Exhibit 10.9
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Execution Version

 

 

 

 

 

 

 
AGREEMENT FOR THE MANUFACTURE, DEVELOPMENT AND
COMMERCIALIZATION OF BENZNIDAZOLE FOR HUMAN USE

by and between

SAVANT NEGLECTED DISEASES, LLC

and

KALOBIOS PHARMACEUTICALS, INC.

 
Dated as of June 30, 2016
 

 

 
CONFIDENTIAL

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Table of Contents
 

 
Page
   
Article 1 DEFINITIONS
- 2 -
   
Article 2 PURCHASE AND SALE OF ASSETS
- 17 -
   
Section 2.1
Acquired Assets
- 17 -
Section 2.2
Excluded Assets
- 18 -
Section 2.3
Assumed Liabilities
- 19 -
Section 2.4
Excluded Liabilities
- 19 -
Section 2.5
Closing.
- 20 -
Section 2.6
Delivery of Acquired Assets; Assigned Books and Records.
- 20 -
Section 2.7
Conditions to Closing.
- 20 -
Section 2.8
Deliveries at Closing.
- 22 -
     
Article 3 CONSIDERATION
- 23 -
   
Section 3.1
Initial Payment
- 23 -
Section 3.2
Warrant
- 23 -
Section 3.3
Milestones
- 24 -
Section 3.4
Voucher Payment
- 25 -
Section 3.5
Security Agreement
- 26 -
Section 3.6
Purchase Price Allocation
- 26 -
Section 3.7
Payments
- 26 -
Section 3.8
Audits
- 26 -
Section 3.9
Taxes
- 27 -
     
Article 4 DEVELOPMENT PROGRAM
- 29 -
   
Section 4.1
Overview; Joint Development Program Term
- 29 -
Section 4.2
Joint Development Plan
- 29 -
Section 4.3
Joint Development Program Costs
- 30 -
Section 4.4
Diligent Efforts
- 31 -
Section 4.5
Subcontracting
- 31 -
Section 4.6
Compliance
- 31 -
Section 4.7
Regulatory Filings
- 31 -
Section 4.8
Compensation for Development Delays
- 32 -
Section 4.9
Monthly Activity Log
- 33 -

 
CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
Article 5 COMMERCIALIZATION
- 33 -
   
Section 5.1
Overview
- 33 -
Section 5.2
Commercialization Plan
- 33 -
Section 5.3
Diligent Efforts
- 34 -
Section 5.4
Development, Commercialization outside the United States
- 34 -
Section 5.5
Reporting Requirements
- 34 -
Section 5.6
Drug Pricing Matters
- 34 -
     
Article 6 GOVERNANCE
- 35 -
   
Section 6.1
Joint Steering Committee
- 35 -
Section 6.2
Joint Development Committee
- 37 -
Section 6.3
Commercialization Report
- 37 -
Section 6.4
No Authority to Amend
- 38 -
     
Article 7 INTELLECTUAL PROPERTY RIGHTS
- 38 -
   
Section 7.1
Development Program IP
- 38 -
Section 7.2
Licenses by the Company
- 39 -
Section 7.3
Licenses by KaloBios
- 39 -
Section 7.4
Prosecution and Maintenance of Development Program IP
- 40 -
Section 7.5
Third Party Infringement
- 40 -
Section 7.6
Defense of Claims Brought by Third Parties
- 41 -
Section 7.7
Grant of Rights to Company IP
- 41 -
Section 7.8
Royalty on Company IP.
- 42 -
Section 7.9
Currency; Exchange Rate
- 43 -
Section 7.10
Taxes
- 43 -
Section 7.11
Prosecution and Maintenance of Company IP
- 44 -
Section 7.12
Third Party Infringement of Company IP.
- 44 -
Section 7.13
Defense of Claims Brought by Third Parties
- 45 -
     
Article 8 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
- 45 -
   
Section 8.1
Corporate Existence
- 45 -
Section 8.2
Authorization and Enforceability
- 45 -
Section 8.3
No Conflict
- 46 -
Section 8.4
Legal Proceedings
- 46 -
Section 8.5
Contracts and Commitments.
- 46 -
Section 8.6
No “Bad Actor”; No Debarment
- 47 -
Section 8.7
Title; Encumbrances; Sufficiency.
- 48 -
Section 8.8
No Consents
- 48 -
Section 8.9
Compliance with Laws
- 49 -
Section 8.10
Safety and Efficacy; Exclusive Rights to Certain Existing Foreign Data
- 49 -

 
CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
Section 8.11
Good Practices
- 50 -
Section 8.12
Regulatory Matters.
- 50 -
Section 8.13
Taxes
- 51 -
Section 8.14
No Undisclosed Liabilities
- 52 -
Section 8.15
Inventory
- 52 -
Section 8.16
Brokers
- 52 -
Section 8.17
Compliance with the Foreign Corrupt Practices Act and Export Control and
Anti-boycott Laws
- 52 -
Section 8.18
Intellectual Property
- 53 -
   
Article 9 REPRESENTATIONS AND WARRANTIES OF KALOBIOS
- 54 -
   
Section 9.1
Corporate Existence
- 54 -
Section 9.2
Authorization and Enforceability
- 54 -
Section 9.3
Capitalization
- 54 -
Section 9.4
No Conflict
- 55 -
Section 9.5
Legal Proceedings
- 55 -
Section 9.6
No “Bad Actor”; No Debarment
- 55 -
Section 9.7
Solvency
- 56 -
Section 9.8
Unencumbered Cash Balance
- 56 -
Section 9.9
Data
- 56 -
Section 9.10
Private Offering
- 57 -
Section 9.11
Brokers
- 57 -
     
Article 10 COVENANTS
- 57 -
   
Section 10.1
Availability of Records
- 57 -
Section 10.2
Regulatory
- 58 -
Section 10.3
Disqualification Events or Debarment
- 58 -
Section 10.4
Further Assurances
- 58 -
Section 10.5
Consents
- 59 -
Section 10.6
Omitted Assets
- 59 -
Section 10.7
Reserved
- 60 -
Section 10.8
Listing of Common Stock on National Securities Exchange
- 60 -
Section 10.9
Securities Registration Matters
- 60 -
Section 10.10
Insurance
- 61 -
     
Article 11 CONFIDENTIALITY
- 61 -
   
Section 11.1
Confidential Information
- 61 -
Section 11.2
Authorized Disclosure
- 62 -
Section 11.3
Press Release; Disclosure of Agreement
- 63 -
Section 11.4
Survival
- 63 -

 
CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
Article 12 INDEMNIFICATION
- 63 -
   
Section 12.1
Indemnification by the Company
- 63 -
Section 12.2
Indemnification by KaloBios
- 64 -
Section 12.3
Indemnification Procedures
- 65 -
Section 12.4
Right of Set Off
- 65 -
Section 12.5
Survival
- 65 -
Section 12.6
Limitation on Indemnity
- 66 -
Section 12.7
Limitation of Liability
- 66 -
Section 12.8
Exclusive Remedy
- 66 -
     
Article 13 TERM AND TERMINATION
- 67 -
   
Section 13.1
Term
- 67 -
Section 13.2
Termination for Convenience
- 67 -
Section 13.3
Termination for Cause
- 67 -
Section 13.4
Termination for Bankruptcy
- 68 -
Section 13.5
Termination of Joint Development Program upon Mutual Consent
- 68 -
Section 13.6
Effects of Termination after Closing.
- 68 -
Section 13.7
Termination Prior to Closing
- 69 -
Section 13.8
Other Termination Consequences
- 70 -
     
Article 14 DISPUTE RESOLUTION
- 71 -
   
Section 14.1
Governing Law
- 71 -
Section 14.2
Dispute Resolution
- 71 -
     
Article 15 GENERAL PROVISIONS
- 71 -
   
Section 15.1
Force Majeure
- 71 -
Section 15.2
Assignment
- 72 -
Section 15.3
Severability
- 72 -
Section 15.4
Notices
- 72 -
Section 15.5
Construction of Agreement
- 73 -
Section 15.6
Headings; Interpretation
- 73 -
Section 15.7
Independent Contractors
- 74 -
Section 15.8
Performance by Affiliates
- 74 -
Section 15.9
Waiver
- 74 -
Section 15.10
Counterparts
- 74 -
Section 15.11
Expenses
- 74 -
Section 15.12
Time of the Essence
- 74 -
Section 15.13
Entire Agreement; Amendments
- 75 -

 
CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBITS
 
Exhibit A
Compound
Exhibit B-1
Issued Company Patents
Exhibit B-2
Pending Company Patents
Exhibit C
Form of Bill of Sale
Exhibit D
Form of Assignment and Assumption Agreement
Exhibit E
Form of Opinion
Exhibit F
Form of Warrant
Exhibit G
Form of Security Agreement
Exhibit H
Form of Escrow Agreement
Exhibit I
Current Development Plan

SCHEDULES
 
Schedule 2.1
Schedule of Acquired Assets
Schedule 2.6(a)
Additional Acquired Assets
Schedule 3.6
Allocation Schedule
Schedule 8
Company Disclosure Schedules
Schedule 9
KaloBios Disclosure Schedules

CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
AGREEMENT
 
This AGREEMENT FOR THE MANUFACTURE, DEVELOPMENT AND COMMERCIALIZATION OF
BENZNIDAZOLE FOR HUMAN USE (this “Agreement”) is entered into as of June
30, 2016 (the “Effective Date”), by and between Savant Neglected Diseases, LLC,
a Delaware limited liability company, having a place of business at 655 Skyway
Road, Suite 218, San Carlos, CA 94070 (U.S. Mail: P.O. Box 620732, Woodside, CA
94062-0732) (the “Company”), and KaloBios Pharmaceuticals, Inc., a Delaware
corporation, having offices at 1000 Marina Blvd, Suite 250, Brisbane, CA 94005
(“KaloBios”).  The Company and KaloBios are sometimes referred to in this
Agreement individually as a “Party” and collectively as the “Parties.”
 
RECITALS
 
WHEREAS, the Company is a biopharmaceutical company with expertise in the
manufacture and development of medications that prevent or treat disease and
maintain wellness;
 
WHEREAS, KaloBios is a biopharmaceutical company with expertise in the
development of pharmaceutical products and is working to create and develop
novel pharmaceutical products;
 
WHEREAS, the Company owns or controls certain rights to benznidazole, an
antiparasitic medication currently used in the treatment of Chagas disease
outside the United States;
 
WHEREAS, the Company and KaloBios entered into a Confidential Disclosure
Agreement dated December 1, 2015;
 
WHEREAS, the Company and KaloBios entered into the Prior Letter of Intent (as
defined below);
 
WHEREAS, the then chief executive officer of KaloBios, Martin Shkreli, was
arrested on securities fraud charges by United States federal agents on December
17, 2015, and subsequently dismissed as chief executive officer;
 
WHEREAS, KaloBios filed for protection under Chapter 11 of the Bankruptcy Code
on December 29, 2015;
 
WHEREAS, the United States Bankruptcy Court on February 26, 2016, approved the
Letter of Intent (as defined below);
 
WHEREAS, the Company and KaloBios entered into the Letter of Intent as approved
by the United States Bankruptcy Court effective February 29, 2016, thereby
superseding the Prior Letter of Intent;
 
WHEREAS, the Company and KaloBios desire to supersede the Letter of Intent
effective February 29, 2016, by entering into one or more definitive agreements
as contemplated by the Letter of Intent;
 
CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 1 -

--------------------------------------------------------------------------------

 
 
WHEREAS, the Company further desires to sell to KaloBios, and KaloBios further
desires to purchase from the Company, all right, title and interest in and to
certain assets relating to the Compound and the Product (as such terms are
defined below), for the consideration and on the terms set forth in this
Agreement;
 
WHEREAS, the Company further desires to grant to KaloBios an exclusive license
to certain intellectual property rights relating to the Compound and the
Product;
 
WHEREAS, the Company and KaloBios have agreed to jointly perform certain
development activities for the Product; and
 
WHEREAS, KaloBios has agreed that it will commercialize the Product, subject to
the terms and conditions of this Agreement; and
 
WHEREAS, the Company and KaloBios intend to perform their respective obligations
under this Agreement in a manner that maximizes the value of the Product to
patients.
 
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, covenants, and conditions contained in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties, intending to be legally bound, hereby agree as
follows:
 
ARTICLE 1
DEFINITIONS
 
In addition to the terms defined above and other terms defined in other sections
of this Agreement, the following capitalized terms have the meanings set forth
in this Article 1 for purposes of this Agreement:
 
“Acquired Assets” has the meaning set forth in Section 2.1.
 
“Action” means any action, claim, lawsuit, legal proceeding, litigation,
arbitration or mediation, or any hearing, investigation, probe or inquiry by any
Governmental Authority or other Person.
 
“Active Ingredient” means any clinically active material that provides
pharmacological activity in a pharmaceutical product.
 
CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 2 -

--------------------------------------------------------------------------------

 
 
“Affiliate” means, with respect to either Party, any Person that directly or
indirectly controls, is controlled by, or is under common control with such
Party.  For the purpose of this definition, “control” (including, with
correlative meaning, the terms “controlled by” and “under the common control”)
means (i) direct or indirect ownership of fifty percent (50%) or more, including
ownership by trusts with substantially the same beneficial interests, of the
voting securities of such Person, or (ii) the power to direct or cause the
direction of the management of such Person.
 
“Agreement” has the meaning set forth in the Preamble.
 
“Allocation Schedule” has the meaning set forth in Section 3.6.
 
“Annual Net Sales” means, with respect to a Product, aggregate Net Sales in the
Territory in a particular Calendar Year for such Product.
 
“Assigned Books and Records” has the meaning set forth in Section 2.1(e).
 
“Assignment and Assumption Agreement” means the assignment and assumption
agreement, dated as of the Closing Date, substantially in the form attached
hereto as Exhibit D.
 
“Assumed Contracts” has the meaning set forth in Section 2.1(b).
 
“Assumed Liabilities” has the meaning set forth in Section 2.3.
 
“Bankruptcy Code” has the meaning set forth in Section 13.4.
 
“Bankruptcy Exit” has the meaning set forth in Section 2.7(c)(iv).
 
“Beneficial Owner” has the meaning set forth in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended from time to time.
 
“Bill of Sale” means the bill of sale, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit C.
 
“Breaching Party” has the meaning set forth in Section 13.3(a).
 
“Business” means the Company’s and its Affiliates’ business to the extent
related to the Compound, the Product and the Acquired Assets.
 
“Business Day” means any day other than (a) Saturday or Sunday, or (b) any other
day on which banks in San Francisco, California are closed for business.
 
“Calendar Quarter” means a period of three (3) consecutive months ending on the
last day of March, June, September or December, respectively.

CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 3 -

--------------------------------------------------------------------------------

 
 
“Calendar Year” means a period of twelve (12) consecutive months beginning on
January 1 and ending on December 31.
 
“Cap” has the meaning set forth in Section 12.6(a).
 
“C.F.R.” means the Code of Federal Regulation.
 
“cGMP” or “GMP” means, with respect to any pharmaceutical product, current Good
Manufacturing Practices as defined by the FDA (21 C.F.R. Parts 210 and 211), as
may be amended from time to time, and other similar provisions under applicable
Law outside the United States.
 
“Change of Control” means with respect to any Party (a) any sale, exchange,
transfer or issuance to or acquisition in one transaction or a series of related
transactions by one or more Third Parties of shares representing more than fifty
percent (50%) of the aggregate ordinary voting power entitled to vote for the
election of directors represented by the issued and outstanding stock of such
Party or any Affiliate that directly or indirectly controls such Party, whether
such sale, transfer, exchange, issuance or acquisition is made directly or
indirectly, by merger or otherwise, or beneficially or of record, but excluding
the issuance of shares in a bona fide financing transaction; (b) a merger or
consolidation under Law of the Party with a Third Party in which the
stockholders of the Party immediately prior to such consolidation or merger do
not continue to hold immediately following the closing of such merger or
consolidation at least fifty percent (50%) of the aggregate ordinary voting
power entitled to vote for the election of directors represented by the issued
and outstanding stock of the entity surviving or resulting from such
consolidation; or (c) a sale, transfer, exclusive license or other disposition
of all or substantially all of the assets of the Party to one or more Third
Parties in one transaction or a series of related transactions.  Notwithstanding
the foregoing, neither (i) the transactions related to the emergence of KaloBios
from protection under Chapter 11 of the Bankruptcy Code, including the issuance
of New Common Stock to the Primary Plan Sponsor (as such terms are defined in
KaloBios’ Second Amended Plan of Reorganization, dated May 9, 2016 [D.I. 434]
(the “Plan”)), nor (ii) any sale or other disposition of KaloBios securities by
or on behalf of Martin Shkreli, shall constitute a Change of Control.
 
“Claim” has the meaning set forth in Section 12.3.
 
“Closing” has the meaning set forth in Section 2.5.
 
“Closing Date” has the meaning set forth in Section 2.5.
 
“Commercialization Plan” has the meaning set forth in Section 5.2(a).
 
“Commercialization Program” has the meaning set forth in Section 5.1.
 
CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 4 -

--------------------------------------------------------------------------------

 
 
“Common Stock” means the common stock, $0.001 par value, of KaloBios.
 
“Company” has the meaning set forth in the Preamble.
 
“Company Covered Person” has the meaning set forth in Section 8.6.
 
“[***]” has the meaning set forth in Section [***].
 
“Company Development Program IP” has the meaning set forth in Section 7.1(a).
 
“Company Field” means any and all veterinary uses.
 
“Company IP” means the Company Patents and Company Know-How.
 
“Company Know-How” means any Know-How Controlled by the Company or its
Affiliates as of the Effective Date to the extent relating to the Compound or
the Product except as solely related to the Company Field.
 
“[***]” has the meaning set forth in Section [***].
 
“Company Patents” means those Patents that are Controlled by the Company or its
Affiliates as of the Effective Date that claim or cover the Exploitation of the
Compound or the Product.  The issued patents constituting Company Patents as of
the Effective Date are set forth on Exhibit B-1 of this Agreement and the
pending patent applications constituting Company Patents as of the Effective
Date are set forth on Exhibit B-2 of this Agreement.
 
“Compound” means the compound known as benznidazole, having the chemical name
and structure set forth in Exhibit A.
 
“Confidential Disclosure Agreement” means that Confidential Disclosure
Agreement, dated as of December 1, 2015, by and between KaloBios and the
Company.
 
“Confidential Information” has the meaning set forth in Section 11.1.
 
“Confirmation Order” means that certain Order Confirming the Plan issued by the
United States Bankruptcy Court for the District of Delaware on June 16, 2016
with respect to the matter entitled In re KaloBios Pharmaceuticals, Inc. (Case
No. 15-12628).
 
“Contemplated Transactions” means all of the transactions contemplated by the
Transaction Documents.
 
“Contingent Payments” means the collective amount of all Milestone Payments,
Royalties and the Voucher Payment, if any.
 
CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 5 -

--------------------------------------------------------------------------------

 
 
“Contract” means any written or oral contract, agreement, instrument,
commitment, obligation, understanding, or undertaking of any nature (including,
without limitation, leases, licenses, mortgages, notes, guarantees, sublicenses,
subcontracts, covenants not to compete, covenants not to sue, confidentiality
agreements, options and warranties), whether or not legally binding, and any
amendments thereto.
 
“Control,” “Controls,” “Controlled” or “Controlling” means, with respect to any
material, Know-How or other intellectual property rights, that a Party has the
legal authority or right (whether by ownership, license or otherwise) to grant a
license, sublicense, access or other right (as applicable) under such material,
Know-How or other intellectual property rights to the other Party on the terms
and conditions set forth herein, in each case without breaching the terms of any
agreement or other arrangement with a Third Party.
 
“Deposit” means (a) Five Hundred Thousand Dollars ($500,000), which amount was
paid by KaloBios to the Company under the terms of the Letter of Intent on
February 26, 2016.
 
“Development Program IP” has the meaning set forth in Section 7.1(a).
 
“Diligent Efforts” means, with respect to a Party, the performance of
obligations or tasks in a manner consistent with the efforts a Party devotes
(and which in no event shall be less than the level of effort and resources
reasonably standard in the biopharmaceutical industry for a company having
similar financial resources) for the Exploitation of a product resulting from
its own research efforts and having similar technical and regulatory factors,
clinical development plan complexity and requirements, and similar market
potential, sales and profit potential and strategic value, and that is at a
similar stage in its development or product life cycle as the Product, in each
case based on conditions then prevailing.
 
“Disclosing Party” has the meaning set forth in Section 11.1.
 
“Disclosure Schedule” means any schedule delivered by the Company pursuant to
Article 8 or KaloBios pursuant to Article 9.
 
“Dispute” has the meaning set forth in Section 14.2.
 
“Disqualification Event” has the meaning set forth in Section 8.6(a).
 
“Dollars” means U.S. dollars, and “$” shall be interpreted accordingly.
 
“Effective Date” has the meaning set forth in the Preamble.
 
“EMA” means the European Medicines Agency or any successor agency thereto.
 
CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 6 -

--------------------------------------------------------------------------------

 
 
“Encumbrance” means any charge, claim, condition, equitable interest, lien,
mortgage, security interest, pledge, defect or irregularity in title, easement,
rights-of-way, encroachment, servitude, right of first option, right of first
refusal or similar restriction, covenant, restriction and any other matters
typically raised as exceptions in a commitment to issue a title insurance
policy, or any other restriction on use, voting, transfer or exercise of any
other attribute of ownership other than a Permitted Encumbrance.
 
“Escrow Agent” means Wilmington Savings Fund Society, FSB.
 
“Excluded Assets” has the meaning set forth in Section 2.2.
 
“Excluded Liabilities” means all Liabilities of the Company and its Affiliates
other than the Assumed Liabilities.
 
“Executive Officers” means, (a) with respect to the Company, Stephen L. Hurst,
and (b) with respect to KaloBios, Cameron Durrant.
 
“Exploit” means to make, have made, import, use, sell or offer for sale,
including to research, develop, commercialize, manufacture, register, hold or
keep (whether for disposal or otherwise), have used, export, transport,
distribute, have distributed, promote, market or have sold or otherwise dispose
of a product or a process, and “Exploitation” means the act of Exploiting a
product or process.
 
“FD&C Act” means the U.S. Federal Food, Drug, and Cosmetic Act, as amended.
 
“FDA” means the U.S. Food and Drug Administration or any successor entity.
 
“First Commercial Sale” means, with respect to a particular Product, the first
sale for which revenue has been recognized by KaloBios for use or consumption by
the general public of such Product in any country in the Territory after all
required Regulatory Approvals have been granted in such country.
 
“FTE” means [***] labor hours for one (1) year directly related to the Joint
Development Program.  Overtime and work on weekends, holidays and the like shall
not be counted with any multiplier (i.e., time-and-a-half or double time) toward
the number of hours that are used to calculate the number of FTEs under this
Agreement.
 
“FTE Rate” means a rate per FTE equal to [***] per hour (which may be prorated
on a daily or hourly basis as necessary) with respect to Joint Development
Program activities conducted pursuant to this Agreement.  “FTE Rate” includes
direct and indirect costs of internal scientific, medical, technical or
commercial personnel (including personnel and travel expenses, and includes the
costs of any allocated managerial, financial, legal or business development
personnel).
 
CONFIDENTIAL 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 7 -

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“Fundamental Representations” means, (a) with respect to the Company, the
representations and warranties of the Company set forth in Sections 8.1, 8.2 and
8.3, and (b) with respect to KaloBios, the representations and warranties of
KaloBios set forth in Sections 9.1, 9.2, 9.3and 9.9.
 
“Future Assets” has the meaning set forth in Section 13.6(a).
 
“GAAP” means United States generally accepted accounting principles and
practices, consistently applied.
 
“[***]” shall mean [***].
 
“GCP” means current Good Clinical Practices as defined in Article 1.24 of the
April 1996 International Conference on Harmonization (“ICH”) E6 Good Clinical
Practice Guideline, as may be amended from time to time, and other similar
provisions outside the United States.
 
“GLP” has the meaning set forth in Section 8.11.
 
“Governmental Approval” means any consent, license, registration or permit
issued, granted, given or otherwise made available by or under the authority of
any Governmental Authority or pursuant to any Law.
 
“Governmental Authority” means any federal, national, state, provincial or local
government, or political subdivision thereof (including any agency, branch,
office, commission, or council), or any multinational organization or any
authority, agency, or commission entitled to exercise any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power, any court or tribunal (or any department, bureau or division thereof, or
any governmental arbitrator or arbitral body).
 
“[***]” means [***].
 
“[***]” means [***].
 
“IND” means any investigational new drug application as defined in Part 312 of
Title 21 of the U.S. Code of Federal Regulations or any comparable application
filed with any Regulatory Authority outside of the United States.
 
“Indemnification Basket” has the meaning set forth in Section 12.6(a).
 
“Indemnified Party” has the meaning set forth in Section 12.3.
 
“Indemnifying Party” has the meaning set forth in Section 12.3.
 
“Infringement of Development Program IP” has the meaning set forth in Section
7.5(a).
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 8 -

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“Infringement of Company IP” has the meaning set forth in Section 7.12(a).
 
“Initial Payment” has the meaning set forth in Section 3.1.
 
“Intellectual Property” means Patents, Know-How and copyrights.
 
“Inventory” means all inventories of the Company or its Affiliates, wherever
located, including all work in process, raw materials, starting materials,
intermediates from the synthesis of the Compound, the Compound (including
Compound bulk stock), the Product, spare parts, assay materials (including cell
lines and other reagents) and all other materials and supplies to be used or
consumed by the Company in the Exploitation of the Compound or the Product.
 
“Joint Development Committee” or “JDC” has the meaning set forth in Section 6.2.
 
“Joint Development Plan” has the meaning set forth in Section 4.2(a).
 
“Joint Development Program” means the conduct of the activities conducted by the
Parties during the Joint Development Program Term, according to Section 4.1
hereto and the other terms and conditions set forth in this Agreement, and as
set forth in the Joint Development Plan.
 
“Joint Development Program Costs” has the meaning set forth in Section 4.3(a).
 
“Joint Development Program IP” has the meaning set forth in Section 7.1(a).
 
“Joint Development Program Term” has the meaning set forth in Section 4.1.
 
“Joint Steering Committee” or “JSC” has the meaning set forth in Section 6.1.
 
“KaloBios Development Program IP” has the meaning set forth in Section 7.1(a).
 
“KaloBios” has the meaning set forth in the Preamble.
 
“KaloBios Covered Person” has the meaning set forth in Section 9.6.
 
“[***]” has the meaning set forth in Section [***].
 
“Know-How” means any proprietary data, results, material(s), technology, and
nonpublic information of any type whatsoever, in any tangible or intangible
form, including: (a) information, techniques, technology, practices, trade
secrets, discoveries, developments, methods, knowledge, know-how, skill,
experience, data, inventions (whether patentable or not) results (including
assay development, compound screening, chemical, pharmacological, toxicological
and clinical test data and results), analytical and quality control data,
results or descriptions, software and algorithms, reports and study reports; and
(b) compositions of matter, cells, cell lines, assays, animal models and
physical, biological or chemical material.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 9 -

--------------------------------------------------------------------------------

 
 
“Knowledge” means (a) with respect to the Company, the actual knowledge of
Stephen L. Hurst, Scott Freeman and Chad Boulanger, after due investigation or
inquiry, and (b) with respect to KaloBios, the actual knowledge of Cameron
Durrant, David Moradi, Morgan Lam and Ronald Barliant, after due investigation
or inquiry.
 
“Law” means any federal, state, local, foreign or multinational law, statute,
standard, ordinance, code, rule, regulation, resolution or promulgation, or any
order by any Governmental Authority, or any license, franchise, permit or
similar right granted by  any Governmental Authority, or any similar provision
having the force or effect of law, including the rules or regulations of the SEC
or of any stock exchange or trading market on which a Party’s (or its
Affiliate’s) securities are traded.
 
“Letter of Intent” means that certain letter agreement between KaloBios and the
Company, dated February 29, 2016, setting forth the intent of the Parties to
consummate the Contemplated Transactions.
 
“Liabilities” means any and all debts, costs and expenses, liabilities and
obligations (including with respect to Taxes), whether accrued or fixed,
absolute or contingent, matured or unmatured, determined or determinable,
asserted or unasserted, known or unknown, including those arising under any Law,
action or governmental order and those arising under any Contract.
 
“Licensed Field” means any and all uses in humans.
 
“Losses” has the meaning set forth in Section 12.1.
 
“MAA” means an application to the appropriate Regulatory Authority for approval
to market a Product (but excluding Pricing Approval) in any particular
jurisdiction (including an NDA in the United States) and all amendments and
supplements thereto.
 
“Material Adverse Effect” means any change, circumstance or effect that,
individually or in the aggregate, would or would reasonably be expected to
(a) have a materially adverse effect on the Acquired Assets taken as a whole,
including the value thereof or KaloBios’ ability to receive, operate and develop
the Acquired Assets taken as a whole free of Encumbrances pursuant hereto;
provided, that none of the following changes, effects, events, circumstances or
occurrences shall be deemed, either alone or in combination, to constitute a
Material Adverse Effect, or be taken into account in determining whether a
Material Adverse Effect has occurred or would reasonably be expected to occur:
(i) changes or effects in general economic or financial conditions; (ii) changes
in applicable Laws or accounting rules (including GAAP) or the enforcement,
implementation or interpretation thereof; (iii) changes or effects that
generally affect the pharmaceutical or medical device industry; (iv) changes or
effects that arise out of or are attributable to the commencement, occurrence,
continuation or intensification of any war, sabotage, armed hostilities or acts
of terrorism; (v) changes or effects arising out of or attributable to the
public announcement of the transactions contemplated by this Agreement or the
compliance with the provisions of this Agreement including losses or threatened
losses of employees, customers, suppliers, distributors or others having
relationships with the Company and the Business; or (vi) any matter which
KaloBios is aware of on the date hereof; or (b) prevent or materially delay
consummation of the Contemplated Transactions.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 10 -

--------------------------------------------------------------------------------

 
 
“Milestone Payments” has the meaning set forth in Section 3.3(a).
 
“NDA” means a New Drug Application filed with the FDA, under Sections 505(b)(1)
or 505(b)(2) of the FD&C Act, to obtain approval to market a Product (but
excluding Pricing Approval) in the United States and all amendments and
supplements thereto.
 
“Net Sales” means, with respect to any Product, the total amount invoiced by
KaloBios or its respective Affiliates or Sublicensees (the “Selling Party”) to
each Third Party purchasing the Product in arm’s length transactions, less the
following deductions from such total amounts which are actually incurred,
allowed, accrued or specifically allocated:
 
(a)          transportation and insurance charges related to the delivery of the
Products to customers;
 
(b)          normal trade, volume and cash discounts, including retroactive
price reductions, pertaining to the sale of the Products;
 
(c)          any service fees actually paid to customers as a requirement for
the stocking and subsequent re-distribution of the Product;
 
(d)          credits, allowances or refunds given or made to customers for
rejection, damage, defect, recall or return of the Product to the Selling Party
by customers;
 
(e)          sales and excise taxes, value added taxes, other taxes (excluding
income taxes) or other governmental charges otherwise imposed upon the amounts
billed for the Product, as adjusted for rebates and refunds or duties that fall
due or are absorbed or otherwise imposed on or paid by the Selling Party on
sales of Products and other governmental charges imposed upon the importation or
sale of the Products;
 
(f)          chargebacks and rebates to third parties, including, without
limitation, to managed care health organizations, federal and state government
agencies and/or other purchasers of the Product, and group purchasing
organization administration fees;
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 11 -

--------------------------------------------------------------------------------

 
 
(g)          the amount of the rebate that is provided or credited with respect
to couponing, a patient assistance program, a patient insurance co-pay program
or any program designed to provide a discount to the patient for the cost of a
prescription for the Product;
 
(h)          delayed shipping credits, discounts or payments related to the
impact of Product price increases between purchase dates and shipping dates, and
fees for service payments to customers for non-separable services (including
compensation for maintaining agreed Product inventory levels and providing
Product-related information);
 
(i)          that portion of the annual fee on prescription drug manufacturers
imposed by the Patient Protection and Affordable Care Act, Pub. L. No. 111-148
(as amended), that the Selling Party allocates to sales of the Product in
accordance with their respective standard policies and procedures consistently
applied across its products; and
 
(j)          all such deductions set forth in (a) through (i) above being
supported by reasonable written documentation.
 
Net Sales shall be calculated and accounted for in accordance with GAAP.
 
Notwithstanding anything to the contrary contained herein, for the purposes of
this definition, (i) the transfer of the Product by KaloBios or one of its
Affiliates or Sublicensees to another Affiliate, other than for value, shall not
be considered a sale, and (ii) any disposal of the Product for, or use of the
Product in or for research, test marketing, clinical trial purposes, free
samples, or for warehousing or staging in advance of release of the Product for
commercial sale, shall not be considered a sale.
 
“New Common Stock” has the meaning set forth in the definition of Change of
Control.
 
“Net Voucher Proceeds” means the consideration received or deemed received by
KaloBios or its Affiliate(s) for the sale or transfer of a Voucher in a Voucher
Sale or as determined under Section 3.4 (as reduced for all costs and expenses
incurred by KaloBios or its Affiliate(s), exclusively related to a Voucher Sale
and excluding any and all government filing fees and costs incurred prior to
such Voucher Sale, to a maximum of [***] of gross proceeds).  For the avoidance
of doubt, in the event that the Voucher Sale occurs in connection with other
transactions between KaloBios and the purchaser of the Voucher, the Net Voucher
Proceeds shall mean only the consideration received by KaloBios or its
Affiliate(s) that is attributable solely to the purchase of the Voucher.
 
“No-Action Letter” has the meaning set forth in Section 10.9(a).
 
“Non-breaching Party” has the meaning set forth in Section 13.3(a).
 
“Non-Voucher Accompanying Approval” has the meaning set forth in Section 3.3(c).
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 12 -

--------------------------------------------------------------------------------

 
 
“Omitted Asset” has the meaning set forth in Section 10.6.
 
“Orphan Drug Designation” means a grant by the FDA of a request for designation
under Section 526 of the FD&C Act as amended (21 U.S.C. 360bb) in the United
States or any analogous grant by a Regulatory Authority in any other country in
the Territory.
 
“Party” and “Parties” have the meaning set forth in the Preamble.
 
“Patent” means (a) all patents and patent applications in any country or
supranational jurisdiction in the Territory, and (b) any substitutions,
divisions, continuations, continuations-in-part, provisional applications,
reissues, renewals, registrations, confirmations, re-examinations, extensions,
supplementary protection certificates and the like of any such patents or patent
applications.
 
“Permitted Encumbrance” means (a) liens for Taxes not yet due and payable or
being contested in good faith by appropriate procedures; (b) mechanics’,
carriers’, workmen’s, repairmen’s or other like liens arising or incurred in the
ordinary course of business; (c) liens arising under original purchase price
conditional sales contracts and equipment leases with Third Parties entered into
in the ordinary course of business; (d) easements, rights of way, zoning
ordinances and other similar Encumbrances affecting real property; and (e) other
imperfections of title or Encumbrances, and with respect to (a) through (e),
which are neither, individually or in the aggregate, material to the business of
the Company, nor have not had, and would not reasonably be expected to have, a
Material Adverse Effect.
 
“Person” means any individual, corporation, partnership, joint venture, limited
liability company, trust, business association, organization, Governmental
Authority, a division or operating group of any of the foregoing or other entity
or organization, including any successors or assigns (by merger or otherwise) of
any such entity, or government or political subdivision or any agency,
department or instrumentality thereof.
 
“Plan” has the meaning set forth in the definition of Change of Control.
 
“Pricing Approval” means such Governmental Approval, agreement, determination or
decision establishing prices for a Product that can be charged and/or reimbursed
in regulatory jurisdictions where the applicable Governmental Authorities
approve or determine the price and/or reimbursement of pharmaceutical products
and where such Governmental Approval or determination is necessary for the
commercial sale of such Product in such jurisdictions.
 
“Prior Letter of Intent” means that Letter of Intent entered into by the Company
and KaloBios on December 1, 2015 and effective as of December 2, 2015.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 13 -

--------------------------------------------------------------------------------

 
 
“Priority Review” means a priority review of, and action, upon a human drug
application by the FDA not later than six (6) months after the filing of such
application to the FDA, as defined in the FD&C Act.
 
“Product” means any pharmaceutical product that contains the Compound, either
alone or in combination with other Active Ingredients
 
“Program” means the research and development program, including the Joint
Development Program, to obtain Regulatory Approval for the Product in the United
States for the treatment of Chagas disease.
 
“Receiving Party” has the meaning set forth in Section 11.1.
 
“Registrable Securities” means (i) the Warrant Shares and any shares of Common
Stock issued in respect thereof as a result of any stock split, dividend or
other distribution,  merger, consolidation, recapitalization or similar event
and (ii) any Common Stock issued as (or issuable upon the exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange or in replacement of, the Warrant
Shares described in clause (i) of this definition; provided, however, that any
such Registrable Securities shall cease to be Registrable Securities (and
KaloBios shall not be required to maintain the effectiveness of any, or file
another, Registration Statement hereunder with respect thereto) when (a) a
Registration Statement with respect to the sale of such Registrable Securities
is declared effective by the SEC under the Securities Act and such Registrable
Securities have been disposed of in accordance with such effective Registration
Statement, (b) such Registrable Securities have been previously sold in
accordance with Rule 144, (c) such securities become eligible for resale without
volume or manner-of-sale restrictions and without current public information
pursuant to Rule 144 as reasonably determined by KaloBios, upon the advice of
counsel to KaloBios, or (d) such time as the SEC issues the No-Action Letter.
 
“Registration Statement” means any registration statement filed under the
Securities Act for an offering to be made on a continuous basis pursuant to Rule
415 thereunder, including (in each case) all exhibits thereto, any amendments
thereto (including pre- and post-effective amendments), the related prospectus
and any prospectus supplement, and all material incorporated by reference or
deemed to be incorporated by reference in any such registration statement.
 
