Document:

ex10_1.htm

Exhibit 10.1

WARRANT AMENDMENT AGREEMENT

BETWEEN

CYBERONICS, INC.

AND

MERRILL LYNCH INTERNATIONAL

THROUGH

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

AS AGENT

THIS WARRANT AMENDMENT AGREEMENT (this “Amendment Agreement”) is made as of September 11, 2012, between Cyberonics, Inc. (“Counterparty”), and Merrill Lynch International (“ML”) through its agent Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Agent”).

 

WITNESSETH:

 

WHEREAS, on September 21, 2005 Counterparty and ML through Agent entered into a warrant transaction (the “Warrant Transaction”) pursuant to an ISDA confirmation dated as of September 21, 2005, which is subject to an agreement in the form of the 1992 ISDA Master Agreement (Multicurrency – Cross Border), pursuant to which ML purchased from Counterparty 3,012,050 warrants (as amended, modified, terminated or unwound from time to time, the “Warrant Confirmation”); and

 

WHEREAS, Counterparty and ML wish to amend the terms of the Warrant Transaction and the Warrant Confirmation as set forth below.

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained, Counterparty and ML, intending to be legally bound, mutually covenant and agree as follows:

 

Section 1.                      Definitions. Capitalized terms used herein but not otherwise defined shall have the meanings assigned to them in the Warrant Confirmation.  All references herein, in the Warrant Confirmation and in the Equity Definitions to the “Strike Price” shall be deemed to be references to the “Exercise Price.”

 

Section 2.                      Amendment of the Warrant Transaction.

 

	  	
(a)           The captions “Expiration Time,” “Expiration Date” and “Exercise Date” under the heading “Procedures for Exercise” in the Warrant Confirmation and the provisions opposite such captions are hereby amended and restated in their entirety to read:

	  	  	  	
“Expiration Time:

	
Valuation Time

 

	  	  	  	
Expiration Dates:

	
Each Scheduled Trading Day during the period from, and including, the First Expiration Date to, but excluding, the 60th Scheduled Trading Day following the First Expiration Date shall be an “Expiration Date” for a number of Warrants equal to the Daily Number of Warrants on such date; provided that, notwithstanding anything to the contrary in the Equity Definitions, if any such date is a Disrupted Day, the Calculation Agent shall make adjustments, if applicable, to the Daily Number of Warrants for such Expiration Date or shall reduce such Daily Number of Warrants to zero for such Expiration Date and shall designate a Scheduled Trading Day or a number of Scheduled Trading Days as the Expiration Date(s) for the remaining Daily Number of Warrants or a portion thereof for the originally scheduled Expiration Date; and provided further that if such Expiration Date has not occurred pursuant to this clause as of the eighth Scheduled Trading Day following the last scheduled Expiration Date under the Transaction, the Calculation Agent shall have the right to declare such Scheduled Trading Day to be the final Expiration Date and the Calculation Agent shall determine its good faith estimate of the fair market value for the Shares as of the Valuation Time on that eighth Scheduled Trading Day or on any subsequent Scheduled Trading Day, as the Calculation Agent shall determine using commercially reasonable means.

 

	  	  	  	
First Expiration Date:

	
September 12, 2012 (or if such day is not a Scheduled Trading Day, the next following Scheduled Trading Day), subject to “Market Disruption Event” below.

 

	  	  	  	
Daily Number of Warrants:

	
For each of the first 59 Expiration Dates, 50,200 Warrants, and for the 60th Expiration Date, 50,250 Warrants, in each case, subject to adjustment pursuant to the provisos to “Expiration Dates”.

 

	  	  	  	
Market Disruption Event:

	
Market Disruption Event:

 

	  	  	  	  	
Section 6.3(d) of the Equity Definitions is hereby amended by deleting the remainder of the provision following the words “Scheduled Closing Time” in the fourth line thereof.”

 

	  	
(b)           The provision opposite the caption “Automatic Exercise” under the heading “Procedures for Exercise” in the Warrant Confirmation is hereby amended by adding the phrase “; and means that for each Expiration Date, a number of Warrants equal to the Daily Number of Warrants for such Expiration Date will be deemed to be automatically exercised at the Expiration Time on such Expiration Date” immediately following the word “Applicable” therein.

