AND

1
Exhibit 4

CYBERONICS, INC.

AND

FIRST NATIONAL BANK OF BOSTON

RIGHTS AGENT

PREFERRED SHARES RIGHTS AGREEMENT

DATED AS OF MARCH 4, 1997

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TABLE OF CONTENTS

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Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 3. Issuance of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 4. Form of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Section 5. Countersignature and Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed,
Lost or Stolen Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights . . . . . . . . . . . . . . . . . 11

Section 8. Cancellation and Destruction of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . 13

Section 9. Reservation and Availability of Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . 13

Section 10. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Section 11. Adjustment of Exercise Price, Number of Shares or Number of Rights . . . . . . . . . . . . . . 15

Section 12. Certificate of Adjusted Exercise Price or Number of Shares . . . . . . . . . . . . . . . . . . 21

Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power . . . . . . . . . . . . . 21

Section 14. Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Section 16. Agreement of Rights Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Section 17. Rights Certificate Holder Not Deemed a Stockholder . . . . . . . . . . . . . . . . . . . . . . 27

Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Section 19. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . . . . . . . . . . . . 28

Section 20. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Section 21. Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Section 22. Issuance of New Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00

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Xxxxxxx 00. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Section 24. Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Section 25. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Section 27. Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Section 28. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Section 29. Determinations and Actions by the Board of Directors, etc. . . . . . . . . . . . . . . . . . . 35

Section 30. Benefits of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Section 31. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Section 32. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Section 33. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Section 34. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

EXHIBITS

Exhibit A Form of Certificate of Designation

Exhibit B Form of Rights Certificate

Exhibit C Summary of Rights

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RIGHTS AGREEMENT

Agreement, dated as of March 4, 1997, between Cyberonics, Inc., a
Delaware corporation (the "COMPANY"), and First National Bank of Boston.

On January 29, 1997 (the "RIGHTS DIVIDEND DECLARATION DATE"), the
Board of Directors of the Company authorized and declared a dividend of one
Preferred Share Purchase Right (a "RIGHT") for each Common Share (as
hereinafter defined) of the Company outstanding as of the Close of Business (as
hereinafter defined) on March 10, 1997 (the "RECORD DATE"), each Right
representing the right to purchase one one-thousandth of a share of Series A
Participating Preferred Stock (as such number may be adjusted pursuant to the
provisions of this Agreement), having the rights, preferences and privileges
set forth in the form of Certificate of Designations of Rights, Preferences and
Privileges of Series A Participating Preferred Stock attached hereto as Exhibit
A, upon the terms and subject to the conditions herein set forth, and further
authorized and directed the issuance of one Right (as such number may be
adjusted pursuant to the provisions of this Agreement) with respect to each
Common Share that shall become outstanding between the Record Date and the
earlier of the Distribution Date and the Expiration Date (as such terms are
hereinafter defined), and in certain circumstances after the Distribution Date.

NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereby agree as follows:

Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:

(a) "ACQUIRING PERSON" shall mean any Person who or
which, together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the Common Shares then outstanding, but
shall not include the Company, any Subsidiary of the Company or any employee
benefit plan of the Company or of any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall be deemed to be an Acquiring
Person as the result of an acquisition of Common Shares by the Company which,
by reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 20% or more of the Common
Shares of the Company then outstanding; provided, however, that if a Person
shall become the Beneficial Owner of 20% or more of the Common Shares of the
Company then outstanding by reason of share purchases by the Company and shall,
after such share purchases by the Company, become the Beneficial Owner of any
additional Common Shares of the Company (other than pursuant to a dividend or
distribution paid or made by the Company on the outstanding Common Shares in
Common Shares or pursuant to a split or subdivision of the outstanding Common
Shares), then such Person shall be deemed to be an Acquiring Person unless upon
becoming the Beneficial Owner of such additional Common Shares of the Company
such Person does not beneficially own 20% or more of the Common Shares of the
Company then outstanding. Notwithstanding the foregoing, (i) if a majority of
the Company's Board of Directors determines in good faith that a Person
who would otherwise be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), has become such inadvertently
(including, without limitation,

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because (A) such Person was unaware that it beneficially owned a percentage of
the Common Shares that would otherwise cause such Person to be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
or (B) such Person was aware of the extent of the Common Shares it beneficially
owned but had no actual knowledge of the consequences of such beneficial
ownership under this Agreement) and without any intention of changing or
influencing control of the Company, and if such Person divested or divests as
promptly as practicable a sufficient number of Common Shares so that such
Person would no longer be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be
deemed to be or to have become an "Acquiring Person" for any purposes of this
Agreement; and (ii) if, as of the date hereof, any Person is the Beneficial
Owner of 20% or more of the Common Shares outstanding, such Person shall not be
or become an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), unless and until such time as such Person
shall become the Beneficial Owner of additional Common Shares (other than
pursuant to a dividend or distribution paid or made by the Company on the
outstanding Common Shares in Common Shares or pursuant to a split or
subdivision of the outstanding Common Shares), unless, upon becoming the
Beneficial Owner of such additional Common Shares, such Person is not then the
Beneficial Owner of 20% or more of the Common Shares then outstanding.

(b) "ADJUSTMENT FRACTION" shall have the meaning set
forth in Section 11(a)(i) hereof.

(c) "AFFILIATE" and "ASSOCIATE" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement.

(d) A Person shall be deemed the "BENEFICIAL OWNER" of
and shall be deemed to "BENEFICIALLY OWN" any securities:

(i) which such Person or any of such
Person's Affiliates or Associates beneficially owns, directly or
indirectly, for purposes of Section 13(d) of the Exchange Act and Rule
13d-3 thereunder (or any comparable or successor law or regulation);

(ii) which such Person or any of such
Person's Affiliates or Associates has (A) the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion
rights, exchange rights, rights (other than the Rights), warrants or
options, or otherwise; provided, however, that a Person shall not be
deemed pursuant to this Section 1(d)(ii)(A) to be the Beneficial Owner
of, or to beneficially own, (1) securities tendered pursuant to a
tender or exchange offer made by or on behalf of such Person or any of
such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange, or (2) securities which a
Person or any of such Person's Affiliates or Associates may be deemed
to have the right to acquire pursuant to any merger or other
acquisition agreement between the Company and such Person (or one or
more of its Affiliates or Associates) if such agreement has been
approved by the Board of Directors of the Company prior to there being
an Acquiring Person; or (B) the right to vote pursuant to any

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agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security under this Section 1(d)(ii)(B) if the agreement,
arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to
a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations of the Exchange
Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or

(iii) which are beneficially owned,
directly or indirectly, by any other Person (or any Affiliate or
Associate thereof) with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding, whether or not in writing (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to Section 1(d)(ii)(B)) or disposing of
any securities of the Company; provided, however, that in no case
shall an officer or director of the Company be deemed (x) the
Beneficial Owner of any securities beneficially owned by another
officer or director of the Company solely by reason of actions
undertaken by such persons in their capacity as officers or directors
of the Company or (y) the Beneficial Owner of securities held of
record by the trustee of any employee benefit plan of the Company or
any Subsidiary of the Company for the benefit of any employee of the
Company or any Subsidiary of the Company, other than the officer or
director, by reason of any influence that such officer or director may
have over the voting of the securities held in the plan.

(e) "BUSINESS DAY" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in New York are
authorized or obligated by law or executive order to close.

(f) "CLOSE OF BUSINESS" on any given date shall mean 5:00
P.M., New York time, on such date; provided, however, that if such date is not
a Business Day it shall mean 5:00 P.M., New York time, on the next succeeding
Business Day.

(g) "COMMON SHARES" when used with reference to the
Company shall mean the shares of Common Stock of the Company, $0.01 par value.
Common Shares when used with reference to any Person other than the Company
shall mean the capital stock (or equity interest) with the greatest voting
power of such other Person or, if such other Person is a Subsidiary of another
Person, the Person or Persons which ultimately control such first-mentioned
Person.

(h) "COMMON STOCK EQUIVALENTS" shall have the meaning set
forth in Section 11(a)(iii) hereof.

(i) "COMPANY" shall mean Cyberonics, Inc., a Delaware
corporation, subject to the terms of Section 13(a)(iii)(C) hereof.

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(j) "CURRENT PER SHARE MARKET PRICE" on any security (a
"Security" for purposes of this definition), for all computations other than
those made pursuant to Section 11(a)(iii) hereof, shall mean the average of the
daily closing prices per share of such Security for the thirty (30) consecutive
Trading Days immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(iii) hereof, the Current Per Share Market Price
of any Security on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the ten (10) consecutive Trading
Days immediately prior to such date; provided, however, that in the event that
the Current Per Share Market Price of the Security is determined during a
period following the announcement by the issuer of such Security of (i) a
dividend or distribution on such Security payable in shares of such Security or
securities convertible into such shares or (ii) any subdivision, combination or
reclassification of such Security, and prior to the expiration of the
applicable thirty (30) Trading Day or ten (10) Trading Day period, after the
ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each such case, the
Current Per Share Market Price shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The closing price
for each day shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last sale price or, if such
last sale price is not reported, the average of the high bid and low asked
prices in the over-the-counter market, as reported by Nasdaq or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Security selected by the
Board of Directors of the Company. If on any such date no market maker is
making a market in the Security, the fair value of such shares on such date as
determined in good faith by the Board of Directors of the Company shall be
used. If the Preferred Shares are not publicly traded, the Current Per Share
Market Price of the Preferred Shares shall be conclusively deemed to be the
Current Per Share Market Price of the Common Shares as determined pursuant to
this Section 1(k), as appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof, multiplied by
1000. If the Security is not publicly held or so listed or traded, Current Per
Share Market Price shall mean the fair value per share as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be conclusive
for all purposes.

(k) "CURRENT VALUE" shall have the meaning set forth in
Section 11(a)(iii) hereof.

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(l) "DISTRIBUTION DATE" shall mean the earlier of (i) the
Close of Business on the tenth day (or such later date as may be determined by
action of a majority of the Board of Directors) after the Shares Acquisition
Date (or, if the tenth day after the Shares Acquisition Date occurs before the
Record Date, the Close of Business on the Record Date) or (ii) the Close of
Business on the tenth Business Day (or such later date as may be determined by
action of a majority of the Board of Directors) after the date that a tender or
exchange offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if, assuming the successful consummation
thereof, such Person would be an Acquiring Person.

