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Confirmation

Employment Agreement

Confirmation | Document Parties: CYBERONICS INC You are currently viewing:
This Employment Agreement involves

CYBERONICS INC

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Title: Confirmation
Governing Law: New York     Date: 10/3/2005
Industry: Medical Equipment and Supplies    

Confirmation, Parties: cyberonics inc
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Date:

 

September 21, 2005

 

ML Ref:

To:

 

Cyberonics, Inc. (“Counterparty”)

 

 

 

 

 

 

 

Attention:

 

 

 

 

From:

 

Merrill Lynch International (“ML”)

 

 

 

 

 

 

 

 

 

Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ

 



 

 

 

 

     

Dear Sir / Madam:

The purpose of this letter agreement (this “ Confirmation ”) is to confirm the terms and conditions of the above-referenced transaction entered into between Counterparty and ML through its agent Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPFS ” or “ Agent ”) on the Trade Date specified below (the “ Transaction ”). This Confirmation constitutes a “Confirmation” as referred to in the Agreement specified below.

The definitions and provisions contained in the 2000 ISDA Definitions (the “ Swap Definitions ”) and the 2002 ISDA Equity Derivatives Definitions (the “ Equity Definitions ” and, together with the Swap Definitions, the “ Definitions ”), in each case as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation. In the event of any inconsistency between the Swap Definitions and the Equity Definitions, the Equity Definitions will govern, and in the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. References herein to a “Transaction” shall be deemed to be references to a “Share Option Transaction” for purposes of the Equity Definitions and a “Swap Transaction” for the purposes of the Swap Definitions.

This Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. This Confirmation (notwithstanding anything to the contrary herein), shall be subject to an agreement in the 1992 form of the ISDA Master Agreement (Multicurrency Cross Border) (the “ Master Agreement ” or “ Agreement ”) as if we had executed an agreement in such form (but without any Schedule and with elections specified in the “ISDA Master Agreement” Section of this Confirmation) on the Trade Date of the first such Transaction between us. In the event of any inconsistency between the provisions of that agreement and this Confirmation, this Confirmation will prevail for the purpose of this Transaction.

 

 

 

The terms of the particular Transaction to which this Confirmation relates are as follows:

 

 

 

General Terms:

 

 

 

 

 

Trade Date:

 

September 21, 2005

Effective Date: The fourth Business Day (as such term is defined in the Note Indenture) immediately following the Trade Date.

 

 

 

Seller:
Buyer:

 

ML
Counterparty

Shares: The shares of common stock, par value of $0.01, of Counterparty (Security Symbol: “ CYBX ”) or such other securities or property into which the Reference Notes are convertible on the date of determination.

 

 

 

Initial Payment Amount:
Initial Payment Amount
Payment Date:

 

$38.2 mm to be paid on the Effective Date by Buyer to Seller

September 27, 2005

 

 

 

Transaction Notional:
Exchange:
Related Exchange(s):
Knock-in Event:
Knock-out Event:

 

Outstanding notional amount of Reference Notes
NASDAQ
All Exchanges
Not Applicable
Not Applicable

Reference Notes: 3.00% Convertible Notes of Counterparty due 2012 in the original principal amount of $1,000

Conversion Event: Each conversion of any Reference Note into Shares pursuant to the terms of the Note Indenture (the principal amount of Reference Notes so converted, the “ Conversion Amount ” with respect to such Conversion Event) occurring before the Termination Date.

If the Conversion Amount for any Conversion Event is less than the aggregate principal amount of Reference Notes then outstanding, then the terms of this Transaction shall continue to apply, subject to the terms and conditions set forth herein, with respect to the remaining outstanding principal amount of the Reference Notes.

Note Indenture: The Indenture, dated as of closing of the issuance of the Reference Notes, between Counterparty and MLPFS, as trustee relating to the Reference Notes, as the same may be amended, modified or supplemented, subject to the “Additional Termination Events” provisions of this Confirmation.

Termination Date: The earlier of (i) September 27, 2012 and (ii) the first day on which none of the Reference Notes remain outstanding, whether by virtue of conversion, issuer repurchase or otherwise.

Valuation:

Valuation Date: The final Averaging Date in respect of each Conversion Event or Termination Event.

