Document:

srne-ex102_471.htm

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

 

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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Confidential

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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Confidential

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

 

Page 9 of 9srne-ex103_470.htm

Exhibit 10.3
Confidential 

 

BINDING TERM SHEET 

August 15, 2016

This Binding Term Sheet sets forth certain key terms of a possible transaction (the “Transaction”) involving Sorrento Therapeutics, Inc. (“Sorrento”),  Scintilla Pharmaceuticals, Inc., a majority owned subsidiary of Sorrento (“Acquirer”), and Semnur Pharmaceuticals, Inc. (the “Company”).  

 

	
A.    Transaction Structure:
	
Acquirer would acquire all of the outstanding shares of capital stock and other equity securities of the Company by means of a reverse subsidiary merger, whereby a wholly-owned subsidiary of Acquirer (“MergerCo”) will merge with and into the Company, the separate corporate existence of MergerCo shall cease and the Company shall become a wholly-owned subsidiary of Acquirer.

The terms of the Transaction will be more fully set forth in a definitive agreement, which the parties intend to enter into within 60 days following the execution of this term sheet.

The definitive agreement shall provide that the Transaction shall be closed on the earlier to occur of (i) the date that is 30 days following the execution of the definitive agreement or (ii) three business days after Scintilla has actually received financing sufficient to fund the Initial Consideration. 

Contingent upon the execution of the definitive agreement between the parties, Semnur shall deliver voting agreements or stockholder consents from Semnur’s stockholders representing the vote or consent of stockholders required under Delaware and California law, Semnur’s certificate of incorporation and Semnur’s contracts with stockholders (if any), in each case, to approve the Transaction on behalf of Semnur’s stockholders.  

1

 

 

 

	
B.    Merger Consideration:
	
The aggregate purchase price to be paid by Acquirer for all of the Company’s outstanding shares of capital stock and other equity securities in the Transaction would be:

●    an initial payment of $60,000,000 (the “Initial Consideration”), consisting of a payment on the closing date of (i) $40,000,000 in cash, and (iii) $20,000,000 in shares of common stock of Sorrento  (the “Stock Consideration”), calculated based on the volume weighted average closing price of Sorrento’s common stock, as reported on The Nasdaq Market LLC, for the 30 consecutive trading days ending on the date that is three days prior to the execution of the definitive agreement (such volume weighted average, the “Signing Trading Price”). 

Acquirer will not assume any options, warrants or other rights to acquire capital stock of Semnur and no options, warrants or other rights to acquire Acquirer capital stock will be issued in consideration therefore.  The Company’s options outstanding as of the date hereof will be accelerated and cancelled at closing in exchange for the right to receive the applicable portion of the merger consideration as it becomes payable.  Prior to closing, the Company may determine (at its election) to grant new options from its available option pool and provide that such options will either be (A) substituted for a right receive the applicable portion of the merger consideration as it is paid, subject to post-closing vesting terms set by the Company (provided, that such options are granted in compliance with the Company’s option plan and applicable law (including 409A)), or (B) accelerated at closing and treated in the same manner as the options of the Company that are outstanding on the date hereof; provided that the grant of such new options will not increase the amount of the Initial Consideration or the Stock Consideration.  The allocation of consideration among the equityholders of the Company shall calculate the payments to be made to optionholders on the treasury stock method.  

 

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●    the following one-time milestone payments, payable in cash:

o    $20,000,000, upon completion of the first successful Phase III clinical study of a Company Product; 

o    $10,000,000, upon completion of the second successful Phase III clinical trial of a Company Product;

o    $40,000,000, upon the first U.S. FDA approval of an NDA for a Company Product; 

o    $10,000,000, upon the first approval of an MAA for a Company Product in Europe (EMA or the UK, Germany, France, Italy or Spain);  

o    $30,000,000, upon achievement of the first $100,000,000 in net sales of a Company Product; and 

o    $30,000,000, upon achievement of the first $250,000,000 in net sales of a Company Product.

For clarity, the aggregate purchase price shall not exceed $200,000,000.  

Sorrento will guarantee the obligations of Scintilla to pay the Initial Consideration.  After the closing and following the payment of the Initial Consideration, Sorrento will (A) cause Scintilla to have $5 million in cash-on-hand (after the payment of the Initial Consideration) to be available for Scintilla to fund its operations (including to support the achievement of the milestone payments contemplated above); and (B) will use commercially reasonable efforts to assist Scintilla to obtain funding necessary to achieve and satisfy the milestone payments contemplated above.

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C.    Additional Earnout Terms:
	
“Company Product” and “successful completion” of a Phase III clinical trial will be defined in the definitive agreement governing the Transaction; in any case, filing of a complete NDA or MAA will be deemed to satisfy the above-described Phase III completion milestones.  

