ITEM 8.01 - OTHER EVENTS
This Current Report on Form 8-K is filed by Cellular Biomedicine Group, Inc.
(the "Company" or "CBMG"), in connection with the matters described herein.
As previously disclosed, on August 11, 2020, the Company entered into a
definitive merger agreement (the "Merger Agreement") with CBMG Holdings, an
exempt company with limited liability incorporated under the laws of the Cayman
Islands ("Parent"), and CBMG Merger Sub Inc., a Delaware corporation and a
wholly-owned subsidiary of the Parent ("Merger Sub"), pursuant to which Merger
Sub will be merged with and into the Company (the "Merger"), with the Company
surviving the Merger as a wholly owned subsidiary of Parent.
SUPPLEMENTAL DISCLOSURES IN CONNECTION WITH TRANSACTION LITIGATION
Following the filing of the Company's definitive proxy statement (the "Proxy
Statement") associated with the Merger with the Securities and Exchange
Commission (the "SEC") on December 29, 2020, two complaints relating to the
Merger consisting of (i) a complaint, dated January 15, 2021, filed in the
United States District Court for the Southern District of New York, captioned
James Parshall v. Cellular Biomedicine Group, Inc., et al., Case No.
1:21-cv-00377, and (ii) a complaint, dated January 16, 2021, filed in the United
States District Court for the Southern District of New York, captioned Marc
Waterman v. Cellular Biomedicine Group, Inc., et al., Case No. 1:21-cv-00405. A
third complaint relating to the Merger, captioned Steven Benson v. Cellular
Biomedicine Group, Inc., et al., Case No. 20-cv-06527, was filed on December 25,
2020 in the United States District Court for the Eastern District of New York
challenging the Company's preliminary proxy statement that was filed with the
SEC on December 8, 2020. The Parshall, Waterman and Benson complaints shall be
collectively referred to as the "Merger Litigation." The Company and the
Company's directors Tony (Bizuo) Liu, Terry A. Belmont, Steve (Wentao) Liu,
Edward Schafer, Hansheng Zhou, Chun Kwok Alan Au, Jacky (Gang) Ji and Darren
O'Brien are named as defendants in each of the actions. The plaintiffs allege
that the Proxy Statement omits material information concerning the Merger
rendering the Proxy Statement false and misleading in violation of federal
securities laws. The complaints seek, among other things, injunctive relief
preventing the consummation of the Merger, rescission of the Merger if
consummated or an award of rescissory damages, and an award of plaintiffs'
expenses and attorneys' fees.
The Company believes that the claims asserted in the Merger Litigation are
without merit and no supplemental disclosure is required under applicable law.
However, in order to avoid the risk of the Merger Litigation delaying or
adversely affecting the Merger and to minimize the costs, risks and
uncertainties inherent in litigation, and without admitting any liability or
wrongdoing, the Company has determined to voluntarily supplement the Proxy
Statement as described in this Current Report on Form 8-K. Nothing in this
Current Report on Form 8-K shall be deemed an admission of the legal necessity
or materiality under applicable laws of any of the disclosures set forth herein.
To the contrary, the Company specifically denies all allegations in the Merger
Litigation that any additional disclosure was or is required.
These supplemental disclosures will not affect the merger consideration to be
paid to CBMG stockholders in connection with the Merger or the timing of the
special meeting of CBMG stockholders to be held at 9605 Medical Center Drive,
Suite 100, 1st floor, Rockville, Maryland 20850, on February 8, 2021 at 9:00
a.m., Eastern Time. The board of directors of the Company continues to recommend
that you vote "FOR" the adoption of the Merger Agreement and "FOR" the other
proposals being considered at the special meeting.
