Exhibit 10.1
 
[***] 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.

February 22, 2016

Via E-Mail
 
Savant Neglected Diseases, LLC
Attn:
Stephen L. Hurst, JD
 
[***]

Mailing Address:
Street Address:
P.O. Box 620732
740 Bair Island Road #106
Woodside, CA 94062
Redwood City, CA 94063

 
Ladies and Gentlemen:

This binding letter of intent (this “Letter”) outlines the basic terms and
conditions of the proposed acquisition of certain regulatory and
non-intellectual property assets (the “Regulatory and Other Assets”) and the
proposed exclusive license of intellectual property assets not constituting
Regulatory and Other Assets (the “IP Assets”) (together, the “Transaction”) by
KaloBios Pharmaceuticals, Inc., a Delaware corporation (the “Purchaser”), in
each case of the worldwide rights in and relating to benznidazole for human use
(the “Product”) owned by Savant Neglected Diseases, LLC, a Delaware limited
liability company (the “Company”). Without limiting the foregoing, the
Regulatory and Other Assets shall include (i) all relevant existing inventories,
(ii) all INDs and foreign equivalents and all other regulatory filings and
documentation related thereto, and (iii) all asset-related agreements and
arrangements, including manufacturing and other agreements and arrangements; and
the IP Assets shall include (i) inventions, patents, copyrights, domains and
trademarks, and all applications and registrations with respect thereto, (ii)
all trade secrets, know-how and confidential information related thereto.  The
Definitive Agreement (as defined below) shall include schedules of the
Regulatory and Other Assets, which shall include documentation, records, data,
information and materials pertaining to the Product, as well as schedules of IP
Assets.  Except for obligations of the Purchaser hereunder, the Company shall
remain liable for, and the Purchaser shall not assume or become obligated for,
any debts, liabilities or obligations whatsoever of the Company, including,
without limitation, taxes, the indebtedness of the Company and any liabilities
or obligations accrued but not yet satisfied or paid prior to the closing of the
transactions contemplated by this Letter. Further, the parties will cooperate to
structure the transaction in a tax-efficient, mutually acceptable manner.
 

1. Basic Terms.

 

A. Structure.

 
The parties intend to jointly develop the Product and for the Purchaser to fund
such development.  Further, the Purchaser will be identified as the sponsor for,
and will own, all FDA filings relating to the Product. The Purchaser will
acquire the Regulatory and Other Assets at closing of the Transaction (the
“Closing”). Without limiting the foregoing, the Closing shall occur upon the
satisfaction of the “conditions to closing,” set forth in the Definitive
Agreement, which conditions shall include obtaining a judicial order approving
the Transaction and the effective date of the Purchaser’s plan of reorganization
(the “Bankruptcy Exit”). The Company will exclusively license the IP Assets to
the Purchaser and the Purchaser will non-exclusively license its development
data and results (as further defined in the Definitive Agreement) to the Company
exclusively for use in the Company Field.  Also at the Closing, the Purchaser
will grant the Company a non-exclusive, perpetual, irrevocable, royalty-free
license to the IP Assets to develop and commercialize veterinary products (the
“Retained Field”) and the right of reference to the information included in the
submissions to the FDA for the Product solely for use in the Retained Field.
 

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

February 22, 2016
Page 2
 
 

B. Development Matters.

 
a.          The parties acknowledge that time is of the essence with respect to
the matters set forth in this Letter and the development of the Product.  Upon
execution of this Letter (including prior to Bankruptcy Exit), the Purchaser
shall pay the Company eighty-seven thousand, five hundred dollars ($87,500) per
month in advance for services performed by [***] full time employees towards
development of the Assets in accordance with a mutually agreed development plan
(the “Development Services”).
 
b.          Immediately upon execution of this Letter by both parties, the
parties shall establish a joint steering committee with equal representation and
voting rights (the “JSC”) to oversee the collaboration and the activities of the
parties under the Development Program and the Commercialization Program (each,
as defined below). All other joint committees under the Definitive Agreement,
including the JDC and JCC (each, as defined below), shall be subordinate to the
JSC. The JSC shall meet at least once annually, and during the term of the
Development Program, the JDC shall meet at least once quarterly. From time to
time, the JSC, JDC or JCC may establish subcommittees and project teams, with
equal representation, to oversee activities, day-to-day operations, and
particular projects under the collaboration.
 
c.          Each party shall make all decisions and conduct all of its
obligations under the collaboration in a manner in its good faith determination
to be consistent with and in accordance with agreed upon guiding principles,
including the following: (i) maximize the overall value of the Product to
stakeholders, including patients, (without consideration to any particular
product or the payments between the parties hereunder); (ii) conduct the
development and manufacture of the Product in a coordinated manner, with each
party actively participating with defined roles and responsibilities; and (iii)
use Diligent Efforts to pursue the best combination of quality, safety,
effectiveness and speed in the development and manufacture of the Product.
 
