exv10w2



 







Exhibit 10.2




LICENSE AGREEMENT




     THIS AGREEMENT (“Agreement”) dated as of August 22, 2000 (the “Effective Date”) by and
between Mitchell S. Roslin, M.D., a citizen of the United States of America residing in New York,
NY (“Licensor”), and Cyberonics, Inc., a Delaware corporation with offices in Houston, Texas
(“Licensee”).



Recitals:




     Licensee is engaged in designing, developing, investigating, testing, and marketing
specialized medical devices primarily used or to be used for treating disorders by nervous system
stimulation, and owns basic patents related to the use of nerve stimulation for eating, endocrine
and other disorders, including patents on the use of vagus nerve stimulation (VNS) to treat
obesity;



     Licensor is medical doctor licensed to practice medicine in the State of New York, and is a
co-inventor with Burke T. Barrett of Licensee and Ramesh Reddy, M.D. on a United States patent
application for bi-lateral VNS for the treatment of obesity, Serial No. 09/346,396, filed on or
about July 1, 1999, and/or continuations or divisions thereof, and a PCT counterpart application
thereof (collectively, “the ‘396 Application”), the original animal studies for which were
initiated by Licensor with participation, assistance, support, advice and devices of Licensee; and



     Licensee and Licensor desire to enter into an agreement under which Licensee will acquire
from Licensor the exclusive right and license to practice the
inventions) covered by the ‘396
Application to the fullest extent of Licensor’s right, title and interest in and to the
invention(s), and in and to all other inventions conceived, made, reduced to practice, owned or
controlled by Licensor in the field of nervous system stimulation, on the terms and conditions set
forth in this Agreement.



     In consideration of the foregoing recitals, and the mutual undertakings set forth herein,
Licensee and Licensor (collectively, “the Parties”) do hereby AGREE AS FOLLOWS:



Article I. Definitions. As used in this Agreement, terms shall have the following meanings:




     1.01 “Confidential Information” shall mean information of Licensee relating to its
business
plans, experimental products, research or development activities, financial information,
identity of
customers and key personnel, marketing and distribution, and other transactions, actual or
prospective, treated by Licensee as secret and protected as such by confidentiality or
nondisclosure
agreements or the like and by applicable marking of documents and other tangible items with
words
indicative of information of confidential or secret content and with applicable notice where
the
content is communicated orally or visually.



     1.02 “FDA” shall mean the U.S. Food and Drug Administration, which has responsibility
under the law for, among other things, establishing protocol for clinical investigation of
medical
devices and granting Investigational Device Exemption (“IDE”), determining from results of
clinical
investigation whether a medical device is safe and effective for treating a disease or
disorder, and



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granting Pre-Market Approval (“PMA”) of medical devices.




     1.03 “Invention” shall mean an advance, innovation, discovery, or improvement in a product,
process, method, or technique, whether patentable or not, conceived, made, or reduced to
practice
by Licensor, alone or with others, or owned or controlled in whole or in part by Licensor, at
any time
during the term of this Agreement, in the field of nervous system stimulation.



     1.04 “Licensed Patents” shall mean United States patent application Serial No.
09/346,396
filed July 1, 1999 in the names of Mitchell Roslin and others for “Treatment of Obesity by
Bilateral
Vagus Nerve Stimulation”, and all continuations, continuations in part and divisions thereof,
all
patents issued, reissued, reexamined, and renewed (e.g., by payment of maintenance fees or
annuities,
as the case may be) thereon, and all counterparts (i.e., corresponding applications and
patents) and
equivalents (i.e., statutorily protected or designated by status of invention, characterized
as other than
a patent application or patent) thereof filed or issued in other countries (including but not
limited to
nationalizations under the Patent Cooperation Treaty (PCT) in the name (with or without
others), on
behalf, or with concurrence of Licensor; and any and all Inventions, whether or not
applications for
patent, patents or equivalents are filed thereon, and, if filed, such patent, patents or
equivalents. The
Licensed Patents as of the Effective Date hereof are set forth in Exhibit A (attached
hereto and
integrated herein), subject to modification from time to time to add newly arising, filed or
issued
Licensed Patents as provided herein.



     1.05 “Licensed Products” shall mean any and all products, devices, apparatus, and
systems,
and “Licensed Methods” shall mean any and all methods, techniques, and processes,
covered by any
claim(s) of the Licensed Patents.



