Exhibit 10.49**CYBERONICS, INC.****STAND-ALONE STOCK OPTION AGREEMENT****I.****NOTICE OF STOCK OPTION GRANT**   **Richard Rudolph**     You have been granted a Nonstatutory Stock Option to purchase Common Stock of the Company,subject to the terms and conditions of this Agreement, as follows:   Date of Grant August 23, 2001   Vesting Commencement Date August 23, 2001   Exercise Price per Share  $ 15.56   Total Number of Shares Granted  150,000   Total Exercise Price  $2,265,000   Term/Expiration Date: August 23, 2011   Vesting Schedule:       This Option shall vest and may be exercised, in whole or in part, in accordance with thefollowing schedule:     l/60th of the Shares subject to the Option shall vest each month after the VestingCommencement Date, so that the Option shall be fully vested five (5) years from the Date of Grant,subject to the Optionee continuing to be a Service Provider on such dates.     Termination Period     This Option may be exercised for ninety (90) days after Optionee ceases to be a ServiceProvider in accordance with Section 7 of this Agreement. Upon the death or Disability of theOptionee, this Option may be exercised for twelve (12) months after the Optionee ceases to be aService Provider in accordance with Sections 8 and 9 of this Agreement. In no event shall thisOption be exercised later than the Term/Expiration Date provided.
 

 
**II.****AGREEMENT**     1 . Definitions. As used herein, the following definitions shall apply:          (a)“Agreement” means this stock option agreement between the Company and Optionee evidencingthe terms and conditions of this Option.          (b)“Applicable Laws” means the requirements relating to the administration of stock optionsunder U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stockexchange or quotation system on which the Common Stock is listed or quoted and the applicable lawsof any foreign country or jurisdiction that may apply to this Option.          (c) “Board” means the Board of Directors of the Company or any committee of the Board that hasbeen designated by the Board to administer this Agreement.          (d)“Code” means the Internal Revenue Code of 1986, as amended.          (e)“Common Stock” means the common stock of the Company.          (f) “Company” means Cyberonics, Inc., a Delaware corporation.          (g)“Consultant” means any person, including an advisor, engaged by the Company or a Parent orSubsidiary to render services to such entity.          (h)“Director” means a member of the Board.          (i)“Disability” means total and permanent disability as defined in Section 22(e)(3) of theCode.          (j)“Employee” means any person, including Officers and Directors, employed by the Company orany Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee inthe case of (i) any leave of absence approved by the Company or (ii) transfers between locations ofthe Company or between the Company, its Parent, any Subsidiary, or any successor. Neither serviceas a Director nor payment of a director’s fee by the Company shall be sufficient to constitute“employment” by the Company.          (k)“Exchange Act” means the Securities Exchange Act of 1934, as amended.          (1) “Fair Market Value” means, as of any date, the value of Common Stock determined asfollows:               (1) If the Common Stock is listed on any established stock exchangeor a national market system, including without limitation the Nasdaq National Market or The NasdaqSmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales pricefor such stock (or the closing bid, if no sales were reported) as quoted on such exchange orsystem on the day of determination, as reported in *The Wall Street Journal*or such other source asthe Administrator deems reliable;
-2-

 
               (2) If the Common Stock is regularly quoted by a recognized securitiesdealer but selling prices are not reported, its Fair Market Value shall be the mean between thehigh bid and low asked prices for the Common Stock on the day of determination; or               (3) In the absence of an established market for the Common Stock, the Fair Market Valuethereof shall be determined in good faith by the Board.          (m) “Nonstatutory Stock Option” means an Option not intended to qualify as anincentive stock option within the meaning of Section 422 of the Code and the regulationspromulgated thereunder,          (n) “Notice of Grant” means a written notice, in Part I of this Agreement, evidencing certainthe terms and conditions of this Option grant. The Notice of Grant is part of the OptionAgreement.          (o) “Officer” means a person who is an officer of the Company within the meaning of Section 16of the Exchange Act and the rules and regulations promulgated thereunder.          (p)“Option” means this stock option.          (q) “Optioned Stock” means the Common Stock subject to this Option.          (r) “Optionee” means the person named in the Notice of Grant or such person’s successor.          (s) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined inSection 424(e) of the Code.          (t) “Service Provider” means an Employee, Director or Consultant.          (u) “Share” means a share of the Common Stock, as adjusted in accordance with Section 10 ofthis Agreement.          (v) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, asdefined in Section 424(f) of the Code.     2. Grant of Option. The Board hereby grants to the Optionee named in the Notice ofGrant attached as Part I of this Agreement the Option to purchase the number of Shares, as setforth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant(the “Exercise Price”), subject to the terms and conditions of this Agreement.     3. Exercise of Option.          (a) Right to Exercise. This Option is exercisable during its term in accordance withthe Vesting Schedule set out in the Notice of Grant and the applicable provisions of thisAgreement.          (b) Method of Exercise. This Option is exercisable by delivery of an exercise notice,in the form attached as Exhibit A (the “Exercise Notice”), which shall state the electionto exercise
-3-

