Document:

Exhibit 10.16

Exhibit 10.16

Certificate

The charge standard of heat supply for Inner Mongolia Zhunger Heat Power Co., Ltd during a heating period from 2003 to 2004 is as follows:

1.

RMB¥10/ m2.heating period  for resident

2.

RMB¥13/ m2.heating period  for commerce

3.

RMB¥12/ m2.heating period  for office

The above charge standard is temporary price.

Zhunger Price Bureau

2003Exhibit 10.17

Exhibit 10.17

Transfer Agreement about Shibutai Laiyegou Coalmine

Bargainer:   Inner Mongolia Dongsheng Dongwang Cashmere and Weave Co., Ltd

Alienee:  Inner Mongolia Zhunger Tehong Coal Co.,Ltd

Bargainer signs an agreement with alienee about transferring Shibutai Laiyegou Coalmine as follows:

1.

Bargainer agrees to transfer Shibutai Laiyegou Coalmine (including station, square) to alienee, the transfer charge is RMB 400,000.

2.

Alienee should pay charge RMB 100,000 to bargainer as signing the agreement. Bargainer should provide the receipt, transfer coalmine and all documents including blueprint to alienee. The remaining charge should be paid by the end of year 2000.

3.

If there is a larger difference in coal reserves and width of coal layer compared with drawing and document supplied by alienee, bargainer should bear certain economic responsibility.

4.

Bargainer should bear the responsibility including sporadic engineering charge and other credit debt before handover of coalmine, which has nothing with alienee.

5.

After handover of coalmine and other assets, the ownership has been transferred to alienee, alienee can make a decision in coalmine building and operation.

6.

It will be effective at the date of signing.

7.

There has quadruplicating, each party holds two.

Bargainer (stamp): Inner Mongolia Dongsheng Dongwang Cashmere&Weave Co., Ltd

Representative: Wang Wanbao

Alienee (stamp): Inner Mongolia Zhunger Tehong Coal Co., Ltd

Artificial Person (signature): Ding Wenxiang

Jun 18, 1999EX-10.1

AMENDMENT NUMBER TWO

to the

AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT

dated as of March 16, 2005

among

ECC CAPITAL CORPORATION,

BRAVO CREDIT CORPORATION,

ENCORE CREDIT CORP.

and

WACHOVIA BANK, NATIONAL ASSOCIATION

This AMENDMENT NUMBER TWO (“Amendment Number Two”), is made this 21st day of
September, 2005, among ECC Capital Corporation (“ECC”), Bravo Credit Corporation
(“Bravo”), Encore Credit Corp. (“Encore”; each of Encore, ECC and Bravo, a
“Seller”, and jointly and severally, the “Sellers”) and Wachovia Bank, National
Association (the “Buyer”), to the Amended and Restated Master Repurchase Agreement, dated
as of March 16, 2005, among the Buyer and the Sellers (the “Master Repurchase Agreement”).

RECITALS

WHEREAS, the Buyer and the Sellers have agreed to amend the Master Repurchase Agreement as
more specifically set forth herein.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and of the mutual covenants herein contained, the parties hereto hereby agree
as follows:

SECTION 1. Defined Terms. Any terms capitalized but not otherwise defined herein
shall have the respective meanings set forth in the Master Repurchase Agreement.

SECTION 2. Amendment.

(a) Effective as of September 21, 2005, Section 14(g)(ii)(A) of the Master Repurchase
Agreement is hereby amended by deleting such section in its entirety and replacing such section as
follows:

“Sellers shall not permit the ratio of their aggregate consolidated Indebtedness to Sellers’
aggregate Adjusted Tangible Net Worth to exceed 25:1 at any time;”

SECTION 3. Conditions Precedent. This Amendment Number Two shall become effective on
the date on which the Buyer shall have received the following:

(a) this Amendment Number Two, executed and delivered by duly authorized officers of each of
the Sellers and the Buyer; and

(b) such other documents as the Buyer or counsel to the Buyer may reasonably request.

SECTION 4. Representations. In order to induce the Buyer to execute and deliver this
Amendment Number Two, the Sellers hereby represent to the Buyer that (i) no Default or Event of
Default has occurred prior to the date hereof and is continuing on the date hereof and (ii) as of
the date hereof, after giving effect to this Amendment Number Two, the Sellers are in full
compliance with all of the representations and warranties, covenants and any other terms and
conditions of the Master Repurchase Agreement and the other Program Documents. In addition, each
Seller hereby represents and warrants that no event has occurred that constitutes or should
reasonably be expected to constitute a Material Adverse Change with respect to it.

SECTION 5. Governing Law. THIS AMENDMENT NUMBER TWO SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS, AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS WITHOUT REGARD
TO CONFLICT OF LAWS DOCTRINE APPLIED IN SUCH STATE.

SECTION 6. Counterparts. This Amendment Number Two may be executed by each of the
parties hereto on any number of separate counterparts, each of which shall be an original and all
of which taken together shall constitute one and the same instrument.

SECTION 7. Limited Effect. Except as expressly amended and modified by this Amendment
Number Two, the Master Repurchase Agreement shall continue in full force and effect in accordance
with its terms. Reference to this Amendment Number Two need not be made in the Master Repurchase
Agreement or any other instrument or document executed in connection therewith or herewith, or in
any certificate, letter or communication issued or made pursuant to, or with respect to, the Master
Repurchase Agreement, any reference in any of such items to the Master Repurchase Agreement being
sufficient to refer to the Master Repurchase Agreement as amended hereby.

[SIGNATURE PAGE FOLLOWS]

1

IN WITNESS WHEREOF, the parties hereto have caused this Amendment Number Two to be
executed and delivered by their duly authorized officers as of the day and year first above
written.

ECC CAPITAL CORPORATION, as a Seller

By: William E. Moffatt

Name: William E. Moffatt

Title: Treasurer

ENCORE CREDIT CORP., as a Seller

By: William E. Moffatt

Name: William E. Moffatt

Title: Treasurer

BRAVO CREDIT CORPORATION, as a Seller

By: William E. Moffatt

Name: William E. Moffatt

Title: Treasurer

WACHOVIA BANK, NATIONAL ASSOCIATION,

as Buyer

By: Justin Zakocs

Name: Justin Zakocs

Title: Vice President

2EX-10.1

CYBERONICS, INC.

(A Delaware corporation)

$125,000,000

3% Senior Subordinated Convertible Notes due 2012

PURCHASE AGREEMENT

Dated: September 21, 2005

1

Table of Contents

Table of Contents

Page

	 	 	 	SECTION 1 Representations and Warranties.	 

	 	(a)	 	Representations and Warranties by the Company	 

	 	(b)	 	Officer’s Certificates	 

	 	 	 	SECTION 2 Sale and Delivery to Initial Purchaser; Closing.	 

	 	(a)	 	Initial Securities	 

	 	(b)	 	Option Securities	 

	 	(c)	 	Payment	 

	 	(d)	 	Denominations; Registration	 

	 	 	 	SECTION 3 Covenants of the Company	 

	 	(a)	 	Offering Memorandum	 

	 	(b)	 	Notice and Effect of Material Events	 

	 	(c)	 	Amendments to Offering Memorandum and Supplements	 

	 	(d)	 	Qualifications of Securities for Offer and Sale	 

	 	(e)	 	DTC	 

	 	(f)	 	Use of Proceeds	 

	 	(g)	 	Listing on Securities Exchange	 

	 	(h)	 	Restriction on Sale of Convertible Securities and Common Stock	 

	 	(i)	 	Restriction on Sale of Securities	 

	 	(j)	 	Stabilization and Manipulation	 

	 	(k)	 	PORTAL Designation	 

	 	(l)	 	Reporting Requirements	 

	 	(m)	 	Reservation of Shares of Common Stock	 

	 	(n)	 	Registration Rights Agreement	 

	 	(o)	 	Qualification Under the Trust Indenture Act	 

	 	(p)	 	No Advisory or Fiduciary Relationship	 

	 	 	 	SECTION 4 Payment of Expenses.	 

	 	(a)	 	Expenses	 

	 	(b)	 	Termination of Agreement	 

	 	 	 	SECTION 5 Conditions of Initial Purchaser’s Obligations	 

	 	(a)	 	Opinion of Counsel for Company	 

	 	(b)	 	Opinion of Internal Counsel for Company	 

	 	(c)	 	Opinion of Internal IP Counsel for Company	 

	 	(d)	 	Opinion of Counsel for Initial Purchaser	 

	 	(e)	 	Officers’ Certificate	 

	 	(f)	 	Accountant’s Comfort Letter	 

	 	(g)	 	Bring-down Comfort Letter	 

	 	(h)	 	Lock-up Agreements	 

	 	(i)	 	Indenture and Registration Rights Agreement	 

	 	(j)	 	Rating	 

	 	(k)	 	Conditions to Purchase of Option Securities	 

	 	(l)	 	PORTAL Market	 

	 	(m)	 	Additional Documents	 

	 	(n)	 	Termination of Agreement	 

	 	 	 	SECTION 6 Subsequent Offers and Resales of the Securities.	 

	 	(a)	 	Offer and Sale Procedures	 

	 	(b)	 	Covenants of the Company	 

	 	(c)	 	Qualified Institutional Buyer	 

	 	 	 	SECTION 7 Indemnification.	 

	 	(a)	 	Indemnification of the Initial Purchaser	 

	 	(b)	 	Indemnification of Company	 

	 	(c)	 	Actions Against Parties; Notification	 

	 	(d)	 	Settlement without Consent if Failure to Reimburse	 

	 	 	 
	SECTION 8

SECTION 9

SECTION 10

	 	Contribution

Representations, Warranties and Agreements to Survive Delivery

Termination of Agreement

	 	(a)	 	Termination; General	 

	 	(b)	 	Liabilities	 

	 	 	 
	SECTION 11

SECTION 12

SECTION 13

SECTION 14

SECTION 15

SECTION 16

SECTION 17

SECTION 18

SECTION 19

	 	Default by the Company

Notices

Parties

Governing Law

Counterparts

Effect of Headings

Time

Counterparts

Waiver of Jury Trial
	 
	 	 

2

SCHEDULES

Schedule A — Cyberonics, Inc. – 3% Senior Subordinated Convertible Notes Due 2012

	 	 	 	 	 
	Schedule B

Schedule C

	 	-

-
	 	List of Persons subject to Lock-up

Schedule of Insurance
	 
	 	 	 	 
	EXHIBITS

Exhibit A

Exhibit B-1

Exhibit B-2

Exhibit C

Exhibit D

	 	

-

-

-

-

-
	 	

Form of Opinion of Company’s Counsel

Form of Opinion of Company’s Internal Counsel

Form of Opinion of Company’s Internal IP Counsel

Form of Lock-up Letter

Form of Registration Rights Agreement

3

CYBERONICS, INC.

(A Delaware corporation)

$125,000,000

3% Senior Subordinated Convertible Notes due 2012

PURCHASE AGREEMENT

September 21, 2005

MERRILL LYNCH & CO.

