Exhibit 10.6

         
 
  For Internal Use:    
 
  Grant Control #:    
 
       

DIRECTOR RESTRICTED STOCK AGREEMENT
     THIS RESTRICTED STOCK AGREEMENT (this “Agreement”) is made effective as of
XXXX 1, 200X (the “Grant Date”), between CYBERONICS, INC., a Delaware
corporation (the “Company”), and                      (“Director”), a member of
the Board of Directors.
     1. Award. Pursuant to the CYBERONICS, INC. 1997 STOCK PLAN, as amended (the
“Plan”), as of the Grant Date [                    ] shares (the “Restricted
Shares”) of the Company’s common stock shall be issued as hereinafter provided
in the Director’s name subject to certain restrictions thereon. The Director
hereby acknowledges receipt of a copy of the Plan and the Prospectus relating
thereto pursuant to the Securities Act of 1933, and agrees that this award of
Restricted Shares shall be subject to all of the terms and provisions of the
Plan, including future amendments thereto, if any, pursuant to the terms
thereof. All dividends and other distributions on a Restricted Share shall be
subject to the same Forfeiture Restrictions (as hereinafter defined) as are
applicable to such Restricted Share.
     2. Restricted Shares. The Director hereby accepts the Restricted Shares
when issued and agrees with respect thereto as follows:
     (a) Forfeiture Restrictions. The Restricted Shares may not be sold,
assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered
or disposed of to the extent then subject to the Forfeiture Restrictions, and in
the event of termination of the Director’s service relationship with the Company
(as provided in Section 5) for any reason other than as provided in
Section 2(b), the Director shall, for no consideration, forfeit to the Company
all Restricted Shares then subject to the Forfeiture Restrictions. The
prohibition against transfer and the Director’s obligation to forfeit and
surrender the Restricted Shares to the Company upon the Director’s termination
of service are herein referred to as the “Forfeiture Restrictions.” The
Forfeiture Restrictions shall be binding upon and enforceable against any
transferee of Restricted Shares.
     (b) Vesting/Lapse of Forfeiture Restrictions. Until the Restricted Shares
are fully vested or forfeited, so long as the Director continues in a service
relationship with the Company (as provided in Section 5), 25% of the Restricted
Shares shall vest on July 18, 2007 and thereafter, subject to the satisfaction
of the tax liability under Section 3, 25% of the Restricted Shares shall vest on
each anniversary of the Grant Date. The number of shares that vest as of each
anniversary date will be rounded down to the nearest whole share, with any
remaining shares vesting on the final installment. Notwithstanding the foregoing
vesting schedule, the Forfeiture Restrictions shall lapse in full as to all of
the Restricted Shares on the earlier of (i) a Change of Control (as defined in
the Plan) or (ii) the termination of the Director’s service relationship with
the Company due to the Director’s death.
     (c) Certificates. A certificate evidencing the Restricted Shares shall be
issued by the Company in the Director’s name, pursuant to which the Director
shall have all of the rights of a shareholder of the Company with respect to the
Restricted Shares, including, without limitation, voting rights and the right to
receive dividends (provided,