(m) "EQUIVALENT SHARES" shall mean Preferred Shares and
any other class or series of capital stock of the Company which is entitled to
the same rights, privileges and preferences as the Preferred Shares.

(n) "EXCHANGE ACT" shall mean the Securities Exchange Act
of 1934, as amended.

(o) "EXCHANGE RATIO" shall have the meaning set forth in
Section 24(a) hereof.

(p) "EXERCISE PRICE" shall have the meaning set forth in
Section 4(a) hereof.

(q) "EXPIRATION DATE" shall mean the earliest of (i) the
Close of Business on the Final Expiration Date, (ii) the Redemption Date, or
(iii) the time at which the Board of Directors orders the exchange of the Rights
as provided in Section 24 hereof.

(r) "FINAL EXPIRATION DATE" shall mean January 29,
2007.

(s) "NASDAQ" shall mean the National Association of
Securities Dealers, Inc. Automated Quotations System.

(t) "PERSON" shall mean any individual, firm, corporation
or other entity, and shall include any successor (by merger or otherwise) of
such entity.

(u) "POST-EVENT TRANSFEREE" shall have the meaning set
forth in Section 7(e) hereof.

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(v) "PREFERRED SHARES" shall mean shares of Series A
Participating Preferred Stock, $0.01 per share par value, of the Company.

(w) "PRE-EVENT TRANSFEREE" shall have the meaning set
forth in Section 7(e) hereof.

(x) "PRINCIPAL PARTY" shall have the meaning set forth in
Section 13(b) hereof.

(y) "RECORD DATE" shall have the meaning set forth in the
recitals at the beginning of this Agreement.

(z) "REDEMPTION DATE" shall have the meaning set forth in
Section 23(a) hereof.

(aa) "REDEMPTION PRICE" shall have the meaning set forth
in Section 23(a) hereof.

(bb) "RIGHTS AGENT" shall mean First National Bank of
Boston or its successor or replacement as provided in Sections 19 and 21
hereof.

(cc) "RIGHTS CERTIFICATE" shall mean a certificate
substantially in the form attached hereto as Exhibit B.

(dd) "RIGHTS DIVIDEND DECLARATION DATE" shall have the
meaning set forth in the recitals at the beginning of this Agreement.

(ee) "SECTION 11(a)(ii) TRIGGER DATE" shall have the
meaning set forth in Section 11(a)(iii) hereof.

(ff) "SECTION 13 EVENT" shall mean any event described in
clause (i), (ii) or (iii) of Section 13(a) hereof.

(gg) "SECURITIES ACT" shall mean the Securities Act of
1933, as amended.

(hh) "SHARES ACQUISITION DATE" shall mean the first date
of public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such; provided that, if such Person is determined not to have become an
Acquiring Person pursuant to Section 1(a) hereof, then no Shares Acquisition
Date shall be deemed to have occurred.

(ii) "SPREAD" shall have the meaning set forth in Section
11(a)(iii) hereof.

(jj) "SUBSIDIARY" of any Person shall mean any corporation
or other entity of which an amount of voting securities sufficient to elect a
majority of the directors or Persons having similar authority of such
corporation or other entity is beneficially owned, directly or indirectly, by
such Person, or any corporation or other entity otherwise controlled by such
Person.

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(kk) "SUBSTITUTION PERIOD" shall have the meaning set
forth in Section 11(a)(iii) hereof.

(ll) "SUMMARY OF RIGHTS" shall mean a summary of this
Agreement substantially in the form attached hereto as Exhibit C.

(mm) "TOTAL EXERCISE PRICE" shall have the meaning set
forth in Section 4(a) hereof.

(nn) "TRADING DAY" shall mean a day on which the principal
national securities exchange on which a referenced security is listed or
admitted to trading is open for the transaction of business or, if a referenced
security is not listed or admitted to trading on any national securities
exchange, a Business Day.

(oo) A "TRIGGERING EVENT" shall be deemed to have occurred
upon any Person becoming an Acquiring Person.

Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Common Shares) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable, upon ten (10) days prior written notice to the Rights
Agent. The Rights Agent shall have no duty to supervise, and shall in no event
be liable for, the acts or omissions of any such co-Rights Agent.

Section 3. Issuance of Rights Certificates.

(a) Until the Distribution Date, (i) the Rights will be
evidenced (subject to the provisions of Sections 3(b) and 3(c) hereof) by
the certificates for Common Shares registered in the names of the holders
thereof (which certificates shall also be deemed to be Rights Certificates) and
not by separate Rights Certificates and (ii) the right to receive Rights
Certificates will be transferable only in connection with the transfer of
Common Shares. Until the earlier of the Distribution Date or the Expiration
Date, the surrender for transfer of such certificates for Common Shares shall
also constitute the surrender for transfer of the Rights associated with the
Common Shares represented thereby. As soon as practicable after the
Distribution Date, the Company will prepare and execute, the Rights Agent will
countersign, and the Company will send or cause to be sent (and the Rights
Agent will, if requested, send) by first-class, postage-prepaid mail, to each
record holder of Common Shares as of the Close of Business on the Distribution
Date, at the address of such holder shown on the records of the Company, a
Rights Certificate evidencing one Right for each Common Share so held, subject
to adjustment as provided herein. In the event that an adjustment in the
number of Rights per Common Share has been made pursuant to Section 11 hereof,
then at the time of distribution of the Rights Certificates, the Company shall
make the necessary and appropriate rounding adjustments (in accordance with
Section 14(a) hereof) so that Rights Certificates representing only whole
numbers of Rights are distributed and cash is paid in lieu of any fractional
Rights. As of the Distribution Date, the Rights will be evidenced solely by
such Rights Certificates and may be transferred by the transfer of the Rights
Certificates as permitted hereby, separately and apart from any transfer of
Common Shares, and the holders of such Rights Certificates as listed in the
records of the Company or any transfer agent or registrar for the Rights shall
be the record holders thereof.

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(b) On the Record Date or as soon as practicable
thereafter, the Company will send a copy of the Summary of Rights by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the Close of Business on the Record Date, at the address of such holder shown
on the records of the Company's transfer agent and registrar. With respect to
certificates for Common Shares outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates registered
in the names of the holders thereof together with the Summary of Rights. Until
the Distribution Date (or, if earlier, the Expiration Date), the surrender for
transfer of any certificate for Common Shares outstanding on the Record Date,
with or without a copy of the Summary of Rights, shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.

(c) Unless the Board of Directors by resolution adopted
at or before the time of the issuance of any Common Shares specifies to the
contrary, Rights shall be issued in respect of all Common Shares that are
issued after the Record Date but prior to the earlier of the Distribution Date
or the Expiration Date or, in certain circumstances provided in Section 22
hereof, after the Distribution Date. Certificates representing such Common
Shares shall also be deemed to be certificates for Rights, and shall bear the
following legend:

THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN CYBERONICS,
INC. AND FIRST NATIONAL BANK OF BOSTON AS THE RIGHTS AGENT, DATED AS
OF MARCH 4, 1997 (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE
HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL EXECUTIVE OFFICES OF CYBERONICS, INC. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL
BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED
BY THIS CERTIFICATE. CYBERONICS, INC. WILL MAIL TO THE HOLDER OF THIS
CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER
RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES
SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY
PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR
ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT),
WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY
SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.

With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Shares represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any
such certificate shall also constitute the transfer of the Rights associated
with the Common Shares represented thereby.

(d) In the event that the Company purchases or acquires
any Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall

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be deemed canceled and retired so that the Company shall not be entitled to
exercise any Rights associated with the Common Shares which are no longer
outstanding.

Section 4. Form of Rights Certificates.

(a) The Rights Certificates (and the forms of election to
purchase Common Shares and of assignment to be printed on the reverse thereof)
shall be substantially in the form of Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or a national market system, on which
the Rights may from time to time be listed or included, or to conform to usage.
Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever distributed, shall be dated as of the Record Date (or in
the case of Rights issued with respect to Common Shares issued by the Company
after the Record Date, as of the date of issuance of such Common Shares) and on
their face shall entitle the holders thereof to purchase such number of
one-thousandths of a Preferred Share as shall be set forth therein at the price
set forth therein (such exercise price per one one-thousandth of a Preferred
Share being hereinafter referred to as the "EXERCISE PRICE" and the aggregate
Exercise Price of all Preferred Shares issuable upon exercise of one Right
being hereinafter referred to as the "TOTAL EXERCISE PRICE"), but the number
and type of securities purchasable upon the exercise of each Right and the
Exercise Price shall be subject to adjustment as provided herein.

(b) Any Rights Certificate issued pursuant to Section 3(a)
or Section 22 hereof that represents Rights beneficially owned by: (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which a majority of the Company's Board of Directors
has determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:

THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON
OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID
IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS
AGREEMENT.

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13

Section 5. Countersignature and Registration.

(a) The Rights Certificates shall be executed on behalf
of the Company by its Chairman of the Board, its Chief Executive Officer, its
Chief Financial Officer, its President or any Vice President, either manually
or by facsimile signature, and by the Secretary or an Assistant Secretary of
the Company, either manually or by facsimile signature, and shall have affixed
thereto the Company's seal (if any) or a facsimile thereof. The Rights
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Rights Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Rights Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the
Company with the same force and effect as though the person who signed such
Rights Certificates on behalf of the Company had not ceased to be such officer
of the Company; and any Rights Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.

(b) Following the Distribution Date, the Rights Agent
will keep or cause to be kept, at its office designated for such purposes,
books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.

Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.

(a) Subject to the provisions of Sections 7(e), 14 and 24
hereof, at any time after the Close of Business on the Distribution Date, and
at or prior to the Close of Business on the Expiration Date, any Rights
Certificate or Rights Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Rights Certificates, entitling the
registered holder to purchase a like number of one-thousandths of a Preferred
Share (or, following a Triggering Event, other securities, cash or other
assets, as the case may be) as the Rights Certificate or Rights Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate or
Rights Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any
such surrendered Rights Certificate until the registered holder shall have
completed and signed the certificate contained in the form of assignment on the
reverse side of such Rights Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner)
or Affiliates or Associates thereof as the Company shall reasonably request.
Thereupon the Rights Agent shall, subject to Sections 7(e), 14 and 24 hereof,
countersign and deliver to the person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The

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14
Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Rights Certificates.

(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will make and
deliver a new Rights Certificate of like tenor to the Rights Agent for delivery
to the registered holder in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.