	 	 	 	Merrill Lynch, Pierce, Fenner & Smith

Incorporated

North Tower

World Financial Center

New York, New York 10281-1209

Ladies and Gentlemen:

Cyberonics, Inc., a Delaware corporation (the “Company”), confirms its agreement with Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch” or the “Initial
Purchaser”), with respect to (i) the issue and sale by the Company and the purchase by the Initial
Purchaser of $125,000,000 aggregate principal amount of the Company’s 3% Senior Subordinated
Convertible Notes due 2012 (the “Notes”), and (ii) the grant by the Company to the Initial
Purchaser of the option described in Section 2(b) hereof to purchase all or any part of an
additional $18,750,000 aggregate principal amount of Notes. The aforesaid $125,000,000 aggregate
principal amount of Notes (the “Initial Securities”) to be purchased by the Initial Purchaser and
all or any part of the $18,750,000 aggregate principal amount of Notes subject to the option
described in Section 2(b) hereof (the “Option Securities”) are hereinafter called, collectively,
the “Securities”. The Securities are to be issued pursuant to an indenture, to be dated as of the
Closing Time (as defined in Section 2(c) hereof) (the “Indenture”), between the Company and Wells
Fargo Bank, National Association, as trustee (the “Trustee”).

The Securities are convertible, subject to certain conditions, at the option of the holder
prior to maturity into shares of common stock, par value $0.01 per share, of the Company (the
“Common Stock”) in accordance with the terms of the Securities and the Indenture, as described in
Schedule A attached hereto. Securities issued in book-entry form will be issued to Cede &
Co. as nominee of The Depository Trust Company (“DTC”) pursuant to a letter agreement, to be dated
as of the Closing Time (as defined in Section 2(c) hereof), among the Company, the Trustee and DTC
(the “DTC Agreement”).

The Company understands that the Initial Purchaser proposes to make an offering of the
Securities on the terms and in the manner set forth herein and agrees that the Initial Purchaser
may initially resell, subject to the conditions set forth herein, all or a portion of the
Securities to purchasers (“Subsequent Purchasers”) at any time after this Agreement has been
executed and delivered. The Securities are to be offered and sold through the Initial Purchaser
and offered and resold by the Initial Purchaser without being registered under the Securities Act
of 1933, as amended (the “1933 Act”), in reliance upon exemptions therefrom. Pursuant to the terms
of the Securities and the Indenture, investors that acquire Securities may only resell or otherwise
transfer such Securities if such Securities are hereafter registered under the 1933 Act or if an
exemption from the registration requirements of the 1933 Act is available (including the exemption
afforded by Rule 144A (“Rule 144A”) of the rules and regulations promulgated under the 1933 Act by
the Securities and Exchange Commission (the “Commission”).

It is also understood and acknowledged that holders (including subsequent transferees) of the
Securities and the shares of Common Stock issuable upon the conversion thereof will have the
registration rights set forth in the registration rights agreement (the “Registration Rights
Agreement”), to be dated as of Closing Time (as defined in Section 2(c) hereof), substantially in
the form attached hereto as Exhibit D. Pursuant to the Registration Rights Agreement, the
Company will agree (i) to file with the Commission, a registration statement on the appropriate
form under the 1933 Act relating to the resale of the Securities and the shares of Common Stock
issuable upon the conversion thereof by certain holders thereof from time to time in accordance
with the methods of distribution set forth in such registration statement and Rule 415 under the
Act (the “Shelf Registration Statement”) and (ii) to use its best efforts to cause any such Shelf
Registration Statement to be declared effective.

The Company has prepared and delivered to the Initial Purchaser copies of a preliminary
offering memorandum dated September 19, 2005 (the “Preliminary Offering Memorandum”) and has
prepared and will deliver to the Initial Purchaser, on the date hereof or the next succeeding day,
copies of a final offering memorandum dated September 21, 2005 (the “Final Offering Memorandum”) to
be used by the Initial Purchaser in connection with its solicitation of purchases of, or offering
of, the Securities. “Offering Memorandum” means, with respect to any date or time referred to in
this Agreement, the most recent offering memorandum (whether the Preliminary Offering Memorandum or
the Final Offering Memorandum, or any amendment or supplement to either such document), including
exhibits thereto and any documents incorporated therein by reference, which has been prepared and
delivered by the Company to the Initial Purchaser in connection with its solicitation of purchases
of, or offering of, the Securities.

All references in this Agreement to financial statements and schedules and other information
which is “given,” “discussed,” “contained,” “included,” “stated” or “described” in the Offering
Memorandum (or other references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which are incorporated by reference in the
Offering Memorandum; and all references in this Agreement to amendments or supplements to the
Offering Memorandum shall be deemed to mean and include the filing of any document under the
Securities Exchange Act of 1934, as amended (the “1934 Act”), which is incorporated by reference in
the Offering Memorandum.

	 	 	 	SECTION 1 Representations and Warranties.

(a) Representations and Warranties by the Company. The Company represents and warrants to the
Initial Purchaser as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof,
and as of each Date of Delivery (if any) referred to in Section 2(b) hereof, and agrees with the
Initial Purchaser, as follows:

(i) Offering Memorandum. The Preliminary Offering Memorandum and the Final
Offering Memorandum as of their respective dates do not, and at the Closing Time (and, if
any Option Securities are purchased, at the Date of Delivery) will not, include an untrue
statement of a material fact or omit to state a material fact (except, in the case of the
Preliminary Offering Memorandum, for pricing and other financial terms intentionally left
blank) necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that this representation, warranty and
agreement shall not apply to statements in or omissions from the Offering Memorandum made in
reliance upon and in conformity with information furnished in writing to the Company by the
Initial Purchaser for use in the Offering Memorandum.

(ii) Incorporated Documents. The Offering Memorandum as delivered from time to
time shall incorporate by reference the most recent Annual Report of the Company on Form
10-K filed with the Commission including those portions of the Company’s most recent
definitive proxy statement on Schedule 14A incorporated therein, each Quarterly Report on
Form 10-Q and each Current Report of the Company on Form 8-K, filed with the Commission
since the end of the fiscal year to which such Annual Report relates (excluding that Form
8-K filed on August 19, 2005). The documents incorporated or deemed to be incorporated by
reference in the Offering Memorandum at the time they were or hereafter are filed with the
Commission complied and will comply in all material respects with the requirements of the
1934 Act and the rules and regulations of the Commission thereunder (the “1934 Act
Regulations”), and did not and do not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the statements
therein not misleading, and when read together with the other information in the Offering
Memorandum, at the time the Offering Memorandum was issued and at the Closing Time (and, if
any Option Securities are purchased, at Date of Delivery), did not and will not include an
untrue statement of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.

(iii) Independent Accountants. The accountants who certified the financial
statements and supporting schedules incorporated by reference in the Offering Memorandum are
independent public accountants with respect to the Company within the meaning of Regulation
S-X under the 1933 Act.

(iv) Financial Statements. The financial statements included in the Offering
Memorandum, together with the related schedules and notes, present fairly the financial
position of the Company and its consolidated subsidiaries at the dates indicated and the
statement of operations, stockholders’ equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial statements have been
prepared in conformity with United States generally accepted accounting principles (“GAAP”)
applied on a consistent basis throughout the periods involved. The supporting schedules
included in the Offering Memorandum present fairly in accordance with GAAP the information
required to be stated therein. The selected financial data and the summary financial
information included in the Offering Memorandum present fairly the information shown therein
and have been compiled on a basis consistent with that of the audited financial statements
included in the Offering Memorandum.

(v) No Material Adverse Change in Business. Since the respective dates as of
which information is given in the Offering Memorandum, except as otherwise stated therein,
(A) there has been no material adverse change in the condition, financial or otherwise, or
in the earnings, business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of business (a
“Material Adverse Effect”), (B) there have been no transactions entered into by the Company
or any of its subsidiaries, other than those in the ordinary course of business, which are
material with respect to the Company and its subsidiaries considered as one enterprise, and
(C) there has been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.

(vi) Good Standing of the Company. The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State of Delaware
and has corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Offering Memorandum and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect.

(vii) Good Standing of Subsidiaries. Each “significant subsidiary” of the
Company (as such term is defined in Rule 1-02 of Regulation S-X) and Cyberonics Europe, S.A.
(each a “Subsidiary” and, collectively, the “Subsidiaries”) has been duly organized and is
validly existing as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Offering Memorandum and is duly qualified as
a foreign corporation to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as otherwise disclosed in the
Offering Memorandum, all of the issued and outstanding capital stock of each such Subsidiary
has been duly authorized and validly issued, is fully paid and non assessable and is owned
by the Company, directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock of any Subsidiary was issued in violation of the preemptive or similar rights
of any securityholder of such Subsidiary. Other than the Subsidiaries, there are no other
subsidiaries of the Company with any assets, operations or any significant liabilities.

(viii) Capitalization. The authorized, issued and outstanding capital stock of
the Company is as set forth in the Offering Memorandum in the column entitled “Actual” under
the caption “Capitalization” (except for subsequent issuances, if any, pursuant to this
Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the
Offering Memorandum or pursuant to the exercise of convertible securities or options
referred to in the Offering Memorandum). The shares of issued and outstanding capital stock
of the Company have been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any securityholder of the Company.

(ix) Authorization of Agreement. This Agreement has been duly authorized,
executed and delivered by the Company.

(x) Authorization of the Indenture. The Indenture has been duly authorized by
the Company and, when executed and delivered by the Company and the Trustee (assuming due
authorization thereof by the Trustee), shall constitute a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization, moratorium or similar laws
affecting enforcement of creditors’ rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law). The Company has full corporate power and authority to
enter into the Indenture.

(xi) Authorization of the Registration Rights Agreement. The Registration
Rights Agreement has been authorized by the Company and, when executed and delivered by the
Company and the Initial Purchaser (assuming due authorization thereof by the Initial
Purchaser), shall constitute a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of
creditors’ rights generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforceability is considered in a proceeding in
equity or at law).

(xii) Authorization of the Securities. The Securities have been duly
authorized and, at the Closing Time (or, if any Option Securities are being purchased, at
the Date of Delivery), shall have been duly executed by the Company and, when authenticated,
issued and delivered in the manner provided for in the Indenture and delivered against
payment of the purchase price therefor as provided in this Agreement, shall constitute valid
and binding obligations of the Company, enforceable against the Company in accordance with
their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors’ rights generally and except
as enforcement thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and will be substantially in
the form contemplated by, and entitled to the benefits of, the Indenture. The Company has
full corporate power and authority to issue, sell and deliver the Securities to be sold by
it to the Initial Purchaser as provided herein and therein.

(xiii) Description of the Securities, the Indenture and the Registration Rights
Agreement. As of the Closing Time, the terms and conditions of the Securities, the
Indenture, the Registration Rights Agreement and the rights, preferences and privileges of
the capital stock of the Company, including the shares of Common Stock issuable on
conversion of the Securities, shall conform in all material respects to the respective
statements thereto contained in the Offering Memorandum.

(xiv) Authorization and Description of Common Stock. The Common Stock conforms
in all material respects to the description thereof set forth in the Offering Memorandum, or
any document incorporated by reference therein. Upon issuance and delivery of the
Securities in accordance with this Agreement and the Indenture, the Securities shall be
convertible at the option of the holder thereof into shares of Common Stock in accordance
with the terms of the Securities and the Indenture; the shares of Common Stock issuable upon
conversion of the Securities have been duly authorized and reserved for issuance upon such
conversion by all necessary corporate action and such shares, when issued upon such
conversion in accordance with the terms of the Securities, shall be validly issued and shall
be fully paid and non-assessable; the issuance of such shares upon such conversion shall not
be subject to the preemptive or other similar rights of any securityholder of the Company;
and, to the Company’s knowledge, no holder of such shares shall be subject to personal
liability by reason of being such a holder. All corporate action required to be taken by
the Company for the issuance and delivery of the shares of Common Stock issuable upon
conversion of the Securities has been duly and validly taken by the Company. The Company
has authorized and has reserved and covenants to continue to reserve free of any preemptive
rights or similar rights, a sufficient number of authorized but reserved shares of Common
Stock to satisfy the conversion rights of the Securities. Except as set forth in the
Offering Memorandum or the documents incorporated by reference in the Offering Memorandum,
there are no outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or rights related to or entitling any person to purchase or
otherwise to acquire any shares of, or any security convertible into or exchangeable or
exercisable for, the capital stock of, or other ownership interest in, the Company.

