Exhibit 10.1

WARRANT AMENDMENT AGREEMENT
BETWEEN
CYBERONICS, INC.
AND
MERRILL LYNCH INTERNATIONAL
THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
AS AGENT

THIS WARRANT AMENDMENT AGREEMENT (this “Amendment Agreement”) is made as of
September 11, 2012, between Cyberonics, Inc. (“Counterparty”), and Merrill Lynch
International (“ML”) through its agent Merrill Lynch, Pierce, Fenner & Smith
Incorporated (“Agent”).
 
WITNESSETH:
 
WHEREAS, on September 21, 2005 Counterparty and ML through Agent entered into a
warrant transaction (the “Warrant Transaction”) pursuant to an ISDA confirmation
dated as of September 21, 2005, which is subject to an agreement in the form of
the 1992 ISDA Master Agreement (Multicurrency – Cross Border), pursuant to which
ML purchased from Counterparty 3,012,050 warrants (as amended, modified,
terminated or unwound from time to time, the “Warrant Confirmation”); and
 
WHEREAS, Counterparty and ML wish to amend the terms of the Warrant Transaction
and the Warrant Confirmation as set forth below.
 
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
Counterparty and ML, intending to be legally bound, mutually covenant and agree
as follows:
 
Section 1.                      Definitions. Capitalized terms used herein but
not otherwise defined shall have the meanings assigned to them in the Warrant
Confirmation.  All references herein, in the Warrant Confirmation and in the
Equity Definitions to the “Strike Price” shall be deemed to be references to the
“Exercise Price.”
 
Section 2.                      Amendment of the Warrant Transaction.
 

 
(a)           The captions “Expiration Time,” “Expiration Date” and “Exercise
Date” under the heading “Procedures for Exercise” in the Warrant Confirmation
and the provisions opposite such captions are hereby amended and restated in
their entirety to read:
     
“Expiration Time:
Valuation Time
 
     
Expiration Dates:
Each Scheduled Trading Day during the period from, and including, the First
Expiration Date to, but excluding, the 60th Scheduled Trading Day following the
First Expiration Date shall be an “Expiration Date” for a number of Warrants
equal to the Daily Number of Warrants on such date; provided that,
notwithstanding anything to the contrary in the Equity Definitions, if any such
date is a Disrupted Day, the Calculation Agent shall make adjustments, if
applicable, to the Daily Number of Warrants for such Expiration Date or shall
reduce such Daily Number of Warrants to zero for such Expiration Date and shall
designate a Scheduled Trading Day or a number of Scheduled Trading Days as the
Expiration Date(s) for the remaining Daily Number of Warrants or a portion
thereof for the originally scheduled Expiration Date; and provided further that
if such Expiration Date has not occurred pursuant to this clause as of the
eighth Scheduled Trading Day following the last scheduled Expiration Date under
the Transaction, the Calculation Agent shall have the right to declare such
Scheduled Trading Day to be the final Expiration Date and the Calculation Agent
shall determine its good faith estimate of the fair market value for the Shares
as of the Valuation Time on that eighth Scheduled Trading Day or on any
subsequent Scheduled Trading Day, as the Calculation Agent shall determine using
commercially reasonable means.
 
     
First Expiration Date:
September 12, 2012 (or if such day is not a Scheduled Trading Day, the next
following Scheduled Trading Day), subject to “Market Disruption Event” below.
 
     
Daily Number of Warrants:
For each of the first 59 Expiration Dates, 50,200 Warrants, and for the 60th
Expiration Date, 50,250 Warrants, in each case, subject to adjustment pursuant
to the provisos to “Expiration Dates”.
 
     
Market Disruption Event:
Market Disruption Event:
 
       
Section 6.3(d) of the Equity Definitions is hereby amended by deleting the
remainder of the provision following the words “Scheduled Closing Time” in the
fourth line thereof.”
 
 
(b)           The provision opposite the caption “Automatic Exercise” under the
heading “Procedures for Exercise” in the Warrant Confirmation is hereby amended
by adding the phrase “; and means that for each Expiration Date, a number of
Warrants equal to the Daily Number of Warrants for such Expiration Date will be
deemed to be automatically exercised at the Expiration Time on such Expiration
Date” immediately following the word “Applicable” therein.
 
