Exhibit 10.2

Confidential

 

BINDING TERM SHEET FOR sCILEX PHARMACEUTICALS, INc. ACQUISITION

AUGUST 2, 2016

 

A.   Transaction:

 

Scintilla will, through MergerCo, purchase 100% of the issued and outstanding
equity of Scilex in a tax-free reorganization effected pursuant to Section 368
of the Internal Revenue Code of 1986, as amended, whereby MergerCo will merge
with and into Scilex, the separate corporate existence of MergerCo shall cease
and Scilex shall become a wholly-owned subsidiary of Scintilla (the
“Transaction”).  In order to consummate the Transaction, Scintilla, Scilex and
Sorrento will enter into definitive legal documentation, including without
limitation, a definitive merger agreement, incorporating the terms herein and
such other terms reasonably acceptable to each of the Parties (the “Transaction
Documents”).

 

 

B.   Parties:

 

The parties (“Parties”) to the Transaction are as follows:

 

 

 

●   Scintilla Pharmaceuticals, Inc., a subsidiary of Sorrento Therapeutics, Inc.
(“Scintilla”)

●   Sorrento Therapeutics, Inc. (“Sorrento”)

●   Scilex Pharmaceuticals, Inc., and its subsidiaries, if any (together,
“Scilex”)

●   Scintilla Merger Sub, Inc., a newly-created wholly-owned subsidiary of
Scintilla (“MergerCo”)

 

 

 

9 pages

 

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Confidential

August 2, 2016

 

C.   Purchase Price:

 

Subject to satisfaction of the Closing Conditions (set forth below) and provided
that the FDA has not issued a letter or notice after the date of this Term Sheet
(the “Effective Date”) indicating non-approval of ZTLido (lidocaine patch 1.8%)
(“Patch Product”), Scintilla will (A) at the Closing, pay to the equityholders
of Scilex as of the Closing (the “Existing Shareholders”), an aggregate of $100
(the “Cash Payment”), and (B) agree to pay to the Existing Shareholders,
promptly following the next third party equity financing or initial public
offering of Scintilla’s shares of common stock in the U.S. (“Financing Event”),
an aggregate of US$70.0 million, subject to adjustment as provided in this Term
Sheet (the “Purchase Price”), in the form of shares of common stock of
Scintilla, based upon the valuation of of Scintilla as of immediately following
completion of such Financing Event (the “Purchase Shares”); provided that twenty
percent (20%) of such Purchase Shares will be held in escrow, as described in
the section titled “Escrow” below. The Cash Payment and Purchase Shares shall be
paid pro rata based on each such Existing Shareholder’s interest in Scilex (as
of the Closing Date). Scintilla will not assume any options, warrants or other
rights to acquire capital stock of Scilex and no options, warrants or other
rights to acquire Scintilla capital stock will be issued in consideration
therefore.

 

In the event the Financing Event is not completed by the two-year anniversary of
the Closing Date, the Purchase Price shall be paid to

the Existing Shareholders on such date in the form of shares of common stock of
Scintilla, based upon the valuation of Scintilla as of such date which shall be
determined by the Board of Directors of Scintilla in good faith.

 

Subject to any restricted period prescribed by applicable law (i.e., all
Purchase Shares will be unregistered at the time of the merger), the Existing
Shareholders may freely trade and sell the Purchase Shares.    

 

The Parties agree that they will use commercially reasonable efforts to
structure the merger consideration in a tax efficient manner for the Parties,
and that any such structure will be subject to the mutual agreement of the
Parties.

 

 

 

D.   Escrow:

 

Concurrently with the issuance of the Purchase Shares to the Existing
Shareholders, that number of Purchase Shares having a value equal to twenty
percent (20%) of the Purchase Price, or US$14.0 million (the “Escrowed Shares”),
will be placed in a bank account in the names of the Existing Shareholders (or
designated representative thereof) and an independent escrow agent (satisfactory
to Scintilla and Scilex), and the escrow agent will release funds in such escrow
account, including any interest earned thereon, to the Existing Shareholders as
follows:

 

Six (6) months after the Closing Date, 50% of the Escrowed Shares, less the
amount represented by that portion of the Escrowed Shares having a value equal
to the  amount of any pending claims, settlements or awards arising out of a
breach of the representations and warranties or covenants set forth in the
definitive acquisition document in the Transaction, as described in the Section
tittled “Claims” below, will be released. Twelve (12) months after the Closing
Date, the remaining Escrowed Shares, less the amount represented by that portion
of the Escrowed Shares having a value equal to the  amount of any pending
claims, settlements or awards arising out of a breach of the representations and
warranties or covenants set forth in the definitive acquisition document in the
Transaction, as described in the Section tittled “Claims” below, will be
released.

