employee’s employment with CNS upon the understanding that CNS will provide income security if Employee’s employment is terminated under certain terms and conditions; and 

WHEREAS, it is in the best interests of CNS and its stockholders to employ Employee and to reinforce and encourage Employee’s continued attention and dedication to Employee’s assigned duties without distraction and to ensure Employee’s continued availability to CNS in the event of a Change in Control; and

WHEREAS, it is in CNS’s best interests to receive certain assurances from Employee regarding CNS’s confidentiality, competition and other proprietary business concerns;

THEREFORE, in consideration of the foregoing and of this agreement, certain change in control protection, continued employment and other benefits hereunder, as well as other mutual covenants and obligations hereinafter set forth, CNS and Employee agree as follows:

	
            1.
 	
            Employment. CNS agrees to continue to employ Employee as its Vice President-Finance and Chief Financial Officer (“CFO”) under the terms, conditions and benefits set forth herein and Employee accepts continued employment with CNS on said terms, conditions and benefits. 
 

	
            2.
 	
            Term. The term of Employee’s employment shall continue until terminated pursuant to paragraph 6, 7, or 8 herein. 
 

	
            3.
  	
            Duties. In Employee’s position as Vice President-Finance and CFO, Employee will continue to faithfully and diligently perform such executive management responsibilities as may be assigned to Employee from time to time by the Chief Executive Officer, President or Chairman of the Board of Directors of CNS (the “Board”); devote Employee’s full time, energy and skill to CNS’s business, as is reasonably necessary to execute fully Employee’s duties hereunder, except for vacations, absences made necessary because of illness, and service on other corporate, civic, or charitable boards or committees not significantly interfering with Employee’s duties hereunder; and promote CNS’s best interests. The principal place of employment and the location of Employee’s
principal office and normal place of work shall be in the Minneapolis, Minnesota metropolitan area. Employee will be expected to travel to other locations, as necessary, in the performance of Employee’s duties during the term of this Agreement. Employee shall notify the Chief Executive Officer of any other paid position which Employee is considering accepting, including but not limited to a board of directors position, a position as an employee or an independent consultant, or any position, whether or not for pay, which could constitute a conflict of interest with CNS. The Employee agrees not to accept any such position without the Chief Executive Officer’s prior approval. 
 

	
            4.
 	
            Compensation. For all services rendered by Employee, CNS shall pay Employee the annualized base salary (“Annual Base Salary”) described in Exhibit A, payable at such times as salaried employees of CNS are customarily paid. The Board shall, from time to time during Employee’s employment, review Employee’s Annual Base Salary in connection with possible increases, giving consideration to inflation factors, performance of Employee and CNS, salaries paid for positions of similar responsibility for other companies, and other relevant factors, and shall provide for such increases when deemed appropriate. Employee shall in addition be eligible to participate in the annual management incentive bonus program, as approved by the Board of Directors, the initial amount, as a percentage of
Annual Base Salary, is described in Exhibit A. 
 

	
            5.
 	
            Benefits. Employee shall be entitled to Paid Time Off consistent with CNS policy and such insurance, 401(k) program and other benefits available to all salaried employees of CNS, subject to any limitations on such benefits to officers, directors or highly paid employees in order that such benefit programs qualify under federal or state law for favored tax or other treatment. Such benefit programs may be changed from time to time by the Board. Employee shall also be entitled to reimbursement of Employee’s reasonable and necessary expenses incurred in connection with the performance of Employee’s duties hereunder. 
 

	
            6.
 	
            Resignation by Employee. Employee may resign Employee’s employment with CNS effective upon 30 days’ advance written notice to the Chief Executive Officer. If Employee resigns under this paragraph, the Chief Executive Officer retains the right to terminate Employee’s employment, effective upon written notice to Employee, at any time during the 30-day notice period, provided, however, that Annual Base Salary and the employer portion of Employee’s health, dental and life insurance premiums will continue to be paid by CNS for the duration of the 30-day notice period. In connection with Employee’s termination, Employee will receive any accrued unused Paid Time Off to which Employee is entitled. 
 

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            7.
  	
            Termination of Employment. Employee’s employment with CNS may be terminated in any of the following ways:
 

	
             
  	
            a.
 	
            CNS may, by written notice to Employee, terminate Employee’s employment without Good Cause (as defined in paragraph 7.b.) (i) prior to a Change in Control (as defined in paragraph 8.a), or (ii) after the terms of paragraph 8.b. are no longer effective, in which event CNS shall:
 

	
             
  	
            i.
 	
            pay Employee his Annual Base Salary up to the date of termination
 

	
             
  	
            ii.
 	
            pay Employee the Target Bonus in effect for the bonus period in which Employee’s Date of Termination (as defined in paragraph 8.d.) occurs multiplied by a fraction, the numerator of which is the number of days worked by Employee in the bonus period to the Date of Termination, and the denominator of which is the number of days in the bonus period, less any amount of the Target Bonus that has been paid. For purposes of this Agreement, “Target Bonus” shall mean the amount payable in cash under all annual incentive compensation plans of CNS in which Employee participates, waiving any condition precedent to the payment to Employee and assuming that the performance goals for the period were achieved at the 100% level;
 

	
             
  	
            iii.
 	
            pay the Employee Salary Continuation for one (1) year from Employee’s Date of Termination, as additional consideration for Employee’s obligations under Sections 9, 10, 11 and 12 of this Agreement. For purposes of this Agreement, “Salary Continuation” shall mean a total payment by CNS of one times (1X) the Employee’s Annual Base Salary as of Employee’s Date of Termination, the total amount to be payable to Employee over the one (1) year period on the same schedule and in the same amount as the payment of Annual Base Salary prior to termination of Employee’s employment, until such time as the full Salary Continuation obligation/non-compete shall be discharged, as provided in this paragraph 7.a., but subject to earlier termination and the rights as provided in Section 13.b;
 

	
             
  	
            iv.
 	
            continue to pay the employer’s portion of the premium cost for any group health, dental and life insurance benefit during the Salary Continuation period or the applicable continuation period required by law, whichever is shorter, provided, however, that Employee shall be responsible to pay the employee’s portion of cost of any such benefits and the continuation period required under applicable law will not be extended as a result of CNS’s payment provided for in this clause; 
 

	
             
  	
            v.
 	
            pay to Employee any accrued unused Paid Time Off to which Employee is entitled; and 
 

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            vi.
 	
            provide qualified outplacement services to Employee through an entity selected by CNS for a period of up to six months at the sole cost of CNS. 
 

