Exhibit 10.1**LICENSE AGREEMENT**     This License Agreement (“Agreement”) is entered into as of March 15, 1988 by and betweenCYBERONICS, INC., a Delaware corporation, having a principal place of business at 827 W. MainStreet, League City, TX 77573 (“Licensee”), and DR. JACOB ZABARA, an individual residing at 200Locust 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 relatingthereto (collectively referred to as the “Technology”); and,     WHEREAS, Licensee wishes to obtain all exclusive license under the Licensed Patents ashereinafter defined and under the Technology generally to further test and develop the Technologyand to manufacture and market products based on such Technology upon the terms and conditionshereinafter set forth;     NOW, THEREFORE, in consideration of the promises and of the mutual covenants hereinaftercontained, the parties agree as follows:     **1. ****Definitions**.          (a) The term “Licensed Patents,” as used in this Agreement, shall mean and include bothindividually and collectively the United States and foreign patents and patent applications listedin Schedule A attached to this Agreement, such additional United States and foreign patentapplications acquired by Licensor on improvements and variations upon inventions disclosed in saidlisted applications or other inventions “in the field of nerve stimulation, and such additionalpatent applications as may be filed by Licensor pursuant to Section 7 of this Agreement, allLetters 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 aproduct 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 specificallyintended 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 forLicensee (or its sublicensees); provided that at the time and in the territory of manufacture orsale of such Product a Licensed Patent is pending or in force claiming such device or method (orsuch device or method had been “claimed” in a Licensed Patent previously valid in the territory ofmanufacture 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 rightsgranted to Licensee pursuant to this Agreement and he has not assigned, licensed, pledged orcompromised the Licensed Patents or made any commitments or offers inconsistent with or inderogation of the rights created by this Agreement.
 

 
          (b) Neither the Licensed Patents nor any claims contained therein have been declared invalidor unenforceable and to the best of Licensor’s knowledge there are no patent infringement suits orasserted patent infringement claims pertaining to the Licensed Patents and there are no suits orclaims attacking the validity of any Licensed Patent, and Licensor knows of no basis for any suchclaim.          (c) Licensor has no knowledge of any information likely to have a material effect on thevalidity or enforceability of any Licensed Patent or any claim thereof which was not disclosed tothe Patent Office of the respective countries in which Patent Applications were filed during theprosecution of the application from which any Licensed Patent matured or, with respect to pendingapplications, from which any Licensed Patent may mature.     **3. ****License**.          (a) Licensor hereby grants to Licensee, and Licensee hereby accepts from Licensor, upon theterms and conditions herein after specified, the exclusive, worldwide right and license under theLicensed 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 andto sublicense the rights created hereby pursuant to the terms of Section 5 hereof. Such licenseshall 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 Sublicenseehereunder, and its successors and assigns, shall automatically enjoy a royalty-free right under theLicensed Patents to implant and/or have implanted and to use the particular Product, and tomanufacture, purchase, implant, and use any auxiliary products which may be necessary or desirableto provide a complete implant.     **4. ****Royalties, Records and Reports**.          (a) Licensee agrees to pay to Licensor, in consideration for the license granted pursuant tothis Agreement, royalties on the Net Sales Value (as hereinafter defined) of all Products soldduring the term of this Agreement at the rate of six percent (6.0%) on the first $12,000,000 of NetSales Value and three percent (3.0%) on all Net Sales Value after said $12,000,000, cumulative andnot 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 expireof 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 understoodand agreed that Licensee shall have no obligation to make any payment to Licensor under thisSection 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 anyjudicial decree, order or final judgment beyond right of further appeal, except royalties at thepercentile rate specified in this Section 4(a) or Section 4(b), as the case may be, on the NetSales Value of Products sold under the license created by Section 3 of this