 
the Option, the number of Shares in respect of which the Option is being exercised (the “ExercisedShares”), and such other representations and agreements as may be required by the Company. TheExercise Notice shall be completed by the Optionee and delivered to Secretary of the Company. TheExercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all ExercisedShares. This Option shall be deemed to be exercised upon receipt by the Company of such fullyexecuted Exercise Notice accompanied by such aggregate Exercise Price.          (c) Legal Compliance. No Shares shall be issued pursuant to the exercise of thisOption unless such issuance and exercise complies with Applicable Laws. Assuming such compliance,for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on thedate the Option is exercised with respect to such Exercised Shares.     4. Method of Payment. Payment of the aggregate Exercise Price shall be by any of thefollowing, or a combination thereof, at the election of the Optionee:          (a) cash or check;          (b) promissory note;          (c) consideration received by the Company under a cashless exercise program implemented by theCompany; or          (d) surrender of other Shares, provided Shares acquired directly from the Company, (i) havebeen owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have aFair Market Value on the date of surrender equal to the aggregate Exercise Price of the ExercisedShares.     5. Non-Transferability of Option. This Option may not be transferred in any mannerotherwise than by will or by the laws of descent or distribution and may be exercised during thelifetime of Optionee only by the Optionee. The terms of this Agreement shall be binding upon theexecutors, administrators, heirs, successors and assigns of the Optionee.     6. Term of Option. This Option may be exercised only within the term set out in theNotice of Grant, and may be exercised during such term only in accordance with the terms of thisAgreement.     7. Termination of Relationship as a Service Provider, If the Optionee ceases to be aService Provider (other than for death or Disability), this Option may be exercised for a period ofninety (90) days after the date of such termination (but in no event later than the expiration dateof this Option as set forth in the Notice of Grant) to the extent that the Option is vested on thedate of such termination. To the extent that the Optionee does not exercise this Option within thetime specified herein, the Option shall terminate.     8. Disability of Optionee. If the Optionee ceases to be a Service Provider as a resultof the Optionee’s Disability, this Option may be exercised for a period of twelve (12) months afterthe date of such termination (but in no event later than the expiration date of this Option as setforth in the Notice of Grant) to the extent that the Option is vested on the date of suchtermination. To the extent
-4-