[***] 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.

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

February 22, 2016
Page 3

 
d.          Concurrent with the execution of this Letter, the parties shall
establish a joint development committee with equal representation and voting
rights (the “JDC”). Subject to the JDC’s oversight, the parties shall prepare,
and use Diligent Efforts to conduct, a development program for the Product
(including the conduct of clinical and regulatory activities) on a collaborative
basis (the “Development Program”) in accordance with a plan and budget
established and approved by the JDC (the “Development Plan”). Until the Closing
or the JDC approves a new work plan and cost estimate (“WPCE”) the WPCE attached
hereto shall govern the Development Program.
 
e.          Each party shall have the right to propose to the JDC specific
development activities for the Product for inclusion in the Development Plan.
The JDC shall assign responsibilities to each party under such Development Plan,
including with respect to clinical development, based upon each party’s
expertise, capabilities and infrastructure and overall project budget.
 
f.          Each party shall take the lead and be responsible for those
activities assigned to it under such Development Plan, and shall report to the
JDC, at least on a quarterly basis, the progress and results of activities for
which it is responsible under the applicable Development Plan.
 
g.          Without limiting the foregoing, the parties shall use “Diligent
Efforts” (to be defined in the Definitive Agreement) to develop and obtain
regulatory approval for the Product as soon as reasonably practicable in the
United States.
 
h.          The Purchaser shall fund the development costs incurred by the
parties in accordance with the Development Plan.  The Development Services will
be paid by the Purchaser [***] and otherwise on the terms and conditions set
forth in the Definitive Agreement.
 
i.          Prior to filing the US NDA, the parties shall establish a joint
commercialization committee with equal representation (the “JCC”) to oversee the
Commercialization Program.
 
j.          Subject to the JCC’s oversight, the Purchaser shall assess an
optimal commercialization program to commercialize the Product (the
“Commercialization Program”) in accordance with a plan established by Purchaser,
which plan may include out-licensing or partnering commercial rights to the
Product (the “Commercialization Plan”).
 
k.          The Purchaser shall take the lead and be responsible for all
activities under the Commercialization Plan and shall report to the JCC, at
least on an annual basis, the progress and results of such activities. Without
limiting the foregoing, Purchaser shall use Diligent Efforts to support launch
of the Product in the United States as soon as reasonably practicable following
regulatory approval for the benefit of stakeholders, including patients.
 
[***] 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.

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

February 22, 2016
Page 4
 
 
l.          If the JDC or JCC is unable to reach consensus on a matter, it shall
refer such matter to the JSC for decision. If the JSC is unable to reach
consensus on a particular matter, then it shall escalate such matter to the
parties’ respective CEOs. If the CEOs are not able to resolve a particular
dispute, such dispute will be decided by whichever party has final decision
making responsibility with respect to such matter in the Definitive Agreement,
or if no party has final say, then the matter will be submitted for binding
arbitration in the manner as specified in this Letter or as otherwise set forth
in the Definitive Agreement.
 

C. Drug Pricing Matters.

 
The parties will pledge in the Definitive Agreement that no patient in need of
the Product living within a country within the jurisdiction of any regulatory
approvals will be denied access to the Product because of an inability to pay
for the drug meaning that reasonable efforts will be made to ensure industry
standard access programs will be in place to support the launch.  An example of
an industry standard access program is a patient assistance program.
 

D. Consideration for the Regulatory and Other Assets.

 
The Purchaser will make the following payments as consideration for the
Regulatory and Other Assets:
 
a.          Three million dollars ($3,000,000) payable as soon as is practicable
but in no event later than the Bankruptcy Exit (the “Initial Payment”); and
 
b.          A five-year warrant from the date of Bankruptcy Exit exercisable at
a per share price of $2.25, for 200,000 shares of Common Stock of the Purchaser
with 25% of the shares immediately exercisable and an additional [***] of the
shares being exercisable upon each of the following events: [***].  The parties
agree the face value of this warrant is $100.  To the extent permitted under
applicable law, including securities and bankruptcy laws, the warrants and
shares underlying the warrants will be freely tradable.
 
