Sorrento Therapeutics, Inc. (Form: 10-Q, Received: 11/05/2021 16:47:42)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36150

SORRENTO THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

33-0344842

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

4955 Directors Place

San Diego, California 92121

(Address of Principal Executive Offices)

(858) 203-4100

(Registrant’s Telephone Number, Including Area Code)

Securities Registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol (s)	Name of each exchange on which registered:
Common Stock, $0.0001 par value	SRNE	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated file, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

The number of shares of the issuer’s common stock, par value $0.0001 per share, outstanding as of October 23, 2021 was 306,335,789.

Sorrento Therapeutics, Inc.

Form 10-Q for the Quarter Ended September 30, 2021

Table of Contents


Part I	Financial Information	3
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets (Unaudited) as of September 30, 2021 and December 31, 2020	3
	Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	4
	Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	5
	Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	6
	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2021 and 2020	8
	Notes to Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36

Part II	Other Information	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	47
SIGNATURES		49

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

SORRENTO THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share amounts; unaudited)


ASSETS	September 30, 2021			December 31, 2020
Current assets:
Cash and cash equivalents	$	39,735		$	56,464
Marketable investments		122,934			—
Accounts receivables, net		16,454			15,506
Inventory		5,427			1,831
Prepaid expenses		12,196			8,712
Other current assets		3,974			3,721
Total current assets		200,720			86,234
Property and equipment, net		45,750			31,861
Operating lease right-of-use assets		76,674			42,052
Intangibles, net		320,970			73,675
Goodwill		52,892			43,554
Equity investments		51,120			256,397
Other assets, net		4,664			2,049
Total assets	$	752,790		$	535,822
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	27,839		$	24,706
Accrued payroll and related benefits		16,674			20,859
Accrued expenses		23,575			19,198
Current portion of deferred revenue		2,284			4,485
Current portion of operating lease liabilities		11,644			3,626
Current portion of contingent consideration and acquisition consideration payable		65,682			398
Current portion of debt		27,486			23,208
Total current liabilities		175,184			96,480
Long-term debt, net of discount		83,495			92,258
Deferred tax liabilities, net		5,083			6,918
Deferred revenue		119,206			113,185
Derivative liabilities		35,300			35,400
Operating lease liabilities		79,930			50,301
Contingent consideration and acquisition consideration payable		121,504			549
Other long-term liabilities		1,761			—
Total liabilities	$	621,463		$	395,091
Commitments and contingencies (See Note 10)
Equity:
Sorrento Therapeutics, Inc. equity
Preferred stock, $0.0001 par value; 100,000,000 shares authorized and no shares issued or outstanding		—			—
Common stock, $0.0001 par value 750,000,000 shares authorized and 303,466,554 and 275,285,582 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		31			28
Additional paid-in capital		1,421,966			1,172,346
Accumulated other comprehensive loss		1,155			520
Accumulated deficit		(1,242,187	)		(958,279	)
Treasury stock, 7,568,182 shares at cost at September 30, 2021, and December 31, 2020		(49,464	)		(49,464	)
Total Sorrento Therapeutics, Inc. stockholders’ equity		131,501			165,151
Noncontrolling interests		(174	)		(24,420	)
Total equity		131,327			140,731
Total liabilities and stockholders’ equity	$	752,790		$	535,822

See accompanying notes to unaudited consolidated financial statements

Table of Contents

SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share amounts; unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Revenues:
Net product revenues	$	7,562		$	7,874		$	22,439		$	18,916
Service revenues		4,500			3,879			17,389			9,565
Total revenues		12,062			11,753			39,828			28,481
Operating costs and expenses:
Cost of products sold		1,172			549			2,549			1,796
Cost of services		2,215			2,122			7,345			5,563
Research and development		49,448			32,003			147,787			77,307
Acquired in-process research and development		11,125			34,884			23,608			39,765
Selling, general and administrative		48,489			24,265			142,276			75,027
Intangible amortization		1,000			1,034			3,105			3,018
Total operating costs and expenses		113,449			94,857			326,670			202,476
Loss from operations		(101,387	)		(83,104	)		(286,842	)		(173,995	)
(Loss) gain on derivative liabilities		(1,800	)		(1,000	)		100			5,900
(Loss) gain on marketable investments		(13,483	)		—			17,047			—
Loss on debt extinguishment, net		—			—			(6,695	)		(51,939	)
(Loss) gain on foreign currency exchange		(300	)		30			(841	)		7
Interest expense, net		(2,900	)		(2,562	)		(7,282	)		(17,664	)
Other income		97			238			53			179
Loss before income tax		(119,773	)		(86,398	)		(284,460	)		(237,512	)
Income tax expense (benefit)		386			145			(461	)		(2,050	)
(Loss) gain on equity method investments		164			(566	)		(277	)		(5,821	)
Net loss		(119,995	)		(87,109	)		(284,276	)		(241,283	)
Net loss attributable to noncontrolling interests		(192	)		(3,086	)		(368	)		(14,324	)
Net loss attributable to Sorrento	$	(119,803	)	$	(84,023	)	$	(283,908	)	$	(226,959	)
Net loss per share - basic per share attributable to Sorrento	$	(0.40	)	$	(0.33	)	$	(0.98	)	$	(1.05	)
Net loss per share - diluted per share attributable to Sorrento	$	(0.40	)	$	(0.33	)	$	(0.98	)	$	(1.05	)
Weighted-average shares used during period - basic per share attributable to Sorrento		299,276			251,211			290,029			217,050
Weighted-average shares used during period - diluted per share attributable to Sorrento		299,276			257,670			290,029			223,509