“Regulatory Approval” means those approvals (e.g., drug approval, medical device
approval, Pricing Approval and reimbursement approval) necessary for the
Exploitation of a Compound or a Product in a given country or regulatory
jurisdiction.
 
“Regulatory Authority” means in a particular country or jurisdiction, any
applicable Governmental Authority or non-Governmental Authority involved in
granting Regulatory Approval in such country or jurisdiction.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 14 -

--------------------------------------------------------------------------------

 
 
“Regulatory Exclusivity” means, with respect to a Product in a particular
country, any exclusive marketing rights or data exclusivity rights conferred by
any Regulatory Authority with respect to such Product in such country other than
a Patent right (including Patent rights extended by the grant of a Regulatory
Authority, such as patent term restoration in the United States under
Section 156 of Title 35 of the U.S. Code, as amended from time to time).
 
“Regulatory Materials” means, with respect to any pharmaceutical product in any
jurisdiction, any and all regulatory applications, submissions, notifications,
communications, correspondence, registrations, Regulatory Approvals, and/or
other filings made to, received from or otherwise conducted with, a Regulatory
Authority in order to Exploit a Compound or Product in a particular country or
jurisdiction, including, without limitation, all INDs, NDAs and MAAs.
 
“Royalties” has the meaning set forth in Section 7.8(a).
 
“Royalty Term” has the meaning set forth in Section 7.8(b).
 
“Rule 144” means Rule 144 promulgated under the Securities Act.
 
“Sale Proceeds Voucher Payment” has the meaning set forth in Section 3.4(c).
 
“SEC” means the U.S. Securities and Exchange Commission.
 
“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
 
“Security Agreement” has the meaning set forth in Section 3.5.
 
“Selling Party” has the meaning set forth in the definition of Net Sales.
 
“[***]” means [***].
 
“Sublicensee” means, with respect to a particular Product, a Third Party to whom
KaloBios has granted a sublicense under any Company Patents or Company Know-How,
but excluding distributors.
 
“Tax” means all taxes, charges, fees, duties, levies or other assessments,
including, income, gross receipts, net proceeds, turnover, real and personal
property (tangible and intangible), sales, use, franchise, excise, value added,
license, payroll, unemployment, escheat, environmental, customs duties, capital
stock, disability, stamp, leasing, lease, user, transfer, fuel, excess profits,
occupational and interest equalization, windfall profits, severance and
employees’ income withholding and social security or similar taxes imposed by
the United States or by any state, municipality, subdivision or Governmental
Authority or by any foreign country or by any other tax authority, whether
disputed or not, in each case to the extent relevant in the given context, and
such term includes any interest, penalties or additions to tax attributable to
such taxes, and shall include any liability for such amount as a result either
of being a member of a combined, consolidated, unitary or affiliated group, or
of a continuing obligation to indemnify any Person or as a result of being a
transferee or a successor of another Person.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 15 -

--------------------------------------------------------------------------------

 
 
“Tax Returns” means all returns, declarations, reports, statements and other
documents of, relating to, or required to be filed in respect of, any and all
Taxes (including any schedule or attachment thereto, and including any amendment
thereof).
 
“Term” has the meaning set forth in Section 13.1.
 
“Territory” means all countries of the world.
 
“Third Party” means any Person other than a Party or an Affiliate of a Party.
 
“Third Party License” means any license or other agreement between a Third Party
and KaloBios or its Affiliate pursuant to which KaloBios or its Affiliate is
granted a license or other rights to Patents, assets or Know-How owned or
controlled by a Third Party, where such license or other rights are related to
the Exploitation of the Compound or Products.
 
“Transaction Documents” means, collectively, this Agreement, the Bill of Sale,
the Assignment and Assumption Agreement, the Security Agreement and the Warrant.
 
“United States” or “U.S.” means the United States of America including its
territories and possessions.
 
“Voucher” means a priority review voucher issued by the FDA or otherwise under
the authority of the United States Department of Health and Human Services to
KaloBios or its Affiliate(s) as the sponsor of a rare pediatric disease or
neglected tropical disease product application related to the Compound or the
Product, that entitles the holder of such voucher to Priority Review of a single
human drug application submitted under Section 505(b)(1) or 505(b)(2) of the
FD&C Act or Section 351(a) of the United States Public Health Service Act, as
further defined in the FD&C Act.
 
“Voucher Issuance Expiration Date” has the meaning set forth in Section 3.3(c).
 
“Voucher Payment” has the meaning set forth in Section 3.4(a).
 
“[***]” has the meaning set forth in Section [***].
 
“Voucher Sale” means the good faith sale, transfer or other direct or indirect
disposition of a Voucher for value by KaloBios or its Affiliate that results, in
a single transaction or a series of related transactions, in its ownership by,
or the benefits of ownership flowing to, a Third Party.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 16 -

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“Warrant” has the meaning set forth in Section 3.2.
 
“Warrant Shares” has the meaning set forth in Section 9.3(b).
 
ARTICLE 2
PURCHASE AND SALE OF ASSETS
 
Section 2.1          Acquired Assets.  On the terms and subject to the
conditions contained herein and in consideration for the payment of the Initial
Payment, the Milestone Payments and the Voucher Payment (to the extent that such
amounts become payable) and the issuance of the Warrant by KaloBios, the Company
hereby  sells, transfers, conveys, assigns and delivers to KaloBios, at the
Closing, free and clear of all Encumbrances, and KaloBios accepts, at the
Closing, all of the Company’s  right, title and interest in and to the following
assets (collectively, the “Acquired Assets”):
 
(a)          all Regulatory Materials in the Territory relating to the Compound
or the Product, including the Regulatory Materials set forth on Schedule 2.1;
 
(b)          all contracts relating to the Compound or the Product, including
the contracts set forth on Schedule 2.1 (the “Assumed Contracts”);
 
(c)          all Inventory, including the Inventory set forth on Schedule 2.1;
 
(d)          all Governmental Approvals and all pending applications therefor or
renewals thereof, in each case to the extent relating to the Compound or the
Product and transferable to KaloBios, including the Government Approvals,
pending applications and renewals set forth on Schedule 2.1, and for the
avoidance of doubt, the right to be the sponsor of, and to own all rights to,
all applications or other submissions to FDA in the future relating to the
Compound or the Product, including all INDs, NDAs and NDA supplements, orphan
drug designations, drug master files, and requests for issuance of vouchers,
including pursuant to the change of ownership regulations set forth in 21 C.F.R.
§ 314.72 and 21 C.F.R. § 316.27;
 
(e)          any and all material books, records, files, manuals, data and other
documentation (including clinical study reports and data, investigator brochures
and laboratory notebooks) that relate primarily to the Compound or the Product,
including (i) all data in all databases for all clinical and pre-clinical
studies, (ii) research and development reports, creative materials, studies,
reports, correspondence and other similar documents and records, and (iii) all
other material business information, whether tangible or intangible, including,
in each case, the books and records set forth on Schedule 2.1 (the “Assigned
Books and Records”) and contact information for all Third Parties in contact
with the Company in connection with any of the Acquired Assets, or who may have
access to assets necessary to support the Program;
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 17 -

--------------------------------------------------------------------------------

 
 
(f)          all claims, causes of action, judgments and demands of whatever
kind or description (regardless of whether or not such claims and causes of
action have been asserted by the Company) of the Company against Third Parties
that arise out of or relate to the Acquired Assets, whether choate or inchoate,
known or unknown, contingent or non-contingent, to the extent such claims,
causes of action, judgments or demands are not Excluded Assets;
 
(g)          all rights of indemnification, warranty, contribution, credits,
refunds, reimbursement and other rights of recovery (regardless of whether such
rights are currently exercisable) against Third Parties (excluding insurance
carriers) that arise out of or relate to any of the Acquired Assets to the
extent such rights first arise after the Closing and are not Excluded Assets or
do not relate to (or represent a counterclaim of the Company in connection with)
any Excluded Liability;
 
(h)          all other claims, rights and causes of action relating to the items
described in clauses (a) through (g) above or the Assumed Liabilities against
Third Parties that arise after the Closing, whether liquidated or unliquidated;
and
 
(i)          any and all intangibles and goodwill of the Company  arising from
the items described in clauses (a) through (h) above.
 
Section 2.2          Excluded Assets.  All assets, properties, rights and
interests of the Company and its Affiliates not expressly included in the
Acquired Assets under Section 2.1, including the Excluded Assets, are expressly
excluded from the transfer, conveyance, assignment and delivery contemplated
hereby and as such are not included in the Acquired Assets and shall remain the
assets, properties, rights and interests of the Company and its Affiliates. 
Excluded Assets shall include all of the Company’s right, title and interest in
and to the following assets (collectively, the “Excluded Assets”):
 
(a)          all Company IP;
 
(b)          all cash and cash equivalents, bank accounts and securities of the
Company;
 
(c)          all contracts that are not Assumed Contracts;
 
(d)          the corporate seals, organizational documents, minute books, stock
books, Tax Returns, books of account or other records having to do with the
corporate organization of the Company, all employee-related or employee
benefit-related files or records, other than personnel files of any employees
transferred to KaloBios, and any other books and records which the Company is
prohibited from disclosing or transferring to KaloBios under applicable Law and
is required by applicable Law to retain;
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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(e)          all Company employee benefit plans and trusts or other assets
attributable thereto;
 
(f)          all Tax assets (including duty and Tax refunds and prepayments) of
the Company or any of its Affiliates;
 
(g)          all rights to any action, suit or claim of any nature available to
pursue or being pursued by the Company, whether arising by way of counterclaim
or otherwise;
 
(h)          any attorney work product, attorney-client communications and other
items protected by attorney-client privilege generated in connection with the
Transaction Documents or related to the Excluded Assets;
 
(i)          all other assets of the Company and its Affiliates other than the
Acquired Assets;
 
(j)          all rights of indemnification, warranty, contribution, credits,
refunds, reimbursement and other rights of recovery (regardless of whether such
rights are currently exercisable) against Third Parties (excluding insurance
carriers) that arise out of or relate to any of the Excluded Assets; and
 
(k)          all rights which accrue or will accrue to the Company under this
Agreement and the Transaction Documents.
 
Section 2.3           Assumed Liabilities.  Upon the terms and subject to the
conditions of this Agreement, at the Closing, KaloBios shall assume, and shall
pay, perform, satisfy and discharge (or cause to be paid, performed, satisfied
and discharged on behalf of KaloBios) when due, the following Liabilities of the
Company related to the Acquired Assets (collectively, the “Assumed
Liabilities”):
 
(a)          Liabilities for all Taxes relating to the Compound, the Product or
the Acquired Assets for any taxable period (or portion thereof) beginning on or
after the Closing Date, including those payable by KaloBios pursuant to Section
3.9; and
 
(b)          any Liability exclusively related to the Acquired Assets, to the
extent arising after the Closing.
 
Section 2.4           Excluded Liabilities.  Notwithstanding anything to the
contrary contained in this Agreement, the Assumed Liabilities will exclude any
other Liabilities whatsoever not expressly assumed by KaloBios under Section
2.3, including the Excluded Liabilities.  For the avoidance of doubt, it is
understood and agreed that KaloBios is not assuming any Liabilities or claims
arising out of the use or operation of the Acquired Assets prior to the Closing.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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Section 2.5          Closing.  The Closing (the “Closing”) will take place on
the date of the Bankruptcy Exit; provided, that if all conditions to the Closing
set forth in Section 2.6 have not been satisfied or waived on or prior to such
date, the Closing shall take place on the first Business Day following the
satisfaction or waiver (by the Party entitled to waive the condition) of all
conditions to the Closing set forth in Section 2.6, or at such other time and
place as the Parties to this Agreement may agree (the “Closing Date”).  Each
Party shall deliver its closing deliverables pursuant to Section 2.8 to the
other Party, and KaloBios shall deliver, or cause to be delivered, the funds
payable pursuant to Section 3.1, to the Escrow Agent, and the Escrow Agent shall
release such funds in accordance with the Escrow Agreement in substantially the
form attached hereto as Exhibit H.  The Closing will be deemed effective for
tax, accounting and other computational purposes as of 11:59 p.m. Eastern time
on the Closing Date.
 
Section 2.6          Delivery of Acquired Assets; Assigned Books and Records.
 
(a)          The Company shall use commercially reasonable efforts to deliver
all Acquired Assets in the Company’s possession necessary to support the Program
promptly after the Closing Date (and in any case within thirty (30) days after
the Closing Date) to KaloBios at its principal place of business or at such
other location mutually agreed by the Parties, at the [***] cost and expense of
[***].  To the extent any Acquired Assets are not in the Company’s possession or
have not been delivered by the Company to KaloBios within thirty (30) days after
the Closing Date, the Company shall, within ninety (90) days after the Effective
Date, obtain possession and control of and deliver to KaloBios such remaining
Acquired Assets, including those Acquired Assets set forth in Schedule 2.6(a). 
For the avoidance of doubt, [***] shall be [***] responsible for such delivery
and any reasonable costs and expenses incurred by the Company in the delivery of
the Acquired Assets, and KaloBios shall be [***] responsible for any damages
that may occur to the Acquired Assets once delivered.
 
(b)          The Company may retain copies of any Assigned Books and Records
(i) to the extent necessary for tax, accounting, regulatory, compliance or
litigation purposes, (ii) in order to perform and discharge the Excluded
Liabilities and the Company’s obligations under the Transaction Documents, or
(iii) to the extent that such Assigned Books and Records contain information
with respect to any Excluded Asset or Excluded Liability. For the avoidance of
doubt, such retained Assigned Books and Records shall be treated as Confidential
Information of KaloBios pursuant to Article 11.
 
Section 2.7          Conditions to Closing.
 
(a)          Conditions to Obligations of Each Party.  The obligations of the
Company and KaloBios to consummate the Closing are subject to the satisfaction
(or the waiver by each of the Company and KaloBios in their respective sole and
absolute discretion) of the following condition: there shall not be in effect a
final, non-appealable order or decree entered by a Governmental Authority that
permanently enjoins, restrains or otherwise prohibits the consummation of the
Contemplated Transactions.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 20 -

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(b)          Conditions to Obligations of KaloBios.  The obligation of KaloBios
to consummate the Closing is subject to the satisfaction (or the waiver by
KaloBios in its sole and absolute discretion) of the following further
conditions:
 
(i)          The Company shall have performed in all material respects all of
its covenants and obligations under this Agreement that are required to be
performed by it at or prior to the Closing;
 
(ii)          The representations and warranties of the Company set forth in
Article 8 that are qualified by materiality or Material Adverse Effect shall be
true and correct and so qualified in all respects as of the Effective Date and
as of the Closing Date, except to the extent expressly made as of a specified
date, in which case such representations and warranties shall be true and
correct as of such date, and the representations and warranties of the Company
set forth in Article 8 that are not qualified by materiality or Material Adverse
Effect shall be true and correct in all material respects as of the Effective
Date and as of the Closing Date, except to the extent expressly made as of a
specified date, in which case such representations and warranties shall be true
and correct as of such date;
 
(iii)          KaloBios shall have received the documents listed in Section
2.8(a) to be delivered at Closing.
 
(c)          Conditions to Obligations of the Company.  The obligation of the
Company to consummate the Closing is subject to the satisfaction (or the waiver
by the Company in its sole and absolute discretion) of the following further
conditions:
 
(i)          KaloBios shall have performed in all material respects all of its
covenants and obligations under this Agreement that are required to be performed
by it at or prior to the Closing;
 
(ii)           the representations and warranties of KaloBios set forth in
Article 9 that are qualified by materiality shall be true and correct and so
qualified in all respects as of the Effective Date and as of the Closing Date,
except the extent expressly made as of a specified date, in which case such
representations and warranties shall be true and correct as of such date, and
the representations and warranties of KaloBios set forth in Article 9 that are
not qualified by materiality or Material Adverse Effect shall be true and
correct in all material respects as of the Effective Date and as of the Closing
Date, except to the extent expressly made as of a specified date, in which case
such representations and warranties shall be true and correct as of such date;
 
(iii)          as of the Closing Date, KaloBios shall have a minimum balance of
Ten Million Dollars ($10,000,000) in cash, inclusive of the Initial Payment,
which shall not be subject to any Encumbrance or Permitted Encumbrance;
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 21 -

--------------------------------------------------------------------------------

 
 
(iv)          a court of competent jurisdiction shall have issued a judicial
order approving the Contemplated Transactions, and the effective date of
KaloBios’ plan of reorganization (the “Bankruptcy Exit”) shall have occurred or
shall occur contemporaneously with the Closing of the Contemplated Transactions;
 
(v)          the Company shall have received the documents listed in Section
2.8(b); and
 
(vi)          the Company shall have received an opinion from special counsel to
KaloBios, in the form attached as Exhibit E concerning the validity and
enforceability of the Transaction Documents and the Contemplated Transactions.
 
Section 2.8          Deliveries at Closing.   Upon the terms and subject to the
conditions set forth in this Agreement, the Parties agree that at the Closing,
among other things:
 
(a)          the Company shall deliver the following items, duly executed by the
Company, all of which shall be in a form and substance reasonably acceptable to
KaloBios and KaloBios’ counsel:
 

 
(i)
the Transaction Documents that are required to be executed by the Company;

 

 
(ii)
a certificate executed by the Managing Member of the Company certifying that the
conditions to KaloBios’ obligations hereunder set forth in Section 2.7(b)(i) and
Section 2.7(b)(ii) have been fulfilled;

 

 
(iii)
a certificate in the form prescribed by Treasury Regulation Section 1.4445-2,
certifying either that the Company is not a foreign person for purposes of
Section 1445 of the Code or that the Acquired Assets do not constitute a “United
States Real Property Interest” within the meaning of Section 897 of the Code;
and

 

 
(iv)
such other certificates, instruments or documents required pursuant to the
provisions of this Agreement or otherwise necessary or appropriate in accordance
with the terms hereof and consummate the Contemplated Transactions.

 
(b)          KaloBios shall deliver, or cause to be delivered, the following
items, duly executed by the KaloBios, all of which shall be in a form and
substance reasonably acceptable to the Company and the Company’s counsel:
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 22 -

--------------------------------------------------------------------------------

 
 

(i) the Transaction Documents that are required to be executed by KaloBios;

 

(ii) a certificate signed by the Chief Executive Officer of KaloBios certifying
that the conditions to the Company’s obligations hereunder set forth in Section
2.7(c)(i), and Section 2.7(c)(ii), Section 2.7(c)(iii) and Section 2.7(c)(iv)
have been fulfilled;

 

(iii) a certificate signed by the President of KaloBios certifying that (A) a
judicial order of a court of competent jurisdiction approving the Contemplated
Transactions has been issued, and (B) the effective date of the Bankruptcy Exit
shall have occurred or shall occur contemporaneously with the Closing of the
Contemplated Transactions; and

 

(iv) such other certificates, instruments or documents required pursuant to the
provisions of this Agreement or otherwise necessary or appropriate in accordance
with the terms hereof to consummate the Contemplated Transactions.

 
ARTICLE 3
CONSIDERATION
 
Section 3.1          Initial Payment.  As partial consideration for the sale,
transfer, conveyance, assignment and delivery of the Acquired Assets to, and
assumption of the Assumed Liabilities by, KaloBios, at the Closing, KaloBios
shall pay to the Company Three Million Dollars ($3,000,000) less the amount of
the Deposit (the “Initial Payment”).  In addition, concurrently with the payment
of the Initial Payment, KaloBios shall, pursuant to  Section 4.3(b), pay the
first [***] payment and shall pay to the Company up to One Hundred Thousand
Dollars ($100,000) in reimbursement of its documented legal and other expenses
resulting from KaloBios’ bankruptcy proceedings and incurred by the Company
between December 17, 2015, and the date of KaloBios’ exit from bankruptcy,
subject to reasonable documentation of such expenses having been provided to
KaloBios no less than three (3) Business Days prior to the Closing Date.
 
Section 3.2          Warrant.  As partial consideration for the sale, transfer,
conveyance, assignment and delivery of the Acquired Assets to, and assumption of
the Assumed Liabilities by, KaloBios, at the Closing, KaloBios shall issue to
the Company a warrant to purchase two hundred thousand (200,000) shares of the
Common Stock, as may be adjusted from time to time as set forth therein for
reclassifications, stock-splits or otherwise, in substantially the form attached
hereto as Exhibit F (the “Warrant”).  The Parties hereby agree that the face
value of the Warrant is One Hundred Dollars ($100).
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 23 -

--------------------------------------------------------------------------------

 
 
Section 3.3          Milestones.
 
(a)          As partial consideration for the sale, transfer, conveyance,
assignment and delivery of the Acquired Assets to, and assumption of the Assumed
Liabilities by, KaloBios, KaloBios shall pay to the Company each of the
following one-time milestone payments (the “Milestone Payments”) promptly, but
in no event later than [***] after the first achievement of the corresponding
milestone event, if such milestone is achieved:
 
Milestone Event
Milestone Payment
1.          [***]
$[***]
2.          [***]
$[***]
3.          [***]
$[***]
4.          [***]
$[***]
5.          [***]
$[***]
6.          [***]
$[***]

(b)          Each Milestone Payment shall be payable only once no matter how
many times each corresponding milestone event is achieved and the aggregate
amount of Milestone Payments paid by KaloBios under this Section 3.3 shall not
exceed Twenty-One Million Dollars ($21,000,000).  Notwithstanding the foregoing,
if a Change of Control of KaloBios occurs, KaloBios shall pay to the
Company [***] of all unpaid Milestone Payments, if any, concurrently with such
Change of Control, irrespective of whether the corresponding milestone events
have been achieved, and any remaining unpaid Milestone Payments shall be reduced
by [***].
 
(c)          Notwithstanding anything to the contrary or limiting any other
rights of the Company under this Section 3.3, if, and only if, the FDA grants
Regulatory Approval for the Product in the United States but does not issue a
Voucher to KaloBios contemporaneously with such Regulatory Approval (a
“Non-Voucher Accompanying Approval”, and the date such Regulatory Approval is
granted, the “Voucher Issuance Expiration Date”), then:
 
(i)          KaloBios shall have the option, exercisable at any time upon
delivery of written notice to the Company within ten (10) days following the
Voucher Issuance Expiration Date, to [***].  Notwithstanding the foregoing if,
due to changes in applicable Law with respect to the timing of the issuance of a
Voucher, the issuance of the Voucher to KaloBios does not occur
contemporaneously with the receipt of Regulatory Approval by the FDA for the
Product in the United States, then the foregoing 10-day option period shall
instead run from the date of such Regulatory Approval until ten (10) days after
determination by FDA that a Voucher shall not be issued in connection with the
Regulatory Approval and notice to KaloBios thereof.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 24 -

--------------------------------------------------------------------------------

 
 
(ii)          If KaloBios timely [***] pursuant to Section 3.3(c)(i), the
Company shall have the option, exercisable at any time upon delivery of written
notice to KaloBios within ten (10) days following [***].
 
(d)          If KaloBios [***]and the Company does not [***], then [***];
provided, however, that nothing in this Section 3.3(c) shall be construed to
relieve KaloBios of any other obligations to pay any other Milestone Payments
pursuant to this Section 3.3 or other royalty payments pursuant to Section 7.8,
in each case as they become due, or to otherwise relieve KaloBios of any other
obligations under Article 5 (other than Section 5.3).
 
Section 3.4          Voucher Payment.
 
(a)          Voucher.  Following the Closing, KaloBios shall, and it shall cause
its Affiliates to, use Diligent Efforts to satisfy all preconditions and
requirements for the issuance of a Voucher [***] from the FDA with respect to
the Product.  As partial consideration for the sale, transfer, conveyance,
assignment and delivery of the Acquired Assets to, and assumption of the Assumed
Liabilities by, KaloBios, after the receipt by KaloBios or its Affiliate of a
Voucher as provided below, KaloBios shall pay to the Company (or cause to paid
to the Company) [***] with respect to such Voucher (the “Voucher Payment”),
subject to the terms and conditions set forth in this Section 3.4.
 
(b)          Voucher Sale Process.  [***] 
 
(c)          Voucher Sale.  Subject to Section 3.4(d) below, if KaloBios or any
of its Affiliates consummates a Voucher Sale at any time (other than a Voucher
Sale to the Company pursuant to Section 3.4(b) above), then the Voucher Payment
in connection with such Voucher Sale shall be an amount in the form of cash
equal to the product obtained by multiplying (i) the Net Voucher Proceeds by
(ii) [***] (the “Sale Proceeds Voucher Payment”).  The Voucher Payment shall be
made in the form of cash to the extent that the Net Voucher Proceeds are in the
form of cash, and to the extent non-cash, shall be paid over in such non-cash
consideration.
 
(d)          Retained Voucher.  If KaloBios has not consummated a process with
respect to a Voucher Sale within [***] after a Voucher is issued to KaloBios or
its Affiliate, or KaloBios notifies the Company in writing that it has
determined not to engage in a Voucher Sale and to instead retain such Voucher
for its or its Affiliates’ own use, then the Voucher Payment shall be calculated
based on [***] equal to [***] as determined using generally accepted methods by
an independent Third Party valuator having significant experience in valuing
Vouchers or similar assets.  The Third Party valuator shall be selected by [***]
and reasonably acceptable to [***], and [***] shall be responsible for paying
the fees of any such Third Party valuator.  The determination of such Third
Party valuator shall be binding on both KaloBios and the Company absent fraud. 
The Voucher Payment shall be due within [***] days after the determination of
the value of the Net Voucher Proceeds by the Third Party valuator.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 25 -

--------------------------------------------------------------------------------

 
 
(e)          Payment.  The Voucher Payments shall be paid to the Company as
follows:  with respect to a Sale Proceeds Voucher Payment, upon the closing of
the Voucher Sale unless there is a disagreement over the value of any non-cash
consideration, in which case it shall be made within [***] after the
determination of such amounts by the Third Party valuator pursuant to Section
3.4(c) above (provided that the Company’s share of any deferred consideration
payable to KaloBios as Net Voucher Proceeds following such closing shall be paid
to the Company promptly, and within [***] following payment thereof to
KaloBios.)  KaloBios shall pay, or cause any of its Affiliates to which it had
transferred the Voucher to pay, such amounts to the Company within [***] after
such determination.
 
Section 3.5          Security Agreement.  To secure the performance of KaloBios’
payment obligations under this Agreement, the Company and KaloBios shall enter
into a security agreement in substantially the form attached hereto as Exhibit G
(the “Security Agreement”).
 
Section 3.6          Purchase Price Allocation.  Within [***] after Closing the
Parties will agree in good faith on a schedule setting forth the allocation of
the Initial Payment to the Acquired Assets (the “Allocation Schedule”), to be
attached hereto as Schedule 3.6.  The Company and KaloBios will sign and submit
all necessary forms to report this transaction for U.S. federal, state and local
income Tax purposes in accordance with the Allocation Schedule and will not take
a position for such Tax purposes inconsistent therewith.  The Parties will treat
the Contemplated Transactions in all filings with Governmental Authorities for
all Tax purposes consistently with the Allocation Schedule and this Section
3.6.  Following the Closing, the Parties shall cooperate in good faith to amend
the Allocation Schedule in order to take into account KaloBios’ payment to the
Company of additional consideration for the Acquired Assets in the form of any
Contingent Payments actually received by the Company, and the Parties shall
amend or file all necessary forms as may be required to report the amended
Allocation Schedule.
 
Section 3.7          Payments.  Except as otherwise specified herein, all
payments to be made by KaloBios or its Affiliates to the Company under this
Agreement shall be made in Dollars by bank wire transfer in immediately
available funds to a bank account designated in writing by the Company. 
Interest will accrue on all late payments under this Agreement at an annual rate
equal to the lesser of (i) [***] or (ii) the maximum rate permitted under
applicable Law.  For the avoidance of doubt, all payments to be made by KaloBios
under this Agreement shall constitute Secured Obligations (as such term is
defined in the Security Agreement).
 
Section 3.8          Audits.
 
(a)          KaloBios shall maintain for three (3) years complete and accurate
records in sufficient detail to permit the Company to confirm the accuracy of
(i) the calculation of the Voucher Payment hereunder, and (ii) the Royalties
paid under Section 7.8 hereunder.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 26 -

--------------------------------------------------------------------------------

 
 
(b)          The Company shall, and shall ensure that its Affiliates and Third
Party subcontractors shall, maintain complete and accurate records in sufficient
detail to permit KaloBios to confirm the Joint Development Program Costs
invoiced by the Company to KaloBios in accordance with Section 4.3(b).
 
(c)          Each Party shall have the right to have an independent and
nationally recognized certified public accounting firm in the United States,
reasonably acceptable to the other Party, have access during normal business
hours, and upon reasonable prior written notice, to examine only those records
of the other Party (and its Affiliates and Sublicensees) as may be reasonably
necessary to determine, with respect to any calendar year ending not more than
three (3) years prior to such request, the correctness or completeness of any
report or payment made under Article 3, Article 4 or Section 7.8; provided, that
upon request of the audited Party, such accounting firm shall enter into a
confidentiality agreement in a form reasonably acceptable to the audited Party.
The foregoing right of review may be exercised only (i) [***] by the Company
with respect to the records described in Section 3.8(a)(i); (ii) [***] per [***]
by the Company with respect to the records described in Section 3.8(a)(ii);
provided, however, that the Company shall not be entitled to audit the same
period of time more than [***]; and (iii) [***] per [***] by KaloBios with
respect to the records described in Section 3.8(b); provided, however, that
KaloBios shall not be entitled to audit the same period of time more than
[***].  Upon completion of the audit, the accounting firm shall disclose to both
Parties, as applicable, (a) whether payments made under Section 3.4 or Section
7.8, as the case may be, are correct or incorrect, and if it believes in good
faith that KaloBios is in breach of any of its payment obligations under the
applicable section, and (b) whether it believes in good faith that any amounts
invoiced by the Company were inaccurate or without a valid basis and the amount
of such funds at issue.  Upon request, the accounting firm shall provide to both
Parties its full, unredacted audit report. If the audit report concludes that
additional amounts were owed but unpaid, such Party shall pay the additional
amounts within [***] after the date on which such audit report is delivered to
both Parties, together with interest thereon at an annual rate equal to the
lesser of (i) [***] or (ii) [***].  [***] shall bear [***] cost of the
performance of any such audit, unless such audit discloses a variance of more
than [***] of the amount actually owed for the period audited, in which case
[***] shall bear [***] cost of the performance of such audit.  The results of
such audit shall be final, absent manifest error or fraud. Each Party shall hold
all information disclosed to it under this Section 3.8 as Confidential
Information of the other Party.
 
Section 3.9          Taxes.
 
(a)          Taxes on Income.  Each Party shall be solely responsible for the
payment of all Taxes imposed on its share of income arising directly or
indirectly from the activities of, or the receipt of any payment by, the Parties
under this Agreement.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 27 -

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(b)          Proration.  Liability for all personal property (tangible or
intangible) Taxes (or other similar Taxes), if any, attributable to the
Compound, the Product or the Acquired Assets, will be prorated between the
Parties as of the Closing Date, with the Company liable to the extent such items
relate to any taxable period (or portion thereof) ending on or before the
Closing Date, and KaloBios liable to the extent such items relate to a period
(or portion thereof) beginning after the Closing Date.  The Company will prepare
a proration of such items, which it will present to KaloBios prior to the
Closing Date, and the Parties will reasonably agree on such proration.  The
Company will furnish KaloBios with such documents and other records as KaloBios
reasonably requests in order to confirm the Company’s proration calculations. 
The Company will prepare and timely file all Tax Returns and pay all Taxes for
all personal property (tangible or intangible) Taxes (or other similar Taxes),
if any, attributable to the Compound, the Product or the Acquired Assets for all
Tax periods ending on or prior to the Closing Date.  KaloBios will prepare and
timely file all other such Tax Returns that are required to be filed in respect
of the Product or the Acquired Assets and KaloBios will be responsible for
paying all Taxes with respect to periods beginning after the Closing Date.  With
respect to Taxes apportioned pursuant to this Section 3.9, the Company will pay
such apportioned Taxes that are due and payable on or prior to the Closing Date,
and bill KaloBios for any part of that amount apportioned to KaloBios.  KaloBios
will pay such apportioned Taxes that are due and payable after the Closing Date
and bill the Company for any part of that amount apportioned to the Company.
 
(c)          Taxes Resulting from Sale of Assets.  The Company shall pay in a
timely manner all Taxes resulting from or payable in connection with the sale of
the Acquired Assets pursuant to this Agreement, regardless of the Person on whom
such Taxes are imposed by Laws, and shall file, or cause to be filed, all Tax
Returns required to be filed in connection therewith.  The Parties shall
cooperate with each other and use their reasonable efforts to reduce the Taxes
attributable to the transfer of the Acquired Assets and shall use reasonable
efforts to obtain any exemption or other similar certificate from any
Governmental Authority as may be necessary to mitigate such Taxes.
 
(d)          Tax Withholding.  KaloBios shall be entitled to deduct and withhold
from any amounts payable pursuant to this Agreement such amounts as may be
required to be deducted or withheld therefrom under any provision of federal,
state, local or foreign Tax law or under any applicable Law. To the extent such
amounts are so deducted and withheld, such amounts shall be treated for all
purposes under this Agreement as having been paid to the Company.
 
(e)          Tax Cooperation.  The Parties agree to cooperate with one another
and use reasonable efforts to avoid or reduce Tax withholding or similar
obligations in respect of payments made by KaloBios to the Company under this
Agreement.  The Company shall provide KaloBios any Tax forms and other documents
that may be reasonably necessary in order for KaloBios to not withhold Tax or to
withhold Tax at a reduced rate under an applicable bilateral income Tax treaty
with respect to any payments made by KaloBios to the Company under this
Agreement.  KaloBios shall be entitled to withhold the full amount of Tax
applicable to any amount payable to the Company if the Company does not provide
the applicable Tax forms and other necessary documents (establishing a Tax
exemption or reduction) at least five (5) Business Days prior to the date the
relevant payment is due.  Each Party shall provide the other Party with
reasonable assistance to enable the recovery, as permitted by Law, of
withholding Taxes or similar obligations resulting from payments made under this
Agreement.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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ARTICLE 4
DEVELOPMENT PROGRAM
 
Section 4.1          Overview; Joint Development Program Term.  The purpose of
the Program is to conduct research and development activities, including
regulatory activities and the Joint Development Program, with respect to the
Compound and the Product with the aim of obtaining MAAs resulting in payments of
all Milestone Payments.  The term of the Joint Development Program shall
commence on the Closing Date and, unless terminated earlier pursuant to Section
13.5 or otherwise terminated earlier under Article 13, shall expire upon the FDA
approval of the IND for the Product in the United States (the “Joint Development
Program Term”).  The Company agrees that during the Joint Development Program
Term it shall not engage in any research or development activities with respect
to the Compound or Product in the Licensed Field other than pursuant to the
Joint Development Program.
 
Section 4.2          Joint Development Plan.
 
(a)            Initial Joint Development Plan.  The Parties have prepared and
agreed to the terms of the development plan attached hereto as Exhibit I that
sets forth in detail the activities to be conducted by or on behalf of each
Party under the Joint Development Program and a budget for that work (as such
plan may be updated or amended hereunder from time to time, the “Joint
Development Plan”).
 
(b)          Joint Development Plan Updates and Amendments.  At any time during
the Joint Development Program Term, either Party may submit amendments to the
Joint Development Plan to the JDC, which amendments may include new or
additional development activities for the Compound or the Product.  The JDC
shall determine whether or not to approve such proposed amendments, including
whether or not any new or additional development activities shall be included in
the Joint Development Plan, and if so, which Party should undertake such
development activities based upon each Party’s expertise, capabilities,
infrastructure and the overall budget for the Joint Development Program.  The
JDC shall submit each approved amendment to the Joint Development Plan to the
JSC for review and approval in accordance with Section 6.1(e).  At least thirty
(30) days prior to each anniversary of the Effective Date, the JDC shall prepare
an updated version of the Joint Development Plan and submit such updated Joint
Development Plan to the JSC for review and approval in accordance with Section
6.1(e).  Notwithstanding anything to the contrary set forth herein or in Article
6, the financial or other obligations of KaloBios under the Joint Development
Plan may not be updated or amended to impose additional financial or other
obligations upon KaloBios without KaloBios’ prior written consent.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 29 -

--------------------------------------------------------------------------------

 
 
Section 4.3          Joint Development Program Costs.
 
(a)          KaloBios Responsibility.  KaloBios shall be responsible for funding
the cost of the activities to be conducted by the Parties under the Program,
including those costs of the Joint Development Program as set forth in the
budget included within the Joint Development Plan (the “Joint Development
Program Costs”).  The Joint Development Program Costs shall include the cost of
(i) FTEs at the FTE Rate, and (ii) any services or materials provided by Third
Parties, in each case as set forth in the Joint Development Plan and calculated
in accordance with GAAP.  For the avoidance of doubt, KaloBios shall have no
responsibility to make any payment or reimbursement to the Company for costs or
expenses that are not specified in, or exceed the amounts set forth in, the
budget included within the Joint Development Plan unless such Joint Development
Plan is duly amended.  Upon the expiration or termination of the Joint
Development Program Term, KaloBios’ obligation to pay the Joint Development
Program Costs or make any payments or reimbursements to the Company under this
Section 4.3 shall terminate, and the Company will use good faith efforts to
[***].
 
(b)          [***] Payments.  No later than [***] during the Joint Development
Program Term, KaloBios shall pay to the Company the Joint Development Program
Costs corresponding to the budget included within the Joint Development Plan
with respect to the activities to be performed by the Company thereunder for the
[***] to the maximum extent known.  No later than [***] after the last day of
each [***] during the Joint Development Program Term, the Company shall deliver
to KaloBios an invoice setting forth the Joint Development Program Costs
incurred by the Company during that [***] and other related documentation
including timesheets reflecting the activities conducted by the Company’s
employees, agents and contractors under the Joint Development Plan.  In the
event such invoice reflects that Joint Development Program Costs incurred by the
Company in the applicable [***] lower than those set forth in the budget
included within the Joint Development Plan for such [***], the subsequent
payment to the Company will reflect a reduction in the amount payable by
KaloBios equal to the amount by which such budget exceeded the actual Joint
Development Program Costs incurred by the Company during such [***].  For the
avoidance of doubt, KaloBios will not be liable for amounts in excess of the
budget included within the Joint Development Plan for any given [***].
 