Section 7. Exercise of Rights; Exercise Price; Expiration Date of
Rights.

(a) Subject to Sections 7(e), 23(b) and 24(b) hereof, the
registered holder of any Rights Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date and prior to the Close of Business on the
Expiration Date by surrender of the Rights Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at the office of the Rights Agent designated for such purpose, together
with payment of the Exercise Price for each one-thousandth of a Preferred Share
(or, following a Triggering Event, other securities, cash or other assets as
the case may be) as to which the Rights are exercised.

(b) The Exercise Price for each one-thousandth of a
Preferred Share issuable pursuant to the exercise of a Right shall initially be
thirty dollars ($30.00), shall be subject to adjustment from time to time as
provided in Sections 11 and 13 hereof and shall be payable in lawful money of
the United States of America in accordance with paragraph (c) below.

(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Exercise Price for the number of one-thousandths
of a Preferred Share (or, following a Triggering Event, other securities, cash
or other assets as the case may be) to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Rights
Certificate in accordance with Section 9(e) hereof, the Rights Agent shall,
subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from
any transfer agent of the Preferred Shares (or make available, if the Rights
Agent is the transfer agent for the Preferred Shares) a certificate or
certificates for the number of one-thousandths of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets as the
case may be) to be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests or (B) if the Company shall
have elected to deposit the total number of one-thousandths of a Preferred
Share (or, following a Triggering Event, other securities, cash or other assets
as the case may be) issuable upon exercise of the Rights hereunder with a
depositary agent, requisition from the depositary agent depositary receipts
representing such number of one-thousandths of a Preferred Share (or, following
a Triggering Event, other securities, cash or other assets as the case may be)
as are to be purchased (in which case certificates for the Preferred Shares
(or, following a Triggering Event, other securities, cash or other assets as
the case may be) represented by such receipts shall be deposited by the
transfer agent with the

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depositary agent) and the Company hereby directs the depositary agent to comply
with such request, (ii) when appropriate, requisition from the Company the
amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder and (iv) when appropriate, after receipt
thereof, deliver such cash to or upon the order of the registered holder of
such Rights Certificate. The payment of the Exercise Price (as such amount may
be reduced (including to zero) pursuant to Section 11(a)(iii) hereof) and an
amount equal to any applicable transfer tax required to be paid by the holder
of such Rights Certificate in accordance with Section 9(e) hereof, may be made
in cash or by certified bank check, cashier's check or bank draft payable to
the order of the Company. In the event that the Company is obligated to issue
securities of the Company other than Preferred Shares, pay cash and/or
distribute other property pursuant to Section 11(a) hereof, the Company will
make all arrangements necessary so that such other securities, cash and/or
other property are available for distribution by the Rights Agent, if and when
appropriate.

(d) In case the registered holder of any Rights
Certificate shall exercise less than all the Rights evidenced thereby, a new
Rights Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of
such Rights Certificate or to his or her duly authorized assigns, subject to
the provisions of Section 14 hereof.

(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Triggering Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such (a "POST-EVENT TRANSFEREE"), (iii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which a majority of the Company's Board of Directors has determined is part of a
plan, arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e) (a "PRE- EVENT TRANSFEREE") or (iv) any
subsequent transferee receiving transferred Rights from a Post-Event Transferee
or a Pre-Event Transferee, either directly or through one or more intermediate
transferees, shall become null and void without any further action and no holder
of such Rights shall have any rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise. The Company shall
use all reasonable efforts to ensure that the provisions of this Section 7(e)
and Section 4(b) hereof are complied with, but shall have no liability to any
holder of Rights Certificates or to any other Person as a result of its failure
to make any determinations with respect to an Acquiring Person or any of such
Acquiring Person's Affiliates, Associates or transferees hereunder.

(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall, in addition to having complied with the requirements of Section
7(a) above, have (i) completed and

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signed the certificate contained in the form of election to purchase set forth
on the reverse side of the Rights Certificate surrendered for such exercise and
(ii) provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.

Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Rights Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any Rights Certificate purchased or acquired
by the Company otherwise than upon the exercise thereof. The Rights Agent
shall deliver all canceled Rights Certificates to the Company, or shall, at the
written request of the Company, destroy such canceled Rights Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.

Section 9. Reservation and Availability of Preferred Shares.

(a) The Company covenants and agrees that it will use its
best efforts to cause to be reserved and kept available out of its authorized
and unissued Preferred Shares not reserved for another purpose (and, following
the occurrence of a Triggering Event, out of its authorized and unissued Common
Shares and/or other securities), the number of Preferred Shares (and, following
the occurrence of the Triggering Event, Common Shares and/or other securities)
that will be sufficient to permit the exercise in full of all outstanding
Rights.

(b) If the Company shall hereafter list any of its
Preferred Shares on a national securities exchange, then so long as the
Preferred Shares (and, following the occurrence of a Triggering Event, Common
Shares and/or other securities) issuable and deliverable upon exercise of the
Rights may be listed on such exchange, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable (but only
to the extent that it is reasonably likely that the Rights will be exercised),
all shares reserved for such issuance to be listed on such exchange upon
official notice of issuance upon such exercise.

(c) The Company shall use its best efforts to (i) file,
as soon as practicable following the earliest date after the first occurrence
of a Triggering Event in which the consideration to be delivered by the Company
upon exercise of the Rights is described in Section 11(a)(ii) or Section
11(a)(iii) hereof, or as soon as is required by law following the Distribution
Date, as the case may be, a registration statement under the Securities Act
with respect to the securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective as
soon as practicable after such filing and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securities and (B) the date
of expiration of the Rights. The Company may temporarily suspend, for a period
not to exceed ninety (90) days after the date set forth in clause (i) of the
first sentence of this Section 9(c), the exercisability of the Rights in order
to prepare

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and file such registration statement and permit it to become effective. Upon
any such suspension, the Company shall issue a public announcement stating, and
notify the Rights Agent, that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement and notification to the
Rights Agent at such time as the suspension is no longer in effect. The
Company will also take such action as may be appropriate under, or to ensure
compliance with, the securities or "blue sky" laws of the various states in
connection with the exercisability of the Rights. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be
exercisable in any jurisdiction, unless the requisite qualification in such
jurisdiction shall have been obtained, or an exemption therefrom shall be
available, and until a registration statement has been declared effective.

(d) The Company covenants and agrees that it will take
all such action as may be necessary to ensure that all Preferred Shares (or
other securities of the Company) delivered upon exercise of Rights shall, at
the time of delivery of the certificates for such securities (subject to
payment of the Exercise Price), be duly and validly authorized and issued and
fully paid and nonassessable shares.

(e) The Company further covenants and agrees that it will
pay when due and payable any and all federal and state transfer taxes and
charges which may be payable in respect of the original issuance or delivery of
the Rights Certificates or of any Preferred Shares (or other securities of the
Company) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Rights Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares (or other securities of the Company) in a name other than that of, the
registered holder of the Rights Certificate evidencing Rights surrendered for
exercise or to issue or to deliver any certificates or depositary receipts for
Preferred Shares (or other securities of the Company) upon the exercise of any
Rights until any such tax shall have been paid (any such tax being payable by
the holder of such Rights Certificate at the time of surrender) or until it has
been established to the Company's satisfaction that no such tax is due.

Section 10. Record Date. Each Person in whose name any certificate
for a number of one-thousandths of a Preferred Share (or other securities of
the Company) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of Preferred Shares (or other
securities of the Company) represented thereby on, and such certificate shall
be dated, the date upon which the Rights Certificate evidencing such Rights was
duly surrendered and payment of the Total Exercise Price with respect to which
the Rights have been exercised (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date
upon which the transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the transfer books of
the Company are open. Prior to the exercise of the Rights evidenced thereby,
the holder of a Rights Certificate shall not be entitled to any rights of a
holder of Preferred Shares (or other securities of the Company) for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.

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Section 11. Adjustment of Exercise Price, Number of Shares or Number
of Rights. The Exercise Price, the number and kind of shares or other property
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.

(a) (i) Anything in this Agreement to the contrary
notwithstanding, in the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares (by reverse stock split or otherwise) into a
smaller number of Preferred Shares, or (D) issue any shares of its capital stock
in a reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then, in each such event,
except as otherwise provided in this Section 11 and Section 7(e) hereof: (1) the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that the Exercise Price thereafter shall equal the result obtained
by dividing the Exercise Price in effect immediately prior to such time by a
fraction (the "ADJUSTMENT FRACTION"), the numerator of which shall be the total
number of Preferred Shares (or shares of capital stock issued in such
reclassification of the Preferred Shares) outstanding immediately following such
time and the denominator of which shall be the total number of Preferred Shares
outstanding immediately prior to such time; provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of such Right; and (2) the number of one- thousandths of a
Preferred Share (or share of such other capital stock) issuable upon the
exercise of each Right shall equal the number of one- thousandths of a Preferred
Share (or share of such other capital stock) as was issuable upon exercise of a
Right immediately prior to the occurrence of the event described in clauses
(A)-(D) of this Section 11(a)(i), multiplied by the Adjustment Fraction;
provided, however, that, no such adjustment shall be made pursuant to this
Section 11(a)(i) to the extent that there shall have simultaneously occurred an
event described in clause (A), (B), (C) or (D) of Section 11(n) with a
proportionate adjustment being made thereunder. Each Common Share that shall
become outstanding after an adjustment has been made pursuant to this Section
11(a)(i) shall have associated with the number of Rights, exercisable at the
Exercise Price and for the number of one-thousandths of a Preferred Share (or
shares of such other capital stock) as one Common Share has associated with it
immediately following the adjustment made pursuant to this Section 11(a)(i).

(ii) Subject to Section 24 of this Agreement, in the
event a Triggering Event shall have occurred, then promptly following such
Triggering Event each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive for each Right, upon exercise
thereof in accordance with the terms of this Agreement and payment of the Total
Exercise Price in effect immediately prior to the occurrence of the Triggering
Event, in lieu of a number of one-thousandths of a Preferred Share, such number
of Common Shares of the Company as shall equal the result obtained by
multiplying the Exercise Price in effect immediately prior to the occurrence of
the Triggering Event by the number of one-thousandths of a Preferred Share for
which a Right was exercisable (or would have been exercisable if the
Distribution Date had occurred) immediately prior to the first occurrence of a
Triggering Event, and dividing that product by 50% of the Current Per Share
Market Price for Common Shares on the date of occurrence of the Triggering
Event; provided, however, that the Exercise Price and the number of Common
Shares of the Company so receivable upon exercise of a Right shall be subject

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to further adjustment as appropriate in accordance with Section 11(e) hereof to
reflect any events occurring in respect of the Common Shares of the Company
after the occurrence of the Triggering Event. Notwithstanding the foregoing
provisions of this Section 11(a)(ii), the right to buy Common Shares of the
Company pursuant to Section 11(a)(ii) hereof shall not arise as a result of any
Person becoming an Acquiring Person through an acquisition of Common Shares
pursuant to a Permitted Offer.