(xv) Absence of Defaults and Conflicts. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a party or by which it or
any of them may be bound, or to which any of the property or assets of the Company or any
subsidiary is subject (collectively, “Agreements and Instruments”) except for such defaults
that would not result in a Material Adverse Effect; and the execution, delivery and
performance of this Agreement, the Indenture, the Registration Rights Agreement, and the
Securities and any other agreement or instrument entered into or issued or to be entered
into or issued by the Company in connection with the transactions contemplated hereby or
thereby or in the Offering Memorandum and the consummation of the transactions contemplated
hereby or thereby and in the Offering Memorandum (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as described in the
Offering Memorandum under the caption “Use of Proceeds”) and compliance by the Company with
its obligations hereunder have been duly authorized by all necessary corporate action and do
not and will not, whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as defined below)
under, or result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any subsidiary pursuant to, the Agreements and
Instruments (except for such conflicts, breaches, defaults or Repayment Events or liens,
charges or encumbrances that would not result in a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or by laws of the Company or
any subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any subsidiary or any of their assets, properties or
operations. As used herein, a “Repayment Event” means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness (or any person acting on
such holder’s behalf) the right to require the repurchase, redemption or repayment of all or
a portion of such indebtedness by the Company or any subsidiary.

(xvi) Absence of Labor Dispute. No labor dispute with the employees of the
Company or any subsidiary exists or, to the knowledge of the Company, is imminent, and the
Company is not aware of any existing or imminent labor disturbance by the employees of any
of its or any subsidiary’s principal suppliers, vendors, manufacturers, customers or
contractors, which, in either case, would result in a Material Adverse Effect.

(xvii) Absence of Proceedings. Except for those disclosed in the Company’s
filings with the Commission, there is no action, suit, proceeding, inquiry or investigation
before or brought by any court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Company, threatened, against or affecting the Company
or any subsidiary, which might result in a Material Adverse Effect, or which might
materially and adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in this Agreement or the performance by the Company of its
obligations hereunder; the aggregate of all pending legal or governmental proceedings to
which the Company or any subsidiary is a party or of which any of their respective property
or assets is the subject which are not described in the Offering Memorandum, including
ordinary routine litigation incidental to the business, could not result in a Material
Adverse Effect.

(xviii) Accuracy of Exhibits. There are no contracts or documents which are
required to be filed as exhibits to documents incorporated by reference in the Offering
Memorandum which have not been so filed as required.

(xix) Absence of Manipulation. Neither the Company nor any of its affiliates,
as such term is defined in Rule 501(b) under the 1933 Act (each, an “Affiliate”) over which
the Company has control has taken, nor shall the Company or any such Affiliate take,
directly or indirectly, any action which is designed to or which has constituted or which
would be expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities.

(xx) Possession of Intellectual Property. The Company and its subsidiaries own
or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures), trademarks,
service marks, trade names or other intellectual property (collectively, “Intellectual
Property”) necessary to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of its subsidiaries
therein, and which infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in
a Material Adverse Effect.

(xxi) Absence of Further Requirements. No filing with, or authorization,
approval, consent, license, order, registration, qualification or decree of, any court or
governmental authority or agency is necessary or required for the performance by the Company
of its obligations hereunder, in connection with the offering, issuance or sale of the
Securities hereunder or the consummation of the transactions contemplated by this Agreement
or for the due execution, delivery or performance of the Indenture by the Company except
such as have been already obtained or as may be required under state securities laws.

(xxii) Possession of Licenses and Permits. The Company and its subsidiaries
possess such permits, licenses, approvals, consents and other authorizations (collectively,
“Governmental Licenses”) issued by the appropriate federal, state, local or foreign
regulatory agencies or bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not, singly or in the
aggregate, result in a Material Adverse Effect; all of the Governmental Licenses are valid
and in full force and effect, except where the invalidity of such Governmental Licenses or
the failure of such Governmental Licenses to be in full force and effect would not, singly
or in the aggregate, result in a Material Adverse Effect; and neither the Company nor any of
its subsidiaries has received any notice of proceedings relating to the revocation or
modification of any such Governmental Licenses which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a Material Adverse
Effect.

(xxiii) Title to Property. The Company and its subsidiaries have good and
marketable title to all real property owned by the Company and its subsidiaries and good
title to all other properties owned by them, in each case, free and clear of all mortgages,
pledges, liens, security interests, claims, restrictions or encumbrances of any kind except
such as (a) are described in the Offering Memorandum or (b) do not, singly or in the
aggregate, materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of its subsidiaries; and
all of the leases and subleases material to the business of the Company and its
subsidiaries, considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Offering Memorandum, are in full force and
effect, and neither the Company nor any subsidiary has any notice of any material claim of
any sort that has been asserted by anyone adverse to the rights of the Company or any
subsidiary under any of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or such subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease.

(xxiv) Investment Company Act. The Company is not required, and upon the
issuance and sale of the Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Offering Memorandum will not be required to register
as an “investment company” under the Investment Company Act of 1940, as amended (the “1940
Act”).

(xxv) Environmental Laws. Except as described in the Offering Memorandum and
except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A)
neither the Company nor any of its subsidiaries is in violation of any federal, state, local
or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or
any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including, without limitation,
laws and regulations relating to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum
products, asbestos-containing materials or mold (collectively, “Hazardous Materials”) or to
the manufacture, processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials (collectively, “Environmental Laws”), (B) the Company and
its subsidiaries have all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance with their requirements, (C) there
are no pending or threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation, investigation or
proceedings relating to any Environmental Law against the Company or any of its subsidiaries
and (D) there are no events or circumstances that would reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the Company or any of its
subsidiaries relating to Hazardous Materials or any Environmental Laws.

(xxvi) Registration Rights. There are no persons with registration rights or
other similar rights to have any securities registered by the Company under the 1933 Act.

(xxvii) Similar Offerings. Neither the Company nor any of its Affiliates, has,
directly or indirectly, solicited any offer to buy, sold or offered to sell or otherwise
negotiated in respect of, or will solicit any offer to buy, sell or offer to sell or
otherwise negotiate in respect of, in the United States or to any United States citizen or
resident, any security which is or would be integrated with the sale of the Securities in a
manner that would require the Securities to be registered under the 1933 Act.

(xxviii) Rule 144A Eligibility. The Securities are eligible for resale
pursuant to Rule 144A and (except for the shares of Common Stock into which they are
convertible) will not be, at the Closing Time, of the same class as securities listed on a
national securities exchange registered under Section 6 of the 1934 Act, or quoted in a U.S.
automated interdealer quotation system.

(xxix) No General Solicitation. None of the Company, its Affiliates or any
person acting on its or any of their behalf (other than the Initial Purchaser or any of its
Affiliates, as to whom the Company makes no representation) has engaged or will engage, in
connection with the offering of the Securities, in any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the 1933 Act Regulations.

(xxx) No Registration Required. Subject to compliance by the Initial Purchaser
with the representations and warranties set forth in Section 2 hereof and the procedures set
forth in Section 6 hereof and its other covenants and agreements set forth herein, it is not
necessary in connection with the offer, sale and delivery of the Securities to the Initial
Purchaser and to each Subsequent Purchaser in the manner contemplated by this Agreement and
the Offering Memorandum to register the Securities under the 1933 Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended (the “1939 Act”).

(xxxi) ERISA. The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations thereunder (“ERISA”); no
“reportable event” (as defined in ERISA) has occurred with respect to any “pension plan” (as
defined in ERISA) for which the Company would have any material liability; the Company has
not incurred and does not expect to incur material liability under (A) Title IV of ERISA
with respect to the termination of, or withdrawal from, any “pension plan” or (B) Section
412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the “Code”); and each “pension plan” for which the
Company would have any material liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of such qualification.

(xxxii) No Unlawful Payments. To the Company’s knowledge, neither the Company
nor any director, officer, or employee of the Company, has (a) used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expense relating to
political activity or (b) made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.

(xxxiii) No Brokerage Commission; Finder’s Fee. To the Company’s knowledge,
except as disclosed in the Offering Memorandum, there are no contracts, agreements or
understandings between the Company and any person that would give rise to a valid claim
against the Company or the Initial Purchaser for a brokerage commission, finder’s fee or
other like payment in connection with this offering.

(xxxiv) Reporting Company. The Company is subject to the reporting
requirements of Section 13 of the 1934 Act.

(xxxv) Suppliers. No supplier to the Company has ceased shipments to the
Company or indicated an interest in decreasing or ceasing its sales to the Company or
otherwise modifying its relationship with the Company, other than in the normal and ordinary
course of business consistent with past practices in a manner which would not, singly or in
the aggregate, result in a Material Adverse Effect.

(xxxvi) Related Party Transactions. No relationship, direct or indirect,
exists between or among any of the Company or any affiliate of the Company, on the one hand,
and any director, officer, stockholder, customer or supplier of the Company or any affiliate
of the Company, on the other hand, which is required by the 1933 Act, the 1934 Act or the
rules and regulations promulgated thereunder to be described in the Offering Memorandum or
the documents incorporated by reference in the Offering Memorandum which is not so described
as required. There are no outstanding loans, advances (except normal advances for business
expenses in the ordinary course of business) or guarantees of indebtedness by the Company to
or for the benefit of any of the officers or directors of the Company or any of their
respective family members, except as disclosed in the Offering Memorandum or the documents
incorporated by reference in the Offering Memorandum. The Company has not, in violation of
Section 402 of the Sarbanes-Oxley Act of 2002, directly or indirectly, extended or
maintained credit, arranged for the extension of credit, or renewed an extension of credit,
in the form of a personal loan to or for any director or executive officer of the Company.

(xxxvii) Listing of Common Stock. The Company’s Common Stock is registered
pursuant to Section 12(g) of the 1934 Act and is listed on the Nasdaq National Market
(“NASDAQ”) and the Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the 1934 Act or delisting the Common
Stock from NASDAQ, nor has the Company received any notification that the Commission or
NASDAQ is contemplating terminating such registration or listing.

(xxxviii) Accounting Controls and Disclosure Controls. (A) The Company and
each of its subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurances that (1) transactions are executed in accordance with
management’s general or specific authorization; (2) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to maintain
accountability for assets; (3) access to assets is permitted only in accordance with
management’s general or specific authorization; and (4) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. Except as described in the Offering Memorandum,
since the end of the Company’s most recent audited fiscal year, there has been (x) no
material weakness in the Company’s internal control over financial reporting (whether or not
remediated) and (y) no change in the Company’s internal control over financial reporting
that has materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.

(B) The Company and its consolidated subsidiaries employ disclosure controls and
procedures that are designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange Act of 1934
(the “1934 Act”) is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms, and is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and principal
financial officer or officers, as appropriate, to allow timely decisions regarding
disclosure.

(xxxix) Compliance with the Sarbanes-Oxley Act. There is and has been no
failure on the part of the Company or any of the Company’s directors or officers, in their
capacities as such, to comply in all material respects with any provision of the
Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith
(the “Sarbanes-Oxley Act”), including Section 402 related to loans and Sections 302 and 906
related to certifications.