(c)          Tax Withholding.  KaloBios shall be entitled to deduct and withhold
from any amounts payable pursuant to this Agreement such amounts as may be
required to be deducted or withheld therefrom under any provision of federal,
state, local or foreign tax law or under any applicable Law; provided, however,
that such amounts are timely paid to the applicable taxing authority. To the
extent such amounts are so deducted and withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the Company.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 30 -

--------------------------------------------------------------------------------

 
 
Section 4.4          Diligent Efforts.  During the Joint Development Program
Term, each Party shall use Diligent Efforts to, either by itself or in
collaboration with its Affiliates and Third Parties, conduct the activities
assigned to it under the Joint Development Plan.
 
Section 4.5          Subcontracting.  Subject to the terms of this Agreement,
each Party shall have the right to engage Affiliates or Third Party
subcontractors to perform certain of its obligations under the Joint Development
Program; provided, that (a) the subcontracting Party shall ensure that each of
its subcontractors accepts and complies with all applicable terms and conditions
of this Agreement, such Party shall use commercially reasonable efforts to
enforce any such subcontract, and such Party shall remain responsible for the
performance of its subcontractors hereunder, (b) any such subcontract shall
(i) be subject and subordinate to the terms and conditions of this Agreement,
(ii) contain terms and conditions which are consistent with the terms and
conditions of this Agreement, (iii) not in any way diminish, reduce or eliminate
any of the subcontracting Party’s obligations under this Agreement, and
(iv) impose on the subcontractor all applicable obligations under the terms of
this Agreement, including the reporting, audit, inspection and confidentiality
provisions hereunder, and (c) the subcontracting Party shall provide to the
other Party reasonably prompt notice of each subcontract, including the identity
of the subcontractor and a description of the activities to be subcontracted.
 
Section 4.6          Compliance with Laws.
 
(a)          Applicable Laws.  The Parties shall conduct all of their respective
activities under the Joint Development Plan in a good scientific manner and in
compliance in all material respects with applicable Laws, and to the extent
applicable, GLP, GCP and cGMP.
 
(b)          Debarment. Neither Party shall knowingly employ (or use any Third
Party subcontractor or agent that employs) any individual or entity debarred by
the FDA (or subject to a similar sanction of the EMA), or any individual who or
entity which is the subject of an FDA debarment investigation or proceeding (or
similar proceeding of EMA), in the conduct of its activities under the Joint
Development Plan.
 
Section 4.7          Regulatory Filings.
 
(a)          General.  [***] shall have the sole right and responsibility, and
shall use Diligent Efforts, at [***] cost and expense, to prepare, file, own and
maintain all Regulatory Materials filed with or submitted to Regulatory
Authorities in the Territory in connection with the Compound and the Product, in
accordance with any direction of the JDC and the JSC. [***] shall use Diligent
Efforts in assisting [***] in complying with regulatory obligations relating to
the Compound and the Product, including with respect to the transfer of
ownership rules under 21 C.F.R. § 314.72 and 21 C.F.R. § 316.27, and the
preparation and maintenance of Regulatory Materials, in each case at [***] cost
and expense. Such assistance shall include providing to [***] information and
documentation that is in [***] possession that may be reasonably necessary for
[***] to prepare any filing with a Regulatory Authority or a response to an
inquiry from a Regulatory Authority with respect to the Compound of the Product.
[***] shall keep [***] informed, through the JDC, of any and all significant
issues arising therefrom. At [***] option, [***] shall be given prompt and
advance notice of and have observer rights at all FDA meetings (in person, via
teleconference or otherwise).
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 31 -

--------------------------------------------------------------------------------

 
 
(b)          Filings. [***] shall also be solely responsible for filing drug
approval applications for the Product in seeking Regulatory Approval in those
countries of the Territory for the Product in accordance with this Agreement and
as [***] otherwise reasonably determines, following consultation with the JDC.
At a minimum, [***] shall use Diligent Efforts in filing and seeking Regulatory
Approval of the Product in the United States. Such regulatory documents for each
filing shall be centralized and held at the offices of [***]. [***] shall
provide such reasonable assistance as may be required by [***], at [***] cost
and expense, where liaison between the Parties is, or may be, necessary to
enable [***] to fulfill its responsibilities hereunder. [***] shall be
responsible for maintaining the approvals obtained under this Section 4.7(b) and
shall [***] own all such approvals in the Territory.  [***] shall be fully
responsible for bearing [***] costs and expenses associated with undertaking and
completing said registration activities in the Territory, including but not
limited to, the costs of preparing and prosecuting applications for such
approvals and fees payable to regulatory agencies in obtaining and maintaining
same.
 
(c)          Company Right of Reference.  KaloBios shall provide to the Company
a right of reference to any Regulatory Materials for, or other information or
data relating to, the Compound or the Product owned or controlled by KaloBios in
order for the Company to (i) perform its obligations under the Joint Development
Plan, and (ii) Exploit the Compound and the Product in the Territory in the
Company Field. Notwithstanding anything to contrary set forth in this Agreement,
the Company’s right under this Section 4.7(c) shall be perpetual and shall
survive any termination of this Agreement.
 
Section 4.8 Compensation for Development Delays.  Notwithstanding anything
herein to the contrary, if, due to the insufficiency or inadequacy of the
Acquired Assets delivered to KaloBios, (a) the acceptance of the NDA for the
Product is delayed beyond [***] from the target date set forth in the Joint
Development Plan, (b) the preparation and filing of such NDA would result in
costs and expenses that exceed by more than [***] in combined internal and
external costs the Joint Development Program Costs set forth in the Joint
Development Plan as of the Closing Date, and/or (c) the FDA determines that the
Product is not eligible for submission of an NDA under Section 505(b)(2) of the
FD&C Act, then the Company shall either (with such election between (i) and (ii)
made in its sole discretion except as provided below), compensate KaloBios, as
KaloBios’ sole and exclusive monetary remedy for any and all liability arising
out of, under or in connection with this Section 4.8, by either (i) allowing
KaloBios to credit the payment of any such costs and expenses above [***]
incurred by KaloBios as a result of such insufficiency, inadequacy and/or delay
against any future payments to be made by KaloBios to the Company under this
Agreement on a [***] basis, provided that such credit shall not cause the
payment of any Milestone Payments to be reduced to less than [***] of the total
amount of all potential Milestone Payments, or (ii) pay KaloBios in cash any
such costs and expenses above [***] incurred by KaloBios as a result of such
insufficiency, inadequacy and/or delay within [***] after receipt by the Company
of an invoice and reasonable supporting detail for such costs and expenses (with
the failure to make such payment within [***] being deemed as an election by the
Company to allow the credit described in subsection (i) above, and provided,
however, that if no Milestone Payment comes due and payable within the calendar
year in which such invoice is delivered that is sufficient to credit in full the
amount of such invoice after giving effect to the [***] aggregate limitation
described above, the Company shall pay the remainder of such invoice in full in
cash within [***] after the end of such calendar year.) Notwithstanding anything
to the contrary set forth in this Agreement including, without limitation,
Section 12.1, this Section 4.8 sets forth the sole and exclusive remedy of
KaloBios and liability of the Company to KaloBios for any and all Losses
suffered by KaloBios with respect to the matters set forth in clauses (a)
through (c) above, and all such Losses shall be deemed excluded from any Claim
under Article 12.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 32 -

--------------------------------------------------------------------------------

 
 
Section 4.9          Monthly Activity Log.  During the Joint Development Program
Term, the Company shall provide to KaloBios, within fifteen (15) days after the
end of each calendar month, an activity log summarizing the activities performed
by or on behalf of the Company under the Joint Development Plan during the prior
calendar month.  Additionally, the Company shall promptly answer any questions
or other inquiries from KaloBios relating to such activity log and the
activities summarized thereunder.
 
ARTICLE 5
COMMERCIALIZATION
 
Section 5.1          Overview.  KaloBios, either by itself or by or through its
Affiliates and Third Parties, shall be solely responsible at its cost and
expense for all commercial manufacturing, marketing, advertising, promotional,
launch and sales activities in connection with the Compound and the Product in
the Territory (the “Commercialization Program”).
 
Section 5.2          Commercialization Plan.
 
(a)          Initial Commercialization Plan.  Reasonably in advance of the
expiration of the Joint Development Program Term, but in no event later than
eighteen (18) months prior to the expected availability of the Product for first
sale of the Product in the Territory, KaloBios shall submit to the JSC a
commercialization plan summarizing at a high level the activities to be
conducted by KaloBios under the Commercialization Program (as such plan may be
updated or amended hereunder from time to time, the “Commercialization Plan”). 
The initial Commercialization Plan shall be subject to the review and approval
of the JSC.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 33 -

--------------------------------------------------------------------------------

 
 
(b)          Commercialization Plan Updates and Amendments.  At any time during
the Term, KaloBios may submit amendments to the Commercialization Plan to the
JSC.  The JSC shall determine whether or not to approve such proposed amendments
in accordance with Section 6.1(e).  At least thirty (30) days prior to each
anniversary of the expiration of the Joint Development Program Term, KaloBios
shall prepare an updated version of the Commercialization Plan and submit such
updated Commercialization Plan to the JSC.  The JSC shall determine whether or
not to modify and approve such updated Commercialization Plan in accordance with
Section 6.1(e).  Notwithstanding anything to the contrary set forth herein, the
financial or other obligations of KaloBios under the Commercialization Plan may
not be updated or amended, and additional financial or other obligations may not
be imposed upon KaloBios under the Commercialization Plan, without KaloBios’
prior written consent.
 
Section 5.3          Diligent Efforts.  KaloBios shall use Diligent Efforts to,
either by itself or by or through its Affiliates and Third Parties, (i) conduct
the activities set forth in the Commercialization Plan, and (ii) support the
launch of the Product in the United States as soon as reasonably practicable.
 
Section 5.4          Development, Commercialization outside the United States. 
As soon as reasonably practicable but in any event within [***] of the date of
submission of an NDA for the Product to the FDA, KaloBios shall conduct and
complete, and deliver a complete copy of, a feasibility analysis of conducting
development and commercialization of the Product in countries currently in the
European Union and in Japan.  If KaloBios reasonably determines that the
development and commercialization of the Product in the European Union or Japan
by KaloBios directly is not commercially reasonable and does not intend to
sublicense any of the rights granted to it by the Company, then the Company
shall have the right, but not the obligation, to obtain a license from KaloBios
to all rights under the Intellectual Property owned or Controlled by KaloBios
and any other assets owned by KaloBios that are necessary to develop and
commercialize the Product in the European Union and Japan, each as applicable. 
Such license shall be subject to customary diligence obligations and the payment
of Royalties by the Company to KaloBios on the same terms and conditions set
forth in Section 7.8.  If the Company obtains such a license, no milestone
payments will be due to KaloBios thereunder – only Royalties will be payable
(and no Milestone Payments will be due under Milestone Events 5 and 6
hereunder).
 
Section 5.5          Reporting Requirements.  KaloBios shall report to the JSC
on an annual basis, which report may be made orally during any meeting of the
JSC, the progress and results of the activities undertaken by KaloBios during
the prior year as part of the Commercialization Program.
 
Section 5.6          Drug Pricing Matters.  KaloBios shall use commercially
reasonable efforts to maintain industry standard access programs (e.g., a
patient assistance program) providing access to the Product to patients with an
inability to pay for the Product.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 34 -

--------------------------------------------------------------------------------

 
 
ARTICLE 6
GOVERNANCE
 
Section 6.1          Joint Steering Committee.  The Parties have established a
committee (the “Joint Steering Committee” or “JSC”) as more fully described in
this Section 6.1.  During the Term, the JSC shall have review and oversight
responsibilities for all activities to be performed under the Joint Development
Program and the Commercialization Program.
 
(a)          Responsibilities.  The JSC shall perform the following functions,
some or all of which may be addressed directly at each meeting of the JSC:
 
(i)          monitor progress of activities under the Joint Development Program
in coordination with the JDC and the Commercialization Program;
 
(ii)          review and approve amendments and updates to the Joint Development
Plan and the Commercialization Plan;
 
(iii)          serve as an information transfer vehicle to facilitate
collaboration and the discussion of activities under the Joint Development Plan
and the Commercialization Plan;
 
(iv)          resolve disputes escalated to it by the JDC or any other
subcommittee; and
 
(v)          such other responsibilities as may be assigned to the JSC pursuant
to this Agreement or as may be mutually agreed by the Parties from time to time.
 
(b)          Membership.  The JSC shall be comprised of [***] representatives
(or such other equal number of representatives from each Party as the Parties
may agree) from each of KaloBios and the Company.  As of the Effective Date,
(a) the representatives of KaloBios appointed to the JSC are [***], and (b) the
representatives of the Company appointed to the JSC are [***].  Each Party may
replace any or all of its representatives on the JSC at any time upon written
notice to the other Party.  Any member of the JSC may designate a substitute to
attend and perform the functions of that member at any meeting of the JSC.  Each
representative of each Party shall have expertise (either individually or
collectively) in pharmaceutical drug discovery and development.  Each Party may,
in its reasonable discretion, invite non-member representatives of such Party to
attend meetings of the JSC as a non-voting participant, subject to the
confidentiality obligations of Article 11.  A representative of [***] shall be
designated as the chairperson to oversee the operation of the JSC.  The
chairperson shall appoint a secretary of the JSC, who shall be a representative
of the other Party and who shall serve for the same annual term as such
chairperson.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 35 -

--------------------------------------------------------------------------------

 
 
(c)          Meetings.  During the Joint Development Program Term, the JSC shall
meet, either in person, by teleconference or by video conference, at least once
each Calendar Quarter, and more or less frequently as the Parties mutually deem
appropriate, on such dates, and at such places and times, as provided herein or
as the Parties shall agree.  In each Calendar Year during the Joint Development
Program Term, at least one (1) of the JSC meetings shall be held in person. 
After the expiration of the Joint Development Program Term, the JSC shall no
longer meet unless otherwise requested by KaloBios or the Company, but in no
event more than once each Calendar Year.  The members of the JSC also may
convene or be polled or consulted from time to time by means of
telecommunications, video conferences, electronic mail or correspondence, as
deemed necessary or appropriate by the JSC.  Meetings of the JSC that are held
in person shall be in San Francisco, California, or such other place as the
Parties may agree.  Each Party shall bear all expenses it incurs in regard to
participating in all meetings of the JSC.
 
(d)          Minutes.  The Parties shall alternate responsibility for preparing
and circulating minutes of each meeting of the JSC, with KaloBios having such
responsibility with respect to the first meeting of the JSC occurring after the
Effective Date, setting forth, inter alia, a summary description of the
discussions at the meeting and a list of any actions, decisions or
determinations approved by the JSC and a list of any issues to be resolved by
the Executive Officers pursuant to Section 6.1(e).  Such minutes shall be
effective only after approved by both Parties.  With the sole exception of
specific items of the meeting minutes to which the members cannot agree and
which are escalated to the Executive Officers as provided in Section 6.1(e)
below, definitive minutes of all JSC meetings shall be finalized no later than
thirty (30) days after the meeting to which the minutes pertain.  If at any time
during the preparation and finalization of the JSC minutes, the Parties do not
agree on any issue with respect to the minutes, such issue shall be resolved by
the escalation process as provided in Section 6.1(e).  The decision resulting
from the escalation process shall be recorded in amended finalized minutes for
said meeting.
 
(e)          Decisions.  Except as otherwise provided herein, all decisions of
the JSC shall be made unanimously.  If the JSC is unable to reach a unanimous
decision within ten (10) days after it has met and attempted to reach such
decision, then either Party may, by written notice to the other, have such issue
referred to the Chief Executive Officer of KaloBios, or such other person as he
or she designates from time to time, and the Chief Executive Officer of the
Company, or such other person as he or she designates from time to time
(collectively, the “Executive Officers”), for resolution.  The Executive
Officers shall meet promptly, either in person or by telephone conference, to
discuss the matter submitted and to determine a resolution.  If the Executive
Officers are unable to determine a resolution in a timely manner, which shall in
no case be more than [***] after the matter was referred to them, then KaloBios
shall have final decision-making authority with respect to the Program,
including the Joint Development Program, and all other matters; provided,
however, that KaloBios may not exercise its final decision-making authority to:
(i) impose on the Company any costs or expenses that would not be reimbursable
under Section 4.3 in connection with the Joint Development Program; (ii) amend
this Agreement; or (iii) amend the Joint Development Plan in any way that would
reasonably be expected to result in KaloBios using less than Diligent Efforts in
developing and obtaining Regulatory Approval for the Product in the United
States.  Notwithstanding the foregoing, unless otherwise agreed by the Parties,
disputes relating to non-disclosure, non-use and maintenance of Confidential
Information and determinations of material breach or interpretation of this
Agreement shall not be subject to any Party’s final decision-making authority
and may be escalated pursuant to Section 14.2.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 36 -

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(f)          Subcommittee(s).  From time to time, the JSC may establish
subcommittees to oversee particular projects or activities, as it deems
necessary or advisable.  Each subcommittee shall consist of an equal number of
members from each Party with such expertise as the JSC determines is appropriate
from time to time.
 
Section 6.2          Joint Development Committee.  Prior to the Effective Date,
the Parties established a committee (the “Joint Development Committee” or “JDC”)
as more fully described in this Section 6.2.  The JDC shall be comprised of an
equal number of representatives from each of KaloBios and the Company with the
appropriate scientific and drug development expertise with respect to the
conduct of the Joint Development Plan.  As of the Effective Date, (a) the
representatives of KaloBios appointed to the JDC are Morgan Lam, Ted Shih and
Blair Evans, and (b) the representatives of the Company appointed to the JDC are
Linda Hakes, Jeanne Bonelle and Terry Boardman.  Each Party may replace any or
all of its representatives on the JDC at any time upon written notice to the
other Party.  Any member of the JDC may designate a substitute to attend and
perform the functions of that member at any meeting of the JDC.  Each Party may,
in its reasonable discretion, invite non-member representatives of such Party to
attend meetings of the JDC as a non-voting participant, subject to the
confidentiality obligations of Article 11.  During the Joint Development Program
Term, the JDC shall meet on a monthly basis (or more or less frequently as
agreed by the Parties) at such places (either in person in San Francisco or by
telephone conference) and times agreed by the Parties.  The JDC will report to
the JSC and will be responsible for the day-to-day management of the conduct of
the Joint Development Plan, reviewing data, discussing and developing a
regulatory strategy for the Product, managing Product manufacturing and supply,
reviewing and approving amendments to the Joint Development Plan proposed by a
Party, proposing annual updates to the Joint Development Plan and allocating
responsibility between the Parties with respect to the activities to be
conducted under the Joint Development Plan.  All decisions of the JDC on matters
for which it has responsibility shall be made unanimously.  In the event that
the JDC is unable to reach a unanimous decision within ten (10) days after it
has met and attempted to reach such decision, then either Party may, by written
notice to the other, have such issue submitted to the JSC for resolution in
accordance with Section 6.1(e).  Each Party shall bear all expenses it incurs in
regard to participating in all meetings of the JDC.
 
Section 6.3          Commercialization Report.  Following the submission of an
NDA filing for the Product to the FDA, at least once each quarter (or more or
less frequently as agreed by the Parties) at such places and times agreed by the
Parties, KaloBios will provide a written report to the Company detailing the
activities conducted by KaloBios under the Commercialization Plan. The
information in such written report shall include, at a minimum and without
limitation, the results of market research, market penetration projections and
projected sales over a period greater than one (1) year, the results of
competitive analysis, regulatory environment analysis, manufacturing analysis,
licensing discussions, co-promotion discussions, co-marketing discussions,
status of reimbursements, and a summary of the most recent regulatory filings,
including those filing since the prior report.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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Section 6.4          No Authority to Amend.  Notwithstanding anything contained
herein to the contrary, none of the JSC, JDC or any subcommittee thereof, shall
have any authority or power to amend or modify the terms or provisions of this
Agreement.
 
ARTICLE 7
INTELLECTUAL PROPERTY RIGHTS
 
Section 7.1          Development Program IP.
 
(a)          Ownership.  Any rights in Intellectual Property covering inventions
made solely by the Company, its Affiliates or Third Parties engaged by it and/or
by the Company together with one or more Third Parties engaged by it, in each
case as a result of its efforts under the Joint Development Program (the
“Company Development Program IP”), shall be owned solely by the Company.  Any
rights in Intellectual Property covering inventions made solely by KaloBios, its
Affiliates or Third Parties engaged by it and/or by KaloBios together with one
or more Third Parties engaged by it, in each case as a result of its efforts
under the Joint Development Program (the “KaloBios Development Program IP”),
shall be owned solely by KaloBios.  Any rights in Intellectual Property covering
inventions made jointly by the Parties or their Affiliates or Third Parties
engaged by them as a result of their efforts under the Joint Development Program
(the “Joint Development Program IP,” together with the Company Development
Program IP and the KaloBios Development Program IP, the “Development Program
IP”), shall be owned jointly by the Parties.
 
(b)          Assignment of Inventions.  Each Party shall cause all of its
Affiliates, employees, agent, consultants and any other individuals who
participated in any respect in the conception or reduction to practice of any
inventions made pursuant to the Joint Development Program on its behalf, to
assign all ownership rights in such inventions to such Party.
 
(c)          Disclosure of Inventions and Know-How.  On a periodic basis during
the Joint Development Program Term, but no more frequently than [***] times each
year during the Joint Development Program Term, (i) each Party shall disclose to
the other Party all Joint Development Program IP invented by or on behalf of
that Party or invented jointly by or on behalf of the Parties, and (ii) each
Party shall transfer and deliver to the other Party a copy of all tangible
embodiments of Know-How in its possession included within the Company
Development Program IP or the KaloBios Development Program IP, as applicable.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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Section 7.2          Licenses by the Company.
 
(a)          Company Development Program IP and Joint Development Program IP. 
During the Term, subject to the terms and conditions of this Agreement, the
Company hereby grants to KaloBios the exclusive (even as to the Company),
royalty-free, irrevocable (subject to Section 13.4) fully paid up, right and
license, with the right to grant sublicenses (including through multiple tiers),
under the Company Development Program IP and the Company’s interest in the Joint
Development Program IP to Exploit the Compound and the Product in the Territory
in the Licensed Field.  All grants of sublicenses shall be subject to the same
limitations as specified in the Transaction Documents and shall not exceed the
scope of rights granted hereunder.  KaloBios shall enforce all sublicenses at
its cost and shall be responsible for the acts and omissions of its Sublicensees
to the extent that such acts and omissions relate to the sublicensed rights. 
All sublicense rights shall terminate concurrently as of the termination or
expiration of the grant to KaloBios.  KaloBios shall deliver to the Company a
true, complete and correct copy of each sublicense grant; provided, that in the
event such sublicense is subject to confidentiality as between KaloBios and such
sublicensee, then KaloBios shall use Diligent Efforts to cause the sublicensee
to enter into a commercially reasonable confidentiality agreement with the
Company which would enable the Company to review the full terms of such
sublicense, or in the alternative and at the Company’s election, the Company may
agree for KaloBios to redact only those terms that are unrelated to the
sublicensing of the Company’s or KaloBios’ rights.
 
(b)          No Conflicting Rights or Licenses. The Company shall not grant any
right or license to any Third Party relating to the Company Development Program
IP that would conflict or interfere with any of the rights or licenses granted
to KaloBios hereunder.
 
(c)          Reservation of Rights; No Implied Rights.  Notwithstanding Section
7.2(a) above, the Company retains rights under the Company Development Program
IP and its interest in the Joint Development Program IP to perform its
obligations under this Agreement.  KaloBios shall have no other right to use, or
interest in, the Company Development Program IP or any other Intellectual
Property rights Controlled by the Company, other than as expressly provided in
this Agreement or other valid written agreements.  The Company makes no grant of
Intellectual Property rights by implication.
 
Section 7.3          Licenses by KaloBios.
 
(a)          KaloBios Development Program IP.  KaloBios hereby grants to the
Company the non-exclusive royalty-free, irrevocable, fully paid up, right and
license, with the right to grant sublicenses (including through multiple tiers),
under the Development Program IP to (i) perform its obligations under the
Transaction Documents, and (ii) Exploit the Compound and the Product in the
Territory in the Company Field.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 39 -

--------------------------------------------------------------------------------

 
 
(b)          No Conflicting Rights or Licenses. KaloBios shall not grant any
right or license to any Third Party relating to the KaloBios Development Program
IP that would conflict or interfere with any of the rights or licenses granted
to the Company hereunder.
 
(c)          Reservation of Rights; No Implied Rights.  The Company shall have
no other right to use, or interest in, the KaloBios Development Program IP or
any other Intellectual Property rights Controlled by KaloBios, other than as
expressly provided in the Transaction Documents.  KaloBios makes no grant of
Intellectual Property rights by implication.
 
Section 7.4          Prosecution and Maintenance of Development Program IP.
 
(a)          KaloBios First Right; Company Step In Right. KaloBios shall have
the first right, and shall use Diligent Efforts, to prepare, file, prosecute,
and maintain each of the Patents included within the Development Program IP
throughout the Territory, at KaloBios’ cost.  If, during the Term, KaloBios
intends to allow any such Patent to expire or intends to otherwise abandon any
such Patent in any country, KaloBios shall notify the Company of such intention
at least [***] prior to any filing or payment due date or any other date that
requires action in connection with such Patent, and the Company shall thereupon
have the right, but not the obligation, to assume responsibility for the
preparation, filing, prosecution or maintenance thereof in such country at [***]
cost and expense.
 
(b)          Cooperation.  Each Party agrees to reasonably cooperate with the
other Party to execute all lawful papers and instruments, including obtaining
and executing necessary powers of attorney and assignments by the named
inventors, to make all rightful oaths and declarations, and to provide
consultation and assistance as may be reasonably necessary in the prosecution
and maintenance of all Patents undertaken in a manner consistent with this
Section 7.4, including complying with the requirements to obtain patent term
extensions under the Patent Term Restoration program under 21 C.F.R. Part 60.
 
Section 7.5          Third Party Infringement.
 
(a)          Notice.  If either Party becomes aware of any suspected
infringement or misappropriation by a Third Party of any Development Program IP,
then that Party shall promptly notify the other Party and provide it with all
details of such activities (each, an “Infringement of Development Program IP”)
of which it is aware. Further, the Parties shall notify each other immediately
of any circumstances of which they are aware and which could impair the
integrity and reputation of the Product or if a Party is threatened by or
becomes aware of unlawful activity in relation to the Product, including but not
limited to, deliberate tampering with or contamination of the Product. In any
such circumstances, the Parties shall use commercially reasonable efforts to
limit any damage to the Parties and/or to the Product. The Parties shall
promptly bring such circumstances to the Joint Steering Committee to discuss and
resolve such circumstances.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 40 -

--------------------------------------------------------------------------------

 
 
(b)          KaloBios Right to Enforce.  KaloBios shall have the sole right, but
not the obligation, to enforce the Development Program IP in the Territory in
the Licensed Field, which right may include the institution of an Action, and
compromise or settle such Action.  The Company shall have the sole right, but
not the obligation, to enforce the Development Program IP in the Territory in
the Company Field, which right may include the institution of an Action, and
compromise or settlement of such Action.
 
(c)          Right to Representation; Cooperation.  Either Party shall have the
right to participate and be represented by counsel that it selects, at [***]
expense, in any Action instituted by the other Party under Section 7.5(b).  Both
Parties shall cooperate with and each other in all reasonable respects with any
Action instituted under this Section 7.5.  If a Party lacks standing to initiate
an Action to eliminate an Infringement of Development Program IP and the other
Party has standing to initiate such Action, or otherwise upon the reasonable
request of the Party lacking standing, the Party without standing may require
the other Party to initiate or join such Action at the expense of [***].
 
(d)          Share of Recoveries.  Any damages or other monetary awards
recovered under this Section 7.5 shall be shared as follows: [***].
 
Section 7.6          Defense of Claims Brought by Third Parties.  In the event
that any action, suit or proceeding is brought against either Party or an
Affiliate or sublicensee of either Party alleging the infringement of the
Know-How or Patents of a Third Party by the making, having made, use, sale,
offering for sale or importation of the Compound or Product, such Party shall
notify the other Party within five (5) days of the earlier of (a) receipt of
service of process in such action, suit or proceeding, or (b) the date such
Party becomes aware that such action, suit or proceeding has been instituted,
and the Parties shall meet as soon as possible to discuss the overall strategy
for defense of such matter.  KaloBios shall have the right, but not the
obligation, to defend such action, suit or proceeding in the Territory at [***]
cost and expense.  The Company shall have the right to separate counsel at [***]
expense in any such action, suit or proceeding, and the Parties shall cooperate
with each other in all reasonable respects in any such action, suit or
proceeding.  Each Party shall promptly furnish the other Party with a copy of
each communication relating to the alleged infringement that is received by such
Party, including all documents filed in any litigation.
 
Section 7.7          Grant of Rights to Company IP
 
(a)          Exclusive License to KaloBios.  [***], subject to the terms and
conditions of this Agreement and in consideration for the Royalty payments set
forth herein, the Company hereby grants to KaloBios the exclusive (even as to
the Company), irrevocable (subject to Section 13.4) right and license, with the
right to grant sublicenses (including through multiple tiers), under the Company
IP to Exploit the Compound and the Products in the Territory in the Licensed
Field.  All grants of sublicenses shall be subject to the same limitations as
specified in the Transaction Documents and shall not exceed the scope of rights
granted hereunder.  KaloBios shall enforce all sublicenses at its cost and shall
be responsible for the acts and omissions of its sublicensees to the extent that
such acts and omissions relate to the sublicensed rights.  All sublicense rights
shall terminate concurrently as of the termination or expiration of the grant to
KaloBios.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 41 -

--------------------------------------------------------------------------------

 
 
(b)          No Conflicting Rights or Licenses.  The Company shall not grant any
right or license to any Third Party relating to any of the Company Patents or
the Company Know-How that would conflict or interfere with any of the rights or
licenses granted to KaloBios hereunder.
 
(c)          Reservation of Rights; No Implied Rights. Notwithstanding Section
7.7(a) above, the Company retains rights under the Company IP to perform its
obligations under the Transaction Documents and to Exploit the Compound and the
Product in the Territory in the Company Field.  Except as expressly stated
herein, KaloBios shall have no other right to use, or interest in, the Company
IP or any other intellectual property rights Controlled by the Company, other
than as expressly provided in this Agreement or other valid written agreements. 
The Company makes no grant of intellectual property rights by implication and
shall retain rights under the Company IP or any other intellectual property
rights Controlled by the Company for all purposes other than those granted to
KaloBios hereunder.
 
Section 7.8          Royalty on Company IP.
 
(a)          Royalty Rate.  Subject to the remainder of Section 7.8, on a
Product-by-Product and country-by-country basis, KaloBios shall pay to the
Company royalties at the rate of [***] of Annual Net Sales of such Product;
provided however, that if a Non-Voucher Accompanying Approval has been issued
the royalty on Annual Net Sales of Products in the United States shall be [***]
(the “Royalties”); and provided further, that if a Voucher with respect to the
Product is subsequently issued to a Party commercializing the Product in the
United States pursuant to Section 3.3(c) after the Voucher Issuance Expiration
Date, then the Royalty on Products in the United States shall be [***] to [***],
effective from and after the date such Voucher is issued.
 
(b)          Royalty Term.  KaloBios’ obligation to pay royalties with respect
to a Product in a particular country in the Territory, even if reduced as
provided below in this Section 7.8, shall commence upon the First Commercial
Sale of such Product in such country and shall expire on a country-by-country
and Product-by-Product basis upon the expiration of Regulatory Exclusivity for
such Product in such country (the “Royalty Term”).  Upon the expiration of the
Royalty Term, KaloBios shall have no additional payment obligations to the
Company in respect of such Product in such country.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 42 -

--------------------------------------------------------------------------------

 
 
(c)          Reduction for Third Party Licenses.  KaloBios shall pay all amounts
due under Third Party Licenses; provided, that KaloBios shall be entitled to a
credit against the Royalties due to the Company upon sales of a Product in a
particular country of an amount equal to total royalties paid by KaloBios to a
Third Party with respect to such Product in such country under any Third Party
Licenses, and provided, further, without duplication of the foregoing, that
KaloBios shall be entitled to a credit against all non-Royalty amounts due to
the Company hereunder in an amount equal to [***] of all non-royalty amounts
paid by KaloBios to a Third Party under a Third Party License.  Notwithstanding
the foregoing, such credit shall not cause the royalty rate payable to the
Company to be reduced to less than (i) [***], if the royalty rate pursuant to
Section 7.8(a) above is then [***], or (ii) [***], if the royalty rate pursuant
to Section 7.8(a) above is then [***], of Annual Net Sales of such Product in
such country.
 
(d)          Reports and Payments.  Until the expiration of all applicable
Royalty Terms, KaloBios shall make written reports to the Company within thirty
(30) days after the end of each [***] covering Net Sales of Products in the
Territory by KaloBios, its Affiliates and Sublicensees during the preceding
[***], commencing with the [***] during which the First Commercial Sale of a
Product is made anywhere in the Territory.  Each such written report shall
contain the following information for the applicable [***], on a
Product-by-Product and country-by-country basis:  (i) the amount of gross sales
of the Products, (ii) the amount of Net Sales of the Products, and (iii) the
calculation of the Royalties due to the Company on such Net Sales, showing the
application of the reductions, if any.  [***], KaloBios shall make the Royalty
payment due to the Company under this Section 7.8 for the [***] covered by such
report.
 
Section 7.9          Currency; Exchange Rate.  With respect to sales of the
Product invoiced in Dollars, the Net Sales and the amounts due hereunder will be
expressed in Dollars.  With respect to sales of the Product invoiced in a
currency other than Dollars, the Net Sales and the amounts due hereunder will be
reported in Dollars, calculated using the average of the exchange rates for the
purchase and sale of Dollars reported by The Wall Street Journal on the last
Business Day of the [***] to which such Net Sales relate.
 
Section 7.10          Taxes.
 
(vii)          Tax Withholding.  KaloBios shall be entitled to deduct and
withhold from any amounts payable pursuant to this Agreement such amounts as may
be required to be deducted or withheld therefrom under any provision of federal,
state, local or foreign tax law or under any applicable Law, provided, however,
that such amounts are timely paid to the applicable taxing authority. To the
extent such amounts are so deducted and withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the Company.
 
(viii)          Tax Cooperation.  The Parties agree to cooperate with one
another and use reasonable efforts to avoid or reduce tax withholding or similar
obligations in respect of Royalties paid by KaloBios to the Company under this
Agreement.  The Company shall provide KaloBios any tax forms and other documents
that may be reasonably necessary in order for KaloBios to not withhold tax or to
withhold tax at a reduced rate under an applicable bilateral income tax treaty
with respect to any payments made by KaloBios to the Company under this
Agreement.  KaloBios shall be entitled to withhold the full amount of tax
applicable to any amount payable to the Company if the Company does not provide
the applicable tax forms and other necessary documents (establishing a tax
exemption or reduction) at least five (5) Business Days prior to the date the
relevant payment is due.  Each Party shall provide the other Party with
reasonable assistance to enable the recovery, as permitted by Law, of
withholding taxes or similar obligations resulting from payments made under this
Agreement.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 43 -

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Section 7.11          Prosecution and Maintenance of Company IP.
 
(a)          KaloBios First Right; Company Step In Right.  KaloBios shall have
the first right, and shall use Diligent Efforts, to prepare, file, prosecute,
and maintain each of the Company Patents throughout the Territory, at [***]
cost.  If, during the Term, KaloBios intends to allow any Company Patent to
expire or intends to otherwise abandon any such Company Patent in any country,
KaloBios shall notify the Company of such intention at least [***] prior to any
filing or payment due date or any other date that requires action in connection
with such Company Patent, and the Company shall thereupon have the right, but
not the obligation, to assume responsibility for the preparation, filing,
prosecution or maintenance thereof in such country at its sole cost and expense.
 
(b)         Cooperation.  Each Party agrees to reasonably cooperate with the
other Party to execute all lawful papers and instruments, including obtaining
and executing necessary powers of attorney and assignments by the named
inventors, to make all rightful oaths and declarations, and to provide
consultation and assistance as may be reasonably necessary in the prosecution
and maintenance of all Patents undertaken in a manner consistent with this
Section 7.11, including complying with the requirements to obtain patent term
extensions under the Patent Term Restoration program under 21 C.F.R. Part 60.
 
Section 7.12          Third Party Infringement of Company IP.
 
(a)          Notice.  If either Party becomes aware of any suspected
infringement or misappropriation by a Third Party of any Company Patent or
Company Know-How, then that Party shall promptly notify the other Party and
provide it with all details of such activities (each, an “Infringement of
Company IP”) of which it is aware.
 
(b)          KaloBios Right to Enforce.  KaloBios shall have the sole right, but
not the obligation, to (i) address such Infringement of Company IP in the
Licensed Field, which right may include the institution of an Action, and (ii)
compromise or settle such Action in its sole discretion.  The Company shall have
the sole right, but not the obligation, to (x) address such Infringement of
Company IP in the Territory in the Company Field, which right may include the
institution of an Action, and (y) compromise or settle such Action in its sole
discretion.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 44 -

--------------------------------------------------------------------------------

 
 
(c)          Right to Representation; Cooperation.  Either Party shall have the
right to participate and be represented by counsel that it selects, at its
expense, in any Action instituted by the other Party under Section 7.12(b). 
Both Parties shall cooperate with and each other in all reasonable respects with
any Action instituted under this Section 7.12.  If a Party lacks standing to
initiate an Action to eliminate an Infringement of Company IP and the other
Party has standing to initiate such Action, or otherwise upon the reasonable
request of the Party lacking standing, the Party without standing may require
the other Party to initiate or join such Action at the expense of the requesting
Party.
 