 

	  	
(c)           The captions under the heading “Valuation” in the Warrant Confirmation and the provisions opposite such captions are hereby amended and restated in their entirety to read:

 

	  	  	
“Valuation Time:

	
Scheduled Closing Time; provided that if the principal trading session is extended, the Calculation Agent shall determine the Valuation Time in its reasonable discretion.

 

	  	  	
Valuation Date:

	
Each Expiration Date.”

 

	  	
(d)           The captions under the heading “Settlement Terms” in the Warrant Confirmation and the provisions opposite such captions are hereby amended and restated in their entirety to read:

 

	  	  	
“Settlement Method Election:

	
Applicable, which means that, notwithstanding anything herein or in the Equity Definitions to the contrary (w) the first Settlement Method Election, which must be made on or prior to the First Settlement Method Election Date, shall apply to the first twenty Expiration Dates (including any such Expiration Date that is designated, in whole or in part, as a date other than the originally scheduled Expiration Date by the Calculation Agent pursuant to the provisions opposite the caption “Expiration Dates” above), (x) the second Settlement Method Election, which must be made on or prior to the Second Settlement Method Election Date, shall apply to the twenty-first through fortieth Expiration Dates (including any such Expiration Date that is designated, in whole or in part, as a date other than the originally scheduled Expiration Date by the Calculation Agent pursuant to the provisions opposite the caption “Expiration Dates” above), (y) the third Settlement Method Election, which must be made on or prior to the Third Settlement Method Election Date, shall apply to the forty-first through sixtieth Expiration Dates (including any such Expiration Date that is designated, in whole or in part, as a date other than the originally scheduled Expiration Date by the Calculation Agent pursuant to the provisions opposite the caption “Expiration Dates” above) and (z) if any Settlement Method Election is not made on or prior to the corresponding Settlement Method Election Date, Counterparty shall be deemed to have elected for the Default Settlement Method Election to apply in respect of such Settlement Method Election Date; provided that (i) references to “Physical Settlement” in Section 7.1 of the Equity Definitions shall be replaced by references to “Net Physical Settlement”; and (ii) Counterparty may elect Cash Settlement in respect of any Settlement Method Election Date only if Counterparty represents and warrants to ML in writing on the date of such election that (A) Counterparty is not in possession of any material non-public information regarding Counterparty or the Shares, (B) Counterparty is electing Cash Settlement in good faith and not as part of a plan or scheme to evade compliance with the federal securities laws, and (C) the assets of Counterparty at their fair valuation exceed the liabilities of Counterparty (including contingent liabilities), the capital of Counterparty is adequate to conduct the business of Counterparty, and Counterparty has the ability to pay its debts and obligations as such debts mature and does not intend to, or does not believe that it will, incur debt beyond its ability to pay as such debts mature.

 

	  	  	
Settlement Currency:

	
USD

 

	  	  	
Electing Party:

	
Counterparty

 

	  	  	
Settlement Method Election Dates:

	
Each of (i) the Scheduled Trading Day immediately preceding the First Expiration Date (the “First Settlement Method Election Date”), (ii) the third Scheduled Trading Day immediately preceding October 10, 2012 (the “Second Settlement Method Election Date”) and (iii) the third Scheduled Trading Day immediately preceding November 7, 2012 (the “Third Settlement Method Election Date”).

 

	  	  	
Default Settlement Method:

	
In respect of any Settlement Method Election Date, Net Physical Settlement.

 

	  	  	
Net Physical Settlement:

	
If Net Physical Settlement is applicable for any Expiration Dates hereunder, then on the Settlement Date, Counterparty shall deliver (in addition to paying any cash pursuant to, and in accordance with, the provisions opposite the caption “Cash Settlement” below if Cash Settlement is applicable for any Expiration Dates hereunder) to an account specified by ML, free of payment, through the Clearance System, a number of Shares equal to the sum of the Share Delivery Quantities for all Expiration Dates for which Net Physical Settlement is applicable, subject to the provisions opposite the caption “Limitations on Net Physical Settlement by Counterparty” below.  Notwithstanding anything to the contrary herein or in the Equity Definitions, in respect of the number of such Shares comprising the Share Delivery Quantity for each Expiration Date for which Net Physical Settlement is applicable, ML shall be treated, for all purposes, as the holder of record of such number of Shares at 5:00 p.m. (New York City time) on the date one Settlement Cycle immediately following such Expiration Date.  Counterparty shall pay to ML on the Settlement Date cash (in addition to any cash payable by Counterparty to ML if Cash Settlement applies for any Expiration Dates) in lieu of any fractional Share deliverable based on the Settlement Price on the final Expiration Date.  ML acknowledges and agrees that Shares delivered by Counterparty pursuant to a Net Physical Settlement need not be registered Shares.

 

	  	  	
Share Delivery Quantity:

	
For each Expiration Date for which Net Physical Settlement is applicable, a number of Shares, as calculated by the Calculation Agent, equal to the Net Physical Settlement Amount for such Expiration Date, divided by the Settlement Price on the Valuation Date corresponding to such Expiration Date.

 

	  	  	
Net Physical Settlement Amount:

	
For each Expiration Date, an amount equal to the product of (i) the number of Warrants exercised or deemed exercised on such Expiration Date, (ii) the Strike Price Differential for the relevant Valuation Date and (iii) the Warrant Entitlement.

 

	  	  	
Cash Settlement:

	
If Cash Settlement is applicable for any Expiration Dates hereunder, on the Settlement Date, Counterparty shall pay (in addition to delivering any Shares pursuant to, and in accordance with, the provisions opposite the caption “Net Physical Settlement” above if Net Physical Settlement is applicable for any Expiration Dates hereunder) to ML an amount of cash in USD equal to the sum of the Net Physical Settlement Amounts for all Expiration Dates for which Cash Settlement is applicable.

 

	  	  	
Settlement Price:

	
For each Valuation Date, the per Share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page CYBX <equity> AQR (or any successor thereto) in respect of the period from the scheduled opening time of the Exchange to the Scheduled Closing Time on such Valuation Date (or if such volume-weighted average price is unavailable, the market value of one Share on such Valuation Date, as determined by the Calculation Agent).  Notwithstanding the foregoing, if (i) any Expiration Date is a Disrupted Day and (ii) the Calculation Agent determines that such Expiration Date shall be an Expiration Date for fewer than the Daily Number of Warrants, as described above, then the Settlement Price for the relevant Valuation Date shall be the volume-weighted average price per Share on such Valuation Date on the Exchange, as determined by the Calculation Agent based on such sources as it deems appropriate using a volume-weighted methodology, for the portion of such Valuation Date for which the Calculation Agent determines there is no Market Disruption Event.

 

	  	  	
Settlement Date:

	
The date one Settlement Cycle immediately following the final Expiration Date.

 

	  	  	
Other Applicable Provisions:

	
If Net Physical Settlement is applicable for any Expiration Dates hereunder, the provisions of Sections 9.1(c), 9.8, 9.9, 9.11 and 9.12 of the Equity Definitions will be applicable, except that all references in such provisions to “Physically-settled” shall be read as references to “Net Physically Settled.” “Net Physically Settled” in relation to any Warrant means that Net Physical Settlement is applicable to that Warrant.

 

	  	
(e)           The provisions under the heading “Additional Agreements, Representations and Covenants of Counterparty, Etc.” in the Warrant Confirmation are hereby amended as follows:

 

	  	  	
(i)           the third paragraph of clause (d) thereunder is hereby amended by inserting the word “relevant” immediately prior to the word “Expiration” in the second sentence thereof; and

 

	  	  	
(ii)           a new clause (f) and clause (g) shall be inserted immediately following the end of clause (e) thereunder as follows:

 

	  	
(f)           Counterparty understands, acknowledges and agrees that: (A) at any time on and prior to the last Expiration Date, ML and its affiliates may buy or sell Shares or other securities or buy or sell options or futures contracts or enter into swaps or other derivative securities in order to adjust its hedge position with respect to the Transaction;  (B) ML and its affiliates also may be active in the market for Shares other than in connection with hedging activities in relation to the Transaction; (C) ML shall make its own determination as to whether, when or in what manner any hedging or market activities in securities of Counterparty shall be conducted and shall do so in a manner that it deems appropriate to hedge its price and market risk with respect to the Settlement Prices; and (D) any market activities of ML and its affiliates with respect to Shares may affect the market price and volatility of Shares, as well as the Settlement Prices, each in a manner that may be adverse to Counterparty.