As a condition of receiving the Salary Continuation and other benefits provided in this paragraph 7.a., Employee shall be required to sign a standard release agreement in the form of Exhibit B with CNS in which Employee agrees to release any and all claims and causes of action which Employee might have against CNS and its releasees, in which Employee affirms and acknowledges Employee’s obligations under paragraphs 9, 10, 11 and 12 of this Agreement, and which includes an obligation not to speak negatively about or harm CNS, confidentiality with regard to the termination process and cooperation with the transition of responsibilities. Payments under paragraph 7.a. shall begin after all rescission periods provided in the standard release agreement have run or have been waived. 

	
             
  	
            b.
 	
            CNS, by written notice to Employee, may terminate Employee’s employment for Good Cause, as defined below, (i) prior to a Change in Control or (ii) after the terms of paragraph 8.b. are no longer effective. In the event of termination under this paragraph 7.b., CNS shall continue to pay Employee’s Annual Base Salary up to the Date of Termination. For purposes of this Agreement, “Good Cause” shall mean one or more of the following:
 

	
             
  	
            i.
 	
            willful and premeditated failure or refusal of Employee to render services to CNS in accordance with Employee’s obligations under paragraph 3;
 

	
             
  	
            ii.
 	
            the commission by Employee of a willful breach of fiduciary duty to CNS or an intentional and knowing fraud against CNS or any customer, supplier, client, agent or employee thereof;
 

	
             
  	
            iii.
 	
            the engaging by Employee in intentional or willful misconduct that violates a material provision of any written policy, code of conduct or directive of the Board or that could result in an enforcement action or sanctions against the Company or Employee by any state or federal agency or department or any foreign government or agency having jurisdiction over the Company or Employee (it being understood that mere negligence in performance of duties is not Good Cause under this Agreement);
 

	
             
  	
            iv.
 	
            the breach by Employee of any provision of this Agreement;
 

	
             
  	
            v.
 	
            the commission of a felony by Employee; or
 

	
             
  	
            vi.
 	
            prior to a Change in Control, Employee’s unsatisfactory performance after specific notice by CNS of Employee’s performance deficiencies, description of expectations and a 60-day opportunity to cure.
 

	
             
  	
            c.
 	
            CNS, by written notice to Employee, may terminate Employee’s employment under this Agreement if Employee becomes physically or mentally disabled (as determined under the Americans with Disabilities Act) during the term so that Employee has not been able to substantially perform, for a period of 120 consecutive days, with reasonable accommodation, the usual duties assigned to Employee hereunder (“Disability”). Upon such determination by CNS of Employee’s Disability, CNS shall pay to Employee the Annual Base Salary up to the Date of Termination. 
 

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            d.
 	
            This Agreement shall terminate upon the Employee’s death during its term, except that CNS shall pay to the legal representative of Employee’s estate Employee’s Annual Base Salary due Employee up to the date of Employee’s death. 
 

	
            8.
 	
            Termination Following a Change in Control. 
 

	
             
  	
            a.
 	
            For purposes of this Agreement, “Change in Control” shall mean the occurrence of one of the following events:  
 

	
             
  	
            i.
 	
            Acquisition of 25% of Stock of CNS. Any “person” [as such term is used in Section 13(d) and 4(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)], is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities representing 25% or more of the combined voting power of CNS’s then outstanding securities, but shall not include CNS, any direct or indirect subsidiary of CNS or any employee benefit plan of CNS or of any subsidiary of CNS or any entity holding shares of common stock of the Company organized, appointed or established for, or pursuant to the terms of, any such plan. 
 

	
             
  	
            ii.
 	
            Change in Board of Directors. During any period of two consecutive years (not including any period ending prior to the effective date of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of CNS, and any new director (other than a director designated by a person who has entered into agreement with CNS to effect a transaction constituting a Change in Control under Section 8.a.i., 8.a.iii. or 8.a.iv.) whose election by the Board of Directors of CNS or nomination for election by CNS’s stockholders was approved by vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (“Continuing Directors”), cease for
any reason to constitute at least a majority of the Board of Directors of CNS. 
 

	
             
  	
            iii.
 	
            Merger or Consolidation. Consummation of a merger or consolidation of CNS with any other corporation, other than (A) a merger or consolidation (1) which would result in the voting securities of CNS outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the merged or consolidated entity) 50% or more of the combined voting power of the voting securities of CNS or such merged or consolidated entity outstanding immediately after such merger or consolidation and (2) after which at least a majority of the members of the board of directors of the resulting entity were Continuing Directors at the time of the action of the Board of Directors of CNS approving the merger or consolidation, or (B) a merger or
consolidation effected to implement a recapitalization of CNS or similar transaction in which no person (as defined in subparagraph 8.a.i.) acquires more than 25% of the combined voting power of CNS’s then outstanding securities. 
 

5

	
             
  	
            iv.
 	
            Liquidation or Sale of Assets. Consummation of (A) a plan of complete liquidation or (B) a sale or disposition by CNS of all or substantially all of CNS’s assets. “The sale or disposition by CNS of all or substantially all of CNS’s assets” shall mean a sale or other disposition transaction or series of related transactions involving assets of CNS or of any direct or indirect subsidiary of CNS (including the stock of any direct or indirect subsidiary of CNS) in which the value of the assets or stock being sold or otherwise disposed of (as measured by the purchase price being paid therefor or by such other method as the Board of Directors of CNS determines is appropriate in a case where there is no readily ascertainable purchase price) constitutes more than 75% of the fair market
value of CNS. For purposes of the preceding sentence, the “fair market value of CNS” shall be the aggregate market value of CNS’s outstanding common stock (on a fully diluted basis) plus the aggregate market value of CNS’s other outstanding equity securities. The aggregate market value of CNS’s common stock shall be determined by multiplying the number of shares of CNS common stock (on a fully diluted basis) outstanding on the date of the execution and delivery of a definitive agreement (“Transaction Date”) with respect to the sale or disposition by CNS of all or substantially all of CNS’s assets by the average closing price for CNS’s common stock for the ten trading days immediately preceding the Transaction Date. The aggregate market value of any other equity securities of CNS shall be determined in a manner similar to that prescribed in the immediately preceding sentence for determining the aggregate market value of CNS’s common
stock or by such other method as the Board of Directors of CNS shall determine is appropriate. 
 