(d)          Share of Recoveries.  Any damages or other monetary awards
recovered under this Section 7.12 shall be shared as follows: [***].
 
Section 7.13          Defense of Claims Brought by Third Parties.  In the event
that any action, suit or proceeding is brought against either Party or an
Affiliate or sublicensee of either Party alleging the infringement of the
Know-How or Patents of a Third Party by the making, having made, use, sale,
offering for sale or importation of the Compound or Product, such Party shall
notify the other Party within five (5) days of the earlier of (a) receipt of
service of process in such action, suit or proceeding, or (b) the date such
Party becomes aware that such action, suit or proceeding has been instituted,
and the Parties shall meet as soon as possible to discuss the overall strategy
for defense of such matter.  KaloBios shall have the right, but not the
obligation, to defend such action, suit or proceeding in the Territory at [***]
cost and expense.  The Company shall have the right to separate counsel at [***]
expense in any such action, suit or proceeding, and the Parties shall cooperate
with each other in all reasonable respects in any such action, suit or
proceeding.  Each Party shall promptly furnish the other Party with a copy of
each communication relating to the alleged infringement that is received by such
Party, including all documents filed in any litigation.
 
ARTICLE 8
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
Except as set forth in the Company’s Disclosure Schedules delivered to KaloBios
as of the date hereof, the Company represents and warrants to KaloBios as
follows:
 
Section 8.1          Corporate Existence.  The Company is a limited liability
company duly organized, validly existing, and in good standing under the Laws of
the State of Delaware and has all necessary corporate power and authority to
own, operate or lease the properties and assets now owned, operated or leased by
it and to carry on its business as currently conducted.
 
Section 8.2          Authorization and Enforceability.  The Company (a) has the
full limited liability company power and authority and the legal right to enter
into this Agreement and the other Transaction Documents and to perform its
obligations hereunder and thereunder; (b) has taken all necessary governance
action on its part required to authorize the execution and delivery of this
Agreement and the other Transaction Documents and the performance of its
obligations hereunder and thereunder; and (c) this Agreement and the other
Transaction Documents have been duly executed and delivered on behalf of the
Company, and constitute legal, valid, and binding obligations of the Company
that are enforceable against it in accordance with their terms, in each case,
subject to enforcement of remedies under applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting generally the enforcement
of creditors’ rights and subject to a court’s discretionary authority with
respect to the granting of a decree ordering specific performance or other
equitable remedies.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 45 -

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Section 8.3          No Conflict.  The execution and delivery of this Agreement
and the other Transaction Documents, the performance of the Company’s
obligations hereunder and thereunder and the assignments, licenses and
sublicenses to be granted pursuant to this Agreement and the other Transaction
Documents do not and will not (a) conflict with or violate any requirement of
applicable Law; (b) conflict with or violate the certificate of formation or
other organizational documents of the Company; (c) conflict with, violate,
breach or constitute a default under any Assumed Contract or other contractual
obligations of the Company or any of its Affiliates; and (d) result in the
creation of any Encumbrances on the Acquired Assets other than pursuant to the
Transaction Documents; except in the case of (a) or (c) where the conflict,
violation, breach, default, failure to give notice or Encumbrance would not,
individually or in the aggregate, have a Material Adverse Effect.
 
Section 8.4          Legal Proceedings.  There are no pending, or to the
Company’s Knowledge, threatened in writing, adverse Actions against or by the
Company or any of its Affiliates, at Law or in equity, or before or by any
Governmental Authority that challenge or seek to prevent, enjoin or otherwise
delay the Contemplated Transactions or that relate to or affect the Acquired
Assets.
 
Section 8.5          Contracts and Commitments.
 
(a)          The Company has provided to KaloBios complete and accurate copies
of each of the Assumed Contracts.  Other than the Assumed Contracts set forth on
Schedule 2.1, there are no other Contracts of the Company or its Affiliates
currently in effect that are directly related to the Acquired Assets or which
are necessary for the Exploitation of the Compound or the Product.
 
(b)          Each Assumed Contract is a legal, valid and binding obligation of
either the Company or one of its Affiliates and, to the Company’s Knowledge,
each other party thereto, enforceable against the Company and any applicable
Affiliates and each other party thereto in accordance with its terms (except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar Law as now or hereafter in effect relating
to or affecting creditors’ rights generally, and subject to the limitations
imposed by general principles of equity, regardless of whether such
enforceability is considered in a proceeding at Law or in equity (including
concepts of materiality, reasonableness, good faith or fair dealing)). Except
with regards to [***], neither the Company nor any of its Affiliates has
received written notice from any party to any Assumed Contract claiming or
alleging that the Company or any of its Affiliates has materially breached or is
in default thereunder.  There is not under any Assumed Contract: (i) any
existing material default by the Company or, to the Company’s Knowledge, by any
other party thereto, or (ii) any event which, after notice or lapse of time or
both, would constitute a material default by the Company or, to the Company’s
Knowledge, by any other party, or result in a right to accelerate or terminate
or result in a loss of any material rights of the Company, except as would not
reasonably be expected to have a Material Adverse Effect.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 46 -

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(c)          Neither the Company nor any of its Affiliates (i) is a party to or
otherwise bound by any oral or written Contract or agreement that will result in
any other Person obtaining any interest in, or that would give to any other
Person any right to assert any claim in or with respect to, any of the Company’s
rights under the Transaction Documents; (ii) has granted any rights with respect
to the Acquired Assets to any Person other than KaloBios that would impede the
fulfillment of the Company’s obligations hereunder or thereunder; or (iii) is
under any obligation to any Person, contractual or otherwise, that is in
material violation of the terms of this Agreement or the other Transaction
Documents or that would impede the fulfillment of the Company’s obligations
hereunder or thereunder.
 
(d)          The Company is and at all times has been in compliance with all
applicable terms and requirements of each Assumed Contract that is being assumed
by KaloBios.
 
(e)          Neither the Company nor any of its Affiliates are bound by any
non-competition agreements related to the Compound or the Product.
 
Section 8.6          No “Bad Actor”; No Debarment.  None of the Company or any
of its predecessors, Affiliates, directors, executive officers, other officers
of the Company or any Beneficial Owners of twenty percent (20%) or more of the
Company’s outstanding voting equity securities, calculated on the basis of
voting power, in any capacity (each, a “Company Covered Person”):
 
(a)          is, to the Company’s Knowledge, subject to any of the “bad actor”
disqualification events described in Rule 506(d)(1)(i)-(viii) of the Securities
Act (a “Disqualification Event”), except for a Disqualification Event covered by
Rule 506(d)(2) or (d)(3) of the Securities Act,
 
(b)          is, or has been, to the Company’s Knowledge, debarred under
Section 306(a) or 306(b) of the FD&C Act or by the analogous Laws of any
Regulatory Authority, or disqualified as a clinical investigator under 21 C.F.R.
§ 312.70 or any analogous Laws of any Regulatory Authority, or has engaged in
any conduct that could reasonably be expected to result in any of the foregoing;
 
(c)          has, to the Company’s Knowledge, been charged with, or convicted
of, any felony or misdemeanor within the ambit of 42 U.S.C. §§ 1320a-7(a),
1320a-7(b)(1)-(3), or pursuant to the analogous Laws of any Regulatory
Authority, or is proposed for exclusion, or the subject of exclusion or
debarment proceedings by a Regulatory Authority, during the employee’s or
consultant’s employment or contract term with the Company; or
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 47 -

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(d)          is, to the Company’s Knowledge, or has been, excluded, suspended or
debarred from participation, or otherwise ineligible to participate, in any U.S.
or non-U.S. health care programs (or has been convicted of a criminal offense
that falls within the scope of 42 U.S.C. § 1320a-7 but not yet excluded,
debarred, suspended, or otherwise declared ineligible), or excluded, suspended
or debarred by a Regulatory Authority from participation, or otherwise
ineligible to participate, in any procurement or non-procurement programs.
 
(e)          The Company has exercised reasonable care to determine (i) the
identity of each Person that is a Company Covered Person; and (ii) whether any
Company Covered Person is subject to a Disqualification Event or has been
excluded, debarred, suspended, or otherwise declared ineligible by any
Regulatory Authority.
 
Section 8.7          Title; Encumbrances; Sufficiency.
 
(a)          The Company has (i) sufficient legal and beneficial title to or
ownership of, and the Company will convey to KaloBios, all of the Acquired
Assets, free and clear from any Encumbrances; and (ii) any assignments to the
Company of the Acquired Assets have been validly made, duly executed and
sufficiently perfected so as to grant KaloBios full legal title, free and clear
and any Encumbrances.
 
(b)          Other than the Company IP, the Acquired Assets constitute all of
the assets, tangible and intangible, owned or licensed by the Company relating
to the Compound or the Product and necessary to the Exploitation of the Compound
and the Product.  There are no assets, tangible or intangible, owned or licensed
by Affiliates of the Company relating to the Compound or the Product and
necessary to the Exploitation of the Compound and the Product.
 
(c)          Other than payments to [***] as set forth on Section 8.7(c) of the
Disclosure Schedules, there are no outstanding obligations to pay any amounts or
provide other material consideration to any other Person in connection with any
Acquired Assets.
 
Section 8.8          No Consents.  To the Company’s Knowledge, no material
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, or notice to any Governmental Authority is required
by, or with respect to, the Company or the Acquired Assets in connection with
the execution and delivery of this Agreement or the other Transaction Documents,
or the consummation of the Contemplated Transactions, except for (a) any notice
filings or registrations of transfer with any Governmental Authority that may be
required in connection with the assignment and transfer of the Acquired Assets
that are set forth on Section 8.8 of the Disclosure Schedules, except for those
to be performed or made to evidence the transfer of Acquired Assets after the
Closing in connection with the Transaction Documents, and (b) such other
material consents, waivers, approvals, authorizations or notices, if any, set
forth on Section 8.8 of the Disclosure Schedules.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 48 -

--------------------------------------------------------------------------------

 
 
Section 8.9          Compliance with Laws.
 
(a)          The Company is conducting, and since inception, has conducted, its
business as applied to or in connection with the Acquired Assets in compliance
in all material respects with all Laws within all Territories applicable to the
Acquired Assets, except where the failure to be in compliance would not have a
Material Adverse Effect.
 
(b)          The Company has not received any written notices or other written
communications related to the Compound, the Product or the Acquired Assets from
any Governmental Authority regarding any actual, alleged, threatened, possible
or potential material violation of, or failure to comply in all material
respects with, any Law.
 
(c)          The Company is not a party to or bound by any order, judgment,
decree, injunction, rule or award of any Governmental Authority concerning the
Compound, the Product or any Acquired Asset, and the Company has filed all
reports required to be filed with any Governmental Authority in respect of the
Compound, the Product or any Acquired Asset on or before the date hereof.
 
(d)          The Company and, to Company’s Knowledge, its officers, employees,
contractors, and agents, as well as all parties that conducted or were
responsible for conducting pre-clinical and clinical studies on which the
Company intends to rely, hold all applicable Governmental Approvals required to
develop, test, manufacture, store, label, package, distribute, import, export,
market and promote the Product and otherwise conduct business as presently
conducted.  Each such Governmental Approval is valid and in full force and
effect, and no suspension, revocation, or cancellation of such Governmental
Approval is pending or threatened, and there is no reasonable basis for
believing that such Governmental Approval will not be renewable upon expiration.
 
Section 8.10          Safety and Efficacy; Exclusive Rights to Certain Existing
Foreign Data.  To the Company’s Knowledge there are no problems concerning the
safety or efficacy of the Compound or the Product (including any of its
ingredients) or any questions raised by any Regulatory Authority with respect
thereto, and the Company has informed KaloBios of all adverse drug reactions of
which it has Knowledge relating to the Compound, the Product or their use that
occurred anywhere in the Territory, supplied or administered by any party,
whether or not affiliated with the Company.  [***]. The Company has not provided
access to any third party to [***] clinical data owned by the Company or to
which the Company has rights.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 49 -

--------------------------------------------------------------------------------

 
 
Section 8.11          Good Practices.  All pre-clinical and clinical studies and
other development activities in the United States involving the Compound or the
Product carried out by or on behalf of the Company that, at such time were
required to be conducted in accordance with the FDA’s Good Laboratory Practice
(“GLP”), Good Clinical Practice (“GCP”), and current Good Manufacturing Practice
(“cGMP”) requirements and standards, as applicable, including regulations under
title 21 of the C.F.R., Parts 50, 54, 56, 58, 210, 211, 312, the GCP
requirements under the April 1996 ICH E6 Good Clinical Practice Guideline, and
applicable guidance documents, as amended from time to time, the Animal Welfare
Act, and all applicable similar Laws in other jurisdictions, and all Laws
relating to protection of human subjects were and/or are being conducted in
accordance with such requirements.  The Company has not received any notice that
FDA, any other Governmental Authority, or any institutional review board, ethics
committee, or similar body has recommended, initiated, or threatened to initiate
any action to suspend or terminate any clinical trial sponsored by the Company
or on which the Company intends to rely for marketing approval purposes, or
otherwise to restrict the preclinical research on or clinical study of the
Compound or the Product.
 
FOR THE AVOIDANCE OF DOUBT, STUDIES MAY HAVE BEEN CONDUCTED BY OR ON BEHALF OF
THE COMPANY THAT ARE NOT DESIGNATED AS GLP, CGMP OR GCP BUT MAY STILL BE OF
VALUE AND INCLUDED IN THE ACQUIRED ASSETS OR THE DEVELOPMENT PROGRAM. FURTHER,
THIRD PARTY STUDIES MAY BE REPORTED IN THE LITERATURE OR DATABASES AS GLP, CGMP
OR GCP AND/OR OTHERWISE IN COMPLIANCE WITH RELEVANT REGULATORY AND LEGAL
AUTHORITIES BY SUCH THIRD PARTY AND THE COMPANY MAKES NO REPRESENTATIONS OR
WARRANTIES AS TO SUCH THIRD PARTY DESIGNATIONS OR COMPLIANCE CLAIMS.
 
Section 8.12          Regulatory Matters.
 
(a)          The Company has provided or made available any and all documents
and communications in its possession from and to any Governmental Authority or
Regulatory Authority, or prepared by any Governmental Authority or Regulatory
Authority, related to the Compound, the Product and the Acquired Assets,
including but not limited to any notice of inspection, inspection report,
warning letter, deficiency letter, or similar communication.
 
(b)          To the Company’s Knowledge, none of the Company, any of its
Affiliates or any of their respective officers, employees or agents has made,
with respect to the Compound or the Product, an untrue statement of a material
fact or fraudulent statement to any Governmental Authority or Regulatory
Authority or failed to disclose a material fact required to be disclosed to such
Governmental Authority or Regulatory Authority.
 
(c)          The Company has maintained records relating to the research,
development, testing, manufacture, handling, labeling, packaging, storage, and
supply of the Compound and the Product in compliance with the FD&C Act, all
implementing regulations and interpretative FDA guidance, and all other
applicable Laws, and the Company has submitted to Governmental Authorities and
Regulatory Authorities, in a timely manner, all required notices and annual or
other reports, including but not limited to adverse experience reports and
annual reports, related to the research, development, testing, manufacture,
handling, labeling, packaging, storage, supply, promotion, distribution,
marketing, commercialization, import, export, and sale of the Compound and the
Product in the Territory.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 50 -

--------------------------------------------------------------------------------

 
 
(d)          To the Company’s Knowledge, no other person or party currently
holds any form of regulatory exclusivity in the United States that would
materially and adversely affect  the  marketing of the Product, the Compound, or
the Acquired Assets by KaloBios or a subsequent owner of the Acquired Assets,
nor, to the Company’s Knowledge, has any other person or party submitted a
marketing application that, if approved, would create regulatory exclusivity
with such effect.  Regulatory exclusivity includes, but is not limited to,
orphan drug exclusivity under Section 527 of the FD&C Act, new chemical entity
exclusivity under Sections 505(c)(3)(E)(ii) and 505(j)(5)(F)(ii) of the FD&C
Act, new use exclusivity under Sections 505(c)(3)(E)(iii) and 505(j)(5)(F)(iii)
of the FD&C Act, and pediatric exclusivity under Section 505A of the FD&C Act.
 
Section 8.13          Taxes.  Except as set forth on Section 8.13 of the
Disclosure Schedules:
 
(a)          The Company has duly and timely filed all Tax Returns (taking into
account appropriate extensions) required to be filed with respect to the
Acquired Assets, each such return is true, correct and complete in all respects,
and the Company has timely paid all material Taxes required to be paid with
respect to the Acquired Assets (whether or not such Taxes are shown as due on
any Tax Return).
 
(b)          There are no currently proposed or pending or threatened
adjustments, audits or examinations by any Governmental Authority in connection
with any Taxes relating to the Acquired Assets, and there are no matters under
discussion with any Governmental Authority with respect to Taxes that may result
in an additional liability for Taxes with respect to which the Acquired Assets
may be subject, levied, or assessed.
 
(c)          There is no waiver or extension of any statute of limitations with
respect to any Tax matter relating to the Acquired Assets.
 
(d)          No claim has ever been made in writing by a Governmental Authority
in a jurisdiction where the Company does not file Tax Returns that the Acquired
Assets are or may be subject to taxation by that jurisdiction.
 
(e)          All Taxes required by legal requirements to be withheld or
collected with respect to the Acquired Assets have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Authority or Person.
 
(f)          The Company is not a party to, nor is it bound by or required to
make any payment under, any Tax sharing agreement, Tax allocation agreement, Tax
indemnity obligation or similar agreement, arrangement, understanding or
practice with respect to Taxes (including any advance pricing agreement, closing
agreement or other agreement relating to Taxes with any Governmental Authority).
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 51 -

--------------------------------------------------------------------------------

 
 
(g)          There are no Tax Encumbrances with respect to any Acquired Assets
other than for Taxes not yet due and payable.
 
Section 8.14          No Undisclosed Liabilities.  The Company does not have any
Liabilities of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) in respect of the Compound, the Product or
the Acquired Assets other than Liabilities (a) incurred in the ordinary course
of business, or (b) incurred in connection with the Contemplated Transactions;
except where such Liabilities would not, individually or in the aggregate, have
a Material Adverse Effect.
 
Section 8.15          Inventory.  All manufacturing operations relating to the
Inventory are being conducted in compliance with all applicable provisions of
cGMP requirements as set forth in 21 U.S.C. § 351(a)(2)(B), 21 C.F.R. Parts 210
and 211, and applicable guidance documents, as amended from time to time.  To
the Company’s Knowledge, the Inventory has not been voluntarily recalled,
suspended, or discontinued by the Company or any other party that had authority
to do so, either on its own initiative or at the request of the FDA or any other
Governmental Authority. The Company has not received any written notice of
observed cGMP violations (Form 483) or Warning Letters of cGMP violations from
FDA or similar notices from other Governmental Authorities.
 
Section 8.16          Brokers.  No broker, investment banker, agent, finder or
other intermediary acting on behalf of any member of the Company or its
Affiliates or under the authority of the Company or any Affiliate is or will be
entitled to any broker’s or finder’s fee or any other commission or similar fee
directly or indirectly in connection with the Contemplated Transactions.
 
Section 8.17          Compliance with the Foreign Corrupt Practices Act and
Export Control and Anti-boycott Laws.
 
(a)          Neither the Company nor, to the Company’s Knowledge, any of the
Company’s directors, officers, employees or agents have, directly or indirectly,
made, offered, promised or authorized any payment or gift of any money or
anything of value to or for the benefit of any “foreign official” (as such term
is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the
“FCPA”)), foreign political party or official thereof or candidate for foreign
political office for the purpose of (i) influencing any official act or decision
of such official, party or candidate, (ii) inducing such official, party or
candidate to use his, her or its influence to affect any act or decision of a
foreign governmental authority, or (iii) securing any improper advantage, in the
case of (i), (ii) and (iii) above in order to assist the Company or any of its
affiliates in obtaining or retaining business for or with, or directing business
to, any person.  Neither the Company nor, to the Company’s Knowledge, any of its
directors, officers, employees or agents have made or authorized any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment of funds
or received or retained any funds in violation of any law, rule or regulation. 
The Company further represents that it has maintained, and has caused each of
its Affiliates to maintain, systems of internal controls (including, but not
limited to, accounting systems, purchasing systems and billing systems) to
ensure compliance with the FCPA or any other applicable anti-bribery or
anti-corruption law. Neither the Company, or, to the Company’s Knowledge, any of
its officers, directors or employees are the subject of any allegation,
voluntary disclosure, investigation, prosecution or other enforcement action
related to the FCPA or any other anti-corruption law.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 52 -

--------------------------------------------------------------------------------

 
 
(b)          Each transaction related to the Compound, the Product and the
Acquired Assets is properly and accurately recorded on the books and records of
the Company, and each document upon which entries in the Company’s books and
records are based is complete and accurate in all respects.  The Company
maintains a system of internal accounting controls adequate to insure that the
Company maintains no off-the-books accounts and that the Company’s assets are
used only in accordance with the Company’s management directives.
 
Section 8.18          Intellectual Property.  In all cases subject in its
entirety to Section 9.8, below:
 
(a)          The Company Patents are subsisting.
 
(b)          The Company Controls the Company Patents and the Company Know-How
and has the right to assign and grant all rights and licenses it purports to
grant to KaloBios with respect to the Company Patents and the Company Know-How
under this Agreement.
 
(c)          The Company has no present Knowledge of any settled, pending or
threatened claim or lawsuit or legal proceeding of a Third Party against the
Company alleging that the Company Patents or the Company Know-How infringes or
misappropriates, in part or in whole, the intellectual property or intellectual
property rights of such Third Party.
 
(d)          The Company has not granted any right or license to any Third Party
relating to any of the Company Patents or the Company Know-How that would
conflict or interfere with any of the rights or licenses granted to KaloBios
hereunder.
 
(e)          Exhibit B-1 sets forth a complete and accurate list of the issued
patents constituting Company Patents as of the Effective Date and Exhibit B-2
sets forth a complete and accurate list of the pending patent applications
constituting Company Patents as of the Effective Date.
 
(f)          The Company has disclosed to KaloBios all material information
received by the Company concerning the institution of any interference,
opposition, reexamination, reissue, revocation, nullification or any official
proceeding involving any Company Patent anywhere in the Territory.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 53 -

--------------------------------------------------------------------------------

 
 
ARTICLE 9
REPRESENTATIONS AND WARRANTIES OF KALOBIOS
 
Except as set forth in KaloBios’ Disclosure Schedules delivered to the Company
as of the date hereof, KaloBios represents and warrants to the Company as
follows:
 
Section 9.1          Corporate Existence.  KaloBios is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Delaware and has all necessary corporate power and authority to own, operate or
lease the properties and assets now owned, operated or leased by it and to carry
on its business as currently conducted.
 
Section 9.2          Authorization and Enforceability.  KaloBios (a) has the
full corporate power and authority and the legal right to enter into this
Agreement and the other Transaction Documents and perform its obligations
hereunder and thereunder; (b) has taken all necessary governance action on its
part required to authorize the execution and delivery of this Agreement and the
other Transaction Documents and the performance of its obligations hereunder and
thereunder; and (c) this Agreement and the other Transaction Documents have been
duly executed and delivered on behalf of KaloBios, and constitute legal, valid,
and binding obligations of KaloBios that are enforceable against it in
accordance with their terms, in each case, subject to enforcement of remedies
under applicable bankruptcy, insolvency, reorganization, moratorium or similar
Laws affecting generally the enforcement of creditors’ rights and subject to a
court’s discretionary authority with respect to the granting of a decree
ordering specific performance or other equitable remedies.
 
Section 9.3          Capitalization.
 
(a)          The authorized capital stock and the issued and outstanding stock
of KaloBios and stock reserved for issuance are as described in KaloBios’ Form
8-K filed with the SEC on June 22, 2016.
 
(b)          Except for the Warrant (including the shares of Common Stock
issuable upon exercise of the Warrant) (the “Warrant Shares”) to be issued under
this Agreement and the issuance of New Common Stock under the Plan, there are no
outstanding or authorized options, warrants, convertible securities or other
rights, agreements, arrangements or commitments of any character relating to the
capital stock of KaloBios or obligating KaloBios to issue or sell any shares of
capital stock of, or any other interest in, KaloBios. KaloBios does not have
outstanding or authorized any stock appreciation, phantom stock, profit
participation or similar rights. KaloBios has reserved the Warrant Shares for
issuance upon exercise of the Warrant.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 54 -

--------------------------------------------------------------------------------

 
 
(c)          The Warrant, when issued, delivered and paid for in compliance with
the provisions of this Agreement, will be validly issued.  The Warrant Shares,
when issued, delivered and paid for in compliance with the provisions of this
Agreement and the Warrant, will be validly issued, fully paid and
nonassessable.  The Warrant and the Warrant Shares, when issued, delivered and
paid for, as the case may be, in accordance with the provisions of this
Agreement and the Warrant, as applicable, will be free of any liens or
Encumbrances (including free of any Permitted Encumbrances), other than any
liens or encumbrances created by or imposed upon the Company; provided, however,
that the Warrants and the Warrant Shares are subject to restrictions on transfer
under U.S. state and/or federal securities Laws.  The Warrant and the Warrant
Shares are not subject to any preemptive rights or rights of first refusal,
except for such rights as have been, or will be, duly complied with or waived.
 
Section 9.4          No Conflict.  The execution and delivery of this Agreement
and the other Transaction Documents, the performance of KaloBios’ obligations
hereunder and thereunder and the assignments and licenses to be granted pursuant
to the Transaction Documents do not and will not (a) conflict with or violate
any requirement of applicable Law; (b) conflict with or violate the certificate
of incorporation, bylaws or other organizational documents of KaloBios;
(c) conflict with, violate, breach or constitute a default under any material
contractual obligations of KaloBios or any of its Affiliates; or (d) conflict
with or violate any Government authorization, permit or consent.  No Person has
any right to cause KaloBios to effect the registration under the Securities Act
of any securities of KaloBios or any of its Affiliates, and neither KaloBios nor
any of its Affiliates is a party to or otherwise bound by any oral or written
contract or agreement that would prevent or restrict the ability of KaloBios to
register for resale the Warrant Shares under the Securities Act or otherwise
limit the amount of Warrant Shares that KaloBios could register for resale under
the Securities Act.
 
Section 9.5          Legal Proceedings.  There are no pending or, to KaloBios’
Knowledge, overtly threatened in writing, adverse Actions against or by KaloBios
or any of its Affiliates, at Law or in equity, or before or by any Governmental
Authority that challenge or seek to prevent, enjoin or otherwise delay the
Contemplated Transactions. No event has occurred or circumstances exist that may
give rise to, or serve as a basis for, any such Action.
 
Section 9.6          No “Bad Actor”; No Debarment.  None of KaloBios or any of
its predecessors, Affiliates, directors, executive officers, other officers of
KaloBios or any Beneficial Owners of twenty percent (20%) or more of KaloBios’
outstanding voting equity securities (with the sole exception of Martin Shkreli
who is known by the Parties to be under federal indictment for securities fraud
charges and is not an employee, director, consultant or agent of KaloBios and
does not have any influence upon the management or direction of KaloBios in any
form), calculated on the basis of voting power, in any capacity at the date
hereof (each, a “KaloBios Covered Person”):
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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(a)          is, to the KaloBios’ Knowledge, subject to any of the
Disqualification Events, except for a Disqualification Event covered by Rule
506(d)(2) or (d)(3) of the Securities Act;
 
(b)          is, or has been, to the KaloBios’ Knowledge, debarred under
Section 306(a) or 306(b) of the FD&C Act or by the analogous Laws of any
Regulatory Authority, or disqualified as a clinical investigator under 21 C.F.R.
§ 312.70 or under any analogous Laws of any Regulatory Authority;
 
(c)          has, to the KaloBios’ Knowledge, been charged with, or convicted
of, any felony or misdemeanor within the ambit of 42 U.S.C. §§ 1320a-7(a),
1320a-7(b)(1)-(3), or pursuant to the analogous Laws of any Regulatory
Authority, or is proposed for exclusion, or the subject of exclusion or
debarment proceedings by a Regulatory Authority, during the employee’s or
consultant’s employment or contract term with KaloBios; and
 
(d)          is, or has been excluded, suspended or debarred from participation,
or otherwise ineligible to participate, in any U.S. or non-U.S. health care
programs (or has been convicted of a criminal offense that falls within the
scope of 42 U.S.C. § 1320a-7 but not yet excluded, debarred, suspended, or
otherwise declared ineligible), or excluded, suspended or debarred by a
Regulatory Authority from participation, or otherwise ineligible to participate,
in any procurement or non-procurement programs.
 
(e)          KaloBios has exercised reasonable care to determine (i) the
identity of each person that is a KaloBios Covered Person; and (ii) whether any
KaloBios Covered Person is subject to a Disqualification Event or has been
excluded, debarred, suspended, or otherwise declared ineligible by any
Regulatory Authority.
 
Section 9.7          Solvency. Immediately after giving effect to the
Contemplated Transactions, KaloBios shall be solvent and shall have the
financial capacity to perform all of its obligations under this Agreement and
the other Transaction Documents.
 
Section 9.8          Unencumbered Cash Balance.  Upon the Closing, KaloBios will
have a minimum balance of at least Ten Million Dollars ($10,000,000) in cash,
inclusive of the Initial Payment, which shall not be subject to any Encumbrance
or Permitted Encumbrance.
 
Section 9.9          Data.  KaloBios acknowledges that access and use of data
not commissioned by the Company are provided “as is, where is,” that the Company
makes no representations and warranties concerning the same and that the Company
fully disclaims any and all implied warranties concerning the same.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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--------------------------------------------------------------------------------

 
 
Section 9.10          Private Offering.  Neither KaloBios nor anyone acting on
its behalf has offered the Warrant (or the Warrant Shares) or any similar
securities for sale to, or solicited any offer to buy the Warrant (or the
Warrant Shares) or any similar securities from, or otherwise approached or
negotiated in respect thereof with, any Person other than the Company, which has
been offered the Warrant (and the Warrant Shares) pursuant to Section 1145 of
the U.S. Bankruptcy Code and/or as a private sale for investment.  The offer,
sale and issuance of the Warrant and the Warrant Shares to be issued in
conformity with the terms of this Agreement and the Confirmation Order,
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act and from the registration or qualification requirements of
applicable state securities laws, and neither KaloBios nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
 
Section 9.11          Brokers.  Except for Batuta Capital Advisors LLC, which
was retained by KaloBios and the fees of which will be paid by KaloBios, no
broker, investment banker, agent, finder or other intermediary acting on behalf
of KaloBios or its Affiliates or under the authority of KaloBios or any
Affiliate is or will be entitled to any broker’s or finder’s fee or any other
commission or similar fee directly or indirectly in connection with the
Contemplated Transactions.
 
ARTICLE 10
COVENANTS
 
Section 10.1          Availability of Records.
 
(a)          For so long as a Party is required to maintain books, records,
files and other information that is subject to this Section 10.1, during normal
business hours following reasonable prior notice, each Party will permit the
other Party and its Affiliates, employees, agents and representatives, subject
to execution of a confidentiality agreement in a form reasonably acceptable to
both Parties, to review all Assigned Books and Records and all other
information, records and documents in their possession, which are reasonably
requested by the other Party and are necessary or useful in connection with any
Tax inquiry, audit, investigation or dispute with a Third Party or any
litigation, mediation or arbitration or similar legal Action by any Governmental
Authority reasonably requiring access to any such books and records, in each
case relating to or arising out of transactions or events occurring prior to the
Closing and that relate to the Compound, the Product or the Acquired Assets. 
Each Party will cause its employees, agents and representatives to abide by the
terms of the confidentiality agreement entered into with respect to any access
or information provided pursuant to this Section 10.1(a). Each Party will direct
its employees (without substantial disruption of employment) to render any
assistance that the other Party may reasonably request in accessing or utilizing
the Assigned Books and Records or other information, records or documents. The
Party requesting access to any such books and records or other information shall
bear all of the out-of-pocket costs and expenses (including attorneys’ fees)
reasonably incurred by the other Party in order to comply with this Section
10.1.
 
(b)          Each Party will preserve all information, records and documents
relating to or arising out of transactions or events occurring prior to the
Closing and that relate to the Compound, the Product or the Acquired Assets
until the later of: (i) [***] after the Closing; or (ii) the expiration of the
required retention period under any applicable Laws for all such information,
records or documents.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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--------------------------------------------------------------------------------

 
 
Section 10.2          Regulatory.
 
(a)          The Parties shall cooperate and use commercially reasonable efforts
to obtain promptly all consents from all Governmental Authorities or Regulatory
Authorities that may be or become necessary for the performance of each of their
respective obligations pursuant to the Transaction Documents.
 
(b)          Each Party shall promptly notify the other Party of any
communication it or any of its Affiliates sends to or receives from any
Governmental Authority or Regulatory Authority relating to the matters that are
the subject of this Agreement.
 
Section 10.3          Disqualification Events or Debarment.  [***] KaloBios
agrees to immediately terminate the employment, consultancy, agency or other
service relationship of any KaloBios Covered Person if such KaloBios Covered
Person:
 
(a)          is subject to any Disqualification Event;
 
(b)          is charged with any felony or misdemeanor within the ambit of 42
U.S.C. §§ 1320a-7(a), 13a-7(b)(1)-(3), or pursuant to the analogous Laws of any
Regulatory Authority, or is proposed for exclusion, or the subject of exclusion
or debarment proceedings by any Regulatory Authority, during such individual’s
service relationship with KaloBios; or
 
(c)          becomes excluded, suspended or debarred from participation or
otherwise is ineligible to participate, in any U.S. or non-U.S. health care
programs (or has been convicted of a criminal offense that falls within the
scope of 42 U.S.C. § 1320a-7 but not yet excluded, debarred, suspended, or
otherwise declared ineligible), or excluded, suspended or debarred by a
Regulatory Authority from participation, or otherwise ineligible to participate,
in any procurement or non-procurement programs.
 
Section 10.4          Further Assurances. Each Party shall execute, acknowledge
and deliver such further instruments, and do all such other acts, as is
reasonably necessary or appropriate in order to consummate the Contemplated
Transactions on the terms and subject to the conditions set forth herein, or to
carry out the expressly stated purposes and the clear intent of this Agreement
and the Contemplated Transactions.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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--------------------------------------------------------------------------------

 
 
Section 10.5          Consents.  In the event that (a) the sale, novation,
conveyance, assignment or transfer of any Acquired Asset (including any Assumed
Contract) or any claim, right or benefit arising thereunder or resulting
therefrom, without the consent of any Third Party, would constitute a breach or
other contravention thereof, be ineffective with respect to any party thereto,
or in any way adversely affect the claims, rights or benefits of KaloBios
thereunder, and (b) the Company shall not have received the consent or approval
of such Person prior to the Effective Date, at the request of and for the
benefit of KaloBios as to a particular Acquired Asset, the Company and KaloBios
shall use reasonable commercial efforts to obtain the consent or approval of any
such Person to the assignment, transfer or novation of any such Acquired Asset
or any claims, rights or benefits arising thereunder (to the extent such claims,
rights or benefits constitute Acquired Assets) for the assignment or transfer
thereof to KaloBios.  Until such consent or approval is obtained, at the request
of and for the benefit of KaloBios as to a particular Acquired Asset, the
Company will cooperate with KaloBios to enter into a mutually agreeable
arrangement under which (i) KaloBios would obtain, to the maximum extent
possible, the claims, rights and benefits under each such Acquired Asset (to the
extent such claims, rights or benefits constitute Acquired Assets), including
subcontracting, sublicensing, or subleasing to KaloBios with KaloBios obtaining
any and all rights of the Company against any party related thereto,
(ii) KaloBios would assume, to the extent possible, all obligations of the
Company under such Assumed Contracts (to the extent such obligations constitute
Assumed Liabilities) and agree to perform and discharge all such obligations
under such Assumed Contracts and indemnify the Company in connection therewith,
and (iii) the Company would enforce at [***] cost and at the reasonable request
of and for the benefit of KaloBios, any and all claims, rights and benefits of
the Company against any Third Party thereto arising from any such Assumed
Contract (to the extent such claims, rights or benefits constitute Acquired
Assets).  At the request of and for the benefit of KaloBios as to a particular
Acquired Asset, the Company and KaloBios shall continue to use reasonable
commercial efforts to obtain all such required consents and approvals, it being
understood that upon receipt of all required consents and approvals for the
assignment, novation or transfer of an Acquired Asset (or any claim, right or
benefit arising thereunder or resulting therefrom to the extent such claims,
rights or benefits constitute Acquired Assets) to KaloBios, the assignment,
novation or transfer of such Acquired Asset shall be deemed to be effective as
of the Closing Date.  The Company will promptly pay to KaloBios, when received,
all monies received under any Acquired Asset, or any claim, right or benefit
arising thereunder (to the extent such claims, rights or benefits constitute
Acquired Assets), not assigned or transferred to KaloBios on the Closing Date. 
KaloBios will promptly pay to the Company any amounts constituting Assumed
Liabilities that are required to be paid by the Company, and actually paid to a
Third Party, with respect to any Assumed Liability.
 
Section 10.6          Omitted Assets.  If KaloBios reasonably determines that an
asset owned or licensed by the Company relating to the Compound or the Product
or material to the Exploitation of the Compound or the Product in accordance
with the terms and conditions of the Joint Development Plan (an “Omitted Asset”)
was not transferred to KaloBios as part of the Acquired Assets and notifies the
Company in writing of the existence of such Omitted Asset and KaloBios’ belief
that such Omitted Asset constitutes an Acquired Asset, the Company shall
cooperate in good faith with KaloBios to determine whether such Omitted Asset
should have been transferred to KaloBios as an Acquired Asset, and if the
Company agrees that such Omitted Asset should have been transferred to KaloBios,
the Company shall either (a) transfer and assign the Omitted Asset to KaloBios,
or (b) otherwise make the benefits of such Omitted Asset available to KaloBios. 
Any consideration payable by KaloBios for any such Omitted Assets shall be
deemed to have already been included in the Initial Payment for the Acquired
Assets. Notwithstanding the foregoing, [***] shall be responsible for payment of
any fees or costs associated with the transfer of any Omitted Assets.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 59 -

--------------------------------------------------------------------------------

 
 
Section 10.7          Reserved.
 