SUPPLEMENTS TO THE PROXY STATEMENT
The following disclosures in this Current Report on Form 8-K supplement the
disclosures contained in the Proxy Statement and should be read in conjunction
with the disclosures contained in the Proxy Statement, which in turn should be
read in its entirety. To the extent the information in this Current Report on
Form 8-K differs from or updates information contained in the Proxy Statement,
the information in this Current Report on Form 8-K shall supersede or supplement
the information in the Proxy Statement. All page references are to the Proxy
Statement and terms used below, unless otherwise defined, shall have the
meanings ascribed to such terms in the Proxy Statement.
The disclosure in the section entitled "Special Factors-Background of the
Merger", beginning on page 34 of the Proxy Statement, is hereby amended by:
Replacing the second and third sentences of the second full paragraph on page 38
with the following (with new text underlined):
Following public announcement of the November 11 Proposal, no inbound
indications of interest from third parties relating to strategic alternatives
were received by the Company. However, following such public announcement,
certain stockholders of the Company, consisting of Viktor Pan, Zheng Zhou,
Wealth Map Holdings Limited ("Wealth Map"), Earls Mill Limited ("Earls Mill"),
OPEA SRL, Maplebrook Limited ("Maplebrook") and Full Moon Resources Limited
("Full Moon"), each communicated with Mr. Liu to inquire about the proposed
transaction and the basis on which those stockholders might participate in it.
Replacing the carryover paragraph on pages 37-38 with the paragraph below (with
new text underlined and deleted text struck out):
Following discussion of the November 11 Proposal, at this meeting, the Board
unanimously resolved to establish the Special Committee consisting of Chun Kwok
Alan Au, Edward Schafer, Terry A. Belmont and Dr. Steve (Wentao) Liu, each
having been determined by the Board to be disinterested and independent for all
purposes under Delaware law with respect to the November 11 Proposal. The
Company's remaining independent director, Jacky (Gang) Ji, elected not to serve
as a member of the Special Committee due to his other professional commitments
at that time. The Board delegated to the Special Committee the full power and
authority of the Board to take all actions the Special Committee considers
necessary, desirable or convenient in connection with the identification,
evaluation and negotiation of, and the making of recommendations to the Board
regarding, the November 11 Proposal and any alternatives thereto, including the
express power and authority to review and to evaluate the terms and conditions,
and determine the advisability, of the November 11 Proposal and any alternatives
thereto, to negotiate with any party the Special Committee deems appropriate
with respect to the terms and conditions of the November 11 Proposal or any
alternatives thereto, to determine whether the November 11 Proposal or any
alternatives thereto is beneficial to the Company and its stockholders and on
arm's-length terms and conditions, to recommend to the Board what actions, if
any, should be taken by the Board with respect to the November 11 Proposal and
any alternatives thereto, including, without limitation, to approve or elect not
to pursue the November 11 Proposal and any alternatives thereto, to act on
behalf of the Company in connection with any matters ancillary or related to the
November 11 Proposal and any alternatives thereto (including, without
limitation, the ability to authorize and enter into contracts of any nature,
commence litigation and adopt defensive measures), and to retain such legal
counsel, financial advisors and other outside professionals, consultants and
agents, each to perform such services and render such advice or opinions, as the
Special Committee may deem necessary, desirable or convenient to assist it in
connection with the discharge of its duties. The Board also resolved that it
would not approve or recommend to the stockholders of the Company the November
11 Proposal or any alternatives thereto without the prior favorable
recommendation of the Special Committee. Mr. Au was designated as the Chair of
the Special Committee. As Chair, Mr. Au was consulted regularly by the Special
Committee's advisors and would inform the other members of the Special Committee
of developments with respect to the proposed transaction when a meeting was not
held.
Replacing the third full paragraph on page 38 with the paragraph below (with new
text underlined):
On November 12, 2019, Mr. Liu, in his capacity as Chief Executive Officer and in
furtherance of the Company's obligations under the Collaboration Agreement,
contacted representatives of Novartis to discuss the November 11 Proposal and to
provide additional information regarding the members of the Buyer Consortium.