(iii) In lieu of issuing Common Shares in accordance
with Section 11(a)(ii) hereof, the Company may, if a majority of the Company's
Board of Directors determines that such action is necessary or appropriate and
not contrary to the interest of holders of Rights (and, in the event that the
number of Common Shares which are authorized by the Company's Certificate of
Incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights are not sufficient to permit the exercise in
full of the Rights, or if any necessary regulatory approval for such issuance
has not been obtained by the Company, the Company shall): (A) determine the
excess of (1) the value of the Common Shares issuable upon the exercise of a
Right (the "CURRENT VALUE") over (2) the Exercise Price (such excess, the
"SPREAD") and (B) with respect to each Right, make adequate provision to
substitute for such Common Shares, upon exercise of the Rights, (1) cash, (2) a
reduction in the Exercise Price, (3) other equity securities of the Company
(including, without limitation, shares or units of shares of any series of
preferred stock which a majority of the Company's Board of Directors has deemed
to have the same value as Common Shares (such shares or units of shares of
preferred stock are herein called "COMMON STOCK EQUIVALENTS")), except to the
extent that the Company has not obtained any necessary stockholder or regulatory
approval for such issuance, (4) debt securities of the Company, except to the
extent that the Company has not obtained any necessary stockholder or regulatory
approval for such issuance, (5) other assets or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by a majority of the Company's Board of
Directors based upon the advice of a nationally recognized investment banking
firm selected by a majority of the Company's Board of Directors; provided,
however, if the Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within thirty (30) days following the later of (x)
the first occurrence of a Triggering Event and (y) the date on which the
Company's right of redemption pursuant to Section 23(a) expires (the later of
(x) and (y) being referred to herein as the "SECTION 11(a)(ii) TRIGGER DATE"),
then the Company shall be obligated to deliver, upon the surrender for exercise
of a Right and without requiring payment of the Exercise Price, Common Shares
(to the extent available), except to the extent that the Company has not
obtained any necessary stockholder or regulatory approval for such issuance, and
then, if necessary, cash, which shares and/or cash have an aggregate value equal
to the Spread. If a majority of the Company's Board of Directors shall
determine in good faith that it is likely that sufficient additional Common
Shares could be authorized for issuance upon exercise in full of the Rights or
that any necessary regulatory approval for such issuance will be obtained, the
thirty (30) day period set forth above may be extended to the extent necessary,
but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in
order that the Company may seek stockholder approval for the authorization of
such additional shares or take action to obtain such regulatory approval (such
period, as it may be extended, the "SUBSTITUTION PERIOD"). To the extent that
the Company determines that some action need be taken pursuant to the first
and/or second sentences of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 7(e) hereof, that such action shall apply uniformly
to all outstanding Rights and (y) may suspend the exercisability of the Rights
until the expiration of the Substitution Period in order to seek any
authorization of additional shares, to take

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any action to obtain any required regulatory approval and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement at
such time as the suspension is no longer in effect. For purposes of this
Section 11(a)(iii), the value of the Common Shares shall be the Current Per
Share Market Price of the Common Shares on the Section 11(a)(ii) Trigger Date
and the value of any Common Stock Equivalent shall be deemed to have the same
value as the Common Shares on such date.

(b) In case the Company shall, at any time after the date
of this Agreement, fix a record date for the issuance of rights, options or
warrants to all holders of Preferred Shares entitling such holders (for a
period expiring within forty-five (45) calendar days after such record date) to
subscribe for or purchase Preferred Shares or Equivalent Shares or securities
convertible into Preferred Shares or Equivalent Shares at a price per share (or
having a conversion price per share, if a security convertible into Preferred
Shares or Equivalent Shares) less than the then Current Per Share Market Price
of the Preferred Shares or Equivalent Shares on such record date, then, in each
such case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number of
Preferred Shares and Equivalent Shares (if any) outstanding on such record
date, plus the number of Preferred Shares or Equivalent Shares, as the case may
be, which the aggregate offering price of the total number of Preferred Shares
or Equivalent Shares, as the case may be, to be offered or issued (and/or the
aggregate initial conversion price of the convertible securities to be offered
or issued) would purchase at such current market price, and the denominator of
which shall be the number of Preferred Shares and Equivalent Shares (if any)
outstanding on such record date, plus the number of additional Preferred Shares
or Equivalent Shares, as the case may be, to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible) ; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by a majority
of the Company's Board of Directors, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Preferred Shares and Equivalent Shares owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such rights, options
or warrants are not so issued, the Exercise Price shall be adjusted to be the
Exercise Price which would then be in effect if such record date had not been
fixed.

(c) In case the Company shall, at any time after the date
of this Agreement, fix a record date for the making of a distribution to all
holders of the Preferred Shares or of any class or series of Equivalent Shares
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than a regular quarterly cash
dividend, if any, or a dividend payable in Preferred Shares) or subscription
rights, options or warrants (excluding those referred to in Section 11(b)),
then, in each such case, the Exercise Price to be in effect after such record
date shall be determined by multiplying the

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21
Exercise Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the Current Per Share Market Price of a
Preferred Share or an Equivalent Share on such record date, less the fair
market value per Preferred Share or Equivalent Share (as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
cash, assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to a Preferred Share or Equivalent
Share, as the case may be, and the denominator of which shall be such Current
Per Share Market Price of a Preferred Share or Equivalent Share on such record
date; provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of one Right.
Such adjustments shall be made successively whenever such a record date is
fixed, and in the event that such distribution is not so made, the Exercise
Price shall be adjusted to be the Exercise Price which would have been in
effect if such record date had not been fixed.

(d) Anything herein to the contrary notwithstanding, no
adjustment in the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Exercise Price; provided,
however, that any adjustments which by reason of this Section 11(d) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest ten-thousandth of a Common Share or other
share or one hundred-thousandth of a Preferred Share, as the case may be.
Notwithstanding the first sentence of this Section 11(d), any adjustment
required by this Section 11 shall be made no later than the earlier of (i)
three (3) years from the date of the transaction which requires such adjustment
or (ii) the Expiration Date.

(e) If as a result of an adjustment made pursuant to
Section 11(a) or 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Shares, thereafter the number of such other shares so receivable upon
exercise of any Right and, if required, the Exercise Price thereof, shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Preferred
Shares contained in Sections 11(a), 11(b), 11(c), 11(d), 11(g), 11(h), 11(i),
11(j), 11(k) and 11(l), and the provisions of Sections 7, 9, 10, 13 and 14 with
respect to the Preferred Shares shall apply on like terms to any such other
shares.

(f) All Rights originally issued by the Company
subsequent to any adjustment made to the Exercise Price hereunder shall
evidence the right to purchase, at the adjusted Exercise Price, the number of
one-thousandths of a Preferred Share purchasable from time to time hereunder
upon exercise of the Rights, all subject to further adjustment as provided
herein.

(g) Unless the Company shall have exercised its election
as provided in Section 11(h), upon each adjustment of the Exercise Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Exercise Price, that number of
Preferred Shares (calculated to the nearest one hundred-thousandth of a share)
obtained by (i) multiplying (x) the number of Preferred Shares covered by a
Right immediately prior to this adjustment, by (y) the Exercise Price in effect
immediately

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22
prior to such adjustment of the Exercise Price, and (ii) dividing the product
so obtained by the Exercise Price in effect immediately after such adjustment
of the Exercise Price.

(h) The Company may elect on or after the date of any
adjustment of the Exercise Price as a result of the calculations made in
Section 11(b) or (c) to adjust the number of Rights, in substitution for any
adjustment in the number of Preferred Shares purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one-thousandths of a Preferred
Share for which a Right was exercisable immediately prior to such adjustment.
Each Right held of record prior to such adjustment of the number of Rights
shall become that number of Rights (calculated to the nearest one
hundred-thousandth) obtained by dividing the Exercise Price in effect
immediately prior to adjustment of the Exercise Price by the Exercise Price in
effect immediately after adjustment of the Exercise Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Exercise Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(h), the
Company shall, as promptly as practicable, cause to be distributed to holders
of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such
holders shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Exercise
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.

(i) Irrespective of any adjustment or change in the
Exercise Price or the number of Preferred Shares issuable upon the exercise of
the Rights, the Rights Certificates theretofore and thereafter issued may
continue to express the Exercise Price per one one- thousandth of a Preferred
Share and the number of one-thousandths of a Preferred Share which were
expressed in the initial Rights Certificates issued hereunder.

(j) Before taking any action that would cause an
adjustment reducing the Exercise Price below the par or stated value, if any,
of the number of one-thousandths of a Preferred Share issuable upon exercise of
the Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly and
legally issue as fully paid and nonassessable shares such number of
one-thousandths of a Preferred Share at such adjusted Exercise Price.

(k) In any case in which this Section 11 shall require
that an adjustment in the Exercise Price be made effective as of a record date
for a specified event, the Company may elect to defer until the occurrence of
such event the issuing to the holder of any Right exercised after such record
date of

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23
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Exercise Price in effect prior to such adjustment; provided, however, that
the Company shall deliver to such holder a due xxxx or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) upon the occurrence of the event requiring such
adjustment.

(l) Anything in this Section 11 to the contrary
notwithstanding, prior to the Distribution Date, the Company shall be entitled
to make such reductions in the Exercise Price, in addition to those adjustments
expressly required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any (i) consolidation
or subdivision of the Preferred or Common Shares, (ii) issuance wholly for cash
of any Preferred or Common Shares at less than the current market price, (iii)
issuance wholly for cash of Preferred or Common Shares or securities which by
their terms are convertible into or exchangeable for Preferred or Common
Shares, (iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Company to holders of its
Preferred or Common Shares shall not be taxable to such stockholders.

(m) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Sections 23, 24 or 27
hereof, take (or permit to be taken) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.

