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License Agreement

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Date: 1/5/2007
Industry: Medical Equipment and Supplies    

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Exhibit 10.1


     This License Agreement (“Agreement”) is entered into as of March 15, 1988 by and between CYBERONICS, INC., a Delaware corporation, having a principal place of business at 827 W. Main Street, League City, TX 77573 (“Licensee”), and DR. JACOB ZABARA, an individual residing at 200 Locust Street, #22F, Philadelphia, PA 19106 (“Licensor”).

     WHEREAS, Licensor owns a patent relating to Neurocyberenetic Prosthesis Technology (U.S. Patent No. 4,702,254) and other pending patent applications and know-how, and technology relating thereto (collectively referred to as the “Technology”); and,

     WHEREAS, Licensee wishes to obtain all exclusive license under the Licensed Patents as hereinafter defined and under the Technology generally to further test and develop the Technology and to manufacture and market products based on such Technology upon the terms and conditions hereinafter set forth;

     NOW, THEREFORE, in consideration of the promises and of the mutual covenants hereinafter contained, the parties agree as follows:

      1.  Definitions .

          (a) The term “Licensed Patents,” as used in this Agreement, shall mean and include both individually and collectively the United States and foreign patents and patent applications listed in Schedule A attached to this Agreement, such additional United States and foreign patent applications acquired by Licensor on improvements and variations upon inventions disclosed in said listed applications or other inventions “in the field of nerve stimulation, and such additional patent applications as may be filed by Licensor pursuant to Section 7 of this Agreement, all Letters Patent which shall issue on said applications and any division thereof, and all reissues, continuations, or extensions of said Letters Patent.

          (b) The term “Product,” as used in this Agreement, shall mean a product or portion of a product that (i) embodies a device invention claimed in a Licensed Patent (or which had been “claimed” in a Licensed Patent which has been declared invalid), or (ii) which is specifically intended to be used to practice a method claimed in a Licensed Patent (or which had been “claimed” in a Licensed Patent which has been declared invalid) and which is manufactured and sold by or for Licensee (or its sublicensees); provided that at the time and in the territory of manufacture or sale of such Product a Licensed Patent is pending or in force claiming such device or method (or such device or method had been “claimed” in a Licensed Patent previously valid in the territory of manufacture or sale but which has been declared invalid).

      2.  Licensor’s Representations & Warranties . Licensor represents and warrants that:

          (a) He owns the Licensed Patents and has the legal power and authority to extend the rights granted to Licensee pursuant to this Agreement and he has not assigned, licensed, pledged or compromised the Licensed Patents or made any commitments or offers inconsistent with or in derogation of the rights created by this Agreement.



          (b) Neither the Licensed Patents nor any claims contained therein have been declared invalid or unenforceable and to the best of Licensor’s knowledge there are no patent infringement suits or asserted patent infringement claims pertaining to the Licensed Patents and there are no suits or claims attacking the validity of any Licensed Patent, and Licensor knows of no basis for any such claim.

          (c) Licensor has no knowledge of any information likely to have a material effect on the validity or enforceability of any Licensed Patent or any claim thereof which was not disclosed to the Patent Office of the respective countries in which Patent Applications were filed during the prosecution of the application from which any Licensed Patent matured or, with respect to pending applications, from which any Licensed Patent may mature.

      3.  License .

          (a) Licensor hereby grants to Licensee, and Licensee hereby accepts from Licensor, upon the terms and conditions herein after specified, the exclusive, worldwide right and license under the Licensed Patents and Technology to further test and develop the Technology, to make, to have made, to use, to sell, to lease, to implant, and to have implanted and otherwise dispose of Products and to sublicense the rights created hereby pursuant to the terms of Section 5 hereof. Such license shall be perpetual unless this Agreement is terminated pursuant to Section 3.0 hereof.

          (b) Any person, firm, or corporation purchasing Products from Licensee or any Sublicensee hereunder, and its successors and assigns, shall automatically enjoy a royalty-free right under the Licensed Patents to implant and/or have implanted and to use the particular Product, and to manufacture, purchase, implant, and use any auxiliary products which may be necessary or desirable to provide a complete implant.

      4.  Royalties, Records and Reports .

          (a) Licensee agrees to pay to Licensor, in consideration for the license granted pursuant to this Agreement, royalties on the Net Sales Value (as hereinafter defined) of all Products sold during the term of this Agreement at the rate of six percent (6.0%) on the first $12,000,000 of Net Sales Value and three percent (3.0%) on all Net Sales Value after said $12,000,000, cumulative and not annual, for the life of U.S. Patent No, 4,702,254, including any extensions, renewals, continuations, divisions, or continuations-in-part thereof. Upon expiration of the last to expire of U.S. Patent No. 4,702,254 (including any extensions or renewals thereof) or any continuation, division or continuation-in-part thereof, the royalty rate payable pursuant to this Section 4(a) shall be reduced to two percent (2.0%) on the first $12,00.0,000 of Net Sales Value and one percent (1.0%) on all Net Sales Value after said $12,000,000, cumulative and not annual. It is understood and agreed that Licensee shall have no obligation to make any payment to Licensor under this Section 4(a) or Section 4(d) from and after the date on which all of the Licensed Patents (including any extensions or renewals thereof) have expired or have been declared invalid by any judicial decree, order or final judgment beyond right of further appeal, except royalties at the percentile rate specified in this Section 4(a) or Section 4(b), as the case may be, on the Net Sales Value of Products sold under the license created by Section 3 of this



Agreement prior to such date, and upon such date the license granted by Section 3 hereof shall be fully paid.

