exv10w1



 





Exhibit 10.1




THIRD AMENDMENT TO FINANCING AGREEMENT




     THIS THIRD AMENDMENT TO FINANCING AGREEMENT (this “Amendment”) is made
and entered into effective as of August 30, 2004, to be effective as of the
respective date herein indicated, by and between CYBERONICS, INC., a Delaware
corporation (“Company”), and THE CIT GROUP/BUSINESS CREDIT, INC., a New York
corporation (“CIT”).



RECITALS




     A. Company and CIT have entered into that certain Financing Agreement,
dated as of September 26, 2001, as amended by that certain First Amendment to
Financing Agreement dated as of April 1, 2003 and by that certain letter agreement dated July 29, 2004
(collectively, the “Financing Agreement”).



     B. Company and CIT desire to further amend the Financing Agreement as
hereinafter set forth.



     NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties, intending to be legally bound, agree as
follows:



AGREEMENT




ARTICLE I

Definitions




     1.01 Capitalized terms used in this Amendment are defined in the
Financing Agreement, as amended hereby, unless otherwise stated.



ARTICLE II

Amendments to Financing Agreement




     Effective as of the respective date herein indicated, the Financing
Agreement is hereby amended as follows:



     2.01 Definition of Anniversary Date. Effective as of the date of
execution of this Amendment, the definition of “Anniversary Date” set forth in Section 1 of
the Financing Agreement is amended and restated to read in its entirety as follows:



     “Anniversary Date shall mean September 26, 2005 and the same date in
every year thereafter.”



     2.02 Definition of Borrowing Base. Effective as of the date of
execution of this Amendment, the definition of “Borrowing Base” set forth in Section 1 of
the Financing Agreement is amended and restated to read in its entirety as follows:




“Borrowing Base shall mean the sum of (a) eighty percent (80%) of the
Company’s aggregate outstanding Eligible Accounts Receivable, provided,
however, that if the then Dilution Percentage is greater than five
percent (5%), then the rate of advance herein shall be reduced by



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the amount of such excess Dilution Percentage, plus (b) the lesser of (i)
fifty percent (50%) of the aggregate value of the Company’s Eligible
Inventory, valued at the lower of cost or market value, on a first in,
first out basis, (ii) eighty-five percent (85%) of the aggregate value of
the Company’s Eligible Inventory, valued at the appraised net orderly
liquidation value, on a first in, first out basis, or (iii) the Inventory
Loan Cap, less (c) any applicable Availability Reserves; provided,
however, the Eligible Inventory portion of the Borrowing Base in clause
(b) above shall not be effective until such time as a Qualified Inventory
Appraisal has been conducted”.



     2.03 Definition of Early Termination Fee. Effective as of the date of
execution of this Amendment, the definition of “Early Termination Fee” set forth in Section
1 of the Financing Agreement is amended and restated to read in its entirety as follows:




“Early Termination Fee shall:
 (a) mean the fee CIT is entitled to charge
the Company in the event the Company terminates the Revolving Line of
Credit or this Financing Agreement on a date prior to an Anniversary
Date; and (b) be determined by multiplying the Revolving Line of Credit
by one percent (1%).”



     2.04 Definition of Revolving Line of Credit. Effective as of the date of
execution of this Amendment, the definition of “Revolving Line of Credit” set forth in
Section 1 of the Financing Agreement is amended and restated to read in its entirety as follows:




“Revolving Line of Credit shall mean the aggregate commitment of CIT to
make loans and advances pursuant to Section 3 of this Financing
Agreement and issue Letters of Credit Guaranties pursuant to Section 5
hereof to the Company, in the aggregate amount equal to the sum of
$20,000,000.00.”



     2.05 New Definitions. Effective as of the date of this Amendment,
Section 1 of the Agreement is amended by adding the following new definitions thereto, to
be inserted in appropriate alphabetical order:




“Eligible Inventory shall mean the gross amount of the Company’s
Inventory that is subject to a valid, exclusive, first priority and fully
perfected security interest in favor of CIT and which conforms to the
warranties contained herein and which, at all times, continues to be
acceptable to CIT in the exercise of its reasonable judgment, less,
without duplication, any (a) work-in-process, (b) supplies (other than
raw materials), (c) Inventory not present in the United States of
America, (d) Inventory returned or rejected by the Company’s customers
(other than goods that are undamaged and resalable in the normal course
of business) and goods to be returned to the Company’s suppliers, (e)
Inventory in transit to third parties (other than the Company’s agents or
warehouses), or in the possession of a warehouseman, bailee, third party
processor, or other third party, unless such warehouseman, bailee or
third party has executed a notice of security interest agreement (in form
and substance satisfactory to CIT) and CIT shall have a first priority
perfected security interest in such Inventory, and (f) less any reserves
required by CIT in its reasonable discretion, including without
limitation for special order goods, discontinued, slow-moving and
obsolete Inventory, market value declines, bill and hold (deferred
shipment), consignment sales, shrinkage and any applicable customs,
freight, duties and Taxes.”