During these discussions, Mr. Liu informed Novartis of what he believed to be
various benefits to the Company in moving forward with a "going private
transaction" as contemplated by the November 11 Proposal, including the
potential financial and competitive benefits to the Company, and expressed his
desire to continue the Company's business collaboration with Novartis and its
affiliates regardless of whether any potential transaction was consummated.
Replacing the second full paragraph on page 52 with the paragraph below (with
new text underlined):
On July 7, 2020, the Special Committee held a telephonic meeting to discuss
recent updates with respect to the proposed transaction. At the invitation of
the Special Committee, representatives of White & Case and Jefferies also
attended this meeting. Representatives of White & Case reviewed with the Special
Committee the recent discussions among White & Case, O'Melveny and Gibson Dunn
regarding CFIUS matters, including Yunfeng Capital's intention (as communicated
by representatives of O'Melveny on July 1, 2020) to formally clear the
transaction with CFIUS prior to consummation of the merger. The Special
Committee discussed the timing of a proposed transaction, including potential
SEC and CFIUS review, and the impact of such timing on the Company's liquidity
position, which could result in the Company not having sufficient capital to
fund its ongoing operations given that the first tranche of the TF Bridge Loan
would mature on October 30, 2020 (or upon the occurrence of an earlier event of
default). In light of the maturity date of the TF Bridge Loan, Mr. Belmont
advised the Special Committee that the Company could be out of cash within 3
months. The Special Committee also continued discussions regarding recent
clinical results relating to one of the Company's products and the potential
impact of such results on the Company. Following discussion of potential means
to address the Company's liquidity position prior to consummation of the
proposed transaction, the consensus of the Special Committee was that the
Special Committee would discuss with Mr. Liu the impact of the recent clinical
results relating to such product on the March Management Forecasts and the need
to secure short-term liquidity support. Following this meeting, Mr. Belmont
contacted Mr. Liu to arrange a discussion with Mr. Liu and other members of
Company management to review all ongoing projects relating to the Company's
products.
Replacing the carryover paragraph on pages 60-61 with the paragraph below (with
new text underlined):
The Merger Agreement permits the Company (at the direction of the Special
Committee) to actively solicit and negotiate Acquisition Proposals from third
parties during the Go-Shop Period (as described in the section entitled "The
Merger Agreement-Go-Shop Period; Solicitation of Acquisition Proposals"
beginning on page 143). During the Go-Shop Period, Jefferies, under the
direction of the Special Committee, contacted again the potential acquirors that
were part of the initial outreach from February 13, 2020 through March 12, 2020
(other than parties that later became Participants). As of the No-Shop Period
Start Date, nine of such parties declined to evaluate a business combination
with the Company, and the remaining parties had not responded in any meaningful
manner. As a result, as of the No-Shop Period Start Date, there were no Excluded
Parties. Furthermore, throughout the sale process, including the Go-Shop Period,
there were no inbound expressions of interest from parties interested in
acquiring the Company other than from certain stockholders of the Company who
inquired about the proposed transaction and the basis on which those
stockholders might participate in it.