          (b) If U.S. Patent No. 4,702,254 and all continuations, divisions, and continuations-in-part thereof are held invalid by any judicial decree, order or final judgment beyond further right i of appeal, the-percentile rate at which royalties shall be payable to Licensor pursuant to Section 4(a) shall be retroactively reduced to two percent (2.0%) on the first $12,000,000 of Net Sales Value and one percent (1.0%) on all Net Sales Value after said $12,000,000 with respect to Products sold after the filing of a claim in a court of competent jurisdiction which claim results in the invalidation of U.S. Patent No. 4,702,254 and all continuations, divisions and continuations-in-part thereof (the “Claim”).

          (c) In the event of U.S. Patent No. 4,702,254 .and all continuations, divisions and continuations-in-part thereof being declared invalid, and notwithstanding anything to the contrary contained herein, no further royalty payments shall be made to Licensor until such time as the aggregate royalties payable on products sold after filing of the Claim at the percentile rate specified in Section 4(b) are equal to the actual aggregate royalties already paid to Licensor on products sold after filing of the claim, at which time royalty payments as provided in this Section 4 shall resume. The right created by this Section 4(c) shall be a right to recover excess royalties paid during the pendency of the claim from future royalties payable to Licensor hereunder only; Licensee shall have no right, claim or cause of action against Licensee to recover such excess royalties from Licensor.

          (d) Licensor agrees to pay Licensee a minimum royalty of $36,000 per year ($12,000 per year if the events specified in Section 4(b) occur), payable on a monthly basis until a Product is first sold and on a quarterly basis thereafter. Payments made pursuant to this Section 4(d) shall be paid at the beginning of the month or quarter, as the case may be, and shall be deducted from any royalties payable pursuant to Section 4(a) and shall not constitute an additional royalty obligation of Licensee.

          (e) The term “Net Sales Value,” as used in this Section 4, shall mean the full amount actually received by Licensee or its sublicensees (exclusive of sales by Licensee to its sublicensees) for Products sold by Licensee or its sublicensees to customers less the sum of the following, where applicable:

     (i) Discounts allowed, commissions paid in lieu of trade discounts, and commissions paid to independent sales representatives or agents, in the amounts customary in the trade;

     (ii) Sales and/or use taxes (or other taxes equivalent thereto), duties or any other taxes or levies directly imposed by any governmental authority upon and with reference to particular sales;

     (iii) Outbound transportation costs prepaid or allowed by way of freight equalization or otherwise;

     (iv) Cartons, packing, and crating charged separately ;



     (v) Amounts refunded, allowed, or credited in connection with shortages, returns, or defective, articles;

          (f) Where proceeds from the sale of Products are received in currency other than United States Dollars, the Net Sales Value of such foreign sales shall be the U.S. Dollar equivalent of such proceeds determined by multiplying the foreign currency actually received by the applicable exchange rate in effect on the last day in the quarter in which such proceeds were received, as published in the Wall Street Journal for such date.

          (g) Only one royalty shall be payable on a Product at the applicable percentile rate specified in Section 4(a) or 4(b), as the case may be, regardless of the number of Licensed Patents or use of Technology under which such Product has been manufactured, used or sold. In those cases where a Product is sold as a part of an article which includes additional materials or components, the production of which does not use the inventions of the Licensed Patents, the Net Sales Value shall be based on the sales price at which Licensee would sell the Product independently of such other materials or components in an arm’s length transaction.

          (h) Licensee agrees to keep full, true, and accurate records and books of account containing all particulars which may be necessary to show the royalties payable to Licensor. Such books of account shall be kept at Licensee’s principal place of business and shall be available, upon thirty (30) days notice, for inspection during business hours, by independent auditors reasonably acceptable to Licensee appointed and paid by Licensor provided, however, that if upon audit it is determined that Licensor is entitled, to., receive an additional royalty amount in excess of five percent (5%) over the amount previously paid during the period subject to “audit, then Licensee shall pay the reasonable fees and expenses of such independent auditors. Such records shall be retained by Licensee for a period of six (6) years following the end of the calendar year to which they pertain; provided, however, that Licensor’s right to inspect such records pursuant to this Section 4(h) shall be limited to the right to inspect records

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