CYBERONICS, INC. 2009 STOCK PLAN

1.            Purposes of the Plan .  The purposes of this Plan are:

Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant.  Stock Appreciation Rights, Restricted Stock and Other Share-Based Awards may also be granted under the Plan.

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

“Administrator” means with respect to Awards granted to Employees and Consultants, the Compensation Committee of the Board, and with respect to Awards granted to Directors, the Directors.

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

“Award” means a Stock Option, Stock Appreciation Right, Restricted Stock or Other Share-Based Award grant made under the Plan.

“Award Agreement” means an agreement between the Company and a Participant evidencing the terms and conditions of an Award.  The Award Agreement is subject to the terms and conditions of the Plan.

“Board” means the Board of Directors of the Company.

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

“Common Stock” means the common stock of the Company.

“Company” means Cyberonics, Inc., a Delaware corporation.

“Consultant” means a person who (i) is not a member of the Board or an Employee and (ii) is engaged by the Company, a Parent or a Subsidiary to render consulting or advisory services to such entity.

“Director” means a member of the Board who is not an Employee.

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

“Employee” means a person who is a common law employee of the Company or a Parent or Subsidiary.

“Fair Market Value” means, as of any applicable date, the value of a Share determined as follows:

(i)           If the Common Stock is listed on any established stock exchange or a national market system, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for such applicable date, as reported in The Wall Street Journal or such other source as the Administrator selects;

(ii)          If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share shall be the mean between the high bid and low asked prices for the Common Stock for such applicable date, as reported in The Wall Street Journal or such other source as the Administrator selects; or

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

With respect to items (i) and (ii) above, if the Common Stock was not traded or quoted on the applicable date, Fair Market Value shall be determined on the last day on which the Common Stock was traded or quoted prior to such applicable date, or, if deemed appropriate, such other date as may be determined by the Administrator, at its discretion.

“Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

“Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

“Notice of Grant” means a written or electronic notice evidencing certain terms and conditions of an individual Award.

“Option” means a stock option granted pursuant to the Plan.

“Other Share-Based Award” means (i) a phantom stock unit, i.e., a notional Share, (ii) a Share that is paid to a Participant in lieu of cash compensation, or (iii) an award (other than an Option, SAR or Restricted Stock) the value of which is determined in whole or in part based on the Fair Market Value of a Share.  An Other Share-Based Award that is not vested on grant may be paid, on its vesting or exercise, in cash and/or in Shares, in the discretion of the Administrator and such Award may, in the discretion of the Administrator, include a dividend equivalent right, subject to such terms and conditions as the Administrator may provide in the Award Agreement.

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

“Participant” means a person who has an Award granted under the Plan.

“Plan” means the Cyberonics, Inc. 2009 Stock Plan.

“Prior Plans” means the Cyberonics, Inc. 2005 Stock Plan and the Cyberonics, Inc. Amended and Restated 1997 Stock Plan.

“Retire or Retirement” means, unless the Participant’s Award Agreement provides otherwise, a cessation of Service Provider status on or after reaching age 65 or, with the consent of the Administrator, after reaching age 60, for reasons other than death or Disability or a termination by the Company, Parent or Subsidiary for cause.

“Restricted Stock” means a Share granted under Section 11 of the Plan that is subject to vesting restrictions.

“Service Provider” means an Employee, Director or Consultant.  A Service Provider shall not cease to be a Service Provider in the case of (i) any leave of absence approved by the Company, Parent or Subsidiary or (ii) transfers between locations of, or between, the Company, a Parent, or any Subsidiary.  For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract.  If reemployment upon expiration of such an approved leave of absence is not so guaranteed, on the 91st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.  A change in status between being an Employee, Director or Consultant shall not terminate a Participant’s status as a Service Provider.  If an Employee’s or Consultant’s employer ceases to be a Subsidiary, such Participant shall cease to be a Service Provider on such date.

“Share” means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan.

“Stock Appreciation Right” or “SAR” means a right to acquire upon exercise of the SAR, Common Stock having an aggregate value equal to the then excess of the Fair Market Value of a Share over the exercise price of such SAR.

“Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code, of the Parent or the Company and, other than for determining an individual’s status as an Employee for Incentive Stock Option purposes, shall include any non-corporate entity that is controlled, directly or indirectly, by the Company or its Parent.

3.            Stock Subject to the Plan .  Subject to the provisions of Section 13 of the Plan and the following provisions of this Section, the maximum aggregate number of Shares which may be delivered pursuant to Awards under the Plan (including Incentive Stock Options) is the sum of (i) 2,100,000 plus (ii) any Shares subject to awards under the Prior Plans that, after the effective date of this Plan, expire, or are forfeited or cancelled without having been exercised (if an option or stock appreciation right) or having become vested (if a restricted stock or other equity-based award); provided, however, Shares available for Awards under the Plan shall be reduced by 1.5 for each Restricted Share or Other Share-Based Award granted under the Plan.  The Shares may be authorized, but unissued, or reacquired Shares.