Averaging Dates: 10 full Exchange Business Days beginning one Exchange Business Day after a Conversion Notice is received or the Termination Date.

Averaging Date Disruption: Modified Postponement, provided that Section 6.7(c)(iii) of the Equity Definitions shall be amended by substituting the word “fifth” for the word “eighth” in each of its occurrences.

Settlement Terms:

Settlement Method: Net Share Settlement or Net Cash Settlement at the election of the Buyer or, in the event of a Cash Takeover, there being no underlying Shares, Net Cash Settlement would apply.

Settlement Notice: Buyer shall provide Seller with notice of its Settlement Method Election within three (3) Business Days after a Conversion Notice is received or the Termination Date.

Settlement Price: The arithmetic mean of the closing price of the Shares on the Exchange on each Averaging Date. If a Make-Whole Event has occurred, the price determined per the Reference Notes.

Make-Whole Event: The occurrence of a Fundamental Change (as defined in the Note Indenture) other than a Fundamental Change described in clause (3) of Change of Control (as defined in the Note Indenture).

Settlement Date: The third (3rd) full Exchange Business Day following the Valuation Date.

Conversion Notice: Counterparty agrees to provide ML with notice of any Conversion Event within two (2) Business Days following the Conversion Date and in any event no later than one (1) Business Day following Counterparty’s receipt of notice of such Conversion Event from the Trustee under the Note Indenture.

Net Share Settlement: On the Settlement Date, ML shall deliver to Counterparty, through the Agent, a number of Shares equal to the related Net Share Settlement Amount.

Cash Settlement: On the Settlement Date, ML shall deliver to Counterparty the Net Cash Settlement Amount.

Net Share Settlement Amount: For each Conversion Event and the Termination Date, the number of Shares, rounded up to the nearest whole Share, determined by the Calculation Agent to be equal to the quotient of (x) the related Net Cash Settlement Amount divided by (y) the related Settlement Price.

Net Cash Settlement Amount: For each Conversion Event, the product of (x) the number of Shares into which the Reference Notes subject to conversion are to be converted in connection with the related Conversion Event multiplied by (y) the Final Price Differential. For the Termination Date, the product of (x) the number of Shares into which the Reference Notes outstanding immediately prior to such Termination Date and which were not subject to a Conversion Event prior to the Termination Date could be converted on such Termination Date multiplied by (y) the Final Price Differential.

Final Price Differential: An amount equal to the greater of (x) the excess of the related Settlement Price over the related Adjusted Conversion Price and (y) zero.

Adjusted Conversion Price: For each Conversion Event, a quotient, the numerator of which $1,000 and the denominator of which is the Conversion Rate (as defined in the Note Indenture and as adjusted from time to time pursuant to the terms thereof) 1 as in effect on the related Settlement Date.

Share Adjustments:

Consequences for Merger Events:

Share-for-Share: Not Applicable, Transaction will be adjusted consistent with the Reference Notes as provided in the Note Indenture.

Share-for-Other: Not Applicable, Transaction will be adjusted consistent with the Reference Notes as provided in the Note Indenture.

Share-for-Combined: Not Applicable, Transaction will be adjusted consistent with the Reference Notes as provided in the Note Indenture.

 

 

 

Tender Offer:
Nationalization, Insolvency or Delisting:
Additional Disruption Events:

 

Not Applicable
Not Applicable

Change in Law:

 

Not Applicable

Failure to Deliver: Applicable. If there is inability in the market to deliver Shares on a day that would have been a Settlement Date, then the Settlement Date shall be the first succeeding Exchange Business Day on which there is no inability to deliver, but in no such event shall the Settlement Date be later than the date that is twenty (20) Exchange Business Days immediately following what would have been in the Settlement Date but for such inability to deliver.

 

 

 

Insolvency Filing:
Hedging Disruption Event:
Increased Cost of Hedging:
Hedging Party:
Loss of Stock Borrow:
Increased Cost of Stock Borrow:
Determining Party:
Non-Reliance:
Agreements and Acknowledgments
Regarding Hedging Activities:
Additional Acknowledgments:

 

Applicable
Not Applicable
Not Applicable
ML
Not Applicable
Not Applicable
ML
Applicable

Applicable
Applicable

Additional Agreements, Representations and Covenants of Counterparty, Etc.:

 

1.