The definitive agreement will (i) provide reasonable due diligence provisions with respect to development of a Company Product and (ii) provide accredited investors with customary demand registration rights for registration promptly following the closing of the shares of Sorrento stock issued in the Transaction and customary piggyback registration rights (it being understood that registration rights for non-accredited investors will be mutually agreed upon by the Company and Acquirer following Acquirer’s due diligence).  Sorrento will enter into a customary registration rights agreement with the accredited stockholders providing for such registration rights.

	
D.    Adjustments:
	
The definitive agreement shall not include any closing purchase price adjustments, except that the Company will be debt-free at closing.  Cash held at the Company will be used to pay (i) the costs and expenses of the Company in connection with or related to the Transaction, (ii) debt of the Company as of the closing, (iii) year-end bonuses (pro rated to closing) for employees and consultants who either (a) do not receive an offer to become an employee or consultant of Sorrento or Acquirer upon closing or (b) are contractually entitled, as of the date of this term sheet, to receive a bonus from the Company upon or before the closing, in any case in an aggregate amount not to exceed $500,000, (iv) accumulated PTO as of the closing and (v) a customary D&O tail policy (collectively, the “Permitted Costs”).  Any cash remaining in the Company at closing will remain with the Company. The Company (i) will not distribute any cash held at the Company to its stockholders or other equityholders, (ii) will manage and use its cash-on-hand in the ordinary course of business, provided that the Company may pay the Permitted Costs and (iii) shall consult with Acquirer prior to making any material payments that are not consistent with past practice.  

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E.    Escrow:
	
$6 million of the Stock Consideration (valued at the Signing Trading Price) will be placed in escrow for satisfaction of any indemnity obligations of the Company and its equityholders as agreed to in the definitive agreements.  Half of the remaining escrow (the “Initial Escrow”) will be released on the date that is 6 months after the closing (subject to retention reasonably expected to satisfy any claims pending as of such 6-month date, but in no event less than any amount claimed by a third party for which Acquirer or Sorrento may be entitled to indemnification), which retention shall be calculated solely based on the amount of the Initial Escrow and without considering the remaining portion of the escrow, and the remaining portion of the escrow will be released on the date that is 12 months after the closing, subject to retention reasonably expected to satisfy any pending claims at such time, but in no event less than any amount claimed by a third party for which Acquirer or Sorrento may be entitled to indemnification.

	
F.     Representations, Warranties and Other Provisions:
	
The definitive agreement will contain representations, warranties, covenants and closing conditions, including absence of a material adverse event or effect, that are customary for a transaction of this nature.

The definitive agreements will not include any financing contingencies.

Promptly following the date of this Binding Term Sheet, Acquirer and the Company will use commercially reasonable efforts to prepare audited and interim financial statements for the Company, as determined by Acquirer (collectively, the “Financial Statements”), provided that Acquirer shall bear the fees and costs of the auditors auditing and reviewing the Financial Statements (the “Financial Statement Costs”). 

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G.    Due Diligence:
	
The parties shall use commercially reasonable efforts to provide to each other and, subject to the execution of reasonably agreed upon confidentiality agreements, to their respective accountants, attorneys, partners, consultants, financing sources and other representatives and agents, in each case, who have a need to access such information in connection with (and which the receiving party shall use solely for the purpose of) such party’s determination whether to enter into the Transaction, reasonable access, as reasonably necessary to the other’s management, consultants, accountants, advisors and other representatives in each case that are aware of the Transaction and to the properties, operating and financial data, records, agreements and other information relating to the parties and to the Transaction, in each case, to the extent reasonably requested by the parties. The parties will use their commercially reasonable efforts to respond promptly to information requests from the other party as is reasonable and customary in the course of due diligence for transactions of this type.

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H.    Exclusivity:
	
Until 5:00PM Pacific Time on October 14, 2016 (the “Expiration Date”), the Company shall not directly or indirectly, (i) solicit, initiate or knowingly encourage any inquiries, discussions or proposals from any person or entity other than Acquirer and its affiliates (each, together with its and their affiliates, a “Third Party”) relating to a possible Acquisition Proposal (as defined below), (ii) continue, solicit, knowingly encourage or enter into negotiations or discussions relating to any such possible Acquisition Proposal, (iii) furnish to any Third Party in connection with an Acquisition Proposal any information (not already in the public domain) relating to any of the Company’s business, shares, assets or the Transaction contemplated hereby, except as required by applicable law, or (iv) enter into or consummate any agreement or understanding providing for any Acquisition Proposal; provided, however, the Company’s obligations under this paragraph shall terminate and be void (and the “Expiration Date” shall be deemed to automatically occur) if (A) Acquirer proposes to the Company either orally or in writing any terms for the Transaction that contravene any of the terms set forth in the sections A, B, C, D or E of this Binding Term Sheet (any such proposal by Acquirer, a “Contravening Proposal”) and (B) Acquirer does not permanently revoke in writing (which revocation may be sent by email to the signatories hereto) such proposal within 24 hours of the Company’s delivery to the Acquirer of a written notice (which notice may be sent by email to 

the signatories hereto) that the Company considers such proposal to constitute a Contravening Proposal; and, provided further that unless the Expiration Date has already occurred, the Expiration Date shall be automatically extended to 5:00PM Pacific Time on November 13, 2016 in the event that as of 5:00PM Pacific Time on October 14, 2016, the parties are in negotiations regarding the definitive agreement for the Transaction and have each provided to the other party one or more drafts of such definitive agreement during the two-week period immediately prior thereto.

