Item 2.01
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Completion of Acquisition or Disposition of Assets.
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On June 1, 2021 (the “Closing Date”),
Sorrento Therapeutics, Inc. (the “Company”) completed its previously announced merger (the “Merger”)
of AT Merger Sub, Inc., an exempted company incorporated with limited liability in the Cayman Islands and wholly owned subsidiary
of the Company (“Merger Sub”), with and into ACEA Therapeutics, Inc., an exempted company incorporated with limited
liability in the Cayman Islands (“ACEA”), whereby ACEA became a wholly owned subsidiary of the Company. The Merger
was effected pursuant to that certain Agreement and Plan of Merger (the “Merger Agreement”), dated as of April 2,
2021, by and among the Company, Merger Sub, ACEA and Fortis Advisors LLC, as representative of the shareholders of ACEA (the “Shareholders’
Representative”).
The total value of the consideration payable
to the holders of securities of ACEA (the “ACEA Equityholders”) in the
Merger is equal to $38,000,000 (plus the Company’s agreed upon share of certain
interest, fees and other expenses), as such amount was adjusted to $39,879,464 (and may be further adjusted post-closing) pursuant
to the terms of the Merger Agreement for indebtedness, transaction expenses and cash (the “Closing
Consideration”). A portion of the Closing Consideration equal to (i) $38,059,326.03 was used to repay certain
existing indebtedness of ACEA (the “Closing Indebtedness”), which amount
was paid to the holders thereof in the form of shares of common stock of the Company (“Common
Stock”) and an aggregate of 5,519,469 shares of Common Stock (the “Indebtedness
Shares”) were issued in respect thereof based on a price per share equal to $6.8955 (representing the volume weighted
average closing price per share of Common Stock, as reported on The Nasdaq Stock Market LLC, for the 10 consecutive trading days
ending on the date that was three trading days prior to the Closing Date) and (ii) $100,000 was set aside for expenses incurred
by the Shareholders’ Representative. The Indebtedness Shares are subject to a true-up,
as set forth in the Merger Agreement, if the price at which such shares were issued is greater than the closing price of the Common
Stock on the date that is six months after the Closing Date. At the effective time of the Merger, ACEA Equityholders were not
entitled to receive any shares of Common Stock in accordance with the terms of the Merger Agreement.
In
addition to the Closing Consideration, and subject to the achievement of certain clinical and sales milestones (as described below), the
Company shall pay the ACEA Equityholders (i) up to $450,000,000 in additional payments, subject to the receipt of certain regulatory
approvals and achievement of certain net sales targets with respect to the assets acquired in the Merger (the “Milestone Payments”)
and (ii) with respect to specified royalty-bearing products, five to ten percent of the annual net sales thereof (“Royalty
Payments” and together with the Milestone Payments, the “Earn-Out Consideration” and together with the Closing
Consideration, the “Merger Consideration”), in each case in accordance with the terms of an earn-out agreement entered
into by and between the Company and the Shareholders’ Representative on the Closing Date (the “Earn-Out Agreement”).
The amount referenced in clause (i) of the preceding sentence includes the amounts that would have otherwise been due to ACEA under
that certain License Agreement, dated July 13, 2020 (the “License Agreement”), between Sorrento and ACEA (as previously
disclosed in Sorrento’s Current Report on Form 8-K and Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on July 17, 2020 and November 9, 2020, respectively), which agreement was terminated in its entirety at the effective
time of the Merger. The Royalty Payments, if any, will be paid by the Company in cash and the Milestone Payments, if any, may be paid
by the Company in the form of either cash, shares of Common Stock or a combination thereof, as determined by the Company and any shares
of Common Stock so issued are referred to herein as the “Earn-Out Shares”. As provided for in the Merger Agreement
and Earn-Out Agreement, any ACEA Equityholder that is not an “accredited investor”
as defined in Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), and is
a “U.S. Person” as defined in Rule 903 of Regulation S under the Securities Act, may receive cash in lieu of shares
of Common Stock pursuant to the terms of the Merger Agreement. The
Earn-Out Shares will be subject to a true-up, as set forth in the Merger Agreement and the Earn-Out Agreement, if the price at which any
such shares are issued is greater than the closing price of the Common Stock on the date that is six months after the date of issuance
of such shares.