Employee agrees that, subject to the terms and conditions of this Agreement, in the event of a Change in Control of CNS occurring after the date hereof, Employee will remain in the employ of CNS for a period of 30 days from the occurrence of such Change in Control. 

	
             
  	
            b.
 	
            Applicability. In the event of a Change in Control, the terms of this paragraph 8.b shall be effective for a period of 24 months following the Change in Control. Employee shall be entitled to receive the benefits set forth in paragraph 8.f if, within 24 months following such Change in Control, Employee’s employment is terminated by CNS or its successor without Good Cause (as defined in paragraph 7.a above), or by Employee for Good Reason (as defined in subparagraph 8.b.i. below). As a condition to receiving such benefits, Employee shall be required to sign a standard release agreement with CNS in the form of Exhibit B. Payments required under this paragraph 8.b shall begin after all rescission periods provided in the standard release agreement have run or have been waived. 
 

6

	
             
  	
            i.
 	
            Termination for Good Reason shall be effective immediately upon written notice from the Employee to the Chief Executive Officer. For purposes of this Agreement, “Good Reason” shall exist if: (A) CNS has materially breached any of the terms of this Agreement; (B) Employee is assigned duties which are materially inconsistent with Employee’s position, duties, responsibilities and status as Vice President-Finance and CFO; (C) Employee’s Annual Base Salary, or Target Bonus (as defined below), or the face value of annual equity grants, is reduced below the amount in effect immediately prior to the Change in Control; (D) the aggregate monetary value of Employee’s participation in, or payment or benefit under all benefit plans, arrangements and perquisites, is materially reduced from the aggregate monetary
value of those plans, arrangements or perquisites that were in effect immediately prior to the Change in Control; or (E) relocation of CNS would require Employee to relocate Employee’s principal residence outside reasonable commuting distance of the Twin Cities Metropolitan area. 
 

	
             
  	
            ii.
 	
            Termination without Good Cause shall be effective upon 30 days’ advance notice by CNS to the Employee. For purposes of this paragraph 8, Good Cause shall be defined as in paragraph 7.b. 
 

	
             
  	
            c.
 	
            Notice of Termination. Any purported termination of employment under this paragraph 8 and also under paragraphs 6 and 7 shall be communicated by written Notice of Termination to the other party hereto in accordance with paragraph 22 hereunder. For purposes of this Agreement, a “Notice of Termination” shall mean a notice that indicates the specific termination provision in this Agreement relied upon and which sets forth the facts and circumstances claimed to provide a basis for termination of Employee’s employment. 
 

	
             
  	
            d.
 	
            Date of Termination. For purposes of this paragraph 8 and also paragraphs 6 and 7 of this Agreement, “Date of Termination” shall mean:
 

	
             
  	
            i.
 	
            if Employee’s employment is terminated for Disability, as defined in paragraph 7.c. hereunder, 30 days after Notice of Termination is given (provided that Employee shall not have returned to the full-time performance of Employee’s duties during such 30 day period); and
 

	
             
  	
            ii.
 	
            if Employee’s employment is terminated pursuant to a provision contained in paragraph 6, 7 or 8 herein or for any other reason (other than Disability), the date specified in the Notice of Termination, consistent with the provisions in said paragraphs. 
 

7

	
             
  	
            e.
 	
            Dispute of Termination. If, within ten days after any Notice of Termination is given under this paragraph 8, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or as provided in paragraph 16, (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, CNS shall continue to pay
Employee full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Annual Base Salary) and continue Employee as a participant in all compensation, benefit and insurance plans in which Employee was participating when the notice giving rise to the dispute was given, to the extent permissible under the terms of the applicable group plans and state and federal law, until the dispute is finally resolved in accordance with this subparagraph. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts under this Agreement. 
 

	
             
  	
            f.
 	
            Compensation Upon Termination. Following a Change in Control, as defined in paragraph 8.a. above, to the extent provided in paragraph 8.b. above, and subject to the limitation under paragraph 8.j., CNS shall pay or provide Employee the following benefits in lieu of any benefits which would otherwise be available to Employee upon termination under paragraphs 6 or 7 hereunder:
 

	
             
  	
            i.
 	
            pay Employee through the Date of Termination Employee’s Annual Base Salary at the rate in effect at the time the Notice of Termination is given, and any other form or type of compensation otherwise payable for such period, including any applicable incentive bonus, commensurate with his performance and the performance of CNS; 
 

	
             
  	
            ii.
 	
            in lieu of any further salary payments for periods subsequent to the Date of Termination, CNS shall pay a severance payment (the “Severance Payment”) equal to 24 months of Employee’s Compensation, as defined below, based on the average monthly Compensation paid to Employee during the 24-month period ending immediately prior to the Date of Termination (without giving effect to any reduction in such Compensation which would constitute a breach of this Agreement). If the Employee has not been employed by CNS for 24 months as of the Date of Termination, average monthly Compensation shall be the Employee’s average monthly Compensation for the number of months during which the Employee has been employed at CNS. For purposes of this subparagraph, Compensation shall mean and include every type and form of
compensation paid to Employee by CNS (or any corporation (“Affiliate”) affiliated with CNS within the meaning of Section 1504 of the Internal Revenue Code of 1986, as may be amended from time to time (the “Code”)) and included in Employee’s gross income for federal income tax purposes, but excluding compensation income arising from (1) hiring bonuses, and (2) compensation income recognized as a result of the exercise of stock options or sale of the stock so acquired. All of Employee’s contributions to any qualified plan pursuant to Section 401(k) of the Code or any flexible benefit plan pursuant to Section 125 of the Code shall be deemed to be included in gross income for federal tax purposes for purposes of this subparagraph. The Severance Payment shall be made: (A) as to one-half in a single lump sum within 60 days after the Date of Termination; and (B) as to the remaining one-half in 12 equal monthly installments beginning on the first
of the month following the Date of Termination (as additional consideration for Employee’s obligations under Sections 9, 10, 11 and 12 of this Agreement), subject to earlier termination and the rights as provided in Section 13.b; 
 

