Document:

EX-10.2

REGISTRATION RIGHTS AGREEMENT

between

CYBERONICS, INC.

and

THE INITIAL PURCHASER NAMED HEREIN

Dated September 27, 2005

Registration Rights Agreement (this “Agreement”), dated as of September 27, 2005,
between Cyberonics, Inc., a Delaware corporation (together with any successor entity, the
“Issuer”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
(the “Initial Purchaser”).

Pursuant to the Purchase Agreement, dated September 21, 2005, between the Issuer and the
Initial Purchaser (the “Purchase Agreement”), the Initial Purchaser has agreed to purchase
from the Issuer up to $125,000,000 in aggregate principal amount of 3.0% Convertible Senior
Subordinated Notes Due 2012 (the “Notes”). The Notes will be convertible into fully paid,
nonassessable shares of common stock, par value $0.01 per share, of the Issuer (the “Common
Stock”) on the terms, and subject to the conditions, set forth in the Indenture (as defined
herein). To induce the Initial Purchaser to purchase the Notes, the Issuer has agreed to provide
the registration rights set forth in this Agreement pursuant to the Purchase Agreement.

The parties hereby agree as follows:

SECTION 1. Definitions. As used in this Agreement, the following capitalized terms
shall have the following meanings:

Advice: As defined in Section 4(c)(ii) hereof.

Agreement: As defined in the preamble hereto.

Business Day: A day other than a Saturday or Sunday or any federal holiday in the
United States.

Commission: Securities and Exchange Commission.

Common Stock: As defined in the preamble hereto.

Damages Payment Date: Each Interest Payment Date.

Effectiveness Period: As defined in Section 2(a)(iii) hereof.

Effectiveness Target Date: As defined in Section 2(a)(ii) hereof.

Exchange Act: Securities Exchange Act of 1934, as amended.

Holder: A Person who owns, beneficially or otherwise, Transfer Restricted Securities.

Indenture: The Indenture, dated as of September 27, 2005, between the Issuer and
Wells Fargo Bank, National Association, as trustee, pursuant to which the Notes are to be issued,
as such Indenture is amended, modified or supplemented from time to time in accordance with the
terms thereof.

Initial Purchaser: As defined in the preamble hereto.

Interest Payment Date: As defined in the Indenture.

Issuer: As defined in the preamble hereto.

Liquidated Damages: As defined in Section 3(a) hereof.

Majority of Holders: Holders holding over 50% of the aggregate principal amount of
Notes outstanding; provided, however, that, for purpose of this definition, a
holder of shares of Common Stock which constitute Transfer Restricted Securities and were issued
upon conversion of the Notes shall be deemed to hold an aggregate principal amount of Notes (in
addition to the aggregate principal amount of Notes held by such holder) equal to the aggregate
principal amount of Notes converted by such Holder into such shares of Common Stock.

NASD: National Association of Securities Dealers, Inc.

Notes: As defined in the preamble hereto.

Offering Memorandum: The offering memorandum of the Issuer, dated as of September 21,
2005, relating to the Notes.

Person: An individual, partnership, corporation, unincorporated organization, trust,
joint venture or a government or agency or political subdivision thereof.

Prospectus: The prospectus included in a Shelf Registration Statement, as amended or
supplemented by any prospectus supplement and by all other amendments thereto, including
post-effective amendments, and all material incorporated by reference into such Prospectus.

Purchase Agreement: As defined in the preamble hereto.

Questionnaire Deadline: As defined in Section 2(b) hereof.

Record Holder: With respect to any Damages Payment Date, each Person who is a Holder
of Notes on the record date with respect to the Interest Payment Date on which such Damages Payment
Date shall occur.

Registration Default: As defined in Section 3(a) hereof.

Securities Act: Securities Act of 1933, as amended.

Shelf Filing Deadline: As defined in Section 2(a)(i) hereof.

Shelf Registration Statement: As defined in Section 2(a)(i) hereof.

Suspension Period: As defined in Section 4(b)(i) hereof.

TIA: Trust Indenture Act of 1939, as in effect on the date the Indenture is qualified
under the TIA.

Transfer Restricted Securities: Each Note and each share of Common Stock issued upon
conversion of Notes until the earlier of:

(i) the date on which such Note or such share of Common Stock issued upon conversion
has been effectively registered under the Securities Act and disposed of in accordance with
the Shelf Registration Statement;

(ii) the date on which such Note or such share of Common Stock issued upon conversion
is transferred in compliance with Rule 144 under the Securities Act or may be sold or
transferred pursuant to Rule 144(k) under the Securities Act (or any other similar provision
then in force); or

(iii) the date on which such Note or such share of Common Stock issued upon conversion
ceases to be outstanding (whether as a result of redemption, repurchase and cancellation,
conversion or otherwise).

Underwritten Registration or Underwritten Offering: A registration in which
securities of the Issuer are sold to an underwriter for reoffering to the public.

SECTION 2. Shelf Registration.

(a) The Issuer shall:

(i) not later than 290 days after the date hereof (the “Shelf Filing
Deadline”), cause to be filed a registration statement pursuant to Rule 415 under the
Securities Act (the “Shelf Registration Statement”), which Shelf Registration
Statement shall provide for resales of all Transfer Restricted Securities held by Holders
that have provided the information required pursuant to the terms of Section 2(b) hereof;

(ii) use its reasonable best efforts to cause the Shelf Registration Statement to be
declared effective by the Commission no later than 380 days after the date hereof (the
“Effectiveness Target Date”); and

(iii) use its reasonable best efforts to keep the Shelf Registration Statement
continuously effective, supplemented and amended as required by the provisions of Section
4(b) hereof to the extent necessary to ensure that it (A) is available for resales by the
Holders of Transfer Restricted Securities entitled to the benefit of this Agreement and (B)
conforms with the requirements of this Agreement and the Securities Act and the rules and
regulations of the Commission promulgated thereunder as announced from time to time for a
period (the “Effectiveness Period”) of:

(1) two years after the date hereof; or

(2) such shorter period that will terminate when (x) all of the Holders of
Transfer Restricted Securities are able to sell all Transfer Restricted Securities
immediately without restriction pursuant to Rule 144(k) under the Securities Act or
any successor rule thereto, (y) when all Transfer Restricted Securities have ceased
to be outstanding (whether as a result of redemption, repurchase and cancellation,
conversion or otherwise) or (z) all Transfer Restricted Securities registered under
the Shelf Registration Statement have been sold.

(b) Subject to Section 2(c) below, no Holder may include any of its Transfer Restricted
Securities in the Shelf Registration Statement pursuant to this Agreement unless such Holder
furnishes to the Issuer in writing, prior to or on the 10th Business Day after receipt of a request
therefor (the “Questionnaire Deadline”), such information as the Issuer may reasonably
request, including the information specified in the form of questionnaire attached as Annex A to
the Offering Memorandum, for use in connection with the Shelf Registration Statement or the
Prospectus or preliminary Prospectus included therein and in any application to be filed with or
under state securities laws. In connection with all such requests for information from Holders in
addition to that set forth in Annex A to the Offering Memorandum, the Issuer shall notify such
Holders of the requirements set forth in the preceding sentence.

(c) Beginning on the date the Shelf Registration Statement is declared effective, if necessary
to identify such Holder as a selling securityholder in the Shelf Registration Statement, the Issuer
shall:

(i) (1) if permitted by the Commission to file a prospectus supplement, within 10
Business Days of receipt of a completed questionnaire, together with such other information
as the Issuer may reasonably request, file with the Commission a supplement to the related
Prospectus, or

(2) within 30 days of receipt of a completed questionnaire, together with such other
information as the Issuer may reasonably request, file with the Commission a post-effective
amendment to the Shelf Registration Statement or file any other document required under the
Securities Act, and use its reasonable best efforts to cause such post-effective amendment
to be declared effective under the Securities Act as promptly as is practicable, but in any
event by the date that is 45 days after the date such post-effective amendment is required
by this clause to be filed;

(ii) provide such Holder copies of any documents filed pursuant to Section 2(c)(i); and

(iii) notify such Holder as promptly as practicable after (i) the filing of such
prospectus supplement pursuant to Section 2(c)(i)(1), or (ii) the effectiveness under the
Securities Act of any post-effective amendment filed pursuant to Section 2(c)(i)(2);

provided that if such questionnaire is delivered during a Suspension Period, the Issuer
shall so inform the Holder delivering such questionnaire and shall take the actions set forth in
clauses (i), (ii) and (iii) above within 5 Business Days after expiration of the Suspension Period;
provided further that in no event shall the Issuer be required to file a
post-effective amendment to the Shelf Registration Statement for the purpose of naming Holders as
selling securityholders pursuant to Section 2(c)(i)(2) until the date that is 30 days after the
date the Issuer shall have received questionnaires from Holders of Transfer Restricted Securities
holding an aggregate of at least $10 million aggregate principal amount of Transfer Restricted
Securities; and provided further that in no event will the Issuer be required to
file a post-effective amendment to the Shelf Registration Statement more frequently than once per
fiscal quarter. In connection with all such requests for information from Holders in addition to
that set forth in Annex A to the Offering Memorandum, the Issuer shall notify such Holders of the
requirements set forth in the preceding sentence.

SECTION 3. Liquidated Damages.

(a) If:

(i) the Shelf Registration Statement is not filed with the Commission prior to or on
the Shelf Filing Deadline;

(ii) the Shelf Registration Statement has not been declared effective by the Commission
prior to or on the Effectiveness Target Date;

(iii) subject to the provisions of Section 4(b)(i) hereof, the Shelf Registration
Statement is filed and declared effective but, during the Effectiveness Period, shall
thereafter cease to be effective or fail to be usable for its intended purpose without being
succeeded within five Business Days by a post-effective amendment to the Shelf Registration
Statement or a report filed with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act that cures such failure and, in the case of a post-effective
amendment, is itself immediately declared effective; or

(iv) prior to or on the 45th, 60th or 90th day, as the case may be, of any Suspension
Period, such suspension has not been terminated;

(each such event referred to in foregoing clauses (i) through (iv), a “Registration
Default”), the Issuer hereby agrees to pay liquidated damages (“Liquidated Damages”)
from and including the day following the Registration Default to but excluding the day on which the
Registration Default has been cured in respect of the Notes, to each holder of Notes, (x) with
respect to the first 90-day period during which a Registration Default shall have occurred and be
continuing, in an amount per year equal to an additional 0.25% of the principal amount of the Notes
and (y) with respect to the period commencing on the 91st day following the day the Registration
Default shall have occurred and be continuing, in an amount per year equal to an additional 0.50%
of the principal amount of the Notes; provided that in no event shall Liquidated Damages
accrue at a rate per year exceeding 0.50% of the principal amount of the Notes.