c.          Additional payments totaling twenty-one million dollars
($21,000,000) shall be paid by the Purchaser to the Company upon consummation of
the following development goals (each, a “Milestone Payment”): [***].  The
occurrence of a change of control of the Purchaser will cause [***] of all
unpaid binding and ongoing Milestone Payments to become due and payable
immediately by the Purchaser to the Company, irrespective of whether the payment
event has occurred.  Upon payment of the amount pursuant to the preceding
sentence, all unpaid Milestone Payments shall be reduced, ratably, by the amount
paid.
 
d.          Prior to the payment in full of all obligations by the Purchaser,
the Company shall be granted a senior security interest (“Senior Security
Interest”) over the Regulatory and Other Assets and any resulting developments
therefrom. The Senior Security Interest secures all payments due and owing the
Company by Purchaser under the Transaction.  The terms of the Senior Security
Interest shall be set forth in a Security Agreement to be executed by the
parties at Closing.
 
[***] 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.

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

February 22, 2016
Page 5

 
e.          Following (A) the Purchaser’s receipt of a Priority Review Voucher
(the “Voucher”) and (B) the Purchaser’s sale of the Voucher, the Purchaser shall
pay to the Company an amount equal to [***] from the Purchaser’s sale of the
Voucher. In the event that the Purchaser or its affiliate(s) does not engage in
a sale of the voucher and instead uses the voucher for its own benefit, the
Definitive Agreement will set forth a mechanism to value the Voucher and for the
Company to receive an amount equal to [***] of that value.
 

E. The IP Assets.

 
a.          Under the Definitive Agreements, the Purchaser shall be granted an
exclusive world-wide royalty-bearing, sub-licensable license to the IP Assets.
Such license will provide for the following payments:
 
b.          The Purchaser will pay to the Company [***] payments, on a [***]
basis, equal to [***] of the global Net Sales (as defined below) of the Product,
while the Assets have regulatory exclusivity in the applicable jurisdiction,
made by the Purchaser or any party deriving Product marketing rights from the
Purchaser or any of its affiliates.
 
c.          Net Sales means the full invoiced price for all Products (“Gross
Sales”) sold to customers less the following deductions:
 
i.          transportation and insurance charges related to the delivery of the
Products to customers;
 
ii.          normal trade, volume and cash discounts, including retroactive
price reductions, pertaining to the sale of the Products;
 
iii.         any service fees actually paid to customers as a requirement for
the stocking and subsequent re-distribution of the Products;
 
iv.         credits, allowances or refunds given or made to customers for
rejection, damage, defect, recall or return of the Products to the Purchaser by
customers;
 
v.          sales and excise taxes, value added taxes, other taxes (excluding
income taxes) or other governmental charges otherwise imposed upon the amounts
billed for the Products, as adjusted for rebates and refunds or duties that fall
due or are absorbed or otherwise imposed on or paid by the Purchaser on sales of
Products and other governmental charges imposed upon the importation or sale of
the Products;
 
[***] 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.

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

February 22, 2016
Page 6

 
vi.          chargebacks and rebates to third parties in the applicable
reporting quarter, including, without limitation, to managed care health
organizations, federal and state government agencies, and/or other purchasers of
the Products, and group purchasing organization administration fees;
 
vii.          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 Products;
 
viii.         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); and
 
ix.           all such deductions being supported by reasonable written
documentation provided by the Purchaser in the quarterly payment reports.
 
d.          The Company and their financial representatives shall be entitled to
audit the [***] payment reports, but not more than [***] per calendar year.
 
e.          The license shall be terminable by the Company upon the occurrence
of certain events set forth in the Definitive Agreement, which events are
customary for licensors to be able to terminate licenses, such as a material
breach of the provisions of the license or the Purchaser’s material breach of
its obligations in the Definitive Agreement(s).  Additionally, the license shall
be terminable by the Company if Martin Shkreli is appointed as an agent,
employee, consultant, officer or director of the Purchaser.
 

2. Deposit.

 
Concurrent with the mutual execution of this Letter, the Purchaser will make a
non-refundable deposit in respect of the Transaction of five hundred thousand
dollars ($500,000) (the “Deposit”) to be credited towards the Initial Payment.
 