(n) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Common Shares payable in
Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the
outstanding Common Shares (by reverse stock split or otherwise) into a smaller
number of Common Shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), then, in each such event, except as
otherwise provided in this Section 11(a) and Section 7(e) hereof: (1) each
Common Share (or shares of capital stock issued in such reclassification of the
Common Shares) outstanding immediately following such time shall have
associated with it the number of Rights as were associated with one Common
Share immediately prior to the occurrence of the event described in clauses
(A)-(D) above; (2) the Exercise Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that the Exercise Price thereafter shall
equal the result obtained by multiplying the Exercise Price in effect
immediately prior to such time by a fraction, the numerator of which shall be
the total number of Common Shares outstanding immediately prior to the event
described in clauses (A)-(D) above, and the denominator of which shall be the
total number of Common Shares outstanding immediately after such event;
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company issuable upon exercise of such Right; and (3) the
number of one-thousandths of a Preferred Share (or shares of such other capital
stock) issuable upon the exercise of each Right outstanding after such event
shall equal the number of one-thousandths of a Preferred Share (or shares of
such other capital stock) as were issuable with respect to one Right
immediately prior to such event. Each Common Share that shall become
outstanding after an adjustment has been made pursuant

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24
to this Section 11(n) shall have associated with it the number of Rights,
exercisable at the Exercise Price and for the number of one- thousandths of a
Preferred Share (or shares of such other capital stock) as one Common Share has
associated with it immediately following the adjustment made pursuant to this
Section 11(n). If an event occurs which would require an adjustment under both
this Section 11(n) and Section 11(a)(ii) hereof, the adjustment provided for in
this Section 11(n) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.

Section 12. Certificate of Adjusted Exercise Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 11 and 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Preferred
Shares a copy of such certificate and (c) mail a brief summary thereof to each
holder of a Rights Certificate in accordance with Section 26 hereof.
Notwithstanding the foregoing sentence, the failure of the Company to make such
certification or give such notice shall not affect the validity of such
adjustment or the force or effect of the requirement for such adjustment. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment contained therein and shall not be deemed to have knowledge of
such adjustment unless and until it shall have received such certificate.

Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.

(a) In the event that, following a Triggering Event,
directly or indirectly:

(i) the Company shall consolidate with,
or merge with and into, any other Person (other than a wholly- owned
Subsidiary of the Company in a transaction the principal purpose of
which is to change the state of incorporation of the Company and which
complies with Section 11(m), 11(n) hereof);

(ii) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be
the continuing or surviving corporation of such consolidation or
merger and, in connection with such merger, all or part of the Common
Shares shall be changed into or exchanged for stock or other securities
of any other person (or of the Company); or

(iii) the Company shall sell or otherwise
transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company or one or more of its wholly- owned
Subsidiaries in one or more transactions, each of which individually
(and together) complies with Section 11(m) hereof),

then, concurrent with and in each such
case,

(A) each holder of a Right (except
as provided in Section 7(e) hereof) shall thereafter have the
right to receive, upon the exercise thereof at a price equal
to the Total Exercise Price applicable immediately prior to
the occurrence of the Section 13

-21-
25
Event in accordance with the terms of this Agreement, such
number of validly authorized and issued, fully paid,
nonassessable and freely tradeable Common Shares of the
Principal Party (as hereinafter defined), free of any liens,
encumbrances, rights of first refusal or other adverse claims,
as shall be equal to the result obtained by dividing such
Total Exercise Price by 50% of the Current Per Share Market
Price of the Common Shares of such Principal Party on the date
of consummation of such Section 13 Event, provided, however,
that the Exercise Price and the number of Common Shares of
such Principal Party so receivable upon exercise of a Right
shall be subject to further adjustment as appropriate in
accordance with Section 11(e) hereof;

(B) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such
Section 13 Event, all the obligations and duties of the
Company pursuant to this Agreement;

(C) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it
being specifically intended that the provisions of Section 11
hereof shall apply only to such Principal Party following the
first occurrence of a Section 13 Event;

(D) such Principal Party shall take
such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares) in connection with
the consummation of any such transaction as may be necessary
to ensure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its
Common Shares thereafter deliverable upon the exercise of the
Rights; and

(E) upon the subsequent occurrence
of any consolidation, merger, sale or transfer of assets or
other extraordinary transaction in respect of such Principal
Party, each holder of a Right shall thereupon be entitled to
receive, upon exercise of a Right and payment of the Total
Exercise Price as provided in this Section 13(a), such cash,
shares, rights, warrants and other property which such holder
would have been entitled to receive had such holder, at the
time of such transaction, owned the Common Shares of the
Principal Party receivable upon the exercise of such Right
pursuant to this Section 13(a), and such Principal Party shall
take such steps (including, but not limited to, reservation of
shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for
such cash, shares, rights, warrants and other property.

(F) For purposes hereof, the
"earning power" of the Company and its Subsidiaries shall be
determined in good faith by the Company's Board of Directors
on the basis of the operating earnings of each business
operated by the Company and its Subsidiaries during the three
fiscal years preceding the date of such determination (or, in
the case of any business not operated by the Company or any
Subsidiary during three full fiscal years preceding such date,
during the period such business was operated by the Company or
any Subsidiary).

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26
(b) For purposes of this Agreement, the term "PRINCIPAL
PARTY" shall mean:

(i) in the case of any transaction described in
clause (i) or (ii) of Section 13(a) hereof: (A) the Person that is the
issuer of the securities into which the Common Shares are converted in
such merger or consolidation, or, if there is more than one such
issuer, the issuer the Common Shares of which have the greatest
aggregate market value of shares outstanding, or (B) if no securities
are so issued, (x) the Person that is the other party to the merger,
if such Person survives said merger, or, if there is more than one
such Person, the Person the Common Shares of which have the greatest
aggregate market value of shares outstanding or (y) if the Person that
is the other party to the merger does not survive the merger, the
Person that does survive the merger (including the Company if it
survives) or (z) the Person resulting from the consolidation; and

(ii) in the case of any transaction described in
clause (iii) of Section 13(a) hereof, the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions, or, if more
than one Person that is a party to such transaction or transactions
receives the same portion of the assets or earning power so transferred
and each such portion would, were it not for the other equal portions,
constitute the greatest portion of the assets or earning power so
transferred, or if the Person receiving the greatest portion of the
assets or earning power cannot be determined, whichever of such Persons
is the issuer of Common Shares having the greatest aggregate market
value of shares outstanding;

provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Shares of such Person are not at such time or
have not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one
Person, the Common Shares of which are and have been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of
Common Shares having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly by the
same Person, the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ration as its interest in such Person bears to the
total of such interests.

(c) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized Common
Shares that have not been issued or reserved for issuance to permit the
exercise in full of the Rights in accordance with this Section 13 and unless
prior thereto the Company and such issuer shall have executed and delivered to
the Rights Agent a supplemental agreement confirming that such Principal Party
shall, upon consummation of such Section 13 Event, assume this Agreement in
accordance with Sections 13(a) and 13(b) hereof, that all rights of first
refusal or preemptive rights in respect of the issuance of Common Shares of
such Principal Party upon exercise of outstanding Rights have been waived, that
there are no rights, warrants,

-23-
27
instruments or securities outstanding or any agreements or arrangements which,
as a result of the consummation of such transaction, would eliminate or
substantially diminish the benefits intended to be afforded by the Rights and
that such transaction shall not result in a default by such Principal Party
under this Agreement, and further providing that, as soon as practicable after
the date of such Section 13 Event, such Principal Party will:

(i) prepare and file a registration
statement under the Securities Act with respect to the Rights and the
securities purchasable upon exercise of the Rights on an appropriate
form, use its best efforts to cause such registration statement to
become effective as soon as practicable after such filing and use its
best efforts to cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of the
Securities Act) until the Expiration Date, and similarly comply with
applicable state securities laws;

(ii) use its best efforts to list (or
continue the listing of) the Rights and the securities purchasable
upon exercise of the Rights on a national securities exchange or to
meet the eligibility requirements for quotation on Nasdaq and list (or
continue the listing of) the Rights and the securities purchasable
upon exercise of the Rights on Nasdaq; and

(iii) deliver to holders of the Rights
historical financial statements for such Principal Party which comply
in all respects with the requirements for registration on Form 10 (or
any successor form) under the Exchange Act.

In the event that at any time after the occurrence of a Triggering
Event some or all of the Rights shall not have been exercised at the time of a
transaction described in this Section 13, the Rights which have not theretofore
been exercised shall thereafter be exercisable in the manner described in
Section 13(a) (without taking into account any prior adjustment required by
Section 11(a)(ii)).

(d) In case the "Principal Party" for purposes of Section
13(b) hereof has provision in any of its authorized securities or in its
certificate of incorporation or by-laws or other instrument governing its
corporate affairs, which provision would have the effect of (i) causing such
Principal Party to issue (other than to holders of Rights pursuant to Section
13 hereof), in connection with, or as a consequence of, the consummation of a
Section 13 Event, Common Shares or Equivalent Shares of such Principal Party at
less than the then Current Per Share Market Price thereof or securities
exercisable for, or convertible into, Common Shares or Equivalent Shares of
such Principal Party at less than such then Current Per Share Market Price, or
(ii) providing for any special payment, tax or similar provision in connection
with the issuance of the Common Shares of such Principal Party pursuant to the
provisions of Section 13 hereof, then, in such event, the Company hereby agrees
with each holder of Rights that it shall not consummate any such transaction
unless prior thereto the Company and such Principal Party shall have executed
and delivered to the Rights Agent a supplemental agreement providing that the
provision in question of such Principal Party shall have been canceled, waived
or amended, or that the authorized securities shall be redeemed, so that the
applicable provision will have no effect in connection with or as a consequence
of, the consummation of the proposed transaction.

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28
(e) The Company covenants and agrees that it shall not,
at any time after the Distribution Date, effect or permit to occur any Section
13 Event, if (i) at the time or immediately after such Section 13 Event there
are any rights, warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights, (ii) prior to,
simultaneously with or immediately after such Section 13 Event, the
stockholders of the Person who constitutes, or would constitute, the "Principal
Party" for purposes of Section 13(b) hereof shall have received a distribution
of Rights previously owned by such Person or any of its Affiliates or
Associates or (iii) the form or nature of organization of the Principal Party
would preclude or limit the exercisability of the Rights.