For purposes of this provision, “Acquisition Proposal” shall mean any offer or proposal by a Third Party to engage with the Company in any transaction or series of related transactions involving: (i) any purchase or other acquisition by a Third Party of ten percent or more of the capital stock of the Company (other than pursuant to the grant or exercise of equity awards to employees or consultants in the ordinary course of business or as contemplated herein, the issuance of shares of preferred stock to current stockholders of the Company pursuant to contractual obligations of the Company as of the date hereof, or the conversion of preferred stock of the Company outstanding on the date hereof into common stock of the Company); provided that (without limiting the foregoing parenthetical) no more than 50% of such ten percent of the capital stock of the Company shall be sold or issued to any party that is not a stockholder of the Company as of the date of this Term Sheet; (ii) any direct or indirect purchase or other acquisition by any Third Party of a material portion of the assets of the Company (other than the sale or license of products in the ordinary course of business); provided that, for purposes of this clause (ii), “material” shall include, without limitation, any intellectual property of the Company and any asset (or related assets) of the Company, in either case (or in the aggregate), with a value equal to 10% or more of the book value of all of the Company’s assets measured as of immediately prior to such purchase or other acquisition; or (iii) any merger, consolidation or other similar transaction involving the Company.

	
I.    Transaction Expenses:
	
Each party shall pay its own legal fees, financial advisory fees and other expenses incurred in connection with the Transaction; provided that Acquirer shall pay the Financial Statement Costs.

	
J.    Governing Law:
	
This Binding Term Sheet will be governed by the laws of the State of Delaware, without regard to conflicts of laws. 

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K.    Termination:
	
If the parties hereto have not entered into a binding definitive agreement by the Expiration Date with respect to the Transaction, 

either party may terminate this Binding Term Sheet and abandon the Transaction, and no party shall have any further obligation or liability hereunder; provided, that, notwithstanding the foregoing, (A) if, without the written permission (including by email) of the Company, Acquirer or Sorrento informs the Company prior to such termination that it would not enter into the definitive agreements unless one or more of the terms of the Transaction set forth in the last paragraph of Section A, or in Section B, Section D, Section E, or Section I above are modified, Acquirer shall (and Sorrento shall cause the Acquirer to) pay the Company an aggregate of $5,000,000 in cash as liquidated damages, and not as a penalty, which payment shall be made within seven days of such termination; and (B) if, without the written permission (including by email) of Acquirer or Sorrento, the Company informs the Acquirer prior to such termination that it would not enter into the definitive agreement unless one or more of the terms of the Transaction set forth in the last paragraph of Section A, or in Section B, Section D, Section E, or Section I  above are modified, the Company shall pay the Acquirer an aggregate of $5,000,000 in cash as liquidated damages, and not as a penalty, which payment shall be made within seven days of such termination.  The parties acknowledge and agree that $5,000,000 constitutes a reasonable good faith estimate of the potential damages arising from the foregoing matters, it being otherwise difficult or impossible to estimate a party’s actual damages that would be suffered by such party in the event of any such matter.

If a party makes a payment contemplated pursuant to this section, then (A) such payment shall be the sole and exclusive remedy under this Binding Term Sheet of the party receiving such amount and (B) the party receiving such amount (and its affiliates) shall not be entitled to bring or maintain any other claim, action or proceeding against any party to this Binding Term Sheet or any other person arising under or in connection with this Binding Term Sheet.  Under no circumstances shall a party be required to make more than one payment contemplated under this section.

 

[Remainder of Page Intentionally Left Blank]

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The parties have executed this Binding Term Sheet as of the date first above written.

 

	
Semnur Pharmaceuticals, Inc.
	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 
	
 
	
 
	
 

	
By:
	
 
	
/s/ Mahendra G. Shah
	
 
	
 
	
 
	
 

	
Name:
	
 
	
 Mahendra G. Shah
	
 
	
 
	
 
	
 

	
Title:
	
 
	
 Executive Chairman
	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 
	
 
	
 
	
 

	
Scintilla Pharmaceuticals, Inc.
	
 
	
Sorrento Therapeutics, Inc.

	
 
	
 
	
 
	
 
	
 
	
 
	
 

	
By:
	
 
	
 /s/ Henry Ji, Ph.D.
	
 
	
By:
	
 
	
 /s/ Henry Ji, Ph.D.

	
Name:
	
 
	
 Henry Ji, Ph.D.
	
 
	
Name:
	
 
	
 Henry Ji, Ph.D.

	
Title:
	
 
	
 President & CEO
	
 
	
Title:
	
 
	
 President & CEO

 

9

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