Document:

exv10w44

 

Exhibit 10.44

CYBERONICS, INC.

INDEMNIFICATION AGREEMENT

     This Indemnification Agreement (“Agreement”) is made as of this 28th day of June, 1999, by
and between Cyberonics, Inc., a Delaware corporation (the
“Company”), and Alan J. Olsen
(“Indemnitee”).

     WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining
directors’ and officers’ liability insurance, the significant increases in the cost of such
insurance and the general reductions in the coverage of such insurance;

     WHEREAS, the Company and Indemnitee further recognize the substantial increase in
corporate litigation in general, subjecting officers and directors to expensive litigation
risks at the same time as the availability and coverage of liability insurance has been
severely limited;

     WHEREAS, Indemnitee does not regard the current protection available as adequate under the
present circumstances, and Indemnitee and other officers and directors of the Company may not
be willing to continue to serve as officers and directors without additional protection; and

     WHEREAS, the Company desires to attract and retain the services of highly qualified
individuals, such as Indemnitee, to serve as officers and directors of the Company and to
indemnify its officers and directors so as to provide them with the maximum protection
permitted by law.

     NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:

     1. Indemnification.

          (a) Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is
or was a party or is threatened to be made a party to any threatened, pending or completed action
or proceeding, whether civil, criminal, administrative or investigative (other than an action by or
in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of any action or
inaction on the part of Indemnitee while an officer or director or by reason of the fact that
Indemnitee is or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (if such
settlement is approved in advance by the Company, which approval shall not be unreasonably
withheld) actually and reasonably incurred by Indemnitee in connection with such action or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee’s

 

 

conduct was unlawful. The termination of any action or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself,
create a presumption that (i) Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or
(ii) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe
that Indemnitee’s conduct was unlawful.

          (b) Proceedings By or in the Right of the Company. The Company shall indemnify
Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened,
pending or completed action or proceeding by or in the right of the Company or any subsidiary of
the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while an officer or director or by reason of the
fact that Indemnitee is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts
paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such action or proceeding if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests
of the Company and its stockholders, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or
judgment to be liable to the Company in the performance of Indemnitee’s duty to the Company and its
stockholders unless and only to the extent that the court in which such action or proceeding is or
was pending shall determine upon application that, in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent
that the court shall determine.

     2. Expenses; Indemnification Procedure.

          (a) Advancement of Expenses. The Company shall advance all expenses incurred by
Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or
criminal action or proceeding referenced in Section l(a) or (b) hereof (but not amounts actually
paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such
amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee
is not entitled to be indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of
a written request therefor by Indemnitee to the Company.

          (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to
his right to be indemnified under this Agreement, give the Company notice in writing as soon as
practicable of any claim made against Indemnitee for which indemnification will be sought under
this Agreement, Notice to the Company shall be directed to the Chief Executive Officer of the
Company at the address shown on the signature page of this Agreement (or such other address as the
Company shall designate in writing to Indemnitee). Notice shall be deemed received three business
days after the

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date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise
notice shall be deemed received when such notice shall actually be received by the Company. In
addition, Indemnitee shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee’s power.

          (c) Procedure. Any indemnification and advances provided for in Section 1 and this
Section 2 shall be made no later than forty-five (45) days after receipt of the written request of
Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the
Company’s Certificate of Incorporation or By-laws providing for indemnification, is not paid in
full by the Company within forty-five (45) days after a written request for payment thereof has
first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an
action against the Company to recover the unpaid amount of the claim and, subject to Section 12 of
this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys’
fees) of bringing such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action or proceeding in
advance of its final disposition) that Indemnitee has not met the standards of conduct which make
it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed,
but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Subsection 2(a) unless and until such defense may
be finally adjudicated by court order or judgment from which no further right of appeal exists. It
is the parties’ intention that if the Company contests Indemnitee’s right to indemnification, the
question of Indemnitee’s right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a determination that
indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual determination by the
Company (including its Board of Directors, any committee or subgroup of the Board of Directors,
independent legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.

          (d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant
to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the
Company shall give prompt notice of the commencement of such proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee,
all amounts payable as a result of such proceeding in accordance with the terms of such policies.

          (e) Selection of Counsel. In the event the Company shall be obligated under Section
2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee,
which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such counsel by

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Indemnitee and the retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his
counsel in any such proceeding at Indemnitee’s expense; and (ii) if (A) the employment of counsel
by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and Indemnitee in the
conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume
the defense of such proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the
expense of the Company.