3. Definitive Agreement.

 
The parties will enter into one or more definitive agreements (together, the
“Definitive Agreement(s)”) in respect of the Transaction. As a condition to the
Closing, the Company will receive a legal opinion from the Purchaser’s counsel
concerning the validity and enforceability of the transactions contemplated
hereby.  The Definitive Agreement will contain a Closing condition for a
Bankruptcy Exit with an unencumbered cash balance of $10,000,000 (inclusive of
the Initial Payment).  The Definitive Agreement will provide for a covenant
that, if determined by the Board of Directors of the Purchaser to be in the best
interests of the Purchaser, the Purchaser shall use diligent efforts to regain a
listing for its Common Stock on a national securities exchange
 
[***] 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.

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

February 22, 2016
Page 7

 

4. Conditions.

 
The Purchaser will use best efforts to seek bankruptcy court approval for any
pre-Bankruptcy Exit payments and for the transactions contemplated hereby to the
extent required.
 

5. Due Diligence.

 
Each party will provide to the other, including their directors, officers,
employees, agents, lenders, investors, funding sources, counsel, accountants,
consultants or advisors (“Representatives”), complete access to all of their
books, records, premises, personnel, customers and suppliers for purposes of
further the transactions contemplated hereby, subject to a party’s obligations
to a third party to maintain the confidentiality of that third party’s
information. The Purchaser agrees that all information so provided will be
treated by the parties, including their Representatives, as Confidential
Information in accordance with the Confidential Disclosure Agreement dated
December 1, 2015, between the Company and the Purchaser (the “CDA”).
 

6. Closing and Termination.

 
The date of Closing shall be as agreed upon by the parties in the Definitive
Agreement. This Letter and the obligations of the parties other than those in
the CDA will terminate upon the earliest of (i) June 30, 2016, if the Purchaser
has not consummated a Bankruptcy Exit with an unencumbered cash balance of
$10,000,000 (inclusive of the Initial Payment), (ii) the date upon which the
bankruptcy court orders the conversion of Purchaser’s present Chapter 11
bankruptcy proceedings into a Chapter 7 dissolution proceeding, (iii) any
criminal indictment of any officer or director of the Purchaser if that
indictment is reasonable expected to have a material adverse effect on the
Transaction, or (iv) any material breach of any representation or warranty of
the Purchaser, or (v) any material breach by the Purchaser of any obligations
herein, which following written notice thereof, is not cured within 15 days
thereafter.  The period commencing on the date that this Letter is signed by
both parties and continuing until the earliest to occur of the events set forth
in subsections (i) through (v), above, shall be referred to as the “Exclusivity
Period”).
 
[***] 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.

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

February 22, 2016
Page 8
 
 
During the Exclusivity Period, the Company shall not, nor shall it affirmatively
permit any of its affiliates, shareholders, directors, managers, officers or
employees to, nor shall it authorize any of its or its affiliates, shareholders,
representatives, advisors, bankers or agents to, directly or indirectly
(together, the “Company Parties”), (i) solicit, initiate, or encourage the
submission of any proposal or indication of interest relating to an Alternative
Transaction, (ii) participate in any discussions or negotiations regarding, or
furnish to any person or entity any non-public information with respect to, or
knowingly take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, an
Alternative Transaction or (iii) authorize, consummate or engage in, or enter
into any agreement or understanding with respect to, an Alternative
Transaction.  Immediately upon the commencement of the Exclusivity Period, the
Company will cease and cause to be terminated any and all discussions and
negotiations with all persons and entities (other than the Purchaser and its
affiliates) regarding any Alternative Transaction or any other transaction that
could reasonably be expected to lead to an Alternative Transaction.  The Company
will promptly inform the Purchaser of any offer, proposal or expression of
interest for the Product (whether written or oral) or any portion thereof that
it or any of its affiliates, representatives or advisors may receive during the
Exclusivity Period.

For purposes hereof, “Alternative Transaction” means any (i) merger,
consolidation, investment, share exchange or sale, or other similar transaction
involving all or any portion of the equity securities of the Company or any of
its subsidiaries that could, in the reasonable determination of the Purchaser,
result in the interruption of the Development Services being provided by the
Company, (ii) any sale, license or other disposition of all or any material
portion of the assets related to the Product, or (iii) any other transaction
involving the Company, any of its subsidiaries or shareholders or any of their
respective representatives or affiliates that would intentionally prevent,
impede or materially delay the Transactions.

Notwithstanding the Exclusivity Period, the Company Parties are free to solicit
and sell securities at any time, so long as the Development Services continue on
an uninterrupted basis, and the Company Parties are free to solicit and conduct
any collaboration or partnering transactions for other assets not to be
purchased by or licensed to the Purchaser in connection with the Transaction, in
either case, on the condition that any transaction permitted pursuant to this
paragraph that results in a change in control of the Company will provide that
the acquiring party in the change in control transaction commit in writing to
pursue the Transaction.
 