“Inventory Loan Cap shall mean the amount of $10,000,000.00.”




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“Qualified Inventory Appraisal shall mean an appraisal of the Inventory
to be performed at the Company’s expense by an appraiser mutually
satisfactory to CIT and the Company to determine the net orderly
liquidation value of the Inventory, in form and detail satisfactory to
CIT; provided, however, the initial Qualified Inventory Appraisal shall
not be obtained until the Company has requested such appraisal.”



     2.06 Amendment of Subparagraph 3.2 of Section 3. Effective as of the date
of execution of this Amendment, the first sentence of Subparagraph 3.2 of Section 3 of
the Financing Agreement shall be amended and restated to read in its entirety as follows:




“In furtherance of the continuing assignment and security interest in the
Company’s Accounts and Inventory, the Company will, upon the creation of
Accounts and purchase or acquisition of Inventory, execute and deliver to
CIT in such form and manner as CIT may reasonably require, solely for
CIT’s convenience in maintaining records of Collateral, such confirmatory
schedules of Accounts and Inventory as CIT may reasonably request,
including, without limitation, monthly schedules of Accounts and monthly
schedules of Inventory, all in form and substance satisfactory to CIT,
and such other appropriate reports designating, identifying and
describing the Accounts and Inventory as CIT may reasonably request, and
provided further that CIT may request any such information more
frequently, from time to time, upon its reasonable prior request.”



     2.07 Amendment of Subparagraph 8.1(a) of Section 8. Effective as of the
date of execution of this Amendment, Subparagraph 8.1 (a) of Section 8 of the
Financing Agreement shall be amended and restated to read in its entirety as follows:




“(a) Interest shall be payable monthly as of the end of each month in an
amount equal to the lesser of (a) an amount equal to the Chase Bank Rate
per annum, or (b) the Maximum Legal Rate, on the greater of (i)
$3,000,000 or (ii) on the average of the net balances owing by the
Company to CIT in the Revolving Loan Account at the close of each day
during such month. In the event of any change in said Chase Bank Rate,
the rate hereunder for Revolving Loans shall change, as of the date of
such change, so as to remain equal to the Chase Bank Rate. The rate
hereunder shall be calculated based on a 360-day year. CIT shall be
entitled to charge the Revolving Loan Account at the rate provided for
herein when due until all Obligations have been paid in full.”



     2.08 Amendment and Restatement of Section 11. Effective as of the date of
execution of this Amendment, the first and fifth sentences of Section 11 of the
Financing Agreement shall be amended and restated to read in its entirety as follows:




“Except as otherwise permitted herein, CIT may terminate this Financing
Agreement only as of the initial or any subsequent Anniversary Date and
then only by giving the Company at least forty-five (45) days’ prior
written notice of termination.”




“The Company may terminate this Financing Agreement at any time upon
forty-five (45) days’ prior written notice to CIT, provided that the
Company pays to CIT immediately on demand an Early Termination Fee, if
applicable.”



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ARTICLE III

Conditions Precedent




     3.01 Conditions to Effectiveness. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent in a manner
satisfactory to CIT, unless specifically waived in writing by CIT:



          (a) CIT shall have received each of the following, each in form and
substance satisfactory to CIT, in its sole discretion, and, where applicable, each
duly executed by each party thereto, other than CIT:




	(i)	 	This Amendment, duly executed by Company; and
	 
	(ii)	 	All other documents CIT may request
with respect to any matter relevant to this Amendment or
the transactions contemplated hereby.





          (b) The representations and warranties contained herein and in the
Financing Agreement and the other documents executed in connection with the
Financing Agreement (herein referred to as “Loan Documents”), as each is amended hereby, shall be true
and correct as of the date hereof, as if made on the date hereof.



          (c) No Default or Event of Default shall have occurred and be continuing,
unless such Default or Event of Default has been otherwise specifically waived in
writing by CIT.



          (d) All corporate proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments and other
legal matters incident thereto shall be satisfactory to CIT.



ARTICLE IV

No Waiver




     4.01 No Waivers. Nothing contained herein shall be construed as a waiver
by CIT of any covenant or provision of the Financing Agreement, the other Loan
Documents, this Amendment or any other contract or instrument between CIT and
Company, and the failure of CIT at any time or times hereafter to require
strict performance by Company of any provision thereof shall not waive, affect
or diminish any right of CIT to thereafter demand strict compliance therewith.
CIT hereby reserves all rights granted under the Financing Agreement, the
other Loan Documents, this Amendment, and any other contract or instrument
between the Company and CIT.



ARTICLE V

Ratifications, Representations and Warranties




     5.01 Ratifications. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions set forth in
the Financing Agreement and the other Loan Documents, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the
Financing Agreement and the other Loan Documents are ratified and confirmed
and shall continue in full force and effect. Company and CIT agree that the
Financing Agreement and the other Loan Documents, as amended hereby, shall
continue to be legal, valid, binding and enforceable in accordance with their
respective terms.



