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Item 3. Legal Proceedings

2023-03-01 compared with 2022-03-01 · 129 added, 3 removed, 7 unchanged (95% of the section changed)

2 unchanged sentences

We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business.

We are aware of complaints that have been filed regarding the Merger, but we have not been served with any of such complaints.

If we are served with any such complaints, we will assess at that time any contingencies for which we may need to reserve.

Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

For additional information regarding our legal proceedings, see Note 7 , Commitments and Contingencies—Litigation, of the “Notes to Consolidated Financial Statements” that appears in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report.

Altor BioScience, LLC Litigation

In 2017, NantCell announced it had entered into a definitive merger agreement to acquire Altor BioScience Corporation.

An action captioned Gray v.

Soon-Shiong, et al.

was filed in Delaware Chancery Court by plaintiffs Clayland Boyden Gray (Gray) and Adam R.

The plaintiffs, two minority stockholders, asserted claims against the company and other defendants for (1) breach of fiduciary duty and (2) aiding and abetting breach of fiduciary duty and filed a motion to enjoin the merger.

The court denied the motion and permitted the merger to close.

Subsequent to the close of the merger, in 2017 the plaintiffs (joined by two additional minority stockholders, Barbara Sturm Waldman and Douglas E.

Henderson (Henderson)) filed a second amended complaint, including appraisal claims, and which the defendants subsequently moved to dismiss.

In a second action, Dyad Pharmaceutical Corporation (Dyad) filed a petition in Delaware Chancery Court for appraisal in connection with the merger.

The defendants moved to dismiss the appraisal petition in 2018.

The court issued an oral ruling in 2019 that dismissed certain claims and dismissed Altor BioScience from the action.

The following claims remained:

(a) the appraisal claims by all plaintiffs and Dyad (against Altor BioScience, LLC), and (b) Henderson’s claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty.

In 2019, the court issued a written order implementing its ruling on the defendants’ motions (the Implementing Order).

In the Implementing Order, the court confirmed that all fiduciary duty claims brought by Gray, both individually and as trustee of the Gordon Gray Trust f/b/o C.

Boyden Gray, were dismissed.

The plaintiffs then moved for leave to file a third amended complaint to add two former Altor stockholders as plaintiffs and a fiduciary duty claim on behalf of a purported class of former Altor stockholders, which the defendants opposed.

In 2020, the court granted the plaintiffs’ motion, and the plaintiffs filed the third amended complaint.

In 2020, the defendants answered the third amended complaint and asserted counterclaims against the plaintiffs.

The defendants sought damages for attorneys’ fees and costs incurred as a result of the breaches of “standstill” agreements and of stockholder releases.

The plaintiffs filed an answer denying the counterclaims and asserting defenses.

The shares of the former Altor stockholders seeking appraisal met the definition of dissenting shares under the merger agreement and were not entitled to receive any portion of the merger consideration at the closing date, given that those shares were the subject of the above-described appraisal claims.

In late March 2022, the company agreed to the terms of a settlement with the appraisal petitioners, without any admission of liability or fault.

The settlement provided that in exchange for complete releases, the appraisal petitioners, who as a group held 3,167,565 dissenting Altor shares, collectively would receive an aggregate of 2,229,296 shares of the company’s common stock issued in a private placement, plus an aggregate of $21.13 in cash in lieu of fractional shares.

The company’s Board of Directors approved the settlement and stock issuance in April 2022, and the court approved the settlement and dismissed the appraisal petitioners’ claims on July 9, 2022.

On July 9, 2022, the company issued 2,229,296 shares of its common stock with an aggregate market value of $10.7 million, based on the closing price of its common stock on the Nasdaq as of July 8, 2022, to the appraisal petitioners pursuant to the court-approved settlement agreement.

As of December 31, 2021, we had accrued $7.1 million related to the dissenting share obligation.

In late April 2022, the company also agreed to the terms of a settlement with the putative class plaintiffs without any admission of liability or fault.

In exchange for class-wide releases, the company committed to make a settlement payment of $5.0 million in cash by December 31, 2022.

On December 8, 2022, the Delaware Court of Chancery entered a final judgment approving the settlement, and the company timely made the $5.0 million settlement payment.

Sorrento Therapeutics, Inc.

(Sorrento), derivatively on behalf of NANTibody, filed an action in the Superior Court of California, Los Angeles County (the Superior Court) against the company’s subsidiary NantCell, Dr.

Soon-Shiong, and Charles Kim.

The action alleged that the defendants improperly caused NANTibody to acquire IgDraSol, Inc.

from NantPharma, LLC (NantPharma) and sought to have the transaction undone and the purchase amount returned to NANTibody.

In 2019, we filed a demurrer to several causes of action alleged in the Superior Court action, and Sorrento filed an amended complaint, eliminating Mr.

Kim as a defendant and dropping the causes of action we had challenged in our demurrer.

The company believes the case is without merit and intends to vigorously defend against the claims asserted.