 

	  	
(g)           Counterparty represents and warrants to ML that Counterparty (A) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities; (B) will exercise independent judgment in evaluating the recommendations of any broker-dealer or its associated persons, unless it has otherwise notified the broker-dealer in writing; and (C) has total assets of at least $50 million as of the date hereof.

 

Section 3.                      Representations and Warranties.

 

	  	
(a)           Each party represents to the other party that:

 

	  	  	
(i)           It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing.

 

	  	  	
(ii)           It has the power to execute this Amendment Agreement and any other documentation relating to this Amendment Agreement to which it is a party, to deliver this Amendment Agreement and any other documentation relating to this Amendment Agreement that it is required by this Amendment Agreement to deliver and to perform its obligations under this Amendment Agreement and has taken all necessary action to authorize such execution, delivery and performance.

 

	  	  	
(iii)           Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets.

 

	  	  	
(iv)           All governmental and other consents that are required to have been obtained by it with respect to this Amendment Agreement have been obtained and are in full force and effect and all conditions of any such consents have been complied with.

 

	  	  	
(v)           Its obligations under this Amendment Agreement constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

 

	  	
(b)           Counterparty represents and warrants to ML that, as of the date hereof, Counterparty is not aware of any material non-public information with respect to Counterparty or the Shares.

 

Section 4.                      No Reliance, etc.  Each of Counterparty and ML hereby confirms that it has relied on the advice of its own counsel and other advisors (to the extent it deems appropriate) with respect to any legal, tax, accounting, or regulatory consequences of this Amendment Agreement, that it has not relied on the other party or such other party’s affiliates in any respect in connection therewith, and that it will not hold the other party or such other party’s affiliates accountable for any such consequences.

 

Section 5.                      No Other Changes.  Except as expressly set forth in this Amendment Agreement, all terms and conditions of the Warrant Transaction and the Warrant Confirmation shall remain in full force and effect and are hereby confirmed in all respects.

 

Section 6.                      Waiver of Trial by Jury.  EACH OF COUNTERPARTY AND ML HEREBY IRREVOCABLY WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON BEHALF OF ITS STOCKHOLDERS) ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AMENDMENT AGREEMENT OR THE ACTIONS OF COUNTERPARTY OR ITS AFFILIATES OR ML OR ITS AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF.

 

Section 7.                      Governing Law.  This Amendment Agreement and any dispute arising hereunder shall be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine).

 

Section 8.                      Counterparts.  This Amendment Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if all of the signatures thereto and hereto were upon the same instrument.

 

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

 

	  	
Merrill Lynch International

	  	  
	  	  
	  	
By:/s/ Edgar Joya                

	  	
Name:  Edgar Joya

	  	
Title:  Vice-President

	  	  
	  	  
	  	
Merrill Lynch, Pierce, Fenner & Smith Incorporated, solely in its capacity as Agent hereunder

	  	  
	  	  
	  	
By:/s/ Christopher A. Hutmaker          

	  	
Name:  Christopher A. Hutmaker

	  	
Title:  Managing Director

 

 

 

Cyberonics, Inc.

 

By:/s/ Gregory H. Browne                                                                            

Authorized Signatory

Name:  Gregory H. Browne

Title:  Senior Vice President, Finance &

Chief Financial Officerex4-1.htm

 

 

Exhibit 4.1

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER SUCH ACT, OR THE BORROWER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE BORROWER STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

 

DEMAND NOTE

 

$[ _____ ] Date:   September 7, 2012

 

 Winston-Salem, NC

 

FOR VALUE RECEIVED, Tengion, Inc., a Delaware corporation (the “Borrower”), promises to pay to [______________] (the “Lender”), at its principal executive office located at [_________________________], or such other place as the holder of this Demand Note (this “Note”) may designate from time to time, the principal sum of [____________________] ($_________) together with interest from the date of this Note on the unpaid principal balance, ON DEMAND on or after October 7, 2012 (the "Maturity Date").  This Note is one of a series of Demand Notes of like tenor (collectively, the “Notes”), dated as of September 7, 2012, between Borrower and the holders of such Notes (collectively, the “Lenders”).