 
that Optionee does not exercise this Option within the time specified herein, the Option shallterminate.     9. Death of Optionee. If the Optionee dies while a Service Provider, the Option maybe exercised at any time within twelve (12) months following the date of death (but in no eventlater than the expiration date of this Option as set forth in the Notice of Grant), by theOptionee’s estate or by a person who acquired the right to exercise the Option by bequest orinheritance, but only to the extent that the Optionee was entitled to exercise the Option at thedate of death. If, after death, the Optionee’s estate or a person who acquired the right toexercise the Option by bequest or inheritance does not exercise the Option within the timespecified herein, the Option shall terminate.     10. AdjustmentsUpon Changes in Capitalization, Dissolution, Merger or Asset Sale.          (a) Changes in Capitalization. Subject to any required action by the stockholders ofthe Company, the number of shares of Common Stock covered by this Option, as well as the price pershare of Common Stock covered by this Option, shall be proportionately adjusted for any increase ordecrease in the number of issued shares of Common Stock resulting from a stock split, reverse stocksplit, stock dividend, combination or reclassification of the Common Stock, or any other increaseor decrease in the number of issued shares of Common Stock effected without receipt ofconsideration by the Company; provided, however, that conversion of any convertible securities ofthe Company shall not be deemed to have been “effected without receipt of consideration.” Suchadjustment shall be made by the Board, whose determination in that respect shall be final, bindingand conclusive. Except as expressly provided herein, no issuance by the Company of shares of stockof any class, or securities convertible into shares of stock of any class, shall affect, and noadjustment by reason thereof shall be made with respect to, the number or price of shares of CommonStock subject to this Option.          (b) Dissolution or Liquidation. In the event of the proposed dissolution orliquidation of the Company, the Board shall notify Optionee as soon as practicable prior to theeffective date of such proposed transaction. The Board in its discretion may provide for theOptionee to have the right to exercise his or her Option until ten (10) days prior to suchtransaction as to all of the Optioned Stock covered thereby, including Shares as to which theOption would not otherwise be exercisable. To the extent it has not been previously exercised,the Option will terminate immediately prior to the consummation of such proposed.          (c) Merger or Asset Sale. In the event of a merger of the Company with or into anothercorporation, or the sale of substantially all of the assets of the Company, the Option shall beassumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiaryof the successor corporation. In the event that the successor corporation refuses to assume orsubstitute for the Option, the Optionee shall fully vest in and have the right to exercise theOption as to all of the Optioned Stock, including Shares as to which it would not otherwise bevested or exercisable. If the Option becomes fully vested and exercisable in lieu of assumption orsubstitution in the event of a merger or sale of assets, the Board shall notify the Optionee inwriting or electronically that the Option shall be fully exercisable for a period of fifteen (15)days from the date of such notice, and the Option shall terminate upon the expiration of suchperiod. For the purposes of this paragraph, the Option shall be considered assumed if, followingthe merger or sale of assets, the option confers the right to purchase or receive, for each Shareof Optioned Stock subject to the Option immediately
-5-

 
prior to the merger or sale of assets, the consideration (whether stock, cash, or other securitiesor property) received in the merger or sale of assets by holders of Common Stock for each Shareheld on the effective date of the transaction (and if holders were offered a choice ofconsideration, the type of consideration chosen by the holders of a majority of the outstandingShares); provided, however, that if such consideration received in the merger or sale of assets isnot solely common stock of the successor corporation or its Parent, the Administrator may, withthe consent of the successor corporation, provide for the consideration to be received upon theexercise of the Option, for each Share of Optioned Stock subject to the Option, to be solelycommon stock of the successor corporation or its Parent equal in fair market value to the pershare consideration received by holders of Common Stock in the merger or sale of assets.          (d) Change of Control. In the event of a Change of Control (as defined below), theOptionee shall fully vest in and have the right to exercise the Option as to all of the OptionedStock, including Shares as to which it would not otherwise be vested or exercisable, and anyCompany reacquisition option applicable to any Shares acquired upon exercise of an Option shalllapse as to all such Shares. If an Option becomes fully vested and exercisable as the result of aChange of Control, the Administrator shall notify the Optionee in writing or electronically priorto the Change of Control that the Option shall be fully vested and exercisable for a period offifteen (15) days from the date of such notice, and the Option shall terminate upon the expirationof such period. For purposes of this Plan, a “Change of Control” means the happening of any of thefollowing events:               (1) When any “person,” as such term is used in Sections 13(d) and14(d) of the Exchange Act, other than the Company, a subsidiary of the Company or a Companyemployee benefit plan, including any trustee of such plan acting as trustee, is or becomes the“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, ofsecurities of the Company representing fifty percent (50%) or more of the combined voting power ofthe Company’s then outstanding securities entitled to vote generally in the election of directors;or               (2) The shareholders of the Company approve a merger orconsolidation of the Company with any other corporation, other than a merger or consolidation whichwould result in the voting securities of the Company outstanding immediately prior theretocontinuing to represent (either by remaining outstanding or by being converted into votingsecurities of the surviving entity) more than fifty percent (50%) of the total voting powerrepresented by the voting securities of the Company or such surviving entity outstandingimmediately after such merger or consolidation, or the shareholders of the Company approve anagreement for the sale or disposition by the Company of all or substantially all the Company’sassets; or               (3) A change in the composition of the Board of Directors of theCompany, as a result of which fewer than a majority of the directors are Incumbent Directors.“Incumbent Directors” shall mean directors who either (A) are directors of the Company as of thedate the Plan is approved by the shareholders, or (B) are elected, or nominated for election, tothe Board of Directors of the Company with the affirmative votes of at least a majority of theIncumbent Directors at the time of such election or nomination (but shall not include an individualwhose election or nomination is in connection with an actual or threatened proxy contest relatingto the election of directors to the Company).