Document:

<PAGE>   1
                                                                     EXHIBIT 4.1

                                CYBERONICS, INC.
                              AMENDED AND RESTATED
                             1996 STOCK OPTION PLAN

     1.   Purposes of the Plan. The purposes of this Amended Stock Option Plan
are:

          (a) to attract and retain the best available personnel for positions
of substantial responsibility,

          (b)  to provide incentives to Employees and Consultants, and

          (c)  to promote the success of the Company's business.

          Options granted under the Plan will be Nonstatutory Stock Options.

     2.   Definitions. As used herein, the following definitions shall apply:

          (a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.

          (b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.

          (c) "Board" means the Board of Directors of the Company.

          (d) "Code" means the Internal Revenue Code of 1986, as amended.

          (e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.

          (f) "Common Stock" means the Common Stock of the Company.

          (g) "Company" means Cyberonics, Inc., a Delaware corporation.

          (h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.

          (i) "Director" means a member of the Board.

          (j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.

          (k) "Employee" means any person, excluding Officers, employed by the
Company or any Parent or Subsidiary of the Company. A Service Provider shall not
cease to be an Employee in the case of (i) any leave of absence approved by the
Company or (ii) transfers between locations of the Company or between the
Company, its Parent, any Subsidiary, or any successor. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.

          (l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

<PAGE>   2

          (m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:

               (i) If the Common Stock is listed on any established stock
          exchange or a national market system, including without limitation the
          Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq
          Stock Market, its Fair Market Value shall be the closing sales price
          for such stock (or the closing bid, if no sales were reported) as
          quoted on such exchange or system for the last market trading day
          prior to the time of determination, as reported in The Wall Street
          Journal or such other source as the Administrator deems reliable;

               (ii) If the Common Stock is regularly quoted by a recognized
          securities dealer but selling prices are not reported, the Fair Market
          Value of a Share of Common Stock shall be the mean between the high
          bid and low asked prices for the Common Stock on the last market
          trading day prior to the day of determination, as reported in The Wall
          Street Journal or such other source as the Administrator deems
          reliable;

               (iii) In the absence of an established market for the Common
          Stock, the Fair Market Value shall be determined in good faith by the
          Administrator.

          (n) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.

          (o) "Officer" means a person who is an executive officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

          (p) "Option" means a nonstatutory stock option granted pursuant to the
Plan, that is not intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code and the regulations promulgated thereunder.

          (q) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

          (r) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.

          (s) "Optioned Stock" means the Common Stock subject to an Option.

          (t) "Optionee" means the holder of an outstanding Option granted under
the Plan.

          (u) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

          (v) "Plan" means this Amended 1996 Stock Option Plan.

          (w) "Service Provider" means an Employee, Officer or Consultant, and
specifically excludes Directors of the Company.

          (x) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.

<PAGE>   3

          (y) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.

     3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 4,600,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock. If an Option expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated).

     4. Administration of the Plan.

          (a) The Plan shall be administered by (A) the Board or (B) a
Committee, which committee shall be constituted to satisfy Applicable Laws.

          (b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

               (i) to determine the Fair Market Value of the Common Stock;

               (ii) to select the Service Providers to whom Options may be
          granted hereunder;

               (iii) to determine whether and to what extent Options are granted
          hereunder;

               (iv) to determine the number of shares of Common Stock to be
          covered by each Option granted hereunder;

               (v) to approve forms of agreement for use under the Plan;

               (vi) to determine the terms and conditions, not inconsistent with
          the terms of the Plan, of any award granted hereunder. Such terms and
          conditions include, but are not limited to, the exercise price, the
          time or times when Options may be exercised (which may be based on
          performance criteria), any vesting acceleration or waiver of
          forfeiture restrictions, and any restriction or limitation regarding
          any Option or the shares of Common Stock relating thereto, based in
          each case on such factors as the Administrator, in its sole
          discretion, shall determine;

               (vii) to reduce the exercise price of any Option to the then
          current Fair Market Value if the Fair Market Value of the Common Stock
          covered by such Option shall have declined since the date the Option
          was granted;

               (viii) to institute an Option Exchange Program;

               (ix) to construe and interpret the terms of the Plan and awards
          granted pursuant to the Plan;

               (x) to prescribe, amend and rescind rules and regulations
          relating to the Plan, including rules and regulations relating to
          sub-plans established for the purpose of qualifying for preferred tax
          treatment under foreign tax laws;

               (xi) to modify or amend each Option (subject to Section 15(b) of
          the Plan), including the discretionary authority to extend the
          post-termination exercisability period of Options longer than is
          otherwise provided for in the Plan;