 

1. Payment.

 

1.1 Interest.  This Note shall accrue simple interest, from the date hereof until such principal is paid or exchanged as provided in Section 1.4 on any unpaid principal balance at the rate of ten percent (10%) per annum; provided, after the Maturity Date, the rate shall be fifteen percent (15%) per annum.  Interest shall be calculated on the basis of actual number of days elapsed based on a year of 365 days.  Accrued but unpaid interest shall be payable upon payment of the Note in accordance with this Section 1.1.  Notwithstanding any provision in this Note, it is the parties’ intent not to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law that a court of competent jurisdiction shall deem applicable hereto (which under applicable law shall be deemed to be the laws relating to permissible rates of interest on commercial loans).  If any interest payment due hereunder is determined to be in excess of the legal maximum rate, then that portion of each interest payment representing an amount in excess of the then legal maximum rate shall instead be deemed a payment of principal and shall be applied against principal.

 

1.2 Payments; Allocation of Payments.  Principal and interest are payable in lawful money of the United States of America.  All payments shall be credited first to interest, fees, costs and expenses then due and the remainder to the principal amount of the Obligations.  For purposes of this Note, “Obligations” means all debt, principal, interest, expenses and other amounts owed to Lender by Borrower pursuant to this Note, whether absolute or contingent, due or to become due, now existing or hereafter arising.

 

 

 

  

  

  

 

1.3 Prepayment of the Note.  Borrower may not prepay this Note prior to the written demand of the Lender.

 

1.4 Exchange.  The entire outstanding principal balance of this Note, together with all accrued interest, shall be exchanged, at the option of the Lender, in its sole discretion,  into  the first tranche of debt securities and warrants (which tranche is described  in Exhibit A) issued by the Company  after the date of this Note.

 

2. Event of Default.  If there shall be any Event of Default hereunder, at the option and upon the declaration of the Lender and upon written notice to the Borrower, this Note shall accelerate and all principal and unpaid accrued interest shall become due and payable.  The occurrence of any one or more of the following shall constitute an "Event of Default":

 

2.1 Borrower fails to pay timely any of the principal amount due under this Note on the date the same becomes due and payable or any accrued interest or other amounts due under this Note on the date the same becomes due and payable,;

 

2.2 Borrower files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors or takes any corporate action in furtherance of any of the foregoing; or

 

2.3 An involuntary petition is filed against Borrower (unless such petition is dismissed or discharged within twenty (20) days under any bankruptcy statute now or hereafter in effect), or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of Borrower.

 

3. Amendment Provisions.  This Note may not be amended or modified, nor may any of its terms be waived, except by written instruments signed by the Borrower and the Majority Lenders.

 

4. Payments.  All payments of any kind due to the Lender from the Borrower pursuant to this Note shall be made in the full face amount thereof. All such payments will be free and clear of, and without deduction or withholding for, any present or future taxes.  The Borrower shall pay all and any costs (administrative or otherwise) imposed by the Borrower’s banks, clearing houses, or any other financial institution, in connection with making any payments hereunder.

 

5. Collections.  The Borrower shall pay all costs of collection, including, without limitation, all reasonable, documented legal expenses and attorneys’ fees, paid or incurred by the Lender in collecting and enforcing this Note.

 

6. Endorsements.  The Borrower and every endorser of this Note, or the obligations represented hereby, expressly waives presentment, protest, demand, notice of dishonor or default, and notice of any kind with respect to this Note  the performance of the obligations under this Note. No renewal or extension of this Note  no release of any person primarily or secondarily liable on this Note, including the Borrower and any endorser, no delay in the enforcement of payment of this Note  no delay or omission in exercising any right or power under this Note shall affect the liability of the Borrower or any endorser of this Note.