In connection
with the Merger, the Company also agreed, pursuant to the Merger Agreement (and subject to the limitations set forth therein), to prepare
and file one or more registration statements with the SEC for the purpose of registering for resale the shares of Common Stock that are
issued pursuant to the Merger Agreement and the Earn-Out Agreement (collectively, the “Shares”). Under the Merger Agreement,
the Company is required to file such registration statement with the SEC within 30 days following the date on which any such Shares are
issued.
The foregoing description of the Merger Agreement
does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement that was filed
as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 5,
2021, and is incorporated herein by reference. The foregoing summary of the Earn-Out Agreement does
not purport to be complete and is qualified in its entirety by reference to the copy of the Amendment that is filed herewith as Exhibit 10.1.
As a result
of the Merger and as contemplated by the terms of the Merger Agreement, on the Closing Date, the Company has become obligated on the financial
obligations of certain subsidiaries of ACEA as described below under Item 2.03 of this Current Report on Form 8-K. The information set
forth in Item 2.03 of this Current Report on Form 8-K is incorporated herein by reference into this Item 2.01 in its entirety.
Item 2.03
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Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of
Registration
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On
the Closing Date and as a result of the Merger, the Company, as the indirect parent to Hangzhou ACEA Pharmaceutical Research Co., Ltd.
(“ACEA Hangzhou”) and Zhejiang ACEA Pharmaceutical Co., Ltd. (“ACEA Zhejiang”), each of which are
indirect subsidiaries of ACEA, succeeded to the financial obligations of ACEA Hangzhou and ACEA Zhejiang, each of whom are parties to
agreements with ACEA Bio (Hangzhou) Co., Ltd. (“ACEA Bio”) (an entity unrelated to ACEA Hangzhou and ACEA Zhejiang)
as set forth below.
Contract between Hangzhou ACEA Pharmaceutical
Research Co., Ltd. and ACEA Bio (Hangzhou) Co., Ltd.
Pursuant
to that certain Contract, dated as of August 15, 2018, between ACEA Hangzhou and ACEA Bio, ACEA Hangzhou borrowed an aggregate
of 184,600,000 RMB from ACEA Bio in a series of loans thereunder (the “Contract”). Each loan under the Contract is
for a period of 10 years and the maturity dates thereof range from August 15, 2023 to August 15, 2028. Each loan is interest free for
the first five years, after which time the interest rate is 5.39% per annum.
Loan Agreement between Zhejiang ACEA Pharmaceutical
Co., Ltd. and ACEA Bio (Hangzhou) Co., Ltd.
Pursuant
to that certain Loan Agreement, dated as of January 6, 2018, between ACEA Zhejiang and ACEA Bio, ACEA Zhejiang borrowed 8,000,000
RMB from ACEA Bio (the “Loan Agreement”). The maturity date under the Loan Agreement is one year from the date when
the loan was remitted to ACEA Zhejiang’s bank account. The interest rate under the Loan Agreement is 4.786% per annum.
The foregoing is a brief description of the terms
of the Contract and the Loan Agreement and is qualified in its entirety by reference to the full text of the Contract and Loan Agreement,
copies of which are filed herewith as Exhibits 10.2 and 10.3, respectively.
Item 3.02.
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Unregistered Sale of Securities.
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The information set forth in Item 2.01 of this Current Report on Form 8-K
is incorporated herein by reference into this Item 3.02 in its entirety. The Indebtedness Shares were offered and sold on June 1,
2021, in a transaction exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”),
in reliance on Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder. In the event that any Earn-Out Shares are
issued, such shares will be issued by the Company to each ACEA Equityholder in reliance upon on Section 4(a)(2) of the Securities
Act and Rule 506 of Regulation D thereunder or Regulation S of the Securities Act. Each of the accredited ACEA Equityholders and
each holder of Closing Indebtedness represented that such accredited ACEA Equityholder or holder of Closing Indebtedness was an “accredited
investor,” as defined in Regulation D, and was acquiring the Indebtedness Shares and any Earn-Out Shares (if any) for investment
only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. Except for the registration rights contemplated by the Merger Agreement, the Indebtedness
Shares have not been registered under the Securities Act, the Earn-Out Shares (if any) will not been registered under the Securities Act
and the Indebtedness Shares may not be offered or sold in the United States absent registration or an exemption from registration under
the Securities Act and any applicable state securities laws. Neither this Current Report on Form 8-K nor the exhibits attached hereto
is an offer to sell or the solicitation of an offer to buy shares of Common Stock or any other securities of the Company.