(b) All accrued Liquidated Damages shall be paid in arrears to Record Holders by the Issuer on
each Damages Payment Date by wire transfer of immediately available funds or by federal funds
check. Following the cure of all Registration Defaults relating to any particular Note, the
accrual of Liquidated Damages with respect to such Note will cease. In no event shall Liquidated
Damages be paid to any Holder of a Note that has converted such Note into Common Stock.

All obligations of the Issuer set forth in this Section 3 that are outstanding with respect to
any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted
Security shall survive until such time as all such obligations with respect to such Transfer
Restricted Security shall have been satisfied in full.

A Holder shall only be entitled to Liquidated Damages pursuant to Section 3(a)(iii) or Section
3(a)(iv) if such Holder shall have returned a completed questionnaire to the Issuer, together with
such other information as the Issuer may reasonably request.

The Liquidated Damages set forth above shall be the exclusive monetary remedy available to the
Holders of Notes for such Registration Default.

SECTION 4. Registration Procedures.

(a) In connection with the Shelf Registration Statement, the Issuer shall comply with all the
provisions of Section 4(b) hereof and shall use its reasonable best efforts to effect such
registration to permit the resale of the Transfer Restricted Securities in accordance with the
intended method or methods of distribution thereof, and pursuant thereto, shall as expeditiously as
possible prepare and file with the Commission a Shelf Registration Statement relating to
registration on any appropriate form under the Securities Act.

(b) In connection with the Shelf Registration Statement and any Prospectus required by this
Agreement to permit the resale of Transfer Restricted Securities, the Issuer shall:

(i) Subject to any notice by the Issuer in accordance with this Section 4(b) of the
existence of any fact or event of the kind described in Section 4(b)(iii)(D), use its
reasonable best efforts to keep the Shelf Registration Statement continuously effective
during the Effectiveness Period. Upon the occurrence of any event that would cause the
Shelf Registration Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not be effective and usable for resale of Transfer
Restricted Securities during the Effectiveness Period, the Issuer shall file promptly an
appropriate amendment to the Shelf Registration Statement or a report filed with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the case of
clause (A), correcting any such misstatement or omission, and, in the case of either clause
(A) or (B), use its reasonable best efforts to cause any such amendment to be declared
effective and the Shelf Registration Statement and the related Prospectus to become usable
for their intended purposes as soon as practicable thereafter. Notwithstanding the
foregoing, the Issuer may suspend the effectiveness of the Shelf Registration Statement by
written notice to the Holders for a period not to exceed 45 days in any 90-day period or an
aggregate of 90 days in any 12-month period (each such period, a “Suspension
Period”) if, in the Issuer’s reasonable judgment, it possesses material non-public
information the disclosure of which would have a material adverse effect on the business of
the Issuer (and its subsidiaries, if any, taken as a whole); provided,
however, that in the event the disclosure relates to a previously undisclosed
proposed or pending material business transaction, the disclosure of which would impede the
Issuer’s ability to consummate such transaction, the Issuer may extend a Suspension Period
from 45 days to 60 days.

(ii) Prepare and file with the Commission such post-effective amendments to the Shelf
Registration Statement as may be necessary to keep the Shelf Registration Statement
effective during the Effectiveness Period; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act, and to comply fully with the applicable provisions of Rules 424
and 430A under the Securities Act in a timely manner; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by the Shelf
Registration Statement during the applicable period in accordance with the intended method
or methods of distribution by the sellers thereof set forth in the Shelf Registration
Statement or Prospectus supplement.

(iii) Advise the selling Holders that have provided the information required by Section
4(d) of this Agreement, the Initial Purchaser, and the underwriter(s), if any, promptly (but
in any event within five Business Days) and, if requested by such Persons, confirm such
advice in writing:

(A) with respect to the Shelf Registration Statement or any post-effective
amendment thereto, when the same has become effective, and when the Prospectus or
any Prospectus supplement or post-effective amendment has been filed,

(B) of any request by the Commission for amendments to the Shelf Registration
Statement or amendments or supplements to the Prospectus or for additional
information relating thereto,

(C) of the issuance by the Commission of any stop order suspending the
effectiveness of the Shelf Registration Statement under the Securities Act or of the
suspension by any state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, or

(D) of the existence of any fact or the happening of any event, during the
Effectiveness Period, that makes any statement of a material fact made in the Shelf
Registration Statement or the Prospectus, any amendment or supplement thereto, or
any document incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Shelf Registration Statement or the Prospectus
in order to make the statements therein not misleading.

If at any time the Commission shall issue any stop order suspending the effectiveness of the
Shelf Registration Statement, or any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Issuer shall use its reasonable
best efforts to obtain the withdrawal or lifting of such order at the earliest possible time.

(iv) Furnish to each of the selling Holders that have provided the information required
by Section 4(d) of this Agreement, the underwriter(s), if any, before filing with the
Commission, a copy of the Shelf Registration Statement and copies of any Prospectus included
therein or any amendments or supplements to the Shelf Registration Statement or Prospectus
(other than documents incorporated by reference after the initial filing of the Shelf
Registration Statement), which documents will be subject to the review of such Holders, the
Initial Purchaser and underwriter(s), if any, for a period of at least ten Business Days,
and the Issuer will not file any Shelf Registration Statement or Prospectus or any amendment
or supplement to the Shelf Registration Statement or Prospectus (other than documents
incorporated by reference) to which a selling Holder of Transfer Restricted Securities
covered by the Shelf Registration Statement, the Initial Purchaser, or the underwriter(s),
if any, shall reasonably object within five Business Days after the receipt thereof. A
selling Holder, the Initial Purchaser, or underwriter, if any, shall be deemed to have
reasonably objected to such filing if the Shelf Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission.

(v) If the selling Holders propose to make an underwritten public offering of the
Transfer Restricted Securities, subject to the proviso contained in Section 4(b)(ix), make
available at reasonable times for inspection by one or more representatives of the selling
Holders, designated in writing by a Majority of Holders whose Transfer Restricted Securities
are included in the Shelf Registration Statement, any underwriter participating in any
distribution pursuant to the Shelf Registration Statement and any attorney or accountant
retained by such selling Holders or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of the Issuer as shall be reasonably
necessary to enable them to exercise any applicable due diligence responsibilities, and
cause the Issuer’s officers, directors, managers and employees to supply all information
reasonably requested by any such representative or representatives of the selling Holders,
underwriter, attorney or accountant in connection with the Shelf Registration Statement
after the filing thereof and before its effectiveness; provided, however,
that any information designated by the Issuer as confidential at the time of delivery of
such information shall be kept confidential by the recipient thereof.

(vi) If requested by any selling Holders, the Initial Purchaser or the underwriter(s),
if any, promptly incorporate in the Shelf Registration Statement or Prospectus, pursuant to
a supplement or post-effective amendment if necessary, such information as such selling
Holders, the Initial Purchaser, and such underwriter(s), if any, may reasonably request to
have included therein, including, without limitation: (1) information relating to the “Plan
of Distribution” of the Transfer Restricted Securities, (2) information with respect to the
principal amount of Notes or number of shares of Common Stock being sold to such
underwriter(s), if any, (3) the purchase price being paid therefor and (4) any other terms
of the offering of the Transfer Restricted Securities to be sold in such offering; and make
all required filings of such Prospectus supplement or post-effective amendment as soon as
reasonably practicable after the Issuer is notified of the matters to be incorporated in
such Prospectus supplement or post-effective amendment. Notwithstanding the foregoing, the
Issuer will only be required to file a post-effective amendment to the Shelf Registration
Statement when it has received questionnaires from Holders holding an aggregate of at least
$10,000,000 aggregate principal amount of the Notes, and in no event will the Issuer be
required to file a post-effective amendment to the Shelf Registration Statement more
frequently than once per fiscal quarter.

(vii) Furnish to each selling Holder, the Initial Purchaser, and each of the
underwriter(s), if any, without charge, at least one copy of the Shelf Registration
Statement, as first filed with the Commission, and of each amendment thereto (and any
documents incorporated by reference therein or exhibits thereto (or exhibits incorporated in
such exhibits by reference) as such Person may request).

(viii) Deliver to each selling Holder, the Initial Purchaser, and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably
may request; subject to any notice by the Issuer in accordance with this Section 4(b) of the
existence of any fact or event of the kind described in Section 4(b)(iii)(D), the Issuer
hereby consents to the use of the Prospectus and any amendment or supplement thereto by each
of the selling Holders and each of the underwriter(s), if any, in connection with the
offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto.