(xl) Payment of Taxes. All United States federal, state and local income and
franchise tax returns of the Company and its subsidiaries required by law to be filed have
been filed and all taxes shown by such returns or otherwise assessed, which are due and
payable, have been paid, except assessments against which appeals have been or will be
promptly taken and as to which adequate reserves have been provided. The United States
federal income tax returns of the Company through the fiscal year ended December 31, 2004
have been settled and no assessment in connection therewith has been made against the
Company. The Company and its subsidiaries have filed all other tax returns that are
required to have been filed by them pursuant to applicable foreign, state, local or other
law except insofar as the failure to file such returns would not result in a Material
Adverse Effect, and has paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Company and its subsidiaries, except for such taxes, if any, as
are being contested in good faith and as to which adequate reserves have been provided. The
charges, accruals and reserves on the books of the Company in respect of any income and
corporation tax liability for any years not finally determined are adequate to meet any
assessments or re-assessments for additional income tax for any years not finally
determined, except to the extent of any inadequacy that would not result in a Material
Adverse Effect.

(xli) Insurance. The Company and its subsidiaries carry or are entitled to the
benefits of insurance as described in Schedule C attached hereto, and all such
insurance is in full force and effect. The Company has no reason to believe that it or any
subsidiary will not be able (A) to renew its existing insurance coverage as and when such
policies expire or (B) to obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither of the Company nor any subsidiary has been
denied any insurance coverage which it has sought or for which it has applied.

(xlii) Statistical and Market-Related Data. Any statistical and market-related
data included in the Offering Memorandum are based on or derived from sources that the
Company believes to be reliable and accurate, and the Company has obtained the written
consent to the use of such data from such sources.

(xliii) Foreign Corrupt Practices Act. Neither the Company nor, to the
knowledge of the Company, any director, officer, agent, employee, affiliate or other person
acting on behalf of the Company or any of its subsidiaries is aware of or has taken any
action, directly or indirectly, that would result in a violation by such persons of the
Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder
(the “FCPA”), including, without limitation, making use of the mails or any means or
instrumentality of interstate commerce corruptly in furtherance of an offer, payment,
promise to pay or authorization of the payment of any money, or other property, gift,
promise to give, or authorization of the giving of anything of value to any “foreign
official” (as such term is defined in the FCPA) or any foreign political party or official
thereof or any candidate for foreign political office, in contravention of the FCPA and the
Company and, to the knowledge of the Company, its affiliates have conducted their businesses
in compliance with the FCPA and have instituted and maintain policies and procedures
designed to ensure, and which are reasonably expected to continue to ensure, continued
compliance therewith.

(xliv) Money Laundering Laws. The operations of the Company are and have been
conducted at all times in compliance with applicable financial recordkeeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the
money laundering statutes of all jurisdictions, the rules and regulations thereunder and any
related or similar rules, regulations or guidelines, issued, administered or enforced by any
governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or
proceeding by or before any court or governmental agency, authority or body or any
arbitrator involving the Company with respect to the Money Laundering Laws is pending or, to
the best knowledge of the Company, threatened.

(xlv) OFAC. Neither the Company nor, to the knowledge of the Company, any
director, officer, agent, employee, affiliate or person acting on behalf of the Company is
currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control
of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly
use the proceeds of the offering, or lend, contribute or otherwise make available such
proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose
of financing the activities of any person currently subject to any U.S. sanctions
administered by OFAC.

(b) Officer’s Certificates. Any certificate signed by any officer of the Company or any of
its subsidiaries delivered to the Initial Purchaser or to counsel for the Initial Purchaser shall
be deemed a representation and warranty by the Company to the Initial Purchaser as to the matters
covered thereby.

	 	 	 	SECTION 2 Sale and Delivery to Initial Purchaser; Closing.

(a) Initial Securities. On the basis of the representations, warranties and agreements
contained herein and subject to the terms and conditions set forth herein, the Company agrees to
sell to the Initial Purchaser and the Initial Purchaser agrees to purchase from the Company, at the
price set forth in Schedule A attached hereto, $125,000,000 aggregate principal amount of
Notes.

(b) Option Securities. In addition, on the basis of the representations, warranties and
agreements contained herein and subject to the terms and conditions set forth herein, the Company
hereby grants an option to the Initial Purchaser to purchase up to an additional $18,750,000
aggregate principal amount of Option Securities at the same price per Security set forth in
Schedule A attached hereto for the Initial Securities. The option hereby granted will
expire 13 days after the date hereof and may be exercised in whole or in part from time to time
upon notice by the Initial Purchaser to the Company setting forth the number of Option Securities
as to which it is then exercising the option and the time and date of payment and delivery for such
Option Securities. Any such time and date of delivery (a “Date of Delivery”) shall be determined
by the Initial Purchaser, but shall not be later than seven full business days after the exercise
of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option
is exercised as to all or any portion of the Option Securities, the Initial Purchaser will purchase
that amount of the aggregate principal amount of Option Securities that it elected to purchase upon
exercise of the option.

(c) Payment. Payment of the purchase price for, and delivery of one or more global
certificates for, the Initial Securities shall be made at the offices of Shearman & Sterling LLP,
1080 Marsh Road, Menlo Park, CA 94025, or at such other place as shall be agreed upon by the
Initial Purchaser and the Company, at 10:00 A.M. (New York time) / 7:00 A.M. (California time) on
the third (fourth, if the pricing occurs after 4:30 P.M. (New York time) on any given day) business
day after the date hereof, or such other time not later than ten business days after such date as
shall be agreed upon by the Initial Purchaser and the Company (such time and date of payment and
delivery being herein called the “Closing Time”).

In addition, in the event that any or all of the Option Securities are purchased by the
Initial Purchaser, payment of the purchase price for, and delivery of one or more global
certificates for, such Option Securities shall be made at the above-mentioned offices, or at such
other place as shall be agreed upon by the Initial Purchaser and the Company, on each Date of
Delivery as specified in the notice from the Initial Purchaser to the Company.

Payment shall be made to the Company by wire transfer of immediately available funds to a bank
account designated by the Company, against delivery to the Initial Purchaser of certificates for
the Initial Securities or the Option Securities, if any to be purchased by it.

(d) Denominations; Registration. Certificates for the Initial Securities and the Option
Securities, if any, shall be in such denominations ($1,000 or integral multiples thereof) and
registered in such names as the Initial Purchaser may request in writing at least one full business
day before the Closing Time or the relevant Date of Delivery, as the case may be; provided
that any Securities in global form will be registered in the name of Cede & Co. The certificates
representing the Initial Securities and the Option Securities, if any, will be made available for
examination by the Initial Purchaser in The City of New York not later than 10:00 A.M. (Eastern
time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case
may be.

SECTION 3 Covenants of the Company. The Company covenants with the Initial Purchaser
as follows:

(a) Offering Memorandum. The Company, as promptly as possible, shall furnish to the Initial
Purchaser, without charge, such number of copies of the Preliminary Offering Memorandum and the
Final Offering Memorandum (and any amendments and supplements thereto) and any documents
incorporated by reference therein as the Initial Purchaser may reasonably request, which
Preliminary Offering Memorandum and Final Offering Memorandum shall be in form and substance
reasonably satisfactory to the Initial Purchaser.

(b) Notice and Effect of Material Events. The Company shall immediately notify the Initial
Purchaser, and confirm such notice in writing, of (x) any filing made by the Company of information
relating to the offering of the Securities by the Initial Purchaser with any securities exchange or
any other securities regulatory body in the United States or any other jurisdiction, and (y) prior
to the completion of the placement of the Securities by the Initial Purchaser as evidenced by a
notice from the Initial Purchaser to the Company in writing, any material changes in or events
affecting the condition, financial or otherwise, or the earnings, business or business prospects of
the Company which (i) make any statement in the Offering Memorandum (or any amendment or
supplement) false or misleading or (ii) are not disclosed in the Offering Memorandum. In such
event or if during such time any event shall occur as a result of which it is necessary, in the
reasonable opinion of any of the Company, its counsel, the Initial Purchaser or counsel for the
Initial Purchaser, to amend or supplement the Preliminary Offering Memorandum or Final Offering
Memorandum in order that the Offering Memorandum not include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements therein not
misleading in the light of the circumstances then existing, the Company shall forthwith amend or
supplement the Offering Memorandum by preparing and furnishing to the Initial Purchaser an
amendment or amendments of, or a supplement or supplements to, the Offering Memorandum (in form and
substance satisfactory in the reasonable opinion of counsel for the Initial Purchaser) so that, as
so amended or supplemented, the Offering Memorandum shall not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances existing at the time it is delivered to a Subsequent Purchaser,
not misleading.

(c) Amendments to Offering Memorandum and Supplements. The Company shall advise the Initial
Purchaser promptly of any proposal to amend or supplement the Offering Memorandum (including an
amendment by filing a document with the Commission which is incorporated by reference in the
Offering Memorandum) and shall not effect any such amendment or supplement without the consent of
the Initial Purchaser, which consent shall not be unreasonably withheld, delayed or conditioned.
Neither the consent of the Initial Purchaser, nor the delivery by the Initial Purchaser of any such
amendment or supplement, shall constitute a waiver of any of the conditions set forth in Section 5
hereof.

(d) Qualifications of Securities for Offer and Sale. The Company shall use its reasonable
best efforts, in cooperation with the Initial Purchaser, to qualify the Securities and the shares
of Common Stock issuable upon conversion of Securities for offering and sale under the applicable
securities laws of such states and other jurisdictions, domestic or foreign, as the Initial
Purchaser may designate and will maintain such qualification in effect as long as required for the
distribution of the Securities; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject
itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so
subject. The Company shall also supply the Initial Purchaser with such information as is necessary
for the determination of the legality of the Securities for investment under the laws of such
jurisdictions as the Initial Purchaser may request.

(e) DTC. The Company shall cooperate with the Initial Purchaser and use its best efforts to
permit the Securities to be eligible for clearance and settlement through the facilities of DTC and
shall comply with all of the terms and conditions set forth in the representation letter of the
Company to DTC relating to the approval of the Securities by DTC for book-entry transfer.

(f) Use of Proceeds. The Company shall use the net proceeds received by it from the sale of
the Securities in the manner indicated in the Offering Memorandum under “Use of Proceeds.”

(g) Listing on Securities Exchange. The Company shall use its reasonable best efforts to
cause all shares of Common Stock issuable upon conversion of the Securities to be listed on the
NASDAQ or listed on a “national securities exchange” registered under Section 6 of the 1934 Act on
which shares of its Common Stock are then listed.

(h) Restriction on Sale of Convertible Securities and Common Stock. During a period of 90
days from the date of the Offering Memorandum, the Company shall not, without the prior written
consent of the Initial Purchaser, (i) directly or indirectly, offer, pledge, announce the intention
to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or for the sale of, lend or
otherwise transfer or dispose of, any shares of Common Stock or securities convertible into or
exchangeable or exercisable for or repayable with Common Stock, or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or other
agreement or any transaction that transfers, in whole or in part, directly or indirectly, any of
the economic consequence of ownership of the Common Stock, or any securities convertible into or
exchangeable or exercisable for or repayable with Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or
such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the
Securities to be sold hereunder or the Common Stock to be delivered upon conversion thereof, (B)
the resale registration statement to be filed by the Company pursuant to the Registration Rights
Agreement relating to the resale of the Securities and the shares of Common Stock or any other
registration statement filed pursuant to registration rights described in the Offering Memorandum
or (C) the Common Stock to be issued pursuant to employee benefit plans, qualified stock option
plans or other employee compensation benefit plans existing in effect as of the date hereof.