If an Award expires, is forfeited or cancelled without having been exercised (if an Option or Stock Appreciation Right) or vested (if a Restricted Stock or Other Share-Based Award) in full, the Shares then subject to such Award (multiplied by 1.5 if a Restricted Share or Other Stock-Based Award) shall become available for future grants under the Plan.  In addition, Shares subject to an Award that has been settled in cash, to the extent of such settlement, shall be returned to the Plan and shall again become available for future grants under the Plan (unless the Plan was terminated).  However, Shares that have been issued under the Plan upon the exercise or vesting of an Award and Shares tendered with respect to or withheld from an Award to pay the exercise price of an Award or the employer’s tax withholding obligations with respect to the Award shall not become available for future grants under the Plan.

4.            Administration of the Plan.

(a)            Administration .  The Plan shall be administered by the Administrator.

(b)            Powers of the Administrator .  Subject to the further provisions of the Plan, the Administrator shall have the authority in its discretion:

(i)           to determine the Fair Market Value of a Share;

(ii)          to select the Service Providers to whom Awards may be granted hereunder and the Awards to be granted to a Service Provider;

(iii)         to determine the number of Shares to be covered by each Award granted hereunder;

(iv)         to approve forms of Award Agreements for use under the Plan;

(v)          to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder.  Such terms and conditions may include, but are not limited to, the exercise price, the time or times when Awards may be exercised or become vested (which may be based on performance criteria), and, subject to Section 11(b), the vesting acceleration or waiver of forfeiture restrictions and any other restrictions or limitations regarding any Award (however, the Administrator may not accelerate the vesting of a Restricted Stock award or Other Share-Based Award granted to a “covered employee” that is intended to be “performance-based compensation” for purposes of Section 162(m), except upon such Participant’s termination due to death or Disability or upon a Change of Control), based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vi)         to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;

(vii)        to prescribe, amend and rescind rules and regulations relating to the administration of the Plan;

(viii)       to allow Participants to satisfy the withholding tax obligations of the Company by electing, with Administrator approval, to have the Company withhold from the Shares to be issued upon exercise or vesting of an Award that number of Shares having a Fair Market Value equal to the tax amount required to be withheld.  The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined.  All elections by a Participant to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable.  Notwithstanding the foregoing, a Participant who is subject to Section 16b of the Securities Act of 1933, as amended, may, without Administrator approval, direct the Company to withhold Shares upon the exercise or vesting of an Award to satisfy the Company’s tax withholding obligations with respect to such Award; and

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

(c)            Effect of Administrator’s Decision .  The Administrator’s decisions, determinations and interpretations shall be final and binding on all persons, including holders of Awards.

5.            Eligibility .  Awards may be granted to Service Providers except that Incentive Stock Options may be granted only to Employees.

6.            Limitations .

(a)           Each Option shall be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.  However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options.  For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted.  The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

(b)           Neither the Plan nor any Award shall confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider, nor shall they interfere in any way with the Participant’s right or the Company’s right to terminate such relationship at any time, with or without cause.

(c)           The following limitations shall apply to grants of Awards:

(i)           No Service Provider shall be granted, in any fiscal year of the Company, Options with respect to more than 300,000 Shares or SARs with respect to more than 500,000 Shares.

(ii)          No Service Provider may be granted, in any fiscal year of the Company, Restricted Stock Awards with respect to more than 100,000 Shares.

(iii)         No Service Provider may be granted in any fiscal year of the Company, Other Share-Based Awards with respect to more than 100,000 Shares.

(iv)         The foregoing limitations shall be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 13.

7.            Term of Plan .  The Plan shall become effective upon its adoption by the Board, subject to its approval by the shareholders of the Company as provided in Section 19.  It shall continue in effect for a term of 10 years from such date of adoption unless terminated earlier under Section 15 of the Plan.

8.            Term of Options and Stock Appreciation Rights .  The term of each Option and Stock Appreciation Right shall be stated in the Award Agreement.  In the case of a Nonstatutory Stock Option, if the Award Agreement does not provide for a term, such term shall be 10 years from the date of grant.  In the case of an Incentive Stock Option, the term shall be 10 years from the date of grant or such shorter term as may be provided in the Award Agreement.  Moreover, in the case of an Incentive Stock Option granted to an optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five years from the date of grant or such shorter term as may be provided in the Award Agreement.

9.            Option and Stock Appreciation Right Exercise Price and Consideration .

(a)            Exercise Price .  The per share exercise price for the Shares to be issued pursuant to ex