     3. Additional Indemnification Rights; Nonexclusivity.

          (a) Scope. Notwithstanding any other provision of this Agreement, the Company
hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding
that such indemnification is not specifically authorized by the other provisions of this Agreement,
the Company’s Certificate of Incorporation, the Company’s By-laws or by statute. In the event of
any change, after the date of this Agreement, in any applicable law, statute or rule which expands
the right of a Delaware corporation to indemnify a member of its Board of Directors, an officer or
other corporate agent, such changes shall be ipso facto, within the purview of Indemnitee’s rights
and Company’s obligations, under this Agreement. In the event of any change in any applicable law,
statute or rule which narrows the right of a Delaware corporation to indemnify a member of its
Board of Directors, an officer or other corporate agent, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have no effect on this
Agreement or the parties’ rights arid obligations hereunder.

          (b) Nonexclusivity. The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company’s Certificate of
Incorporation, its By-laws, any agreement, any vote of stockholders or disinterested Directors, the
Delaware Corporation Law or otherwise, both as to action in Indemnitee’s official capacity and as
to action in another capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an
indemnified capacity even though he may have ceased to serve in such capacity at the time of any
action, suit or other covered proceeding.

     4. Partial Indemnification. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines
or penalties actually or reasonably incurred by him in the investigation, defense, appeal or
settlement of any civil or criminal action or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.

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     5. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain
instances, Federal law or applicable public policy may prohibit the Company from indemnifying its
directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges
that the Company has undertaken or may be required in the future to undertake with the Securities
and Exchange Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company’s right under public policy to indemnify
Indemnitee.

     6. Officer and Director Liability Insurance. The Company shall, from time to time,
make the good faith determination whether or not it is practicable for the Company to obtain and
maintain a policy or policies of insurance with reputable insurance companies providing the
officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the
Company’s performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance coverage against the
protection afforded by such coverage. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights
and benefits as are accorded to the most favorably insured of the Company’s directors, if
Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the
Company but is an officer; or of the Company’s key employees, if Indemnitee is not an officer or
director but is a key employee. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain such insurance if the Company determines in good faith that such
insurance is not reasonably available, if the premium costs for such insurance are disproportionate
to the amount of coverage provided, if the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.

     7. Severability. Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or fail to do any act in violation of applicable law. The
Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall
not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as
provided in this Section 7. If this Agreement or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify
Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not
have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.

     8. Exceptions. Any other provision herein to the contrary notwithstanding, the
Company shall not be obligated pursuant to the terms of this Agreement:

          (a) Excluded Acts. To indemnify Indemnitee for any acts or omissions or transactions
from which a director may not be relieved of liability under the applicable law.

          (b) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee
with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way
of defense, except with respect to proceedings brought to establish or enforce a right to

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indemnification under this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of
expenses may be provided by the Company in specific cases if the Board of Directors has approved
the initiation or bringing of such suit; or

          (c) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the
Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this
Agreement, if a court of competent jurisdiction determines that each of the material assertions
made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or

          (d) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and
amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier
under a policy of officers’ and directors’ liability
insurance maintained by the Company.

          (e) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment
of profits arising from the purchase and sale by Indemnitee of securities in violation of Section
16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

     9. Construction of Certain Phrases.

          (a) For purposes of this Agreement, references to the “Company” shall include, in
addition to the resulting corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and employees or agents,
so that if Indemnitee is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.

          (b) For purposes of this Agreement, references to “other enterprises” shall include employee
benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with
respect to an employee benefit plan; and references to “serving at the request of the Company”
shall include any service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner
“not opposed to the best interests of the Company” as referred to in this Agreement.

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     10. Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall constitute an original.

     11. Successors and Assigns. This Agreement shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee’s estate,
heirs, legal representatives and assigns.

     12. Attorneys’ Fees. In the event that any action is instituted by Indemnitee under
this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be
paid all costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with
respect to such action, unless as a part of such action, the court of competent jurisdiction
determines that each of the material assertions made by Indemnitee as a basis for such action were
not made in good faith or were frivolous. In the event of an action instituted by or in the name of
the Company under this Agreement or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys’
fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s
counterclaims and cross-claims made in such action), unless as a part of such action the court
determines that each of Indemnitee’s material defenses to such action were made in bad faith or
were frivolous.

     13. Notice. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and
acknowledged in writing as received by the addressee, on the date of such receipt, or (ii) if
mailed by domestic certified or registered mail with postage prepaid, on the third business day
after the date postmarked. Addresses for notice to either party are as shown on the signature page
of this Agreement, or as subsequently modified by written notice.

     14. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably
consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection
with any action or proceeding which arises out of or relates to this Agreement and agree that any
action instituted under this Agreement shall be brought only in the state courts of the State of
Delaware.

     15. Choice of Law. This Agreement shall be governed by and its provisions construed in
accordance with the laws of the State of Delaware, as applied to contracts between Delaware
residents entered into and to be performed entirely within Delaware.