 

 

 

  

2

  

 

 

7. Waivers.  No delay or omission by the Lender in exercising any power or right hereunder shall impair such right or power or be construed to be a waiver of any default, nor shall any single or partial exercise of any power or right hereunder preclude the full exercise thereof or the exercise of any other power or right.  The provisions of this Note may be waived or amended only in a writing signed by the Borrower and the Lender.  .

 

8. Jurisdiction.  This Note, and any rights of the Lender arising out of or relating to this Note, may, at the option of the Lender, be enforced by the Lender in the courts of the United States of America located in the Southern District of the State of New York or in any other courts having jurisdiction.  For the benefit of the Lender, the Borrower hereby irrevocably agrees that any legal action, suit or other proceeding arising out of or relating to this Note may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and hereby consents that personal service of summons or other legal process may be made at the principal office of the Borrower, which service the Borrower agrees shall be sufficient and valid.  The Borrower hereby waives any and all rights to demand a trial by jury in any action, suit or other proceeding arising out of or relating to this Note or the transactions contemplated by this Note.

 

9. Governing Law.  This Note shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed in such State, without giving effect to the conflicts of laws principles thereof other than Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York.

 

10. Registration.  (a)  Whenever this Note is held by a noteholder that is not a “United States person” within the meaning of Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the “Code”), then it is the intention of the Borrower and such noteholder that (x) all interest accrued and paid on this Note will qualify for exemption from United States withholding tax as “portfolio interest” because this Note is an obligation which is in “registered form” within the meaning of Sections 871(h)(2)(B) and 881(c)(2)(B) of the Code (or any successor provision thereto) and the applicable Treasury Regulations promulgated thereunder, and (y) as such, all interest accrued and paid on this Note will be exempt from United States information reporting under Sections 6041 and 6049 of the Code and United States backup withholding under Section 3406 of the Code.  The Borrower and the Lender shall cooperate with one another, and execute and file such forms or other documents, or do or refrain from doing such other acts, as may be required, to secure such exemptions from United States withholding tax, information reporting, and backup withholding.  In furtherance of the foregoing, any noteholder, transferee or assignee noteholder that is not a United States person shall represent, warrant and covenant to the Borrower that (i) neither such noteholder nor, if any IRS Form W-8IMY (or successor form) is provided, any of such noteholder’s members, partners, beneficiaries or owners is, or will be as long as any amounts due under this Note have not been paid in full, a person described in Section 871(h)(3) or 881(c)(3) of the Code; (ii) on or prior to the date of transfer or assignment (and on or prior to the date the form provided pursuant to this clause (ii) is no longer valid) until all amounts due under this Note have been paid in full, such noteholder shall provide the Borrower with a properly completed and executed U.S. Internal Revenue Service (“IRS”) Form W-8IMY or W-8BEN, as applicable (or any successor form prescribed by the IRS), certifying as to such noteholder’s status for purposes of determining exemption from United States withholding tax, information reporting and backup withholding with respect to all payments to be made to such noteholder hereunder; (iii) if an event occurs that would require a change in the exempt status of such noteholder or any of the other information provided on the most recent IRS Form W-8IMY or W-8BEN (or successor form), as applicable, previously submitted by such noteholder to the Borrower, such noteholder will so inform the Borrower in writing (or by submitting to the Borrower a new IRS Form W-8IMY or W-8BEN or successor form) within 30 days after the occurrence of such event; and (iv) such noteholder will not assign or otherwise transfer this Note or any of its rights hereunder except in accordance with the provisions hereof.

 

 

 

  

3

  

 

 

(b)   In order to qualify as a “registered note” for purposes of the Code, transfer of this Note may be effected only by (i) surrender of this Note to the Borrower and the re-issuance of this Note to the transferee, or the Borrower’s issuance to the Lender of a new note in the same form as this Note but with the transferee denoted as the Lender, or (ii) the recording of the identity of the transferee by the Affiliate of the Lender that is maintaining a record ownership register of this Note as a non-fiduciary agent of, and on behalf of, the Borrower for the tax purposes set forth herein.  Such Affiliate in its capacity as such agent shall notify the Borrower in writing immediately upon any change in such identity.  The terms and conditions of this Note shall be binding upon and inure to the benefit of the Borrower and the Lender and their permitted assigns; provided, however, that if any such assignment (whether by operation of law, by way of transfer or participation, or otherwise) is to any noteholder that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code, then such noteholder shall submit to the Borrower on or before the date of such assignment an IRS Form W-8IMY or W-8BEN (or any successor form), as applicable, certifying as to such noteholder’s status for purposes of determining exemption from United States withholding tax, information reporting and backup withholding with respect to all payments to be made to such noteholder under the new note (or other instrument).  Any attempted transfer in violation of the relevant provisions of this Note shall be void and of no force and effect.  Until there has been a valid transfer of this Note and of all of the rights hereunder by the Lender in accordance with this Note, the Borrower shall deem and treat the Lender as the absolute beneficial owner and holder of this Note and of all of the rights hereunder for all purposes (including, without limitation, for the purpose of receiving all payments to be made under this Note).