 

Counterparty hereby represents and warrants to ML, on each day from the Trade Date to and including the earlier of (i) September 27, 2005 and (ii) the date by which ML is able to initially complete a hedge of its position relating to this Transaction, that:

 

 

a.

 

it will not, and will not permit any person or entity subject to its control to, bid for or purchase Shares during such period except as disclosed in the Offering Memorandum relating to the Reference Notes; and

 

 

b.

 

Counterparty has publicly disclosed all material information necessary for Counterparty to be able to purchase or sell Shares in compliance with applicable federal securities laws and that it has publicly disclosed all material information with respect to its condition (financial or otherwise).

 

 

2.

 

The parties hereby agree that all documentation with respect to this Transaction is intended to qualify this Transaction as an equity instrument for purposes of EITF 00-19. If Counterparty would be obligated to receive cash from ML pursuant to the terms of this Agreement for any reason without having had the right (other than pursuant to this paragraph (2)) to elect to receive Shares in satisfaction of such payment obligation, then Counterparty may elect that ML deliver to Counterparty a number of Shares having a cash value equal to the amount of such payment obligation (such number of Shares to be delivered to be determined by the Calculation Agent acting in a commercially reasonable manner to determine the number of Shares that could be purchased over a reasonable period of time with the cash equivalent of such payment obligation). Settlement relating to any delivery of Shares pursuant to this paragraph (2) shall occur within a reasonable period of time.

Over-Allotment Option:

If the Initial Purchasers (as such term is defined in the Purchase Agreement among the Counterparty and MLPFS as Initial Purchaser, dated as of September 21, 2005 (the “ Purchase Agreement ”) relating to the purchase of the Reference Notes)] 2 exercise their right to receive additional Reference Notes pursuant to their over-allotment option, then ML and Counterparty will, concurrently with the closing of such over-allotment option exercise, (i) enter into a confirmation for a Convertible Note Hedge with respect to such additional Reference Notes on substantially identical terms, including pricing, as this Confirmation, or (ii) amend this Confirmation to provide for the applicable increase in Reference Notes. Such additional confirmation or amendment shall provide for the payment by Counterparty to ML of the additional Initial Payment Amount related thereto.

Additional Termination Events:

The occurrence of any of the following shall be an Additional Termination Event with respect to Counterparty (which shall be the sole Affected Party and this Transaction shall be the sole Affected Transaction):

 

1.

 

an Amendment Event (as defined below) occurs (in which case the entirety of this Transaction shall be subject to termination);

 

 

2.

 

a Repayment Event (as defined below) occurs (in which case this Transaction shall be subject to termination only in respect of the principal amount of Reference Notes that cease to be outstanding in connection with or as a result of such Repayment Event); or

 

 

3.

 

the transactions contemplated by the Purchase Agreement shall fail to close for any reason, in which case the entirety of this Transaction shall terminate automatically.

If the transactions contemplated by the Purchase Agreement shall fail to close because of a breach of the Purchase Agreement by MLPFS, then the entirety of this Transaction shall terminate automatically, and all payments previously made hereunder, including the Initial Payment Amount, shall be promptly returned to the person making such payment. In addition, if an Amendment Event or Repayment Event occurs or the transactions contemplated by the Purchase Agreement shall fail to close as a result of any breach by any Initial Purchaser or as a result of any action, or failure to act, by any Initial Purchaser thereunder or as a result of a failure of any condition to the Counterparty’s obligation thereunder (collectively, an “ Initial Purchase Event ”), no payments shall be required hereunder in connection with the Termination Event arising as a result of such Amendment Event, Repayment Event or Initial Purchase Event.

As used in this Section Additional Termination Events:

Amendment Event ” means that the Counterparty amends, modifies, supplements or waives any term of the Note Indenture or the Reference Notes relating to the principal amount, coupon, maturity, repurchase obligation of the Counterparty, redemption right of the Counterparty, any term relating to conversion of the Notes (including changes to the conversion price, conversion settlement dates or conversion conditions), or any other term that would require consent of the holders of not less than 100% of the principal amount of the Reference Notes to amend.