 
(c)           The captions under the heading “Valuation” in the Warrant
Confirmation and the provisions opposite such captions are hereby amended and
restated in their entirety to read:
 
   
“Valuation Time:
Scheduled Closing Time; provided that if the principal trading session is
extended, the Calculation Agent shall determine the Valuation Time in its
reasonable discretion.
 
   
Valuation Date:
Each Expiration Date.”
 
 
(d)           The captions under the heading “Settlement Terms” in the Warrant
Confirmation and the provisions opposite such captions are hereby amended and
restated in their entirety to read:
 
   
“Settlement Method Election:
Applicable, which means that, notwithstanding anything herein or in the Equity
Definitions to the contrary (w) the first Settlement Method Election, which must
be made on or prior to the First Settlement Method Election Date, shall apply to
the first twenty Expiration Dates (including any such Expiration Date that is
designated, in whole or in part, as a date other than the originally scheduled
Expiration Date by the Calculation Agent pursuant to the provisions opposite the
caption “Expiration Dates” above), (x) the second Settlement Method Election,
which must be made on or prior to the Second Settlement Method Election Date,
shall apply to the twenty-first through fortieth Expiration Dates (including any
such Expiration Date that is designated, in whole or in part, as a date other
than the originally scheduled Expiration Date by the Calculation Agent pursuant
to the provisions opposite the caption “Expiration Dates” above), (y) the third
Settlement Method Election, which must be made on or prior to the Third
Settlement Method Election Date, shall apply to the forty-first through sixtieth
Expiration Dates (including any such Expiration Date that is designated, in
whole or in part, as a date other than the originally scheduled Expiration Date
by the Calculation Agent pursuant to the provisions opposite the caption
“Expiration Dates” above) and (z) if any Settlement Method Election is not made
on or prior to the corresponding Settlement Method Election Date, Counterparty
shall be deemed to have elected for the Default Settlement Method Election to
apply in respect of such Settlement Method Election Date; provided that (i)
references to “Physical Settlement” in Section 7.1 of the Equity Definitions
shall be replaced by references to “Net Physical Settlement”; and (ii)
Counterparty may elect Cash Settlement in respect of any Settlement Method
Election Date only if Counterparty represents and warrants to ML in writing on
the date of such election that (A) Counterparty is not in possession of any
material non-public information regarding Counterparty or the Shares, (B)
Counterparty is electing Cash Settlement in good faith and not as part of a plan
or scheme to evade compliance with the federal securities laws, and (C) the
assets of Counterparty at their fair valuation exceed the liabilities of
Counterparty (including contingent liabilities), the capital of Counterparty is
adequate to conduct the business of Counterparty, and Counterparty has the
ability to pay its debts and obligations as such debts mature and does not
intend to, or does not believe that it will, incur debt beyond its ability to
pay as such debts mature.
 
   
Settlement Currency:
USD
 
   
Electing Party:
Counterparty
 
   
Settlement Method Election Dates:
Each of (i) the Scheduled Trading Day immediately preceding the First Expiration
Date (the “First Settlement Method Election Date”), (ii) the third Scheduled
Trading Day immediately preceding October 10, 2012 (the “Second Settlement
Method Election Date”) and (iii) the third Scheduled Trading Day immediately
preceding November 7, 2012 (the “Third Settlement Method Election Date”).
 
   
Default Settlement Method:
In respect of any Settlement Method Election Date, Net Physical Settlement.
 
   
Net Physical Settlement:
If Net Physical Settlement is applicable for any Expiration Dates hereunder,
then on the Settlement Date, Counterparty shall deliver (in addition to paying
any cash pursuant to, and in accordance with, the provisions opposite the
caption “Cash Settlement” below if Cash Settlement is applicable for any
Expiration Dates hereunder) to an account specified by ML, free of payment,
through the Clearance System, a number of Shares equal to the sum of the Share
Delivery Quantities for all Expiration Dates for which Net Physical Settlement
is applicable, subject to the provisions opposite the caption “Limitations on
Net Physical Settlement by Counterparty” below.  Notwithstanding anything to the
contrary herein or in the Equity Definitions, in respect of the number of such
Shares comprising the Share Delivery Quantity for each Expiration Date for which
Net Physical Settlement is applicable, ML shall be treated, for all purposes, as
the holder of record of such number of Shares at 5:00 p.m. (New York City time)
on the date one Settlement Cycle immediately following such Expiration
Date.  Counterparty shall pay to ML on the Settlement Date cash (in addition to
any cash payable by Counterparty to ML if Cash Settlement applies for any
Expiration Dates) in lieu of any fractional Share deliverable based on the
Settlement Price on the final Expiration Date.  ML acknowledges and agrees that
Shares delivered by Counterparty pursuant to a Net Physical Settlement need not
be registered Shares.
 