 

11. Severability.  If any provision of this Note is determined to be invalid, illegal or unenforceable, in whole or in part, the validity, legality and enforceability of any of the remaining provisions or portions of this Note shall not in any way be affected or impaired thereby and this Note shall nevertheless be binding between the Borrower and Lender.

 

12. Binding Effect.  This Note shall be binding upon, and shall inure to the benefit of, the  Lender and its successors and assigns.

 

13. Notices.  All notices required or permitted hereunder shall be in writing and shall be deemed effectively given:  (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) when read by electronic mail (sender shall have received a "read by recipient" confirmation), (d) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (e) one (1) business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent to the Borrower at the address as set forth on the signature page to this Note and to Lender at the address set forth on the preamble to this Note or at such other address or electronic mail address as the Borrower or Lender may designate by ten (10) days advance written notice to the other party hereto.

 

 

 

 

  

4

  

 

14. Headings and Governing Law.  The descriptive headings in this Note are inserted for convenience only and do not constitute a part of this Note.  The validity, meaning and effect of this Note shall be determined in accordance with the laws of the State of Delaware, without regard to principles of conflicts of law.

 

 

 

 

 

 

 

 

 

  

5

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Note to be duly executed and delivered as of the date first above written.

 

 

THE BORROWER:

Tengion, Inc.

By:  ___________________________________________                                                         

Name:  A. Brian Davis

Title:   Chief Financial Officer and Vice President, Finance

Address:                3929 Westpoint Blvd., Suite G

Winston-Salem, NC 27103

 

 

 

 

 

 

 

 

 

 

Date of Note:                                           September 7, 2012

Lender:

Principal Amount:                                 $

 

 

  

6

  

 

 

EXHIBIT A

Tengion, Inc.

Ticker:                      TNGN

Market:                      OTCQB

 

Proposed Term Sheet

Placement of Convertible Notes and Warrants

The following are terms for a financing of a minimum of $15,000,000 and a maximum of approximately $18,000,000.  Final terms will be set forth in a securities purchase agreement and related documentation.  Nothing contained in this term sheet is intended to create any obligation on the part of the Company or Investor to close the proposed transaction (the “Transaction”).

	
Securities Offered:

	
Convertible Notes, due September [30], 2015 and Warrants (“Notes”) and Warrants (the “Securities”).

	
Principal Amount:

	
A minimum of Fifteen Million Dollars ($15,000,000) and a maximum of approximately Eighteen Million Dollars ($18,000,000)

	
Coupon:

	
10% per annum (the “Interest Rate”), payable quarterly in cash or shares of Common Stock

 

 

	
Conversion Price:

	
The Investors may convert the Notes at any time into shares of Common Stock at a conversion price (the "Conversion Price") of the lower of (i) $0.75 per share and (ii) the 5 day VWAP commencing on first business day following the date on which the SEC declares effective (the “Effective Date”) the initial registration statement filed by the Company registering the shares of common stock to be issued upon conversion of the Securities or in the exchange of the Company’s outstanding warrants issued in the 2011 PIPE transaction for shares of Company’s common stock.

	
Conversion:

	
Notes and Warrants shall prohibit the conversion or exercise in the event the same would result in the holder thereof acquiring more than 9.9% of the outstanding common stock of the Company; provided, however, the foregoing shall not be applicable in a transaction involving the acquisition of the Company.  Upon acquisition of the Company, holders of Notes will receive consideration equal to the as-converted to common stock value of the Notes.  Holders of the Warrants will be entitled to a cash payment calculated based upon the Black Scholes value of the Warrants, where in an acquisition of the Company the per share price is (i) less than 300% of the Conversion price the volatility is not capped and (ii) over 300% of the Conversion Price, the volatility is capped at 150%.