(i) Restriction on Sale of Securities. During a period of 90 days from the date of the Final
Offering Memorandum, the Company shall not, without the prior written consent of the Initial
Purchaser, directly or indirectly, issue, sell, offer or agree to sell, grant any option for the
sale of, or otherwise transfer or dispose of, any other debt securities of the Company, or
securities of the Company that are convertible into, or exchangeable for, the Notes or such other
debt securities. Notwithstanding the foregoing, if (A) during the last 17 days of the 90-day
restricted period the Company issues an earnings release or material news or a material event
relating to the Company occurs or (B) prior to the expiration of the 90-day restricted period, the
Company announces that it will release earnings results or becomes aware that material news or a
material event will occur during the 16-day period beginning on the last day of the 90-day
restricted period, the restrictions imposed in this Section 3(i) shall continue to apply until the
expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence
of the material news or material event.

(j) Stabilization and Manipulation. The Company has not taken and shall not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Securities to facilitate the sale or resale of
the Securities. Except as permitted by the 1933 Act, the Company shall not distribute any
prospectus, offering memorandum or any other offering materials other than the Offering Memorandum
in connection with the offer and sale of the Securities.

(k) PORTAL Designation. The Company shall use its best efforts to permit the Securities to be
designated as PORTAL securities in accordance with the rules and regulations adopted by the
National Association of Securities Dealers, Inc. (“NASD”) relating to the PORTAL Market.

(l) Reporting Requirements. Until the offering of the Securities is complete the Company
shall file all documents required to be filed with the Commission pursuant to the 1934 Act within
the time periods required by the 1934 Act and the 1934 Act Regulations.

(m) Reservation of Shares of Common Stock. The Company shall reserve and keep available at
all times, free of preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligations to issue shares of Common Stock upon conversion of the
Securities.

(n) Registration Rights Agreement. The Company agrees to enter into and comply with all the
terms and conditions of the Registration Rights Agreement.

(o) Qualification Under the Trust Indenture Act. The Company agrees that simultaneously with
any registration of the Securities pursuant to the Registration Rights Agreement, or at such
earlier time as may be required, the Indenture shall be qualified under the 1939 Act and any
necessary supplemental indentures will be entered into in connection therewith.

(p) No Advisory or Fiduciary Relationship. The Company acknowledges and agrees that (i) the
purchase and sale of the Securities pursuant to this Agreement, including the determination of the
public offering price of the Securities and any related discounts and commissions, is an
arm’s-length commercial transaction between the Company, on the one hand, and the Initial
Purchaser, on the other hand, (ii) in connection with the offering contemplated hereby and the
process leading to such transaction the Initial Purchaser is and has been acting solely as a
principal and is not the agent or fiduciary of the Company, or its stockholders, creditors,
employees or any other party, (iii) the Initial Purchaser has not assumed nor will assume an
advisory or fiduciary responsibility in favor of the Company with respect to the offering
contemplated hereby or the process leading thereto (irrespective of whether the Initial Purchaser
has advised or is currently advising the Company on other matters) and the Initial Purchaser has no
obligation to the Company with respect to the offering contemplated hereby except the obligations
expressly set forth in this Agreement, (iv) the Initial Purchaser and its respective affiliates may
be engaged in a broad range of transactions that involve interests that differ from those of the
Company, and (v) the Initial Purchaser has not provided any legal, accounting, regulatory or tax
advice with respect to the offering contemplated hereby and the Company has consulted its own
legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.

SECTION 4 Payment of Expenses.

(a) Expenses. The Company shall pay all expenses incident to the performance of its
obligations under this Agreement, including (i) the preparation, printing, delivery to the Initial
Purchaser and any filing of the Offering Memorandum (including financial statements and any
schedules or exhibits and any document incorporated by reference therein) and of each amendment or
supplement thereto, (ii) the preparation, printing and delivery to the Initial Purchaser of this
Agreement, the Indenture, the Securities, the Registration Rights Agreement and such other
documents as may be required in connection with the offering, purchase, sale, issuance or delivery
of the Securities or the issuance or delivery of the Common Stock issuable upon conversion thereof,
(iii) the preparation, issuance and delivery of the certificates for the Securities to the Initial
Purchaser and the certificates for the Common Stock issuable upon conversion thereof, including any
transfer taxes, any stamp or other duties payable upon the sale, issuance and delivery of the
Securities to the Initial Purchaser, the issuance and delivery of the Common Stock issuable upon
conversion thereof and any charges of DTC in connection therewith, (iv) the fees and disbursements
of the Company’s counsel, accountants and other advisors, (v) the qualification of the Securities
and the shares of Common Stock issuable upon conversion of the Securities under securities laws in
accordance with the provisions of Section 3(d) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Initial Purchaser in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) any fees of
the NASD in connection with the Securities, (vii) the fees and expenses of the Trustee, including
the fees and disbursements of counsel for the Trustee in connection with the Indenture and the
Securities, (viii) the costs and expenses of the Company relating to investor presentations on any
“road show” undertaken in connection with the marketing of the Securities including, without
limitation, expenses associated with the production of road show slides and graphics, fees and
expenses of any consultants engaged in connection with the road show presentations, travel and
lodging expenses of the officers of the Company, and that portion of the cost of aircraft and other
transportation chartered in connection with the road show attributable to officers of the Company,
(ix) the fees and expenses of any transfer agent or registrar for the Common Stock, (x) any fees
payable in connection with the rating of the Securities, and (xi) any fees and expenses payable in
connection with the initial and continued designation of the Securities as PORTAL securities under
the PORTAL Market Rules pursuant to NASD Rule 5322.

(b) Termination of Agreement. If this Agreement is terminated by the Initial Purchaser in
accordance with the provisions of Section 5 hereof or Section 10(a)(i) hereof, the Company shall
reimburse the Initial Purchaser for all of its out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the Initial Purchaser.

SECTION 5 Conditions of Initial Purchaser’s Obligations. The obligations of the
Initial Purchaser hereunder are subject to the accuracy of the representations and warranties of
the Company contained in Section 1 hereof or in certificates of any officer of the Company or any
subsidiary of the Company delivered pursuant to the provisions hereof, to the performance by the
Company of its covenants and other obligations hereunder, and to the following further conditions:

(a) Opinion of Counsel for Company. At the Closing Time, the Initial Purchaser shall have
received the favorable opinion, dated as of the Closing Time, of Vinson & Elkins LLP, counsel for
the Company, in form and substance satisfactory to counsel for the Initial Purchaser to the effect
set forth in Exhibit A hereto and to such further effect as counsel to the Initial
Purchaser may reasonably request.

(b) Opinion of Internal Counsel for Company. At the Closing Time, the Initial Purchaser shall
have received the favorable opinion, dated as of the Closing Time, of David S. Wise, General
Counsel for the Company, in form and substance satisfactory to counsel for the Initial Purchaser to
the effect set forth in Exhibit B-1 hereto and to such further effect as counsel to the
Initial Purchaser may reasonably request.

(c) Opinion of Internal IP Counsel for Company. At the Closing Time, the Initial Purchaser
shall have received the favorable opinion, dated as of the Closing Time, of Timothy Scott, internal
intellectual property counsel for the Company, in form and substance satisfactory to counsel for
the Initial Purchaser to the effect set forth in Exhibit B-2.

(d) Opinion of Counsel for Initial Purchaser. At the Closing Time, the Initial Purchaser
shall have received the favorable opinion, dated as of the Closing Time, of Shearman & Sterling
LLP, counsel for the Initial Purchaser in form and substance satisfactory to the Initial Purchaser.
In giving such opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the federal law of the United States,
upon the opinions of counsel satisfactory to the Initial Purchaser. Such counsel may also state
that, insofar as such opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and its subsidiaries and certificates of
public officials.

(e) Officers’ Certificate. At the Closing Time, there shall not have been, since the date
hereof or since the respective dates as of which information is given in the Final Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the date of this
Agreement), any material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, and the Initial
Purchaser shall have received a certificate of the President or a Vice President of the Company and
of the chief financial officer or chief accounting officer of the Company, dated as of the Closing
Time, to the effect that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct with the same force and
effect as though expressly made at and as of Closing Time, and (iii) the Company has complied with
all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to
the Closing Time.

(f) Accountant’s Comfort Letter. At the time of the execution of this Agreement, the Initial
Purchaser shall have received from KPMG LLP a letter dated such date, in form and substance
satisfactory to the Initial Purchaser containing statements and information of the type ordinarily
included in accountants’ “comfort letters” to initial purchasers with respect to the financial
statements and certain financial information contained in the Offering Memorandum.

(g) Bring-down Comfort Letter. At the Closing Time, the Initial Purchaser shall have received
from KPMG LLP a letter, dated as of the Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (f) of this Section 5, except that
the specified date referred to shall be a date not more than three business days prior to the
Closing Time.

(h) Lock-up Agreements. On or prior to the date of this Agreement, the Initial Purchaser
shall have received an agreement substantially in the form of Exhibit C attached hereto
signed by the persons listed on Schedule B attached hereto.

(i) Indenture and Registration Rights Agreement. At or prior to the Closing Time, each of the
Company and the Trustee shall have executed and delivered the Indenture, and the Company and the
Initial Purchaser shall have executed and delivered the Registration Rights Agreement.

(j) Rating. Since the date of this Agreement, there shall not have occurred a downgrading in
the rating, if any, assigned to the Securities or any of the Company’s other debt securities by any
“nationally recognized statistical rating agency” as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the 1933 Act, and no such securities rating agency shall have
publicly announced that it has under surveillance or review, with possible negative implications,
its rating of the Securities or any of the Company’s other debt securities.

(k) Conditions to Purchase of Option Securities. In the event that the Initial Purchaser
exercises its option provided in Section 2(b) hereof to purchase all or any portion of the Option
Securities, the obligations of the Initial Purchaser to purchase such Option Securities is subject
to the representations and warranties of the Company contained herein and the statements in any
certificates furnished by the Company or any subsidiary of the Company hereunder shall be true and
correct as of each Date of Delivery and, at the relevant Date of Delivery, the Initial Purchaser
shall have received:

(i) Officers’ Certificate. A certificate, dated such Date of Delivery, of the
President or a Vice President of the Company and of the chief financial officer or chief
accounting officer of the Company confirming that the certificate delivered at the Closing
Time pursuant to Section 5(e) hereof remains true and correct as of such Date of Delivery.

(ii) Opinion of Counsel for Company. The favorable opinion of Vinson & Elkins
LLP, counsel for the Company, in form and substance satisfactory to counsel for the Initial
Purchaser, dated such Date of Delivery, relating to the Option Securities to be purchased on
such Date of Delivery and otherwise to the same effect as the opinion required by Section
5(a) hereof.

(iii) Opinion of Internal Counsel for Company. The favorable opinion of David
S. Wise, General Counsel for the Company, in form and substance satisfactory to counsel for
the Initial Purchaser, dated such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as the opinion required
by Section 5(b) hereof.

(iv) Opinion of Internal IP Counsel for Company. The favorable opinion of
Timothy Scott, internal intellectual property counsel for the Company, in form and substance
satisfactory to counsel for the Initial Purchaser, dated such Date of Delivery, relating to
the Option Securities to be purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(c) hereof.