 

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Confidential

August 2, 2016

 

E.   Due Diligence:

 

Subject to the Confidentiality Agreement (as defined below), the Parties shall
provide to each other and to their respective accountants, attorneys, partners,
consultants, financing sources and all other representatives and agents full
access, as reasonably necessary to the other’s management, consultants,
accountants, advisors and all other representatives, and to all properties,
operating and financial data, records, agreements and other information relating
to Scilex or Scintilla and to the Transaction, to the extent reasonably
requested by Scilex, Scintilla or Sorrento. The Parties will use their best
efforts to keep each other informed of any material

changes that have occurred or may occur affecting the business, results of
operations, condition (financial or otherwise) or prospects of either business.

 

F.   Confidentiality:

 

This Term Sheet and its terms and all related discussions and correspondence
between the Parties (including any past discussions and correspondence) are
confidential and subject to the terms of that certain Confidentiality Agreement
by and between Scilex and Sorrento dated July 20, 2016 (the “Confidentiality
Agreement”), and in addition, neither Scilex, Scintilla nor Sorrento shall
disclose the existence of this Term Sheet or its terms or any related dicussions
and correspondence between the Parties without the prior written consent of the
other Parties.  No public disclosure will be permitted until announcement of the
execution of the definitive acquisition agreement in the Transaction, except as
required by applicable law or the rules of the stock exchange upon which it is
traded.  Nonetheless and notwithstanding the foregoing, all Parties acknowledge
and agree that, subject to the terms set forth in this Term Sheet, Sorrento and
Scintilla shall be permitted to disclose the existence and terms of this Term
Sheet upon its execution.  This offer and Term Sheet should only be discussed by
and between the senior officers, members of the board of directors or managers
of Scilex, Scintilla and Sorrento and others (including, but not limited to, any
Party’s investment and banking advisors (and other financial institutions and
brokers), consultants and legal counsel) as deemed necessary to accomplish the
objectives of this Term Sheet.  All such individuals shall be subject to
obligations of confidentiality, to the extent not covered pursuant to the terms
of the Confidentiality Agreement.

 

G.   Funding:

 

Upon the closing of the Transaction (the “Closing”), Sorrento will transfer and
contribute US$10.0 million to Scintilla. These funds shall be used by Scintilla
to, among other things, fund Scilex’s working capital expenses, including toward
the funding of any FDA required studies for the regulatory approval of the Patch
Product (“Patch Approval Activities”), as well as mutually agreed upon
development of the historic Scintilla technology to be specified in the merger
agreement.

 

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Confidential

August 2, 2016

 

H.   Claims:

 

Subject to the terms and conditions of the definitive acquisition agreement in
the Transaction, the merger consideration ratio shall be adjusted for any claims
and/or liabilities (including, but not limited to, reasonable attorneys’ fees
and the costs and expenses of defending any claims) arising out of, relating to
or based upon allegations pertaining to:

 

 

 

(i)

any inaccuracy or breach of any representation or warranty of either Party
contained in the Transaction Documents;

 

 

 

 

(ii)

any breach of any covenant by either Party contained in the Transaction
Documents;

 

 

 

 

(iii)

any liability or cost arising out of certain unpaid wage claims of certain
employees and other persons who work or have worked for either Party prior to
the Closing Date; and

 

 

 

 

(iv)

any taxes, past or present, (including interest, penalties, etc.) imposed in
respect of the income, business, property or operations of either Party that the
surviving entity may otherwise be liable, for the period up to and including the
Closing Date.