(ix) If an underwriting agreement is entered into and the registration is an
Underwritten Registration, the Issuer shall:

(A) upon request, furnish to each selling Holder and the underwriter(s), if
any, in such substance and scope as they may reasonably request and as are
customarily made by issuers to underwriters in primary underwritten offerings, upon
the date of closing of any sale of Transfer Restricted Securities in an Underwritten
Registration: (1) a certificate, dated the date of such closing, signed by the
Chief Financial Officer of the Issuer confirming, as of the date thereof, the
matters set forth in Section 5(f) of the Purchase Agreement and such other matters
as such parties may reasonably request; (2) opinions, each dated the date of such
closing, of counsel to the Issuer covering such of the matters set forth in the
exhibits to the Purchase Agreement referred to in Sections 5(a) through 5(d) thereof
as are customarily covered in legal opinions to underwriters in connection with
primary underwritten offerings of securities; and (3) customary comfort letters,
dated the date of such closing, from the Issuer’s independent registered public
accounting firm (and from any other accountants whose report is contained or
incorporated by reference in the Shelf Registration Statement), in the customary
form and covering matters of the type customarily covered in comfort letters to
underwriters in connection with primary underwritten offerings of securities;

(B) set forth in full in the underwriting agreement, if any, indemnification
provisions and procedures which provide rights no less protective than those set
forth in Section 6 hereof with respect to all parties to be indemnified;

(C) deliver such other documents and certificates as may be reasonably
requested by such parties to evidence compliance with clause (A) above and with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the selling Holders pursuant to this clause (ix);

provided, however, that the Issuer shall not be required to facilitate an
Underwritten Offering, as set forth in this subsection (ix), pursuant to the Shelf
Registration Statement by any Holders unless the offering relates to at least $50,000,000
principal amount of the Transfer Restricted Securities.

(x) Before any public offering of Transfer Restricted Securities, cooperate with the
selling Holders, the underwriter(s), if any, and their respective counsel in connection with
the registration and qualification of the Transfer Restricted Securities under the
securities or Blue Sky laws of such jurisdictions as the selling Holders or underwriter(s),
if any, may reasonably request and use its best reasonable efforts to do any and all other
acts or things necessary or advisable to enable the disposition in such jurisdictions of the
Transfer Restricted Securities covered by the Shelf Registration Statement;
provided, however, that the Issuer shall not be required (A) to register or
qualify as a foreign corporation or a dealer of securities where it is not now so qualified
or to take any action that would subject it to the service of process in any jurisdiction
where it is not now so subject or (B) to subject itself to taxation in any such jurisdiction
if they are not now so subject.

(xi) Cooperate with the selling Holders and the underwriter(s), if any, to facilitate
the timely preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and, when issued to the purchasers of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, not bearing any restrictive legends (unless
required by applicable securities laws); and enable such Transfer Restricted Securities to
be in such denominations and registered in such names as the selling Holders or the
underwriter(s), if any, may request at least two Business Days before any sale of Transfer
Restricted Securities made by the selling Holders or such underwriter(s).

(xii) Use its reasonable best efforts to cause the Transfer Restricted Securities
covered by the Shelf Registration Statement to be registered with or approved by such other
U.S. governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriter(s), if any, to consummate the disposition of such
Transfer Restricted Securities.

(xiii) Subject to Section 4(b)(i) hereof, if any fact or event contemplated by Section
4(b)(iii)(D) hereof shall exist or have occurred, use its reasonable best efforts to prepare
a supplement or post-effective amendment to the Shelf Registration Statement or related
Prospectus or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer Restricted
Securities, the Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make the statements
therein not misleading.

(xiv) Provide CUSIP numbers for all Transfer Restricted Securities not later than the
effective date of the Shelf Registration Statement and provide the Trustee under the
Indenture with certificates for the Notes that are in a form eligible for deposit with The
Depository Trust Company.

(xv) Cooperate with respect to any filings required to be made with the NASD and in the
performance of any due diligence investigation by any underwriter that is required to be
retained in accordance with the rules and regulations of the NASD.

(xvi) Otherwise use its reasonable best efforts to comply with all applicable rules and
regulations of the Commission and all reporting requirements under the rules and regulations
of the Exchange Act.

(xvii) Cause the Indenture to be qualified under the TIA not later than the effective
date of the Shelf Registration Statement required by this Agreement, and, in connection
therewith, cooperate with the Trustee and the holders of Notes to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in accordance with the
terms of the TIA; and execute and use its reasonable best efforts to cause the Trustee
thereunder to execute all documents that may be required to effect such changes and all
other forms and documents required to be filed with the Commission to enable such Indenture
to be so qualified in a timely manner.

(xviii) Cause all Transfer Restricted Securities covered by the Shelf Registration
Statement to be listed or quoted, as the case may be, on each securities exchange or
automated quotation system on which similar securities issued by the Issuer are then listed
or quoted.

(xix) Make available to each Holder upon written request by the Holder each document
filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the
Exchange Act after the effective date of the Shelf Registration Statement if such documents
are not otherwise publicly available.

(xx) Use its reasonable best efforts to obtain a waiver from each person who would
otherwise have the right to have securities of the Issuer (other than Transfer Restricted
Securities) registered on the Shelf Registration Statement required by this Agreement. To
the extent the Issuer does not receive such waivers, it will use its reasonable best efforts
to obtain the consent of such persons from whom waivers are not obtained to file a separate
registration statement with respect to all such other registrable securities, rather than
include them in the Shelf Registration Statement and, upon receipt of such consent, to
register such registrable securities in accordance therewith.

(c) Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of
any notice from the Issuer of the existence of any fact of the kind described in Section
4(b)(iii)(D) hereof, such Holder will, and will use its reasonable best efforts to cause any
underwriter(s) in an Underwritten Offering to, forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the Shelf Registration Statement until:

(i) such Holder has received copies of the supplemented or amended Prospectus
contemplated by Section 4(b)(xiii) hereof; or

(ii) such Holder is advised in writing (the “Advice”) by the Issuer that the
use of the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus. If so directed
by the Issuer, each Holder will (A) deliver to the Issuer (at the Issuer’s expense) all
copies, other than permanent file copies then in such Holder’s possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of receipt of such
notice of suspension or (B) destroy all copies in such Holder’s possession and provide a
certificate to the Issuer confirming such destruction.

(d) Each Holder who intends to be named as a selling Holder in the Shelf Registration
Statement shall furnish to the Issuer in writing, prior to or on the 10th Business Day after
receipt of a request therefor as set forth in a questionnaire, such information regarding such
Holder and the proposed distribution by such Holder of its Transfer Restricted Securities as the
Issuer may reasonably request for use in connection with the Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. The form of the questionnaire is attached
as Annex A to the Offering Memorandum. Holders that do not complete the questionnaire and deliver
it to the Issuer shall not be named as selling securityholders in the Prospectus or preliminary
Prospectus included in the Shelf Registration Statement and therefore shall not be permitted to
sell any Transfer Restricted Securities pursuant to the Shelf Registration Statement. Each Holder
who intends to be named as a selling Holder in the Shelf Registration Statement shall promptly
furnish to the Issuer in writing such other information as the Issuer may from time to time
reasonably request in writing. Each Holder as to which the Shelf Registration Statement is being
effected agrees to furnish promptly to the Issuer all information required to be disclosed in order
to make information previously furnished to the Issuer by such Holder not materially misleading.

SECTION 5. Registration Expenses.

(a) All expenses incident to the Issuer’s performance of or compliance with this Agreement
shall be borne by the Issuer regardless of whether a Shelf Registration Statement becomes
effective, including, without limitation:

(i) all registration and filing fees and expenses (including filings made by any
Initial Purchaser, Holders or underwriters with the NASD);

(ii) all fees and expenses of compliance with federal securities and state Blue Sky or
securities laws;

(iii) all reasonable expenses of printing (including printing of Prospectuses and
certificates for the Common Stock to be issued upon conversion of the Notes), messenger and
delivery services and telephone;

(iv) all reasonable fees and disbursements of counsel to the Issuer and, subject to
Section 5(b) below, the Holders of Transfer Restricted Securities;

(v) all application and filing fees in connection with listing (or authorizing for
quotation) the Common Stock on a national securities exchange or automated quotation system
pursuant to the requirements hereof; and

(vi) all fees and disbursements of independent registered public accounting firm of the
Issuer (including the expenses of any special audit and comfort letters required by or
incident to such performance).

The Issuer shall bear its internal expenses (including, without limitation, all salaries and
expenses of their officers and employees performing legal, accounting or other duties), the
expenses of any annual audit and the fees and expenses of any Person, including special experts,
retained by the Issuer.

(b) In connection with the review of the Shelf Registration Statement and other documents
referred to in this Agreement, the Issuer shall, against a reasonably detailed invoice therefor,
reimburse the Initial Purchaser, and the Holders of Transfer Restricted Securities being registered
pursuant to the Shelf Registration Statement, for the reasonable fees and disbursements of not more
than one counsel, which shall be Shearman & Sterling LLP, or such other counsel as may be chosen by
a Majority of Holders for whose benefit the Shelf Registration Statement is being prepared.

SECTION 6. Indemnification and Contribution.

(a) The Issuer agrees to indemnify and hold harmless each Initial Purchaser (and each of their
directors, officers and employees), each Holder whose securities are included in a Shelf
Registration Statement (and each of their directors, officers and employees), each Person who
participates as an underwriter (any such Person being an “Underwriter”) and each Person, if
any, who controls any Initial Purchaser, Holder or Underwriter within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange 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 of a material fact
contained in such Shelf Registration Statement (or any amendment thereto), including all
documents incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the statements therein
not misleading, or arising out of any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (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, however, that (subject to
Section 6(d) below) any such settlement is effected with the written consent of the Issuer;
and

(iii) against any and all expense whatsoever, as incurred (including the fees and
disbursements of counsel chosen by any indemnified party), 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 subparagraph
(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 Issuer by the Initial Purchaser, such Holder or such Underwriter
expressly for use in a Shelf Registration Statement (or any amendment thereto) or any Prospectus
(or any amendment or supplement thereto) and (y) with respect to any untrue statement or omission
or alleged untrue settlement or omission made in any preliminary prospectus relating to the Shelf
Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to
the benefit of any Holder from whom the person asserting any such losses, claims, damages or
liabilities purchased the Transfer Restricted Securities concerned, to the extent that a prospectus
relating to such Transfer Restricted Securities was required to be delivered by such Holder under
the Securities Act in connection with such purchase and any such loss, claim, damage or liability
of such Holder results from the fact that there was not sent or given to such person, at or prior
to the written confirmation of the sale of such Transfer Restricted Securities to such person, a
copy of the final prospectus if (1) the Issuer had previously furnished copies thereof to such
Holder and (2) such loss, claim, damage or liability of such Holder resulted from an untrue
statement or omission or alleged untrue settlement or omission contained in or omitted from the
preliminary prospectus which was corrected in the final prospectus; provided
further, however, that this indemnity agreement will be in addition to any
liability which the Issuer may otherwise have to such Indemnified Party.