8

	
             
  	
            iii.
 	
            continue to pay the employer’s portion of the premium cost for any group health, dental and life insurance benefit during the applicable continuation period required by law, provided, however, that Employee shall be responsible to pay the employee’s portion of cost of any such benefits and the continuation period required under applicable law will not be extended as a result of CNS’s payment provided for in this clause; and 
 

	
             
  	
            iv.
 	
            pay to Employee all legal fees and expenses incurred by Employee as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this paragraph, but only if such contest, dispute or enforcement is conducted in accordance with the terms of Section 16 of this Agreement). 
 

	
             
  	
            g.
 	
            Employee shall not be required to mitigate the amount of any payment provided for in paragraph 8.b or 8.f. by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in paragraph 8.b. or 8.f. be reduced by any compensation earned by Employee as the result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise except as specifically provided in paragraph 8.f. 
 

	
             
  	
            h.
 	
            In order to assure the performance of CNS or its successor of its obligations under this paragraph, CNS may deposit in trust an amount equal to the maximum payment that will be due Employee under the terms hereof. Under a written trust instrument, the Trustee shall be instructed to pay to Employee (or Employee’s legal representative, as the case may be) the amount to which Employee shall be entitled under the terms hereof, and the balance, if any, of the trust not so paid or reserved for payment shall be repaid to CNS. If CNS deposits funds in trust, payment shall be made no later than the occurrence of a Change in Control. If and to the extent there are not amounts in trust sufficient to pay Employee under this Agreement, CNS shall remain liable for any and all payments due to Employee. In accordance with the terms of
such trust, at all times during the term of this Agreement, Employee shall have no rights, other than as an unsecured general creditor of CNS, to any amounts held in trust and all trust assets shall be general assets of CNS and subject to the claims of creditors of CNS. Failure of CNS to establish or fully fund such trust shall not be deemed a revocation or termination of this Agreement by CNS. 
 

9

	
             
  	
            i.
 	
            As a condition of receiving the Severance Payment and other benefits provided in paragraph 8.f., Employee shall be required to sign a standard release agreement in the form of Exhibit B with CNS in which Employee agrees to release any and all claims and causes of action which Employee might have against CNS and its releasees, in which Employee affirms and acknowledges Employee’s obligations under paragraphs 9, 10, 11 and 12 of this Agreement, and includes an obligation not to speak negatively about or harm CNS, confidentiality with regard to the termination process and cooperation with the transition of responsibilities. Payments under paragraph 8.f. shall begin after all rescission periods provided in the standard release agreement have run or have been waived. 
 

	
             
  	
            j.
 	
            Immediately prior to a Change in Control, Employee shall vest in all stock options which have been granted to Employee and Employee shall be entitled to exercise all rights to receive all benefits accruing to Employee under any and all CNS stock purchase and stock option plans and programs. Approval of this Agreement by the Compensation Committee shall be deemed approval of the vesting of options as provided in the immediately preceding sentence for all purposes under CNS stock purchase and stock option plans and programs. In the event that the vesting of the options, together with all other payments and the value of any benefit received or to be received by Employee would result in all or a portion of such payments and benefits being subject to excise tax under Section 4999 of the Code, then Employee’s payments shall be
either (A) the full payment or (B) such lesser amount that would result in no portion of such payments and benefits being subject to excise tax under Section 4999 of the Code (the “Excise Tax”), whichever of the foregoing amounts, taking into account the applicable federal, state, and local employment taxes, income taxes, and the Excise Tax, results in the receipt by Employee, on an after-tax basis, of the greatest amount of the payment notwithstanding that all or some portion of such payments and benefits may be taxable under 4999 of the Code. All determinations required to be made under this paragraph 8.j. be made by a nationally recognized accounting firm which is CNS’s outside auditor immediately prior to the event triggering the payments that are subject to the Excise Tax, which firm must be reasonably acceptable to Employee (the “Accounting Firm”). CNS shall cause the Accounting Firm to provide detailed supporting calculations of its determinations
to CNS and Employee. Notice must be given to the Accounting Firm within fifteen (15) business days after an event entitling Employee to a payment under this paragraph 8. All fees and expenses of the Accounting Firm shall be borne solely by CNS. The Accounting Firm’s determinations must be made with substantial authority (within the meaning of Section 6662 of the Code). 
 

10

	
            9.
  	
            Confidential Information. All knowledge and information not already available to the public which Employee may acquire or has acquired with respect to product development, improvements, modifications, discoveries, designs, methods, systems, computer software, programs, codes and documentation, research, designs, formulas, instructions, methods, inventions, trade secrets, services or other private or confidential matters of CNS (such as those concerning sales, costs, profits, organizations, customer lists, pricing methods, etc.), or of any third party which CNS is obligated to keep confidential, shall be regarded by Employee as strictly confidential and shall not be used by Employee directly or indirectly or disclosed to any persons, corporations or firms. All of the foregoing knowledge and information
are collectively termed “Confidential Information” herein. Employee’s obligations under this paragraph will not apply to any information which (a) is or becomes known to the general public under circumstances involving no breach by Employee of the terms of this paragraph, (b) is generally disclosed to third parties by CNS as a continuing practice without restriction on such third parties, (c) is approved for release by written authorization of CNS’s Board, or (d) Employee is obligated by law to disclose. 
 

	
            10.
 	
            Disclosure and Transfer of Product Developments, etc.
 