Section 10.8          Listing of Common Stock on National Securities Exchange. 
If determined by the Board of Directors of KaloBios to be in the best interests
of KaloBios and its stockholders in accordance with applicable Law, KaloBios
shall use commercially reasonable efforts to relist its Common Stock on a
national securities exchange.
 
Section 10.9          Securities Registration Matters.
 
(a)          SEC No-Action Submission.  As contemplated by the Confirmation
Order, KaloBios shall prepare (with the reasonable assistance, cooperation and
support of the Company) and submit to the SEC a request that the staff of the
SEC issue a “no-action letter” confirming to KaloBios that the staff of the SEC
will recommend to the SEC that the SEC not take enforcement action against
KaloBios for reliance on the exemption provided by Section 1145 of the
Bankruptcy Code with respect to the Warrant and the Warrant Shares (such
confirmatory letter from the SEC, the “No-Action Letter”).
 
(b)          Registration.  If KaloBios shall determine to file a Registration
Statement for the account of a security holder or holders, other than a
Registration Statement relating solely to employee benefit plans, a Registration
Statement relating to the offer and sale of debt securities, a Registration
Statement relating to a corporate reorganization or other transaction pursuant
to Rule 145 under the Securities Act, or a Registration Statement on any
registration form that does not permit secondary sales, KaloBios will:
 
(i)          promptly give written notice of the proposed registration to the
Company;
 
(ii)         use its commercially reasonable efforts to include in such
Registration Statement (and any related qualification under other securities or
“blue sky” laws, provided, that KaloBios shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any state or jurisdiction) all of the
Registrable Securities; and
 
(iii)        use commercially reasonable efforts to keep such Registration
Statement continuously effective under the Securities Act until all Registrable
Securities covered by such Registration Statement (A) have been sold thereunder
or pursuant to Rule 144, or (B) otherwise cease to be Registrable Securities.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 60 -

--------------------------------------------------------------------------------

 
 
(c)          Obligations of the Company.  The Company shall take all
commercially reasonable efforts to cooperate with all reasonable requests from
KaloBios as are necessary for KaloBios to perform its obligations under Section
10.9(a) and Section 10.9(b).  Furthermore, the Company agrees to furnish to
KaloBios in a timely manner a completed questionnaire in customary form
reasonably acceptable to the Company containing all information regarding the
Company as necessary for KaloBios to comply with the requirements of the
Securities Act in connection with the filing of any Registration Statement
covering any of the Registrable Securities.
 
Section 10.10          Insurance.  For so long as KaloBios is obligated to make
any payments to the Company and for a period of [***] thereafter, KaloBios
shall, at its sole cost and expense, obtain, pay for and maintain in full force
and effect commercial general liability and professional liability (Errors and
Omissions) insurance in commercially reasonable and appropriate amounts that (a)
provides product liability coverage concerning the Products, and (b) with policy
limits that reflect the customs of the industry, accounting for the then current
and planned operations of KaloBios.  KaloBios shall have the Company named in
each policy as an additional insured.  Upon request by the Company, KaloBios
shall provide the Company with certificates of insurance or other reasonable
written evidence of all coverages described herein.
 
ARTICLE 11
CONFIDENTIALITY
 
Section 11.1          Confidential Information.  Except to the extent expressly
authorized by this Agreement or otherwise agreed in writing, the Parties agree
that the receiving Party (the “Receiving Party”) will, and will cause its
employees, agents and representatives to, keep confidential and not publish or
otherwise disclose or use for any purpose other than as provided for in this
Agreement any confidential or proprietary information and materials, patentable
or otherwise, in any form (written, oral, photographic, electronic, magnetic, or
otherwise), which are disclosed to it by the other Party (the “Disclosing
Party”) or otherwise received or accessed by a Receiving Party in the course of
performing its obligations or exercising its rights under this Agreement, the
Letter of Intent, the Prior Letter of Intent or the Confidential Disclosure
Agreement (collectively, “Confidential Information”), except to the extent that
it can be established by the Receiving Party that such Confidential Information:
 
(a)          was in the lawful knowledge and possession of the Receiving Party
prior to the time it was disclosed to, or learned by, the Receiving Party, or
was otherwise developed independently by the Receiving Party, as evidenced by
written records kept in the ordinary course of business, or other documentary
proof of actual knowledge by the Receiving Party;
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 61 -

--------------------------------------------------------------------------------

 
 
(b)          was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the Receiving Party;
 
(c)          became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission of
the Receiving Party in breach of this Agreement; or
 
(d)          was disclosed to the Receiving Party, other than under an
obligation of confidentiality, by a Third Party who had no obligation to the
Disclosing Party not to disclose such information to others.
 
Section 11.2          Authorized Disclosure.  Except as otherwise provided in
this Agreement, a Receiving Party may use and disclose Confidential Information
of the Disclosing Party as follows:
 
(a)          under appropriate confidentiality provisions substantially
equivalent to those in this Agreement, in connection with the performance of its
obligations or exercise of rights granted or reserved in this Agreement;
 
(b)          to the extent such disclosure is reasonably necessary in filing or
prosecuting patent, copyright and trademark applications, prosecuting or
defending litigation, complying with applicable governmental regulations,
obtaining Governmental Approval, conducting pre-clinical activities or clinical
trials, marketing products or services, or otherwise required by applicable
Laws; provided, that if a Receiving Party is required by Applicable Laws to make
any such disclosure of a Disclosing Party’s Confidential Information it will (i)
give reasonable advance notice to the Disclosing Party of such disclosure
requirement, (ii) upon the request of the Disclosing Party, use its reasonable
efforts to secure confidential treatment of such Confidential Information
required to be disclosed and cooperate with the Disclosing Party, and (iii) only
disclose that portion of the Confidential Information required to be disclosed
by Applicable Laws;
 
(c)          existing or prospective investors, advisors, collaborators,
(sub)licensees, partners, lenders, acquirers or joint venturers, in each case
solely to the extent related to the Contemplated Transactions and under
appropriate confidentiality provisions substantially equivalent to those of this
Agreement; and
 
(d)          as reasonably required under the circumstances, to a Third Party in
connection with: (i) a Change of Control; or (ii) to the extent mutually agreed
in writing by the Parties.
 
In each of the above authorized disclosures, the Receiving Party shall remain
responsible for any failure by any Person who receives the Confidential
Information from the Receiving Party pursuant to this Section 11.2 to treat such
Confidential Information as required under this Article 11.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 62 -

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Section 11.3          Press Release; Disclosure of Agreement.  Except to the
extent required by applicable Law, neither Party will issue any press release or
other public disclosure concerning this Agreement, the subject matter hereof or
the Parties’ activities hereunder, or any results or data arising hereunder,
except with the other Party’s prior written consent.  A Party may publicly
disclose, without regard to the preceding requirements of this Section 11.3, any
information that was previously publicly disclosed pursuant to this Section
11.3; provided, that such disclosure does not materially alter the meaning of
the information disclosed previously.
 
Section 11.4          Survival.  Each Party’s obligations with respect to the
other Party’s Confidential Information shall survive the expiration or
termination of this Agreement until the later of (a) [***] from disclosure of
the Confidential Information, and (b) for so long as the Confidential
Information is protected under applicable Laws.
 
ARTICLE 12
INDEMNIFICATION
 
Section 12.1          Indemnification by the Company.  In each case subject to
Section 4.8, the Company shall, at its sole expense, defend, indemnify, and hold
KaloBios and its Affiliates and their respective officers, managers, directors,
employees, and agents harmless from and against any and all liabilities,
damages, losses, costs and expenses including the reasonable fees of attorneys
and other professionals (collectively, “Losses”), arising out of or resulting
from:
 
(a)          any breach of any representation or warranty made by the Company
under the Transaction Documents;
 
(b)          any breach of any covenant made by the Company under the
Transaction Documents;
 
(c)          the gross negligence of wrongful intentional acts or omissions of
the Company, its Affiliates, and its or their respect directors, officers,
employees and agents, in connection with the Company’s performance of its
obligations or exercise of its rights under this Agreement;
 
(d)          the extent to which the Company commercializes a Product, and any
allegation that personal injury or death, or any damage to any property, was
caused or allegedly caused by any Product manufactured, sold or used by or for
the Company, including, without limitation, manufacturing or design defects in
the Products or the failure to warn any person or entity of any such defects in
the Products, except to the extent that the foregoing was directly caused by
KaloBios in breach of its obligations pursuant to this Agreement; and
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 63 -

--------------------------------------------------------------------------------

 
 
(e)          the Excluded Liabilities or Excluded Assets;
 
except, in each case of Sections 12.1(a) through 12.1(e) (inclusive), to the
extent that KaloBios is required to indemnify the Company with respect to such
Losses under Section 12.2.
 
Section 12.2          Indemnification by KaloBios.  KaloBios shall, at its sole
expense, defend, indemnify, and hold the Company and its Affiliates and their
respective officers, managers, directors, employees, and agents harmless from
and against any and all Losses arising out of or resulting from:
 
(a)          any breach of any representation or warranty made by KaloBios under
the Transaction Documents;
 
(b)          any breach of any covenant made by KaloBios under the Transaction
Documents;
 
(c)          the gross negligence of wrongful intentional acts or omissions of
KaloBios, its Affiliates, and its or their respect directors, officers,
employees and agents, in connection with KaloBios’ performance of its
obligations or exercise of its rights under this Agreement;
 
(d)          to the extent KaloBios or its Affiliates commercialize a Product,
any allegation that personal injury or death, or any damage to any property, was
caused or allegedly caused by any Product manufactured, sold or used by or for
KaloBios, including, without limitation, manufacturing or design defects in the
Products or the failure to warn any person or entity of any such defects in the
Products, except to the extent that the foregoing was directly caused by the
Company in breach of its obligations pursuant to this Agreement;
 
(e)          any actions taken with respect to the enforcement of any term or
provision of the Security Agreement, exercise of any rights of the Company as a
secured creditor thereunder or with respect to the taking of any actions by the
Company pursuant to the terms of the Security Agreement with respect to the
protection of the Collateral (as defined in the Security Agreement), in each
case upon, after or during any Event of Default (as defined in the Security
Agreement); and
 
(f)          the Acquired Assets or the Assumed Liabilities;
 
except, in each case of Sections 12.2(a) through 12.2(f) (inclusive), to the
extent that the Company is required to indemnify KaloBios with respect to such
Losses under Section 12.1.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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--------------------------------------------------------------------------------

 
 
Section 12.3          Indemnification Procedures.  In the event that any Person
entitled to indemnification under Section 12.1 or Section 12.2 (an “Indemnified
Party”) is seeking indemnification, the Indemnified Party shall (a) inform, in
writing, the indemnifying Party under Section 12.1 or Section 12.2 (the
“Indemnifying Party”) as soon as reasonably practicable after the Indemnified
Party receives any written notice of any Action against or involving the
Indemnified Party by a Governmental Authority or other Person, or otherwise
discovers the liability, obligation or facts giving rise to such claim for
indemnification (the “Claim”), (b) permit the Indemnifying Party to assume
direction and control of the defense of the Claim (provided, that the
Indemnifying Party may not settle the Claim without the prior consent of the
Indemnified Party, not to be unreasonably withheld), (c) cooperate as reasonably
requested (at the expense of the [***]) in the defense of the Claim, and
(d) undertake all reasonable steps to mitigate any loss, damage or expense with
respect to the Claim(s).  Without limiting the foregoing, any Indemnified Party
will be entitled to participate in the defense of a Claim for which it has
sought indemnification hereunder and to employ counsel of its choice for such
purpose; provided, that such employment will be at the [***] expense unless
(i) the employment thereof has been specifically authorized by the Indemnifying
Party in writing, (ii) the Indemnifying Party has failed to assume the defense
(or has failed to continue to defend such Claim in good faith) and employ
counsel in accordance with this Section 12.3, in which case the Indemnified
Party will be allowed to control the defense, or (iii) there exists a conflict
of interest between the Indemnifying Party and the Indemnified Party that cannot
be waived.
 
Section 12.4          Right of Set Off.  Upon notice to the Company specifying
in reasonable detail the basis therefor, KaloBios shall have the right to set
off any amount to which it may be entitled with respect to any Losses pursuant
to Section 12.1 (but in all cases, subject to the limits set forth in Section
12.6 and Section 12.7) against any future amounts payable by KaloBios to the
Company pursuant to the Transaction Documents on or after the date such Losses
are finally determined by written agreement of the Parties or pursuant to a
final judgement issued by a court in accordance with Section 14.2.
 
Section 12.5          Survival.  The representations and warranties of the
Parties contained herein shall survive for a period of [***] following the
Closing, except that each of the Company’s and KaloBios’ Fundamental
Representations shall survive [***] (and for no less than [***]).  Any claim for
indemnification on account of breach of a representation, warranty or covenant
will survive the applicable termination date if a Party, prior to such
termination date, advises the other Party in writing of facts that constitute or
may give rise to an alleged claim for indemnification, specifying in reasonable
detail the basis under this Agreement for such claim.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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Section 12.6          Limitation on Indemnity.
 
(a)          Indemnification by the Company for Breach of Representation or
Warranty.  Notwithstanding the provisions of Section 12.1, the Company shall not
be liable for Losses under Section 12.1(a) unless the aggregate amount of Losses
with respect to all misrepresentations or breaches of warranty exceed [***] (the
“Indemnification Basket”), in which event all Losses incurred shall be subject
to indemnification. The Company’s aggregate liability for all Losses under
Section 12.1(a) shall not exceed the lesser of (i) the consideration actually
received by the Company under this Agreement and (ii) [***] (the “Cap”). 
 
(b)          Indemnification by KaloBios for Breach of Representation or
Warranty.  Notwithstanding the provisions of Section 12.2(a), (i) KaloBios shall
not be liable for Losses under Section 12.2 unless the aggregate amount of
Losses with respect to all misrepresentations or breaches of warranty exceed the
Indemnification Basket, in which event all Losses incurred shall be subject to
indemnification, and (ii) in no event shall KaloBios’ aggregate liability for
Losses under Section 12.2(a) exceed the Cap.
 
(c)          Insurance Proceeds. Payments by an Indemnifying Party pursuant to
Section 12.1 or Section 12.2 in respect of any Losses shall be limited to the
amount of any liability or damage that remains after deducting therefrom any
insurance proceeds and any indemnity, contribution or other similar payment
actually received by the Indemnified Party in respect of any such claim, less
any related costs and expenses, including the aggregate cost of pursuing any
related insurance claims and any related increases in insurance premiums or
other chargebacks (it being agreed that neither Party shall have any obligation
to seek to recover any insurance proceeds in connection with making a claim
under this Article 12 and that, promptly after the realization of any insurance
proceeds, indemnity, contribution or other similar payment, the Indemnified
Party shall reimburse the Indemnifying Party for such reduction in Losses for
which the Indemnified Party was indemnified prior to the realization of
reduction of such Losses).
 
(d)          Knowledge. Neither Party shall be liable under this Article 12 for
any Losses based upon or arising out of any inaccuracy in or breach of any of
the representations or warranties of such Party contained in this Agreement that
the other Party had knowledge of such inaccuracy or breach prior to the Closing.
 
Section 12.7          Limitation of Liability.  NEITHER PARTY, NOR ANY OF ITS
AFFILIATES SHALL BE LIABLE TO THE OTHER PARTY OR ITS AFFILIATES FOR ANY
INDIRECT, CONSEQUENTIAL, SPECIAL, RELIANCE OR PUNITIVE DAMAGES, WHETHER
LIABILITY IS ASSERTED IN CONTRACT OR TORT (INCLUDING NEGLIGENCE AND STRICT
PRODUCT LIABILITY), AND IRRESPECTIVE OF WHETHER THAT PARTY OR ANY REPRESENTATIVE
OF THAT PARTY HAS BEEN ADVISED OF, OR OTHERWISE MIGHT HAVE ANTICIPATED THE
POSSIBILITY OF, ANY SUCH LOSS OR DAMAGE. THE COMPANY AND ITS AFFILIATES SHALL
NOT BE LIABLE UNDER ANY CIRCUMSTANCES FOR ANY LOSSES THAT EXCEED THE AMOUNTS
THAT THE COMPANY HAS RECEIVED OR IS ENTITLED TO RECEIVE PURSUANT TO THE
TRANSACTION DOCUMENTS.
 
Section 12.8          Exclusive Remedy.  Except in the case of fraud or as
otherwise provided in Section 4.8, from and after the Closing, the
indemnification provided in this Section 12.8, subject to the limitations
herein, shall be the sole and exclusive monetary remedy of the Indemnified
Parties for any and all liability arising out of, under or in connection with
the Transaction Documents (including any breaches of any representations and
warranties and covenants provided in the Transaction Documents) or in connection
with the transactions contemplated thereby.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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ARTICLE 13
TERM AND TERMINATION
 
Section 13.1          Term. This Agreement shall commence as of the Effective
Date and, unless sooner terminated in whole or in part as specifically provided
in this Agreement, shall continue in effect until the full satisfaction of all
payment obligations under this Agreement (the “Term”).
 
Section 13.2          Termination for Convenience. Either Party shall have the
right, at its sole discretion and without any penalty or liability, exercisable
at any time during the Term, to terminate this Agreement for any reason or no
reason at all upon ninety (90) days’ prior written notice to the other Party.
 
Section 13.3          Termination for Cause.
 
(a)          Termination for Material Breach.  Either Party (the “Non-breaching
Party”) may, without prejudice to any other remedies available to it at law or
in equity, terminate this Agreement in the event the other Party (the “Breaching
Party”) shall have materially breached or defaulted in the performance of its
obligations under the Transaction Documents and such breach or default shall
have continued for sixty (60) days after written notice thereof was provided to
the Breaching Party by the Non-breaching Party, such notice describing with
particularity and in detail the alleged material breach or default.  Any such
termination of this Agreement under this Section 13.3(a) shall become effective
at the end of such sixty (60) day period, unless the Breaching Party has either
(i) cured any such breach or default prior to the expiration of such sixty (60)
day period, or (ii) if such breach is not susceptible to cure within such
sixty (60) day period, the Breaching Party has, within such sixty (60) day
period, provided to the Non-breaching Party a written plan that is reasonably
calculated to effect a cure and such plan is reasonably acceptable to the
Non-breaching Party.  Where the Non-breaching Party has accepted any such plan
in accordance with the preceding sentence, the Non-breaching Party may terminate
this Agreement immediately upon written notice to the Breaching Party if the
Breaching Party subsequently fails to carry out such plan.
 
(b)          Company Termination Right.  The Company may terminate this
Agreement only with respect to the license granted to KaloBios under Section 7.7
immediately upon written notice to KaloBios if Martin Shkreli is appointed as an
agent, employee, consultant, officer or director of KaloBios.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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Section 13.4          Termination for Bankruptcy.  In the event that following
the Closing either Party makes an assignment for the benefit of creditors,
appoints or suffers appointment of a receiver or trustee over all or
substantially all of its property, files a petition under any bankruptcy or
insolvency act in any state or country or has any such petition filed against it
which is not discharged within sixty (60) days of the filing thereof, then the
other Party may thereafter terminate this Agreement effective immediately upon
written notice to such Party.  In connection therewith, all rights and licenses
granted under or pursuant to any section of this Agreement are and shall
otherwise be deemed to be for purposes of Section 365(n) of Title 11, United
States Code (the “Bankruptcy Code”) licenses of rights to “intellectual
property” as defined in Section 101(56) of the Bankruptcy Code.  The Parties
shall retain and may fully exercise all of their respective rights and elections
under the Bankruptcy Code, including without limitation, under Section 365(n)(4)
thereto.  Upon the bankruptcy of any Party, the non-bankrupt Party shall further
be entitled to a complete duplicate of, or complete access to, any such
intellectual property, and such, if not already in its possession, shall be
promptly delivered to the non-bankrupt Party, unless the bankrupt Party elects
to continue, and continues, to perform all of its obligations under this
Agreement.  For the avoidance of doubt, in the event that the ability to
terminate this Agreement pursuant to this Section 13.4 is not enforceable for
any reason, all other provisions in this Section 13.4 shall remain fully
enforceable in accordance with Section 15.3.
 
Section 13.5          Termination of Joint Development Program upon Mutual
Consent.  The obligations of the Parties under Article 5 may be terminated by
written mutual consent, such consent not to be unreasonably withheld,
conditioned or delayed, upon mutual agreement on a transition plan with respect
to the Joint Development Program. If such transition plan is not mutually agreed
within thirty (30) days after either Party has notified the other of its desire
to terminate such obligations, either Party may immediately terminate such
obligations upon written notice to the other Party.
 
Section 13.6          Effects of Termination after Closing.
 
(a)          Upon Termination by KaloBios for Convenience.  Except as otherwise
provided in this Agreement, in the event of termination of this Agreement by
KaloBios pursuant to Section 13.2, (i) all rights and licenses granted to
KaloBios under this Agreement shall terminate, (ii) KaloBios shall, upon the
written request of the Company and in exchange for the payment described in
subsection (iv) below, which request shall be in the sole discretion of the
Company, transfer to the Company all right, title and interest in and to the
Acquired Assets any and all intellectual property rights, regulatory approvals
and any other assets developed from the Acquired Assets pursuant to the Joint
Development Program and used by the Parties in the Joint Development Program or
commercialization of the Product after the date hereof (the “Future Assets”), in
all cases, free and clear of any Encumbrances other than those in favor of the
Company, (iii) upon the earlier of (x) the return of all Collateral (as defined
in the Security Agreement) pursuant to sub-clause (ii) above and (y) sixty (60)
days after termination of this Agreement under this Section 13.6(a), the
Security Agreement shall terminate, and (iv) upon a request by the Company
pursuant to sub-clause (ii) above and simultaneously with the transfer to the
Company of all right, title and interest in and to the Collateral, the Company
will pay to KaloBios an amount equal to [***] of the Joint Development Program
Costs actually incurred by KaloBios under this Agreement.  Upon termination by
KaloBios pursuant to this Section 13.6(a), KaloBios shall deliver to the Company
a certificate executed by the Chief Financial Officer of KaloBios certifying in
good faith all Joint Development Program Costs actually incurred by KaloBios
under this Agreement. KaloBios agrees that upon the termination of this
Agreement pursuant to this Section 13.6(a) and thereafter until the Company’s
receipt of an MAA for the Product in the United States it shall not engage in
any research or development activities with respect to the Compound or the
Product in the Licensed Field.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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(b)          Upon Termination by KaloBios for Cause or Insolvency.  Except as
otherwise provided in this Agreement, in the event of termination of this
Agreement by KaloBios pursuant to Section 13.3(a) or Section 13.4, in addition
to, and not in lieu of, any rights and remedies of KaloBios under this Agreement
(at law or in equity) all rights and licenses granted to KaloBios under this
Agreement shall continue perpetually, and, subject to Article 12, the Company’s
rights to any payments to be made by KaloBios under this Agreement shall
continue for the terms set forth herein.
 
(c)          Upon Termination by the Company for Convenience.  Except as
otherwise provided in this Agreement, in the event of termination of this
Agreement by the Company pursuant to Section 13.2, in addition to, and not in
lieu of, any rights and remedies of the Company under this Agreement (at law or
in equity) all rights and licenses granted to the Company under this Agreement,
including the right to receive future payments, and the Security Agreement,
shall terminate upon the effective date of termination, as will the Security
Agreement, and all rights and licenses granted to KaloBios under this Agreement
shall continue perpetually.
 
(d)          Upon Termination by the Company for Cause or Insolvency.  Except as
otherwise provided in this Agreement, in the event of termination of this
Agreement by the Company pursuant to Section 13.3(a) or Section 13.4, (i) all
rights and licenses granted to KaloBios under this Agreement shall terminate
upon the effective date of such termination, and (ii) KaloBios shall transfer to
the Company all right, title and interest in and to the Acquired Assets and
Future Assets, free and clear of any Encumbrances other than those in favor of
the Company and upon completion of such transfer, the Security Agreement will
terminate.
 
Section 13.7          Termination Prior to Closing.  This Agreement may be
terminated and the Contemplated Transactions may be abandoned at any time prior
to the Closing:
 
(a)          by mutual written agreement of the Parties;
 
(b)          by the Company or KaloBios if any court of competent jurisdiction
or other Governmental Authority shall have issued an order, decree or ruling, or
taken any other action permanently restraining, enjoining or otherwise
prohibiting the Contemplated Transactions and such order, decree, ruling or
other action shall have become final and non-appealable;
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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--------------------------------------------------------------------------------

 
 
(c)          by the Company or KaloBios if the Contemplated Transactions shall
not have been consummated on or before June 30, 2016; provided, that the right
to terminate this Agreement under this Section 13.7(c) shall not be available to
any Party whose failure to fulfill any obligation under this Agreement is the
primary cause of, or results in, the failure to consummate the Contemplated
Transactions on or before such date;
 
(d)          by KaloBios if (i) any of the conditions set forth in Section
2.7(b) shall have become incapable of fulfillment and shall not have been waived
by KaloBios or (ii) the Company shall materially breach any of its
representations, warranties, covenants or other obligations hereunder prior to
the Closing and, within ten (10) days after written notice of such breach to the
Company, such breach shall not have been cured or waived by KaloBios and the
Company shall not have provided reasonable assurance to KaloBios that such
breach will be cured in all material respects on or before the Closing; or
 
(e)          by the Company if (i) any of the conditions set forth in Section
2.7(c) shall have become incapable of fulfillment and shall not have been waived
by the Company or (ii) KaloBios shall materially breach any of its
representations, warranties, covenants or other obligations hereunder prior to
the Closing and, within ten (10) days after written notice of such breach to
KaloBios, such breach shall not have been cured or waived by the Company and
KaloBios shall not have provided reasonable assurance to the Company that such
breach will be cured in all material respects on or before the Closing.
 
Notwithstanding any else contained in this Agreement, the right to terminate
this Agreement under this Section 13.7 shall not be available to any Party
(i) that is in material breach of its obligations hereunder prior to the Closing
or (ii) whose failure to fulfill its obligations or to comply with its covenants
under this Agreement has been the cause of, or resulted in, the failure to
satisfy any condition to the obligations of the Parties hereunder unless waived
in writing by the other Party.
 
Section 13.8          Other Termination Consequences.
 
(a)          Return of Proprietary Information.  In the event of termination of
this Agreement, each Party shall return all data, files, records and other
materials in its possession or control containing or comprising the other
Party’s Confidential Information to which such first Party does not retain
rights under the surviving provisions of this Agreement (except one copy of
which may be retained solely for archival purposes).
 
(b)          Accrued Rights.  The expiration or termination of this Agreement
shall not relieve the Parties from performing any obligations accrued under this
Agreement prior to, or exercising any of its rights hereunder with respect to
any breach by the other Party of the Agreement occurring prior to, the date this
Agreement expires or terminates (including the obligation to make payments
accrued as of the effective date of such expiration or termination but not yet
paid).
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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(c)          Survival.  Notwithstanding any other provision of this Agreement
the following provisions, shall survive the termination or expiration of this
Agreement for any reason, in accordance with their respective terms and
conditions, and for the duration stated, and where no duration is stated, shall
survive for so long as required to give effect to the subject matter of the
provision: Articles 1, 11, 12, 13, 14 and 15 and Sections 3.6, 3.8, 3.9 and 7.10
as well as any applicable definitions in Article 1 and any other provisions
which are expressed to survive termination or expiration or which are required
to give effect to such termination or expiration.
 
ARTICLE 14
DISPUTE RESOLUTION
 
Section 14.1          Governing Law.  This Agreement and all disputes arising
out of or related to this Agreement or any breach hereof shall be governed by
and construed under the laws of the State of Delaware, without giving effect to
any choice of law principles that would require the application of the laws of a
different state.
 
Section 14.2          Dispute Resolution.  Unless otherwise set forth in this
Agreement or required by Law, in the event of a dispute, claim or controversy
between the Parties arising under or relating to this Agreement or the breach,
termination, enforcement, interpretation or validity thereof, including the
determination of the scope or applicability of this Agreement, (each, a
“Dispute”), the Party shall refer such Dispute to their respective Executive
Officers, and such Executive Officers shall attempt in good faith to resolve
such Dispute.  If the Executive Officers are unable to resolve a given Dispute
pursuant to this Section 14.2 within [***] of referring such Dispute to the
Executive Officers (other than prior to the Closing, in which case within [***]
of such dispute), either Party may bring suit exclusively in the state and
federal courts of competent jurisdiction located in the State of Delaware and in
no other jurisdiction; provided, however, that with respect to any suit brought
prior to Closing, such suit shall be exclusively brought before the United
States Bankruptcy Court for the District of Delaware.  Each Party hereby
consents to personal jurisdiction and venue in, and agrees to service of process
issued or authorized by, such courts and all such actions shall first be brought
before such courts.

ARTICLE 15
GENERAL PROVISIONS
 
Section 15.1          Force Majeure.  Neither Party shall be liable for failure
of or delay in performing obligations set forth in this Agreement, and neither
shall be deemed in breach of its obligations, if such failure or delay is due to
any occurrence beyond the reasonable control of such Party that (a) prevents or
substantially interferes with the performance by such Party of any of its
obligations hereunder, and (b) occurs by reason of any act of God, flood, fire,
explosion, earthquake, strike, lockout, labor dispute, casualty or accident,
war, revolution, civil commotion, act of terrorism, blockage or embargo, or
injunction, law, order, proclamation, regulation, ordinance, demand or
requirement of any government or of any subdivision, authority or representative
of any such government. In event of such force majeure, the Party affected shall
use reasonable efforts to cure or overcome the same and resume performance of
its obligations hereunder.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 71 -

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Section 15.2          Assignment.  This Agreement (i) may be assigned by
KaloBios in whole or in part to any Third Party without the consent of the
Company, and (ii) may not be assigned by the Company in whole or in part without
the consent of KaloBios; provided, that the Company may assign this Agreement in
whole without the consent of KaloBios to an Affiliate or in the event of a
Change of Control of the Company.  Any permitted assignee will expressly assume
all obligations imposed on the assigning Party by this Agreement in writing. 
Further (a) if the assignee of KaloBios is of equal or superior (i)
creditworthiness and (ii) ability to perform obligations under this Agreement to
KaloBios as of the date of assignment, as demonstrated by the assignee’s (x)
ability to fund the Joint Development Program for the first [***] after
assignment and (y) track record of research and development and product
commercialization in the biopharmaceutical industry, then KaloBios shall not
remain liable for the assignee’s performance of its obligations under this
Agreement, and (b) if the assignee of KaloBios is not of equal or superior
creditworthiness and ability to KaloBios as of the date of assignment, then
KaloBios shall remain directly liable to the Company for all performance
obligations (including payment obligations) of the assignee under this
Agreement.  This Agreement shall bind and inure to the benefit of the Parties
hereto and their respective successors and permitted assigns.  Any purported
assignment in violation of this Section 15.2 shall be null and void.
 
Section 15.3          Severability.  If any provision hereof should be held
invalid, illegal or unenforceable in any jurisdiction, the Parties shall
negotiate in good faith a valid, legal and enforceable substitute provision that
most nearly reflects the original intent of the Parties and all other provisions
hereof shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the Parties hereto
as nearly as may be possible.  Such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of such provision in
any other jurisdiction.
 
Section 15.4          Notices.  All notices which are required or permitted
hereunder shall be in writing and sufficient if delivered personally, sent by
electronic mail (and promptly confirmed by personal delivery, registered or
certified mail or overnight courier), sent by nationally-recognized overnight
courier or sent by registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
 
If to the Company:

Savant Neglected Diseases, LLC
P.O. Box 620732
Woodside, CA 94062
Attn:          Stephen L. Hurst
Email:[          ***]
 
with a copy (which shall not constitute notice) to:
 
Dorsey & Whitney LLP
305 Lytton Avenue
Palo Alto, CA, 94301
Attn:          Evan Ng
Email:          [***]
 

 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 72 -

--------------------------------------------------------------------------------

 
 
If to KaloBios:

KaloBios Pharmaceuticals, Inc.
1000 Marina Blvd, Suite 250
Brisbane, CA 94005
Attn:          Cameron Durrant, CEO
Email:          [***]

with a copy (which shall not constitute notice) to:
 
Hogan Lovells US LLP
100 International Drive, Suite 2000
Baltimore, MD 21202
Attn:          Asher M. Rubin
Email: [***]

or to such other address(es) as the Party to whom notice is to be given may have
furnished to the other Party in writing in accordance herewith.  Any such notice
shall be deemed to have been given:  (a) when delivered if personally delivered
or sent by electronic mail on a Business Day (or if delivered or sent on a
non-Business Day, then on the next Business Day); (b) on the Business Day after
dispatch if sent by nationally-recognized overnight courier; or (c) on the fifth
(5th) Business Day following the date of mailing, if sent by mail.
 
Section 15.5          Construction of Agreement.  In the event an ambiguity or a
question of intent or interpretation arises, this Agreement will be construed as
if drafted jointly by the Parties and no presumption or burden of proof will
arise favoring or disfavoring either Party by virtue of the authorship of any
provisions of this Agreement.  The language in this Agreement is to be construed
in all cases according to its fair meaning.
 
Section 15.6          Headings; Interpretation.  Headings used herein are for
convenience only and shall not in any way affect the construction of or be taken
into consideration in interpreting this Agreement.  Further, in this Agreement:
(a) the word “including” shall be deemed to be followed by the phrase “without
limitation” or like expression; (b) the singular shall include the plural and
vice versa; and (c) masculine, feminine and neuter pronouns and expressions
shall be interchangeable.  A Party includes its permitted assignees and/or the
respective successors in title to substantially the whole of its undertaking.  A
statute or statutory instrument or any of their provisions is to be construed as
a reference to that statute or statutory instrument or such provision as the
same may have been or may from time to time hereafter be amended, restated,
modified, supplemented, or re-enacted.  The Exhibits and other attachments form
part of the operative provisions of this Agreement and references to this
Agreement shall, unless the context otherwise requires, include references to
the recitals and the Exhibits and attachments.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 73 -

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Section 15.7          Independent Contractors.  Nothing herein shall be
construed to create any relationship of employer and employee, agent and
principal, partnership or joint venture between the Parties.  Each Party is an
independent contractor.  Neither Party shall assume, either directly or
indirectly, any liability of or for the other Party.  The Parties shall not have
the authority to bind or obligate the other Party and neither Party shall
represent that it has such authority.
 
Section 15.8          Performance by Affiliates.  Each Party may discharge any
obligations and exercise any right hereunder through any of its Affiliates. 
Each Party hereby guarantees the performance by its Affiliates of such Party’s
obligations under this Agreement, and shall cause its Affiliates to comply with
the provisions of this Agreement in connection with such performance.  Any
breach by a Party’s Affiliate of any of such Party’s obligations under this
Agreement shall be deemed a breach by such Party, and the other Party may
proceed directly against such Party without any obligation to first proceed
against such Party’s Affiliate.
 
Section 15.9          Waiver.  Neither Party may waive or release any of its
rights or interests in this Agreement except in writing.  The failure of either
Party to assert a right hereunder or to insist upon compliance with any term or
condition of this Agreement shall not constitute a waiver of that right or
excuse a similar subsequent failure to perform any such term or condition.  No
waiver by either Party of any condition or term in any one or more instances
shall be construed as a continuing waiver of such condition or term or of
another condition or term.
 
Section 15.10          Counterparts.  This Agreement may be signed in
counterparts, each and every one of which shall be deemed an original,
notwithstanding variations in format or file designation which may result from
the electronic transmission, storage and printing of copies of this Agreement
from separate computers or printers.  Signatures transmitted via .pdf shall be
treated as original signatures.
 
Section 15.11          Expenses.  Each of the Parties will bear its own direct
and indirect expenses incurred in connection with the negotiation and
preparation of this Agreement and, except as set forth in this Agreement, the
performance of the obligations contemplated hereby and thereby.
 
Section 15.12          Time of the Essence. Time is of the essence for the
performance of each Party’s obligations under this Agreement.
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 74 -

--------------------------------------------------------------------------------

 
 
Section 15.13          Entire Agreement; Amendments.  This Agreement, including
the Exhibits and Schedules hereto, together with the other Transaction
Documents, sets forth the complete, final and exclusive agreement and all the
covenants, promises, agreements, warranties, representations, conditions and
understandings between the Parties with respect to the subject matter hereof and
supersedes, as of the Effective Date, all prior and contemporaneous agreements
and understandings between the Parties with respect to the subject matter
hereof, including, without limitation, the Confidential Disclosure Agreement,
the Letter of Intent and the Prior Letter of Intent; provided, that
Sections 1.B, 4, 5, 6, 7, 8, 11 and 12 of the Letter of Intent shall survive
until the Closing in accordance with the terms thereof, subject to Sections 13.6
and 13.8 of this Agreement.  There are no covenants, promises, agreements,
warranties, representations, conditions or understandings, either oral or
written, between the Parties with respect to the subject matter of this
Agreement other than as are set forth in this Agreement, the other Transaction
Documents, and the surviving provisions of the Letter of Intent set forth
above.  No subsequent alteration, amendment, change or addition to this
Agreement shall be binding upon the Parties unless reduced to writing and signed
by an authorized officer of each Party.  In the event of any conflict between
the terms of this Agreement and the terms of any Transaction Document, the terms
of this Agreement shall prevail.
 
[Signature Page Follows]

 
 
 
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- 75 -

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their respective duly authorized officers as of the date first above written.
 

 
SAVANT NEGLECTED DISEASES, LLC
         
By:
/s/ Stephen L. Hurst
      Name: Stephen L. Hurst      
Title:   Managing Member
         

 

 
KALOBIOS PHARMACEUTICALS, INC.
         