7. Public Announcement.

 
All press releases and public announcements relating to the Transaction will be
jointly prepared; provided, that either party may make a public announcement
relating to the Transaction required by applicable law or an applicable listing
rule or regulation.
 

8. Expenses.

 
Each party will pay all of its own expenses, including legal fees, incurred in
connection with the Transaction; provided that upon Bankruptcy Exit, the
Purchaser shall reimburse the Company for all of its documented additional legal
expenses and other expenses resulting from the Purchaser’s bankruptcy
proceedings incurred between December 17, 2015 and the Bankruptcy Exit, not to
exceed one hundred thousand dollars ($100,000).
 
[***] 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.

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

February 22, 2016
Page 9
 
 

9. Representations and Warranties of the Purchaser; Covenants of the Purchaser.

 
The Purchaser hereby makes the representations and warranties on Exhibit A
hereto to the Company. The Purchaser hereby covenants to the obligations on
Exhibit A hereto.
 

10. Binding Agreement.

 
The parties intend to negotiate and document the Transaction subsequent to the
date of this Letter. The failure of the parties to reach a mutually acceptable
Definitive Agreement prior to June 30, 2016 shall be subject to arbitration
pursuant to the procedures below.
 

11. Arbitration.

 
To the greatest extent permitted by applicable law, any dispute, claim or
controversy arising out of or relating to this Letter or the breach,
termination, enforcement, interpretation or validity thereof, including the
determination of the scope or applicability of this Letter to arbitrate, shall
be determined by binding arbitration in San Francisco, California.  Prior to
initiating arbitration proceedings, a party notify the other party in writing of
such dispute, claim or controversy and request a good faith negotiation between
executives who have authority to settle the controversy.  In the event the
parties fail to reach agreement to either resolve their dispute, claim or
controversy or to continue their negotiations within [***] of the delivery of
such written request, either party may initiate binding arbitration
proceedings.  The arbitration shall be administered by JAMS pursuant to JAMS’
Streamlined Arbitration Rules and Procedures. Judgment on the Award may be
entered in any court having jurisdiction.  This clause shall not preclude
parties from seeking provisional remedies in aid of arbitration from a court of
appropriate jurisdiction. For any dispute, claim or controversy arising prior to
the execution of a Definitive Agreement, the arbitration shall be before [***]
unless otherwise specified herein. The arbitrator must be [***]. If no
individual satisfies the foregoing requirement, the arbitration shall be
administered by [***], [***] of whom must be [***], another [***] of whom must
be [***], and those [***] individuals shall appoint [***].
 
Each party will be responsible for its costs and attorneys’ fees incurred in
connection with the arbitration; provided that the arbitrator(s) shall have the
discretion to award an appropriate percentage of the costs and attorneys' fees
reasonably incurred if such party demonstrates to the arbitrator(s) satisfaction
that the other party acted in bad faith in the negotiation of the Definitive
Agreement or any agreement related thereto or in bad faith in the arbitration.
 
[***] 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.

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

February 22, 2016
Page 10
 
 

12. Governing Law.

 
This Letter shall be governed by and construed in accordance with the laws of
the State of Delaware, which shall be the proper law hereof notwithstanding any
rule or principle of conflict of laws under which any other body of law would be
made applicable. The parties acknowledge that this Letter evidences a
transaction involving interstate commerce. Notwithstanding the provision in the
preceding paragraph with respect to applicable substantive law, any arbitration
conducted pursuant to the terms of this Letter shall be governed by the Federal
Arbitration Act (9 U.S.C., Secs. 1-16).
 

 
[Signature Page to Follow]
 
 
[***] 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.

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

 
If the foregoing accurately reflects the basic terms and conditions upon which
the Company would be willing to consummate the Transaction contemplated by this
Letter, please sign one copy of this Letter and return it to the undersigned, in
which case both parties are acknowledging their intent to comply with the terms
and conditions hereof, some of which, as set forth above, are binding
commitments.
 

 
Very truly yours,
     
KALOBIOS PHARMACEUTICALS, INC.
         
By:
/s/ Cameron Durrant
   
Dr. Cameron Durrant, MD, MBA
   
Chairman of the Board

Agreed to this 29 day of February, 2016

SAVANT NEGLECTED DISEASES, LLC

By:
/s/ Stephen L. Hurst
   
Stephen L. Hurst
   
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.