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Agreement prior to such date, and upon such date the license granted by Section 3 hereof shallbe fully paid.          (b) If U.S. Patent No. 4,702,254 and all continuations, divisions, and continuations-in-partthereof are held invalid by any judicial decree, order or final judgment beyond further right iof appeal, the-percentile rate at which royalties shall be payable to Licensor pursuant to Section4(a) shall be retroactively reduced to two percent (2.0%) on the first $12,000,000 of Net SalesValue and one percent (1.0%) on all Net Sales Value after said $12,000,000 with respect to Productssold after the filing of a claim in a court of competent jurisdiction which claim results in theinvalidation of U.S. Patent No. 4,702,254 and all continuations, divisions andcontinuations-in-part thereof (the “Claim”).          (c) In the event of U.S. Patent No. 4,702,254 .and all continuations, divisions andcontinuations-in-part thereof being declared invalid, and notwithstanding anything to the contrarycontained herein, no further royalty payments shall be made to Licensor until such time as theaggregate royalties payable on products sold after filing of the Claim at the percentile ratespecified in Section 4(b) are equal to the actual aggregate royalties already paid to Licensor onproducts sold after filing of the claim, at which time royalty payments as provided in this Section4 shall resume. The right created by this Section 4(c) shall be a right to recover excessroyalties paid during the pendency of the claim from future royalties payable to Licensor hereunderonly; Licensee shall have no right, claim or cause of action against Licensee to recover suchexcess royalties from Licensor.          (d) Licensor agrees to pay Licensee a minimum royalty of $36,000 per year ($12,000 per year ifthe events specified in Section 4(b) occur), payable on a monthly basis until a Product is firstsold and on a quarterly basis thereafter. Payments made pursuant to this Section 4(d) shall bepaid at the beginning of the month or quarter, as the case may be, and shall be deducted from anyroyalties payable pursuant to Section 4(a) and shall not constitute an additional royaltyobligation of Licensee.          (e) The term “Net Sales Value,” as used in this Section 4, shall mean the full amount actuallyreceived by Licensee or its sublicensees (exclusive of sales by Licensee to its sublicensees) forProducts sold by Licensee or its sublicensees to customers less the sum of the following, whereapplicable:     (i) Discounts allowed, commissions paid in lieu of trade discounts, andcommissions paid to independent sales representatives or agents, in the amountscustomary in the trade;     (ii) Sales and/or use taxes (or other taxes equivalent thereto), duties or anyother taxes or levies directly imposed by any governmental authority upon and withreference to particular sales;     (iii) Outbound transportation costs prepaid or allowed by way of freightequalization or otherwise;     (iv) Cartons, packing, and crating charged separately ;
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     (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 StatesDollars, the Net Sales Value of such foreign sales shall be the U.S. Dollar equivalent of suchproceeds determined by multiplying the foreign currency actually received by the applicableexchange rate in effect on the last day in the quarter in which such proceeds were received, aspublished in the Wall Street Journal for such date.          (g) Only one royalty shall be payable on a Product at the applicable percentile rate specifiedin Section 4(a) or 4(b), as the case may be, regardless of the number of Licensed Patents or use ofTechnology under which such Product has been manufactured, used or sold. In those cases where aProduct is sold as a part of an article which includes additional materials or components, theproduction of which does not use the inventions of the Licensed Patents, the Net Sales Value shallbe based on the sales price at which Licensee would sell the Product independently of such othermaterials or components in an arm’s length transaction.          (h) Licensee agrees to keep full, true, and accurate records and books of account containingall particulars which may be necessary to show the royalties payable to Licensor. Such books ofaccount 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 reasonablyacceptable to Licensee appointed and paid by Licensor provided, however, that if upon audit it isdetermined that Licensor is entitled, to., receive an additional royalty amount in excess of fivepercent (5%) over the amount previously paid during the period subject to “audit, then Licenseeshall pay the reasonable fees and expenses of such independent auditors. Such records shall beretained by Licensee for a period of six (6) years following the end of the calendar year to whichthey pertain; provided, however, that Licensor’s right to inspect such records pursuant to thisSection 4(h) shall be limited to the right to inspect records pertaining to the two-year periodending on the close of the calendar quarter immediately preceding such inspection. Only one suchinspection shall be made in any calendar year. The auditors shall disclose to Licensor only thegross sales value of Products sold, the deductions therefrom, the Net Sales Value thereof, and theamount of royalties due and payable to Licensor thereon, along with any necessary supportingevidence. Any information obtained by the auditors from any such inspection shall be keptconfidential by Licensor and the auditors and shall be used only for the purpose of determining thecorrectness of the statements of Net Sales value and royalties due and payable to Licensor. Theauditors shall be employed expressly upon such terms and conditions.          (i) Licensee agrees that on or before the 60th day after the close of each of its quarterlyaccounting periods throughout the term of this Agreement, Licensee shall forward to Licensor astatement, certified by an Officer of Licensee, of the receipts for Products sold by Licensee forwhich payment is received during the accounting period preceding the period in which each suchstatement is rendered, the aggregate in each category of deductions which have been made therefrompursuant to the provisions of section 4(e) above, and the royalties payable thereon. Licenseeshall concurrently forward to Licensor a Statement of the receipts for Products sold bysublicensees for which Licensee received royalty or other licensing fees from such sublicenseesduring the accounting period preceding the period in which each such statement is
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rendered, the aggregate in each category of deductions which have been made therefrom pursuantto Section 4(e) above, and the royalties payable thereon. Licensee shall simultaneously pay toLicensor the amount of royalties due.          (j) The parties agree that any subsequent downward adjustments of Licensee’s and itssublicensees’ receipts from any particular sale of Products upon which royalties have been paid,due to Product failure or inadequacy, cancellation of purchase orders or contracts, or any otherevent causing Licensee to make a financial refund to its customers, either in whole or in part,will be credited against any future receipts on which royalties become payable.     **5. ****Sublicensing**.          (a) Licensee shall have the exclusive right under the Licensed Patents to grant sublicenses toothers provided, however, that with respect to Products sold by any such sublicensee, Licenseeshall pay to Licensor royalties equal to the royalties that would have been payable with respect tosuch Product sales had such sales been made by Licensee. The Net Sales Value of sales made by anysublicensees shall be aggregated with the Net Sales Value of Sales made by Licensee fordetermination of the applicable royalty rate payable pursuant to Section 4(a) or 4(b), as the casemay be.          (b) Licensee shall consult with Licensor regarding any prospective sublicensees.Notwithstanding the foregoing, the granting by Licensee of sublicenses under the Licensed Patentsshall be in the sole discretion of Licensee, and Licensee shall have the sole power to determinewhether or not to grant sublicenses, to whom such sublicensees shall be granted and the royaltyrates and terms and conditions of such sublicenses.     **6. ****Assignment**.          (a) This Agreement and the licenses and rights hereunder are not assignable by either partywithout the prior written consent of the other party, which consent will not be unreasonablywithheld; provided, however, that without obtaining Licensor’s consent, Licensee may assign itsrights and obligations hereunder to a successor in interest who acquires substantially all of thebusiness of Licensee whether by sale of substantially all of the assets, sale of stock, merger orother form or corporate reorganization.          (b) This Agreement shall inure to the benefit of and be binding upon Licensor and Licensee,and their respective successors and assigns.     **7. ****Future Filings; Patent Expenses**.          (a) In the event that Licensee should wish Licensor to file any patent applicationscorresponding to any of the Licensed patents in specific countries other than those enumerated inSchedule A or file any patent applications on improvements and variations upon inventions disclosedin the Licensed Patents or other inventions in the field of nerve stimulation, it shall adviseLicensor in writing, naming such countries or improvements, variations or inventions, as the casemay be. Licensor shall thereupon file patent applications as requested. All such patentapplications and patents shall be filed in the name of and, be the property of
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Licensor and shall be included in the Licensed Patents. Licensee shall pay the reasonableexpenses, including reasonable fees for patent counsel, for filing, prosecuting, and payingannuities or applicable maintenance fees on such requested patent applications, on any patentapplications relating to the Technology pending as of the date thereof and shall pay the issuancefee of and any applicable maintenance fee on any patent issued thereon. In the event Licenseeelects to discontinue pursuing any patent application or applications (whether or not suchapplications have been prepared or filed) it shall so notify Licensor in writing and Licensor shalldiscontinue pursuing such application or applications (or may pursue such application orapplications at its own expense); provided, however, that Licensee shall pay the reasonableexpenses, including reasonable fees for patent counsel, incurred prior to Licensee notifyingLicensor of its election not to pursue an application or applications. Licensor further agreesthat he will not file any patent applications relating to the Licensed Patents, the Technology orthe field of nerve stimulation without the consent of Licensee; provided, however, that if suchconsent is withheld, Licensor may file such application but shall bear all expenses associated withsuch filing or any patent issuing thereon.          (b) In the event that Licensee notifies Licensor that Licensee would like Licensor to file anypatent applications pursuant to Section 7(a) and Licensor fails to take reasonable steps within areasonable amount of time to prepare and file such application or applications, Licensee reservesthe right hereunder to retain its own patent counsel to prepare and prosecute any such patentapplications, and Licensor hereby agrees to assist and cooperate with Licensee’s patent counsel inthe preparation and prosecution of such patent applications; provided, however, thatnotwithstanding Licensee’s retention of patent counsel, Licensee shall pay the reasonable fees ofLicensor’s patent counsel actually incurred in connection with reviewing any patent applicationsprepared by Licensee’s patent counsel.     **8. ****Covenants**.          (a) Licensor shall promptly furnish Licensee with copies of all applications for LettersPatent licensed hereunder and shall keep Licensee promptly informed as to their prosecution,sending Licensee copies of Patent Office actions and amendments to such applications.          (b) Licensor covenants that for the term of this Agreement he will use his best efforts torenew and maintain all Licensed Patents (at Licensee’s expense as provided in Section 7 hereof).          (c) Licensor covenants that for the term of this Agreement he will not assign, license, pledgeor compromise the Licensed Patents nor make any commitments or offers inconsistent with or inderogation of the rights created by this Agreement.          (d) Licensee covenants that for the term of this Agreement it will use its best efforts todevelop and market a Product or Products.     **9. ****Term**. This Agreement shall expire at the earlier of (i) the end of the full termof each Letters Patent included in the Licensed Patents or (ii) at such time as all of the LicensedPatents shall have been declared invalid by any judicial decree, order or final judgment beyond
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further right of appeal; provided, however, that the license created hereby shall surviveexpiration of this Agreement as provided in Section 3(a) hereof.     **10. ****Termination**.          (a) This Agreement may be terminated by Licensee as follows:     (i) For the first three (3) years of this Agreement, Licensee may terminatethis Agreement without cause on the first, second or third anniversary of executionhereof by Licensee provided Licensee gives written notice to Licensor of itsintention to terminate no later than sixty (60) days before such anniversary.     (ii) If this Agreement is not terminated within the first three years as setforth above, this Agreement shall run for successive three-year periods startingfrom the third anniversary of execution thereof by Licensee and may not beterminated by Licensee without cause during such three-year periods but may beterminated without cause by Licensee at the end of each such three-year periodprovided Licensee gives notice of its intention to terminate no later than sixty(60) days before the expiration of such three-year period;     (iii) In addition to the foregoing, this Agreement may be terminated byLicensee in the event that Licensor shall have materially breached any provisionhereof, provided that Licensee shall first give written notice of its intention toterminate which notice shall state the grounds thereof and provided further thatLicensor shall have sixty (60) days to cure any alleged breach.          (b) This Agreement may be terminated by Licensor for cause only and provided that Licensorshall first give written notice of his intention to terminate which notice shall state the groundsthereof. Licensee shall have sixty (60) days from receipt of any such notice to cure any allegedbreach. Subject to the provisions of Section 11 hereof, “Cause” for purposes of this Section 10(b)shall be defined as:     (i) Failure of Licensee to make royalty payments as provided in Section 4hereof;     (ii) Failure to begin feasibility clinical studies of the Technology (such aswould be permitted under the “Custom Devise” exemption of the United States Food andDrug Administration (“FDA”)) within one (1) year of the date hereof if stimulatorsdeveloped and purchased from an independent producer are used or two (2) years fromthe date hereof if a stimulator developed by Licensee is used;     (iii) Failure to begin formal clinical studies of the Technology (such as wouldbe permitted under the Investigational Device Exemption of the FDA) within three (3)years from the date hereof;     (iv) Failure to file a Pre-Market Approval Application with the FDA within six(6) years from the date hereof.