(v) Opinion of Counsel for Initial Purchaser. The favorable opinion of
Shearman & Sterling LLP, counsel for the Initial Purchaser, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the opinion required by Section 5(d) hereof.

(vi) Bring-down Comfort Letter. A letter from KPMG LLP, in form and substance
satisfactory to the Initial Purchaser and dated such Date of Delivery, substantially in the
same form and substance as the letter furnished to the Initial Purchaser pursuant to Section
5(f) hereof, except that the “specified date” in the letter furnished pursuant to this
paragraph shall be a date not more than three days prior to such Date of Delivery.

(l) PORTAL Market. At the Closing Time, the Securities and the Common Stock issuable upon
conversion of the Securities shall have been designated for trading on PORTAL.

(m) Additional Documents. At the Closing Time and at each Date of Delivery, counsel for the
Initial Purchaser shall have been furnished with such documents, certificates and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale of the Securities
as herein contemplated, or in order to evidence the accuracy and completeness of any of the
representations or warranties, or the fulfillment of any of the conditions, herein contained; and
all proceedings taken by the Company in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the Initial Purchaser and
counsel for the Initial Purchaser.

(n) Termination of Agreement. If any condition specified in this Section 5 shall not have
been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any
condition to the purchase of Option Securities, on a Date of Delivery which is after the Closing
Time, the obligations of the Initial Purchaser to purchase the relevant Option Securities on such
Date of Delivery, may be terminated by the Initial Purchaser by notice to the Company at any time
at or prior to the Closing Time or such Date of Delivery, as the case may be, and such termination
shall be without liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 7, 8 and 9 shall survive any such termination and remain in full force and
effect.

	 	 	 	SECTION 6 Subsequent Offers and Resales of the Securities.

(a) Offer and Sale Procedures. Each of the Initial Purchaser and the Company hereby covenant
and agree to observe the following procedures in connection with the offer and sale of the
Securities:

(i) Offers and Sales to Qualified Institutional Buyers. Offers and sales of
the Securities shall only be made to persons whom the offeror or seller reasonably believes
to be qualified institutional buyers, as defined in Rule 144A under the 1933 Act (“Qualified
Institutional Buyers”). The Initial Purchaser understands that the Securities have not
been, and, except as required by the Registration Rights Agreement, will not be, registered
under the 1933 Act and may not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons, except pursuant to an exemption from the registration
requirements of the 1933 Act.

(ii) No General Solicitation. No general solicitation or general advertising
(within the meaning of Rule 502(c) under the 1933 Act) shall be used in the United States in
connection with the offering or sale of the Securities.

(iii) Purchases by Non-Bank Fiduciaries. In the case of a non-bank Subsequent
Purchaser of Securities acting as a fiduciary for one or more third parties, each third
party shall, in the judgment of the Initial Purchaser, be a Qualified Institutional Buyer.

(iv) Subsequent Purchaser Notification. The Initial Purchaser shall take
reasonable steps to inform, and cause each of its United States Affiliates to take
reasonable steps to inform, persons acquiring Securities from the Initial Purchaser or its
affiliate, as the case may be, in the United States that the Securities (A) have not been
and will not be registered under the 1933 Act, (B) are being sold to them without
registration under the 1933 Act in reliance on Rule 144A or in accordance with another
exemption from registration under the 1933 Act, as the case may be, and (C) may not be
offered, sold or otherwise transferred except (1) to the Company, (2) in accordance with
Rule 144A to a person whom the seller reasonably believes is a Qualified Institutional Buyer
that is purchasing such Securities for its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the offer, sale or transfer is being made
in reliance on Rule 144A or (3) pursuant to another available exemption from registration
under the 1933 Act.

(v) Restriction on Transfer. The transfer restrictions and the other
provisions set forth in the Offering Memorandum under the caption “Notice To Investors,”
including the legend required thereby, shall apply to the Securities except as otherwise
agreed by the Company and the Initial Purchaser.

(vi) Minimum Principal Amount. No sale of the Securities to any one Subsequent
Purchaser will be for less than U.S. $1,000 principal amount and no Security shall be issued
in a smaller principal amount. If the Subsequent Purchaser is a non-bank fiduciary acting
on behalf of others, each person for whom it is acting must purchase at least U.S. $1,000
principal amount of the Securities.

(b) Covenants of the Company. The Company covenants with the Initial Purchaser as follows:

(i) Integration. The Company agrees that it shall not and shall cause its
Affiliates over which it exercises control not to, directly or indirectly, solicit any offer
to buy, sell or make any offer or sale of, or otherwise negotiate in respect of, securities
of the Company or any such Affiliate thereof of any class if, as a result of the doctrine of
“integration” referred to in Rule 502 under the 1933 Act, such offer and sale would render
invalid (for the purpose of (A) the sale of the offered Securities by the Company to the
Initial Purchaser, (B) the resale of the offered Securities by the Initial Purchaser to
Subsequent Purchasers, or (C) the resale of the offered Securities by such Subsequent
Purchasers to others) the exemption from the registration requirements of the 1933 Act
provided by Section 4(2) thereof or by Rule 144A thereunder or otherwise.

(ii) Rule 144A Information. The Company agrees that, in order to render the
offered Securities eligible for resale pursuant to Rule 144A under the 1933 Act, while any
of the offered Securities (or shares of Common Stock issuable upon conversion thereof)
remain outstanding and are “restricted securities” within the meaning of Rule 144 under the
1933 Act, it will make available, upon request, to any holder of Securities or prospective
purchasers of Securities the information specified in Rule 144A(d)(4), unless the Company
furnishes information to the Commission pursuant to Section 13 or 15(d) of the 1934 Act.

(iii) Restriction on Purchases. Until the expiration of two years after the
original issuance of the offered Securities or the Delivery Date, if later, the Company
shall not, and shall cause its Affiliates over which it exercises control not to, purchase
or agree to purchase or otherwise acquire any offered Securities or the Shares of Common
Stock issuable upon conversion thereof which are “restricted securities” (as such term is
defined under Rule 144(a)(3) under the 1933 Act), whether as beneficial owner or otherwise
(except as agent on behalf of and for the account of customers in the ordinary course of
business as a securities broker in unsolicited broker’s transactions).

(c) Qualified Institutional Buyer. The Initial Purchaser represents and warrants to, and
agrees with, the Company that it is a Qualified Institutional Buyer.

	 	 	 	SECTION 7 Indemnification.

(a) Indemnification of the Initial Purchaser. The Company agrees to indemnify and hold
harmless the Initial Purchaser, its affiliates, as such term is defined in Rule 501(b) under the
1933 Act (each, an “Affiliate”), its selling agents and each person, if any, who controls the
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as
follows:

(i) against any and all loss, liability, claim, damage and expense whatsoever, as
incurred, arising out of any untrue statement or alleged untrue statement in the Preliminary
Offering Memorandum or Final Offering Memorandum (or any amendment or supplement thereto),
or the omission or alleged omission therefrom, of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were made, not
misleading;

(ii) against any and all loss, liability, claim, damage and expense whatsoever, as
incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or threatened, or
of any claim whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section 7(d) below)
any such settlement is effected with the written consent of the Company; and

(iii) against any and all expense whatsoever, as incurred (including the fees and
disbursements of counsel chosen by the Initial Purchaser), reasonably incurred in
investigating, preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid under clauses (i) or
(ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue statement or omission
or alleged untrue statement or omission made in reliance upon and in conformity with written
information furnished to the Company by the Initial Purchaser expressly for use in the Offering
Memorandum (or any amendment or supplement thereto); provided further that the
Company shall not be liable to the Initial Purchaser with respect to any Preliminary Offering
Memorandum to the extent that any such loss, liability, claim, damage or expense resulted from the
fact that the Initial Purchaser sold Securities to a person to whom the Initial Purchaser failed to
send or give, at or prior to the Closing Time, a copy of the Final Offering Memorandum, as then
amended or supplemented if: (i) the Company has previously furnished copies thereof (sufficiently
in advance of the Closing Time to allow for distribution by the Closing Time) to the Initial
Purchaser, and the loss, liability, claim, damage or expense of the Initial Purchaser resulted from
an untrue statement or omission of a material fact contained in or omitted from the Preliminary
Offering Memorandum which was corrected in the Final Offering Memorandum as, if applicable, amended
or supplemented prior to the Closing Time and (ii) furnishing such Final Offering Memorandum by the
Closing Time to the party or parties asserting such loss, liability, claim, damage or expense would
have constituted a defense to the claim asserted by such person.

(b) Indemnification of Company. The Initial Purchaser agrees to indemnify and hold harmless
the Company and each person, if any, who controls the Company within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act as follows:

(i) against any and all loss, liability, claim, damage and expense whatsoever, as
incurred, arising out of, any untrue statements or alleged untrue statement in the
Preliminary Offering Memorandum or Final Offering Memorandum (or any amendment or supplement
thereto) or the omission or any alleged omission therefrom, of a material fact necessary in
order to make the statements therein, in the light of the circumstances under which they
were made, not misleading;

(ii) against any and all loss, liability, claim, damage and expense whatsoever, as
incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or threatened, or
of any claim whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section 7(d) below) any such
settlement is effected with the written consent of the Initial Purchaser; and

(iii) against any and all expense whatsoever, as incurred (including the fees and
disbursements of counsel chosen by the Company), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under clauses (i) or (ii) above.

; provided, however, that the Initial Purchaser’s indemnification obligations under this
Section 7(b) apply only to any untrue statement, alleged untrue statement, omission or alleged
omission which was made in reliance upon and in conformity with written information furnished to
the Company by the Initial Purchaser expressly for use in the Offering Memorandum.

(c) Actions Against Parties; Notification. Each indemnified party shall give notice as
promptly as reasonably practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party
shall not relieve such indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it from any liability
which it may have otherwise than on account of this indemnity agreement. In the case of parties
indemnified pursuant to Section 7(a) above, counsel to the indemnified parties shall be selected by
the Initial Purchaser, and, in the case of parties indemnified pursuant to Section 7(b) above,
counsel to the indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any judgment with respect
to any litigation, or any investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever in respect of which indemnification or contribution could be
sought under this Section 7 hereof or Section 8 hereof (whether or not the indemnified parties are
actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act by or on behalf of any indemnified party.

(d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature
contemplated by Section 7(a)(ii) hereof effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall
not have reimbursed such indemnified party in accordance with such request prior to the date of
such settlement; provided that an indemnifying party shall not be liable for any such
settlement effected without its consent if such indemnifying party, prior to the date of such
settlement, (1) reimburses such indemnified party in accordance with such request for the amount of
such fees and expenses of counsel as the indemnifying party believes in good faith to be
reasonable, and (2) provides written notice to the indemnified party that the indemnifying party
disputes in good faith the reasonableness of the unpaid balance of such fees and expenses.

SECTION 8 Contribution. If the indemnification provided for in Section 7 hereof is
for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of
any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying
party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and
expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and the Initial Purchaser
on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Initial Purchaser on the other hand in
connection with the statements or omissions, which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.

The relative benefits received by the Company on the one hand and the Initial Purchaser on the
other hand in connection with the offering of the Securities pursuant to this Agreement shall be
deemed to be in the same respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by the Company and the
total underwriting discount received by the Initial Purchaser, bear to the aggregate initial public
offering price of the Securities.

The relative fault of the Company, on the one hand, and the Initial Purchaser, on the other
hand, shall be determined by reference to, among other things, whether any such untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Initial Purchaser and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such
statement or omission.