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     5.02 Representations and Warranties. Company hereby represents and
warrants to CIT that (a) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Company and will not violate the Certificate of Incorporation or
Bylaws of Company; (b) the representations and warranties contained in the
Financing Agreement, as amended hereby, and any other Loan Document are true
and correct on and as of the date hereof and on and as of the date of execution
hereof as though made on and as of each such date; (c) no Default or Event of
Default under the Financing Agreement, as amended hereby, has occurred and is
continuing, unless such Default or Event of Default has been specifically
waived in writing by CIT; (d) Company is in full compliance with all covenants
and agreements contained in the Financing Agreement and the other Loan
Documents, as amended hereby; and (f) Company has not amended its Certificate
of Incorporation or its Bylaws since the date of the Financing Agreement.



ARTICLE VI

Miscellaneous Provisions




     6.01 Survival of Representations and Warranties. All representations and
warranties made
in the Financing Agreement, or any other Loan Document, including, without
limitation, any document
furnished in connection with this Amendment, shall survive the
execution and delivery of this
Amendment and the other Loan Documents, and no investigation by CIT or any
closing shall affect the
representations and warranties or the right of CIT to rely upon them.



     6.02 Reference to Financing Agreement. Each of the Financing Agreement and the other
Loan Documents, and any and all other Loan Documents, documents or
instruments now or hereafter
executed and delivered pursuant to the terms hereof or pursuant to the
terms of the Financing Agreement,
as amended hereby, are hereby amended so that any reference in the
Financing Agreement and such other
Loan Documents to the Financing Agreement shall mean a reference to the
Financing Agreement, as amended hereby.



     6.03 Expenses of CIT. As provided in the Financing Agreement, Company agrees to pay on
demand all costs and expenses incurred by CIT in connection with the
preparation, negotiation, and
execution of this Amendment and the other Loan Documents executed pursuant
hereto and any and all
amendments, modifications, and supplements thereto, including, without
limitation, the costs and fees of
CIT’s legal counsel, and all costs and expenses incurred by CIT in
connection with the enforcement or
preservation of any rights under the Financing Agreement, as amended
hereby, or any other Loan
Documents, including, without, limitation, the costs and fees of CIT’s legal counsel.



     6.04 Severability. Any provision of this Amendment held by a court of competent
jurisdiction to be invalid or unenforceable shall not impair or invalidate
the remainder of this
Amendment and the effect thereof shall be confined to the provision so
held to be invalid or unenforceable.



     6.05 Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit
of CIT and Company and their respective successors and assigns, except
that Company may not assign or
transfer any of its rights or obligations hereunder without the prior written consent of CIT.



     6.06 Counterparts. This Amendment may be executed in one or more counterparts, each of
which when so executed shall be deemed to be an original, but all of which
when taken together shall constitute one and the same instrument.



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     6.07 Effect of Waiver. No consent or waiver, express or implied, by CIT to
or for any breach
of or deviation from any covenant or condition by Company shall be deemed
a consent to or waiver of
any other breach of the same or any other covenant, condition or duty.



     6.08 Headings. The headings, captions, and arrangements used in this Amendment are for
convenience only and shall not affect the interpretation of this Amendment.



     6.09 Applicable Law. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.



     6.10 Final Agreement. THE FINANCING AGREEMENT AND THE OTHER LOAN
DOCUMENTS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF
THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS
AMENDMENT IS EXECUTED. THE FINANCING AGREEMENT AND THE OTHER LOAN
DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF
THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY
COMPANY AND CIT.



     6.11
Release. COMPANY HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR
NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY
PART OF ITS LIABILITY TO REPAY THE “OBLIGATIONS” OR TO SEEK AFFIRMATIVE
RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM CIT. COMPANY HEREBY
VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES CIT, ITS
PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE
CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND
LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED,
SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN
EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS
AMENDMENT IS EXECUTED, WHICH COMPANY MAY NOW OR HEREAFTER HAVE AGAINST
CIT, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY,
AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT,
VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY
“LOANS”, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING,
TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE
HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES
UNDER THE FINANCING AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR
AND EXECUTION OF THIS AMENDMENT.



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     IN WITNESS WHEREOF, this Amendment has been executed and is effective as
of the date first above-written.



	 	 	 	 	 
	 	 	“COMPANY”
	 
	 	 	 	 
	 	 	CYBERONICS, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Robert P. Cummins


	 	 	Name: Robert P. Cummins
	 	 	Title: Chief Executive Officer
	 
	 	 	 	 
	 	 	“CIT”
	 
	 	 	 	 
	 	 	THE CIT
GROUP/BUSINESS CREDIT, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Grant Weiss



	 	 	Name: Grant Weiss
	 	 	Title: Vice President







Third Amendment To Financing Agreement