Exhibit 10.63**RETENTION AGREEMENT**          **THIS RETENTION AGREEMENT**(the “Agreement”), made and entered intoeffective as of November 14, 2005 (the “Effective Date”), is by and betweenCyberonics, Inc., a Delaware corporation (the “Company”), John Riccardi (the“Employee”).          **WHEREAS,**Employee is a key employee of the Company; and          **WHEREAS,**the Company recognizes that the possibility of a Change ofControl (as defined below) of the Company is unsettling and may result in thedeparture of key employees to the detriment of the Company and itsstockholders; and          **WHEREAS,**the Board of Directors of the Company (the “Board”) hasauthorized this Agreement and certain similar agreements in order to retainkey employees to ensure the continuity of its management;          **THEREFORE,**for good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the Company and Employee agreeas follows:     **1. Term.**This Agreement shall commence on the Effective Date and shallcontinue until December 31, 2005; provided, however, that commencing onDecember 31, 2005 and on each December 31st thereafter, the Term ofthis Agreement shall automatically be extended for one additional year, unlessat least six months prior to such December 31 date the Board shall givewritten notice to Employee that the Term of this Agreement shall cease to beso extended; provided further, however, that if a Change of Control shalloccur during the Term, the Term shall automatically continue in effect for aperiod of not less than one year from the date of such Change of Control.Notwithstanding the foregoing, except as provided in Section 3, thisAgreement shall automatically terminate on Employee’s termination ofemployment; provided, however, termination of this Agreement shall not alteror impair any rights of Employee arising hereunder on or prior to suchtermination.     **2. Change of Control.**For purposes of this Agreement, a Change of Controlof the Company shall mean:          (i) the acquisition by any “person,” as such term is used in Sections13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the“Exchange Act”), other than the Company, a subsidiary of the Company or aCompany employee benefit plan, of “beneficial ownership” (as defined in Rule13d-3 under the Exchange Act), directly or indirectly, of securities of theCompany representing 50% or more of the combined voting power of the Company’sthen outstanding securities entitled to vote generally in the election ofdirectors; or          (ii) the consummation of a reorganization, merger, consolidation or otherform of corporate transaction or series of transactions, in each case, withrespect to which persons who were the shareholders of the Company immediatelyprior to such reorganization, merger or consolidation or other transaction donot, immediately thereafter, own more than 50% of the combined voting
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power entitled to vote generally in the election of directors of the reorganized, merged orconsolidated company’s then outstanding voting securities in substantially the same proportions astheir ownership immediately prior to such event; or          (iii) the sale or disposition by the Company of all or substantially all the Company’sassets; or          (iv) a change in the composition of the Board, as a result of which fewer than a majority ofthe directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A)are directors of the Company as of October 2, 2000, or (B) are elected, or nominated for election,thereafter to the Board with the affirmative votes of at least a majority of the IncumbentDirectors at the time of such election or nomination, but “Incumbent Director” shall not includean individual whose election or nomination is in connection with (i) an actual or threatenedelection contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under theExchange Act) or an actual or threatened solicitation of proxies or consents by or on behalf of aperson other than the Board or (ii) a plan or agreement to replace a majority of the thenIncumbent Directors; or          (v) the approval by the Board or the stockholders of the Company of a complete orsubstantially complete liquidation or dissolution of the Company.     **3. Termination on or Following a Change of Control.**If a Change of Control occurs during theTerm, Employee shall be entitled to the benefits provided in Section 4 hereof if, during theProtected Period (as hereinafter defined), Employee’s employment is terminated, unless suchtermination is (a) due to Employee’s death, (b) by the Company either for Cause or Employee’sDisability (as defined below), or (c) by Employee for other than a Good Reason. Anything in thisAgreement to the contrary notwithstanding, if Employee’s employment with the Company is terminatedduring the Term and prior to the date on which a Change of Control occurs, and it is reasonablydemonstrated that such termination (i) was at the request of a third party who has taken stepsreasonably calculated to effect the Change of Control, or (ii) otherwise arose in connection withor anticipation of the Change of Control, then for all purposes of this Agreement the Change ofControl shall be deemed to have occurred on the date immediately prior to the date of Employee’stermination and Employee shall be deemed terminated by the Company during the Protected Periodother than for Cause. For purposes of this Agreement, the “Protected Period” shall mean the periodof time beginning with the Change of Control and ending on the first anniversary of such Change ofControl or Employee’s death, if earlier.          (i) **Disability.**If, as a result of Employee’s incapacity due to physical or mental illness(“Disability”), Employee shall have been absent from Employee’s duties with the Company on afull-time basis for 150 consecutive calendar days, and within 30 days after written Notice ofTermination (as defined hereinafter) Employee shall not have returned to the full-time performanceof Employee’s duties, the Company may terminate Employee’s employment for Disability; provided,however, a termination of Employee’s employment for Disability under this Agreement shall notalter or impair Employee’s rights as a “disabled employee” under any of the Company’s employeebenefit plans.          (ii) **Cause.**The Company may terminate Employee’s employment for Cause. For the purposes ofthis Agreement, the Company shall have “Cause” to terminate Employee’s
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employment hereunder only upon (A) the willful and continued failure by Employee to performsubstantially Employee’s duties with the Company, other than any such failure resulting fromEmployee’s incapacity due to physical or mental illness, which continues unabated after a writtendemand for substantial performance is delivered to Employee by the Board that specificallyidentifies the manner in which the Board believes that Employee has not substantially performedEmployee’s duties or (B) Employee willfully engaging in gross misconduct that is materially anddemonstrably injurious to the Company. For purposes of this paragraph, an act or failure to act onEmployee’s part shall be considered “willful” only if done or omitted to be done by Employeeotherwise than in good faith and without reasonable belief that Employee’s action or omission wasin the best interest of the Company. Notwithstanding the foregoing, Employee shall not be deemed tohave been terminated for Cause unless and until there shall have been delivered to Employee a copyof a resolution duly adopted by the affirmative vote of not less than three-quarters of the entiremembership of the Board, at a meeting of the Board called and held for such purpose (afterreasonable notice to Employee and an opportunity for Employee, together with Employee’s counsel, tobe heard before the Board), finding that in the good faith opinion of the Board Employee was guiltyof conduct set forth in clauses (A) or (B) of this subsection (ii) and specifying the particularsthereof in reasonable detail.          (iii) **Good Reason.**Employee may terminate Employee’s employment for Good Reason. For purposesof this Agreement, “Good Reason” shall mean the occurrence of any of the following withoutEmployee’s express written consent:(A) an adverse change (as determined by Employee in good faith, which determinationshall be controlling for all purposes under this Agreement) in Employee’s (i)positions, duties, responsibilities or status with the Company from that in effectimmediately prior to the Change of Control, or (ii) reporting responsibilities,titles or offices as in effect immediately prior to the Change of Control; or anyremoval of Employee from, or any failure to re-elect or appoint Employee to, any ofsuch responsibilities, titles, offices or positions, except in connection with thetermination of Employee’s employment for Cause or Disability, or as a result ofEmployee’s death, or by Employee for other than a Good Reason;(B) a reduction in Employee’s annual rate of base salary as in effect immediatelyprior to the Change of Control or as the same may be increased from time to timethereafter (the “Base Salary”);(C) a failure by the Company to continue the Company’s Annual IncentiveCompensation Plan as the same may be modified from time to time, but substantiallyin the form in effect immediately prior to the Change of Control (the “BonusPlan”), or a failure by the Company to continue Employee as a participant in theBonus Plan in at least the same amount (the “Bonus Amount”) as Employee’s targetbonus amount under the Bonus Plan with respect to the fiscal year endingimmediately prior to the Change of Control or with respect to the current fiscalyear if Employee has been employed by the Company for a shorter period (BonusAmounts related to less than a full fiscal year shall be annualized for thispurpose);
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(D) the failure by the Company to continue in effect any other employeebenefit or compensation plan program or policy, in which Employee is participatingimmediately prior to the Change of Control, unless the Company establishes suchnew plans, programs or policies as is necessary to provide Employee withsubstantially comparable benefits; the taking of any action by the Company notrequired by law that would adversely affect Employee’s participation in or reduceEmployee’s benefits under any of such plans, programs or policies or depriveEmployee of any material fringe benefit enjoyed by Employee immediately prior tothe Change of Control;(E) the Company’s requiring Employee to relocate to an office more than 25miles from the Company’s office to which Employee was assigned immediately priorto the Change of Control, except for required travel on the Company’s business toan extent substantially consistent with Employee’s business travel obligationsimmediately prior to the Change of Control;(F) the amendment, modification or repeal of any provision of the Company’sCertificate of Incorporation, as amended, or the Bylaws of the Company which wasin effect immediately prior to such Change of Control, if such amendment,modification or repeal would adversely effect Employee’s right to indemnificationby the Company;(G) the failure of the Company to obtain the assumption of this Agreement by anysuccessor as contemplated in Section 6 hereof; or(H) any purported termination of Employee’s employment that is not effectedpursuant to a Notice of Termination satisfying the requirements of subparagraph(iv) below and, if applicable, subparagraph (ii) above; and for purposes of thisAgreement, no such purported termination shall be effective.          