(b) Each Holder whose securities are included in a Shelf Registration Statement, severally but
not jointly, agrees to indemnify and hold harmless the Issuer (and its directors, officers and
employees), the Initial Purchaser (and each of their directors, officers and employees), each
Underwriter (and each of their directors, officers and employees) and the other selling Holders
(and each of their directors, officers and employees) and each Person, if any, who controls the
Issuer, the Initial Purchaser, any Underwriter or any other selling Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange 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 Shelf
Registration Statement (or any amendment or supplement thereto) or the Prospectus (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 6(d) below) any such
settlement is effected with the written consent of the Holder; and

(iii) against any and all expense whatsoever, as incurred (including the fees and
disbursements of counsel chosen by the Issuer), 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 Holder’s indemnification obligations under this Section 6(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 Issuer by the Holder
expressly for use in the Registration Statement.

(c) Each indemnified party shall give notice as promptly as reasonably practicable to each
indemnifying party of any action or proceeding 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. An indemnifying party may participate at its own
expense in the defense of 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 party or parties be liable for the 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 6 (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) 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 6(a)(ii) 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.

(e) If the indemnification provided for in this Section 6 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 Issuer from the offering and sale of the Transfer Restricted Securities on
the one hand and a Holder with respect to the sale by the Holder of the Transfer Restricted
Securities on the other hand; 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) but also the relative fault of the indemnifying party or parties on the
one hand and the indemnified party or parties 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 Issuer on the one hand and a Holder on the other hand
with respect to such offering and such sale shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Notes purchased under the Purchase Agreement (before
deducting expenses) received by the Issuer, as set forth in the Offering Memorandum on the one hand
bear to the total net proceeds received by such Holder with respect to its sale of Transfer
Restricted Securities on the other. The relative fault of the indemnifying party or parties on the
one hand and the indemnified party or parties 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
indemnifying party or parties on the one hand or the indemnified party or parties on the other hand
and the parties’ relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.

The parties hereto agree that it would not be just and equitable if contribution pursuant to
this Section 6 were determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this Section 6. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 6 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 6, no Holder shall be required to contribute
any amount in excess of the amount by which the total price at which the Transfer Restricted
Securities purchased by it were resold exceeds the amount of any damages which such Holder has
otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or
alleged omission. The Holders’ obligations to contribute as provided in this Section 6(e) are
several and not joint. No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.

For purposes of this Section 6, each Person, if any, who controls an Initial Purchaser, a
Holder or an Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as such Initial Purchaser, such Holder
or such Underwriter, and each director of the Issuer, and each Person, if any, who controls the
Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
shall have the same rights to contribution as the Issuer.

SECTION 7. Rule 144A. In the event the Issuer is not subject to Section 13 or 15(d)
of the Exchange Act, the Issuer hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding, to make available to any Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities from such Holder or beneficial owner, the information required
by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A.

SECTION 8. Participation in Underwritten Registrations. No Holder may participate in
any Underwritten Registration hereunder unless such Holder:

(i) agrees to sell such Holder’s Transfer Restricted Securities on the basis provided
in any underwriting arrangements approved by the Persons entitled hereunder to approve such
arrangements, and

(ii) completes and executes all reasonable questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.

SECTION 9. Selection of Underwriters. Subject to the proviso contained in Section
4(b)(ix), the Holders of Transfer Restricted Securities covered by the Shelf Registration Statement
who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering. In
any such Underwritten Offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by a Majority of Holders whose Transfer
Restricted Securities are included in such offering; provided that such investment bankers and
managers must be reasonably satisfactory to the Issuer.

SECTION 10. Miscellaneous.

(a) Remedies. The Issuer acknowledges and agrees that any failure by the Issuer to
comply with its obligations under Section 2 hereof may result in material irreparable injury to the
Initial Purchaser or the Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event of any such failure,
the Initial Purchaser or any Holder may obtain such relief as may be required to specifically
enforce the Issuer’s obligations under Section 2 hereof. The Issuer further agrees to waive the
defense in any action for specific performance that a remedy at law would be adequate.

(b) Adjustments Affecting Transfer Restricted Securities. The Issuer shall not,
directly or indirectly, take any action with respect to the Transfer Restricted Securities as a
class that would adversely affect the ability of the Holders to include such Transfer Restricted
Securities in a registration undertaken pursuant to this Agreement.

(c) No Inconsistent Agreements. The Issuer will not, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.
In addition, the Issuer shall not, on or after the date hereof, grant to any of its security
holders (other than the holders of Transfer Restricted Securities in such capacity) the right to
include any of its securities in the Shelf Registration Statement provided for in this Agreement
other than the Transfer Restricted Securities. Except as disclosed in the Offering Memorandum, the
Issuer has not previously entered into any agreement (which has not expired or been terminated)
granting any registration rights with respect to its securities to any Person which rights conflict
with the provisions hereof.

(d) Amendments and Waivers. This Agreement may not be amended, modified or
supplemented, and waivers or consents to or departures from the provisions hereof may not be given,
unless the Issuer has obtained the written consent of a Majority of Holders.

(e) Notices. All notices and other communications provided for or permitted hereunder
shall be made in writing by hand delivery, first-class mail (registered or certified, return
receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery:

(i) if to a Holder, at the address set forth on the records of the registrar under the
Indenture or the transfer agent of the Common Stock, as the case may be; and

(ii) if to the Issuer:

Cyberonics, Inc.

100 Cyberonics Boulevard

Houston, Texas 77058

Attention: General Counsel

With a copy (which shall not constitute notice) to:

Vinson & Elkins L.L.P.

First City Tower

1001 Fannin Street, Suite 2300

Houston, Texas 77002-6760

Attention: David Oelman, Esq.

All such notices and communications shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and
on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery.

(f) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties, including, without limitation and
without the need for an express assignment, subsequent Holders of Transfer Restricted Securities;
provided, however, that (i) this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such successor or assign
acquired Transfer Restricted Securities from such Holder and (ii) nothing contained herein shall be
deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in
violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder
shall acquire Transfer Restricted Securities, in any manner, whether by operation of law or
otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer Restricted Securities such person shall be
conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of
this Agreement.

(g) Counterparts. This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same agreement.

(h) Securities Held by the Issuer or Their Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Transfer Restricted Securities is required
hereunder, Transfer Restricted Securities held by the Issuer or its “affiliates” (as such term is
defined in Rule 405 under the Securities Act) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.

(i) Headings. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.

(j) Governing Law. This Agreement shall be governed by, and construed in accordance
with, the law of the State of New York.

(k) Severability. If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.

(l) Entire Agreement. This Agreement is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained herein. There are
no restrictions, promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Issuer with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and understandings between
the parties with respect to such subject matter.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

1

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

Very truly yours,

CYBERONICS, INC.

	 	 	 	 	 
	
 
	 	By:/s/ David S. Wise
	 	

	 	 	 

	
 
	 	Name:

Title:
	 	David S. Wise

Vice President, General Counsel &

Secretary
	 
	 	 	 	 
	Agreed and accepted as of the date first
	 	 
	 
	 	 	 	 
	above written:

	 	

	 	

	 
	 	 	 	 
	MERRILL LYNCH, PIERCE, FENNER & SMITH
	 	 
	 
	 	 	 	 
	INCORPORATED

	 	

	 	

	 
	 	 	 	 
	By: /s/ Edward D. Baxter

	 	

	 	

	 
	 	 
	Name:

Title:

	 	Edward D. Baxter

Director
	 	

	 
	 	 	 	 

2EX-10.3

	 	 	 	 	 
	Date:

	 	September 21, 2005
	 	ML Ref:
	To:

	 	Cyberonics, Inc. (“Counterparty”)
	 	

	
 
	 	 
	 	

	Attention:

	 	

	 	

	From:

	 	Merrill Lynch International (“ML”)
	 	

	
 
	 	 
	 	

	
 
	 	Merrill Lynch Financial Centre

2 King Edward Street

London EC1A 1HQ
	 	

	 	 	 	     

Dear Sir / Madam:

The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and
conditions of the above-referenced transaction entered into between Counterparty and ML through its
agent Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPFS” or “Agent”) on
the Trade Date specified below (the “Transaction”). This Confirmation constitutes a
“Confirmation” as referred to in the Agreement specified below.

The definitions and provisions contained in the 2000 ISDA Definitions (the “Swap
Definitions”) and the 2002 ISDA Equity Derivatives Definitions (the “Equity
Definitions” and, together with the Swap Definitions, the “Definitions”), in each case
as published by the International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Swap Definitions and the Equity
Definitions, the Equity Definitions will govern, and in the event of any inconsistency between the
Definitions and this Confirmation, this Confirmation will govern. References herein to a
“Transaction” shall be deemed to be references to a “Share Option Transaction” for purposes of the
Equity Definitions and a “Swap Transaction” for the purposes of the Swap Definitions.

This Confirmation evidences a complete binding agreement between you and us as to the terms of
the Transaction to which this Confirmation relates. This Confirmation (notwithstanding anything to
the contrary herein), shall be subject to an agreement in the 1992 form of the ISDA Master
Agreement (Multicurrency Cross Border) (the “Master Agreement” or “Agreement”) as
if we had executed an agreement in such form (but without any Schedule and with elections specified
in the “ISDA Master Agreement” Section of this Confirmation) on the Trade Date of the first such
Transaction between us. In the event of any inconsistency between the provisions of that agreement
and this Confirmation, this Confirmation will prevail for the purpose of this Transaction.

	 	 	 
	The terms of the particular Transaction to which this Confirmation relates are as follows:

	 
	 	 
	General Terms:

	 	

	 

	 	

	Trade Date:

	 	September 21, 2005

Effective Date: The fourth Business Day (as such term is defined in the Note Indenture) immediately
following the Trade Date.