The Company and the Initial Purchaser agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Initial
Purchaser were treated as one entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 8 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.

Notwithstanding the provisions of this Section 8, no Initial Purchaser shall be required to
contribute any amount in excess of the amount by which the total price at which the Securities
purchased and sold by it hereunder exceeds the amount of any damages which such Initial Purchaser
has otherwise been required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission.

No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.

For purposes of this Section 8, each person, if any, who controls the Initial Purchaser within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Initial
Purchaser’s Affiliates and selling agents shall have the same rights to contribution as the Initial
Purchaser, and each person, if any, who controls the Company within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the
Company.

SECTION 9 Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or in certificates of
officers of the Company or any of its subsidiaries submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of (i) any investigation made by or on behalf of
the Initial Purchaser or its Affiliates, or selling agents, any person controlling the Initial
Purchaser or any person controlling the Company (within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act) or, its officers or directors and (ii) delivery of payment for the
Securities.

	 	 	 	SECTION 10 Termination of Agreement.

(a) Termination; General. The Initial Purchaser may terminate this Agreement, by notice to
the Company, at any time at or prior to the Closing Time (i) if there has been, since the time of
execution of this Agreement or since the respective dates as of which information is given in the
Final Offering Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), any material adverse change in the condition, financial or otherwise, or
in the earnings, business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of business, (ii) if
there has occurred any material adverse change in the financial markets in the United States or in
the international financial markets, any outbreak of hostilities or escalation thereof or acts of
terrorism involving the United States, a declaration of a national emergency or war by the United
States or if there shall have been any other calamity or crisis or any change or development
involving a prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the judgment of the Initial
Purchaser, impracticable or inadvisable to market the Securities or to enforce contracts for the
sale of the Securities, (iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or NASDAQ, or if trading generally on the American Stock
Exchange or the New York Stock Exchange or NASDAQ has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been
required, by any of said exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, (iv) a material
disruption has occurred in commercial banking or securities settlement or clearance services in the
United States or with respect to Clearstream or Euroclear systems in Europe or (v) if a banking
moratorium has been declared by either Federal or New York authorities.

(b) Liabilities. If this Agreement is terminated pursuant to this Section 10, such
termination shall be without liability of any party to any other party except as provided in
Section 4 hereof; provided further that Sections 1, 7, 8 and 9 of this Agreement
shall survive such termination and remain in full force and effect.

SECTION 11 Default by the Company. If the Company shall fail at the Closing Time or
at the Date of Delivery to sell the aggregate principal amount of Securities that it is obligated
to sell hereunder, then this Agreement shall terminate without any liability on the part of any
non-defaulting party; provided, however, that the provisions of Sections 1, 4, 7, 8
and 9 of this Agreement shall remain in full force and effect. No action taken pursuant to this
Section 11 shall relieve the Company from liability, if any, in respect of such default.

SECTION 12 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication. Notices to the Initial Purchaser shall be directed to the Initial Purchaser
at North Tower, World Financial Center, New York, New York 10281-1201, attention of Investment
Banking Counsel, with a copy to Bruce Czachor, Shearman & Sterling LLP, 599 Lexington Avenue, New
York, NY 10022; and notices to the Company shall be directed to it at 100 Cyberonics Blvd.,
Cyberonics Building, Houston, Texas 77058, attention of General Counsel.

SECTION 13 Parties. This Agreement shall each inure to the benefit of and be binding
upon each of the Initial Purchaser and the Company and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm
or corporation, other than the Initial Purchaser and the Company and their respective successors
and the controlling persons and officers and directors referred to in Sections 7 and 8 and their
heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect
of this Agreement or any provision herein contained. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of the Initial Purchaser
and the Company and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no other person, firm
or corporation. No purchaser of Securities from the Initial Purchaser shall be deemed to be a
successor by reason merely of such purchase.

SECTION 14 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS ENTERED INTO AND
PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK.

SECTION 15 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same Agreement.

SECTION 16 Effect of Headings. The Article and Section headings herein and the Table
of Contents are for convenience only and shall not affect the construction hereof.

SECTION 17 Time. TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE
SET FORTH HEREIN.

SECTION 18 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same Agreement.

SECTION 19 Waiver of Jury Trial. EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY (BUT NO OTHER JUDICIAL
REMEDIES) IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

4

If the foregoing is in accordance with your understanding of our agreement, please sign and
return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts,
shall become a binding agreement between the Initial Purchaser and the Company in accordance with
its terms.

Very truly yours,

CYBERONICS, INC.

By:     /S/

Name: David S. Wise

Title: Secretary

CONFIRMED AND ACCEPTED,

as of the date first above written:

MERRILL LYNCH & CO.

	 	 	 	MERRILL LYNCH, PIERCE, FENNER & SMITH

INCORPORATED

By:     /S/     

Name: Edmund D. Baxter

Title: Director

5

SCHEDULE A

CYBERONICS, INC.

3% SENIOR SUBORDINATED CONVERTIBLE NOTES DUE 2012

(i) The initial issue price of the Securities shall be 100% of the principal amount
thereof.

(ii) The purchase price to be paid by the Initial Purchaser for the Initial Securities
shall be 97.0% of the principal amount thereof.

(iii) Cash interest on the Securities at the rate of 3.0% per annum on the principal
amount shall be payable semiannually in arrears on March 27 and September 27 of each year,
beginning on March 27, 2006.

(iv) The Securities shall be convertible in certain circumstances set forth in the
Offering Memorandum into shares of Common Stock at an initial conversion price of $41.50 per
share (equivalent to an initial conversion rate of 24.0964 shares of Common Stock per $1,000
principal amount of the Securities).

(v) The Securities will mature on September 27, 2012.

6

SCHEDULE B

LIST OF PERSONS AND ENTITIES SUBJECT TO LOCK-UP

Directors

Robert P. Cummins

Stanley H. Appel, M.D.

Tony Coelho

Guy C. Jackson

Alan J. Olsen

Michael J. Strauss, M.D., M.P.H.

Reese S. Terry, Jr.

Kevin S. Moore

Executive Officers

Robert P. Cummins

Pamela B. Westbrook

Michael A. Cheney

W. Steven Jennings

Shawn P. Lunney

George Parker

Richard L. Rudolph

Randal L. Simpson

Alan D. Totah

David S. Wise

7

SCHEDULE C

SCHEDULE OF INSURANCE

8

Please see attached.EXHIBIT A

FORM OF OPINION OF COMPANY’S COUNSEL

TO BE DELIVERED PURSUANT TO

SECTION 5(a)

1. The Company has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Delaware.

2. The Company has the corporate power and corporate authority to own, lease and operate its
properties and to conduct its business as described in the Offering Memorandum and to enter into
and perform its obligations under the Purchase Agreement.

3. The Company is duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction listed on Exhibit A to this opinion.

4. Each Subsidiary has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has corporate power and authority
to own, lease and operate its properties and to conduct its business as described in the Offering
Memorandum and is duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect; except as otherwise
disclosed in the Offering Memorandum, all of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and non assessable and, to
the best of our knowledge, is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of any Subsidiary was issued in violation of the preemptive or
similar rights of any securityholder of such Subsidiary.

5. The authorized capital stock of the Company is as set forth in the Offering Memorandum in
the column entitled “Actual” under the caption “Capitalization” (except for subsequent issuances,
if any, pursuant to the Purchase Agreement or pursuant to reservations, agreements or employee
benefit plans referred to in the Offering Memorandum or pursuant to the exercise of convertible
securities or options referred to in the Offering Memorandum).

6. The Purchase Agreement and the Registration Rights Agreement have been duly authorized,
executed and delivered by the Company.

7. Each of the Indenture and the Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and (assuming the due authorization, execution and delivery
thereof by the Trustee) constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium (including, without limitation, all laws
relating to fraudulent transfers), or other similar laws relating to or affecting enforcement of
creditor’s rights generally, or by general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law).

8. The Securities are in the form contemplated by the Indenture, have been duly authorized by
the Company and, when executed by the Company and authenticated by the Trustee in the manner
provided in the Indenture (assuming the due authorization, execution and delivery of the Indenture
by the Trustee) and issued and delivered against payment of the purchase price therefor will
constitute valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium (including, without limitation, all laws relating to
fraudulent transfers), or other similar laws relating to or affecting enforcement of creditor’s
rights generally, or by general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law), and will be entitled to the benefits of the
Indenture.

9. The issuance of the shares of Common Stock of the Company upon conversion of the Securities
(the “Conversion Shares”) is not subject to the preemptive or other similar rights of any
securityholder of the Company to subscribe for or to purchase any shares of Common Stock pursuant
to the Company’s charter or bylaws or any agreement or other instrument to which the Company is a
party or by which the Company is bound or to which any of the properties of the Company is subject,
and which agreement or instrument is included as an exhibit filed pursuant to Item 610(b)(4) and
Item 601(b)(10) of Regulation S-K to the Company’s Annual Report on Form 10-K for the fiscal year
ended April 29, 2005, or which, as certified by the Company to us, would be required to be filed as
such an exhibit if the Company were filing an Annual Report on Form 10-K on the date hereof.

10. The Conversion Shares have been duly authorized and reserved for issuance upon such
conversion by all necessary corporate action; such shares, when issued upon such conversion, will
be validly issued and will be fully paid and non-assessable and no holder of such Common Stock is
or will be subject to personal liability by reason of being such a holder.

11. The statements in the Offering Memorandum under the captions “Description of Notes” (other
than the subsection “—Form, Denomination and Registration”), “Description of Capital Stock,” and
“Material United States Federal Income Tax Considerations” insofar as such statements purport to
summarize provisions of law, of legal matters, or purport to summarize certain provisions of the
Securities, the Conversion Shares, or the documents referred to therein, have been reviewed by us
and are accurate in all material respects.

12. No filing with, or authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency, domestic or foreign,
(other than under the 1933 Act and the 1933 Act Regulations, or as may be required under the
securities or blue sky laws of the various jurisdictions in which the Securities will be offered or
sold, as to which we need express no opinion) is necessary or required to be obtained or taken by
the Company which has not been obtained or taken and is not in full force and effect, to authorize
or in connection with the due authorization, execution and delivery of the Purchase Agreement, the
Indenture , the Registration Rights Agreement or the DTC Agreement, by the Company or for the
offering, issuance, sale or delivery of the Securities by the Company to the Initial Purchaser or
the resale by the Initial Purchaser in accordance with the terms of the Purchase Agreement and the
issuance of shares of Common Stock upon conversion of Securities or the consummation by the Company
of the transactions contemplated thereby

13. Assuming the accuracy of the representations and warranties of the Company and the
Purchaser as to matters of fact contained in the Purchase Agreement and the performance by them of
the agreements contained therein, it is not necessary in connection with the offer, a sale and
initial resale of the Securities or the issuance of shares of Common Stock upon conversion of the
Securities, each in the manner contemplated by the Purchase Agreement and the Offering Memorandum
to register the Notes under the Act or to qualify the Indenture under the Trust Indenture Act.