     16. Subrogation. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall
execute all documents required and shall do all acts that may be necessary to secure such rights
and to enable to corporation effectively to bring suit to enforce such rights.

     17. Continuation of Indemnification. All agreements and obligations of the Company
contained herein shall continue during the period that Indemnitee is a director, officer or agent
of the

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Company and shall continue thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that Indemnitee was serving
in the capacity referred to herein.

     18. Amendment and Termination. Subject to Section 17, no amendment, modification,
termination or cancellation of this Agreement shall be effective unless in writing signed by both
parties hereto.

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

	 	 	 	 	 	 	 
	 	 	CYBERONICS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Robert P. Cummins	 	 
	 

	 	Title:
	 	 

CEO
	 	 
	 

	 	 	 	 

	 	 
	 

	 	Address:
	 	16511 Space Center Blvd., Suite 600
Houston, TX 77058	 	 

AGREED TO AND ACCEPTED:

INDEMNITEE:

	 	 	 
	/s/ Alan J. Olsen 7/30/99
 

Alan J. Olsen

	 	  

	 	 	 
	Address:

	 	2500 Aqua Vista Blvd.
	 

	 	Ft. Lauderdale, FL 33301

-9-exv10w46

 

Exhibit 10.46

CYBERONICS, INC.

OFFICER STOCK OPTION PLAN AGREEMENT

I. NOTICE OF STOCK OPTION GRANT

     George E. Parker III

     You have been granted a Nonstatutory Stock Option to purchase Common Stock of the Company,
subject to the terms and conditions of this Agreement, as follows:

	 	 	 	 	 
	Date of Grant
	 	July 14, 2003	 
	Vesting Commencement Date
	 	July 14, 2003	 
	Exercise Price per Share
	 	 	$23.72	 
	Total Number of Shares Granted
	 	 	150,000	 
	Total Exercise Price
	 	$	3,558,000	 
	Term/Expiration Date:
	 	July 14, 2013	 
	Vesting Schedule:
	 	 	 	 

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

     l/60th of the Shares subject to the Option shall vest each month after the Vesting
Commencement Date, so that the Option shall be fully vested five (5) years from the Date of Grant,
subject to the Optionee continuing to be a Service Provider on such dates.

     Termination Period

     This Option may be exercised for ninety (90) days after Optionee ceases to be a Service
Provider in accordance with Section 7 of this Agreement. Upon the death or Disability of the
Optionee, this Option may be exercised for twelve (12) months after the Optionee
ceases to be a Service Provider in accordance with Sections 8 and 9 of this Agreement. In no event
shall this Option be exercised later than the Term/Expiration Date provided.

 

 

II. AGREEMENT

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

          (a)
“Agreement” means this stock option agreement between the Company and Optionee evidencing
the terms and conditions of this Option.

          (b)
“Applicable Laws” means the requirements relating to the administration of stock options
under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock
exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction that may apply to this Option.

          (c)
“Board” means the Board of Directors of the Company or any committee of the Board that has
been designated by the Board to administer this Agreement.

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

          (e)
“Common Stock” means the common stock of the Company.

          (f)
“Company” means Cyberonics, Inc., a Delaware
corporation.

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

          (h)
“Director” means a member of the Board.

          (i)
“Disability” means total and permanent disability as defined in Section 22(e)(3) of the
Code.

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

          (k)
“Exchange Act” means the Securities Exchange Act of 1934, as amended.

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

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

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               (2) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the mean between the
high bid and low asked prices for the Common Stock on the day of determination; or

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

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

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

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

          (p)
“Option” means this stock option.

          (q)
“Optioned Stock” means the Common Stock subject to
this Option.

          (r)
“Optionee” means the person named in the Notice of Grant or such person’s
successor.

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

          (t)
“Service Provider” means an Employee, Director or Consultant.

          (u)
“Share” means a share of the Common Stock, as adjusted in accordance with
Section 10 of this Agreement.

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

     2. Grant
of Option. The Board hereby grants to the Optionee named in the Notice of
Grant attached as Part I of this Agreement the Option to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant
(the “Exercise Price”), subject to the terms and conditions of this Agreement.

     3. Exercise
of Option.

          (a) Right to Exercise. This Option is exercisable during its term in accordance with
the Vesting Schedule set out in the Notice of Grant and the applicable provisions of this
Agreement.

          (b) Method of Exercise. This Option is exercisable by delivery of an exercise notice,
in the form attached as Exhibit A (the “Exercise Notice”), which shall state the election
to exercise

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

          (c) Legal Compliance. No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance,
for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on
the date the Option is exercised with respect to such Exercised Shares.