Trial has been set to commence in Sorrento’s Superior Court action on July 17, 2023.

Sorrento filed a related arbitration proceeding (the Cynviloq arbitration) against Dr.

Soon-Shiong and NantPharma;

the company was not named in the Cynviloq arbitration.

In 2020, the Superior Court granted Dr.

Soon-Shiong’s request for a preliminary injunction barring Sorrento from pursuing claims against him in the Cynviloq arbitration.

Sorrento then filed the claims it had previously asserted in arbitration against Dr.

Soon-Shiong in the Superior Court, and at Sorrento’s request, the arbitrator entered an order dismissing Sorrento’s claims against Dr.

Soon-Shiong in the Cynviloq arbitration.

The hearing in the Cynviloq arbitration commenced in June 2021, and continued with breaks until early October 2021.

The parties completed post-hearing briefing in early May 2022, and summations were heard on September 8, 2022.

On December 20, 2022, the parties received the arbitrator’s final award;

the award is in favor of Sorrento and against NantPharma in the amount of approximately $125 million.

On December 28, 2022, Sorrento submitted an application for modification of the final award to include prejudgment interest in excess of $83 million;

on January 20, 2023, Sorrento’s application was denied.

On February 2, 2023, Sorrento filed a petition to confirm the NantPharma award, and on February 13, 2023, NantPharma responded with a motion to vacate;

both remain pending.

The company was not a party to the Cynviloq arbitration and we believe that neither the company nor any of its subsidiaries has any obligations with respect to the award against NantPharma, and we intend to defend vigorously against attempts by Sorrento to pursue any such theory.

Also in 2019, the company and Dr.

Soon-Shiong filed cross-claims in the Superior Court action against Sorrento and its Chief Executive Officer Henry Ji, asserting claims for fraud, breach of contract, breach of the covenant of good faith and fair dealing, tortious interference with contract, unjust enrichment, and declaratory relief.

Our claims alleged that Dr.

Ji and Sorrento breached the terms of an exclusive license agreement between the company and Sorrento related to Sorrento’s antibody library and that Sorrento did not perform its obligations under the exclusive license agreement.

The Superior Court ruled that the company’s claims should be pursued in arbitration and that Dr.

Soon-Shiong’s claims could be pursued in Superior Court.

In 2019, the company, along with NANTibody, filed an arbitration against Sorrento and Dr.

Ji asserting our claims relating to the exclusive license agreement.

Sorrento filed counterclaims against the company and NANTibody in the arbitration.

The hearings in the NANTibody arbitration commenced in April 2021 and concluded in early August 2021.

After post-hearing briefing was concluded, the parties were notified on November 30, 2021 that the arbitrator in the NANTibody arbitration had passed away.

A substitute arbitrator was appointed on February 25, 2022, and the parties have worked with the substitute arbitrator to conclude the proceedings.

Additional hearing sessions were held in May and July 2022, and summations took place on August 2, 2022.

On December 2, 2022, the arbitrator issued a final award finding that Sorrento had breached the two exclusive license agreements with NantCell and NANTibody.

The arbitrator awarded NantCell approximately $156.8 million and NANTibody approximately $16.7 million, plus post-award interest accruing at a daily rate.

On December 21, 2022, NantCell and NANTibody filed petitions in the Superior Court to confirm the arbitration award;

on January 16, 2023, Sorrento filed a response to the petitions and moved to vacate the award.

On February 7, 2023, after a hearing, the Superior Court entered orders confirming the arbitration award and denying Sorrento’s motion to vacate.

The Superior Court entered judgments against Sorrento in the aggregate amount of approximately $176.4 million plus 10% post-judgment interest, of which approximately $159.4 million is payable to NantCell, and the remainder of which is payable to NANTibody.

On February 13, 2023, Sorrento informed counsel to the company that it had filed a Chapter 11 proceeding in the U.S.

District Court for the Southern District of Texas, In re:

Sorrento Therapeutics, Inc., et al., Case No.

23-bk-90085 (Bankr.

The company intends to continue to pursue vigorously, consistent with its rights in light of Sorrento’s Chapter 11 filing, the collection of the judgments and 10% post-judgment interest from Sorrento, but we make no assurances that we will receive the full amount or with respect to the timing of our receipt of any funds.

The Superior Court actions remain pending, and it remains to be determined how, if at all, the awards in the arbitrations will affect the Superior Court actions.

A July 17, 2023 trial date has been set in the first-filed Superior Court action.

An estimate of the possible loss or range of loss resulting from the Superior Court litigation cannot be made at this time.

Shenzhen Beike Biotechnology Co.

In 2020, we received a Request for Arbitration before the International Chamber of Commerce, International Court of Arbitration.

The arbitration relates to a license, development, and commercialization agreement that Altor entered into with Beike in 2014, which agreement was amended and restated in 2017, pursuant to which Altor granted to Beike an exclusive license to use, research, develop and commercialize products based on N-803 in China for human therapeutic uses.

