“The Martin Shkreli Files” Update: KaloBios May Very Well Clear Chapter 11 Hurdle Tomorrow

And in the process of garnering bankruptcy court exit approval, the new management of that company has cut a deal with Mr. Shkreli. The new company and its management will be able to force a below market price “call” of all his shares, during the next 24 months. Wipe him out, that is. Should it choose to do so.

The Delaware federal Bankruptcy Court PACER docket was just updated with the terms of Mr. Shkreli’s settlement — now due to be discussed in court tomorrow. I predict approval.

The settled terms allow New KaloBios to acquire all of Mr. Shkreli’s remaining shares at a 10 per cent discount to then-current market value, post exit, at any time. In addition, he is generally barred from taking any action with respect to these shares.

The company will — if it intends to call his shares — raise money elsewhere to do so (i.e., not impact the exit financing). There will likely be no reason to do so, though — as the mere threat of a call at below market prices will make him very docile. Very.

Doubly so, where this is his bail money on the eight felony counts (in Brooklyn’s federal District courthouse).

Here’s the bit:

“. . .For a period of 120 days following the Effective Date (the “Initial Period”), the Debtor [KaloBios] will have the exclusive right to repurchase (the “Repurchase”) from Mr. Shkreli any or all of the Shares (the “Repurchase Right”) at a price which is a 10% discount to the previous two week volume-weighted average price (the “VWAP”) (the “Market Discount Price”). As it pertains to the Debtor’s exercise of its Repurchase Right, the Market Discount Price may not be less than $2.50 per Share (the “Minimum Purchase Price”). The Debtor will provide written notice to Mr. Shkreli of its intent to exercise the Repurchase Right (a “Call Notice”) and will have two weeks following the delivery of such notice to fund the Repurchase (the “Funding Period”). . . .”

I’ll predict that this settlement is accepted by the able Judge Silverstein, tomorrow — and will allow Black Horse, et al., to run the show and thus effectively ignore the lil’ guy. For all they care, he doesn’t exist. And the shares hang around, as a potential funding vehichle — for all the other complaining parties, against Mr. Shkreli, personally (all those from whom he will secure no releases, via this process). It looks like that pot of money will not be less than $5.18 million, if KaloBios exercises the call. After 120 days, it may fall below that amount, though — and it is unlikely to be freely trading any time soon — as it is his bail, afterall.

So, net, net — this is essentially the same as Mr. Shkreli’s not owning the shares, at all — in terms of voting control. He is required to vote with New KaloBios management on all matters, and may not try to organize any group to seek changes to management, at any time.

Bub-bye, Martin. More at the main KaloBios Review site — all day tomorrow.

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