(f) The provisions of this Section 13 shall similarly
apply to successive mergers or consolidations or sales or other transfers.

Section 14. Fractional Rights and Fractional Shares.

(a) The Company shall not be required to issue fractions
of Rights or to distribute Rights Certificates which evidence fractional
Rights. In lieu of such fractional Rights, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to the
same fraction of the current market value of a whole Right. For the purposes
of this Section 14(a), the current market value of a whole Right shall be the
closing price of the Rights for the Trading Day immediately prior to the date
on which such fractional Rights would have been otherwise issuable, as
determined pursuant to the second sentence of Section 1(j) hereof.

(b) The Company shall not be required to issue fractions
of Preferred Shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions that are integral multiples of one one-thousandth of a Preferred
Share). Interests in fractions of Preferred Shares in integral multiples of
one one-thousandth of a Preferred Share may, at the election of the Company, be
evidenced by depositary receipts, pursuant to an appropriate agreement between
the Company and a depositary selected by it; provided, that such agreement
shall provide that the holders of such depositary receipts shall have all the
rights, privileges and preferences to which they are entitled as beneficial
owners of the Preferred Shares represented by such depositary receipts. In
lieu of fractional Preferred Shares that are not integral multiples of one
one-thousandth of a Preferred Share, the Company

-25-
29
shall pay to the registered holders of Rights Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of a Preferred Share. For purposes of
this Section 14(b), the current market value of a Preferred Share shall be one
thousand times the closing price of a Common Share (as determined pursuant to
the second sentence of Section 1(j) hereof) for the Trading Day immediately
prior to the date of such exercise.

(c) The Company shall not be required to issue fractions
of Common Shares or to distribute certificates which evidence fractional Common
Shares upon the exercise or exchange of Rights. In lieu of such fractional
Common Shares, the Company shall pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of a Common
Share. For purposes of this Section 14(c), the current market value of a
Common Share shall be the closing price of a Common Share (as determined
pursuant to the second sentence of Section 1(j) hereof) for the Trading Day
immediately prior to the date of such exercise.

(d) The holder of a Right by the acceptance of the Right
expressly waives his or her right to receive any fractional Rights or any
fractional shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of a Right.

Section 15. Rights of Action. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the
Rights Certificates (and, prior to the Distribution Date, the registered
holders of the Common Shares); and any registered holder of any Rights
Certificate (or, prior to the Distribution Date, of the Common Shares), without
the consent of the Rights Agent or of the holder of any other Rights
Certificate (or, prior to the Distribution Date, of the Common Shares), may, in
his or her own behalf and for his or her own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his or her right to exercise the
Rights evidenced by such Rights Certificate in the manner provided in such
Rights Certificate and in this Agreement. Without limiting the foregoing or
any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at
law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person subject to this
Agreement.

Section 16. Agreement of Rights Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:

(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;

(b) after the Distribution Date, the Rights Certificates
are transferable only on the registry books of the Rights Agent if surrendered
at the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed; and

-26-
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(c) subject to Sections 6(a) and 7(f) hereof, the Company
and the Rights Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Shares certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary.

Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose to be the holder of the Preferred Shares
or any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.

Section 18. Concerning the Rights Agent.

(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from time
to time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises. In no event will the Rights Agent be liable for
special, indirect, incidental or consequential loss or damage of any kind
whatsoever, even if the Rights Agent has been advised of the possibility of such
loss or damage.

(b) The Rights Agent shall be protected and shall incur
no liability for, or in respect of any action taken, suffered or omitted by it
in connection with, its administration of this Agreement in reliance upon any
Rights Certificate or certificate for the Preferred Shares or Common Shares or
for other securities of the Company, instrument of assignment or transfer,
power of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document reasonably believed by it to
be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.

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Section 19. Merger or Consolidation or Change of Name of
Rights Agent.

(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, however, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall
succeed to the agency created by this Agreement, any of the Rights Certificates
shall have been countersigned but not delivered, any such successor Rights
Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.

(b) In case at any time the name of the Rights Agent
shall be changed and at such time any of the Rights Certificates shall have
been countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates shall
not have been countersigned, the Rights Agent may countersign such Rights
Certificates either in its prior name or in its changed name; and in all such
cases such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.

Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:

(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such
opinion.

(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact
or matter (including, without limitation, the identity of any Acquiring Person
and the determination of Current Per Share Market Price) be proved or
established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board,
the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.

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(c) The Rights Agent shall be liable hereunder to the
Company and any other Person only for its own gross negligence, bad faith or
willful misconduct.

(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this Agreement or in
the Rights Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.

(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution
and delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any change in the
exercisability of the Rights or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Sections 3,
11, 13, 23 or 24, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the exercise of
Rights evidenced by Rights Certificates after receipt by the Rights Agent of a
certificate furnished pursuant to Section 12 describing such change or
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any Preferred Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.

(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing
by the Rights Agent of the provisions of this Agreement.

(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder
from any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Chief Financial Officer, the Secretary or
any Assistant Secretary of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be
liable for any action taken or suffered by it in good faith in accordance with
instructions of any such officer or for any delay in acting while waiting for
those instructions. Any application by the Rights Agent for written
instructions from the Company may, at the option of the Rights Agent, set forth
in writing any action proposed to be taken or omitted by the Rights Agent under
this Rights Agreement and the date on and/or after which such action shall be
taken or such omission shall be effective. The Rights Agent shall not be
liable for any action taken by, or omission of, the Rights Agent in accordance
with a proposal included in any such application on or after the date specified
in such application (which date shall not be less than five (5) Business Days
after the date any officer of the Company actually receives such application,
unless any such officer shall have consented in writing to an earlier date)
unless, prior to taking any such action (or the effective date in the case of
an omission), the Rights Agent shall have received written instructions in
response to such application specifying the action to be taken or omitted.

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(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not the Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for any
other legal entity.

(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent shall not
be answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.

(j) No provision of this Agreement shall require the
Rights Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of its rights if there shall be reasonable grounds for believing that repayment
of such funds or adequate indemnification against such risk or liability is not
reasonably assured to it.

(k) If, with respect to any Rights Certificate
surrendered to the Rights Agent for exercise or transfer, the certificate
attached to the form of assignment or form of election to purchase, as the case
may be, has either not been completed or indicates an affirmative response to
clause 1 and/or 2 thereof, the Rights Agent shall not take any further action
with respect to such requested exercise or transfer without first consulting
with the Company.

Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company and to
each transfer agent of the Preferred Shares and the Common Shares by registered
or certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Preferred Shares and the Common Shares by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Rights Agent. If the Company
shall fail to make such appointment within a period of thirty (30) days after
giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his or
her Rights Certificate for inspection by the Company), then the registered
holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of any state of the United States, in good standing, which is authorized under
such laws to exercise corporate trust or stockholder services powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and

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responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Preferred Shares and
the Common Shares, and mail a notice thereof in writing to the registered
holders of the Rights Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.

Section 22. Issuance of New Rights Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Exercise Price and the number or kind or class of
shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of Common Shares following
the Distribution Date and prior to the redemption or expiration of the Rights,
the Company (a) shall, with respect to Common Shares so issued or sold pursuant
to the exercise of stock options or under any employee plan or arrangement or
upon the exercise, conversion or exchange of other securities of the Company
outstanding at the date hereof or upon the exercise, conversion or exchange of
securities hereinafter issued by the Company and (b) may, in any other case, if
deemed necessary or appropriate by the Board of Directors of the Company, issue
Rights Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however, that (i) no such Rights
Certificate shall be issued and this sentence shall be null and void ab initio
if, and to the extent that, such issuance or this sentence would create a
significant risk of or result in material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued or would
create a significant risk of or result in such options' or employee plans' or
arrangements' failing to qualify for otherwise available special tax treatment
and (ii) no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.

Section 23. Redemption.

(a) The Company may, at its option and with the approval
of the Board of Directors, at any time prior to the Close of Business on the
earlier of (i) the tenth day following the Shares Acquisition Date (or such
later date as may be determined by action of a majority of Company's Board of
Directors and publicly announced by the Company) and (ii) the Final Expiration
Date, redeem all but not less than all the then outstanding Rights at a
redemption price of $0.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being herein referred to as the "REDEMPTION PRICE") and
the Company may, at its option, pay the Redemption Price either in Common Shares
(based on the Current Per Share Market Price thereof at the time of redemption)
or cash. Such redemption of the Rights by the Company may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion may establish.

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35
The date on which the Board of Directors elects to make the redemption
effective shall be referred to as the "REDEMPTION DATE."

(b) Immediately upon the action of the Board of Directors
of the Company ordering the redemption of the Rights, evidence of which shall
have been filed with the Rights Agent, and without any further action and
without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price. The Company shall promptly give public notice of any such
redemption; provided, however, that the failure to give or any defect in, any
such notice shall not affect the validity of such redemption. Within ten (10)
days after the action of the Board of Directors ordering the redemption of the
Rights, the Company shall give notice of such redemption to the Rights Agent
and the holders of the then outstanding Rights by mailing such notice to all
such holders at their last addresses as they appear upon the registry books of
the Rights Agent or, prior to the Distribution Date, on the registry books of
the transfer agent for the Common Shares. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. Neither the Company
nor any of its Affiliates or Associates may redeem, acquire or purchase for
value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in connection
with the purchase of Common Shares prior to the Distribution Date.

Section 24. Exchange.

(a) Subject to applicable laws, rules and regulations,
and subject to subsection 24(c) below, the Company may, at its option, by
action of the Board of Directors, at any time after the occurrence of a
Triggering Event, exchange all or part of the then outstanding and exercisable
Rights (which shall not include Rights that have become void pursuant to the
provisions of Section 7(e) hereof) for Common Shares at an exchange ratio of one
Common Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "EXCHANGE RATIO"). Notwithstanding
the foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Shares then outstanding.

(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection 24(a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall give public notice of any such exchange; provided, however,
that the failure to give, or any defect in, such notice shall not affect the
validity of such exchange. The Company shall mail a notice of any such
exchange to all of the holders of such Rights at their last addresses as they
appear upon the registry books of the Rights Agent. Any

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notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of the Common Shares for Rights
will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be effected pro
rata based on the number of Rights (other than Rights which have become void
pursuant to the provisions of Section 7(e) hereof) held by each holder of
Rights.