By:
/s/Cameron Durrant
      Name: Cameron Durrant      
Title:   Chairman and Chief Executive Officer
         

 
 
 
[Signature Page to Agreement for the Manufacture, Development and
Commercialization of Benznidazole for Human Use]

CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT A
 
COMPOUND
 
[***]
 
 

 
 
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
I

--------------------------------------------------------------------------------

 
 
EXHIBIT B-1
 
ISSUED COMPANY PATENTS
 

[***]

 
 
 
 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT B-2
 
PENDING COMPANY PATENTS
 

[***]
 
 
 
 
 
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT C
 
FORM OF BILL OF SALE
 
[Attached hereto.]
 
 
 
 
 
 
 
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT C

FORM OF BILL OF SALE

This BILL OF SALE (this “Bill of Sale”) is entered into as of the [●] day of
[●], 2016, by and between Savant Neglected Diseases, LLC, a Delaware limited
liability company (the “Company”), in favor of KaloBios Pharmaceuticals, Inc., a
Delaware corporation (“KaloBios”).  KaloBios and the Company are each referred
to herein by name or as a “Party” or, collectively, as the “Parties.”
 
WHEREAS, KaloBios and the Company have entered into that certain Agreement for
the Manufacture, Development and Commercialization of Benznidazole for Human
Use, dated as of the date hereof (the “Agreement”), pursuant to which, among
other things, the Company has agreed to sell, and KaloBios has agreed to
purchase, the Acquired Assets (as defined in the Agreement), on the terms and
subject to the conditions set forth in the Agreement; and
 
WHEREAS, the Company now seeks to consummate the sale, transfer, conveyance,
assignment and delivery of the Acquired Assets to KaloBios.
 
NOW, THEREFORE, in consideration of the agreements and covenants contained in
the Agreement, and the agreements and covenants contained herein, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties do hereby agree as follows:
 
1.          Defined Terms.  Capitalized terms used but not defined herein shall
have the meanings set forth in the Agreement.
 
2.          Sale and Transfer of Assets.  Under the terms and subject to the
conditions set forth in the Agreement, the Company hereby sells, transfers,
conveys, assigns and delivers to KaloBios all of the Company’s right, title and
interest in and to all of the Acquired Assets, free and clear of all
Encumbrances.  For the avoidance of doubt, the Company does not hereby transfer,
convey or assign to KaloBios any Excluded Asset.
 
3.          Further Assurances.  The Company agrees, upon the reasonable request
of KaloBios, to execute and deliver all such further transfers, assignments and
conveyances and assurances as may be required to effect the sale, conveyance,
transfer and assignment of the Acquired Assets to KaloBios as contemplated
herein and in the Agreement and as are necessary to vest in KaloBios all rights,
title and interest of the Company in and to the Acquired Assets.
 
4.          Miscellaneous.
 
4.1          Assignment.  This Bill of Sale may not be assigned by either Party
in whole or in part without the consent of the other Party; provided, that each
Party may assign this Bill of Sale without consent of the other Party as set
forth in the Agreement.  Any permitted assignee will expressly assume all
obligations imposed on the assigning Party by this Bill of Sale in writing. 
This Bill of Sale shall bind and inure to the benefit of the Parties hereto and
their respective successors and permitted assigns.  Any purported assignment in
violation of this Section 4.1 shall be null and void.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
4.2          Terms of Agreement.  Nothing contained herein shall itself change,
amend, extend or alter the terms or conditions of the Agreement in any manner
whatsoever.  In the event of any conflict or inconsistency between the terms of
the Agreement and the terms hereof, the terms of the Agreement shall govern.
 
4.3          Governing Law; Disputes.  The dispute resolution, governing law,
jurisdiction, venue, process and notice provisions set forth in the Agreement
are incorporated herein by reference.
 
4.4          Severability.  If any provision hereof shall be held invalid,
illegal or unenforceable in any jurisdiction, the Parties shall negotiate in
good faith a valid, legal and enforceable substitute provision that most nearly
reflects the original intent of the Parties and all other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the Parties hereto
as nearly as may be possible.  Such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of such provision in
any other jurisdiction.
 
4.5          Counterparts.  This Bill of Sale may be signed in counterparts,
each and every one of which shall be deemed an original, notwithstanding
variations in format or file designation which may result from the electronic
transmission, storage and printing of copies of this Bill of Sale from separate
computers or printers.  Signatures transmitted via .pdf shall be treated as
original signatures.
 
[Signature Page Follows]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
2

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the Parties have caused this Bill of Sale to be executed by
their duly authorized representatives as of the date first written above.
 

 
SAVANT NEGLECTED DISEASES, LLC
                         
By:
   
Name:  Stephen L. Hurst 
 
Title:  Managing Member 

 
 
 
 
 
 
[Signature Page to Bill of Sale]

 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the Parties have caused this Bill of Sale to be executed by
their duly authorized representatives as of the date first written above.
 

 
KALOBIOS PHARMACEUTICALS, INC. 
                         
By:
   
Name:  Cameron Durrant 
 
Title:  Chairman and Chief Executive Officer 

 
 
 
 
 
 
[Signature Page to Bill of Sale]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT D
 
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
 
[Attached hereto.]
 
 
 
 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT D

FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT

This ASSIGNMENT AND ASSUMPTION AGREEMENT (this “Assignment and Assumption
Agreement”) is entered into as of the [●] day of [●], 2016, by and between
Savant Neglected Diseases, LLC, a Delaware limited liability company (the
“Company”), and KaloBios Pharmaceuticals, Inc., a Delaware corporation
(“KaloBios”).  KaloBios and the Company are each referred to herein by name or
as a “Party” or, collectively, as the “Parties.”
 
WHEREAS, KaloBios and the Company have entered into that certain Agreement for
the Manufacture, Development and Commercialization of Benznidazole for Human
Use, dated as of the date hereof (the “Agreement”), pursuant to which, among
other things, the Company has agreed to sell, and KaloBios has agreed to
purchase, the Acquired Assets (as defined in the Agreement), on the terms and
subject to the conditions set forth in the Agreement; and
 
WHEREAS, pursuant to the Agreement, the Company has agreed to assign to
KaloBios, and KaloBios has agreed to assume from the Company, the Assumed
Contracts (as defined in the Agreement), on the terms and subject to the
conditions set forth in the Agreement.
 
NOW THEREFORE, in consideration of the agreements and covenants contained in the
Agreement, and the agreements and covenants contained herein, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties do hereby agree as follows:
 
1.          Defined Terms.  Capitalized terms used but not defined herein shall
have the meanings set forth in the Agreement.
 
2.          Assignment and Assumption.  In accordance with and subject to the
terms and conditions of the Agreement, the Company (or its applicable
Affiliates) hereby sells, transfers, conveys, assigns and delivers to KaloBios,
and KaloBios hereby assumes and agrees to pay, perform, satisfy and discharge
(or cause to be paid, performed, satisfied and discharged on behalf of KaloBios)
when due, and otherwise be responsible for, all of the Assumed Contracts set
forth on Exhibit A to this Assignment and Assumption Agreement.
 
3.          Miscellaneous.
 
3.1          Assignment.  This Assignment and Assumption Agreement may not be
assigned by either Party in whole or in part without the consent of the other
Party; provided, that each Party may assign this Assignment and Assumption
Agreement without consent of the other Party as set forth in the Agreement.  Any
permitted assignee will expressly assume all obligations imposed on the
assigning Party by this Assignment and Assumption Agreement in writing.  This
Assignment and Assumption Agreement shall bind and inure to the benefit of the
Parties hereto and their respective successors and permitted assigns.  Any
purported assignment in violation of this Section 3.1 shall be null and void.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
3.2          Terms of the Agreement.  Nothing contained herein shall itself
change, amend, extend or alter the terms or conditions of the Agreement in any
manner whatsoever.  In the event of any conflict or inconsistency between the
terms of the Agreement and the terms hereof, the terms of the Agreement shall
govern.
 
3.3          Governing Law; Disputes.  The dispute resolution, governing law,
jurisdiction, venue, process and notice provisions set forth in the Agreement
are incorporated herein by reference.
 
3.4          Severability.  If any provision hereof shall be held invalid,
illegal or unenforceable in any jurisdiction, the Parties shall negotiate in
good faith a valid, legal and enforceable substitute provision that most nearly
reflects the original intent of the Parties and all other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the Parties hereto
as nearly as may be possible.  Such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of such provision in
any other jurisdiction.
 
3.5          Counterparts.  This Assignment and Assumption Agreement may be
signed in counterparts, each and every one of which shall be deemed an original,
notwithstanding variations in format or file designation which may result from
the electronic transmission, storage and printing of copies of this Assignment
and Assumption Agreement from separate computers or printers.  Signatures
transmitted via .pdf shall be treated as original signatures.
 
[Signature Page Follows]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
2

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the Parties have caused this Assignment and Assumption
Agreement to be executed by their duly authorized representatives as of the date
first written above.

 
SAVANT NEGLECTED DISEASES, LLC
                         
By:
   
Name:  Stephen L. Hurst 
 
Title:  Managing Member 

 
 
 
 
 
 
[Signature Page to Assignment and Assumption Agreement]
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the Parties have caused this Assignment and Assumption
Agreement to be executed by their duly authorized representatives as of the date
first written above.
 

 
KALOBIOS PHARMACEUTICALS, INC. 
                         
By:
   
Name:  Cameron Durrant 
 
Title:  Chairman and Chief Executive Officer 

 
 
 
 
 
 
[Signature Page to Assignment and Assumption Agreement]
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT A
 
ASSUMED CONTRACTS
 
[***]
 
 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT E
 
FORM OF OPINION
 
[Attached hereto.]
 
 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
Exhibit E

[hl_logo.jpg]
Hogan Lovells US LLP
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004
T  +1 202 637 5600
F  +1 202 637 5910
www.hoganlovells.com

June [●], 2016

Savant Neglected Diseases, LLC
P.O. Box 620732
Woodside, CA 94062

Re: KaloBios Pharmaceuticals, Inc.

 
Ladies and Gentlemen:

This firm has acted as counsel to KaloBios Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), in connection with the Agreement for the
Manufacture, Development and Commercialization of Benznidazole for Human Use,
dated as of June [●], 2016 (the "Agreement"), between the Company and Savant
Neglected Diseases, LLC, a Delaware limited liability company ("Savant"), and
the execution and delivery pursuant thereto of the Security Agreement and the
Warrant.  This opinion letter is furnished to you pursuant to the requirements
set forth in Section 2.7(c)(vi) of the Agreement in connection with the Closing
thereunder on the date hereof.  Capitalized terms used herein which are defined
in the Agreement shall have the meanings set forth in the Agreement, unless
otherwise defined herein (including in Schedule 1 attached hereto).  Certain
other capitalized terms used herein are defined in Schedule 1 attached hereto.
 
For purposes of this opinion letter, we have examined copies of the documents
listed on Schedule 1 attached hereto (the "Documents").  The Agreement, the
Security Agreement and the Warrant are referred to hereinafter collectively as
the “Transaction Agreements.”
 
In our examination of the Documents, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the accuracy and
completeness of all of the Documents, the authenticity of all originals of the
Documents and the conformity to authentic originals of all of the Documents
submitted to us as copies (including telecopies).  As to all matters of fact
relevant to the opinions expressed and any other statements made herein, we have
relied on the representations and statements of fact made in the Documents, we
have not independently established the facts so relied on, and we have not made
any investigation or inquiry other than our examination of the Documents.  This
opinion letter is given, and all statements herein are made, in the context of
the foregoing. 
 

 
Hogan Lovells US LLP is a limited liability partnership registered in the
District of Columbia.  “Hogan Lovells” is an international legal practice that
includes Hogan Lovells US LLP and Hogan Lovells International LLP, with offices
in:  Alicante   Amsterdam   Baltimore   Beijing   Berlin   Brussels   Caracas  
Colorado Springs   Denver   Dubai   Dusseldorf   Frankfurt   Hamburg   Hanoi  
Ho Chi Minh City   Hong Kong   Houston   London   Los Angeles   Madrid   Miami  
Milan   Moscow   Munich   New York   Northern Virginia   Paris   Philadelphia  
Prague   Rome   San Francisco   Shanghai   Silicon Valley   Singapore   Tokyo  
Ulaanbaatar   Warsaw   Washington DC   Associated offices: Budapest   Jakarta  
Jeddah   Riyadh   Zagreb.  For more information see www.hoganlovells.com
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
Savant Neglected Diseases, LLC
- 2 -
June [●], 2016

 

 
For purposes of this opinion letter, we have assumed that (i) each of the
parties to the Transaction Agreements other than the Company has all requisite
power and authority under all applicable laws, rules, regulations and governing
documents to execute, deliver and perform its obligations under the Transaction
Agreements, and Savant has complied with all legal requirements pertaining to
its status as such status relates to its rights to enforce the Transaction
Agreements against the Company, (ii) each of the parties to the Transaction
Agreements other than the Company has duly authorized, executed and delivered
the Transaction Agreements, (iii) each of the parties to the Transaction
Agreements is validly existing and in good standing in all necessary
jurisdictions (except for the Company in the State of Delaware to the extent
stated in paragraph (a) below), (iv) each of the Transaction Agreements
constitutes a valid and binding obligation, enforceable against Savant in
accordance with its terms, (v) there has been no mutual mistake of fact or
misunderstanding, or fraud, duress or undue influence, in connection with the
negotiation, execution or delivery of each of the Transaction Agreements, and
the conduct of all parties to the Transaction Agreements has complied with any
requirements of good faith, fair dealing and conscionability, and (vi) there are
and have been no agreements or understandings among the parties, written or
oral, and there is and has been no usage of trade or course of prior dealing
among the parties (and no act or omission of any party),  that would, in any
such case, define, supplement or qualify the terms of any of the Transaction
Agreements, and legally sufficient consideration has been given and received for
the transactions covered by each of the Transaction Agreements and for the
obligations of each of the parties thereunder.  We have also assumed the
validity and constitutionality of each relevant statute, rule, regulation and
agency action covered by this opinion letter, as well as the Confirmation Order
(as defined below). 
 
This opinion letter is based as to matters of law, subject to the exclusions and
limitations set forth in this opinion letter, solely on applicable provisions of
the following, as currently in effect: (i) as to the opinions expressed in
paragraphs (a), (b), and (c), the Delaware General Corporation Law, (ii) as to
the opinions expressed in paragraphs (c) and (d), (i) applicable provisions of
internal Delaware state law, (ii) the United States Bankruptcy Code, (iii) the
Company’s Second Amended Plan of Reorganization, dated May 9, 2016 (the “Plan”),
and (iv) the Confirmation Order entered in the pending Chapter 11 case entitled
In re Kalobios Pharmaceuticals, Inc. (Case No. 15-12628 (LSS) in the United
States Bankruptcy Court for the District of Delaware.
 
Based upon, subject to and limited by the assumptions, qualifications,
exceptions, and limitations set forth in this opinion letter, we are of the
opinion that:
 
(a)          The Company is validly existing as a corporation and in good
standing as of the date of the Good Standing Certificate under the laws of the
State of Delaware.
 
(b)          The Company has the corporate power to execute, deliver and perform
each of the Transaction Agreements. The execution, delivery and performance by
the Company of each of the Transaction Agreements have been duly authorized by
all necessary corporate action of the Company.
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
Savant Neglected Diseases, LLC
- 3 -
June [●], 2016

 

 
(c)          Each of the Transaction Agreements has been duly executed and
delivered by the Company.
 
(d)          Each of the Transaction Agreements constitutes a valid and binding
obligation of the Company, enforceable by Savant against the Company in
accordance with its terms. 
 
The opinion expressed in paragraph (d) above shall be understood to mean only
that if there is a default in performance of an obligation, (i) if a failure to
pay or other damage can be shown and (ii) if the defaulting party can be brought
into a court which will hear the case and apply the governing law, then, subject
to the availability of defenses, and to the exceptions elsewhere set forth in
this opinion letter, the court will provide a money damage (or perhaps
injunctive or specific performance) remedy. 
 
In addition to the assumptions, qualifications, exceptions and limitations
elsewhere set forth in this opinion letter, our opinions expressed above are
also subject to the effect of:  (1)  bankruptcy, insolvency, reorganization,
receivership, moratorium and other laws affecting creditors' rights (including,
without limitation, the effect of statutory and other law regarding fraudulent
conveyances, fraudulent transfers and preferential transfers) with respect to
any future bankruptcy (or similar circumstance) of the Company; and (2) the
exercise of judicial discretion and the application of principles of equity,
good faith, fair dealing, reasonableness, conscionability and materiality
(regardless of whether the applicable agreements are considered in a proceeding
in equity or at law). 
 
We express no opinion in this letter as to any other statutes, rules and
regulations not specifically identified above as being covered hereby (and in
particular, we express no opinion as to any effect that such other statutes,
rules and regulations may have on the opinions expressed herein).  We express no
opinion in this letter as to securities statutes, rules or regulations (and in
particular, we express no opinion with respect to the shares issuable upon
exercise of the Warrant), antitrust, unfair competition, banking or tax
statutes, rules or regulations, or statutes, rules or regulations of any
political subdivision below the state level.   We express no opinion in this
letter as to creation, attachment, perfection or priority of any security
interest on any collateral pursuant to the Security Agreement.  The opinions set
forth in paragraphs (a) above are based upon a review of only those statutes,
rules and regulations (not otherwise excluded in this letter) that, in our
experience, are generally recognized as applicable to transactions of the type
covered by the Agreement and to the role of the Company in such transactions.  
 
We assume no obligation to advise you of any changes in the foregoing subsequent
to the delivery of this opinion letter.  This opinion letter has been prepared
solely for your use in connection with the closing under the Agreement on the
date hereof, and should not be quoted in whole or in part or otherwise be
referred to, and should not be filed with or furnished to any governmental
agency or other person or entity, without the prior written consent of this
firm. 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Savant Neglected Diseases, LLC
- 4 -
June [●], 2016

 
 
 
Very truly yours,

HOGAN LOVELLS US LLP 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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EXHIBIT E

 
Schedule 1
 

1. Executed copy of the Agreement.

 

2. Executed copy of the Security Agreement, dated as of the Agreement, by and
between the Company and Savant (the “Security Agreement”).

 

3. Executed copy of the Common Stock Purchase Warrant, dated as of the date of
the Agreement, issued to Savant by the Company (the “Warrant”). 

 

4. The Certificate of Incorporation of the Company, as certified by the
Secretary of State of the State of Delaware on June 27, 2016, and as certified
by the Secretary of the Company on the date hereof as being complete, accurate
and in effect.

 

5. The by-laws of the Company, as certified by the Secretary of the Company on
the date hereof as being complete, accurate and in effect.

 

6. Certain resolutions of the Board of Directors of the Company adopted at a
meeting on June 28, 2016, as certified by the Secretary of the Company on the
date hereof as being complete, accurate and in effect, relating to, among other
things, authorization of the Agreement, the Security Agreement, the Warrant and
arrangements in connection therewith.

 

7. A certificate of good standing of the Company issued by the Secretary of
State of the State of Delaware dated June 27, 2016 (the “Good Standing
Certificate”).

 

8. A certificate of certain officers of the Company, dated the date hereof, as
to certain facts relating to the Company (the “Company Officers’ Certificate”).

 

9. Findings of Fact, Conclusions of Law, and Order Confirming Second Amended
Chapter 11 Plan of Reorganization of Kalobios Pharmaceuticals, Inc. dated June
16, 2016 (the “Confirmation Order”).

 

10. The Plan.

 
CONFIDENTIAL

[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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EXHIBIT F
 
FORM OF WARRANT
 
[Attached hereto.]
 
 
 
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT F
 
 
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED FOR
SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED UNLESS A
REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT AND IS
QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW OR THE TRANSACTION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE ACT AND THE
QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE AND FOREIGN LAW.
 
COMMON STOCK PURCHASE WARRANT

 KALOBIOS PHARMACEUTICALS, INC.
 
Warrant Shares: 200,000
Initial Exercise Date:  [●], 2016

 
 
THIS COMMON STOCK PURCHASE WARRANT (this “Warrant”) certifies that, for value
received, Savant Neglected Diseases, LLC, a Delaware limited liability company,
or its assigns (the “Holder”) is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time on
or after the Initial Exercise Date and on or prior to the close of business on
the five (5) year anniversary of the Initial Exercise Date (the “Termination
Date”) but not thereafter, to subscribe for and purchase from KaloBios
Pharmaceuticals, Inc., a Delaware corporation (“KaloBios”), up to two hundred
thousand (200,000) shares (as adjusted hereunder, the “Warrant Shares”) of the
common stock, par value $0.001 per share, of KaloBios (“Common Stock”). The
exercise price per share of Common Stock under this Warrant shall be equal to
$2.25, subject to adjustment hereunder (the “Exercise Price”).

Section 1          Definitions.  Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in that certain Agreement for
the Manufacture, Development and Commercialization of Benznidazole for Human Use
(the “MDC Agreement”), dated as of [●], 2016, among KaloBios and Savant
Neglected Diseases, LLC.
 
Section 2          Exercise.
 
(a)
Exercisability.  The purchase rights represented by this Warrant shall become
exercisable hereunder as follows:  (i) as to 25% of the Warrant Shares, on or
after the Initial Exercise Date; [***] (items [***] each, an “Exercise Date”).

 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
(b)          Exercise.  The purchase rights represented by this Warrant may be
exercised by the Holder, in whole or in part (to the extent exercisable), at any
time or times on or after the applicable Exercise Date and on or before the
Termination Date by delivery to KaloBios (or such other office or agency of
KaloBios as it may designate by notice in writing to the registered Holder at
the address of the Holder appearing on the books of KaloBios) of a duly executed
facsimile copy (or e-mail attachment) of the Notice of Exercise in the form
attached hereto as Exhibit A and, payment of the aggregate Exercise Price for
the Warrant Shares specified in the Notice of Exercise within two (2) Business
Days following delivery of the Notice of Exercise to KaloBios by wire transfer
of immediately available funds equal to the aggregate Exercise Price for the
shares specified in the applicable Notice of Exercise, or, if available and
specified in the applicable Notice of Exercise, pursuant to the cashless
exercise procedure specified in Section 2(c) below.  Notwithstanding anything
herein to the contrary, the Holder shall not be required to physically surrender
this Warrant to KaloBios until the Holder has purchased all of the Warrant
Shares available hereunder and the Warrant has been exercised in full, in which
case, the Holder shall promptly surrender this Warrant to KaloBios for
cancellation after the date the final Notice of Exercise is delivered to
KaloBios. Partial exercises of this Warrant resulting in purchases of a portion
of the total number of Warrant Shares available hereunder shall have the effect
of lowering the outstanding number of Warrant Shares purchasable hereunder in an
amount equal to the applicable number of Warrant Shares purchased. The Holder
and KaloBios shall maintain records showing the number of Warrant Shares
purchased and the date of such purchases. KaloBios shall deliver any objection
to any Notice of Exercise within two (2) Business Days of receipt of such
notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge
and agree that, by reason of the provisions of this paragraph, following the
purchase of a portion of the Warrant Shares hereunder, the number of Warrant
Shares available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.
 
(c)          Cashless Exercise. If at the time of exercise hereof there is no
effective registration statement registering the resale of the Warrant Shares by
the Holder, provided, that the Holder has cooperated with KaloBios’ reasonable
requests in connection with KaloBios’ efforts to register such resale, and
provided, further, that the No-Action Letter has not been issued, then this
Warrant may also be exercised, in whole or in part, at such time by means of a
“cashless exercise” in which the Holder shall be entitled to receive a number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
 

(A) = the Fair Market Value of one (1) share of Common Stock on the date of the
Notice of Exercise;

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

(X) = the number of Warrant Shares that would be issuable upon exercise of this
Warrant in accordance with the terms of this Warrant if such exercise were by
means of a cash exercise rather than a cashless exercise.

 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
2

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If Warrant Shares are issued in such a cashless exercise, the Parties
acknowledge and agree that in accordance with Section 3(a)(9) of the Act, the
Warrant Shares shall take on the characteristics of the Warrants being exercised
and the holding period of the Warrant Shares being issued may be tacked on to
the holding period of the Warrant.  KaloBios agrees not to take any position
contrary to this Section 2(c), subject to any change in applicable Law.
 
(d)          Fair Market Value.  “Fair Market Value” of one (1) share of
KaloBios’ Common Stock shall mean for any date, the price determined by the
first of the following clauses that applies:
 
(i)          if the Common Stock is then listed or quoted on a national
securities exchange, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date on which there were sales of the
Common Stock) on the national securities exchange on which the Common Stock is
then listed or quoted as reported for trading by Bloomberg L.P. (based on a
trading day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time));
 
(ii)          if the Common Stock is not then listed or quoted on a national
securities exchange but is listed or quoted for trading on OTCQB or OCTQX, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date on which there were sales of the Common Stock) on OTCQB or OTCQX,
as applicable;
 
(iii)          if the Common Stock is not then listed or quoted for trading on
OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink
Sheets” published by OTC Markets Group Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported;
 
(iv)          the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by KaloBios and reasonably
acceptable to the Holder, the fees and expenses of which shall be paid by
KaloBios.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
3

--------------------------------------------------------------------------------

 
 
(e)          Mechanics of Exercise.
 
(i)          Delivery of Warrant Shares upon Exercise.  KaloBios shall cause the
Warrant Shares purchased hereunder to be transmitted to the Holder by crediting
the account of the Holder’s or its designee’s balance account with The
Depository Trust Company through its Deposit or Withdrawal at Custodian system
if KaloBios is then a participant in such system and either (A) there is an
effective registration statement permitting the issuance of the Warrant Shares
to or resale of the Warrant Shares by Holder, (B) this Warrant is being
exercised via cashless exercise, (C) this Warrant is being exercised by the
Holder and the underlying Warrant Shares are being sold pursuant to Rule 144
adopted under the Act (“Rule 144”) or (D) the shares are eligible for resale by
the Holder without volume or manner-of-sale limitations pursuant to Rule 144,
and otherwise by physical delivery of a certificate, registered in KaloBios’
share register in the name of the Holder or its designee, for the number of
Warrant Shares to which the Holder is entitled pursuant to such exercise to the
address specified by the Holder in the Notice of Exercise by the date that is
three (3) Business Days after the delivery to KaloBios of the Notice of Exercise
(the “Warrant Share Delivery Date”); provided, under no circumstances is
KaloBios required to cause the Warrant Shares to be delivered prior to payment
of the aggregate Exercise Price (other than in the case of cashless exercise). 
Upon delivery of the Notice of Exercise and payment of the aggregate Exercise
Price within two Business Days after delivery of the Notice of Exercise (other
than in the case of cashless exercise), the Holder shall be deemed for all
corporate purposes to be the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date of delivery
of the Warrant Shares.  If KaloBios fails for any reason to deliver to the
Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share
Delivery Date and the applicable aggregate Exercise Price has been delivered,
KaloBios shall pay to the Holder, in cash, as liquidated damages and not as a
penalty, for each $1,000 of Warrant Shares subject to such exercise (based on
the Fair Market Value of the Common Stock on the date of the applicable Notice
of Exercise), $10.00 per Business Day for each Business Day after the first
Business Day following such Warrant Share Delivery Date until such Warrant
Shares are delivered or the Holder rescinds such exercise.
 
(ii)          Delivery of New Warrants upon Exercise.  If this Warrant shall
have been exercised in part, KaloBios shall, at the request of the Holder set
forth in the Notice of Exercise and upon surrender of this Warrant certificate,
at the time of delivery of the Warrant Shares, deliver to the Holder a new
Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant
Shares called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.
 
(iii)          Rescission Rights.  If KaloBios fails to deliver, or cause the
delivery to the Holder of the Warrant Shares pursuant to Section 2(d)(ii) by the
Warrant Share Delivery Date, then the Holder will have the right to rescind such
exercise.
 
Section 3          Certain Adjustments.  The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time upon the occurrence of certain events,
as follows:
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
4

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(a)          Change of Control or Reclassification.  In case of (i) any Change
of Control of KaloBios or (ii) any reclassification of securities of the class
issuable upon exercise of this Warrant (other than a change (A) in par value,
(B) from par value to no par value, (C) from no par value to par value or (D) as
a result of a subdivision or combination), KaloBios, or such successor or
purchasing corporation, as the case may be, shall duly execute and deliver to
the Holder a new Warrant (in form and substance reasonably satisfactory to the
Holder), or KaloBios shall make appropriate provision without the issuance of a
new Warrant, so that Holder shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the Warrant Shares theretofore issuable upon
exercise or conversion of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change, merger or sale by a holder of the number of shares of Common Stock then
purchasable under this Warrant, or in the case of such a merger or sale in which
the consideration paid consists all or in part of assets other than securities
of the successor or purchasing corporation, at the option of Holder, the
securities of the successor or purchasing corporation having a value at the time
of the transaction equivalent to the value of the Warrant Shares purchasable
upon exercise of this Warrant at the time of the transaction.  Any new Warrant
shall provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 3.  In the event of
a Change of Control, the Exercise Dates shall be accelerated and all purchase
rights with respect to all Warrant Shares represented by this Warrant (to the
extent not previously exercised) shall become exercisable no later than
immediately prior to the consummation of such Change of Control.  The provisions
of this Section 3(a) shall similarly apply to successive Changes of Control or
reclassifications. Prior to the closing of any Change of Control in which
KaloBios will not be the surviving entity, KaloBios shall, unless the Holder
requests otherwise, cause the surviving or successor entity to assume this
Warrant and the obligations of KaloBios hereunder.
 
(b)          Stock Dividends and Splits. If KaloBios, at any time while this
Warrant is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of Common Stock (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by
KaloBios upon exercise of this Warrant), (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, (iii) combines (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares, or (iv) issues by reclassification of shares of the Common Stock any
shares of capital stock of KaloBios, then in each case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding immediately
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event, and the number of shares
issuable upon exercise of this Warrant shall be proportionately adjusted such
that the aggregate Exercise Price of this Warrant shall remain unchanged,
subject to the limitation on the issuance of fractional shares contained in
Section 9(b).  Any adjustment made pursuant to this Section 3(b) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
 
(c)          Adjustment of Number of Shares.  Upon each adjustment in the
Exercise Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Exercise Price by a fraction, the numerator of which shall be the Exercise Price
immediately prior to such adjustment and the denominator of which shall be the
Exercise Price immediately thereafter.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
5

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(d)          Calculations. All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 3, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.
 
(e)          Notice to the Holder.  Whenever any Exercise Price or the kind or
number of securities issuable under this Warrant shall be adjusted pursuant to
Section 3 hereof, KaloBios shall promptly deliver to the Holder in accordance
with Section 9(h) a certificate signed by an officer of KaloBios setting forth,
in reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number or kind of shares issuable upon exercise of this Warrant after
giving effect to such adjustment. KaloBios shall provide the Holder with written
notice of any proposed Change of Control of KaloBios not later than twenty (20)
Business Days prior to the closing of such Change of Control setting forth the
material terms and conditions thereof, and shall also provide the Holder such
other information respecting such proposed Change of Control as may reasonably
be requested by the Holder.
 
Section 4          Transfer of Warrant.  In connection with any transfer by the
Holder of this Warrant, KaloBios may require the transferee to provide KaloBios
with written representations and warranties that the transferee is acquiring
this Warrant and the shares of Common Stock to be issued upon exercise for
investment purposes only and not with a view to any sale or distribution, if
such transfer occurs prior to the issuance of the No-Action Letter, and may
require a legal opinion, in form and substance satisfactory to KaloBios and its
counsel, stating that such transfer is exempt from the registration and
prospectus delivery requirements of the Act; provided, however, that no opinion
shall be required from the Holder in the event that such transfer (i) occurs
upon or after the issuance of the No-Action Letter, (ii) is to an Affiliate of
the Holder, or (iii) results in a mere change in the form of beneficial
ownership of this Warrant; provided, further, in the case of (ii) and (iii),
that the Holder provides a representation letter representing that the
transferee is an Affiliate of the Holder or that such transfer will result in a
mere change in the form of beneficial ownership of this Warrant, as applicable. 
Following any transfer of this Warrant, at the request of either KaloBios or the
transferee, the transferee shall surrender this Warrant to KaloBios in exchange
for a new warrant of like tenor and date, executed by KaloBios.  Upon any
partial transfer, KaloBios will also execute and deliver to the Holder a new
warrant of like tenor with respect to the portion of this Warrant not so
transferred.  Subject to the foregoing, this Warrant is transferable on the
books of KaloBios at its principal office by the registered the Holder hereof
upon surrender of this Warrant properly endorsed.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
6

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Section 5          Representations and Warranties of KaloBios.  KaloBios hereby
represents and warrants to the Holder that the statements in the following
paragraphs of this Section 5 are true and correct as of the date hereof.
 
(a)          Corporate Power; Authorization; Enforceability.  KaloBios has all
requisite legal and corporate power to execute and deliver this Warrant, to sell
and issue the Warrant Shares hereunder, and to carry out and perform its
obligations under the terms of this Warrant.  All corporate action on the part
of KaloBios, its officers, directors and shareholders necessary for the
authorization, execution, delivery and performance of its obligations under this
Warrant and for the authorization, issuance and delivery of this Warrant and the
Warrant Shares has been taken and this Warrant constitutes the legally binding
and valid obligation of KaloBios enforceable in accordance with its terms.
 
(b)          Valid Issuance of Warrant and Warrant Shares.  This Warrant has
been validly issued and is free of restrictions on transfer other than
restrictions on transfer set forth herein and under applicable state and federal
securities laws.  The Warrant Shares that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance in accordance with the
terms hereof including the payment by the Holder of the full Exercise Price, be
duly and validly issued, fully paid and nonassessable, and be free of
restrictions on transfer other than restrictions on transfer under this Warrant
and under applicable state and federal securities laws. KaloBios will at all
times reserve and keep available out of its authorized but unissued shares of
the Common Stock, solely for the issuance and delivery upon the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time
shall be issuable upon exercise of this Warrant. If at any time the number of
authorized but unissued shares of the Warrant Shares shall not be sufficient for
the full exercise of this Warrant, then in addition to such other remedies as
shall be available to the Holder, KaloBios shall as soon as reasonably
practicable take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
 
(c)          No Registration.  The offer, sale and issuance of the Warrant
Shares, as contemplated by this Warrant, are exempt from the prospectus and
registration requirements of applicable United States federal and state security
laws, and neither KaloBios nor any authorized agent acting on its behalf has
taken or will take any action hereafter that would cause the loss of such
exemption.
 
Section 6          Representations and Warranties of the Holder.  The Holder
hereby represents and warrants to KaloBios that the statements in the following
paragraphs of this Section 6 are true and correct as of the date hereof.
 
(a)          Acquisition for Personal Account.  This Warrant and the Warrant
Shares are being acquired for the Holder’s own account, for investment and not
with a view to, or for resale in connection with, any distribution or public
offering thereof within the meaning of the Act (pursuant to an exception from or
exception to) in accordance with registration requirements of the Act. The
Holder has no present intention of selling, granting any participation in, or
otherwise distributing the same. The Holder does not presently have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to this Warrant or any of the Warrant Shares. The Holder has not been
formed for the specific purpose of acquiring this Warrant or the Warrant Shares.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
7

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(b)          Securities Not Registered.
 
(i)          The Holder understands that this Warrant and the Warrant Shares
have not been registered under the Act, on the basis that no distribution or
public offering of the stock of KaloBios is currently contemplated.  The Holder
realizes that the basis for the exemption may not be present if, notwithstanding
its representations, the Holder has a present intention of acquiring the
securities for a fixed or determinable period in the future, selling (in
connection with a distribution or otherwise), granting any participation in, or
otherwise distributing the securities.  The Holder has no such present intention
to sell or otherwise distribute this Warrant or the Warrant Shares.
 
(ii)         The Holder recognizes that this Warrant and the Warrant Shares must
be held indefinitely unless they are subsequently registered under the Act,  an
exemption from such registration is available or the Securities and Exchange
Commission (the “SEC”) issues the No-Action Letter.
 
(iii)        The Holder is aware that neither this Warrant nor the Warrant
Shares may be sold pursuant to Rule 144 unless certain conditions are met,
including, among other things, the availability of certain current public
information about KaloBios, the resale following the required holding period
under Rule 144 and the number of shares being sold during any three month period
not exceeding specified limitations.  The Holder is aware that the conditions
for resale set forth in Rule 144 have not been satisfied and that KaloBios
presently has no plans to satisfy these conditions in the foreseeable future.
 
(c)          Accredited Investor.  The Holder is an “accredited investor” as
defined in Rule 501 pursuant to the Act. The Holder has such knowledge and
experience in financial and business matters that the Holder is capable of
evaluating the merits and risks of the purchase of this Warrant pursuant to the
terms of this Warrant and of protecting the Holder’s interests in connection
therewith.
 
Section 7          Legends.
 

(a) Legend.

 
(i)          Each certificate representing the Warrant Shares shall be endorsed
with the following legend:
 
 

[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND
MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED OR ASSIGNED UNLESS A REGISTRATION STATEMENT COVERING SUCH SHARES IS
EFFECTIVE UNDER THE ACT AND IS QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW
OR THE TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS UNDER THE ACT AND THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE
STATE AND FOREIGN LAW.”
 
(ii)          In the event that the SEC issues the No-Action Letter, the Holder
may surrender this Warrant to KaloBios in exchange for a new warrant of like
tenor and date, executed by KaloBios, with the following legend:
 
“THIS WARRANT HAS BEEN, AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF
WILL BE ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SECTION 1145 OF
CHAPTER 11 OF TITLE 11 OF THE UNITED STATES CODE (THE “BANKRUPTCY CODE”). THIS
WARRANT AND SUCH WARRANT SHARES MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”), PROVIDED THAT THE HOLDER IS NOT DEEMED TO BE AN UNDERWRITER AS SUCH
TERM IS DEFINED IN SECTION 1145(b) OF THE BANKRUPTCY CODE. IF THE HOLDER IS
DEEMED TO BE AN UNDERWRITER AS SUCH TERM IS DEFINED IN SECTION 1145(b) OF THE
BANKRUPTCY CODE, THEN THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE
EXERCISE HEREOF, MAY ONLY BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
UPON REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION AND THE PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT, AND OF ANY
APPLICABLE STATE SECURITIES LAWS.”
 