   
Share Delivery Quantity:
For each Expiration Date for which Net Physical Settlement is applicable, a
number of Shares, as calculated by the Calculation Agent, equal to the Net
Physical Settlement Amount for such Expiration Date, divided by the Settlement
Price on the Valuation Date corresponding to such Expiration Date.
 
   
Net Physical Settlement Amount:
For each Expiration Date, an amount equal to the product of (i) the number of
Warrants exercised or deemed exercised on such Expiration Date, (ii) the Strike
Price Differential for the relevant Valuation Date and (iii) the Warrant
Entitlement.
 
   
Cash Settlement:
If Cash Settlement is applicable for any Expiration Dates hereunder, on the
Settlement Date, Counterparty shall pay (in addition to delivering any Shares
pursuant to, and in accordance with, the provisions opposite the caption “Net
Physical Settlement” above if Net Physical Settlement is applicable for any
Expiration Dates hereunder) to ML an amount of cash in USD equal to the sum of
the Net Physical Settlement Amounts for all Expiration Dates for which Cash
Settlement is applicable.
 
   
Settlement Price:
For each Valuation Date, the per Share volume-weighted average price as
displayed under the heading “Bloomberg VWAP” on Bloomberg page CYBX <equity> AQR
(or any successor thereto) in respect of the period from the scheduled opening
time of the Exchange to the Scheduled Closing Time on such Valuation Date (or if
such volume-weighted average price is unavailable, the market value of one Share
on such Valuation Date, as determined by the Calculation
Agent).  Notwithstanding the foregoing, if (i) any Expiration Date is a
Disrupted Day and (ii) the Calculation Agent determines that such Expiration
Date shall be an Expiration Date for fewer than the Daily Number of Warrants, as
described above, then the Settlement Price for the relevant Valuation Date shall
be the volume-weighted average price per Share on such Valuation Date on the
Exchange, as determined by the Calculation Agent based on such sources as it
deems appropriate using a volume-weighted methodology, for the portion of such
Valuation Date for which the Calculation Agent determines there is no Market
Disruption Event.
 
   
Settlement Date:
The date one Settlement Cycle immediately following the final Expiration Date.
 
   
Other Applicable Provisions:
If Net Physical Settlement is applicable for any Expiration Dates hereunder, the
provisions of Sections 9.1(c), 9.8, 9.9, 9.11 and 9.12 of the Equity Definitions
will be applicable, except that all references in such provisions to
“Physically-settled” shall be read as references to “Net Physically Settled.”
“Net Physically Settled” in relation to any Warrant means that Net Physical
Settlement is applicable to that Warrant.
 
 
(e)           The provisions under the heading “Additional Agreements,
Representations and Covenants of Counterparty, Etc.” in the Warrant Confirmation
are hereby amended as follows:
 
   
(i)           the third paragraph of clause (d) thereunder is hereby amended by
inserting the word “relevant” immediately prior to the word “Expiration” in the
second sentence thereof; and
 
   
(ii)           a new clause (f) and clause (g) shall be inserted immediately
following the end of clause (e) thereunder as follows:
 
 
(f)           Counterparty understands, acknowledges and agrees that: (A) at any
time on and prior to the last Expiration Date, ML and its affiliates may buy or
sell Shares or other securities or buy or sell options or futures contracts or
enter into swaps or other derivative securities in order to adjust its hedge
position with respect to the Transaction;  (B) ML and its affiliates also may be
active in the market for Shares other than in connection with hedging activities
in relation to the Transaction; (C) ML shall make its own determination as to
whether, when or in what manner any hedging or market activities in securities
of Counterparty shall be conducted and shall do so in a manner that it deems
appropriate to hedge its price and market risk with respect to the Settlement
Prices; and (D) any market activities of ML and its affiliates with respect to
Shares may affect the market price and volatility of Shares, as well as the
Settlement Prices, each in a manner that may be adverse to Counterparty.
 