14. The execution, delivery and performance of the Purchase Agreement, the DTC Agreement, the
Indenture, the Securities and the consummation of the transactions contemplated in the Purchase
Agreement and in the Offering Memorandum (including the issuance and sale of the Securities and the
use of the proceeds from the sale of the Securities as described in the Offering Memorandum under
the caption “Use Of Proceeds”) and compliance by the Company with its obligations under the
Purchase Agreement, the Indenture and the Securities do not and will not, whether with or without
the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default
or Repayment Event (as defined in Section 1(a)(xv) of the Purchase Agreement) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any property or assets of the
Company pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or any other agreement or instrument, known to us, to which the Company is a party or
by which it or any of them may be bound, or to which any of the property or assets of the Company
is subject (except for such conflicts, breaches, defaults or Repayment Events or liens, charges or
encumbrances that would not have a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by laws of the Company, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court, domestic or foreign, having jurisdiction over the Company or
any of its properties, assets or operations; provided, however, we express no opinion in this
Paragraph      as to securities or other anti-fraud laws.

15. The Company is not required, and upon the issuance and sale of the Securities and the
application of the net proceeds therefrom, as described in the Offering Memorandum, will not be
required to register as an “investment company” under the Investment Company Act of 1940, as
amended.

16. The Rights under the Company’s Shareholder Rights Plan to which holders of the Securities
(in respect of the Conversion Shares) will be entitled have been duly authorized.

The opinions set forth above are limited in all respects to matters of the laws of the State
of Texas, the General Corporation Law of the State of Delaware, the laws of the State of New York
and the federal laws of the United States of America.

We have participated in conferences with officers and other representatives of the Company and
the Purchasers, with representatives of counsel of the Company and with representatives of the
Company’s independent accountants at which the contents of the Offering Memorandum and related
matters were discussed, and, although we did not independently verify such information, are not
passing upon, and do not assume any responsibility for and express no opinion regarding (except as
expressly provided in paragraph 5 above) the accuracy, completeness or fairness of the statements
contained or incorporated by reference in, the Offering Memorandum, based on the participation
described above, no facts have come to our attention that have caused us to believe that the
Offering Memorandum, as of its date or the date hereof, contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading. We do not express any view,
belief or comment with respect to the form, accuracy, completeness or fairness of the financial
statements, including the related notes and schedules thereto and the auditors’ reports thereon,
and other financial and accounting information contained or incorporated by reference therein or
excluded therefrom.

The foregoing opinions and the statements in the paragraph immediately above are being
furnished only to you solely for your benefit in connection with the closing under the Purchase
Agreement occurring today and, except with our prior written consent, are not to be used,
circulated, quoted, published or otherwise referred to or disseminated for any other purpose or
relied upon by any other person or entity.

The foregoing opinions will be subject to customary exceptions, qualifications and
assumptions.

In rendering such opinions, such counsel may rely, as to matters of fact (but not as to legal
conclusions), to the extent they deem proper, on certificates of responsible officers of the
Company and public officials. Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).

9

EXHIBIT B-1

FORM OF OPINION OF COMPANY’S INTERNAL COUNSEL

TO BE DELIVERED PURSUANT TO SECTION 5(b)

1. To my knowledge, and except as disclosed in the Offering Memorandum including those
documents incorporated by reference, there is not pending or threatened any action, suit,
proceeding, inquiry or investigation, to which the Company is a party, or to which the property of
the Company is subject, before or brought by any court or governmental agency or body, domestic or
foreign, which might reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder.

2. The execution, delivery and performance of the Purchase Agreement, the DTC Agreement, the
Indenture, the Securities and the consummation of the transactions contemplated in the Purchase
Agreement and in the Offering Memorandum (including the issuance and sale of the Securities and the
use of the proceeds from the sale of the Securities as described in the Offering Memorandum under
the caption “Use Of Proceeds”) and compliance by the Company with its obligations under the
Purchase Agreement, the Indenture and the Securities do not and will not, whether with or without
the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default
or Repayment Event (as defined in Section 1(a)(xv) of the Purchase Agreement) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any property or assets of the
Company pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or any other agreement or instrument, to which the Company is a party or by which it or
any of them may be bound, or to which any of the property or assets of the Company is subject
(except for such conflicts, breaches, defaults or Repayment Events or liens, charges or
encumbrances that would not have a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by laws of the Company, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court, domestic or foreign, having jurisdiction over the Company or
any of its properties, assets or operations.

3. The following statements, to the extent they describe federal or Texas state laws or
regulations, set forth in the Company’s Offering Memorandum the first three sentences under the
caption “Risk Factors – Risks Related to Our Business – Patient confidentiality and federal and
state privacy laws and regulations may adversely impact our patient pull-through selling model,”;
the first and fifth sentences under the caption “Risk Factors – Risks Related to Our Business – We
are subject to federal and state laws governing our sales and marketing practices, and failure to
adhere to these laws could result in substantial fines and other penalties,” and “Business –
Third-Party Reimbursement,” and “Business – Government Regulation,” are accurate summaries of the
provisions purported to be summarized under such captions in the Offering Memorandum.

The opinions set forth above are limited in all respects to matters of the laws of the State
of Texas, the General Corporation Law of the State of Delaware, the laws of the State of New York
and the federal laws of the United States of America.

I have participated in conferences with officers and other representatives of the Company and
the Purchasers, with representatives of counsel of the Company and with representatives of the
Company’s independent accountants at which the contents of the Offering Memorandum and related
matters were discussed, and, although I did not independently verify such information, are not
passing upon, and do not assume any responsibility for and express no opinion regarding (except as
expressly provided in paragraph 5 above) the accuracy, completeness or fairness of the statements
contained or incorporated by reference in, the Offering Memorandum, based on the participation
described above, no facts have come to our attention that have caused us to believe that the
Offering Memorandum, as of its date or the date hereof, contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading. I do not express any view,
belief or comment with respect to the form, accuracy, completeness or fairness of the financial
statements, including the related notes and schedules thereto and the auditors’ reports thereon,
and other financial and accounting information contained or incorporated by reference therein or
excluded therefrom.

The foregoing opinions and the statements in the paragraph immediately above are being
furnished only to you solely for your benefit in connection with the closing under the Purchase
Agreement occurring today and, except with our prior written consent, are not to be used,
circulated, quoted, published or otherwise referred to or disseminated for any other purpose or
relied upon by any other person or entity.

The foregoing opinions will be subject to customary exceptions, qualifications and
assumptions.

10

In rendering such opinions, such counsel may rely, as to matters of fact (but not as to legal

conclusions), to the extent they deem proper, on certificates of responsible officers of the

Company and public officials. Such opinion shall not state that it is to be governed or qualified

by, or that it is otherwise subject to, any treatise, written policy or other document relating to

legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of

Business Law (1991).EXHIBIT B-2

FORM OF OPINION OF COMPANY’S INTERNAL IP COUNSEL

TO BE DELIVERED PURSUANT TO SECTION 5(c)

(i) The agreements listed on Exhibit A hereto (the “Intellectual Property Agreements”)
are in full force and effect, and no party thereto is in breach or default thereunder.

(ii) To our knowledge, the operation of the business of the Company as currently conducted
does not infringe the intellectual property rights of any third party. No actions or claims are
pending or, to the best of my knowledge, threatened against the Company alleging any of the
foregoing.

(iii) The Patents listed on Exhibit B hereto are duly registered in the name of the
Company, are being duly maintained and have not been adjudged invalid or enforceable in whole or
part, and are exclusively owned by the Company free and clear of all liens, claims or encumbrances.

(iv) At least [?] United States patent applications have been filed in the name of the Company
in the U.S. Patent and Trademark Office; such pending patent applications have been properly
prepared as to form and each of such patent applications is being prosecuted by or on behalf of the
Company.

(v) The Trademarks listed on Exhibit C hereto are duly registered in the name of the
Company, are being duly maintained and are in full force and effect, and are exclusively owned by
the Company free and clear of all liens, claims or encumbrances.

(vi) No intellectual property owned or held for use by the Company is subject to any
outstanding decree, order, injunction, judgment or ruling restricting the use of such intellectual
property or that would impair the validity or enforceability of such intellectual property.

(vii) The information contained in the [Intellectual Property sections – Caption titles to
come] of the Offering Memorandum is accurate in all material respects, fairly represents the
matters disclosed therein, and does not omit to state any fact necessary to make the information
disclosed therein complete and accurate.

11

EXHIBIT C

FORM OF LOCK-UP LETTER

from directors and executive officers pursuant to Section 5(h)

September [• ], 2005

	 	 	 	 	 
	MERRILL LYNCH & CO.
	 	 	 	 
	Merrill Lynch, Pierce, Fenner & Smith Incorporated,

	4 World Financial Center
New York, New York 10080
Re:
	 	Proposed Offering by Cyberonics, Inc. of

	 
	 	 	 	 

3% Senior Subordinated Convertible Notes due 2012

Dear Sirs:

The undersigned a stockholder of Cyberonics, Inc., a Delaware corporation (the “Company”)
understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill
Lynch”) as Initial Purchaser named in the Purchase Agreement (as defined below) proposes to enter
into a Purchase Agreement (the “Purchase Agreement”) with the Company, providing for the offering
(the “Offering”), pursuant to Rule 144A under the Securities Act of 1933, as amended (the
“Securities Act”), of 3% Senior Subordinated Convertible Notes due 2012 of the Company.
Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the
Purchase Agreement.

In recognition of the benefit that the Offering will confer upon the undersigned as a
stockholder of the Company, and for other good and valuable consideration receipt of which is
hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of the
Initial Purchaser, the undersigned will not, during the period commencing the date hereof and
ending 90 days from the date of the Offering Memorandum relating to the Offering (the “Offering
Memorandum”), (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or lend or otherwise transfer or dispose of, directly or indirectly, any
shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), or any
securities convertible into or exercisable or exchangeable for or repayable with Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition or (2) enter into any swap or other agreement or
any transaction that transfers, in whole or in part, directly or indirectly, any of the economic
consequences of ownership of the Common Stock, or any securities convertible into or exchangeable
or exercisable for or repayable with Common Stock, whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The undersigned agrees that, without the prior written consent of the Initial
Purchaser, it will not, during the period commencing the date hereof and ending 90 days from the
date of the Offering Memorandum, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or exercisable or
exchangeable for or repayable with Common Stock.

Notwithstanding the foregoing, if:

(1) during the last 17 days of the 90-day lock-up period, the Company issues an earnings
release or material news or a material event relating to the Company occurs; or

(2) prior to the expiration of the 90-day lock-up period, the Company announces that it will
release earnings results or becomes aware that material news or a material event will occur during
the 16-day period beginning on the last day of the 90-day lock-up period,

the restrictions imposed by this lock-up agreement shall continue to apply until the expiration of
the 18-day period beginning on the issuance of the earnings release or the occurrence of the
material news or material event, as applicable, unless Merrill Lynch waives, in writing, such
extension.

The undersigned hereby acknowledges and agrees that written notice of any extension of the
90-day lock-up period pursuant to the previous paragraph will be delivered by Merrill Lynch to the
Company (in accordance with Section 12 of the Purchase Agreement) and that any such notice properly
delivered will be deemed to have been given to, and received by, the undersigned. The undersigned
further agrees that, prior to engaging in any transaction or taking any other action that is
subject to the terms of this lock-up agreement during the period from the date of this lock-up
agreement to and including the 34th day following the expiration of the initial 90-day
lock-up period, it will give notice thereof to the Company and will not consummate such transaction
or take any such action unless it has received written confirmation from the Company that the
90-day lock-up period (as may have been extended pursuant to the previous paragraph) has expired.

The undersigned also agrees and consents to the entry of stop transfer instructions with the
Trustee against the transfer of the Lock-Up Securities except in compliance with the foregoing
restrictions.

Very truly yours,

Signature:

Print Name:

12

EXHIBIT D

FORM OF REGISTRATION RIGHTS AGREEMENT

Please see attached.

13

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