<PAGE>   4

               (xii) to authorize any person to execute on behalf of the Company
          any instrument required to effect the grant of an Option or previously
          granted by the Administrator;

               (xiii) to determine the terms and restrictions applicable to
          Options;

               (xiv) to allow Optionees to satisfy withholding tax obligations
          by electing to have the Company withhold from the Shares to be issued
          upon exercise of an Option or Stock Purchase Right that number of
          Shares having a Fair Market Value equal to the amount required to be
          withheld. The Fair Market Value of the Shares to be withheld shall be
          determined on the date that the amount of tax to be withheld is to be
          determined. All elections by an Optionee to have Shares withheld for
          this purpose shall be made in such form and under such conditions as
          the Administrator may deem necessary or advisable; and

               (xv) to make all other determinations deemed necessary or
          advisable for administering the Plan.

          (c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options.

     5. Eligibility. Options may be granted to Service Providers; provided,
however that the number of Shares subject to Options granted to Officers
pursuant to this Plan subsequent to July 9, 1998 shall not exceed 10% of the
total number of Shares reserved for issuance under this Plan. For purposes of
determining compliance with the forgoing 10% limitation, the following
provisions shall apply:

          (a) Options granted to a person at a time when such person was not an
Officer shall not be counted toward the 10% limit upon promotion to officer
status, and

          (b) If an Option granted to an Officer expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased shares which were subject thereto
shall no longer be counted toward the 10% limit.

     6. Limitation. Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.

     7. Term of Plan. The Plan shall become effective upon its adoption by the
Board. It shall continue in effect until October 31, 2006, unless sooner
terminated under Section 14 of the Plan.

     8. Term of Option. The term of each Option shall be stated in the Option
Agreement.

     9. Option Exercise Price and Consideration.

          (a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator.

          (b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.

          (c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist entirely of:

<PAGE>   5

               (i) cash;

               (ii) check;

               (iii) promissory note;

               (iv) other shares which (A) in the case of shares acquired upon
          exercise of an option, have been owned by the Optionee for more than
          six months on the date of surrender, and (B) have a Fair Market Value
          on the date of surrender equal to the aggregate exercise price of the
          shares as to which said option shall be exercised;

               (v) consideration received by the Company under a cashless
          exercise program implemented by the Company in connection with the
          Plan;

               (vi) a reduction in the amount of any Company liability to the
          Optionee, including any liability attributable to the Optionee's
          participation in any Company-sponsored deferred compensation program
          or arrangement;

               (vii) such other consideration and method of payment for the
          issuance of Shares to the extent permitted by Applicable Laws; or

               (viii) any combination of the foregoing methods of payment.

     10. Exercise of Option.

          (a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. An Option may not be exercised for a fraction of
a Share.

          An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.

          Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.

          (b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option, but only within such
period of time as is specified in the Option Agreement, and only to the extent
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the

<PAGE>   6

Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.

          (c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option
Agreement, to the extent the Option is vested on the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.

          (d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

          (e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

     11. Limited Transferability of Options. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than (i)
by will or by the laws of descent or distribution, or (ii) with the
Administrator's consent and pursuant to such procedures as the Administrator (in
its discretion) may specify, in a manner which would not prevent any Option from
being registered on Form S-8 in the reasonable discretion of the Company's legal
counsel. The Administrator shall establish procedures for the transfer of
Options by an Optionee to such Optionee's spouse and to members of such
Optionee's immediate family; provided, however, that (i) no such transfer would
prevent any Option from being registered on Form S-8 in the reasonable
discretion of the Company's legal counsel, and (ii) such transferee executes an
assignment agreeing to the terms of this Plan. Options may be exercised during
the lifetime of the Optionee only by the Optionee or a valid transferee. The
terms of this Plan shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee. In order to effect a valid transfer, the
transferee shall execute an assignment agreeing to the terms of this Plan.

<PAGE>   7

     12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.

          (a) Changes in Capitalization. Subject to any required action by the
Stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.

          (b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.

          (c) Change of Control. In the event of a Change of Control (as defined
below), Options under this Plan shall become fully vested and exercisable as to
all Optioned Stock, including Shares as to which an Option would not otherwise
be vested or exercisable, effective as of immediately prior to closing of the
transaction constituting the Change of Control. For purposes of this Plan,
"CHANGE OF CONTROL" shall mean a corporate reorganization of the Company which
results in the then current Stockholders of the Company owning less than 50% of
the equity securities of the surviving company, or the sale of all or
substantially all of the assets of the Company.

     13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.

     14. Amendment and Termination of the Plan.

          (a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.

          (b) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.