	
             
  	
            a.
 	
            Employee will make full and prompt disclosure to CNS or all product developments, improvements, modifications, discoveries, computer software, programs, codes and documentation, research, designs, formulas, configurations, instructions, methods and inventions (all of which are collectively termed “Developments” herein), whether patentable or not, made, discovered, conceived or first reduced to practice by Employee or under Employee’s direction during Employee’s employment, alone or with others, whether or not made or conceived during normal working hours or on the premises of CNS which relate in any material way to the business or to research or development work of CNS. Employee confirms by Employee’s acceptance of this Agreement that CNS owns and shall own all of the Developments. 
 

	
             
  	
            b.
 	
            Employee also agrees on behalf of himself and Employee’s heirs and legal representatives that Employee will promptly communicate, disclose and transfer to CNS, free of encumbrances and restrictions, all of Employee’s right, title and interest in the Developments covered by paragraph 10.a. and any patents or patent applications covering such Developments and to execute and deliver such assignments, patents and applications, and any other documents as CNS may direct, and to cooperate fully with CNS to enable it to secure any patents or otherwise protect such Developments in any and all countries. Employee shall assign to CNS any and all copyrights and reproduction rights to all material prepared by Employee in connection with Employee’s employment. 
 

	
             
  	
            c.
 	
            Notwithstanding paragraphs 10.a. and b., however, this paragraph 10 shall not apply to Developments for which no equipment, supplies, facility or trade secret information of CNS was used and which was developed entirely on the Employee’s own time, and (A) which do not relate (1) directly to the business of CNS or (2) to CNS’s actual or demonstrably anticipated research or development, or (B) which does not result from any work performed by Employee for CNS. 
 

This will confirm that Employee’s obligations to CNS under paragraphs 9, 10, 11 and 12 will continue after the termination of Employee’s employment. 

11

	
            11.
  	
            Non-competition. During the term of Employee’s employment by CNS and for twelve (12) months thereafter, Employee shall not directly or indirectly engage in, enter into or participate in the business of CNS or in any business or commercial activity which does or is reasonably likely to compete with or adversely affect the Business (as defined below) or products of CNS, either as an individual for Employee’s own account, as a partner or a joint venturer, or as an officer, director, consultant or holder of more than five percent (5%) of the entity interest in, any other person, firm, partnership or corporation, or an employee, agent or salesman for any person. In addition, during such period Employee shall not: avail himself of any advantages or acquaintances Employee has made with any person
who has, within the twelve (12) month period ended on the Employee’s Date of Termination, been a customer of CNS or its affiliates, and which would, directly or indirectly, materially divert business from or materially and adversely affect the Business of CNS; interfere with the contractual relations between CNS and any of its employees. For purposes of this Agreement, the “Business of CNS” or “Business” means and includes the business of the manufacture, production, sale, marketing and distribution of the Breathe Right strip and any other products currently offered or currently under development by CNS or offered or currently under development by CNS during one (l) year prior to the Employee’s Date of Termination. 
 

Employee acknowledges that CNS directly, or indirectly through its affiliates, currently is engaged in business on a worldwide basis. Consequently, Employee agrees that the obligations under this Section 11 shall apply in any market, foreign or domestic, in which (a) CNS or, as applicable, a CNS affiliate(s), operates during the one (1) year period prior to the Employee’s Date of Termination, and (b) CNS or, as applicable, a CNS affiliate(s), has plans to enter on the Employee’s Date of Termination. 

	
            12.
 	
            Non-Solicitation. During the term of Employee’s employment by CNS and for twelve (12) months thereafter, Employee shall not directly or indirectly solicit any current or prospective CNS customer, broker, vendor or distributor for the purpose of providing products or services for or on behalf of said customer, broker, vendor or distributor which are competitive with the products or services being provided by CNS, which are in the development stages of being competitive with the products or services being provided by CNS, or which would in any way cause said customer, broker, vendor or distributor to discontinue or reduce its business relationship with CNS. Current CNS customers, brokers, vendors or distributors include those customer, brokers, vendors or distributors with whom CNS has had a
business relationship at any time within one (1) year immediately preceding Employee’s Date of Termination. Prospective CNS customers, brokers, vendors and distributors include those with whom (a) a CNS representative has been in direct personal contact and (b) CNS has a reasonable opportunity of entering into a business relationship within six (6) months following Employee’s Date of Termination. Employee also agrees that during Employee’s employment and in the one (1) year period following Employee’s employment, Employee will not directly or indirectly solicit any CNS employees to terminate his employment with CNS. This Employee non-solicitation obligation applies to employees of CNS during Employee’s employment and as of Employee’s Date of Termination. 
 

12

	
            13.
  	
            Remedies. 
 

	
             
  	
            a.
 	
            Employee acknowledges that the restrictions set forth in paragraphs 9, 10, 11 and 12 hereof are reasonably necessary to protect legitimate business interests of CNS. It is understood that if Employee violates Employee’s obligations under any of these paragraphs, CNS would suffer irreparable harm for which a recovery of money damages would be an incomplete and inadequate remedy. It is therefore agreed that CNS, in addition to any remedies at law and as provided in (b) below, shall be entitled, as a matter of right, in any court of competent jurisdiction, to a mandatory injunction restraining Employee pending litigation, as well as upon final determination thereof, from violating this Agreement. In addition, CNS will discontinue payment to Employee of any Severance Payment or Salary Continuation, benefits or bonus which
Employee may be entitled to receive or is receiving under paragraphs 6, 7 or 8 hereunder or otherwise, in the event of Employee’s violation of any of Employee’s obligations under this Agreement. In the event of cessation of payments and benefits, Employee’s release of Employee’s claims against CNS shall remain valid and fully enforceable in consideration of the benefits that Employee received prior to said breach. 
 

	
             
  	
            b.
 	