(c) In the event that there shall not be sufficient
Common Shares issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with Section 24(a), the
Company shall either take such action as may be necessary to authorize
additional Common Shares for issuance upon exchange of the Rights or
alternatively, at the option of a majority of the Board of Directors, with
respect to each Right (i) pay cash in an amount equal to the Current Value (as
hereinafter defined), in lieu of issuing Common Shares in exchange therefor, or
(ii) issue debt or equity securities or a combination thereof, having a value
equal to the Current Value, in lieu of issuing Common Shares in exchange for
each such Right, where the value of such securities shall be determined by a
nationally recognized investment banking firm selected by majority vote of the
Board of Directors, or (iii) deliver any combination of cash, property, Common
Shares and/or other securities having a value equal to the Current Value in
exchange for each Right. For purposes of this Section 24(c) only, the Current
Value shall mean the product of the Current Per Share Market Price of Common
Shares on the date of the occurrence of the event described above in
subparagraph (a), multiplied by the number of Common Shares for which the Right
otherwise would be exchangeable if there were sufficient shares available. To
the extent that the Company determines that some action need be taken pursuant
to clauses (i), (ii) or (iii) of this Section 24(c), the Board of Directors may
temporarily suspend the exercisability of the Rights for a period of up to
sixty (60) days following the date on which the event described in Section
24(a) shall have occurred, in order to seek any authorization of additional
Common Shares and/or to decide the appropriate form of distribution to be made
pursuant to the above provision and to determine the value thereof. In the
event of any such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily suspended.

(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable, an amount in cash equal
to the same fraction of the current market value of a whole Common Share (as
determined pursuant to the second sentence of Section 11(j) hereof).

(e) The Company may, at its option, by majority vote of
the Board of Directors, at any time before any Person has become an Acquiring
Person, exchange all or part of the then outstanding Rights for rights of
substantially equivalent value, as determined reasonably and with good faith by
the Board of Directors, based upon the advice of one or more nationally
recognized investment banking firms.

(f) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection 24(e) of this
Section 24 and without any further action and without

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any notice, the right to exercise such Rights shall terminate and the only
right thereafter of a holder of such Rights shall be to receive that number of
rights in exchange therefor as has been determined by the Board of Directors in
accordance with subsection 24(e) above. The Company shall give public notice
of any such exchange; provided, however, that the failure to give, or any
defect in, such notice shall not affect the validity of such exchange. The
Company shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
transfer agent for the Common Shares of the Company. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange will state the method
by which the exchange of the Rights will be effected.

Section 25. Notice of Certain Events.

(a) In case the Company shall propose to effect or permit
to occur any Triggering Event or Section 13 Event, the Company shall give
notice thereof to each holder of Rights in accordance with Section 26 hereof at
least twenty (20) days prior to occurrence of such Triggering Event or such
Section 13 Event.

(b) In case any Triggering Event or Section 13 Event
shall occur, then, in any such case, the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate, in accordance with
Section 26 hereof, a notice of the occurrence of such event, which shall
specify the event and the consequences of the event to holders of Rights under
Sections 11(a)(ii) and 13 hereof.

Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:

CYBERONICS, INC.
00000 Xxxxxxx 0, Xxx. 000
Xxxxxxx, Xxxxx 00000-0000
Attention: Chief Executive Officer and President

with a copy to:

Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxx

Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the
holder of any Rights Certificate to or on the

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Rights Agent shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Company) as follows:

First National Bank of Boston
000 Xxxxxx Xxxxxx
----------------------------------------
Xxxxxx, XX 00000
----------------------------------------
Attention: Cyberonics, Inc. Rights Agent
-----------------------------

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.

Section 27. Supplements and Amendments. Prior to the occurrence of a
Distribution Date, the Company may supplement or amend this Agreement in any
respect without the approval of any holders of Rights and the Rights Agent
shall, if the Company so directs, execute such supplement or amendment. From
and after the occurrence of a Distribution Date, the Company and the Rights
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Rights in order to (i) cure any ambiguity, (ii)
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) shorten or lengthen any
time period hereunder or (iv) to change or supplement the provisions hereunder
in any manner that the Company may deem necessary or desirable and that shall
not adversely affect the interests of the holders of Rights (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person); provided,
this Agreement may not be supplemented or amended to lengthen, pursuant to
clause (iii) of this sentence, (A) a time period relating to when the Rights may
be redeemed at such time as the Rights are not then redeemable or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders of Rights
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person). Upon the delivery of a certificate from an appropriate officer of the
Company that states that the proposed supplement or amendment is in compliance
with the terms of this Section 27, the Rights Agent shall execute such
supplement or amendment. Prior to the Distribution Date, the interests of the
holders of Rights shall be deemed coincident with the interests of the holders
of Common Shares.

Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.

Section 29. Determinations and Actions by the Board of Directors,
etc. For all purposes of this Agreement, any calculation of the number of
Common Shares outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding Common Shares of
which any Person is the Beneficial Owner, shall be made in accordance with the
last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under
the Exchange Act. The Board of Directors of the Company shall have the
exclusive

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power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board, or the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or
not redeem the Rights or to amend the Agreement). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) which are done
or made by the Board in good faith, shall (x) be final, conclusive and binding
on the Company, the Rights Agent, the holders of the Rights Certificates and
all other parties and (y) not subject the Board to any liability to the holders
of the Rights.

Section 30. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders
of the Rights Certificates (and, prior to the Distribution Date, the Common
Shares).

Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing
the invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23
hereof shall be reinstated and shall not expire until the Close of Business on
the tenth day following the date of such determination by the Board of
Directors.

Section 32. Governing Law. This Agreement and each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.

Section 33. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.

Section 34. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.

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40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.

"COMPANY" CYBERONICS, INC.

By: /s/ XXXXXX X. XXXXXXX
----------------------------------------

Name: Xxxxxx X. Xxxxxxx
Title: Chief Executive Officer and President

"RIGHTS AGENT" FIRST NATIONAL BANK OF BOSTON

By: /s/ XXXXXXX X. XXXX
-----------------------------------------

Name: Xxxxxxx X. Xxxx
----------------------------------------

Title: Administration Manager
----------------------------------------

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41
EXHIBIT A

CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF CYBERONICS, INC.

The undersigned, Xxxxxx X. Xxxxxxx and Xxxxx X. Xxxxx, Xx., do hereby
certify:

1. That they are the duly elected and acting Chief Executive
Officer and Secretary, respectively, of Cyberonics, Inc., a Delaware
corporation (the "CORPORATION").

2. That pursuant to the authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation of the said Corporation,
the said Board of Directors on January 29, 1997 adopted the following
resolution creating a series of 50,000 shares of Preferred Stock designated as
Series A Participating Preferred Stock:

"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the corporation by the Restated Certificate of Incorporation, the
Board of Directors does hereby provide for the issue of a series of Preferred
Stock of the Corporation and does hereby fix and herein state and express the
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of such series of Preferred Stock
as follows:

Section 1. Designation and Amount. The shares of such series
shall be designated as "SERIES A PARTICIPATING PREFERRED STOCK." The Series A
Participating Preferred Stock shall have a par value of $0.01 per share, and
the number of shares constituting such series shall be 50,000.

Section 2. Proportional Adjustment. In the event the
Corporation shall at any time after the issuance of any share or shares of
Series A Participating Preferred Stock (i) declare any dividend on Common Stock
of the Corporation ("COMMON STOCK") payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the Corporation
shall simultaneously effect a proportional adjustment to the number of
outstanding shares of Series A Participating Preferred Stock.

Section 3 Dividends and Distributions.

(a) Subject to the prior and superior right of the
holders of any shares of any series of Preferred Stock ranking prior and
superior to the shares of Series A Participating Preferred Stock with respect
to dividends, the holders of shares of Series A Participating Preferred Stock
shall be entitled to receive when, as and if declared by the Board of Directors
out of funds legally available for that purpose, quarterly dividends payable in
cash on the last day of January, April, July and October in each year (each
such date being referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"),
commencing on the first

Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other
(except as provided in Section 2 hereof) than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Participating Preferred Stock.

(b) The Corporation shall declare a dividend or
distribution on the Series A Participating Preferred Stock as provided in
paragraph (a) above immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common Stock).

(c) Dividends shall begin to accrue on outstanding shares
of Series A Participating Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares of Series A Participating
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of shares of Series A
Participating Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Participating Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for the
payment thereof.

Section 4. Voting Rights. The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:

(a) Each share of Series A Participating Preferred Stock
shall entitle the holder thereof to 1,000 votes on all matters submitted to a
vote of the stockholders of the Corporation.

(b) Except as otherwise provided herein or by law, the
holders of shares of Series A Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.

(c) Except as required by law, holders of Series A
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.

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43

Section 5. Certain Restrictions.

(a) The Corporation shall not declare any dividend on,
make any distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a share or
fraction of a share of Series A Participating Preferred Stock unless
concurrently therewith it shall declare a dividend on the Series A
Participating Preferred Stock as required by Section 3 hereof.

(b) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:

(i) declare or pay dividends on, make
any other distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Participating
Preferred Stock;

(ii) declare or pay dividends on, make
any other distributions on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with Series A
Participating Preferred Stock, except dividends paid ratably on the Series A
Participating Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders
of all such shares are then entitled;

(iii) redeem or purchase or otherwise
acquire for consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Participating Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior (either as
to dividends or upon dissolution, liquidation or winding up) to the Series A
Participating Preferred Stock;

(iv) purchase or otherwise acquire for
consideration any shares of Series A Participating Preferred Stock, or any
shares of stock ranking on a parity with the Series A Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.

(c) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph (a)
of this Section 5, purchase or otherwise acquire such shares at such time and
in such manner.

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44
Section 6. Reacquired Shares. Any shares of Series A
Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein and, in the Restated Certificate of
Incorporation, as then amended.

Section 7. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, the holders of
shares of Series A Participating Preferred Stock shall be entitled to receive
an aggregate amount per share equal to 1000 times the aggregate amount to be
distributed per share to holders of shares of Common Stock plus an amount equal
to any accrued and unpaid dividends on such shares of Series A Participating
Preferred Stock.

Section 8. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share equal to 1,000 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged.

Section 9. No Redemption. The shares of Series A Participating
Preferred Stock shall not be redeemable.

Section 10. Ranking. The Series A Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as
to the payment of dividends and the distribution of assets, unless the terms of
any such series shall provide otherwise.