<PAGE>   8

     15. Conditions Upon Issuance of Shares.

          (a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

          (b) Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

     16. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.<PAGE>   1
                                                                     EXHIBIT 4.2

                           TRANSACTION GRANT AGREEMENT
                              WITH RICHARD P. KUNTZ

                                CYBERONICS, INC.

                       STAND-ALONE STOCK OPTION AGREEMENT

I.   NOTICE OF STOCK OPTION GRANT

     RICHARD KUNTZ

     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                                      January 6, 2000

Vesting Commencement Date                          January 6, 2000

Exercise Price per Share                           $15.25

Total Number of Shares Granted                     150,000

Total Exercise Price                               $2,287,500

Term/Expiration Date:                              January 6, 2010

Vesting Schedule:

     This Option shall vest and may be exercised, in whole or in part, in
accordance with the following schedule:

     1/60th of the Shares subject to the Option shall vest each month after the
Vesting Commencement 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 Service Provider in accordance with Section 7 of this Agreement. Upon the
death or Disability of the Optionee, this Option may be exercised for twelve
(12) months after the Optionee ceases to be a Service Provider in accordance
with Sections 8 and 9 of this Agreement. In no event shall this Option 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 evidencing the terms and conditions of this Option.

          (b) "Applicable Laws" means the requirements relating to the
administration of stock options under U.S. state corporate laws, U.S. federal
and state securities laws, the Code, any stock exchange or quotation system on

<PAGE>   2

which the Common Stock is listed or quoted and the applicable laws of 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 has been 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 or Subsidiary 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 the Code.

          (j) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
Neither service as 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.

          (l) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:

               (1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;

               (2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high 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 Value thereof shall be determined in good faith by the Board.

          (m) "Nonstatutory Stock Option" means an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.

          (n) "Notice of Grant" means a written notice, in Part I of this
Agreement, evidencing certain the terms and conditions of this Option grant. The
Notice of Grant is part of the Option Agreement.

          (o) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

          (p) "Option" means this stock option.

<PAGE>   3

          (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 in Section 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 of this Agreement.

          (v) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.

     2. Grant of Option. The Board hereby grants to the Optionee named in the
Notice of Grant attached as Part I of this Agreement the Option to purchase the
number of Shares, as set forth 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 with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of this Agreement.

          (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 election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company. The
Exercise Notice shall be completed by the Optionee and delivered to Secretary of
the Company. The Exercise Notice shall be accompanied by payment of the
aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed
to be exercised upon receipt by the Company of such fully executed Exercise
Notice accompanied by such aggregate Exercise Price.

          (c) Legal Compliance. No Shares shall be issued pursuant to the
exercise of this Option 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 the date 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 the following, 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 the Company; or

          (d) surrender of other Shares, provided Shares acquired directly from
the Company, (i) have been owned by the Optionee for more than six (6) months on
the date of surrender, and (ii) have a Fair Market Value on the date of
surrender equal to the aggregate Exercise Price of the Exercised Shares.

<PAGE>   4

     5. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee. The terms of
this Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.

     6. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the terms of this Agreement.

     7. Termination of Relationship as a Service Provider. If the Optionee
ceases to be a Service Provider (other than for death or Disability), this
Option may be exercised for a period of ninety (90) days after the date of such
termination (but in no event later than the expiration date of this Option as
set forth in the Notice of Grant) to the extent that the Option is vested on the
date of such termination. To the extent that the Optionee does not exercise this
Option within the time specified herein, the Option shall terminate.

     8. Disability of Optionee. If the Optionee ceases to be a Service Provider
as a result of the Optionee's Disability, this Option may be exercised for a
period of twelve (12) months after the date of such termination (but in no event
later than the expiration date of this Option as set forth in the Notice of
Grant) to the extent that the Option is vested on the date of such termination.
To the extent that Optionee does not exercise this Option within the time
specified herein, the Option shall terminate.

     9. Death of Optionee. If the Optionee dies while a Service Provider, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration date of this Option as set
forth in the Notice of Grant), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option at the date of
death. If, after death, the Optionee's estate or a person who acquired the right
to exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate.

     10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.

          (a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
this Option, as well as the price per share of Common Stock covered by this
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to this Option.