	 	 	 
	Seller:

Buyer:

	 	ML

Counterparty

Shares: The shares of common stock, par value of $0.01, of Counterparty (Security Symbol: “CYBX”)
or such other securities or property into which the Reference Notes are convertible on the date of
determination.

	 	 	 
	Initial Payment Amount:

Initial Payment Amount

Payment Date:

	 	$38.2 mm to be paid on the Effective Date by Buyer to Seller

September 27, 2005
	 
	 	 
	Transaction Notional:

Exchange:

Related Exchange(s):

Knock-in Event:

Knock-out Event:

	 	Outstanding notional amount of Reference Notes

NASDAQ

All Exchanges

Not Applicable

Not Applicable

Reference Notes: 3.00% Convertible Notes of Counterparty due 2012 in the original principal amount
of $1,000

Conversion Event: Each conversion of any Reference Note into Shares pursuant to the terms of the
Note Indenture (the principal amount of Reference Notes so converted, the “Conversion
Amount” with respect to such Conversion Event) occurring before the Termination Date.

If the Conversion Amount for any Conversion Event is less than the aggregate principal amount
of Reference Notes then outstanding, then the terms of this Transaction shall continue to apply,
subject to the terms and conditions set forth herein, with respect to the remaining outstanding
principal amount of the Reference Notes.

Note Indenture: The Indenture, dated as of closing of the issuance of the Reference Notes, between
Counterparty and MLPFS, as trustee relating to the Reference Notes, as the same may be amended,
modified or supplemented, subject to the “Additional Termination Events” provisions of this
Confirmation.

Termination Date: The earlier of (i) September 27, 2012 and (ii) the first day on which none of the
Reference Notes remain outstanding, whether by virtue of conversion, issuer repurchase or
otherwise.

Valuation:

Valuation Date: The final Averaging Date in respect of each Conversion Event or Termination Event.

Averaging Dates: 10 full Exchange Business Days beginning one Exchange Business Day after a
Conversion Notice is received or the Termination Date.

Averaging Date Disruption: Modified Postponement, provided that Section 6.7(c)(iii) of the Equity
Definitions shall be amended by substituting the word “fifth” for the word “eighth” in each of its
occurrences.

Settlement Terms:

Settlement Method: Net Share Settlement or Net Cash Settlement at the election of the Buyer or, in
the event of a Cash Takeover, there being no underlying Shares, Net Cash Settlement would apply.

Settlement Notice: Buyer shall provide Seller with notice of its Settlement Method Election within
three (3) Business Days after a Conversion Notice is received or the Termination Date.

Settlement Price: The arithmetic mean of the closing price of the Shares on the Exchange on each
Averaging Date. If a Make-Whole Event has occurred, the price determined per the Reference Notes.

Make-Whole Event: The occurrence of a Fundamental Change (as defined in the Note Indenture) other
than a Fundamental Change described in clause (3) of Change of Control (as defined in the Note
Indenture).

Settlement Date: The third (3rd) full Exchange Business Day following the Valuation Date.

Conversion Notice: Counterparty agrees to provide ML with notice of any Conversion Event within two
(2) Business Days following the Conversion Date and in any event no later than one (1) Business Day
following Counterparty’s receipt of notice of such Conversion Event from the Trustee under the Note
Indenture.

Net Share Settlement: On the Settlement Date, ML shall deliver to Counterparty, through the Agent,
a number of Shares equal to the related Net Share Settlement Amount.

Cash Settlement: On the Settlement Date, ML shall deliver to Counterparty the Net Cash Settlement
Amount.

Net Share Settlement Amount: For each Conversion Event and the Termination Date, the number of
Shares, rounded up to the nearest whole Share, determined by the Calculation Agent to be equal to
the quotient of (x) the related Net Cash Settlement Amount divided by (y) the related Settlement
Price.

Net Cash Settlement Amount: For each Conversion Event, the product of (x) the number of Shares into
which the Reference Notes subject to conversion are to be converted in connection with the related
Conversion Event multiplied by (y) the Final Price Differential. For the Termination Date, the
product of (x) the number of Shares into which the Reference Notes outstanding immediately prior to
such Termination Date and which were not subject to a Conversion Event prior to the Termination
Date could be converted on such Termination Date multiplied by (y) the Final Price Differential.

Final Price Differential: An amount equal to the greater of (x) the excess of the related
Settlement Price over the related Adjusted Conversion Price and (y) zero.

Adjusted Conversion Price: For each Conversion Event, a quotient, the numerator of which $1,000 and
the denominator of which is the Conversion Rate (as defined in the Note Indenture and as adjusted
from time to time pursuant to the terms thereof)1 as in effect on the related Settlement
Date.

Share Adjustments:

Consequences for Merger Events:

Share-for-Share: Not Applicable, Transaction will be adjusted consistent with the Reference
Notes as provided in the Note Indenture.

Share-for-Other: Not Applicable, Transaction will be adjusted consistent with the Reference
Notes as provided in the Note Indenture.

Share-for-Combined: Not Applicable, Transaction will be adjusted consistent with the
Reference Notes as provided in the Note Indenture.

	 	 	 
	Tender Offer:

Nationalization, Insolvency or Delisting:

Additional Disruption Events:

	 	Not Applicable

Not Applicable

	Change in Law:

	 	Not Applicable

Failure to Deliver: Applicable. If there is inability in the market to deliver Shares on a
day that would have been a Settlement Date, then the Settlement Date shall be the first
succeeding Exchange Business Day on which there is no inability to deliver, but in no such
event shall the Settlement Date be later than the date that is twenty (20) Exchange Business
Days immediately following what would have been in the Settlement Date but for such
inability to deliver.

	 	 	 
	Insolvency Filing:

Hedging Disruption Event:

Increased Cost of Hedging:

Hedging Party:

Loss of Stock Borrow:

Increased Cost of Stock Borrow:

Determining Party:

Non-Reliance:

Agreements and Acknowledgments

Regarding Hedging Activities:

Additional Acknowledgments:

	 	Applicable

Not Applicable

Not Applicable

ML

Not Applicable

Not Applicable

ML

Applicable

Applicable

Applicable

Additional Agreements, Representations and Covenants of Counterparty, Etc.:

	 	1.	 	Counterparty hereby represents and warrants to ML, on each day from the Trade Date to
and including the earlier of (i) September 27, 2005 and (ii) the date by which ML is able
to initially complete a hedge of its position relating to this Transaction, that:

	 	a.	 	it will not, and will not permit any person or entity subject to its
control to, bid for or purchase Shares during such period except as disclosed in
the Offering Memorandum relating to the Reference Notes; and

	 	b.	 	Counterparty has publicly disclosed all material information necessary
for Counterparty to be able to purchase or sell Shares in compliance with
applicable federal securities laws and that it has publicly disclosed all material
information with respect to its condition (financial or otherwise).

	 	2.	 	The parties hereby agree that all documentation with respect to this Transaction is
intended to qualify this Transaction as an equity instrument for purposes of EITF 00-19.
If Counterparty would be obligated to receive cash from ML pursuant to the terms of this
Agreement for any reason without having had the right (other than pursuant to this
paragraph (2)) to elect to receive Shares in satisfaction of such payment obligation, then
Counterparty may elect that ML deliver to Counterparty a number of Shares having a cash
value equal to the amount of such payment obligation (such number of Shares to be delivered
to be determined by the Calculation Agent acting in a commercially reasonable manner to
determine the number of Shares that could be purchased over a reasonable period of time
with the cash equivalent of such payment obligation). Settlement relating to any delivery
of Shares pursuant to this paragraph (2) shall occur within a reasonable period of time.

Over-Allotment Option:

If the Initial Purchasers (as such term is defined in the Purchase Agreement among the Counterparty
and MLPFS as Initial Purchaser, dated as of September 21, 2005 (the “Purchase Agreement”)
relating to the purchase of the Reference Notes)]2 exercise their right to receive
additional Reference Notes pursuant to their over-allotment option, then ML and Counterparty will,
concurrently with the closing of such over-allotment option exercise, (i) enter into a confirmation
for a Convertible Note Hedge with respect to such additional Reference Notes on substantially
identical terms, including pricing, as this Confirmation, or (ii) amend this Confirmation to
provide for the applicable increase in Reference Notes. Such additional confirmation or amendment
shall provide for the payment by Counterparty to ML of the additional Initial Payment Amount
related thereto.

Additional Termination Events:

The occurrence of any of the following shall be an Additional Termination Event with respect to
Counterparty (which shall be the sole Affected Party and this Transaction shall be the sole
Affected Transaction):

	 	1.	 	an Amendment Event (as defined below) occurs (in which case the entirety of this
Transaction shall be subject to termination);

	 	2.	 	a Repayment Event (as defined below) occurs (in which case this Transaction shall be
subject to termination only in respect of the principal amount of Reference Notes that
cease to be outstanding in connection with or as a result of such Repayment Event); or

	 	3.	 	the transactions contemplated by the Purchase Agreement shall fail to close for any
reason, in which case the entirety of this Transaction shall terminate automatically.

If the transactions contemplated by the Purchase Agreement shall fail to close because of a breach
of the Purchase Agreement by MLPFS, then the entirety of this Transaction shall terminate
automatically, and all payments previously made hereunder, including the Initial Payment Amount,
shall be promptly returned to the person making such payment. In addition, if an Amendment Event
or Repayment Event occurs or the transactions contemplated by the Purchase Agreement shall fail to
close as a result of any breach by any Initial Purchaser or as a result of any action, or failure
to act, by any Initial Purchaser thereunder or as a result of a failure of any condition to the
Counterparty’s obligation thereunder (collectively, an “Initial Purchase Event”), no
payments shall be required hereunder in connection with the Termination Event arising as a result
of such Amendment Event, Repayment Event or Initial Purchase Event.