(iii)          Further, in the event that the SEC issues the No-Action Letter,
notwithstanding subparagraph (i) above, each certificate representing the
Warrant Shares shall be endorsed with the following legend, and the Holder may
surrender any previously issued certificates representing Warrant Shares to
KaloBios in exchange for new certificates representing such Warrant Shares
endorsed with the following legend:
 

[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SECTION 1145 OF CHAPTER 11 OF TITLE 11 OF THE
UNITED STATES CODE (THE “BANKRUPTCY CODE”). THE SECURITIES MAY BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”), PROVIDED THAT THE HOLDER IS NOT DEEMED TO BE AN
UNDERWRITER AS SUCH TERM IS DEFINED IN SECTION 1145(b) OF THE BANKRUPTCY CODE.
IF THE HOLDER IS DEEMED TO BE AN UNDERWRITER AS SUCH TERM IS DEFINED IN SECTION
1145(b) OF THE BANKRUPTCY CODE, THEN THE SECURITIES MAY ONLY BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED UPON REGISTRATION UNDER THE ACT OR PURSUANT TO
A DISPOSITION THAT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT, AND OF ANY APPLICABLE STATE SECURITIES LAWS.”
 

(b) Transfer Restrictions. Under Section 1145 of the Bankruptcy Code, this
Warrant and the Warrant Shares, in the event the SEC issues the No-Action
Letter, shall be freely tradable in the United States by recipients thereof,
subject to the provisions of Section 1145(b)(1) of the Bankruptcy Code relating
to the definition of an underwriter in Section 2(a)(11) of the Act, and
compliance with applicable securities Laws and any rules and regulations of the
SEC, if any, applicable at the time of any future transfer of the Warrant and
the Warrant Shares.

 

(c) Removal of Legend and Transfer Restrictions. The legend relating to the Act
endorsed on a certificate pursuant to Section 7(a)(i) shall be removed and
KaloBios shall issue a certificate without such legend to the Holder if (i) the
Warrant Shares are registered under the Act and a prospectus meeting the
requirements of Section 10 of the Act is available, (ii) the Warrant Shares are
eligible for resale by the Holder without volume or manner-of-sale limitations
pursuant to Rule 144 or (iii) the Holder provides to KaloBios an opinion of
counsel for the Holder reasonably satisfactory to KaloBios, a no-action letter
or interpretive opinion of the staff of the SEC reasonably satisfactory to
KaloBios, or other evidence reasonably satisfactory to KaloBios, to the effect
that the sale, transfer or assignment of the Warrant Shares may be made without
registration under the Act, it being understood that no such opinion of counsel
will be required of the Holder if (x) the Holder is selling the Warrant Shares
pursuant to Rule 144 and (y) KaloBios’ transfer agent does not require an
opinion to remove the legend and issue a certificate without such legend.

 
Section 8          Registration Rights.  The Warrant Shares issuable upon
exercise hereof are Registrable Securities pursuant to Section 10.9(b) of the
MDC Agreement.
 
Section 9          Miscellaneous.
 
(a)          No Rights as Stockholder until Exercise.  This Warrant does not
entitle the Holder to any voting rights, dividends or other rights as a
stockholder of KaloBios prior to the exercise hereof as set forth in Section 2.
 
 

[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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(b)          Loss, Theft, Destruction or Mutilation of Warrant. KaloBios
covenants that upon receipt by KaloBios of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of this Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
KaloBios will make and deliver a new Warrant or stock certificate of like tenor
and dated as of such cancellation, in lieu of such Warrant or stock certificate.
The applicant for a new Warrant or stock certificate under such circumstances
shall also pay any reasonable third party costs (including customary indemnity,
which shall not include the posting of any bond) associated with the issuance of
such replacement certificate.
 
(c)          Charges, Taxes and Expenses.  Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any United States federal
or state documentary stamp tax or other incidental expense with respect to the
issuance of such certificate, all of which taxes and expenses shall be paid by
KaloBios, and such certificates shall be issued in the name of the Holder.
 
(d)          No Fractional Shares.  No fractional share of Common Stock will be
issued in connection with any exercise or conversion hereunder, but in lieu of
such fractional share KaloBios shall make a cash payment therefor upon the basis
of the Exercise Price then in effect.
 
(e)          Governing Law; Consent to Jurisdiction. This Warrant and all
disputes arising out of or related to this Warrant or any breach hereof shall be
governed by and construed under the laws of the State of Delaware, without
giving effect to any choice of law principles that would require the application
of the laws of a different state. In the event of a dispute, claim or
controversy between the Parties arising under or relating to this Warrant or the
breach, termination, enforcement, interpretation or validity thereof, either
Party may bring suit exclusively in a court of competent jurisdiction located in
the State of Delaware and in no other jurisdiction.  Each Party hereby consents
to personal jurisdiction and venue in, and agrees to service of process issued
or authorized by, such court.
 
(f)          Successors and Assigns.  Subject to applicable securities laws,
this Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors and permitted assigns of KaloBios
and the successors and permitted assigns of the Holder.
 
(g)          Severability.  If any provision hereof should be held invalid,
illegal or unenforceable in any jurisdiction, the Parties shall negotiate in
good faith a valid, legal and enforceable substitute provision that most nearly
reflects the original intent of the Parties and all other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the Parties hereto
as nearly as may be possible.  Such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of such provision in
any other jurisdiction.
 
 

[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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(h)          Notices.  Any notice, request or other document required or
permitted to be given or delivered to the Holder by KaloBios shall be delivered
in accordance with the notice provisions of the MDC Agreement.
 
(i)          Construction. In the event an ambiguity or a question of intent or
interpretation arises, this Warrant will be construed as if drafted jointly by
the Parties and no presumption or burden of proof will arise favoring or
disfavoring either Party by virtue of the authorship of any provisions of this
Warrant.  The language in this Warrant is to be construed in all cases according
to its fair meaning.
 
(j)          Interpretation; Headings.  Headings used herein are for convenience
only and shall not in any way affect the construction of or be taken into
consideration in interpreting this Warrant.  Further, in this Warrant: (i) the
word “including” shall be deemed to be followed by the phrase “without
limitation” or like expression; (ii) the singular shall include the plural and
vice versa; and (iii) masculine, feminine and neuter pronouns and expressions
shall be interchangeable.  A Party includes its permitted assignees and/or the
respective successors in title to substantially the whole of its undertaking.  A
statute or statutory instrument or any of their provisions is to be construed as
a reference to that statute or statutory instrument or such provision as the
same may have been or may from time to time hereafter be amended, restated,
modified, supplemented, or re-enacted.
 
(k)          Waiver.  Neither Party may waive or release any of its rights or
interests in this Warrant except in writing.  The failure of either Party to
assert a right hereunder or to insist upon compliance with any term or condition
of this Warrant shall not constitute a waiver of that right or excuse a similar
subsequent failure to perform any such term or condition.  No waiver by either
Party of any condition or term in any one or more instances shall be construed
as a continuing waiver of such condition or term or of another condition or
term.
 
(l)          Counterparts.  This Warrant may be signed in counterparts, each and
every one of which shall be deemed an original, notwithstanding variations in
format or file designation which may result from the electronic transmission,
storage and printing of copies of this Warrant from separate computers or
printers.  Signatures transmitted via .pdf shall be treated as original
signatures.
 
(m)          Amendment.  No subsequent alteration, amendment, change or addition
to this Warrant shall be binding upon the Parties unless reduced to writing and
signed by an authorized officer of each Party.
 
[Signature Page Follows]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
12

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IN WITNESS WHEREOF, KaloBios has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above indicated.

 
KALOBIOS PHARMACEUTICALS, INC. 
                         
By:
   
Name:  Cameron Durrant 
 
Title:  Chairman and Chief Executive Officer 

 
 
 
 
 
 
[Signature Page to Common Stock Purchase Warrant]

 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT A
NOTICE OF EXERCISE

TO:          KALOBIOS PHARMACEUTICALS, INC.

(1)          The undersigned hereby elects to purchase ________ Warrant Shares
of KaloBios pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the Exercise Price in full, together with
all applicable transfer taxes, if any.
 
(2)          Payment shall take the form of (check applicable box):
 
☐ in lawful money of the United States in the sum of $___________________; or
 
☐ if permitted, the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection 2(c) of the
Warrant, to exercise this Warrant with respect to the maximum number of Warrant
Shares purchasable pursuant to the cashless exercise procedure set forth in
subsection 2(c).
 
(3)          Please issue said Warrant Shares in the name of the undersigned or
in such other name as is specified below:
 

 

 

 
 
The Warrant Shares shall be delivered to the following DWAC Account Number:
 

 
  
             

 

[SIGNATURE OF HOLDER]

Name of Investing Entity:
         

Signature of Authorized Signatory of Investing Entity: 
 

Name of Authorized Signatory: 
 

Title of Authorized Signatory: 
 

Date: 
 

 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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EXHIBIT G
 
FORM OF SECURITY AGREEMENT
 
[Attached hereto.]
 
 
 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 

EXHIBIT G

 
FORM OF SECURITY AGREEMENT
 
This SECURITY AGREEMENT (this “Agreement”) is entered into as of [●], 2016 by
and between KaloBios Pharmaceuticals, Inc., a Delaware corporation, having
offices at 1000 Marina Blvd, Suite 250, Brisbane, CA 94005 (the “Obligor”) and
Savant Neglected Diseases, LLC, a Delaware limited liability company, having a
place of business at 740 Bair Island Road #106, Redwood City, CA 94063 (the
“Secured Party”).  KaloBios and the Company are sometimes referred to in this
Agreement individually as a “Party” and collectively as the “Parties.”
 
RECITALS
 
WHEREAS, pursuant to that certain Agreement for the Manufacture, Development and
Commercialization of Benznidazole for Human Use, dated as the date hereof (as
amended, modified or restated from time to time, the “MDC Agreement”) between
the Obligor and the Secured Party, the Secured Party has agreed to sell certain
assets to the Obligor upon the terms and subject to the conditions set forth
therein; and
 
WHEREAS, this Agreement is required by the terms of the MDC Agreement.
 
NOW, THEREFORE, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties hereto agree as follows:
 
1.          Definitions.
 
Capitalized terms used and not otherwise defined herein shall have the meanings
ascribed to such terms in the MDC Agreement.   In addition to the terms defined
in this Agreement, the following capitalized terms have the meanings set forth
in this Article 1 for purposes of this Agreement:
 
“Agreement” has the meaning set forth in the Preamble.
 
“Collateral” has the meaning set forth in Section 2.
 
“Excluded Collateral” has the meaning set forth in Section 2.
 
“Financing Statement” has the meaning set forth in Section 3.
 
“General Intangible” has the meaning provided therefor in the UCC.
 
“Lien” means any lien (statutory or other), mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, priority or other security
agreement or similar arrangement of any kind or nature whatsoever.
 
“MDC Agreement” has the meaning set forth in the Recitals.
 
 “Obligor” has the meaning set forth in the Preamble.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
“Party” and “Parties” have the meaning set forth in the Preamble.
 
“Permitted Dispositions” shall mean: (i) sales, abandonment, or other
dispositions of equipment that is substantially worn, damaged, or obsolete or no
longer used or useful in the ordinary course of business and leases or subleases
of real property not necessary in the conduct of the business of the Obligor,
(ii) sales of inventory made, directly or indirectly, to unrelated third parties
in the ordinary course of the Obligor’s business, (iii) the use or transfer of
money in a manner that is not prohibited by the terms of this Agreement or the
MDC Agreement,  (iv) the licensing of rights to any Collateral in accordance
with the MDC Agreement, (v) the granting of Permitted Encumbrances, (vi) the
sale or discount, in each case without recourse, of accounts receivable arising
in the ordinary course of business, but only in connection with the compromise
or collection thereof, (vii) any involuntary loss, damage or destruction of
property covered, subject to any deductibles, by insurance, (viii) any
involuntary condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, or confiscation or requisition of use of property, (ix) the
leasing or subleasing of assets of the Obligor in the ordinary course of
business and in accordance with the MDC Agreement, (x) the lapse of registered
patents, trademarks, copyrights and other intellectual property of the Obligor
to the extent not economically desirable in the conduct of the business of the
Obligor as permitted by the MDC Agreement, (xi) the abandonment of patents,
trademarks, copyrights, or other intellectual property rights in the ordinary
course of business as permitted by the MDC Agreement, or (xii) dispositions of
equipment to the extent that (a) such property is exchanged for credit against
the purchase price of similar replacement property, or (b) the proceeds of such
disposition are substantially contemporaneously applied to the purchase price of
such replacement property.
 
“Secured Obligations” has the meaning set forth in Section 2.
 
“Secured Party” has the meaning provided in the introductory paragraph hereof.
 
“Security Interest” has the meaning set forth in Section 2.
 
“UCC” means the Uniform Commercial Code as in effect from time to time in the
State of Delaware; provided, however, that, at any time, if by reason of
mandatory provisions of law, any or all of the perfection or priority of the
Secured Party’s Security Interest in any item or portion of the Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of Delaware, the term “UCC” shall mean the Uniform Commercial
Code as in effect, at such time, in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or priority and for purposes of
definitions relating to such provisions.
 
Any other capitalized terms used but not defined herein shall have the meaning
ascribed to such terms in the MDC Agreement.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
2

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2.          Grant of Security Interest in the Collateral.  To secure the timely
payment of the Obligor’s obligations to pay (a) the Milestone Payments pursuant
to Section 3.3 of the MDC Agreement, (b) the Voucher Payment pursuant to
Section 3.4 of the MDC Agreement, (c) the Royalties under Section 7.8 of the MDC
Agreement, and (d) all other amounts due and payable by the Obligor from time to
time pursuant to any Transaction Document (collectively, the “Secured
Obligations”), the Obligor hereby grants to the Secured Party a continuing
senior security interest (the “Security Interest”) in any and all right, title
and interest of such Obligor in and to the Acquired Assets and the Future Assets
(collectively, the “Collateral”).  Notwithstanding anything to the contrary
contained herein, the Collateral shall not include (collectively, the “Excluded
Collateral”): any property, General Intangible, permit, lease, license, contract
or other instrument of the Obligor if the grant of a Security Interest in such
property, General Intangible, permit, lease, license, contract or other
instrument in the manner contemplated by this Agreement (i) is prohibited under
the terms of any General Intangible, permit, lease, license, contract or other
instrument and would result in the termination thereof or give the other parties
thereto the right to terminate, accelerate or otherwise alter the Obligor’s
rights, titles and interests thereunder (including upon the giving of notice or
the lapse of time or both) or (ii) is prohibited, or requires the consent of a
Governmental Authority, under applicable law; provided, that any such limitation
described above on the Security Interest shall only apply to the extent that any
such prohibition would not be rendered ineffective pursuant to the UCC or any
other applicable law or principles of equity, provided, however, that the
Security Interest shall attach immediately to any severable term of such lease,
license, contract, property rights or agreement to the extent that such
attachment does not result in any of the consequences specified in (i) or (ii)
above.
 
3.          Authorization to File Financing Statements.  The Obligor hereby
authorizes the Secured Party to prepare and file such financing statements
(including continuation statements) or other similar document used to perfect
and preserve a security interest under the laws of any jurisdiction or
amendments thereof or supplements thereto (a “Financing Statement”) as the
Secured Party may from time to time deem necessary or appropriate in order to
perfect and maintain the Security Interests granted hereunder in accordance with
the UCC; provided, that  (a) the description of any collateral contained in such
Financing Statements shall be limited to the “Collateral” as defined herein, and
(b) any such Financing Statement or amendment shall specifically identify any
Excluded Collateral that is not subject thereto.
 
4.          Title, Rights to Collateral. The Obligor has (or will have at the
time it acquires rights in Collateral hereafter acquired or arising), and shall
maintain (other than in accordance with Section 5) so long as the Security
Interest remains outstanding, title to each item of Collateral (including the
proceeds and products thereof), or other rights sufficient to grant the Security
Interest, free and clear of all Liens other than Permitted Encumbrances.  The
Obligor shall not license any Collateral to any third party or otherwise, except
in accordance with the provisions of the MDC Agreement.  The Obligor shall
defend the Collateral against all claims or demands of all Persons (other than
the Secured Party or any holder of Permitted Encumbrances) claiming the
Collateral or any interest therein.  As of the Closing, no effective Financing
Statement covering all or any part of the Collateral is on file in any recording
office, except in favor of the Secured Party relating to this Agreement.
 
5.          Disposition of Collateral. The Obligor shall not sell, lease or
otherwise dispose of, or discount or factor with or without recourse, any
Collateral, except (a) with the prior written consent of the Secured Party, (b)
in accordance with the terms of the MDC Agreement in connection with any
sublicense or assignment thereunder or, to the extent applicable, Change of
Control of the Obligor in accordance with the terms of the MDC Agreement, or (c)
pursuant to any Permitted Disposition.

 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
3

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6.          Notice of Loss.  The Obligor shall promptly notify the Secured Party
of any material loss of or material damage to any material item of Collateral,
or of any material adverse change, actually known to the Obligor in any material
item of Collateral.
 
7.          Name, Office, Location, Jurisdiction of Organization.  The Obligor
shall not change its name, the location of its chief executive office or its
jurisdiction of organization unless the Secured Party has received at least 20
days’ prior written notice thereof.
 
8.          Inspection.  The Obligor shall permit the Secured Party and its
respective representatives and agents to engage in such inspections and
examinations of the Collateral and any books and records relating to the
Collateral upon reasonable prior notice and at such reasonable times and
intervals as the Secured Party may determine, at the sole expense of the Secured
Party; provided that prior to the occurrence and continuance of an Event of
Default, the Secured Party shall be limited to [***] such inspection and
examination per [***], at the sole expense of [***].
 
9.          Further Assurances.  From time to time, at its expense, the Obligor
shall promptly execute and deliver all further instruments and documents, and
take all further action, that is necessary or that the Secured Party reasonably
requests to perfect and protect the Security Interest or to enable the Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
any Collateral.  In furtherance, and not in limitation, of the other rights,
powers and remedies granted to the Secured Party in this Agreement, the Obligor
hereby appoints the Secured Party its attorney-in-fact, with full authority in
the place and stead of such Grantor and in the Obligor’s name or otherwise, from
time to time during the continuance of an Event of Default and in the Secured
Party’s good faith discretion, to take any action (including the right to
collect on any Collateral) and to execute any instrument that the Secured Party
reasonably believes is necessary or advisable to accomplish the purposes of this
Agreement, in a manner consistent with the terms hereof.
 
10.          Defaults.  Each of the following occurrence shall constitute an
“Event of Default” under this Agreement: (a) the Obligor fails to pay any of the
Secured Obligations when due (after taking into account any applicable grace
periods) and such failure continues for [***]; (b) the Obligor fails to observe
or perform any covenant or agreement under this Agreement  (after taking into
account any applicable grace periods) and such failure continues for [***] after
written notice of such failure provided by the Secured Party to the Obligor;
provided, however, that such failure shall be an Event of Default immediately
and prior to any such [***] period in the event that such failure could not be
cured within [***] or  such continuing failure would materially adversely affect
the value of the Collateral; (c) the Obligor or any of its subsidiaries (x)
commences any case, proceeding or other action under any existing or future
debtor relief law, seeking (A) to have an order for relief entered with respect
to it, (B) to adjudicate it as bankrupt or insolvent, (C) reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (D) appointment of a receiver,
trustee, custodian, conservator or other similar official for it or for all or
any substantial part of its assets, or (y) makes a general assignment for the
benefit of its creditors; (d) there is commenced against the Obligor or any of
its subsidiaries in a court of competent jurisdiction any case, proceeding or
other action of a nature referred to in clause (c) above which (x) results in
the entry of an order for relief or any such adjudication or appointment or (y)
remains undismissed, undischarged, unstayed or unbonded for [***]; (e) there is
commenced against the Obligor or any of its subsidiaries any case, proceeding or
other action seeking issuance of a warrant of attachment, execution or similar
process against all or any substantial part of its assets which results in the
entry of an order for any such relief which has not been vacated, discharged,
stayed or bonded pending appeal within [***] from the entry thereof; (f) the
Obligor or any of its subsidiaries is generally not, or is unable to, or admits
in writing its inability to, pay its debts as they become due; and (g) the
Obligor contests in any manner the validity or enforceability of the security
interest granted under this Agreement.

 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
4

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11.          Remedies upon Default.  Upon and during the continuance of an Event
of Default, the Secured Party shall have, in addition to the rights and remedies
provided herein, in any other Transaction Document(s) relating to the Secured
Obligations, or by applicable law (including, but not limited to, levy of
attachment, garnishment and the rights and remedies set forth in the UCC of the
jurisdiction applicable to the affected Collateral), the rights and remedies of
a secured party under the UCC (regardless of whether the UCC is the law of the
jurisdiction where the rights and remedies are asserted and regardless of
whether the UCC applies to the affected Collateral), the Secured Party may, with
or without judicial process or the aid and assistance of others, (a) enter on
any premises on which any of the Collateral may be located and, without
resistance or interference by the Obligor, take possession of the Collateral,
(b) dispose of any Collateral on any such premises, (c) require the Obligor to
assemble and make available to the Secured Party at the expense of the Obligor
any Collateral at any place and time designated by the Secured Party which is
reasonably convenient to both Parties, (d) remove any Collateral from any such
premises for the purpose of effecting sale or other disposition thereof, and/or
(e) without demand and without advertisement, notice, hearing or process of law,
all of which the Obligor hereby waives to the fullest extent permitted by
applicable law, at any place and time or times, sell and deliver any or all
Collateral held by or for it at public or private sale, at any exchange or
broker’s board or elsewhere, by one or more contracts, in one or more parcels,
for money, upon credit or otherwise, at such prices and upon such terms as the
Secured Party deems advisable, in its sole discretion (subject to any and all
mandatory legal requirements).  The Obligor acknowledges that any such private
sale may be at prices and on terms less favorable to the seller than the prices
and other terms which might have been obtained at a public sale and,
notwithstanding the foregoing, agrees that such private sale shall be deemed to
have been made in a commercially reasonable manner.  Neither the Secured Party’s
compliance with applicable Law nor its disclaimer of warranties relating to the
Collateral shall be considered to adversely affect the commercial reasonableness
of any sale.  To the extent the rights of notice cannot be legally waived
hereunder, the Obligor agrees that any requirement of reasonable notice shall be
met if such notice, specifying the place of any public sale or the time after
which any private sale is to be made, is personally served on or mailed, postage
prepaid, to the Obligor in accordance with the notice provisions of Section 16
at least ten (10) days before the time of sale or other event giving rise to the
requirement of such notice.  The Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.  The Secured Party shall not be obligated to make any sale or
other disposition of the Collateral regardless of notice having been given.  To
the extent permitted by applicable Law, any holder of Secured Obligations may be
a purchaser at any such sale.  To the extent permitted by applicable Law, the
Obligor hereby waives all of its rights of redemption with respect to any such
sale.  Subject to the provisions of applicable Law, the Secured Party may
postpone or cause the postponement of the sale of all or any portion of the
Collateral by announcement at the time and place of such sale, and such sale
may, without further notice, to the extent permitted by applicable Law, be made
at the time and place to which the sale was postponed, or the Secured Party may
further postpone such sale by announcement made at such time and place.

 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
5

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12.          Application of Proceeds.  Any proceeds of the Collateral received
by the Secured Party in connection with the exercise of remedies pursuant to
this Agreement will be applied in reduction of the Secured Obligations.
 
13.          Continuing Agreement; Termination; Releases of Collateral.  (a)
This Agreement shall remain in full force and effect until the date upon which
the Secured Obligations (other than contingent indemnification obligations not
then due) have been paid in full or otherwise have been satisfied or are no
longer outstanding, and shall be terminated as and when provided in the MDC
Agreement, at which time this Agreement shall be automatically terminated and
the Secured Party shall, upon the request and at the expense of the Obligor,
forthwith release all of its liens and Security Interests hereunder and shall
execute and deliver all UCC termination statements and/or other documents
requested by the Obligor evidencing such termination and release of the Security
Interest.
 
(b)          If any of the Collateral shall be sold, transferred or otherwise
disposed of by the Obligor (i) in accordance with the terms and provisions of
the MDC Agreement and upon execution of a security agreement substantially
similar to this Agreement by such purchaser or transferee, or (ii) pursuant to a
Permitted Disposition, the liens and security interests created pursuant to this
Agreement in such Collateral shall be deemed automatically released. Upon such
release the Secured Party, upon the written request and at the expense of the
Obligor, shall execute and deliver to the Obligor all releases, UCC termination
statements and other documents necessary or advisable for the release of the
liens and security interests created hereby on such Collateral; provided that
the Obligor shall have delivered to the Secured Party, at least three Business
Days (or such shorter period reasonably acceptable to the Secured Party) prior
to the date of the proposed release, a request for release identifying such
Collateral to be released.
 
14.          Amendments; Waivers; Modifications, etc.  This Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except as set forth in Section 13 or as set forth in writing and
signed by an authorized officer of each Party.
 
15.          Successors in Interest.  This Agreement shall be binding upon the
Obligor, its successors and permitted assigns and shall inure, together with the
rights and remedies of the Secured Party, to the benefit of the Secured Party
and its successors and permitted assigns.
 
16.          Notices.  All notices required or permitted to be given under this
Agreement shall be in conformance with Section 15.4 of the MDC Agreement.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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17.          Counterparts.  This Agreement may be signed in counterparts, each
and every one of which shall be deemed an original, notwithstanding variations
in format or file designation which may result from the electronic transmission,
storage and printing of copies of this Agreement from separate computers or
printers.  Signatures transmitted via .pdf shall be treated as original
signatures.
 
18.          Headings.  Headings used herein are for convenience only and shall
not in any way affect the construction of or be taken into consideration in
interpreting this Agreement.
 
19.          Governing Law; Dispute Resolution.  This Agreement and all disputes
arising out of or related to this Agreement or any breach hereof shall be
governed by and construed under the laws of the State of Delaware, without
giving effect to any choice of law principles that would require the application
of the laws of a different state.  In the event of a dispute, claim or
controversy between the Parties arising under or relating to this Agreement or
the breach, termination, enforcement, interpretation or validity thereof, either
Party may bring suit exclusively in a court of competent jurisdiction located in
the State of Delaware and in no other jurisdiction.  Each Party hereby consents
to personal jurisdiction and venue in, and agrees to service of process issued
or authorized by such court.
 
20.          Severability.  If any provision hereof should be held invalid,
illegal or unenforceable in any jurisdiction, the Parties shall negotiate in
good faith a valid, legal and enforceable substitute provision that most nearly
reflects the original intent of the Parties and all other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the Parties hereto
as nearly as may be possible.  Such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of such provision in
any other jurisdiction.
 
21.          Reference to the Agreement.  This Agreement has been entered into
by the Obligor and the Secured Party solely for purposes as contemplated by the
MDC Agreement.  In the event of any inconsistency between any of the terms or
provisions hereof and the terms and provisions of the MDC Agreement, the terms
and provisions of this Agreement shall govern.
 
22.          Entirety.  This Agreement, the MDC Agreement and the other
documents relating to the Secured Obligations represent the entire agreement of
the Parties hereto and thereto, and supersede all prior agreements and
understandings, oral or written, if any, including any commitment letters or
correspondence relating to the MDC Agreement, any other documents relating to
the Secured Obligations, or the transactions contemplated herein and therein.
 
[Signature Page Follows.]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
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IN WITNESS WHEREOF, Each of the Parties hereto has caused a counterpart of this
Security Agreement to be duly executed and delivered as of the date first above
written.

 

 
OBLIGOR: 
       
KALOBIOS PHARMACEUTICALS, INC. 
                   
By:
     
Name:  Cameron Durrant 
   
Title:  Chairman and Chief Executive Officer 

 
 
 
 
 
 
[Signature Page to Security Agreement]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
Accepted and agreed to as of the date first above written.
 

 
SECURED PARTY: 
       
SAVANT NEGLECTED DISEASES, LLC 
                   
By:
     
Name:  Stephen L. Hurst 
   
Title:  Managing Member 

 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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EXHIBIT H

ESCROW AGREEMENT

[Attached hereto.]
 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT H

 
FORM OF ESCROW AGREEMENT
 
THIS ESCROW AGREEMENT (this “Escrow Agreement”) is entered into as of June [●],
2016 by and among KaloBios Pharmaceuticals, Inc., a Delaware corporation
(“KaloBios”), Savant Neglected Diseases, LLC, a Delaware limited liability
company (“Savant”), Black Horse Capital LP (“BHC”), Black Horse Capital Master
Fund Ltd. (“BHCM”), Cheval Holdings, Ltd. (“Cheval” and together with BHC and
BHCM, the “Black Horse Entities,” and collectively with KaloBios and Savant, the
“Parties”) and Wilmington Savings Fund Society, FSB, as escrow agent (“Escrow
Agent”).
 
WHEREAS, KaloBios is a debtor and debtor-in-possession in the bankruptcy case
captioned as Case No. 15-12628 (LSS) (the “Bankruptcy Case”) pending before the
United States Bankruptcy Court for the District of Delaware (the “Bankruptcy
Court”);
 
WHEREAS, on April 1, 2016, KaloBios, BHC, BHCM, Cheval and Nomis Bay LTD
(“Nomis,” and collectively with BHC, BHCM and Cheval, the “Purchasers”) entered
into that certain Securities Purchase Agreement (as amended from time to time,
the “Securities Purchase Agreement”), pursuant to which the Purchasers have
agreed to purchase from KaloBios and KaloBios has agreed to issue and sell to
the Purchasers shares of common stock of KaloBios, as reorganized pursuant to
the Plan (as defined below), upon the terms and conditions of the Securities
Purchase Agreement;
 
WHEREAS, on April 1, 2016, BHCM as Administrative Agent and Lender, BHC, Cheval
and Nomis as Lenders (collectively, the “DIP Credit Parties”), and KaloBios as
Borrower entered into that certain Debtor in Possession Credit and Security
Agreement (as amended from time to time, the “DIP Credit Agreement”), which
provides, among other things, for the Term Loan made to KaloBios thereunder,
plus accrued and unpaid interest, plus the Commitment Fee, plus the Upfront Fee,
plus all other non-contingent Obligations (each of the foregoing capitalized
terms as defined in the DIP Credit Agreement) (collectively, the “Term Loan
Obligations”) to be paid and satisfied, upon the occurrence of the Maturity Date
(as defined in the DIP Credit Agreement) thereunder, by the issuance to the DIP
Credit Parties of shares of common stock of KaloBios, as reorganized pursuant to
the Plan, upon the terms and conditions of the DIP Credit Agreement;
 
WHEREAS, simultaneous with the execution of this Escrow Agreement, KaloBios and
Savant are entering into that certain Agreement for the Manufacture, Development
and Commercialization of Benznidazole for Human Use (the “MDC Agreement”),
pursuant to which, among other things, Savant will sell to KaloBios and KaloBios
will purchase from Savant, all right, title and interest in and to certain
assets relating to the compound known as benznidazole and pharmaceutical
products containing benznidazole;
 
WHEREAS, by Order entered on June 16, 2016 D.I. 581 (the “Confirmation Order”),
the Bankruptcy Court, among other things, confirmed the Debtor’s Second Amended
Plan of Reorganization, dated May 9, 2016, as modified by the Confirmation Order
(as amended and modified and including all exhibits, schedules and supplements
thereto, the “Plan”), and authorized and approved the Contemplated Transaction
and KaloBios’ entry into and performance under the MDC Agreement, subject to any
applicable consent rights of the Purchasers;
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
WHEREAS, the Plan provides that the date of substantial consummation of the Plan
shall occur on the first business day upon which all conditions precedent to the
effectiveness of the Plan, specified in Section 9.2 of the Plan, are satisfied
or waived in accordance with the Plan (the “Effective Date”);
 
WHEREAS, the conditions precedent to the occurrence of the Effective Date
include the requirement that all of the conditions precedent for the closing of
the Securities Purchase Agreement have been satisfied or waived in accordance
with the terms of the Securities Purchase Agreement;
 
WHEREAS, as a condition to the closing of the transactions contemplated by the
MDC Agreement and the Securities Purchase Agreement, respectively (each, a
“Closing” and collectively, the “Closings”), the Bankruptcy Court shall have
issued a judicial order approving the contemplated transactions and the
Effective Date shall have occurred or shall occur contemporaneously with the
Closings;
 
WHEREAS, Nomis and Cortleigh Limited (“Cortleigh”) (to which Nomis has assigned
the right to receive twenty percent (20%) of the shares of new common stock of
KaloBios, as reorganized under the Plan, that are to be issued to Nomis pursuant
to the Securities Purchase Agreement) are not party to this Escrow Agreement
solely because Nomis and Cortleigh have elected to remit at the Closing their
respective portions of the Purchase Price (as defined in the Securities Purchase
Agreement) directly to KaloBios;  and
 
WHEREAS, Escrow Agent desires to accept its appointment as an escrow agent and
to hold and disburse the funds deposited with it in accordance with the terms of
this Escrow Agreement.
 
NOW, THEREFORE, the Parties and the Escrow Agent, intending to be legally bound,
hereby agree as follows:
 

1. APPOINTMENT OF AND ACCEPTANCE BY ESCROW AGENT

 
The Parties hereby appoint Escrow Agent to serve as escrow agent hereunder. 
Escrow Agent hereby accepts such appointment and, upon receipt by wire transfer
of the Escrow Funds (as defined below) in accordance with Section 2 below,
agrees to hold and disburse the Escrow Funds in accordance with this Escrow
Agreement.
 

2. ESTABLISHMENT OF ESCROW

 
The Black Horse Entities shall deposit with Escrow Agent the amounts set forth
on Schedule A (each, a “BH Deposit”) by wire transfer of immediately available
funds to the account of Escrow Agent referenced in Schedule B, which shall be a
non-interest bearing bank account of Escrow Agent (the “Escrow Account”).  The
amounts deposited in the Escrow Account, as reduced by any disbursements and
amounts withdrawn therefrom, are herein referred to as the “Escrow Funds”.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
2

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3. DISBURSEMENT PROCEDURES; CLOSING

 
(a)          After Escrow Agent has received the BH Deposit, the disbursement
from the Escrow Account shall be made in the amounts and to the accounts set
forth on Schedule C attached hereto upon receipt by the Escrow Agent of: (i) a
certificate of confirmation in substantially the form attached hereto as Exhibit
A (a “Party Certificate of Confirmation”) from each of the Parties; and (ii) a
certificate of confirmation in substantially the form attached hereto as Exhibit
B (together with the Party Certificates of Confirmation, the “Certificates of
Confirmation”) from each of Nomis and Cortleigh (collectively with the Parties,
the “Confirming Entities”), in each case executed by an authorized person of
such Confirming Entity (as described in Schedule D).  Such Certificates of
Confirmation from all of the Confirming Entities are referred to collectively
hereinafter as the “Joint Escrow Instructions.” Upon the receipt of Joint Escrow
Instructions from all Parties, title to the portion of the Escrow Funds payable
to each payee as set forth on Schedule C shall be transferred to such payee, and
the Purchasers shall have no further right or interest in or to the portion of
the Escrow Funds to be paid to such payee pursuant to Section 3(b) below.
 
(b)          Escrow Agent shall make such disbursements prior to 5:00 p.m.
(Eastern) on the business day on which the Escrow Agent receives the Joint
Escrow Instructions; provided, however, if the Joint Escrow Instructions are not
received by the Escrow Agent until after 1:00 p.m. (Easter), Escrow Agent shall
have until 12:00 noon (Eastern) on the next business day to make such
disbursements.
 
(c)          Upon completion of such disbursements referenced above and
KaloBios’ receipt of the portion of the Purchase Price due from Nomis and
Cortleigh under the Securities Purchase Agreement, (i) KaloBios and Savant
hereby agree that the MDC Agreement and the transactions contemplated thereby
are closed; (ii) KaloBios and each of the Black Horse Entities hereby agree that
the Securities Purchase Agreement and the transactions contemplated thereby are
closed, and KaloBios will promptly thereafter deliver the common stock of
KaloBios, as reorganized under its Plan, to the Purchasers in accordance with
the Securities Purchase Agreement; (iii) KaloBios and each of the Black Horse
Entities hereby agree that the Maturity Date for the DIP Credit Agreement has
occurred, and KaloBios will promptly thereafter deliver the common stock of
KaloBios, as reorganized under its Plan, to the DIP Credit Parties; (iv)
KaloBios and each of the Black Horse Entities hereby agree that all conditions
precedent to the occurrence of the Effective Date set forth in Section 9.2 of
the Plan have been satisfied or waived as permitted by Section 9.3 of the Plan;
and (v) subject to KaloBios’ filing of the Notice of the Effective Date pursuant
to Section 9.4 of the Plan, the Effective Date of the Plan shall have occurred.
 
(d)          If the Joint Escrow Instructions have not been executed by the
Confirming Entities and delivered to the Escrow Agent by 5:00 p.m. (Eastern
Time) on June 30, 2016, then upon the written demand of any of the Black Horse
Entities, without prior notice to any other party, Escrow Agent shall return to
each of the Black Horse Entities any BH Deposit deposited by or on behalf of
such Black Horse Entity and Escrow Agent’s obligations under this Agreement
shall terminate; provided that, in the absence of such a written demand, Escrow
Agent shall continue to comply with this Agreement without reference to the time
limitations last previously mentioned until demand is made as aforesaid.
 
 

[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
3

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(e)          Notwithstanding the foregoing, all disbursements of Escrow Funds
shall be subject to Escrow Agent’s right to withhold amounts equal to the claims
and unpaid fees of Escrow Agent pursuant to Section 6 and Section 13 below.
 