The disclosure in the section entitled "Special Factors-Certain Company
Forecasts", beginning on page 75 of Proxy Statement, is hereby amended by:
Replacing the carryover paragraph on pages 75-76 with the paragraph below (with
new text underlined):
The Company does not as a matter of course make public forecasts as to future
performance, earnings or other results due to the unpredictability of the
underlying assumptions and estimates. However, in connection with the Special
Committee's evaluation of a potential transaction involving the Buyer
Consortium, in March 2020, Company management presented to and discussed with
the Special Committee certain unaudited prospective financial information
prepared by Company management for fiscal years 2020 through 2030 comprising the
March Management Forecasts and certain assumptions underlying the March
Management Forecasts, including assumptions with respect to the probability of
success of certain products under development. The March Management Forecasts
also were provided to Jefferies. In July 2020, Company management presented to
and discussed with the Special Committee the July Management Forecasts, which
reflected certain updates to the March Management Forecasts prepared by Company
management with respect to the Company's individual products. In particular, the
July Management Forecasts reflected an improved probability of success with
respect to the Company's Anti-19/20 BiCar product from 5% to 20% as a result of
continuing patient enrollment in the ongoing clinical trial, the initial
clinical safety readout, and early efficacy signals in evaluable participants in
the ongoing clinical trial. In addition, as a result of the COVID-19 pandemic,
the Company experienced delays in the recruitment of patients for its Phase II
clinical trial for its Rejoin® product, and the assumptions underlying the July
Management Forecasts reflect a resulting delayed launch of that product by one
year. The assumptions underlying the July Management Forecasts also reflect that
the Company's potential revenue would be delayed by one year as a result
of clinical development delays caused by the COVID-19 pandemic. As a result,
earnings before interest, taxes, depreciation and amortization ("EBITDA")
reflected in the July Management Forecasts were lower than EBITDA reflected in
the March Management Forecasts for fiscal years 2021 through 2025, but higher
for fiscal years 2026 through 2030. The July Management Forecasts were otherwise
substantially similar to the March Management Forecasts. The July Management
Forecasts superseded the March Management Forecasts in all respects. The July
Management Forecasts also were provided to Jefferies for its use and reliance in
connection with its opinion and related financial analyses, as described in the
section entitled "-Opinion of Jefferies LLC" beginning on page 69. The summary
below of the July Management Forecasts is not being included in this proxy
statement to influence a stockholder's decision whether to adopt the Merger
Agreement and thereby approve the Merger, but is being included to provide the
Company's stockholders with certain unaudited prospective financial information
that was made available to the Special Committee, the Board and Jefferies. The
summary below of the March Management Forecasts is not being included in this
proxy statement to influence a stockholder's decision whether to adopt the
Merger Agreement and thereby approve the Merger, but is being included to
provide the Company's stockholders with additional unaudited prospective
financial information that was made available to the Special Committee, the
Board and Jefferies, but that was superseded in all respects by the July
Management Forecasts as discussed above.
Replacing footnote 1 to the table on page 78 with the text below (with new text
underlined):
(1) Free Cash Flow, which is used interchangeably with Unlevered Free Cash Flow,
was calculated by Jefferies for fiscal years 2020 through 2030, based on figures
provided by the Company's management in the July Management Forecasts, as NOPAT,
plus Depreciation & Amortization, minus Capital Expenditures, minus Change in
Working Capital. Free Cash Flow for the second half of fiscal year 2020 in the
amount of approximately ($39) million was calculated by Jefferies based on
figures provided by the Company's management in the July Management Forecasts
for fiscal year 2020 and the historical financial information of the Company for
the six-month period ended June 30, 2020.
Amending the disclosure in the section "-July Management Forecasts" on page 79
by inserting the following text and immediately thereafter, the following
section entitled "-March Management Forecasts" "between the bullet points
carrying over from page 78 and the paragraph commencing "Certain of the
financial projections above were not prepared in accordance with GAAP, including
. . .":
As of August 10, 2020, the number of fully-diluted common shares of the Company
was approximately 20,633,000, calculated using the treasury stock method,
including 19,432,979 shares of common stock outstanding, 1,694,119 options to
purchase common shares at a weighted average exercise price of $12.21, 146,300
time-based restricted stock units, and, per the terms of the TF Bridge Loan
Agreement, the first $7 million to be converted into equity at the lower of
$19.50 per share or a 15% discount to the 30-day VWAP (as defined in the section
entitled "-Interests of Certain Persons in the Merger-Treatment of Company
Equity Awards").
March Management Forecasts
The March Management Forecasts were not relied on by the Special Committee in
connection with its consideration of the Merger. Holders of Common Stock are
cautioned not to place any reliance on the March Management Forecasts, which the
Company believes are unreliable, stale and not material to any Company
stockholder decision. The March Management Forecasts are being included solely
for informational purposes so that holders of Common Stock can understand
various changes to the predictions of the Company's future financial performance
following developments in the operations of the Company's business over the
normal passage of time and the Special Committee's continued inquiry into the
considerations underlying the Company's management's projections during this
period. For a detailed description of the reasons for these various changes,
please see the section entitled "-Background of the Merger" beginning on page
34.