     1.06 “Net Sales” shall mean gross sales of Licensed Products by Licensee or its
sublicensee(s), as the case may be, less taxes and tariffs (by whatever name they may be
designated)
imposed by governmental authorities on the manufacture, sale, importation, lease or storage of
Licensed Products and actually paid by Licensee (or its sublicensee(s)); packing and freight
charges
(including insurance costs for transportation) actually included in Licensee’s (or its
sublicensee’(s’))
invoices for Licensed Products; and credits for returns, discounts, and allowances actually
granted
by Licensee (or it sublicensee(s)) to customers for Licensed Products. In the event that a
Licensed
Product is disposed of in a transaction with a third party other than an arms length sale
between
unrelated parties, the transaction shall be treated and accounted for by Licensee and its
sublicensees,
as applicable, as a typical sale at the average gross sales price of the Licensed Product by
Licensee
or the sublicensee, as the case may be, in the market in which such transaction occurred.



     1.07 “License Fee” shall mean a fee paid to Licensee by a sublicensee for the privilege of
receiving a sublicense, which is neither based on Net Sales by the sublicensee nor deductible
from
royalties paid or payable to Licensee by the sublicensee for its Net Sales.



Article II. Grant of License.




     2.01 Exclusive License. Licensor agrees to grant and hereby does grant to Licensee
the



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exclusive worldwide right and license to all of Licensor’s rights in and to the Licensed Patents,
including but not limited to the exclusive worldwide right and license to make, have made, use,
sell, import, export and otherwise dispose of the Licensed Products, and to practice the Licensed
Methods.




     2.02 Right to grant Sublicenses. The license granted to Licensee hereunder shall
include the exclusive right to grant sublicenses to third parties for the exercise of any or all
of the rights granted in the Licensee’s license in any territory constituting a country, portion
of a country, or countries of the world.



Article III. Royalties; Advances; Audit.




     3.01 Royalties.



     (a) Licensee shall pay Licensor Royalties at the royalty rate specified in Exhibit
B applied to
(i) Net Sales of Licensed Products by Licensee and its sublicensees and (ii) any License Fees
received
by Licensee on account of sublicenses.



     (b) Royalties shall be deemed earned when sales are made, but shall be due and payable
quarterly in United States dollars, within 90 days after the end of the fiscal quarter of
Licensee in
which the applicable sales were made. Only one Royalty shall be due per Licensed Product sold,
regardless of the number of Licensed Patents and/or claims that may apply or the number of
times a
Licensed Product may be used to practice Licensed Methods.



     (c) With each quarterly payment of Royalties, Licensee shall furnish a quarterly report to
Licensor setting forth its own and its sublicensees’ cumulative gross sales, permitted
deductions and
resulting Net Sales of the Licensed Products, License Fees and the Royalty payment due thereon
for
the applicable fiscal quarter. If no sales of Licensed Products were made in the quarter by
Licensee
or its sublicensees, the report shall so state.



     3.02 Advances.



     (a) Annual. Licensee shall pay Licensor annual advances (“Annual Advances”) against
earned Royalties in the amount of $25,000.00 each, to be paid on January 1 of each year,
retroactive
to January 1, 2000, for a period of five years ending December 31, 2004 (totaling
$125,000.00), or
until the first sale of a Licensed Product, whichever occurs first. Annual Advances shall be
deducted
from Royalties earned at any time during the term of this Agreement (or payable thereafter as
provided herein).



     (b) Milestone. Licensee shall also pay Licensor advances for each of the following
milestones against future earned Royalties (“Milestone Advances”), within 30 days after the
respective milestone is first reached during the term of this Agreement, in the following
amounts (up
to a maximum cumulative amount of $325,000.00): (1) $25,000.00 upon the first implant by
Licensor
of a Licensee VNS device in a patient in the pilot clinical study of VNS as a treatment for
obesity



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(which milestone the parties acknowledge has been reached as of the date hereof), (2) $50,000.00
upon completion of a 30-patient pilot clinical study of VNS as a treatment for obesity, (3)
$100,000.00 upon completion of a pivotal or Phase III clinical study of VNS as a treatment for
obesity that would support a Premarket Approval (PMA) application to FDA and submission of
the results of that study as part of a PMA application submission to the FDA, and (d) $150,000.00
upon FDA approval of VNS for the treatment of obesity. A prerequisite for the payment of each
Milestone Advance, in addition to actual achievement of the respective milestone, is that Licensor
shall have performed the implant for milestone (1), and, except in the event of either his death
or a disability that prevents him from doing so, Licensor shall have been an active advisor and
clinical investigator in the achievement of each of milestones (2), (3) and (4). Milestone
Advances shall be deducted from Royalties earned at any time during the term of this Agreement (or
payable thereafter as provided herein).