Repayment Event ” means that (a) any Reference Notes are repurchased (whether in connection with or as a result of a change of control, howsoever defined, or for any other reason) by the Counterparty, (b) any Reference Notes are delivered to the Counterparty in exchange for delivery of any property or assets of the Counterparty or any of its subsidiaries (howsoever described), other than as a result of and in connection with a Conversion Event, (c) any principal of any of the Reference Notes is repaid prior to the Final Maturity Date, as defined in the Note Indenture (whether following acceleration of the Reference Notes or otherwise), provided that no payments of cash made in respect of the conversion a Note shall be deemed a payment of principal under this clause (c), (d) any Reference Notes are exchanged by or for the benefit of the holders thereof for any other securities of the Counterparty or any of its Affiliates (or any other property, or any combination thereof) pursuant to any exchange offer or similar transaction or (e) any of the Notes is surrendered by Counterparty to the trustee for cancellation, other than registration of a transfer of such Notes or as a result of and in connection with a Conversion Event.

Staggered Settlement:

If ML determines reasonably and in good faith that the number of Shares required to be delivered to Counterparty hereunder on any Settlement Date would exceed 8.0% of all outstanding Shares, then ML may, by notice to Counterparty on or prior to such Settlement Date (a “ Nominal Settlement Date ”), elect to deliver the Shares comprising the related the Net Share Settlement Amount on two or more dates (each, a “ Staggered Settlement Date ”) as follows:

 

1.

 

in such notice, ML will specify to Counterparty the related Staggered Settlement Dates (the first of which will be such Nominal Settlement Date and the last of which will be no later than the twentieth (20 th ) Exchange Business Day following such Nominal Settlement Date) and the number of Shares that it will deliver on each Staggered Settlement Date;

 

 

2.

 

the aggregate number of Shares that ML will deliver to Counterparty hereunder on all such Staggered Settlement Dates will equal the number of Shares that ML would otherwise be required to deliver on such Nominal Settlement Date; and

 

 

3.

 

the Net Share Settlement terms will apply on each Staggered Settlement Date, except that the Shares comprising the Net Share Settlement Amount will be allocated among such Staggered Settlement Dates as specified by ML in the notice referred to in clause (1) above.

Notwithstanding anything herein to the contrary, ML shall be entitled to deliver Shares to Counterparty from time to time prior to the date on which ML would be obligated to deliver them to Counterparty pursuant to Net Share Settlement terms set forth above, and Counterparty agrees to credit all such early deliveries against ML’s obligations hereunder in the direct order in which such obligations arise. No such early delivery of Shares will accelerate or otherwise affect any of Counterparty’s obligations to ML hereunder. In addition, during the 30 day period prior to the Termination Date or any Settlement Date, each of ML and Counterparty shall use its reasonable efforts to refrain from activities which could reasonably be expected to result in ML’s ownership of Shares exceeding 8% of all issued and outstanding Shares.

Compliance with Securities Laws: Each party represents and agrees that it has complied, and will comply, in connection with this Transaction and all related or contemporaneous sales and purchases of Shares, with the applicable provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the rules and regulations each thereunder, including, without limitation, Rules 10b-5 and Regulation M under the Exchange Act; provided that each party shall be entitled to rely conclusively on any information communicated by the other party concerning such other party’s market activities; and provided further that Counterparty shall have no liability as a result of a breach of this representation due to ML’s gross negligence or willful misconduct.

Each party further represents that if such party (“X”) purchases any Shares from the other party pursuant to this Transaction, such purchase(s) will comply in all material respects with (i) all laws and regulations applicable to X and (ii) all contractual obligations of X.

Counterparty represents that as of the date hereof:

(a) each of its filings under the Exchange Act that are required to be filed from and including the ending date of Counterparty’s most recent prior fiscal year have been filed, and that, as of the respective dates thereof and hereof, there is no misstatement of material fact contained therein or omission of a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading;

(b) if Counterparty were to have purchased a number of Shares equal to the Number of Shares using MLPFS as broker, such purchase(s) would have complied in all material respects with all contractual obligations and applicable legal and regulatory requirements of Counterparty, including without limitation Rule 10b-18 under the Exchange Act;

(c) Counterparty is not entering into this Agreement to facilitate a distribution of the common stock or in connection with a future distribution of securities; and

(d) Counterparty is not entering into this Agreement to create actual or apparent trad


 
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