The following is a summary of the March Management Forecasts:
2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
($ in millions)
Revenue - $2 $20 $44 $69 $143 $212 $294 $396 $478 $606
COGS - $2 $16 $32 $49 $86 $107 $131 $162 $197 $240
Gross
Profit - $0 $5 $12 $20 $57 $105 $163 $233 $281 $367
Operating
Expenses $66 $74 $76 $79 $48 $46 $52 $70 $91 $108 $133
Operating
Income
(EBIT) $(66) $(73) $(72) $(67) $(28) $11 $54 $93 $142 $173 $234
EBITDA $(58) $(62) $(59) $(52) $(11) $22 $65 $105 $155 $186 $247
Stock-based
Compensation $(4) $(4) $(4) $(4) $(4) $(4) $(4) $(4) $(4) $(4) $(4)
NOPBT $(70) $(77) $(76) $(71) $(32) $7 $49 $89 $138 $169 $230
NOPAT $(70) $(77) $(76) $(71) $(32) $6 $42 $76 $117 $144 $195
Depreciation
&
Amortization $8 $11 $13 $15 $17 $11 $11 $12 $12 $13 $14
Capital
Expenditures $(5) $(10) $(11) $(11) $(12) $(12) $(13) $(13) $(14) $(15) $(16)
Change in
Working
Capital $0 $(0) $(3) $(4) $(4) $(11) $(10) $(12) $(15) $(12) $(19)
Free Cash
Flow (1) $(67) $(77) $(76) $(70) $(30) $(6) $30 $62 $101 $130 $174Note:The March Management Forecasts are adjusted for probability of success
assumptions per Company management.
(1)
Free Cash Flow, which is used interchangeably with Unlevered Free Cash Flow, was
calculated by Jefferies for the fiscal years 2020 through 2030, based on figures
provided by the Company's management in the March Management Forecasts, as
NOPAT, plus Depreciation & Amortization, minus Capital Expenditures, minus
Change in Working Capital.
The March Management Forecasts are based on various assumptions, including the
following:
?
certain assumptions relating to the probability of success of certain products
being developed by the Company, including:
?
with respect to the C-CAR088 product, a probability of success of 40%;
?
with respect to the Anti-CD19/20 BiCar product, a probability of success of 5%;
?
with respect to the TIL product, a probability of success of 35%;
?
with respect to the AFP TCR-T product, a probability of success of 10%;
?
with respect to the AlloJoin® product, a probability of success of 40%; and
?
with respect to the ReJoin® product, a probability of success of 40%;
?
research and development and general and administrative expenses are based on
2020 budgeted amounts;
?
research and development expenses for pipeline products are adjusted to reflect
probability of success based on the development phase of the applicable product;
?
unallocated research and development expenses are adjusted to reflect
probability of success with reference to approximately 30% blended probability
of success from and after 2025;
?
sales and marketing expenses assumed as 20% of total revenue adjusted by
probability of success;
?
sales tax refers to the city construction tax and education surcharges
associated with value added tax;
?
depreciation and amortization expenses are embedded in research and development
and general and administrative expenses;
?
stock-based compensation is assumed to be flat;
?
EBITDA is determined before stock-based compensation expenses;
?
15% tax rate is assumed applicable upon positive net operating profit before tax
from and after 2025;
?
no tax credits assumed;
?
change in working capital is 15% of the annual change in sales;
?
capital expenditures are assumed to have a five-year life with no residual value
and straight-line depreciation; and
?
product commercialization in the United States is not taken into account.
- END OF SUPPLEMENT TO PROXY STATEMENT -
Forward Looking Statements
Statements in this communication relating to plans, strategies, specific
activities, and other statements that are not descriptions of historical facts,
including our statements regarding the completion of the Merger and targeted
timing, or the Merger Litigation, including the potential impacts of such
litigation on completion of the Merger, are forward-looking statements.