Employee’s right to terminate employment for a Good Reason hereunder shall not be affected byEmployee’s incapacity due to a physical or mental illness nor shall Employee’s continuedemployment following any circumstance that constitutes a Good Reason hereunder, regardless of thelength of such continued employment, constitute a consent to or a waiver of Employee’s rightshereunder with respect to such circumstance.          (iv) **Notice of Termination.**Any termination by the Company pursuant to subparagraphs (i) or(ii) above, or by Employee pursuant to subparagraph (iii) above, shall be communicated by writtenNotice of Termination to the other party hereto. For purposes of this Agreement, a “Notice ofTermination” shall mean a notice that shall indicate the specific termination provision in thisAgreement relied upon and shall set forth in reasonable detail the facts and circumstances claimedto provide a basis for termination of Employee’s employment under the provision so indicated.          (v) **Date of Termination.**“Date of Termination” shall mean (A) if Employee is terminated forDisability, 30 days after Notice of Termination is given, provided that Employee shall
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not have returned to the performance of Employee’s duties on a full-time basis during such 30-dayperiod, (B) if Employee’s employment is terminated pursuant to subparagraph (iii) above, the datespecified in the Notice of Termination, (C) with respect to a termination prior to a Change ofControl, which is deemed to be after such Change of Control as provided in Section 3, the date ofsuch termination, and (D) if Employee’s employment is terminated for any other reason on or after aChange of Control, the date of such termination.     **4. Compensation During Disability or Upon Termination.**          (i) If, during the Protected Period, Employee fails to perform Employee’s normal duties dueto Disability, Employee shall continue during the period of such Disability to receive Employee’sfull Base Salary and any awards, deferred and non-deferred, payable during such period under theBonus Plan, less any amounts paid to Employee during such period of Disability pursuant to theCompany’s short term disability or sick-leave program(s) until Employee’s employment is terminatedas provided herein or such Disability ends. This Section 4(i) shall not reduce or impairEmployee’s rights to terminate employment for a Good Reason as otherwise provided herein.          (ii) If, during the Protected Period, Employee’s employment shall be terminated (x) by theCompany for Cause or Disability, (y) by Employee’s death, or (z) by Employee other than for a GoodReason, the Company shall pay Employee’s earned but unpaid Base Salary through the Date ofTermination and the Company shall have no further obligations to Employee under this Agreement.          (iii) If, during the Protected Period, (1) the Company shall terminate Employee other thanfor Cause or Disability or (2) Employee shall terminate Employee’s employment for a Good Reason,then subject to subparagraph (v) below, the Company shall forgive any amount payable by theEmployee to the Company under the Relocation Agreement, if applicable, and pay to Employee, bycertified or bank cashier’s check or wire transfer within five business days after the Date ofTermination, an amount equal to: (A) the sum of Employee’s Base Salary, Annual Bonus and AnnualTargeted Commission amount where applicable; plus (B) that portion of Employee’s Base Salaryearned, and vacation pay vested for the prior year and accrued for the current year to the Date ofTermination, but not paid or used, and all other amounts previously deferred by Employee or earnedbut not paid as of such date under all Company bonus or pay plans or programs. As used herein,“Annual Earned Commission” means the total commissions actually paid to Employee during the fourfiscal quarters immediately preceding the Date of Termination. If Employee has been employed forat least one fiscal quarter and less than four fiscal quarters as of the Date ofTermination, the “Annual Earned Commission” shall be equal to four times the quarterlyaverage of commissions actually paid to Employee during the relevant fiscal quarters. If Employeehas been employed less than one fiscal quarter as of the Date of Termination, the “Annual EarnedCommission” shall be the total amount of Employee’s commissions targeted for the four fiscalquarters following the Date of Termination.          (iv) If any payment due under the terms of this Agreement is not timely made or otherwisewithheld by the Company, its successors or assigns, interest shall accrue on such payment at thehighest maximum legal rate permissible under applicable law from the date such payment firstbecame due through the date of payment thereof.