            Employee acknowledges and agrees that the Salary Continuation (under Section 7.a) or the installments of Severance Payments (under Section 8.f.ii.B) shall constitute additional consideration for Employee’s obligation under Sections 9, 10, 11 and 12. Therefore, in the event Employee breaches any of the terms of Sections 9, 10, 11 and 12 in any material respect, which breach is not cured by Employee within ten days after written notice from CNS specifying the breach, in addition to any other remedy available to CNS, CNS may discontinue any Salary Continuation payments and any installments of Severance Payments otherwise payable to Employee under Section 8.f.ii.B and Employee shall immediately repay CNS all Salary Continuation payments described in Section 7.a. and Severance Payment installments
described in Section 8.f.ii.B previously received by Employee. Any unpaid portion of such Salary Continuation or Severance Payment installment shall, until paid, bear interest from the first day repayment is due at the rate set forth in Section 24.a. 
 

	
            14.
 	
            Severability. The parties intend that the covenants and agreements contained herein shall be deemed to be a series of separate covenants and agreements, one for each and every state of the United States and political subdivision outside the United States where the business described is conducted. If, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants deemed included in such action, then such unenforceable covenants shall be deemed eliminated from the provisions of this Agreement for the purpose of such proceeding to the extent necessary to permit the remaining covenants to be enforced in such proceeding. Further, in the event that any provision is held to be overbroad as written, such provision shall be deemed amended to narrow its application to the extent
necessary to make the provision enforceable according to applicable law and enforced as amended. 
 

13

	
            15.
  	
            Cooperation. For a reasonable period after termination of employment, Employee agrees to be available to, cooperate with and assist CNS as it may reasonably request in connection with any litigation or other legal proceeding, claims or potential claims or any internal or governmental investigation with respect to matters about which Employee has or may have knowledge as a result of Employee’s employment with CNS. Employee also agrees to promptly inform CNS if Employee is asked to assist in any investigation of CNS (or its actions) that may relate to services performed by Employee for CNS, regardless of whether a lawsuit has then been filed against CNS with respect to such investigation. In the event CNS requests Employee’s assistance in any litigation or regulatory matter after
Employee’s employment termination, CNS will pay or reimburse Employee for any out-of-pocket costs and for any time Employee spends on such matter as requested by CNS, at a daily rate based on Employee’s Annual Base Salary at the time of termination. 
 

	
            16.
 	
            Dispute Resolution Procedure.
 

	
             
  	
            a.
 	
            CNS and Employee desire to establish a reasonable and confidential means of resolving any dispute, question or interpretation arising out of or relating to:
 

	
             
  	
            i.
 	
            this Agreement or the alleged breach or threatened breach of it;
 

	
             
  	
            ii.
 	
            the making of this Agreement, including claims of fraud in the inducement;
 

	
             
  	
            iii.
 	
            Employee’s employment by CNS pursuant to this Agreement, including claims of wrongful termination or discrimination; or
 

	
             
  	
            iv.
 	
            any activities by Employee following the cessation of employment with CNS (each such dispute to be referred to herein as a “Dispute”). 
 

	
             
  	
            b.
 	
            In furtherance of the parties’ mutual desire, CNS and Employee agree that if either party believes a Dispute exists, that party shall provide the other with written notice of the claimed Dispute. Upon receipt of that written notice, except as provided in paragraph 13, the following procedure shall be the exclusive means of fully and finally resolving the Dispute. First, within ten (10) days of the other party receiving that notice, Employee and appropriate representatives of CNS and/or Board will meet to attempt to resolve amicably the Dispute. Second, if a mutually agreeable resolution is not reached within ten (10) days following the parties’ first meeting, the parties will engage in mediation with a neutral mediator mutually agreeable to the parties, said mediation to be held within thirty (30) days of the final
meeting between Employee and representatives of CNS and/or Board. Third, if the Dispute is not resolved through mediation within ten (10) days of such mediation, the Dispute shall be resolved exclusively by final and binding arbitration held in accordance with the provisions of this Agreement and the American Arbitration Association (“AAA”) National Rules for the Resolution of Employment Disputes then in effect, unless such rules are inconsistent with the provisions of this Agreement. In connection with such arbitration:
 

14

	
             
  	
            i.
 	
            any such arbitration shall be conducted: (A) by a neutral arbitrator appointed by mutual agreement of the parties; or (B) failing such agreement, by a neutral arbitrator appointed in accordance with said AAA rules;
 

	
             
  	
            ii.
 	
            CNS shall pay the fees and expenses of the arbitrator;
 

	
             
  	
            iii.
 	
            the parties shall be permitted reasonable discovery in accordance with the provisions of the Minnesota Rules of Civil Procedure, including the production of relevant documents by the other party, the exchange of witness lists, and a limited number of depositions, including depositions of any expert who will testify at the arbitration;
 

	
             
  	
            iv.
 	
            the summary judgment procedure applicable under Rule 56 of the Minnesota Rules of Civil Procedure shall be available and apply to any arbitration conducted pursuant to this Agreement;
 

	
             
  	
            v.
 	
            the arbitrator’s award shall include findings of fact and conclusions of law showing the legal and factual bases for the arbitrator’s decision;
 

	
             
  	
            vi.
 	
            except as provided in Section 8.f.(iv), the arbitrator shall have the authority to award to the prevailing party any remedy or relief that a United States District Court or court of the State of Minnesota could order or grant if the dispute had first been brought in that judicial forum, including costs (other than the arbitrator’s fees and expenses and attorneys’ fees);
 

	
             
  	
            vii.
 	
            the arbitrator’s award may be entered by any court of competent jurisdiction; and
 

	
             
  	
            viii.
 	
            unless otherwise agreed by the parties, the place of any arbitration proceeding shall be Minneapolis, Minnesota.
 

	
             
  	
            c.
 	
            Except as the parties shall agree in writing, upon court order, or as required by law, neither CNS nor Employee will disclose to any third party, except for their counsel, retained experts and other persons directly serving counsel or retained experts, any fact or information in any way pertaining to the process of resolving a Dispute under this paragraph 16, or to the fact of or any term that is part of a resolution or settlement of any Dispute. This prohibition on disclosure specifically includes, without limitation, any disclosure of an oral statement or of a written document made or provided by either Employee or CNS, or by any of CNS’s or Employee’s representatives, counsel or retained experts, or other persons directly serving any representatives, counsel or retained experts. 
 