4. DUTIES OF ESCROW AGENT

 
(a)          The Parties acknowledge and agree that (i) the duties,
responsibilities and obligations of Escrow Agent shall be limited to those
expressly set forth in this Escrow Agreement, each of which is administrative or
ministerial (and shall not be construed to be fiduciary) in nature, and no
duties, responsibilities or obligations shall be inferred or implied, (ii)
Escrow Agent shall not be responsible for any of the agreements referred to or
described herein (including without limitation the Plan, the MDC Agreement and
the Securities Purchase Agreement), or for determining or compelling compliance
therewith, and shall not otherwise be bound thereby, and (iii) Escrow Agent
shall not be required to expend or risk any of its own funds to satisfy payments
from the Escrow Funds hereunder.
 
(b)          Escrow Agent shall not be under any duty to give the Escrow Funds
held by it hereunder any greater degree of care than it gives its own similar
property and shall not be required to invest any funds held hereunder except as
directed in this Escrow Agreement.  Uninvested funds held hereunder shall not
earn or accrue interest.
 

5. ESCROW AGENT’S LIABILITY

 
(a)          Escrow Agent shall not be liable for actions or omissions
hereunder, except to the extent that a court of competent jurisdiction
determines in a final, non-appealable judgment that Escrow Agent’s gross
negligence or willful misconduct was the primary cause of any liability or loss
to Escrow Agent.  Without limiting the foregoing, Escrow Agent shall in no event
be liable in connection with its investment or reinvestment of any cash held by
it hereunder in good faith, in accordance with the terms hereof, including,
without limitation, any liability for any delays (not resulting from its gross
negligence or willful misconduct) in the investment or reinvestment of the
Escrow Funds or any loss of interest incident to any such delays.  In no event
shall Escrow Agent be liable for incidental, indirect, special, consequential or
punitive damages (including, but not limited to lost profits), even if Escrow
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action.  Escrow Agent shall not be obligated to take any legal
action or commence any proceeding in connection with the Escrow Funds, any
account in which Escrow Funds are deposited or this Escrow Agreement, or to
appear in, prosecute or defend any such legal action or proceeding.  Escrow
Agent may consult legal counsel selected by it in the event of any dispute or
question as to the construction of any of the provisions hereof or of any other
agreement or of its duties hereunder, or relating to any dispute involving the
Parties, and shall incur no liability and shall be fully indemnified by the
Parties from any liability whatsoever in acting in accordance with the
reasonable opinion or instruction of such counsel.  The Parties shall promptly
pay, upon demand, the reasonable fees and expenses of any such counsel.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
4

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(b)          If any portion of the Escrow Funds is at any time attached,
garnished or levied upon under any court order, or in case the payment,
assignment, transfer, conveyance or delivery of any such property shall be
stayed or enjoined by any court order, or in case any order, judgment or decree
shall be made or entered by any court affecting such property or any part
thereof, then and in any such event, Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ, judgment or
decree which it is advised by legal counsel selected by it is binding upon it
without the need for appeal or other action; and if Escrow Agent complies with
any such order, writ, judgment or decree, it shall not be liable to any of the
parties hereto or to any other person or entity by reason of such compliance
even though such order, writ, judgment or decree may be subsequently reversed,
modified, annulled, set aside or vacated.
 

6. INDEMNIFICATION

 
From and at all times after the date of this Escrow Agreement, KaloBios shall,
to the fullest extent permitted by law, defend, indemnify and hold harmless
Escrow Agent and each director, officer, employee, attorney, agent and affiliate
of Escrow Agent (collectively, the “Indemnified Parties”) against any and all
actions, claims (whether or not valid), losses, damages, liabilities, costs and
expenses of any kind or nature whatsoever (including without limitation
reasonable attorneys’ fees, costs and expenses) incurred by or asserted against
any of the Indemnified Parties from and after the date hereof, whether direct,
indirect or consequential, as a result of or arising from or in any way relating
to any claim, demand, suit, action or proceeding (including any inquiry or
investigation) by any person, including without limitation any of the Parties,
whether threatened or initiated, asserting a claim for any legal or equitable
remedy against any person under any statute or regulation, including, but not
limited to, any federal or state securities laws, or under any common law or
equitable cause or otherwise, arising from or in connection with the
negotiation, preparation, execution, performance or failure of performance of
this Escrow Agreement or any transactions contemplated hereby, whether or not
any such Indemnified Party is a party to any such action, proceeding, suit or
the target of any such inquiry or investigation; provided, however, that no
Indemnified Party shall have the right to be indemnified hereunder for any
liability finally determined by a court of competent jurisdiction, subject to no
further appeal, to have resulted solely from the gross negligence or willful
misconduct of an Indemnified Party.  Indemnified Parties shall, in their sole
discretion, have the right to select and employ separate counsel with respect to
any action or claim brought or asserted against it, and the reasonable fees of
such counsel shall be paid upon demand by the Parties; provided, however that
the Parties shall not, in connection with any proceeding or related proceedings
in the same jurisdiction, be liable for the reasonable fees of counsel of more
than one separate firm (plus, if required, one separate firm admitted to
practice in a local jurisdiction) at any one time retained by Indemnified
Parties unless the employment of more than one counsel has been authorized in
writing by the Parties.  The obligations of the Parties under this Section 6(a)
shall survive any termination of this Escrow Agreement and the resignation or
removal of Escrow Agent.

 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
5

--------------------------------------------------------------------------------

 
 

7. RELIANCE

 
(a)          Escrow Agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof.  Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that the person purporting
to give receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so.  Escrow
Agent may conclusively presume that the undersigned representative of each Party
has full power and authority to instruct Escrow Agent on behalf of such Party
unless written notice to the contrary is delivered to Escrow Agent by such
Party.  Escrow Agent is authorized to comply with final orders issued or process
entered by any court with respect to the Escrow Amount, without determination by
Escrow Agent of such court’s jurisdiction in the matter.
 
(b)          Escrow Agent may act pursuant to the advice of counsel with respect
to any matter relating to this Escrow Agreement and shall not be liable for any
action taken or omitted by it in good faith in accordance with such advice.
 

8. ESCROW FUNDS

 
(a)          Escrow Agent does not have any interest in the Escrow Funds
deposited hereunder but is serving as escrow agent only and has only possession
thereof.  Any payments of income from the Escrow Funds shall be subject to
withholding regulations then in force with respect to United States taxes.  Upon
execution of this Escrow Agreement, the Parties will provide Escrow Agent with
appropriate Internal Revenue Service Forms W-8 or W-9 for tax identification
number certification, or nonresident alien certifications.  Section 5(a) and
this Section 8(a) shall survive notwithstanding any termination of this Escrow
Agreement or the resignation of Escrow Agent.
 
(b)          Escrow Agent makes no representation as to the validity, value,
genuineness or collectability of any security or other document or instrument
held by or delivered to it.
 
(c)          Escrow Agent shall not be called upon to advise any party as to the
wisdom in selling or retaining or taking or refraining from any action with
respect to any amounts deposited hereunder.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
6

--------------------------------------------------------------------------------

 
 

9. RESIGNATION

 
Escrow Agent (and any successor Escrow Agent) may at any time resign as such by
delivering the Escrow Funds to any successor Escrow Agent designated by the
Parties in writing, or to any court of competent jurisdiction, whereupon Escrow
Agent shall be discharged of and from any and all further obligations arising in
connection with this Escrow Agreement.  The resignation of Escrow Agent will
take effect on the earlier of (i) the appointment of a successor (including a
court of competent jurisdiction) or (ii) the day which is thirty (30) days after
the date of delivery of its written notice of resignation to the Parties.  If,
at that time, Escrow Agent has not received a designation of a successor Escrow
Agent, Escrow Agent’s sole responsibility after that time shall be to retain
(without any obligation to reinvest the same) the Escrow Funds until receipt of
a designation of successor Escrow Agent or a court order appointing a successor
Escrow Agent as set forth below.  The Parties shall use commercially reasonable
efforts to appoint a successor Escrow Agent hereunder prior to the effective
date of such resignation and to cause such successor Escrow Agent to execute and
deliver an instrument accepting such appointment.  The resigning Escrow Agent
shall transmit all records pertaining to the Escrow Funds and shall pay all
Escrow Funds to the successor Escrow Agent, after making copies of such records
as the resigning Escrow Agent deems advisable and after deduction and payment to
the resigning Escrow Agent of all fees and expenses (including court costs and
attorneys’ fees) due and owing to the resigning Escrow Agent in connection with
the performance of its duties and the exercise of its rights hereunder.  If the
Parties have failed to appoint a successor Escrow Agent prior to the expiration
of thirty (30) days following receipt of the notice of resignation, Escrow Agent
may petition any court of competent jurisdiction for the appointment of a
successor escrow agent or for other appropriate relief, and any such resulting
appointment shall be binding upon the Parties.  After any resigning Escrow
Agent’s resignation, the provisions of this Escrow Agreement shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Escrow
Agent under this Escrow Agreement.  Any corporation or association into which
Escrow Agent may be merged or converted or with which it may be consolidated, or
any corporation or association to which all or substantially all of the escrow
business of Escrow Agent’s corporate trust line of business may be transferred,
shall be Escrow Agent under this Escrow Agreement without further act.
 

10. REPRESENTATIONS AND WARRANTIES OF THE PARTIES

 
Each Party makes the following representations and warranties to Escrow Agent:
 
(a)          It is duly organized, validly existing, and in good standing under
the laws of the state of its incorporation or organization, as applicable, and
has full power and authority to execute and deliver this Escrow Agreement and to
perform its obligations hereunder.
 
(b)          This Escrow Agreement has been duly approved by all necessary
action, including any necessary shareholder or membership approval, has been
executed by its duly authorized officers and, assuming this Escrow Agreement
constitutes the binding obligations of Escrow Agent, constitutes its valid and
binding agreement, enforceable in accordance with its terms.
 
 

[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
7

--------------------------------------------------------------------------------

 
 
(c)          The execution, delivery, and performance of this Escrow Agreement
will not violate, conflict with, or cause a default under its certificate of
incorporation or bylaws, any applicable law or regulation, any court order or
administrative ruling or decree to which it is a party or any of its property is
subject, or any agreement, contract, indenture, or other binding arrangement,
including without limitation the Plan, the MDC Agreement or the Securities
Purchase Agreement, as applicable, to which it is a party or any of its property
is subject.
 
(d)          No party other than such Party has, or shall have, any lien, claim
or security interest in the Escrow Funds or any part thereof; provided, however,
that the Parties acknowledge that such Party is establishing this escrow
arrangement to hold in escrow BH Deposits made by or on behalf of the Black
Horse Entities.  No financing statement under the Uniform Commercial Code is on
file in any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Escrow Funds or any part thereof.
 
(e)          All of its representations and warranties contained herein are true
and complete as of the date hereof.
 

11. IDENTIFYING INFORMATION

 
The following notification is provided to the Parties pursuant to Section 326 of
the USA Patriot Act of 2001, 31 U.S.C. Section 5318 (“Patriot Act”): IMPORTANT
INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT.  To help the government
fight the funding of terrorism and money laundering activities, Federal law
requires all financial institutions to obtain, verify, and record information
that identifies each person or entity that opens an account, including any
deposit account, treasury management account, loan, other extension of credit,
or other financial services product.  The Parties agree to provide any
information requested by Escrow Agent in connection with the Patriot Act or any
similar legislation or regulation to which Escrow Agent is subject, in a timely
manner.  Each Party represents that all identifying information set forth in
this Agreement and the Schedules hereto, including without limitation, its
Taxpayer Identification Number assigned by the Internal Revenue Service or any
other taxing authority, is true and complete on the date hereof and will be true
and complete at the time of any disbursement of the Escrow Funds.
 

12. DISPUTES

 
(a)          In the event of any adverse claims or demands being made against
Escrow Agent in connection with the Escrow Funds or Escrow Agent is unable to
determine, to Escrow Agent’s sole satisfaction, the proper disposition of any
portion of the Escrow Funds or Escrow Agent’s proper actions with respect to its
obligations hereunder, then Escrow Agent may, in its sole discretion, take
either or any combination of the following actions:
 
(i)          Escrow Agent shall be entitled to retain such portion of the Escrow
Funds until Escrow Agent shall have received (A) a court order directing
delivery of the Escrow Funds or (B) a written direction executed jointly by the
Parties and any person making such adverse claim or demand with respect to such
portion of the Escrow Funds directing delivery of such portion of Escrow Funds,
in which event Escrow Agent shall disburse the Escrow Funds in accordance with
such order or direction;
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
8

--------------------------------------------------------------------------------

 
 
(ii)          refrain from taking any action under this Escrow Agreement until
such adverse claims or demands or uncertainty shall be resolved to the sole
satisfaction of Escrow Agent or until a successor Escrow Agent shall have been
appointed (as the case may be), provided, that Escrow Agent shall continue to
hold the Escrow Funds until it is directed otherwise by the court order or
written direction referenced in subsection (a)(i) above; or
 
(iii)          resign in accordance with Section 9.
 
(b)          Escrow Agent shall have no liability to any Party, its shareholders
or any other person with respect to any failure or refusal to take any action
hereunder pursuant to this Section 12 other than to hold the Escrow Funds in
accordance with the provisions hereof.
 

13. FEES, COSTS AND EXPENSES OF ESCROW AGENT

 
(a)          [***] shall pay Escrow Agent compensation for the services to be
rendered by Escrow Agent hereunder in the amounts set out on Schedule E hereto.
 
(b)          [***] shall reimburse Escrow Agent for [***] of its reasonable
out-of-pocket expenses, including attorneys’ fees, travel expenses, telephone
and facsimile transmission costs, postage (including express mail and overnight
delivery charges), copying charges and the like.  The obligations of [***] under
this Section 13 shall survive any termination of this Escrow Agreement and the
resignation or removal of Escrow Agent.  Escrow Agent is authorized to, and may,
disburse to itself from the Escrow Funds, from time to time, the amount of any
compensation and reimbursement of out-of-pocket expenses due and payable
hereunder (including any amount to which Escrow Agent or any Indemnified Party
is entitled to indemnification pursuant to Section 6 hereof).  Escrow Agent
shall notify [***] of any disbursement from the Escrow Funds to itself or any
Indemnified Party in respect of any compensation or reimbursement hereunder and
shall furnish to [***] copies of all related invoices and other statements
within fifteen (15) business days thereafter.  The Parties hereby grants to
Indemnified Parties a security interest in, lien upon and right to set-off
against the Escrow Funds to secure payment of the amount of any compensation or
reimbursement due any of them hereunder (including, as to KaloBios, any claim
for indemnification pursuant to Section 6 hereof) against the Escrow Funds.  If
for any reason funds in the Escrow Funds are insufficient to cover such
compensation and reimbursement, [***] shall promptly pay such amounts to Escrow
Agent or any Indemnified Party upon receipt of an itemized invoice.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
9

--------------------------------------------------------------------------------

 
 

14. LIMITED RESPONSIBILITY; NO TAX ADVICE

 
(a)          This Escrow Agreement expressly sets forth all the duties of Escrow
Agent with respect to any and all matters pertinent hereto.  No implied duties
or obligations shall be read into this Escrow Agreement against Escrow Agent and
Escrow Agent shall not be charged with knowledge or notice of any fact or
circumstance not specifically set forth herein.  Escrow Agent shall not be bound
by the provisions of any agreement of the Parties hereto except this Escrow
Agreement and Escrow Agent shall have no liability under, and no duty to inquire
as to, the provisions of any agreement other than this Escrow Agreement.
 
(b)          Escrow Agent, its affiliates, and its employees are not in the
business of providing tax or legal advice to any taxpayer outside of Escrow
Agent and its affiliates.  This Escrow Agreement and any amendments or
attachments are not intended or written to be used, and cannot be used or relied
upon, by any such taxpayer or for the purpose of avoiding tax penalties.  Any
such taxpayer should seek advice based on the taxpayer’s particular
circumstances from an independent tax advisor.
 

15. OWNERSHIP FOR TAX PURPOSES

 
KaloBios agrees that, for purposes of federal and other taxes based on income,
KaloBios will be treated as the owner of the Escrow Funds and that KaloBios will
report all income, if any, that is earned on, or derived from, the Escrow Funds
as its income in the taxable year or years in which such income is actually
received by KaloBios and pay any taxes attributable thereto.  KaloBios
represents that its Taxpayer Identification Number (“TIN”) assigned by the
Internal Revenue Service (“IRS”) or any other taxing authority listed on
Schedule D is true and correct, and that it will notify Escrow Agent in writing
immediately upon any change to such number.  Taxes may be withheld by Escrow
Agent as it determines may be required by any law or regulation in effect at the
time of the distribution.  In the absence of written direction from KaloBios,
all proceeds of the Escrow Funds, if any, shall be retained as Escrow Funds.
KaloBios grants to Escrow Agent a right of set-off which may be exercised to pay
any and all taxes, whether federal, state or local, incurred by the investment
of the Escrow Funds pursuant to this Escrow Agreement. KaloBios shall indemnify
and hold harmless Escrow Agent against and in respect to liability for taxes
and/or any penalties or interest attributable to the investment of Escrow Funds
by Escrow Agent pursuant to this Escrow Agreement.
 

16. SECURITY PROCEDURES

 
Upon the receipt of each Certificate of Confirmation and the Joint Escrow
Instructions, whether in writing, by telecopier, electronic transmission, or
otherwise, Escrow Agent is authorized to seek confirmation of such instructions
by telephone call-back to the person or persons designated on Schedule D hereto,
and Escrow Agent may rely upon the confirmation of anyone purporting to be the
person or persons so designated.  The persons and telephone numbers for
call-backs may be changed only in a writing actually received and acknowledged
by Escrow Agent.
 

17. ESCHEAT

 
The parties hereto are aware that under applicable state law, property which is
presumed abandoned may under certain circumstances escheat to the applicable
state.  Escrow Agent shall have no liability to any Party, its respective heirs,
legal representatives, successors and assigns, or any other party, should any or
all of the Escrow Funds and any proceeds thereof escheat by operation of law.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
10

--------------------------------------------------------------------------------

 
 

18. NOTICES

 
All notices, consents, waivers and other communications required or permitted
under this Escrow Agreement shall be in writing and shall be deemed given to a
party when (a) delivered to the appropriate address by hand or by a nationally
recognized overnight courier service (costs prepaid); (b) sent by facsimile or
e-mail (with confirmation by the transmitting equipment); or (c) received by the
addressee, if sent by certified mail, return receipt requested, in each case to
the following addresses and facsimile numbers and marked to the attention of the
person (by name or title) designated below (or to such other address, facsimile
number or person as a party may designate by notice to the other parties):
 
(a)           If to KaloBios, to:

KaloBios Pharmaceuticals, Inc.
1000 Marina Blvd., #250
Brisbane, CA  94005-1878
Attention: Dean Witter III
Fax: [***]

with a copy to:

Hogan Lovells US LLP
100 International Drive, Suite 2000
Baltimore, MD 21202
Attention:  Asher Rubin

and

Morris, Nichols, Arsht & Tunnell LLP
1201 N. Market Street, 16th Floor
Wilmington, DE  19801
Attention:  Eric D. Schwartz, Esq.
Gregory W. Werkheiser, Esq.

(b)          If to BHC, to:

Black Horse Capital LP
c/o Opus Equum, Inc.
P.O. Box 788
Dolores, CO 81323
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
11

--------------------------------------------------------------------------------

 
 
(c)           If to BHCM, to:

Black Horse Capital Master Fund Ltd
c/o Opus Equum, Inc.
P.O. Box 788
Dolores, CO 81323

with a copy to:

Quarles & Brady LLP
300 N. LaSalle Street
Suite 4000
Chicago, IL 60654-3406
Attention:  Faye Feinstein

(d)           If to Cheval, to:

Cheval Holdings, Ltd
P.O. Box 309G, Ugland House
Georgetown, Grand Cayman
Cayman Islands, KY1-1104

with a copy to:

Quarles & Brady LLP
300 N. LaSalle Street
Suite 4000
Chicago, IL 60654-3406
Attention:  Faye Feinstein
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
12

--------------------------------------------------------------------------------

 
 
(d)           If to Savant, to:

Savant Neglected Diseases, LLC
P.O. Box 620732
Woodside, CA 94062
Attention:  Stephen L. Hurst
E-mail:  [***]

with a copy to:

Dorsey & Whitney LLP
305 Lytton Avenue
Palo Alto, CA 94301
Attention:  Evan Ng

or to such other person(s) or address(es) as such Party shall furnish to Escrow
Agent in writing:
 
(e)           If to Escrow Agent, to:

Wilmington Savings Fund Society, FSB
Attention:  Raye Goldsborough
501 Carr Road, Suite100
Wilmington, DE 19809

or to such person or address as Escrow Agent shall furnish to the Parties in
writing.

19. JURISDICTION; SERVICE OF PROCESS

 
Any proceeding arising out of or relating to this Escrow Agreement may be
brought in the Bankruptcy Court, and each of the parties irrevocably submits to
the exclusive jurisdiction of the Bankruptcy Court (or, to the extent the
Bankruptcy Court does not have or exercise subject matter jurisdiction, the
courts of the State of Delaware and the United States District Court for the
District of Delaware), in any such proceeding and waives any objection it may
now or hereafter have to venue or to convenience of forum, agrees that all
claims in respect of the proceeding shall be heard and determined only in the
Bankruptcy Court (or, to the extent the Bankruptcy Court does not have or
exercise subject matter jurisdiction, the courts of the State of Delaware or the
United States District Court for the District of Delaware) and agrees not to
bring any proceeding arising out of or relating to this Escrow Agreement in any
other court.  Process in any proceeding referred to in the preceding sentence
may be served on any party anywhere in the world.
 

20. EXECUTION OF AGREEMENT

 
This Escrow Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Escrow Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement. 
The exchange of copies of this Escrow Agreement and of signature pages by
facsimile or electronic transmission shall constitute effective execution and
delivery of this Escrow Agreement as to the parties and may be used in lieu of
the original Escrow Agreement for all purposes.  Signatures of the parties
transmitted by facsimile or electronic transmission shall be deemed to be their
original signatures for any purposes whatsoever.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
13

--------------------------------------------------------------------------------

 
 

21. SECTION HEADINGS, CONSTRUCTION

 
The headings of sections in this Escrow Agreement are provided for convenience
only and will not affect its construction or interpretation.
 

22. WAIVER

 
The rights and remedies of the parties to this Escrow Agreement are cumulative
and not alternative.  Neither the failure nor any delay by any party in
exercising any right, power or privilege under this Escrow Agreement or the
documents referred to in this Escrow Agreement will operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power or privilege.  To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Escrow Agreement or the documents referred to in this Escrow
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Escrow Agreement or the documents referred
to in this Escrow Agreement.
 

23. ENTIRE AGREEMENT AND MODIFICATION

 
This Escrow Agreement supersedes all prior agreements among the parties with
respect to its subject matter and constitutes (along with the documents referred
to in this Escrow Agreement) a complete and exclusive statement of the terms of
the agreement between the parties with respect to its subject matter.  This
Escrow Agreement may not be amended except by a written agreement executed by
the Parties and Escrow Agent.
 

24. GOVERNING LAW

 
This Escrow Agreement shall be governed by the laws of the State of Delaware
without regard to conflicts of law principles thereof.
 

25. DEALINGS

 
Except as provided by applicable state or federal law, Escrow Agent and any
stockholder, director, officer or employee of Escrow Agent may buy, sell, and
deal in any of the securities of a Party and become pecuniarily interested in
any transaction in which a Party may be interested, and contract and lend money
to a Party and otherwise act as fully and freely as though it were not Escrow
Agent under this Escrow Agreement.  Nothing herein shall preclude Escrow Agent
from acting in any other capacity for any Party or for any other entity.
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
14

--------------------------------------------------------------------------------

 
 

26. FORCE MAJEURE

 
No party to this Escrow Agreement shall be liable to any other party for losses
arising out of, or the inability to perform its obligations under the terms of
this Escrow Agreement, due to acts of God, which shall include, but shall not be
limited to, fire, floods, strikes, mechanical failure, war, riot, nuclear
accident, earthquake, terrorist attack, computer piracy, cyber-terrorism or
other similar acts beyond the control of the parties hereto.
 

27. AUTHORIZED PERSONS

 
Any notices or instructions given to Escrow Agent (other than in writing at the
time of execution of this Escrow Agreement), whether in writing or by facsimile
or other electronic transmission, shall be given by a person designated on
Schedule D attached hereto, and Escrow Agent may rely upon any notices or
instructions purported to be given by any person or persons so designated.  The
persons and telephone numbers designated on Schedule D may be changed only in a
writing actually received and acknowledged by Escrow Agent.  The applicable
persons designated on Schedule D hereto have been duly appointed to act as its
representatives hereunder and have full power and authority to execute and
deliver the Joint Escrow Instructions or to take or refrain from taking an
action pursuant to this Escrow Agreement, to amend, modify or waive any
provision of this Escrow Agreement and to take any and all other actions as any
Party under this Escrow Agreement, all without further consent or direction
from, or notice to, it or any other party.
 
[Signature Page Follows]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
15

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the parties have executed and delivered this Escrow
Agreement as of the date first written above.
 
KALOBIOS:
 
KALOBIOS PHARMACEUTICALS, INC.
 

By:
     
Name:  Cameron Durrant
   
Title:  Chairman and Chief Executive Officer 

 
 
 
 
 
 
[Signature Page to Escrow Agreement]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
SAVANT:
 
 
Savant Neglected Diseases, LLC
 
 
By:
   
Name:  Stephen L. Hurst 
 
Title:  Managing Member 
 

 
 
 
 
 
 
[Signature Page to Escrow Agreement]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
BLACK HORSE ENTITIES:
 
 
Black Horse Capital LP
 
 
By:
   
Name:  Dale Chappell 
 
Title:  Manager of General Partnership 
         
Black Horse Capital Master Fund Ltd. 
         
By:
   
Name:  Dale Chappell 
 
Title:  Director 
         
Cheval Holdings, Ltd. 
         
By:
   
Name:  Dale Chappell 
 
Title:  Director 
 

 
 
 
 
 
 
[Signature Page to Escrow Agreement]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
ESCROW AGENT:
 
Wilmington Savings Fund Society, FSB

By:
   
Name:
   
Title:
   

 
 
 
 
 
 
[Signature Page to Escrow Agreement]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
SCHEDULE A

BLACK HORSE ENTITIES’ DEPOSITS

Purchaser
Deposit
Black Horse Entities:
$[***]

[***]
 
 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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SCHEDULE B
 
ESCROW AGENT’S PAYMENT INSTRUCTIONS
 
WILMINGTON SAVINGS FUND SOCIETY, FSB
WIRE INSTRUCTIONS FOR

WSFS Bank
409 Silverside Road, Suite 100
Wilmington, DE 19809
Routing Number: [***]
Beneficiary Name: [***]
Beneficiary [***]
Ref:  [***]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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SCHEDULE C
 
DISBURSEMENT INFORMATION
 
[***]
 
 
 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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SCHEDULE D
 
AUTHORIZED PERSONS
 
[***]
 
 
 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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SCHEDULE E
 
ESCROW AGENT FEE SCHEDULE
 

 
[***]
 
 
 
 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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EXHIBIT A
 
FORM OF PARTY CERTIFICATE OF CONFIRMATION
 
CERTIFICATE OF CONFIRMATION

JUNE 30, 2016

This Certificate of Confirmation (this “Certificate”) is being delivered to
Wilmington Savings Fund Society, FSB (“Escrow Agent”) pursuant to Section 3 of
that certain Escrow Agreement by and among KaloBios Pharmaceuticals, Inc.,
Savant Neglected Diseases, LLC, Black Horse Capital LP, Black Horse Capital
Master Fund Ltd., and Cheval Holdings, Ltd. (the “Parties”).  Unless otherwise
defined herein, capitalized terms have the meanings set forth in the Escrow
Agreement.

I, [Name of Authorized Representative], do hereby certify to Escrow Agent,
solely on behalf of [Name of Party] in my capacity as [Title] thereof and not in
my individual capacity, that, as of June 30, 2016:

1. [Name of party] has received all deliveries it requires [as to KaloBios and
Savant, to close the transactions contemplated by the MDC Agreement] [as to
KaloBios and each of the Black Horse Entities, to (a) close the transactions
contemplated by the Securities Purchase Agreement and (b) effect repayment of
the Term Loan Obligations pursuant to the DIP Credit Agreement] [as to KaloBios
only, to declare the Effective Date of the Plan]; and

 

2. Prior to Closing, [name of delivering party] tendered all documents required
to be delivered by [Name of delivering party] at Closing (the “Closing
Documents”) to counsel to the [counterparty or counterparties, as applicable] to
the [MDC Agreement and/or the Securities Purchase Agreement, as applicable]. 
[Name of delivering party] hereby directs that such Closing Documents  are
hereby released from escrow without further action on the part of [Name of
delivering party] effective upon Escrow Agent’s receipt of an executed
Certificate of Confirmation from each other party to the [MDC Agreement and/or
the Securities Purchase Agreement, as applicable], and upon such receipt Escrow
Agent is hereby authorized and directed to make all disbursements described on
Schedule C to the Escrow Agreement.

 
[Signature Page Follows]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate as of the
date first written above
 

 
[NAME OF PARTY] 
                   
By:
   
Name:
   
Title:
 

 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT B
 
[FORM OF CERTIFICATE OF CONFIRMATION FOR NOMIS AND CORTLEIGH
 
CERTIFICATE OF CONFIRMATION

JUNE 30, 2016

This Certificate of Confirmation (this “Certificate”) is being delivered to
Wilmington Savings Fund Society, FSB (“Escrow Agent”) pursuant to Section 3 of
that certain Escrow Agreement by and among KaloBios Pharmaceuticals, Inc.,
Savant Neglected Diseases, LLC, Black Horse Capital LP, Black Horse Capital
Master Fund Ltd., and Cheval Holdings, Ltd. (the “Parties”).  Unless otherwise
defined herein, capitalized terms have the meanings set forth in the Escrow
Agreement.

I, [Name of Authorized Representative], do hereby certify to Escrow Agent,
solely on behalf of [Nomis or Cortleigh, as applicable] in my capacity as
[Title] thereof and not in my individual capacity, that, as of June 30, 2016:

1. [Nomis or Cortleigh, as applicable] has received all documents it requires to
close the transactions contemplated by the Securities Purchase Agreement [and as
to Nomis to effect repayment of the Term Loan Obligations pursuant to the DIP
Credit Agreement];

 

2. Prior to Closing, [Nomis or Cortleigh, as applicable, as delivering party]
tendered all documents required to be delivered by [Nomis or Cortleigh, as
applicable] at Closing (the “Closing Documents”) to counsel to the
counterparties to the Securities Purchase Agreement.  [Nomis or Cortleigh, as
applicable] hereby directs that such Closing Documents are hereby released from
escrow without further action on the part of [Nomis or Cortleigh, as applicable]
effective upon Escrow Agent’s receipt of an executed Certificate of Confirmation
from each other party to the Securities Purchase Agreement, and upon such
receipt Escrow Agent is hereby authorized and directed to make all disbursements
described on Schedule C to the Escrow Agreement; and

 

3. Upon completion of the disbursements of the Escrow Funds and KaloBios’
receipt of the portion of the Purchase Price due from Nomis and Cortleigh under
the Securities Purchase Agreement, (i) [Nomis or Cortleigh, as applicable]
acknowledges that the Securities Purchase Agreement and the transactions
contemplated thereby are closed, it being understood that KaloBios will promptly
thereafter deliver the common stock of KaloBios, as reorganized under its Plan,
to the Purchasers in accordance with the Securities Purchase Agreement; (ii)
[Nomis] acknowledges that the Maturity Date for the DIP Credit Agreement has
occurred, it being understood that KaloBios will promptly thereafter deliver the
common stock of KaloBios, as reorganized under its Plan, to the DIP Credit
Parties; (iii) [Nomis or Cortleigh, as applicable] acknowledges that all
conditions precedent to the occurrence of the Effective Date set forth in
Section 9.2 of the Plan have been satisfied or waived as permitted by Section
9.3 of the Plan; and (iv) [Nomis or Cortleigh, as applicable] acknowledges that,
subject to KaloBios’ filing of the Notice of the Effective Date pursuant to
Section 9.4 of the Plan, the Effective Date of the Plan shall have occurred.

 
 
 
[Signature Page Follows]
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate as of the
date first written above

 
NOMIS OR CORTLEIGH, AS APPLICABLE
                   
By:
   
Name:
   
Title:
 

 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
EXHIBIT I

CURRENT DEVELOPMENT PLAN

[Attached hereto.]
 
 
 
 
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
[***]

CONFIDENTIAL
[***] INDICATES THREE PAGES OF MATERIAL THAT WAS OMITTED AND FOR WHICH
CONFIDENTIAL TREATMENT WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
SCHEDULE 2.1

SCHEDULE OF ACQUIRED ASSETS

[***]

 
 
 
 
CONFIDENTIAL
[***] INDICATES FOUR PAGES OF MATERIAL THAT WAS OMITTED AND FOR WHICH
CONFIDENTIAL TREATMENT WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
SCHEDULE 2.6(a)

ADDITIONAL ACQUIRED ASSETS

[***]

 
 
 
 
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
SCHEDULE 3.6

ALLOCATION SCHEDULE

[To be attached within [***] of Closing]
 
 
 
 
 
 
CONFIDENTIAL
[***] INDICATES MATERIAL THAT WAS OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
SCHEDULE 8

COMPANY DISCLOSURE SCHEDULES

The following are the disclosure schedules and exceptions (the “Company
Disclosure Schedule”) of Savant Neglected Diseases, LLC, a Delaware limited
liability company (the “Company”), to the representations and warranties as set
forth in Article 8 of that certain Agreement for the Manufacture, Development
and Commercialization of Benznidazole for Human Use dated as of June 30, 2016
(the “Agreement”) by and between the Company and KaloBios Pharmaceuticals, Inc.,
a Delaware corporation (“KaloBios”).  The section numbers in this Company
Disclosure Schedule correspond to section numbers in the Agreement.  Capitalized
terms used and not otherwise defined herein shall have the meanings ascribed to
them as set forth in the Agreement.  The heading and descriptions of
representations and warranties are for convenience of reference only and are not
intended to, and do not, alter the meaning of any provision of the Agreement. 
Any information described herein under any section number, however, shall be
deemed to have been disclosed and incorporated into all other relevant section
numbers of this Company Disclosure Schedule if it is readily apparent on its
face that such information is applicable to such other sections.  This Company
Disclosure Schedule is confidential and shall not be disclosed to any persons or
entities other than KaloBios.

The information in this Company Disclosure Schedule is being provided as
required under the Agreement.  In disclosing this information, the Company
expressly does not waive any attorney-client privilege associated with any such
information or any protection afforded by the “work product doctrine” with
respect to any of the matters disclosed or discussed herein.  All descriptions
of agreements or other matters appearing herein are summary in nature and are
qualified by reference to the complete documents, which have been made available
to KaloBios.  Nothing herein, including attachments, is intended to broaden the
scope of the representations and warranties of the Company contained in the
Agreement or to create any covenant on the part of the Company.  In no event
shall any disclosure hereunder be deemed to (a) constitute an acknowledgement
that the subject matter of such disclosure is material to the Company unless the
representation, warranty or covenant to which such disclosure relates expressly
requires the Company to disclose information that is material to the Company; or
(b) to be an admission by the Company that such item is material to the
business, assets or results of operations of the Company nor shall it be deemed
an admission of any obligation or liability to any third-party.

[***]
 
 
 
CONFIDENTIAL
[***] INDICATES FOUR PAGES OF MATERIAL THAT WAS OMITTED AND FOR WHICH
CONFIDENTIAL TREATMENT WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------

 
 
SCHEDULE 9

KALOBIOS DISCLOSURE SCHEDULES

The following are the disclosure schedules and exceptions (the “KaloBios
Disclosure Schedules”) of KaloBios Pharmaceuticals, Inc., a Delaware corporation
(“KaloBios”), to the representations and warranties as set forth in Article 9 of
that certain Agreement for the Manufacture, Development and Commercialization of
Benznidazole for Human Use dated as of June 30, 2016 (the “Agreement”) by and
between KaloBios and Savant Neglected Diseases, LLC, a Delaware limited
liability company (the “Company”).  The section numbers in these KaloBios
Disclosure Schedules correspond to section numbers in the Agreement. 
Capitalized terms used and not otherwise defined herein shall have the meanings
ascribed to them as set forth in the Agreement.  The heading and descriptions of
representations and warranties are for convenience of reference only and are not
intended to, and do not, alter the meaning of any provision of the Agreement. 
Any information described herein under any section number, however, shall be
deemed to have been disclosed and incorporated into all other relevant section
numbers of these KaloBios Disclosure Schedules if it is readily apparent on its
face that such information is applicable to such other sections.  These KaloBios
Disclosure Schedules are confidential and shall not be disclosed to any persons
or entities other than the Company.

The information in these KaloBios Disclosure Schedules is being provided as
required under the Agreement.  In disclosing this information, KaloBios
expressly does not waive any attorney-client privilege associated with any such
information or any protection afforded by the “work product doctrine” with
respect to any of the matters disclosed or discussed herein.  All descriptions
of agreements or other matters appearing herein are summary in nature and are
qualified by reference to the complete documents, which have been made available
to the Company.  Nothing herein, including attachments, is intended to broaden
the scope of the representations and warranties of KaloBios contained in the
Agreement or to create any covenant on the part of KaloBios.  In no event shall
any disclosure hereunder be deemed to (a) constitute an acknowledgement that the
subject matter of such disclosure is material to KaloBios unless the
representation, warranty or covenant to which such disclosure relates expressly
requires KaloBios to disclose information that is material to KaloBios; or (b)
to be an admission by KaloBios that such item is material to the business,
assets or results of operations of KaloBios nor shall it be deemed an admission
of any obligation or liability to any third-party.

[***]
 
 
 
CONFIDENTIAL
 
[***] INDICATES THREE PAGES OF MATERIAL THAT WAS OMITTED AND FOR WHICH
CONFIDENTIAL TREATMENT WAS REQUESTED. ALL SUCH OMITTED MATERIAL WAS FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

--------------------------------------------------------------------------------