Section 11. Amendment. The Restated Certificate of Incorporation
of the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preference or special rights of the
Series A Participating Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of a majority of the outstanding shares of
Series A Participating Preferred Stock, voting separately as a class.

Section 12. Fractional Shares. Series A Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Participating Preferred Stock.

RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Designation
of Rights, Preferences and Privileges in accordance with the foregoing

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45
resolution and the provisions of Delaware law and to take such actions as they
may deem necessary or appropriate to carry out the intent of the foregoing
resolution."

We further declare under penalty of perjury that the matters set forth
in the foregoing Certificate of Designation are true and correct of our own
knowledge.

Executed at Webster, Texas on March 4, 1997.

__________________________________________
Xxxxxx X. Xxxxxxx, Chief Executive Officer

__________________________________________
Xxxxx X. Xxxxx, Xx., Secretary

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46
EXHIBIT B

FORM OF RIGHTS CERTIFICATE

Certificate No. R- _________ Rights

NOT EXERCISABLE AFTER THE EARLIER OF (i) JANUARY 29, 2007, (ii) THE
DATE TERMINATED BY THE COMPANY OR (iii) THE DATE THE COMPANY
EXCHANGES THE RIGHTS PURSUANT TO THE RIGHTS AGREEMENT. THE RIGHTS ARE
SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH
RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS
OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY
MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION
7(e) OF SUCH RIGHTS AGREEMENT.]*

RIGHTS CERTIFICATE

CYBERONICS, INC.

This certifies that ______________________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement dated as of March 4, 1997 (the "RIGHTS
AGREEMENT"), between Cyberonics, Inc., a Delaware corporation (the "COMPANY"),
and First National Bank of Boston ( the "RIGHTS AGENT"), to purchase from the
Company at any time after the Distribution Date (as such term is defined in the
Rights Agreement) and prior to 5:00 P.M., New York time, on January 29, 2007
at the office of the Rights Agent designated for such purpose, or at the office
of its successor as Rights Agent, one one-thousandth (1/1,000) of a fully paid
non-assessable share of Series A

__________________________________

* The portion of the legend in bracket shall be inserted only if applicable
and shall replace the preceding sentence.

Participating Preferred Stock, no par value, (the "PREFERRED SHARES"), of the
Company, at a Exercise Price of Thirty Dollars ($30) per one-thousandth of a
Preferred Share (the "EXERCISE PRICE"), upon presentation and surrender of this
Rights Certificate with the Form of Election to Purchase and related
Certificate duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of one-thousandths of a Preferred Share which may
be purchased upon exercise hereof) set forth above are the number and Exercise
Price as of March 4, 1997, based on the Preferred Shares as constituted at
such date. As provided in the Rights Agreement, the Exercise Price and the
number and kind of Preferred Shares or other securities which may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are
subject to modification and adjustment upon the happening of certain events.

This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description
of the rights, limitations of rights, obligations, duties and immunities
hereunder of the Rights Agent, the Company and the holders of the Rights
Certificates, which limitations of rights include the temporary suspension of
the exercisability of such Rights under the specific circumstances set forth in
the Rights Agreement. Copies of the Rights Agreement are on file at the
principal executive offices of the Company and the above-mentioned office of
the Rights Agent.

Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Rights Certificate (i) may be redeemed by the Company, at its
option, at a redemption price of $0.01 per Right or (ii) may be exchanged by
the Company in whole or in part for Common Shares, substantially equivalent
rights or other consideration as determined by the Company.

This Rights Certificate, with or without other Rights
Certificates, upon surrender at the office of the Rights Agent designated for
such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate amount of securities as the Rights evidenced by the
Rights Certificate or Rights Certificates surrendered shall have entitled such
holder to purchase. If this Rights Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Rights
Certificate or Rights Certificates for the number of whole Rights not
exercised.

No fractional portion of less than one one-thousandth of a
Preferred Share will be issued upon the exercise of any Right or Rights
evidenced hereby but in lieu thereof a cash payment will be made, as provided
in the Rights Agreement.

No holder of this Rights Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder
of the Preferred Shares or of any other securities of the Company which may at
any time be issuable on the exercise hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof,
as such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting stockholders (except
as provided in the Rights

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48
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.

This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.

WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _______________, 19____.

ATTEST: CYBERONICS, INC.

____________________________________ By:____________________________________
Xxxxx X. Xxxxx, Xx., Secretary Xxxxxx X. Xxxxxxx, Chief Executive
Officer and President

Countersigned:

FIRST NATIONAL BANK OF BOSTON
as Rights Agent

By:____________________________________

Its:___________________________________

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49
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE

FORM OF ASSIGNMENT

(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate)

FOR VALUE RECEIVED ____________________________________ hereby
sells, assigns and transfers unto______________________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
________________________________________________________________ this Rights
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint __________________________ Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.

Dated: _______________, 19____

________________________________________
Signature

Signature Guaranteed:

Signatures must be guaranteed by an eligible guarantor
institution (a bank, stockbroker, savings and loan association or credit union
with membership in an approved signature guarantee medallion program) pursuant
to Rule 17Ad-15 of the Securities Exchange Act of 1934.

CERTIFICATE

The undersigned hereby certifies by checking the appropriate boxes
that:

(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an Acquiring
Person, or an Affiliate or Associate of any such Person (as such terms are
defined in the Rights Agreement);

(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of any such Person.

Dated: _______________, 19____

________________________________
Signature

Signature Guaranteed:

FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED

FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to
exercise the Rights Certificate)

To:____________________________________

The undersigned hereby irrevocably elects to exercise
_________________________ Rights represented by this Rights Certificate to
purchase the number of one-thousandths of a Preferred Share issuable upon the
exercise of such Rights and requests that certificates for such number of
one-thousandths of a Preferred Share issued in the name of:

Please insert social security
or other identifying number

_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________

If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:

Please insert social security
or other identifying number

_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________

Dated: ___________________ , 19____

____________________________________
Signature

Signature Guaranteed:

CERTIFICATE

The undersigned hereby certifies by checking the appropriate boxes
that:

(1) the Rights evidenced by this Rights Certificate [ ] are [ ]
are not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Person (as such terms are
defined in the Rights Agreement);

Dated: _______________, 19____

____________________________________
Signature

Signature Guaranteed:

FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED

NOTICE

The signature in the foregoing Forms of Assignment and
Election must conform to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any
change whatsoever.

54
EXHIBIT C
STOCKHOLDER RIGHTS PLAN
CYBERONICS, INC.

Summary of Rights

Distribution and
Transfer of Rights;
Rights Certificate: The Board of Directors has declared a dividend of
one Right for each share of Cyberonics, Inc.
Common Stock outstanding. Prior to the
Distribution Date referred to below, the Rights
will be evidenced by and trade with the
certificates for the Common Stock. After the
Distribution Date, Cyberonics, Inc. (the
"COMPANY") will mail Rights certificates to the
Company's stockholders and the Rights will become
transferable apart from the Common Stock.

Distribution Date: Rights will separate from the Common Stock and
become exercisable following (a) the tenth day
(or such later date as may be determined by a
majority of the Board of Directors) after a
person or group acquires beneficial ownership of
20% or more of the Company's Common Stock or
(b) the tenth business day (or such later date
as may be determined by a majority of the Board
of Directors) after a person or group announces
a tender or exchange offer, the consummation of
which would result in ownership by a person or
group of 20% or more of the Company's Common
Stock.

Preferred Stock
Purchasable Upon
Exercise of Rights: After the Distribution Date, each Right will
entitle the holder to purchase for $30.00, a
fraction of a share of the Company's Preferred
Stock with economic terms similar to that of one
share of the Company's Common Stock.

Flip-In: If an acquiror (an "ACQUIRING PERSON") obtains
20% or more of the Company's Common Stock, then
each Right (other than Rights owned by an
Acquiring Person or its affiliates) will
entitle the holder thereof to purchase, for the
Exercise Price, a number of shares of the
Company's Common Stock having a then current
market value of twice the Exercise Price.

Flip-Over: If, after an Acquiring Person obtains 20% or
more of the Company's Common Stock, (a) the
Company merges into another entity, (b) an
acquiring entity merges into the Company or (c)
the Company sells more than 50% of the Company's
assets or earning power, then each Right (other
than Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to
purchase, for the Exercise Price, a number of
shares of Common Stock of the Person engaging in
the transaction having a then current market

value of twice the Exercise Price (unless the
transaction satisfies certain conditions and is
consummated with a Person who acquired shares
pursuant to a Permitted Offer, in which case the
Rights will expire).

Exchange Provision: At any time after the date an Acquiring Person
obtains 20% or more of the Company's Common
Stock and prior to the acquisition by the
Acquiring Person of 50% of the outstanding Common
Stock, a majority of the Board of Directors of
the Company may exchange the Rights (other than
Rights owned by the Acquiring Person or its
affiliates), in whole or in part, for shares of
Common Stock of the Company at an exchange ratio
of one share of Common Stock per Right (subject
to adjustment).

Redemption of
the Rights: Rights will be redeemable at the Company's
option for $0.01 per Right at any time on or
prior to the tenth day (or such later date as may
be determined by a majority of the Board of
Directors) after public announcement that a
Person has acquired beneficial ownership of 20%
or more of the Company's Common Stock (the
"SHARES ACQUISITION DATE").

Expiration of
the Rights: The Rights expire on the earliest of (a)
January 29, 2007, (b) exchange or redemption of
the Rights as described above, or (c)
consummation of a merger or consolidation
resulting in expiration of the Rights as
described above.

Amendment of
Terms of Rights: The terms of the Rights and the Rights Agreement
may be amended in any respect without the consent
of the Rights holders on or prior to Distribution
Date; thereafter, the terms of the Rights and the
Rights Agreement may be amended without the
consent of the Rights holders in order to cure
any ambiguities or to make changes which do not
adversely affect the interests of Rights holders
(other than the Acquiring Person).

Voting Rights: Rights will not have any voting
rights.

Anti-Dilution
Provisions: Rights will have the benefit of
certain customary anti-dilution provisions.

Taxes: The Rights distribution should not be taxable
for federal income tax purposes. However,
following an event which renders the Rights
exercisable or upon redemption of the Rights,
stockholders may recognize taxable income.

The foregoing is a summary of certain principal terms of the Stockholder Rights
Plan only and is qualified in its entirety by reference to the detailed terms
of the Rights Agreement dated as of March 4, 1997, between the Company and
the Rights Agent.

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