15

	
            17.
  	
            Binding Effect.
 

	
             
  	
            a.
 	
            CNS will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of CNS (as defined in paragraph 8.a.) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that CNS would be required to perform it if no such succession had taken place, in which case, the term “CNS” as used in this Agreement shall instead refer to CNS’ successor; provided, however, that the provisions of paragraph 8.b. shall apply and be of no further effect at the end of the 24 month period following a Change in Control, except as provided in paragraph 23. Failure of CNS to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement
and shall entitle Employee to compensation from CNS in the same amount and on the same terms as Employee would be entitled hereunder if Employee terminated Employee’s employment for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 
 

	
             
  	
            b.
 	
            This Agreement shall inure to the benefit of and be enforceable by Employee’s personal or legal representatives, successors, heirs, and designated beneficiaries. If Employee should die while any amount would still be payable to Employee hereunder if Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee’s designated beneficiaries, or, if there is no such designated beneficiary, to Employee’s estate. 
 

	
            18.
 	
            Entire Agreement. From and after the date of this Agreement the terms and provisions of this Agreement constitute the entire agreement between the parties and this Agreement supersedes any previous oral or written communications, representations, or agreements with respect to any subject, including the subject matter of compensation, bonus, participation and profit sharing and termination compensation, including but not limited to, the prior Employment Agreement dated as of October 15, 2003 and the letter agreement dated September 18, 2003. 
 

	
            19.
 	
            Waiver and Interpretation. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the breaching party. No waiver shall be valid unless in writing and signed by the party providing such waiver. If any provision of this Agreement is held by any court to be unenforceable, then such provision shall be deemed to be eliminated from the Agreement to permit enforceability of the remaining provisions. If any provision is held to be overbroad, such provision shall be amended to narrow its application to the extent necessary for enforceability. For purposes of the release agreement which Employee shall be required to execute as a condition of receiving any payments and benefits hereunder,
“CNS”, as referred to in this Agreement, shall include CNS and all its affiliates, shareholders, officers, directors, employees, agents, attorneys, insurers and indemnitors. 
 

16

	
            20.
 	
            Applicable Law. All questions pertaining to the validity, construction, execution and performance of this Agreement shall be construed and governed in accordance with the laws of the State of Minnesota. The parties consent to the personal jurisdiction of the State of Minnesota, waive any argument that such a forum is not convenient, and agree that any litigation relating to this Agreement shall be venued in Minneapolis, Minnesota. 
 

	
            21.
 	
            Tax Withholding. CNS may withhold from any payment of benefits under this Agreement (and forward to the appropriate taxing authority) any taxes required to be withheld under applicable law. 
 

	
            22.
 	
            Notice. Any notice required or desired to be given under this Agreement shall be deemed given if in writing sent by certified mail to Employee’s residence in the case of Employee, or to its principal office in the case of CNS. 
 

	
            23.
 	
            Survival of Rights and Obligations. All of Employee’s rights and CNS’s obligations hereunder, including Employee’s rights to compensation and benefits (including under paragraphs 6, 7 and 8 hereof), and Employee’s obligations under paragraphs 9, 10, 11 and 12 hereof shall survive the termination of Employee’s employment and/or the termination of this Agreement. 
 

	
            24.
 	
            Payment of Compensation. Notwithstanding anything in this Agreement or elsewhere to the contrary:  
 

	
             
  	
            a.
 	
            If payment or provision of any amount or other benefit that is “deferred compensation” subject to Section 409A of the Code at the time otherwise specified in this Agreement or elsewhere would subject such amount or benefit to additional tax pursuant to Section 409A(a)(1)(B) of the Code, and if payment or provision thereof at a later date would avoid any such additional tax, then the payment or provision thereof shall be postponed to the earliest date on which such amount or benefit can be paid or provided without incurring any such additional tax. In the event this paragraph 24 requires a deferral of any payment, such payment shall be accumulated and paid in a single lump sum on such earliest date, together with interest for the period of delay, compounded annually, equal to the prime rate (as published in
the Wall Street Journal) and in effect as of the date the payment should otherwise have been provided. 
 

	
             
  	
            b.
 	
            If any payment under this Agreement is subject to Code Section 409A, payment of such amounts shall not be made prior to separation from service, disability or death as permitted under Section 409A(a)(2)(A)(i), (ii), (iii), (v) or (vi) of the Code, subject to the six-month delayed payment requirement of Section 409A(a)(2)(B) in the event that the Employee is a specified employee within the meaning of such subsection (using December 31 as the “identification date” for specified employee status), and subject further to the early payout provisions of paragraphs 2 and 5 of this Agreement. 
 

17

	
             
  	
            c.
 	
            Payment of amounts deferred under the Plan may not be accelerated in a manner inconsistent with Section 409A(a)(3) of the Code, subject to the early payout provision of paragraphs 2 and 5 of this Agreement. 
 

	
             
  	
            d.
 	
            Any deferral elections permitted by this Agreement shall be made in a manner consistent with Section 409A(a)(4) of the Code. 
 

	
             
  	
            e.
 	
            If any payment or benefit permitted or required under this Agreement, or otherwise, is reasonably determined by either party to be subject for any reason to a material risk of additional tax pursuant to Section 409A(a)(1)(B) of the Code, then the parties shall promptly agree in good faith on appropriate provisions to avoid such risk without materially changing the economic value of this Agreement to either party. 
 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first set forth above.

 

 

	
             
 	
             
 	
            CNS, INC.
 
