Williams v. Ji, et al.
|Court:||Court of Chancery of the State of Delaware|
|Judge:||Vice Chancellor Montgomery-Reeves|
|Case Contacts:||David Wales, Christopher J. Orrico, Alla Zayenchik|
On September 8, 2016, BLB&G filed a complaint in the Delaware Court of Chancery on behalf of Yvonne Williams (“Plaintiff”), brought derivatively on behalf of Nominal Defendant Sorrento Therapeutics, Inc. (“Sorrento” or the “Company”), and directly as a class action on behalf of Plaintiff and the other stockholders of Sorrento, against current and/or former directors and officers of the Company (the “Defendants”).
The Complaint alleges a disloyal scheme by Company insiders to strip value out the Company for their own personal benefit. In May and October 2015, the members of the Sorrento board of directors at the time (the “Then-Current Board”) caused five subsidiaries of Sorrento (the “Subsidiaries”) to grant options and warrants to themselves and certain Company executives. The stockholder approved compensation plans for officers and directors do not provide for issuance of options or warrants in subsidiaries. The options granted to Sorrento executives and directors have an exercise price of either $0.01 or $0.25, despite the fact that some estimate that the relevant subsidiaries are worth over $1 billion. In addition, the warrants granted to the Company’s CEO are for class B shares that have ten to one voting rights, even though the Sorrento charter and by-laws do not provide for class B shares or 10 to one voting power. The Defendants also caused Sorrento to transfer valuable assets and corporate opportunities from the Company to the Subsidiaries. As a result of these transfers, these assets are no longer wholly owned by Sorrento and its stockholders. Rather, they are owned by Subsidiaries in which the Defendants have personal financial interests not shared by Sorrento’s stockholders as a whole.
The Complaint further alleges that on April 5, 2016, the Then-Current Board caused Sorrento to enter into four private placements (the “Private Placements”) where its handpicked investors paid $150 million to acquire approximately 45% of the Company’s common stock. Market observers have speculated that the Company will use the proceeds from the Private Placements to fund the development of the Subsidiaries, which would further the personal interests of the Defendants and continue to strip value from Sorrento and its stockholders. The Company did not provide stockholders with full and complete disclosures regarding the Public Placements at the time they were announced and waited over two months to disclose the actual Private Placement transaction documents. Furthermore, the timing of the announcement of the Private Placements and the closing of those transactions appear designed so that stockholders would not have an opportunity to nominate alternative directors and so that the Private Placement investors would be able to vote their newly purchased shares at the Company’s 2016 Annual Meeting.
Eventually, the Company disclosed the Private Placement documents and revealed that one of the Private Placement investors entered into a voting agreement (“Voting Agreement”) that obligates it to vote all of its shares in future stockholder votes as directed by the Company’s Board of Directors. Through the Voting Agreement, the Defendants are able to maintain approximately the same voting power in Sorrento as they had before the Private Placements, despite the fact that all other public stockholders were diluted.
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