     (c) Deductibility. To the extent that either or both the Annual Advances and Milestone
Advances cannot be deducted from earned Royalties because of an insufficiency of Net Sales of
Licensed Products, the non-deducted amounts of such advance payments shall not be refundable by
Licensor.



     3.03 Audit.



     (a) Licensee shall maintain books and records according to generally accepted accounting
principles bearing on its sales of the Licensed Products, and shall, on not less than 30 days’
advance
notice of Licensor’s intent to audit, make same available for inspection and audit on its own
premises
during Licensee’s regular business hours. Any such audit(s) shall be performed by a CPA
designated
and paid by Licensor(Licensor’s auditor), not more often than annually during the term of this
Agreement, with respect to applicable sales made in the preceding calendar year.



     (b) Licensee shall promptly pay any deficiency in Royalties payable to Licensor uncovered
by audit, with interest at an annual rate of 1% over the prime rate, calculated from the
date(s) the
underpaid amount(s) should have been paid. If the deficiency exceeds 10% of the Royalties
actually
earned for the year under audit, Licensee shall reimburse Licensor’s cost of the audit.
Licensor’s
agreement with its auditor shall require the auditor not to disclose to third parties
Confidential
Information of Licensee obtained from the audit, and Licensee may require Licensor’s auditor
to sign
a non-disclosure agreement to that effect prior to allowing the audit.



     3.04 Change of Control. In the event that Licensee undergoes a change in control
(measured
as a change in legal or beneficial ownership, or a combination thereof, by a single entity of
more than
50% of Licensee’s capital stock entitled to vote for the election of directors) from that
which existed
at the Effective Date, Licensor shall, upon the occurrence of the change of control, be within
60 days
after the change of control is effected, due in cash the difference between $450,000.00 and
the sum
of any Annual Advances or Milestone Advances that have been made as of the occurrence of the
change of control (such difference being the “Accelerated Change of Control Payment”). Upon
payment of the Accelerated Change of Control Payment, Licensor will no longer be entitled to
any
additional Annual Advances or Milestone Advances and a total of $450,000 (including any
Royalties



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that have already been deducted as of the occurrence of the change of control) will be
deducted from Royalties earned at any time during the term of this Agreement (or payable
thereafter as provided herein).




Article IV. Prosecution and Maintenance of Licensed Patents.




     4.01 Prosecution. Licensee shall have the right to prosecute or have prosecuted
and bear the
entire cost of prosecuting the ‘396 Application, and all other applications among the Licensed
Patents,
including any applications for patent or counterpart applications Licensee may elect to file
or have
designated and Licensee shall pay all government fees designated for maintaining the pendency
of
such applications and of patents maturing therefrom.



     4.02 Notice. Licensor shall give Licensee notice of each and every Invention within 30
days
after conception thereof; and shall not make an Invention public without first having given
Licensee
both notice thereof and a reasonable opportunity to file a patent application on the
Invention.



Article V. Infringement.




     5.01 Of Patents of Third Parties by Licensee or Its Sublicensees. Licensee and/or its
sublicensees shall defend at their own expense all suits brought against them for infringement
of third
party patents by their respective manufacture, use, sale, or other disposition of Licensed
Products.
In no event shall Licensee enter into a settlement containing terms purporting to affect the
validity
or scope of a Licensed Patent without obtaining prior written consent of Licensor, which shall
not
be withheld unreasonably.



     5.02 Of the Licensed Patents by Third Parties. During the term of this Agreement, Licensee
shall have the option but not the obligation, at its own expense, to investigate and prosecute
infringements of the Licensed Patents. Licensee shall be entitled to the entirety of any
recovery by
way of settlement or award of money damages based on a claim of infringement of a Licensed
Patent
(collectively, “Claim”), provided, however, that any such recovery shall be treated as Net
Sales and
subject to Licensor Royalties. If Licensee declines to take action against an alleged
infringer, it shall
so notify Licensor who shall then have the right to prosecute the infringer at its own
expense, and in
that event, Licensor and Licensee shall share equally the amount of the recovery, if any,
after
deduction of Licensor’s costs, including attorney fees, incurred for such prosecution.



     5.03 Joinder and Cooperation of Licensee. Licensee may join Licensor as a party
plaintiff in
any suit or counterclaim instituted by Licensee for infringement or in defense of validity of
a Licensed
Patent, provided that Licensee shall indemnify and hold harmless Licensor from and against any
damages, losses, awards, costs, and expenses (including attorney’s fees) accrued as a result
of or
arising from or in connection with such joinder. Whether joined or not, Licensor agrees upon
Licensee’s request to provide reasonable assistance and cooperation to Licensee in advancing a
Claim
or in defending the validity of a Licensed Patent, subject only to Licensee’s reimbursement or
direct
payment of costs incurred by Licensor for or in connection with such assistance and
cooperation.