In the arbitration, Beike is asserting a claim for breach of contract under the license agreement.

Among other things, Beike alleges that we failed to use commercially reasonable efforts to deliver to Beike materials and data related to N-803.

Beike is seeking specific performance, or in the alternative, damages for the alleged breaches.

On September 25, 2020, the parties entered into a standstill and tolling agreement under which, among other things, the parties affirmed they will perform certain of their obligations under the license agreement by specified dates and agreed that all deadlines in the arbitration are indefinitely extended.

The standstill agreement may be terminated by any party on ten calendar days’ notice, and upon termination, the parties will have the right to pursue claims arising from the license agreement in any appropriate tribunal.

The parties have been providing periodic updates to the International Chamber of Commerce confirming a stay of all proceedings during the standstill.

Given that this action remains at the pleading stage and no discovery has occurred, it remains too early to evaluate the likely outcome of the case or to estimate any range of potential loss.

We believe the claims lack merit and intend to defend the case vigorously and that we may have counterclaims.

Litigation Related to the Merger with ImmunityBio, Inc.

In connection with the Merger with NantCell, Inc.

(formerly known as ImmunityBio, Inc., a private company), a Delaware corporation, via a wholly-owned subsidiary of NantKwest, several complaints were filed as individual actions in the United States District Courts, and subsequently were voluntarily dismissed (the Merger Actions).

The Merger Actions generally alleged that the Definitive Proxy Statement filed with the SEC on February 2, 2021 misrepresented and/or omitted certain purportedly material information relating to financial projections, analysis performed by the financial advisor to NantKwest’s Special Committee, alleged past engagements of the Special Committee’s financial advisor and industry consultant, and the terms of the engagement of such consultant.

The Merger Actions asserted violations of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder against all defendants and violations of Section 20(a) of the Exchange Act against NantKwest’s directors.

The Merger Actions sought, among other things, an injunction enjoining the stockholder vote on the Merger and the consummation of the Merger unless and until certain additional information was disclosed to NantKwest’s stockholders, costs of the action, including plaintiffs’ attorneys’ fees and experts’ fees, and other relief the Court may deem just and proper.

Neither the stockholder vote on the Merger nor the Merger were enjoined and both occurred on March 8 and March 9, 2021, respectively.

The Merger Actions were voluntarily dismissed on March 25, 2022.

Altor BioScience, LLC, and NantCell, Inc.

Matters Against Dr.

Hing Wong and HCW Biologics, Inc.

On December 23, 2022, Altor and NantCell filed an arbitration demand against Dr.

Hing Wong, former CEO of Altor and NantCell.

The demand asserts claims for breach of Dr.

Wong’s contracts with the companies, breach of the covenant of good faith and fair dealing, conversion, fraudulent concealment, unjust enrichment, breach of fiduciary duty, and replevin.

The same day, Dr.

Wong filed an arbitration demand seeking a declaratory judgment finding that Dr.

Wong is not liable to Altor or NantCell for any of their claims.

The parties have agreed to consolidate the arbitration filings in one proceeding, and on January 23, 2023, Dr.

Wong filed an Answering Statement denying the claims.

Also on December 23, 2022, Altor and NantCell filed a complaint in the United States District Court for the Southern District of Florida against HCW Biologics, Inc.

(HCW Biologics), Dr.

Wong’s new company.

Altor’s and NantCell’s complaint asserts claims for misappropriation of trade secrets under both Florida and federal law, inducement of breach of contract, tortious interference with contractual relations, inducement of breach of fiduciary duty, conversion, unjust enrichment, replevin, specific performance for assignment of patents and patent applications, and establishment of a constructive trust.

On January 31, 2023, HCW Biologics filed motions to compel arbitration of Altor’s and NantCell’s claims, or in the alternative to stay or dismiss them.

Altor and NantCell filed an opposition to the motions on February 14, 2023, and HCW Biologics filed reply papers on February 21, 2023.

The motions remain pending and no hearing date has been set.

Stipulation of Settlement

In 2019, following approval by our Board of Directors, we entered into a settlement agreement (the Stipulation of Settlement) with three stockholders of the company, each of whom had submitted a stockholder demand for the Board of Directors to take action to remedy purported harm to the company resulting from certain alleged wrongful conduct concerning, among other things, disclosures about Dr.

Soon-Shiong’s compensation and a related-party lease agreement.

The Stipulation of Settlement called for us to adopt certain governance changes, and for the three stockholders to file a stockholder derivative action in the Superior Court of the State of California, County of San Diego, followed by an application for court approval of the Stipulation of Settlement.

The court entered an order preliminarily approving the Stipulation of Settlement.

Pursuant to the Stipulation of Settlement, we provided stockholders with notice of the settlement and the final settlement hearing.

MINE SAFETY DISCLOSURES.

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What changed 10-K

Item 3. Legal Proceedings