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

 
Exhibit A

Representations and Warranties of the Purchaser

As of the date first set forth above, the Purchaser represents and warrants to
the Company as follows:
 
a.          It is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction in which it was incorporated or
formed;
 
b.          Subject only to the bankruptcy court’s discretionary authority with
respect to the granting of a decree ordering specific performance or other
equitable remedies, (i) it has the full power and authority and the legal right
to enter into this Letter; (ii) it has taken all necessary governance action on
its part required to authorize the execution and delivery of this Letter and the
performance of its obligations hereunder; and (iii) the Letter has been duly
executed and delivered on behalf of the Purchaser, and constitute legal, valid,
and binding obligations of the Purchaser that are enforceable against it in
accordance with their terms;
 
c.          The Purchaser has adequate cash on hand to fund all cash payments to
the Company from the Purchaser required to be made under this Letter prior to
the Bankruptcy Exit (but not including those payments required to be made under
the Definitive Agreement).
 
d.          Other than bankruptcy court approval, the execution and delivery of
the Letter, the performance of the Purchaser’s obligations hereunder (i) do not
and will not conflict with or violate any requirement of applicable law; (ii) do
not and will not conflict with or violate the certificate of incorporation,
bylaws or other organizational documents of the Purchaser; and (iii) do not and
will not conflict with, violate, breach or constitute a default under any
contractual obligations of the Purchaser or any of its affiliate(s);
 
e.          There are no actions, suits, claims, investigations or other legal
proceedings pending or, to the Purchaser’s knowledge, threatened against or by
the Purchaser or any affiliate(s) of the Purchaser that challenge or seek to
prevent, enjoin or otherwise delay the transactions contemplated by the Letter
other than the Purchaser’s present bankruptcy proceedings; and
 
f.          Except for Batuta Capital Advisors LLC, retained by the Purchaser
and the fees of which will be paid by the Purchaser, no broker, investment
banker, agent, finder or other intermediary acting on behalf of any member of
the Purchaser or its affiliate(s) or under the authority of the Purchaser 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
Transaction.1
 

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

1 KBIO broker to be included, but fees will be paid exclusively by KBIO.
 
[***] 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.

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

 
g.          None of the Purchaser, any of its predecessors, any affiliated
issuer, any director, executive officer, other officer of the Purchaser, any
beneficial owner (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of 20% or more of the Purchaser’s outstanding
voting equity securities (with the sole exception of Martin Shkreli who is known
by the parties to be under federal indictment on securities fraud charges and is
not an employee, director, consultant, or agent of the Purchaser and has not
have any influence upon the management or direction of the Purchaser in any form
at any time), calculated on the basis of voting power, in any capacity at the
date hereof (each, a “Purchaser Covered Person” and, collectively, “Purchaser
Covered Persons”) is subject to any of the “Bad Actor” disqualifications
described in Rule 506(d)(1)(i) to (viii) under the Securities Act of 1933, as
amended (a “Disqualification Event”), except for a Disqualification Event
covered by Rule 506(d)(2) or (d)(3) under the Securities Act of 1933. The
Purchaser has exercised reasonable care to determine (i) the identity of each
person that is a Purchaser Covered Person; and (ii) whether any Purchaser
Covered Person is subject to a Disqualification Event.
 
h.          No Purchaser Covered Person is, or has been, debarred under Section
306(a) or 306(b) of the Food, Drug & Cosmetic Act or by the analogous laws of
any regulatory authority;
 
i.          No Purchaser Covered Person has, to the Purchaser’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)(l)-(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; and
 
j.          No Purchaser Covered Person 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.
 
Covenants of the Purchaser
 
 
[***] 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.

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

 
Until the Closing and full payment of all binding and ongoing option payments,
the Purchaser covenants and agrees to take the following actions if the failure
to take such action will have a material adverse effect on the Product:
 
a.          It will, with immediate effect, terminate the employment of any
Purchaser Covered Person who is an employee of the Purchaser if such Purchaser
Covered Person is subject to any Disqualification Event;
 
b.          It will, with immediate effect, terminate the employment of any
Purchaser Covered Person who is an employee of the Purchaser if such Purchaser
Covered Person is charged with any felony or misdemeanor within the ambit of 42
U.S.C. §§ 1320a-7(a), 1320a-7(b)(l)-(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 employment term with the Purchaser; and
 
c.          It will, with immediate effect, terminate the employment of any
Purchaser Covered Person who 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.
 
 
[***] 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.

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