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     5.04
Non-refundable Royalties; Adjustment. Licensee shall not be entitled to a
refund of Royalties paid to Licensor, but if one or more (but less than all) of the Licensed
Patents is held by final decision of a court of last resort (as the result of an appeal or a
failure to timely prosecute an appeal) to be invalid or unenforceable, Licensor and Licensee shall
promptly negotiate an equitable downward adjustment of the royalty rate as to the remaining patents
which shall apply to future Net Sales and Exhibit B shall be modified in writing
accordingly.



Article VI. Representations and Warranties.




     6.01 By Licensor. Licensor represents and warrants to Licensee that, as of the
Effective Date
of this Agreement:



     (a) Licensor owns an undivided interest in the Licensed Patents and has complete power and
authority to enter into this Agreement and to grant the rights and licenses granted herein to
Licensee.



     (b) Licensor is not aware of any information which is material to the patentability or
validity
of the ‘396 application that he not already brought to the attention of Licensee.



     (c) Licensor has not entered into any agreement or understanding with any third party that
conflicts with this Agreement or the rights and licenses granted herein to Licensee.



     6.02 By Licensee. Licensee represents and warrants to Licensor that, as of the
Effective Date
of this Agreement:



     (a) Licensee has complete power and authority to enter into this Agreement, and to accept
and perform all of its other obligations on the terms and conditions set forth herein.



     (b) Licensee does not require any approval from any third party to enter into this
Agreement.



     (c) Licensee’s entry into this Agreement will not conflict with any other agreement or
understanding it has with a third party.



     (d) Licensee will defend, indemnify and hold harmless Licensor from and against any liability
for manufacture, use, sale, or other activity relating to the Licensed Products or practice of
the
Licensed Methods, including without limitation all costs, fees (including attorney’s fees),
awards,
damages, fines, and penalties finally awarded against Licensee or Licensor for any Claim of
personal
injury, death, emotional distress, property damage, or any other casualty or risk whatsoever.
Licensor
shall promptly notify Licensee of any Claim or communication relating thereto made to
Licensor, shall
furnish reasonable assistance and information to Licensee for defense or settlement of such
claim, and
shall give Licensee authority to assume control of the defense or settlement of the Claim
including
the right to appoint counsel to implement such defense or settlement.



     6.03 Disclaimers. Nothing contained in this Agreement shall constitute a
representation or
warranty by Licensor that:



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     (a) a
patent will issue from any application encompassed within the Licensed Patents or Improvement Patents; or



     (b) the Licensed Patents are valid or enforceable; or



     (c) the manufacture, use, sale, or other activity relating to the Licensed Products or
practice
of the Licensed Methods will be free from infringement of third party patent(s).



Article VII. Term and Termination.




     7.01 Term. This Agreement shall commence on the Effective Date, and shall remain in
force
until the last Licensed Patent expires or is held invalid or unenforceable, unless terminated
earlier as provided herein.



     7.02 Termination.



     (a) Licensor or Licensee may terminate this Agreement and the licenses and rights granted
to Licensee herein by notice given to the other at any time after 90 days from date of notice
to the
other of a breach which has not been cured prior to the termination notice; provided, however,
if the
breach is other than a failure to pay money and cannot reasonably be cured within 90 days but
the
party charged with having committed the breach has taken reasonable steps to effect a cure
within
that period and is acting with diligence to complete the cure, then the notice period for
breach shall
be extended until the cure is effected, not to exceed an additional 60 days. The licenses and
rights
granted herein shall terminate upon termination of this Agreement.



     (b) Upon termination of this Agreement, Licensee and its sublicensees shall have the right to
sell or otherwise dispose of its and their then remaining inventory of the Licensed Products,
subject
to compliance with all applicable provisions of Article III above, including the continued
payment of
Royalties.



     7.03 Surviving Provisions. The provisions of Articles III, V (to the extent of any then-remaining obligations of the Parties), VI, section 7.02(b), and sections 8.01, 8.03, 8.05, and
8.06,
shall survive expiration or termination of this Agreement.



Article VIII. General.




     8.01 Notices. Any and all notices or other communications required or permitted
to be given under any of the provisions of this Agreement shall be in writing and shall be deemed
to have been duly given when personally delivered or the earlier of (i) 6 business days after the
mailing thereof (postage prepaid, first class mail) and (ii) the actual receipt thereof if
delivered by facsimile transmission or if mailed by first class registered mail, return receipt
requested, addressed:





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	 	If to Licensor:
	 	Mitchell S. Roslin, M.D.
	 