As used in this Section Additional Termination Events:

“Amendment Event” means that the Counterparty amends, modifies, supplements or
waives any term of the Note Indenture or the Reference Notes relating to the principal
amount, coupon, maturity, repurchase obligation of the Counterparty, redemption right of the
Counterparty, any term relating to conversion of the Notes (including changes to the
conversion price, conversion settlement dates or conversion conditions), or any other term
that would require consent of the holders of not less than 100% of the principal amount of
the Reference Notes to amend.

“Repayment Event” means that (a) any Reference Notes are repurchased (whether in
connection with or as a result of a change of control, howsoever defined, or for any other
reason) by the Counterparty, (b) any Reference Notes are delivered to the Counterparty in
exchange for delivery of any property or assets of the Counterparty or any of its
subsidiaries (howsoever described), other than as a result of and in connection with a
Conversion Event, (c) any principal of any of the Reference Notes is repaid prior to the
Final Maturity Date, as defined in the Note Indenture (whether following acceleration of the
Reference Notes or otherwise), provided that no payments of cash made in respect of the
conversion a Note shall be deemed a payment of principal under this clause (c), (d) any
Reference Notes are exchanged by or for the benefit of the holders thereof for any other
securities of the Counterparty or any of its Affiliates (or any other property, or any
combination thereof) pursuant to any exchange offer or similar transaction or (e) any of the
Notes is surrendered by Counterparty to the trustee for cancellation, other than
registration of a transfer of such Notes or as a result of and in connection with a
Conversion Event.

Staggered Settlement:

If ML determines reasonably and in good faith that the number of Shares required to be delivered to
Counterparty hereunder on any Settlement Date would exceed 8.0% of all outstanding Shares, then ML
may, by notice to Counterparty on or prior to such Settlement Date (a “Nominal Settlement
Date”), elect to deliver the Shares comprising the related the Net Share Settlement Amount on
two or more dates (each, a “Staggered Settlement Date”) as follows:

	 	1.	 	in such notice, ML will specify to Counterparty the related Staggered Settlement Dates
(the first of which will be such Nominal Settlement Date and the last of which will be no
later than the twentieth (20th) Exchange Business Day following such Nominal
Settlement Date) and the number of Shares that it will deliver on each Staggered Settlement
Date;

	 	2.	 	the aggregate number of Shares that ML will deliver to Counterparty hereunder on all
such Staggered Settlement Dates will equal the number of Shares that ML would otherwise be
required to deliver on such Nominal Settlement Date; and

	 	3.	 	the Net Share Settlement terms will apply on each Staggered Settlement Date, except
that the Shares comprising the Net Share Settlement Amount will be allocated among such
Staggered Settlement Dates as specified by ML in the notice referred to in clause (1)
above.

Notwithstanding anything herein to the contrary, ML shall be entitled to deliver Shares to
Counterparty from time to time prior to the date on which ML would be obligated to deliver them to
Counterparty pursuant to Net Share Settlement terms set forth above, and Counterparty agrees to
credit all such early deliveries against ML’s obligations hereunder in the direct order in which
such obligations arise. No such early delivery of Shares will accelerate or otherwise affect any
of Counterparty’s obligations to ML hereunder. In addition, during the 30 day period prior to the
Termination Date or any Settlement Date, each of ML and Counterparty shall use its reasonable
efforts to refrain from activities which could reasonably be expected to result in ML’s ownership
of Shares exceeding 8% of all issued and outstanding Shares.

Compliance with Securities Laws: Each party represents and agrees that it has complied, and will
comply, in connection with this Transaction and all related or contemporaneous sales and purchases
of Shares, with the applicable provisions of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and
regulations each thereunder, including, without limitation, Rules 10b-5 and Regulation M under the
Exchange Act; provided that each party shall be entitled to rely conclusively on any
information communicated by the other party concerning such other party’s market activities;
and provided further that Counterparty shall have no liability as a result of a breach of
this representation due to ML’s gross negligence or willful misconduct.

Each party further represents that if such party (“X”) purchases any Shares from the other party
pursuant to this Transaction, such purchase(s) will comply in all material respects with (i) all
laws and regulations applicable to X and (ii) all contractual obligations of X.

Counterparty represents that as of the date hereof:

(a) each of its filings under the Exchange Act that are required to be filed from and including the
ending date of Counterparty’s most recent prior fiscal year have been filed, and that, as of the
respective dates thereof and hereof, there is no misstatement of material fact contained therein or
omission of a material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading;

(b) if Counterparty were to have purchased a number of Shares equal to the Number of Shares using
MLPFS as broker, such purchase(s) would have complied in all material respects with all contractual
obligations and applicable legal and regulatory requirements of Counterparty, including without
limitation Rule 10b-18 under the Exchange Act;

(c) Counterparty is not entering into this Agreement to facilitate a distribution of the common
stock or in connection with a future distribution of securities; and

(d) Counterparty is not entering into this Agreement to create actual or apparent trading activity
in the common stock (or any security convertible into or exchangeable for common stock) or to
manipulate the price of the common stock (or any security convertible into or exchangeable for
common stock).

	 	 	 
	Account Details:

	 	

	Account for payments to Counterparty:

Account for payment to ML:

	 	Not Applicable

Chase Manhattan Bank, New York

ABA# 021000021

FAO: ML Equity Derivatives

A/C: 066213118

Bankruptcy Rights: In the event of Counterparty’s bankruptcy, ML’s rights in connection with this
Transaction shall not exceed those rights held by common shareholders. For the avoidance of doubt,
the parties acknowledge and agree that ML’s rights with respect to any other claim arising from
this Transaction prior to Counterparty’s bankruptcy shall remain in full force and effect and shall
not be otherwise abridged or modified in connection herewith.

Set-Off: The Set-off provisions in the Agreement shall apply to this Transaction, except in the
event of Counterparty’s or ML’s bankruptcy, in which case each of the parties waives any and all
rights it may have to set-off, whether arising under any agreement, applicable law or otherwise.

Collateral: None.

Transfer: Counterparty may transfer any of its rights or delegate its obligations under this
Transaction without the prior written consent of ML. ML may transfer any of its rights or delegate
its obligations under this Transaction with the prior written consent of Counterparty, which
consent shall not be unreasonably withheld; provided however that ML may assign its rights
and delegate its obligations hereunder, in whole or in part, to any Affiliate (an
“Assignee”) of Merrill Lynch & Co., Inc. (“ML&Co.”), effective (the “Transfer
Effective Date”) upon delivery to Counterparty of (a) an executed acceptance and assumption by
the Assignee (an “Assumption”) of the transferred obligations of ML under this Transaction
(the “Transferred Obligations”); (b) and an executed guarantee (the “Guarantee”)
of ML&Co. of the Transferred Obligations. On the Transfer Effective Date, (a) ML shall be released
from all obligations and liabilities arising under the Transferred Obligations; and (b) the
Transferred Obligations shall cease to be a Transaction(s) under the Agreement and shall be deemed
to be a Transaction(s) under the ISDA Master Agreement between Assignee and Counterparty, provided
that, if at such time Assignee and Counterparty have not entered into a ISDA Master Agreement,
Assignee and Counterparty shall be deemed to have entered into an ISDA form of Master Agreement
(Multicurrency-Cross Border) without any Schedule attached thereto.

Regulation: ML is regulated by The Securities and Futures Authority Limited and has entered into
this Transaction as principal.

Indemnity: Each party agrees to indemnify the other party, its Affiliates and their respective
directors, officers, agents and controlling parties (each such person being an “Indemnified
Party”) from and against any and all losses, claims, damages and liabilities, joint and
several, to which such Indemnified Party may become subject because of a breach of any
representation or covenant hereunder, in the Agreement or any other Agreement relating to the
Agreement or Transaction and will reimburse any Indemnified Party for all reasonable expenses
(including reasonable legal fees and expenses) as they are incurred in connection with the
investigation of, preparation for, or defense of, any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party thereto.

ISDA Master Agreement

With respect to the Agreement, ML and Counterparty each agree as follows:

Specified Entities:

(i) in relation to ML, for the purposes of:

	 	 	 
	Section 5(a)(v):not applicable

	 	

	 
	 	 
	 

	 
	 	 
	Section 5(a)(vi):not applicable

	 	

	 
	 	 
	 

	 
	 	 
	Section 5(a)(vii):

	 	not applicable
	 

	 	

	Section 5(b)(iv):

	 	not applicable
	 

	 	

	 
	 	 
	and (ii) in relation to Counterparty, for the purposes of:

	 
	 	 
	Section 5(a)(v):not applicable

	 	

	 
	 	 
	 

	 
	 	 
	Section 5(a)(vi):not applicable

	 	

	 
	 	 
	 

	 
	 	 
	Section 5(a)(vii):

	 	not applicable
	 

	 	

	Section 5(b)(iv):

	 	not applicable
	 

	 	

“Specified Transaction” will have the meaning specified in Section 14 of the Agreement.

The “Credit Event Upon Merger” provisions of Section 5(b)(iv) of the Agreement will not
apply to ML and Counterparty.

The “Automatic Early Termination” provision of Section 6(a) of the Agreement will not apply
to ML or to Counterparty.

Payments on Early Termination for the purpose of Section 6(e) of the Agreement: (i) Market
Quotation shall apply; and (ii) the Second Method shall apply.

“Termination Currency” means USD.

Tax Representations:

(I) For the purpose of Section 3(e) of the Agreement, each party represents to the other
party that it is not required by any applicable law, as modified by the practice of any
relevant governmental revenue authority, of any Relevant Jurisdiction to make any
deduction or withholding for or on account of any Tax from any payment (other than
interest under Section 2(e), 6(d)(ii), or 6(e) of the Agreement) to be made by it to the
other party under the Agreement. In making this representation, each party may rely on
(i) the accuracy of any representations made by the other party pursuant to Section 3(f)
of the Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or
4(a)(iii) of the Agreement, and the accuracy and effectiveness of any document provided
by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of the Agreement, and (iii)
the satisfaction of the agreement of the other party contained in Section 4(d) of the
Agreement; provided that it will not be a breach of this representation where reliance
is placed on clause (ii) above and the other party does not deliver a form or document
under Section 4(a)(iii) of the Agreement by reason of material prejudice to its legal or
commercial position.