 

 

 

 

Each Party, pursuant to the terms set forth in the definitive acquisition
agreement in the Transaction, may be permitted to participate, at its own
expense, in any defense of, or settlement negotiations with respect to, any
third party claims.

 

 

 

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Confidential

August 2, 2016

 

I.   Pre-Closing Covenants:

 

 

Prior to the Closing, Scilex and Scintilla will:

 

 

 

(i)

operate its business only in the ordinary course consistent with past practice;

 

(ii)

preserve its assets and the goodwill and relationships with its partners,
customers, suppliers and employees; and

 

(iii)

maintain its books, records and financials in accordance with generally accepted
accounting principles consistent with past practice.

 

 

 

 

Prior to the Closing, Scilex will not:

 

 

 

 

(i)

delay normally scheduled maintenance of its assets;

 

(ii)

make any material capital expenditures;

 

(iii)

sell, lease or license any material portion of its assets;

 

(iv)

incur any long-term debt;

 

(v)

enter into any material agreements;

 

(vi)

change its accounting methods in any material respect;

 

(vii)

commence or settle any legal proceedings;

 

(viii)

declare or pay dividends; or

 

(ix)

increase salaries or other compensation (other than previously scheduled
increases in the ordinary course of business consistent with past practice).

 

 

 

 

These and other customary pre-Closing covenants shall be included in the
Transaction Documents.

 

 

 

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Confidential

August 2, 2016

 

J.   Closing Conditions:

 

The obligations of the Parties to complete the Transaction contemplated herein
will be subject, among other things, to the satisfaction of the following
conditions:

 

 

 

(i)

completion of legal, accounting, regulatory, tax, financial, technical,
commercial and environmental due diligence;

 

 

 

 

(ii)

negotiation, execution and delivery of a satisfactory and mutually acceptable
definitive acquisition agreement and related Transaction Documents;

 

 

 

 

(iii)

absence of any material adverse change in the business, results of operations,
condition (financial or otherwise) or prospects of any Party;

 

 

 

 

(iv)

receipt of all necessary governmental, board of directors, investment committee,
Existing Shareholder and third-party approvals, waivers and consents;

 

 

 

 

(v)

absence of any action or proceeding against any Party that may affect the
Transaction or the value of the surviving corporation;

 

 

 

 

(vi)

true and correct representations and warranties by each Party;

 

 

 

 

(vii)

as of the Closing Date, no indebtedness outstanding in any form in Scilex,
except for any indebtedness which may be permitted by Scintilla, in its sole
discretion, pursuant to the definitive acquisition agreement in the Transaction;
and

 

 

 

 

(viii)

forgiveness or satisfaction of all Existing Shareholder loans to Scilex.

 

 

 

 

K.   Representations & Warranties:

 

The Transaction Documents will contain representations and warranties that are
customary for transactions of this size and nature.

 

 

 

L.   Dispute Resolution:

 

Any controversy, conflict or dispute of any nature arising out of or relating to
this Term Sheet and the Transaction contemplated herein will be settled
exclusively and finally by arbitration governed by ICC rules carried out in the
State of California. Scilex and Scintilla/Sorrento will each select one
arbitrator to represent them, and the two arbitrators together will select a
third arbitrator for the proceedings.

 

 

 

M.   Expenses

 

Each Party will bear its own costs and expenses related to pursuing or
consummating the Transaction contemplated hereby.  

 

 

 

N.   Governing Law; Entire Agreement:

 

This Term Sheet shall be governed by the laws of the State of California without
regard to its or any other jurisdiction’s conflicts of laws principles.  For
purposes of this Term Sheet, it shall be deemed to have been executed in San
Diego, California.  This Term Sheet supersedes all prior discussions and
writings and constitutes, with the Confidentiality Agreement, the entire
agreement between the Parties with respect to the subject matter hereof.  No
waiver or modification of this Term Sheet will be binding upon either Party
unless made in writing and signed by a duly authorized representative of such
Party, and no failure or delay in enforcing any right will be deemed a
waiver.  In addition, this Term Sheet may be executed in two or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.