	 	 	 	149 Beach 144 Street
	 

	 	 	 	Far Rockaway, NY 11694
	 
	 	 	 	 
	 

	 	With copy to:
	 	Matthew I. Roslin, Esq.
	 

	 	 	 	Executive Vice President
	 

	 	 	 	MED3000 Group, Inc.
	 

	 	 	 	Foster Plaza 10
	 

	 	 	 	680 Andersen Drive
	 

	 	 	 	Pittsburgh, PA 15220
	 

	 	 	 	(Facsimile No: 412-937-9221)
	 
	 	 	 	 
	 

	 	If to Licensee:
	 	Cyberonics, Inc.
	 

	 	 	 	16511 Space Center Boulevard, Suite 600
	 

	 	 	 	Houston, TX 77058 
Attention: Robert
P. Cummins
	 

	 	 	 	(Facsimile No: 281-218-9332)
	 
	 	 	 	 
	 

	 	With copy to:
	 	Blank Rome Comisky & McCauley LLP
	 

	 	 	 	900 17th Street, N.W., Suite 1000
	 

	 	 	 	Washington, D.C. 20006
	 

	 	 	 	Attention: Donald R. Greene, Esq.
	 

	 	 	 	(Facsimile No: 202-463-6915)






or to such changed address as shall have been designated by notice.




     8.02 Assignment. Licensor shall not assign any rights or delegate any duties under this
Agreement. Except for an assignment to a successor in interest to Licensee’s business to which
this
Agreement relates, Licensee shall not assign this Agreement without the prior written consent
of
Licensor, which shall not be unreasonably withheld or delayed. Except as otherwise provided
herein,
this Agreement shall be binding on and inure to the benefit of each Party and their respective
heirs,
personal representatives, executors, successors and assigns.



     8.03 Confidentiality. Licensor shall protect and preserve the confidentiality of all
Licensee’s
Confidential Information which Licensor may learn in the course of performance under this
Agreement, and Licensor agrees not to disclose any such Confidential Information to any third
party
or use it for his own benefit or the benefit of any third party without the prior written
consent of an
authorized officer of Licensee.



     8.04 Cooperation. Each Party shall cooperate, and shall take such further action and
shall
execute and deliver such further documents as may be reasonably requested by the other Party
in
order to carry out the provisions and purposes of this Agreement.



     8.05 Construction and Law. This Agreement shall be governed and construed in accordance
with the laws of the State of Texas, U.S.A. applicable to contracts made and to be performed
therein.



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Article and section headings contained in this Agreement are for purposes of convenience of
reference only, and are not intended to define or limit the contents of the respective Articles or
sections or to be otherwise used for construction of the Agreement.




     8.06 Entire Agreement. This Agreement embodies the entire understanding of the Parties
respecting the subject matter hereof, and supersedes all prior and contemporaneous agreements
between them respecting that subject matter. This Agreement may not be modified except by a written
agreement specifically referring to this Agreement and signed by both Parties. No waiver of any
breach or default hereunder shall be considered valid unless given in writing and signed by the
Party giving such waiver, and no waiver shall be deemed a waiver of any other contemporaneous or
subsequent breach or default.



     IN WITNESS WHEREOF, the parties have executed this Agreement or caused it to be executed by
their respective duly authorized representatives, in one or more counterparts, all of which taken
together shall be deemed one original, as of the Effective Date hereof.



	 	 	 	 	 	 	 
	 	 	LICENSEE:	 	 
	 
	 	 	 	 	 	 
	 	 	CYBERONICS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Pamela B. Westbrook
 

Pamela B. Westbrook. Vice President,
	 	 
	 

	 	 	 	Finance and Administration &
CFO	 	 
	 
	 	 	 	 	 	 
	 	 	LICENSOR:	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Mitchell S. Roslin	 	 
	 	 	 	 	 
	 	 	Mitchell S. Roslin, M.D.	 	 






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EXHIBIT A 




 LICENSED PATENTS



•  U.S. Patent Application Serial No. 09/346,396, filed July 1, 1999 in the U.S. Patent and
Trademark Office (PTO).



•  Patent
Cooperation Treaty (PCT) Application Serial No. US/00/____ , filed June 30,
2000 in United States Receiving Office, based on U.S. Serial No. 09/346,396.




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EXHIBIT B 




 ROYALTY RATE



The royalty rate payable under Article III
of this Agreement shall be:



1.0 % on the first US$10 million of Net Sales of the Licensed Products; and 0.5% of Net Sales of
the Licensed Products thereafter.





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