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however, that dividends paid in shares of the Company’s stock shall be subject
to the Forfeiture Restrictions). The Director may not sell, transfer, pledge,
exchange, hypothecate or otherwise dispose of the stock until the Forfeiture
Restrictions with respect to such shares have expired, and a breach of the terms
of this Agreement shall cause a forfeiture of all then remaining Restricted
Shares. The certificate shall contain an appropriate endorsement reflecting the
Forfeiture Restrictions. The certificate shall be delivered upon issuance to the
Secretary of the Company or to such other depository as may be designated by the
Compensation Committee of the Board of Directors (the “Committee”) as a
depository for safekeeping until the forfeiture of such Restricted Shares occurs
or the Forfeiture Restrictions lapse pursuant to the terms of the Plan and this
award. On the date of this Agreement, the Director shall, if required by the
Committee, deliver to the Company a stock power, endorsed in blank, relating to
the Restricted Shares. Upon the lapse of the Forfeiture Restrictions without
forfeiture of the Restricted Shares, the Company shall cause a new certificate
or certificates to be issued without legend (except for any legend required
pursuant to applicable securities laws or any other agreement to which the
Director is a party) in the name of the Director in exchange for the certificate
evidencing the Restricted Shares.
     (d) Corporate Acts. The existence of the Restricted Shares shall not affect
in any way the right or power of the Board of Directors of the Company or the
shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company’s capital
structure or its business, any merger or consolidation of the Company, any issue
of debt or equity securities, the dissolution or liquidation of the Company or
any sale, lease, exchange or other disposition of all or any part of its assets
or business or any other corporate act or proceeding. The prohibitions of
Section 2(a) hereof shall not apply to the transfer of Restricted Shares
pursuant to a plan of reorganization of the Company, but the stock, securities
or other property received in exchange therefor shall also become subject to the
Forfeiture Restrictions and provisions governing the lapsing of such Forfeiture
Restrictions applicable to the original Restricted Shares for all purposes of
this Agreement and the certificates representing such stock, securities or other
property shall be legended to show such restrictions.
     3. Withholding of Tax. To the extent that the receipt of the Restricted
Shares or the lapse of any Forfeiture Restrictions results in compensation
income to the Director for federal or state income tax purposes, the Director is
responsible for taxes due from Director on such compensation income. Director
agrees to remit estimated taxes to the Company prior to and as a condition of
the receipt of the Restricted Shares or the lapse of any Forfeiture Rights
becoming effective. In the event that the estimated taxes are insufficient to
satisfy the taxes actually due from Director, Director agrees to (1) remit funds
to satisfy such taxes; or (2) specifically authorize the Company in writing to
withhold from amounts otherwise due to the Director. To the maximum extent
permitted by applicable law, Director hereby authorizes such withholding.
     4. Status of Stock. The Director agrees that the Restricted Shares issued
under this Agreement will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable federal or state securities
laws. The Director also agrees that (i) the certificates representing the
Restricted Shares may bear such legend or legends as the Committee deems
appropriate in order to reflect the Forfeiture Restrictions and to assure
compliance with

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applicable securities laws, (ii) the Company may refuse to register the transfer
of the Restricted Shares on the stock transfer records of the Company if such
proposed transfer would constitute a violation of the Forfeiture Restrictions
or, in the opinion of counsel satisfactory to the Company, of any applicable
securities law, and (iii) the Company may give related instructions to its
transfer agent, if any, to stop registration of the transfer of the Restricted
Shares.
     5. Service Relationship. For purposes of this Agreement, the Director shall
be considered to be in service to the Company as long as the Director remains a
Director, a Consultant, or an Employee (as those terms are defined in the Plan).
Nothing in the adoption of the Plan, nor the award of the Restricted Shares
thereunder pursuant to this Agreement, shall confer upon the Director the right
to continued service by or with the Company.
     6. Notices. Any notices or other communications provided for in this
Agreement shall be sufficient if in writing. In the case of the Director, such
notices or communications shall be effectively delivered if hand delivered to
the Director at his principal place of employment or if sent by overnight
courier, with confirmation, to the Director at the last address the Director has
filed with the Company. In the case of the Company, such notices or
communications shall be effectively delivered if sent by overnight courier, with
confirmation, to the Company at its principal executive offices.
     7. Amendment. This Agreement may not be modified in any respect by any
verbal statement, representation or agreement made by the Director or by any
employee, officer, director, or representative of the Company or by any written
agreement unless signed by the Director and by an officer of the Company who is
expressly authorized by the Company to execute such document.
     8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming under
the Director.
     9. Controlling Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.
     IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Director has executed
this Agreement, all effective as of the Grant Date.

                  CYBERONICS, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Title:  
 
   
 
     
 
        NAME    
 
                     

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SCHEDULE OF DIRECTORS
Guy C. Jackson
Alan J. Olsen
Michael J. Strauss, M.D.
Reese S. Terry, Jr.

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