          (b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Board in its discretion may provide for the Optionee to have the right to
exercise his or her Option until ten (10) days prior to such transaction as to
all of the Optioned Stock covered thereby, including Shares as to which the
Option 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 another corporation, or the sale of substantially all of the assets of
the Company, the Option shall be assumed or an equivalent option substituted by
the successor corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the Option, the Optionee shall fully vest in and have the right

<PAGE>   5

to exercise the Option as to all of the Optioned Stock, including Shares as to
which it would not otherwise be vested or exercisable. If the Option becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Board shall notify the Optionee in writing 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 such period. For the purposes of this paragraph, the
Option shall be considered assumed if, following the merger or sale of assets,
the option confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option immediately prior to the merger or sale of assets,
the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share 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), the Optionee shall fully vest in and have the right to exercise the
Option as to all of the Optioned Stock, including Shares as to which it would
not otherwise be vested or exercisable, and any Company reacquisition option
applicable to any Shares acquired upon exercise of an Option shall lapse as to
all such Shares. If an Option becomes fully vested and exercisable as the result
of a Change of Control, the Administrator shall notify the Optionee in writing
or electronically prior to the Change of Control that the Option shall be fully
vested and exercisable for a period of fifteen (15) days from the date of such
notice, and the Option shall terminate upon the expiration of such period. For
purposes of this Plan, a "Change of Control" means the happening of any of the
following events:

               (1) When any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act, other than the Company, a subsidiary of the Company
or a Company employee 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, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities entitled to vote generally in the election
of directors; or

               (2) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the Company approve an agreement for the sale or disposition by the Company
of all or substantially all the Company's assets; or

               (3) A change in the composition of the Board of Directors of the
Company, 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 the date the Plan is approved by the
shareholders, or (B) are elected, or nominated for election, to the Board of
Directors of the Company with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company).

     11. Notices. Any notice to be given to the Company hereunder shall be in
writing and shall be addressed to the Company at its then current principal
executive office or to such other address as the Company may hereafter designate
to the Optionee by notice as provided in this Section. Any notice to be given to
the Optionee hereunder shall be addressed to the Optionee at the address set
forth beneath his signature hereto, or at such other address as the Optionee

<PAGE>   6

may hereafter designate to the Company by notice as provided herein. A notice
shall be deemed to have been duly given when personally delivered or mailed by
registered or certified mail to the party entitled to receive it.

     12. Withholding Taxes. Optionee agrees to make appropriate arrangements
with the Company (or the Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all federal, state, and local income and employment tax
withholding requirements applicable to the Option exercise. Optionee
acknowledges and agrees that the Company may refuse to honor the exercise and
refuse to deliver Shares if such withholding amounts are not delivered at the
time of exercise.

     13. Entire Agreement; Governing Law. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes in its entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee. This agreement is governed by the internal substantive
laws, but not the choice of law rules, of Texas.

     14. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUES ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.

<PAGE>   7

     By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of this Agreement. Optionee has reviewed this Agreement in
its entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Agreement and fully understands all provisions of this Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board upon any questions relating to this Agreement.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.

OPTIONEE                                     CYBERONICS, INC.

/s/ Richard P. Kuntz                         /s/ Robert P. Cummins
------------------------------------         -----------------------------------
Richard P. Kuntz                             Robert P. Cummins
                                             President & Chief Executive Officer

<PAGE>   8

                                                                       EXHIBIT A

                                CYBERONICS, INC.

                                 EXERCISE NOTICE

Cyberonics, Inc.
16511 Space Center Boulevard #600
Houston, Texas 77062

  Attention:

     1. Exercise of Option. Effective as of today, __________________ , 20___ ,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Cyberonics, Inc. (the "Company") under and
pursuant to the Stock Option Agreement dated [___________ ] (the "Option
Agreement"). The purchase price for the Shares shall be [$__________________ ],
as required by the Option Agreement.

     2. Delivery of Payment. Purchaser herewith delivers to the Company the full
purchase price for the Shares.

     3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Option Agreement and agrees to abide by and be
bound by their terms and conditions.

     4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 10 of the
Option Agreement.

     5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.

     6. Successors and Assigns. The Company may assign any of its rights under
this Exercise Notice to single or multiple assignees, and this Exercise Notice
shall inure to the benefit of the successors and assigns of the Company. Subject
to the restrictions on transfer herein set forth, this Exercise Notice shall be
binding upon Optionee and his or her heirs, executors, administrators,
successors and assigns.

     7. Interpretation. Any dispute regarding the interpretation of this
Exercise Notice shall be submitted by Optionee or by the Company forthwith to
the Board which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Board shall be final and binding on all
parties.

     8. Entire Agreement: Governing Law. The Option Agreement is incorporated
herein by reference. This Agreement, and the Option Agreement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser. This agreement is governed by the internal substantive
laws, but not the choice of law rules, of Texas.

Submitted by:                                Accepted by:

<PAGE>   9

OPTIONEE                                     CYBERONICS, INC.

---------------------------------            -----------------------------------
Signature

---------------------------------            -----------------------------------
Print Name

---------------------------------            -----------------------------------
Address                                      Address

---------------------------------            -----------------------------------

---------------------------------            -----------------------------------

                                             Date Received:
                                                           ---------------------

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