 

 

 

O.   Board of Directors and Officers:

 

Following the Closing, the Board of Directors of the surviving corporation shall
initially consist of 6 directors selected as follows: 2 directors selected by
the current Scilex board and 4 directors selected by Sorrento.  Mutually agreed
upon key executive officers and employees of Scilex shall be given employment
agreements (with non-competition and non-solicitation provisions customary for
transactions similar to the Transaction) mutually acceptable to all Parties or
retained by Scintilla, the surviving entity from the merger, under mutually
agreeable terms.

 

 

 

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August 2, 2016

 

P.    Exclusivity; Execution and Delivery of Term Sheet and Transaction
Documents; Closing:

 

Scilex agrees to negotiate exclusively with Sorrento and Scintilla with respect
to the sale of its business or any merger negotiations and to cease all further
negotiations with any party with respect to any other merger, acquisition or
equity financing proposals prior to 5 p.m. PT on September 9, 2016 (“Standstill
Period”).  During the Standstill Period, Scilex will not directly or indirectly,
other than in the ordinary course of business, or as contemplated by this Term
Sheet, (i) solicit, initiate or encourage any inquiries, discussions or
proposals from any other person or entity relating to a possible acquisition or
merger of any part of its business, (ii) continue, solicit, encourage or enter
into negotiations or discussions relating to any such possible acquisition or
merger, (iii) furnish to any other person or entity any information (not already
in the public domain) relating to any of its business or products or the
Transaction contemplated hereby, except as required by applicable law, or (iv)
enter into or consummate any agreement or understanding providing for any such
possible acquisition or merger.  In exchange for such grant of exclusivity,
Sorrento shall provide Scilex on the Effective Date a standstill payment of
$500,000 (“Standstill Fee”).  If the Closing occurs, the Standstill Fee shall be
credited against the Purchase Price. If the Closing does not occur by or on
September 9, 2015, the Standstill Fee shall be considered an investment by
Sorrento in Scilex in Scilex’s next third party financing (based upon the
valuation of Scilex achieved for such third party financing). Scintilla shall
endeavor to prepare draft Transaction Documents, including an initial draft of
the definitive acquisition agreement for the Transaction, for review by and
negotiation with, Scilex and its principals. The Parties shall diligently and in
good faith negotiate, and endeavor to execute and deliver, the Transaction
Documents on or before August 15, 2016 or another date mutually agreed upon in
writing by the Parties (the “Signing Date”).  The Closing of the Transaction
(the “Closing Date”) will occur as soon as is reasonably possible and feasible
following the Signing Date and after all third-party consents and approvals and
similar documents are finalized and the other closing conditions have been
satisfied or waived.

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August 2, 2016

 

Q.   Intention of Parties; Termination

 

 

The Parties acknowledge and agree that this is a binding term sheet and shall
constitute an obligation for the Parties to enter into a transaction consistent
with the terms set forth herein. The Parties further acknowledge and agree that
this Term Sheet does not contain all matters upon which agreement must be
reached for the Transaction to be consummated. The Parties shall negotiate in
good faith the definitive agreements to consummate such a transaction as
promptly as possible.  Notwithstanding any of the foregoing, Scintilla’s,
Scilex’s and Sorrento’s obligations herein are conditioned on the approval of
the board of directors of Scintilla, Scilex and Sorrento, respectively,
satisfaction of the Closing Conditions and obtaining any necessary third party
consents or waivers.   

 

Termination of this Term Sheet shall not affect any rights or binding
obligations  that have accrued or arisen hereunder prior to such termination,
and such rights and binding obligations shall survive the termination of this
Term Sheet.

 

[Signature Page Follows]

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Confidential

August 2, 2016

 

Accepted and Agreed, as of the Effective Date:

 

SCILEX PHARMACEUTICALS, INC.

 

SCINTILLA PHARMACEUTICALS, INC.

 

 

 

/s/ Anthony Mack

 

/s/ Henry Ji

By: Anthony Mack

Title: President & CEO

 

By: Henry Ji

Title: President & CEO

 

 

 

Date:

August 2, 2016

 

Date:

August 2, 2016

 

 

 

 

 

SORRENTO THERAPEUTICS, INC.

 

 

/s/ Henry Ji

By:  Henry Ji

Title: President & CEO

 

 

Date:

August 2, 2016

 

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