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          (v) It is the intent of the parties hereto that, notwithstanding any provision of thisAgreement to the contrary, in the event any payment to be made to or on behalf of Employee pursuantto this Agreement, when aggregated with any other payments and benefits to or on behalf of Employeeoutside of this Agreement, would constitute an “excess parachute payment”, within the meaning ofSection 280G of the Internal Revenue Code of 1986, as amended, Employee shall elect (absent anEmployee election, the Company shall elect) which payment(s) and/or benefit(s) will be reduced inwhole or in part so that no part of the payments received hereunder will constitute excessparachute payments. However, any such reduction(s) shall be made only if by reason of suchreduction(s) Employee’s net after-tax benefit, after such reductions, shall exceed Employee’s netafter-tax benefit if such reduction(s) were not made. The determination of whether any amount orbenefit would be an “excess parachute payment” shall be made by an independent certified publicaccounting firm mutually agreed upon by the Company and Employee. The costs of obtaining suchdetermination shall be borne solely by the Company.          (vi) Compensation paid pursuant to this Section 4 or otherwise under the terms of thisAgreement shall be in lieu of any other severance or separation payments Employee may be otherwiseentitled to under the Company’s policies, procedures or practices.     **5. No Mitigation or Offset.**The provisions of this Agreement are not intended to, nor shallthey be construed to, require that Employee mitigate the amount of any payment provided for inthis Agreement by seeking or accepting other employment, nor shall the amount of any paymentprovided for in this Agreement be reduced by any compensation earned by Employee as the result ofemployment by another employer or otherwise. Without limitation of the foregoing, the Company’sobligations to make the payments to Employee required under this Agreement shall not be affectedby any set off, counterclaim, recoupment, defense or other claim, right or action that the Companymay have against Employee.     **6. At-Will Employment.**Nothing contained in this Agreement is intended to or shall (i)guarantee Employee’s employment for any specified term; or (ii) be construed as a contractlimiting the prerogative of the Company or Employee to terminate the employment relationship,with or without cause, or, with or without notice.     **7**. **Successors; Binding Agreement.**          (i) The Company 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 theCompany, by agreement in form and substance reasonably satisfactory to Employee, expressly toassume and agree to perform this Agreement in the same manner and to the same extent as theCompany would have been required if no such succession had taken place. Failure of the Company toobtain such agreement prior to the effectiveness of any such succession shall be a breach of thisAgreement and shall entitle Employee to payment from the Company in the same amount and on thesame terms as Employee would be entitled hereunder if Employee had terminated Employee’semployment for Good Reason, provided that Employee first notifies the Company in writing of theEmployee’s election to either (A) terminate employment effective as of the date on which any suchsuccession becomes effective; or (B) maintain the employment relationship, subject to reducingany
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obligation of Company or its successor to pay severance or separation payments to Employee atany point thereafter by the full value of any payment hereunder. As used in this Agreement,“Company” shall mean the Company as hereinbefore defined and any successor to its business and/orassets as aforesaid that executes and delivers the agreement provided for in this Section 6 orwhich otherwise becomes bound by all the terms and provisions of this Agreement by operation oflaw.          (ii) This Agreement shall inure to the benefit of and be enforceable by Employee’s personalor legal representatives, executors, administrators, successors, heirs, distributees, deviseesand legatees. If Employee should die while any amounts would still be payable to Employeehereunder if Employee had continued to live, all such amounts shall be paid in accordance withthe terms of this Agreement to Employee’s beneficiary as filed with the Company pursuant to thisAgreement or, if there be no such designated beneficiary, to Employee’s estate.     **8. Notice.**All notices, consents, waivers, and other communications required under thisAgreement must be in writing and will be deemed to have been duly given when (a) delivered byhand (with written confirmation of receipt), (b) sent by facsimile (with confirmation ofreceipt), provided that a copy is mailed by certified mail, return receipt requested, or (c) whenreceived by the addressee, if sent by a nationally recognized overnight delivery service, in eachcase to the appropriate addresses and facsimile numbers set forth below (or to such otheraddresses and facsimile numbers as a party may designate by notice to the other parties):     If to the Company:Cyberonics, Inc.