	
Warrants:

	
5-year warrants to purchase 100% of the underlying shares of Issuer's Common Stock at lower of (i) $0.75 per share and (ii) the 5 day VWAP commencing on the first business day following the Effective Date.

10-year warrants to purchase 200% of the underlying shares of Issuer's Common Stock at lower of (i) $0.75 per share and (ii) 100% of the 5 day VWAP commencing on the first business day following the Effective Date.

Warrant coverage will be determined by taking the principal amount of the Notes and dividing it by the closing price of the shares of Common Stock on the trading day prior to signing definitive documentation.

	
Bridge Lenders:

	
Bridge lenders will have the option to exchange their promissory notes for the Securities outlined in this Term Sheet. Upon exchange, in addition to the Notes, the bridge lenders shall receive on account of then existing principal and interest:

 

 

 

  

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2-year warrants to purchase 100% of the underlying shares of Issuer's Common Stock at lower of (i) $0.75 per share and (ii) the 5 day VWAP commencing on the first business day following the Effective Date.

5-year warrants to purchase 100% of the underlying shares of Issuer's Common Stock at lower of (i) $0.75 per share and (ii) the 5 day VWAP commencing on the first business day following the Effective Date.

10-year warrants to purchase 100% of the underlying shares of Issuer's Common Stock at lower of (i) $0.75 per share and (ii) 100% of the 5 day VWAP commencing on the first business day following the Effective Date.

Warrant coverage will be determined by taking the principal amount of the Notes and dividing it by the closing price of the shares of Common Stock on the trading day prior to signing definitive documentation.

	
Anti-Dilution:

	
The Notes and the Warrants will contain full ratchet anti-dilution price protection subject to standard carve-outs.

	
Security:

	
The Notes will be secured by a first priority lien on all of the Company’s assets, including all Intellectual Property, provided, however, the Company shall not be restricted or encumbered from entering into bona fide business development transactions, including exclusive licenses of its IP to third party strategic partners.  The lien on Company assets will be shared pari passu with the Company’s existing venture debt lender.

	
Escrow:

	
One million dollars of the net proceeds received by the Company from the sale of the Notes will be held in escrow by the Note Holders, which amount shall be held for the purposes of winding down the Company should the Company fail to raise additional capital.  The escrow amount shall only be released from escrow and returned to the Company upon successful completion of patient implants in the Neo-Urinary Conduit in the Phase 1 Trial and completion of analysis by the Company and its investors (to their reasonable satisfaction) of in-life data from the GLP studies for the Neo-Kidney Augment.

	
Management Equity:

	
[TBD] shares of the Company’s common stock shall be reserved for management.

	
Strategic Investor:

	
The strategic investor participating in the financing shall receive a Right of First Negotiation with respect to the Company’s Neo-Urinary Conduit product candidate.  Such investor shall forego 50% of the Warrants that would have otherwise been received by it in the Financing.  The strategic investor will also receive a seat on the Company’s Board of Directors.  The Company’s existing Right of First Refusal on the Neo-Kidney Augment program shall be terminated.

	
Right of Participation:

	
The Investors shall have a call option on a second tranche of approximately $20 million of the Securities on the same terms as this financing; it being understood that the total amount of the two tranches is intended to be $35,000,000.  The Investors shall have the right to participate for an agreed upon percentage of any future offering by the Company until the second anniversary of the closing.

	
Registration Rights:

	
The Company will use its best efforts to file an initial Registration Statement covering the resale of the underlying Common Stock and Warrants no later than 30 days following the closing and use its best efforts to cause the Registration Statement to be declared effective within 90 days of the closing.

	
Documentation:

	
The definitive documentation shall contain such additional and supplementary provisions, including, without limitation, representations, warranties, covenants, agreements and remedies, as are appropriate to preserve and protect economic benefits intended to be conveyed to the Purchaser pursuant hereto.

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