(II) For the purpose of Section 3(f) of the Agreement, each party makes the following
representations to the other party:

(i) ML represents that it is a corporation organized under the laws of England
and Wales.

(ii) Counterparty represents that it is a corporation incorporated under the
laws of the State of Delaware.

Delivery Requirements: For the purpose of Sections 3(d), 4(a)(i) and (ii)
of the Agreement, each party agrees to deliver the following documents:

Tax forms, documents or certificates to be delivered are:

Each party agrees to complete (accurately and in a manner reasonably
satisfactory to the other party), execute, and deliver to the other party,
United States Internal Revenue Service Form W-9 or W-8 BEN, or any successor
of such form(s): (i) before the first payment date under this agreement;
(ii) promptly upon reasonable demand by the other party; and (iii) promptly
upon learning that any such form(s) previously provided by the other party
has become obsolete or incorrect.

Other documents to be delivered:

	 	 	 	 	 	 	 
	Party Required to	 	 	 	 	 	Covered by Section
	Deliver Document	 	Document Required to be Delivered	 	When Required	 	3(d) Representation
	Counterparty

	 	Evidence of the authority and

true signatures of each official

or representative signing this

Confirmation
	 	Upon or before

execution and

delivery of this

Confirmation
	 	

Yes
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	Counterparty

	 	Certified copy of the resolution

of the Board of Directors or

equivalent document authorizing

the execution and delivery of

this Confirmation
	 	

Upon or before

execution and

delivery of this

Confirmation
	 	

Yes
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	ML

	 	Guarantee of its Credit Support

Provider, substantially in the

form of Exhibit A attached

hereto, together with evidence

of the authority and true

signatures of the signatories,

if applicable
	 	

Upon or before

execution and

delivery of this

Confirmation
	 	

Yes
	 

	 	 
	 	 
	 	 

Additional Notice Requirements: The Counterparty hereby agrees to promptly deliver to ML a copy of
all notices and other communications required or permitted to be given to the holders of any
Reference Notes pursuant to the terms of the Note Indenture on the dates so required or permitted
in the Note Indenture and all other notices given and other communications made by Counterparty in
respect of the Reference Notes to holders of any Reference Notes. The Counterparty further
covenants to ML that it shall promptly notify ML of each Conversion Event (identifying in such
Conversion Notice the principal amount at maturity of Reference Notes being converted), Amendment
Event (including in such notice a detailed description of any such amendment) and Repayment Event
(identifying in such notice the nature of such Repayment Event and the principal amount at maturity
of Reference Notes being paid).

	 	 	 	 	 
	Addresses for Notices: For the purpose of Section 12(a) of the Agreement:

	 
	 	 	 	 
	Address for notices or communications to ML:
	 	 
	 
	 	 	 	 
	Address:

	 	Merrill Lynch International

Merrill Lynch Financial Centre
	 	

	 
	 	 	 	 
	 	 	2 King Edward Street, London EC1A 1HQ

	 
	 	 	 	 
	Attention:

Facsimile No.:

	 	Manager, Fixed Income Settlements

44 207 995 2004
	 	

Telephone No.: 44 207 995 3769

(For all purposes)

Additionally, a copy of all notices pursuant to Sections 5, 6, and 7 as well as any changes to
Counterparty’s address, telephone number or facsimile number should be sent to:

	 	 	 	 	 
	GMI Counsel

	 	

	 	

	 
	 	 	 	 
	Merrill Lynch World Headquarters
	 	 
	 
	 	 	 	 
	4 World Financial Center

New York, New York 10080

	 	

	 	

	 
	 	 	 	 
	Attention: Global Equity Derivatives
	 	 
	 
	 	 	 	 
	Facsimile No.:

	 	212 449-6576
	 	Telephone No.: 212 449-6309

Address for notices or communications to Counterparty for all purposes:

Cyberonics, Inc.

100 Cyberonics Boulevard

Houston, Texas 77058

Process Agent: For the purpose of Section 13(c) of the Agreement, ML appoints as its process
agent:

Merrill Lynch, Pierce, Fenner & Smith Incorporated

222 Broadway, 16th Floor

New York, NY 10038

Attention: Litigation Department

Counterparty does not appoint a Process Agent.

Multibranch Party. For the purpose of Section 10(c) of the Agreement: Neither ML nor
Counterparty is a Multibranch Party.

Calculation Agent. The Calculation Agent is ML, whose judgments, determinations and calculations
in this Transaction and any related hedging transaction between the parties shall be made in good
faith and in a commercially reasonable manner.

Credit Support Document.

ML: Guarantee of ML&Co in the form attached hereto as Exhibit A.

Counterparty: Not Applicable

Credit Support Provider.

With respect to ML: Merrill Lynch and Co. and with respect to Counterparty, Not Applicable.

Governing Law. This Confirmation will be governed by, and construed in accordance with, the laws
of the State of New York.

Netting of Payments. The provisions of Section 2(c) of the Agreement shall not be applicable to
this Transaction; provided, however, that with respect to this Agreement or any other ISDA Master
Agreement between the parties, any Share delivery obligations on any day of Counterparty, on the
one hand, and ML, on the other hand, shall be netted. The resulting Share delivery obligation of a
party upon such netting shall be rounded down to the nearest number of whole Shares, such that
neither party shall be required to deliver any fractional Shares.

Accuracy of Specified Information. Section 3(d) of the Agreement is hereby amended by
adding in the third line thereof after the word “respect” and before the period the words “or, in
the case of audited or unaudited financial statements or balance sheets, a fair presentation of the
financial condition of the relevant person.”

Basic Representations. Section 3(a) of the Agreement is hereby amended by the deletion of
“and” at the end of Section 3(a)(iv); the substitution of a semicolon for the period at the
end of Section 3(a)(v) and the addition of Sections 3(a)(vi), as follows:

Eligible Contract Participant; Line of Business. It is an “eligible contract
participant” as defined in the Commodity Futures Modernization Act of 2000 and it
has entered into this Confirmation and this Transaction in connection with its
business or a line of business (including financial intermediation), or the
financing of its business.

Amendment of Section 3(a)(iii). Section 3(a)(iii) of the Agreement is modified to read as follows:

No Violation or Conflict. Such execution, delivery and performance do not
materially violate or conflict with any law known by it to be applicable to it, any
provision of its constitutional documents, any order or judgment of any court or
agency of government applicable to it or any of its assets or any material
contractual restriction relating to Specified Indebtedness binding on or affecting
it or any of its assets.

Amendment of Section 3(a)(iv). Section 3(a)(iv) of the Agreement is modified by inserting
the following at the beginning thereof:

“To such party’s best knowledge,”

Additional Representations:

Counterparty Representations. Counterparty (i) has such knowledge and experience in financial and
business affairs as to be capable of evaluating the merits and risks of entering into this
Transaction; (ii) has consulted with its own legal, financial, accounting and tax advisors in
connection with this Transaction; and (iii) is entering into this Transaction for a bona fide
business purpose to hedge the Reference Notes.

Counterparty is not and has not been the subject of any civil proceeding of a judicial or
administrative body of competent jurisdiction that could reasonably be expected to impair
materially Counterparty’s ability to perform its obligations hereunder.

As of the date hereof, Counterparty is not insolvent.

Acknowledgements:

(1) The parties acknowledge and agree that there are no other representations, agreements or other
undertakings of the parties in relation to this Transaction, except as set forth in this
Confirmation.

(2) The parties hereto intend for:

(a) this Transaction to be a “securities contract” as defined in Section 741(7) of Title 11
of the United States Code (the “Bankruptcy Code”), qualifying for the protections
under Section 555 of the Bankruptcy Code;

(b) a party’s right to liquidate this Transaction and to exercise any other remedies upon
the occurrence of any Event of Default under the Agreement with respect to the other party
to constitute a “contractual right” as defined in the Bankruptcy Code;

(c) all payments for, under or in connection with this Transaction, all payments for the
Shares and the transfer of such Shares to constitute “settlement payments” as defined in the
Bankruptcy Code.

Amendment of Section 6(d)(ii). Section 6(d)(ii) of the Agreement is modified by deleting
the words “on the day” in the second line thereof and substituting therefor “on the day that is
three Local Business Days after the day”. Section 6(d)(ii) is further modified by deleting
the words “two Local Business Days” in the fourth line thereof and substituting therefor “three
Local Business Days.”

Amendment of Definition of Reference Market-Makers. The definition of “Reference Market-Makers” in
Section 14 is hereby amended by adding in clause (a) after the word “credit” and before the
word “and” the words “or to enter into transactions similar in nature to Transactions.”

Consent to Recording. Each party consents to the recording of the telephone conversations of
trading and marketing personnel of the parties and their Affiliates in connection with this
Confirmation. To the extent that one party records telephone conversations (the “Recording Party”)
and the other party does not (the Non-Recording Party”), the Recording Party shall in the event of
any dispute, make a complete and unedited copy of such party’s tape of the entire day’s
conversations with the Non-Recording Party’s personnel available to the Non-Recording Party. The
Recording Party’s tapes may be used by either party in any forum in which a dispute is sought to be
resolved and the Recording Party will retain tapes for a consistent period of time in accordance
with the Recording Party’s policy unless one party notifies the other that a particular transaction
is under review and warrants further retention.

Disclosure. Each party hereby acknowledges and agrees that ML has authorized Counterparty to
disclose this Transaction and any related hedging transaction between the parties if and to the
extent that Counterparty reasonably determines (after consultation with ML) that such disclosure is
required by law or by the rules of Nasdaq or any securities exchange.