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          (c) Upon termination of this Agreement pursuant to this Section 10, all licenses, rights, andobligations hereunder shall cease and terminate and Licensee shall immediately cease manufacturingand selling Products; provided, however, that the licenses and rights granted under Section 3hereof shall continue as to all Products previously manufactured during the term of this Agreement,or actually in manufacture upon the date of termination, for the full terms of the Letters Patentunder which such Product is manufactured, provided that royalties are paid with respect to suchProducts pursuant to Section 4 hereof.     **11. ****Force Majeure**. The time by which, the conditions subsequent specified in Sections10(b)(ii) — (iv) must be satisfied shall be extended for a period of time equal to the period ofany delay resulting from delays or difficulties arising in connection with the clinical studiesand/or obtaining requisite regulatory approval provided such delays or difficulties are due toevents beyond the control of Licensee.     **12. ****Marketing Requirements**. Licensee shall provide with all Products such notice ornotices of the Licensed Patents reasonably contemplated to comply with the laws of the countriesunder which such Letters Patent have issued.     **13. ****Technical Assistance**. Licensor shall assist, consult, and cooperate with Licenseein the development, design, engineering, manufacturing/testing and inspection of the Products.Licensor shall provide such assistance to Licensee at such times and for such duration as Licenseeshall reasonably request, provided such assistance does not interfere with Licensor’sresponsibilities as a faculty member of Temple University. For two (2) years from the date of thisAgreement, such assistance shall be provided to Licensee without compensation (other thanreimbursement of out-of-pocket expenses reasonably incurred in connection with providing suchassistance). Following such initial two-year period, Licensor shall continue to provide suchassistance as Licensee may reasonably request and shall be compensated therefor as provided in theseparate consulting agreement executed concurrently herewith.     **14. ****Patent Enforcement**. Licensee may bring any action for infringement of theLicensed Patents either in Licensor’s name alone or jointly with Licensor and Licensor agrees toassist Licensee in any such action upon Licensee’s request. Any such action brought by Licenseeshall be solely at Licensee’s expense, and any amounts recovered thereby shall be divided betweenLicensee and Licensor as follows:          (a) Licensee shall first recoup all expenses and legal fees expended in such action,          (b) The amount recovered, net of Licensee’s expenses and fees as provided in Section 14(a),shall be divided eighty percent (80%) to Licensee and twenty percent (20%) to Licensor.     **15. ****Public Statements**.          (a) Licensor agrees not to publish or caused to be published any article, study, analysis, orother writing concerning the Technology or stimulation of the vagus nerve for the treatment ofepilepsy and not to deliver or permit others to deliver any oral presentation prepared by Licensorcontaining information concerning the Technology or stimulation of the vagus nerve
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for the treatment of epilepsy (such writings and presentations being referred to as “PublicStatements”) prior to the earlier of (i) three years from the date hereof, or (ii) the clinicalinvestigators publishing or presenting the results of the clinical studies of the Technologyconducted on the initial is patients. After such publication by the clinical investigators orthree years, whichever is earlier, Licensor shall not, for the term of this Agreement, make anyPublic Statement without first obtaining the written consent of Licensee, which consent shall notbe unreasonably withheld. The restrictions on Licensor’s right to make Public statements createdby this Section 15(a) shall, terminate immediately in the event that all of the clinicalinvestigators withdraw from the clinical study.          (b) Licensee agrees that Licensor may have access to technical data generated in connectionwith scientific studies concerning the Technology conducted by or on behalf of Licensor and,subject to Section 15(a), may use such data in writings or oral presentations concerning theTechnology. Licensee further agrees that Licensor will be named as a co-author in any article,study, analysis or other writing concerning the Technology if Licensor actively participated in theunderlying research. Licensee further agrees that Licensor shall have the right to review anyarticle, study, analysis or other writing prepared by or on behalf of Licensee prior topublication; provided, however, that Licensee reserves the right to publish or present any sucharticle, study, analysis or writing notwithstanding Licensor’s objections thereto.     **16. ****General**.          (a) Modification. This Agreement may be modified only by a writing signed by eachparty.          (b) Nonwaiver. The failure of any party to enforce at any time any of the provisionshereof shall not be construed to be a waiver of the right of such party thereafter to enforce anysuch provision.          (c) Notices. Notices under this Agreement shall be sufficient only if mailed bycertified or registered United States mail, return receipt requested, or personally delivered tothe parties at their addresses first set forth above or as amended by notice pursuant to thissubsection. Notice by mail shall be deemed received three (3) days after deposit.          (d) Entire Agreement. This Agreement terminates the letter of intent betweenLicensor, Reese Terry, Cyberonics, Inc., a Texas corporation (“Cyberonics Texas”), as amended andassigned from Cyberonics Texas to Licensee, and supersedes all proposals, oral or written, allnegotiations, conversations or discussions between or among the parties relating to this Agreementand all past course of dealing or industry custom. The terms and conditions of this Agreementshall prevail, notwithstanding any variance with the written instrument, submitted by any party.          (e) Counterparts. This Agreement may be executed in one or more counterparts, each ofwhich shall be an original and all of which together shall constitute one and the same instrument.
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     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forthabove.   **LICENSOR: DR. JACOB ZABARA**     /s/ Jacob Zabara         **LICENSEE: CYBERONICS, INC.**     a Delaware corporation     /s/ Reese S. Terry, Jr.      
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**SCHEDULE A****UPDATED ATTACHMENT TO**