     4. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:

          (a) cash or check;

          (b) promissory note;

          (c) consideration received by the Company under a cashless exercise program implemented
by the Company; or

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

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

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

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

     8. Disability of Optionee. If the Optionee ceases to be a Service Provider as a result
of the Optionee’s Disability, this Option may be exercised for a period of twelve (12) months after
the date of such termination (but in no event later than the expiration date of this Option as set
forth in the Notice of Grant) to the extent that the Option is vested on the date of such
termination. To the extent

-4-

 

that Optionee does not exercise this Option within the time specified herein, the Option shall
terminate.

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

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

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

          (b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Board shall notify Optionee as soon as practicable prior to the
effective date of such proposed transaction. The Board in its discretion may provide for the
Optionee to have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as to which the
Option would not otherwise be exercisable. To the extent it has not been previously exercised,
the Option will terminate immediately prior to the consummation of such proposed.

          (c)
Merger or Asset Sale. In the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, the Option shall be
assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary
of the successor corporation. In the event that the successor corporation refuses to assume or
substitute for the Option, the Optionee shall fully vest in and have the right to exercise the
Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be
vested or exercisable. If the Option becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify the Optionee in
writing or electronically that the Option shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option shall be considered assumed if, following
the merger or sale of assets, the option confers the right to purchase or receive, for each Share
of Optioned Stock subject to the Option immediately

-5-

 

prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities
or property) received in the merger or sale of assets by holders of Common Stock for each Share
held on the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the Administrator may, with the
consent of the successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common
stock of the successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of assets.

          (d) Change of Control. In the event of a Change of Control (as defined below), the
Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or exercisable, and any
Company reacquisition option applicable to any Shares acquired upon exercise of an Option shall
lapse as to all such Shares. If an Option becomes fully vested and exercisable as the result of a
Change of Control, the Administrator shall notify the Optionee in writing or electronically prior
to the Change of Control that the Option shall be fully vested and exercisable for a period of
fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration
of such period. For purposes of this Plan, a “Change of Control” means the happening of any of the
following events:

               (1) When any “person,” as such term is used in Sections I3(d) and
14(d) of the Exchange Act, other than the Company, a subsidiary of the Company or a Company
employee benefit plan, including any trustee of such plan acting as trustee, is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the combined voting power of
the Company’s then outstanding securities entitled to vote generally in the election of directors;
or

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

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

-6-

 

     11. Notices. Any notice to be given to the Company hereunder shall be in writing and
shall be addressed to the Company at its then current principal executive office or to such other
address as the Company may hereafter designate to the Optionee by notice as provided in this
Section. Any notice to be given to the Optionee hereunder shall be addressed to the Optionee at
the address set forth beneath his signature hereto, or at such other address as the Optionee may
hereafter designate to the Company by notice as provided herein. A notice shall be deemed to
have been duly given when personally delivered or mailed by registered or certified mail to the
party entitled to receive it.

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

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

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

-7-

 

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

	 	 	 	 	 	 	 
	OPTIONEE

	 	 	 	CYBERONICS, INC.
	 	 
	 
	 	 	 	 	 	 
	/s/ George E. Parker

	 	 	 	/s/ Robert P. Cummins	 	 
	 

	 	 	 	 	 	 
	Signature

	 	 	 	Robert P. Cummins	 	 
	 
	 	 	 	 	 	 
	George E. Parker
	 	 	 	7.14.03	 	 
	 

	 	 	 	 	 	 
	George E. Parker III
	 	 	 	Chairman & Chief Executive
Officer	 	 
	 
	 	 	 	 	 	 
	15 INVERNESS CT
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Address
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Cheshire,
CT 06410
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	City, State, Zip Code
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	###-##-####       7/21/03
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Social Security Number
	 	 	 	 	 	 

-8-

 

EXHIBIT A

CYBERONICS,
INC.
 

EXERCISE NOTICE

Cyberonics, Inc.
100
Cyberonics Blvd.

Houston, Texas 77058

Attention:

     1. Exercise
of Option. Effective as of today, ______, 20____________, the undersigned
(“Purchaser”) hereby elects to purchase _____ shares (the “Shares”) of the Common
Stock of Cyberonics, Inc. (the “Company”) under and pursuant to the Stock Option Agreement dated
[_______________] (the “Option Agreement”). The purchase price for the Shares shall be
[$_________], as required by the Option Agreement.

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

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

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

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

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

 

 

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

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

	 	 	 	 	 
	Submitted by:	 	Accepted by:  
	 
	 	 	 	 
	OPTIONEE	 	CYBERONICS, INC,
	 
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	Signature
	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	Print Name
	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	Address	 	Address
	 
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 

	 	Date Received:

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