Severability. If any term, provision, covenant or condition of this Confirmation, or the
application thereof to any party or circumstance, shall be held to be invalid or unenforceable in
whole or in part for any reason, the remaining terms, provisions, covenants, and conditions hereof
shall continue in full force and effect as if this Confirmation had been executed with the invalid
or unenforceable provision eliminated, so long as this Confirmation as so modified continues to
express, without material change, the original intentions of the parties as to the subject matter
of this Confirmation and the deletion of such portion of this Confirmation will not substantially
impair the respective benefits or expectations of parties to this Agreement; provided,
however, that this severability provision shall not be applicable if any provision of
Section 2, 5, 6 or 13 of the Agreement (or any definition or
provision in Section 14 to the extent that it relates to, or is used in or in connection
with any such Section) shall be so held to be invalid or unenforceable.

Affected Parties. For purposes of Section 6(e) of the Agreement, each party shall be
deemed to be an Affected Party in connection with Illegality and any Tax Event.

1 Requires review of Note Indenture

2 Requires review of Purchase Agreement

1

Please confirm that the foregoing correctly sets forth the terms of our agreement by executing
the copy of this Confirmation enclosed for that purpose and returning it to us.

Very truly yours,

MERRILL LYNCH INTERNATIONAL

By:      

Name:

Title:

Confirmed as of the date first above written:

CYBERONICS, INC.

By:      

Name:

Title:

Acknowledged and agreed as to matters relating to the Agent:

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

solely in its capacity as Agent hereunder

By:      

Name:

Title:

EXHIBIT A

GUARANTEE OF MERRILL LYNCH & CO., INC.

FOR VALUE RECEIVED, receipt of which is hereby acknowledged, MERRILL LYNCH & CO., INC., a
corporation duly organized and existing under the laws of the State of Delaware (“ML & Co.”),
hereby unconditionally guarantees to Cyberonics, Inc. (the “Company”), the due and punctual payment
of any and all amounts payable by Merrill Lynch International, a company organized under the laws
of England and Wales (“ML”), under the terms of the Confirmation of OTC Convertible Note Hedge
between the Company and ML (ML as Seller), dated as of [September 21], 2005 (the “Confirmation”),
including, in case of default, interest on any amount due, when and as the same shall become due
and payable, whether on the scheduled payment dates, at maturity, upon declaration of termination
or otherwise, according to the terms thereof. In case of the failure of ML punctually to make any
such payment, ML & Co. hereby agrees to make such payment, or cause such payment to be made,
promptly upon demand made by the Company to ML & Co.; provided, however that delay by the Company
in giving such demand shall in no event affect ML & Co.’s obligations under this Guarantee. This
Guarantee shall remain in full force and effect or shall be reinstated (as the case may be) if at
any time any payment guaranteed hereunder, in whole or in part, is rescinded or must otherwise be
returned by the Company upon the insolvency, bankruptcy or reorganization of ML or otherwise, all
as though such payment had not been made.

ML & Co. hereby agrees that its obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Confirmation; the absence of any action to
enforce the same; any waiver or consent by the Company concerning any provisions thereof; the
rendering of any judgment against ML or any action to enforce the same; or any other circumstances
that might otherwise constitute a legal or equitable discharge of a guarantor or a defense of a
guarantor. ML & Co. covenants that this guarantee will not be discharged except by complete
payment of the amounts payable under the Confirmation. This Guarantee shall continue to be
effective if ML merges or consolidates with or into another entity, loses its separate legal
identity or ceases to exist.

ML & Co. hereby waives diligence; presentment; protest; notice of protest, acceleration, and
dishonor; filing of claims with a court in the event of insolvency or bankruptcy of ML; all demands
whatsoever, except as noted in the first paragraph hereof; and any right to require a proceeding
first against ML.

ML & Co. hereby certifies and warrants that this Guarantee constitutes the valid obligation of
ML & Co. and complies with all applicable laws.

This Guarantee shall be governed by, and construed in accordance with, the laws of the State
of New York.

This Guarantee may be terminated at any time by notice by ML & Co. to the Company given in
accordance with the notice provisions of the Confirmation, effective upon receipt of such notice by
the Company or such later date as may be specified in such notice; provided, however, that this
Guarantee shall continue in full force and effect with respect to any obligation of ML under this
Confirmation.

This Guarantee becomes effective concurrent with the effectiveness of the Confirmation,
according to its terms.

2

IN WITNESS WHEREOF, ML & Co. has caused this Guarantee to be executed in its corporate name by
its duly authorized representative.

MERRILL LYNCH & CO., INC.

By:     

Name:

Title:

Date:

3

COVER STATEMENT

CLIENT/COUNTERPARTY RELATIONSHIP

Dear Client/Counterparty:

Merrill Lynch is pleased to provide the attached statement of Generic Risks Associated with
Over-the-Counter Derivative Transactions under this Cover Statement that concerns, among other
things, the nature of our relationship with you in the context of such transactions. This
statement was developed for our new and our ongoing client/counterparties in response to
suggestions that OTC derivative dealers consider taking steps to ensure that market participants
utilizing OTC derivatives understand their risk exposures and the nature of their relationships
with dealers before they enter into OTC derivative transactions.

Merrill Lynch (“we”) are providing to you and your organization (“you”) the attached statement
of Generic Risks Associated with Over-the-Counter Derivative Transactions in order to identify, in
general terms, certain of the principal risks associated with individually negotiated
over-the-counter (“OTC”) derivative transactions. The attached statement does not purport to
identify the nature of the specific market or other risks associated with a particular transaction.

Before entering into an OTC derivative transaction, you should ensure that you fully
understand the terms of the transaction, relevant risk factors, the nature and extent of your risk
of loss and the nature of the contractual relationship into which you are entering. You should
also carefully evaluate whether the transaction is appropriate for you in light of your experience,
objectives, financial resources, and other relevant circumstances and whether you have the
operational resources in place to monitor the associated risks and contractual obligations over the
term of the transaction. If you are acting as a financial adviser or agent, you should evaluate
these considerations in light of the circumstances applicable to your principal and the scope of
your authority.

If you believe you need assistance in evaluating and understanding the terms or risks of a
particular OTC derivative transaction, you should consult appropriate advisers before entering into
the transaction.

Unless we have expressly agreed in writing to act as your adviser with respect to a particular
OTC derivative transaction pursuant to terms and conditions specifying the nature and scope of our
advisory relationship, we are acting in the capacity of an arm’s length contractual Counterparty to
you in connection with the transaction and not as your financial adviser or fiduciary.
Accordingly, unless we have so agreed to act as your adviser, you should not regard transaction
proposals, suggestions or other written or oral communications from us as recommendations or advice
or as expressing our view as to whether a particular transaction is appropriate for you or meets
your financial objectives.

Finally, we and/or our affiliates may from time to time take proprietary positions and/or make
a market in instruments identical or economically related to OTC derivative transactions entered
into with you, or may have an investment banking or other commercial relationship with and access
to information from the issuer(s) of securities, financial instruments, or other interests
underlying OTC derivative transactions entered into with you. We may also undertake proprietary
activities, including hedging transactions related to the initiation or termination of an OTC
derivative transaction with you, that may adversely affect the market price, rate index or other
market factor(s) underlying an OTC derivative transaction entered into with you and consequently
the value of the transaction.

4

A. GENERIC RISKS ASSOCIATED WITH

OVER-THE-COUNTER DERIVATIVE TRANSACTIONS

OTC derivative transactions, like other financial transactions, involve a variety of significant
risks. The specific risks presented by a particular OTC derivative transaction necessarily depend
upon the terms of the transaction and your circumstances. In general, however, all OTC derivative
transactions involve some combination of market risk, credit risk, funding risk and operational
risk.

Market risk is the risk that the value of a transaction will be adversely affected
by fluctuations in the level or volatility of or correlation or relationship between
one or more market prices, rates or indices or other market factors or by
illiquidity in the market for the relevant transaction or in a related market.

Credit risk is the risk that a Counterparty will fail to perform its obligations to
you when due.

Funding risk is the risk that, as a result of mismatches or delays in the timing of
cash flows due from or to your counterparties in OTC derivative transactions or
related hedging, trading, collateral or other transactions, you or your Counterparty
will not have adequate cash available to fund current obligations.

Operational risk is the risk of loss to you arising from inadequacies in or failures
of your internal systems and controls for monitoring and quantifying the risks and
contractual obligations associated with OTC derivative transactions, for recording
and valuing OTC derivative and related transactions, or for detecting human error,
systems failure or management failure.

There may be other significant risks that you should consider based on the terms of a specific
transaction. Highly customized OTC derivative transactions in particular may increase liquidity
risk and introduce other significant risk factors of a complex character. Highly leveraged
transactions may experience substantial gains or losses in value as a result of relatively small
changes in the value or level of an underlying or related market factor.

Because the price and other terms on which you may enter into or terminate an OTC derivative
transaction are individually negotiated, these may not represent the best price or terms available
to you from other sources.

In evaluating the risks and contractual obligations associated with a particular OTC derivative
transaction, you should also consider that an OTC derivative transaction may be modified or
terminated only by mutual consent of the original parties and subject to agreement on individually
negotiated terms. Accordingly, it may not be possible for you to modify, terminate or offset your
obligations or your exposure to the risks associated with a transaction prior to its scheduled
termination date.

Similarly, while market makers and dealers generally quote prices or terms for entering into or
terminating OTC derivative transactions and provide indicative or mid-market quotations with
respect to outstanding OTC derivative transactions, they are generally not contractually obligated
to do so. In addition, it may not be possible to obtain indicative or mid-market quotations for an
OTC derivative transaction from a market maker or dealer that is not a Counterparty to the
transaction. Consequently, it may also be difficult for you to establish an independent value for
an outstanding OTC derivative transaction. You should not regard your Counterparty’s provision of
a valuation or indicative price at your request as an offer to enter into or terminate the relevant
transaction at that value or price, unless the value or price is identified by the Counterparty as
firm or binding.

This brief statement does not purport to disclose all of the risks and other material
considerations associated with OTC derivative transactions. You should not construe this generic
disclosure statement as business, legal, tax or accounting advice or as modifying applicable law.
You should consult your own business, legal, tax and accounting advisers with respect to proposed
OTC derivative transactions and you should refrain from entering into any OTC derivative
transaction unless you have fully understood the terms and risks of the transaction, including the
extent of your potential risk of loss.

5

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