	
              
 	
             
 	
            By:   
 	
            
 /s/   Marti Morfitt
 
	
             
 	
             
 	
             
 	
             
 
	
             
 	
             
 	
            Its:   
 	
            President and Chief Executive Officer
 

 

 

 

	
             
 	
             
 	
            EMPLOYEE
 
	
              
 	
             
 	
            By:   
 	
            
 /s/   Samuel E. Reinkensmeyer
 
	
             
 	
             
 	
             
 	
            Samuel E. Reinkensmeyer
 

18

EXECUTIVE EMPLOYMENT AGREEMENT 

EXHIBIT A 

 

	
            Name:
 	
            Samuel E. Reinkensmeyer
 

 

	
            Position:
 	
            Vice President-Finance and Chief Financial Officer
 

 

	
            Annual Base Salary:
 	
            $220,110
 

 

	
            Management Incentive Plan Level:
 	
            17.5 %  at Threshold
 	
             

	
             
 	
            35 %  
 	
            at Plan
 	
             

	
             
 	
            70 %  
 	
            at Maximum
 

RELEASE AGREEMENT

 

EXHIBIT B

 

In consideration of the benefits to be afforded to the undersigned under that certain Executive Employment Agreement dated May 3, 2006 between CNS, Inc., a Delaware corporation (“CNS”) and the undersigned (the “Employment Agreement”), the undersigned agrees to do the following things:  

 

	
            1.
 	
            The undersigned hereby releases CNS, its past and present affiliates, and its and their past and present officers, directors, agents, shareholders, employees, attorneys, insurers and indemnitors (collectively, the “Releasees”) from any and all claims and causes of action, known or unknown, which the undersigned may have against any and all of them. Through this release, the undersigned extinguishes all causes of action against the Releasees occurring up to the date on which the undersigned signs this release agreement, including but not limited to any contract, compensation or benefit claims; intentional infliction of emotional distress, defamation or any other tort claims; and all claims arising from any federal, state or municipal law or ordinance, including the Employee Retirement Income Security Act and the Family and Medical Leave Act. This
release extinguishes any potential claims of employment discrimination arising from the undersigned’s employment with and termination of employment with or resignation from CNS, including specifically any claims under the Minnesota Human Rights Act, the Americans With Disabilities Act, Title VII of the Civil Rights Act of 1964, the Older Workers Benefit Protection Act, and the Age Discrimination in Employment Act. This release does not extinguish any claims: (i) that arise against CNS after the undersigned signs this release agreement; (ii) arising under this release agreement; (iii) to any benefits to which the undersigned is otherwise entitled under any CNS benefit plan as of the date of this release agreement; (iv) related to workers’ compensation; (v) arising under unemployment compensation law; (vi) to the right to indemnification under CNS bylaws or insurance; or (vii) compensation or benefits owing the undersigned in connection with the termination of his employment
under the Employment Agreement. The undersigned certifies that he (a) has not filed any claims, complaints or other actions against any Releasee; and (b) is hereby waiving any right to recover from any Releasee under any lawsuit or charge filed by the undersigned or any federal, state or local agency on the undersigned’s behalf based upon any event occurring up to the date on which the undersigned signs this release agreement. The undersigned acknowledges that he has been advised by CNS to review his rights and responsibilities under this release agreement with his own lawyer. 
 

 

The undersigned has 21 days to review and consider this release agreement. If the undersigned signs this release agreement before 21 days have elapsed from the date on which the undersigned first receives it, then the undersigned will be voluntarily waiving his right to the full 21-day review period. The undersigned also has the right to rescind this release agreement within 15 calendar days of the date upon which the undersigned signs it. The undersigned understands that if the undersigned desires to rescind this release agreement, the undersigned must put the rescission in writing and deliver it to Nicole Strait, CNS, Inc., 7615 Smetana Lane, P.O. Box 39802, Minneapolis, MN  55439-0802 by hand or by mail within 15 calendar days of the date on which the undersigned signs this release agreement. If the undersigned delivers the rescission by mail, it must be postmarked within 15 calendar
days of the date on which the undersigned signs this release agreement and sent by certified mail, return receipt requested. If the undersigned rescinds this release agreement, all of CNS’s obligations to the undersigned under the Employment Agreement, other than payment of accrued unused paid time off, will immediately cease and CNS will owe the undersigned nothing under the Employment Agreement. 

	
            2.
 	
            At CNS’s specific request and at mutually convenient times while the undersigned is receiving payments under the Employment Agreement, the undersigned agrees to consult with CNS without additional compensation with respect to a limited amount of transitional CNS business matters. The undersigned also agrees to cooperate with CNS in any current or future claims or lawsuits involving CNS where the undersigned has knowledge of the underlying facts, and CNS will pay or reimburse the undersigned for any pre-approved travel or similar expenses related to any such litigation and for such other expenses as agreed to by CNS. In addition, the undersigned agrees that he will not voluntarily aid, assist, or cooperate with any claimants or plaintiffs or their attorneys or agents in any claims or lawsuits commenced in the future against CNS, provided, however, that
nothing in this release agreement will be construed to prevent the undersigned from testifying truthfully as required by valid legal or administrative process. 
 

 

	
            3.
 	
            The undersigned agrees that he will continue to speak positively and with respect towards CNS as he has in the past. 
 

 

	
            4.
 	
            The undersigned agrees to maintain the confidentiality of the terms of this release agreement and the terms of the Employment Agreement related hereto, to the extent not publicly disclosed by CNS, and agrees not to disclose such terms to anyone other than his family members, tax and legal advisors or as otherwise required by law. 
 

 

	
            5.
 	
            The undersigned affirms and acknowledges his obligations under paragraphs 9, 10, 11 and 12 of the Employment Agreement. 
 

 

This release agreement shall not in any way be construed as an admission of liability by CNS or as an admission that CNS has acted wrongfully with respect to the undersigned. CNS specifically denies and disclaims any such liability or wrongful acts. 

 

The undersigned understands that if he violates any obligation that he has to CNS under this release agreement or the Employment Agreement, all payments and benefits to him hereunder will immediately cease. In such event, the undersigned’s release of his claims shall remain fully in effect in consideration of the payments and benefits that the undersigned received prior to any such breach. 

 

The undersigned hereby declares that he has entered into this release agreement voluntarily, without coercion, duress, or reliance on any representations by any CNS employee, agent or lawyer. 

 

	
             
 	
            Acknowledged and agreed to, with declarations confirmed, this _____ day of ___________, 200_.
 

 

 

	
             
 	
             
 
	
             
 	
            Samuel E. Reinkensmeyer
 

2

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