 
(g)           Counterparty represents and warrants to ML that Counterparty (A)
is capable of evaluating investment risks independently, both in general and
with regard to all transactions and investment strategies involving a security
or securities; (B) will exercise independent judgment in evaluating the
recommendations of any broker-dealer or its associated persons, unless it has
otherwise notified the broker-dealer in writing; and (C) has total assets of at
least $50 million as of the date hereof.
 

Section 3.                      Representations and Warranties.
 

 
(a)           Each party represents to the other party that:
 
   
(i)           It is duly organized and validly existing under the laws of the
jurisdiction of its organization or incorporation and, if relevant under such
laws, in good standing.
 
   
(ii)           It has the power to execute this Amendment Agreement and any
other documentation relating to this Amendment Agreement to which it is a party,
to deliver this Amendment Agreement and any other documentation relating to this
Amendment Agreement that it is required by this Amendment Agreement to deliver
and to perform its obligations under this Amendment Agreement and has taken all
necessary action to authorize such execution, delivery and performance.
 
   
(iii)           Such execution, delivery and performance do not violate or
conflict with any law applicable to it, any provision of its constitutional
documents, any order or judgment of any court or other agency of government
applicable to it or any of its assets or any contractual restriction binding on
or affecting it or any of its assets.
 
   
(iv)           All governmental and other consents that are required to have
been obtained by it with respect to this Amendment Agreement have been obtained
and are in full force and effect and all conditions of any such consents have
been complied with.
 
   
(v)           Its obligations under this Amendment Agreement constitute its
legal, valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors’ rights generally and subject, as
to enforceability, to equitable principles of general application (regardless of
whether enforcement is sought in a proceeding in equity or at law)).
 
 
(b)           Counterparty represents and warrants to ML that, as of the date
hereof, Counterparty is not aware of any material non-public information with
respect to Counterparty or the Shares.
 

Section 4.                      No Reliance, etc.  Each of Counterparty and ML
hereby confirms that it has relied on the advice of its own counsel and other
advisors (to the extent it deems appropriate) with respect to any legal, tax,
accounting, or regulatory consequences of this Amendment Agreement, that it has
not relied on the other party or such other party’s affiliates in any respect in
connection therewith, and that it will not hold the other party or such other
party’s affiliates accountable for any such consequences.
 
Section 5.                      No Other Changes.  Except as expressly set forth
in this Amendment Agreement, all terms and conditions of the Warrant Transaction
and the Warrant Confirmation shall remain in full force and effect and are
hereby confirmed in all respects.
 
Section 6.                      Waiver of Trial by Jury.  EACH OF COUNTERPARTY
AND ML HEREBY IRREVOCABLY WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, ON BEHALF OF ITS STOCKHOLDERS) ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AMENDMENT AGREEMENT OR THE ACTIONS
OF COUNTERPARTY OR ITS AFFILIATES OR ML OR ITS AFFILIATES IN THE NEGOTIATION,
PERFORMANCE OR ENFORCEMENT HEREOF.
 
Section 7.                      Governing Law.  This Amendment Agreement and any
dispute arising hereunder shall be governed by and construed in accordance with
the laws of the State of New York (without reference to choice of law doctrine).
 
Section 8.                      Counterparts.  This Amendment Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if all of the signatures thereto and hereto were upon the
same instrument.
 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to
be executed as of the date first above written.
 

 
Merrill Lynch International
         
By:/s/ Edgar Joya                
 
Name:  Edgar Joya
 
Title:  Vice-President
         
Merrill Lynch, Pierce, Fenner & Smith Incorporated, solely in its capacity as
Agent hereunder
         
By:/s/ Christopher A. Hutmaker          
 
Name:  Christopher A. Hutmaker
 
Title:  Managing Director

 

 
 
Cyberonics, Inc.
 

By:/s/ Gregory H.
Browne                                                                            
Authorized Signatory
Name:  Gregory H. Browne
Title:  Senior Vice President, Finance &
Chief Financial Officer