Forward-looking information is inherently subject to risks and uncertainties,
and actual results could differ materially from those currently anticipated due
to a number of factors, which include any risks detailed from time to time in
CBMG's reports filed with the Securities and Exchange Commission, Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K,
including risks relating to the impact of the COVID-19 pandemic on our
operations, including risks associated with the evolving COVID-19 pandemic and
actions taken in response to it. Such statements are based on the current
beliefs and expectations of the management of CBMG and are subject to
significant risks and uncertainties outside of CBMG's control. These risks and
uncertainties include the possibility that the anticipated benefits from the
proposed transaction will not be realized, or will not be realized within the
expected time periods; the occurrence of any event, change or other
circumstances that could give rise to termination of the Merger Agreement; the
failure of CBMG's stockholders to adopt the Merger Agreement; operating costs,
customer loss and business disruption (including, without limitation,
difficulties in maintaining relationships with employees, customers, clients or
suppliers) may be greater than expected following the announcement of the
proposed transaction; the retention of certain key employees at CBMG; risks
associated with the disruption of management's attention from ongoing business
operations due to the proposed transaction; the risk that a condition to closing
the transaction may not be satisfied on a timely basis or at all; the risk that
the proposed transaction fails to close for any other reason; the outcome of any
legal proceedings related to the proposed transaction; the parties' ability to
meet expectations regarding the timing and completion of the proposed
transaction; the impact of the proposed transaction on the Company's credit
rating; and other risks described in CBMG's Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the
SEC. Given these uncertainties, you should not place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Except as
otherwise required by law, CBMG does not undertake any obligation, and expressly
disclaims any obligation, to update, alter or otherwise revise any
forward-looking statements, whether written or oral, that may be made from time
to time, whether as a result of new information, future events or otherwise.
Additional Information and Where to Find It
This communication may be deemed to be solicitation material in respect of the
proposed acquisition of CBMG. In connection with the proposed transaction, CBMG
has filed relevant materials with the SEC, including a proxy statement in
preliminary and definitive form, in connection with the solicitation of proxies
from CBMG's stockholders for the proposed transaction, and CBMG and certain
other persons, including Parent, have filed a Schedule 13E-3 transaction
statement with the SEC. The Company first mailed the definitive proxy statement
to stockholders entitled to vote at the special meeting on or about December 31,
2020. BEFORE MAKING A VOTING DECISION, STOCKHOLDERS OF CBMG ARE URGED TO READ
THE PROXY STATEMENT AND OTHER RELEVANT DOCUMENTS, CAREFULLY AND IN THEIR
ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT CBMG, THE PROPOSED
TRANSACTION AND RELATED MATTERS. Stockholders may obtain free copies of the
proxy statement and other documents that CBMG files with the SEC through the
website maintained by the SEC at www.sec.gov. Copies of the documents filed with
the SEC by CBMG are also available free of charge on CBMG's website at
https://www.cellbiomedgroup.com or by directing a request to Cellular
Biomedicine Group, Inc., Attn: Sarah Kelly, Investor Relations or by calling
(301) 825 5320.
Participants in the Solicitation
CBMG and certain of its directors, executive officers and employees may be
deemed to be participants in the solicitation of proxies from CBMG's
stockholders in connection with the proposed transaction. Information regarding
the ownership of CBMG securities by CBMG's directors and executive officers is
included in their SEC filings on Forms 3, 4 and 5, and additional information
about CBMG's directors and executive officers is also available in CBMG's proxy
statement for its 2020 annual meeting of stockholders filed with the SEC on
April 29, 2020 and is supplemented by other filings made, and to be made, with
the SEC by CBMG. Additional information regarding persons who may be deemed
participants in the solicitation of proxies from CBMG's stockholders in
connection with the proposed transaction, including a description of their
respective direct or indirect interests, by security holdings or otherwise, has
been included in the proxy statement described above. These documents are or
will be available free of charge as described above.
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