See accompanying notes to unaudited consolidated financial statements

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SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands; unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Net loss	$	(119,995	)	$	(87,109	)	$	(284,276	)	$	(241,283	)
Other comprehensive income:
Foreign currency translation adjustments		22			669			635			714
Total other comprehensive income		22			669			635			714
Comprehensive loss		(119,973	)		(86,440	)		(283,641	)		(240,569	)
Comprehensive loss attributable to noncontrolling interests		(192	)		(3,086	)		(368	)		(14,324	)
Comprehensive loss attributable to Sorrento	$	(119,781	)	$	(83,354	)	$	(283,273	)	$	(226,245	)

See accompanying notes to unaudited consolidated financial statements

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SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands; unaudited)


	Nine Months Ended September 30, 2021
	Common Stock				Treasury Stock								Accumulated
	Shares		Amount		Shares		Amount			Additional Paid-in Capital			Other Comprehensive Income (Loss)			Accumulated Deficit			Noncontrolling Interest			Total
Balance, December 31, 2020		275,286	$	28		7,568	$	(49,464	)	$	1,172,346		$	520		$	(958,279	)	$	(24,420	)	$	140,731
Issuance of common stock under equity compensation plans		500		—		—		—			5,394			—			—			—			5,394
Issuance of common stock upon exercise of warrants		2,550		—		—		—			9,050			—			—			—			9,050
Issuance of common stock for equity offerings		3,901		1		—		—			42,208			—			—			—			42,209
Other acquisitions, license agreements and investments paid in equity		851		—		—		—			7,500			—			—			—			7,500
Changes to noncontrolling interests from increased ownership in Scilex Holding		2,567		—		—		—			(23,963	)		—			—			23,963			—
Stock-based compensation		—		—		—		—			23,660			—			—			—			23,660
Foreign currency translation adjustment		—		—		—		—			—			(75	)					—			(75	)
Net Income (loss)		—		—		—		—			—			—			2,510			(92	)		2,418
Balance, March 31, 2021		285,655	$	29		7,568	$	(49,464	)	$	1,236,195		$	445		$	(955,769	)	$	(549	)	$	230,887
Issuance of common stock under equity compensation plans		300		—		—		—			1,377			—			—			—			1,377
Issuance of common stock for equity offerings		5,886		1		—		—			50,751			—			—			—			50,752
Equity issued for the acquisition of ACEA Therapeutics, Inc.		5,519		—		—		—			42,168			—			—			—			42,168
Other acquisitions, license agreements and investments paid in equity		615		—		—		—			5,378			—			—			—			5,378
Stock-based compensation		—		—		—		—			20,984			—			—			—			20,984
Foreign currency translation adjustment		—		—		—		—			—			688			—			—			688
Net loss		—		—		—		—			—			—			(166,615	)		(84	)		(166,699	)
Balance, June 30, 2021		297,975	$	30		7,568	$	(49,464	)	$	1,356,853		$	1,133		$	(1,122,384	)	$	(633	)	$	185,535
Issuance of common stock under equity compensation plans		337		—		—		—			1,281			—			—			—			1,281
Issuance of common stock for equity offerings		5,056		1		—		—			41,917			—			—			—			41,918
Other acquisitions, license agreements and investments paid in equity		99		—		—		—			812			—			—			—			812
Other changes to noncontrolling interests		—		—		—		—			—			—			—			651			651
Stock-based compensation		—		—		—		—			21,103			—			—			—			21,103
Foreign currency translation adjustment		—		—		—		—			—			22			—			—			22
Net loss		—		—		—		—			—			—			(119,803	)		(192	)		(119,995	)
Balance, September 30, 2021		303,467	$	31		7,568	$	(49,464	)	$	1,421,966		$	1,155		$	(1,242,187	)	$	(174	)	$	131,327

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	Nine Months Ended September 30, 2020
	Common Stock				Treasury Stock							Accumulated
	Shares		Amount		Shares		Amount			Additional Paid-in Capital		Other Comprehensive Income (Loss)			Accumulated Deficit			Noncontrolling Interest			Total
Balance, December 31, 2019		167,798	$	18		7,568	$	(49,464	)	$	788,122	$	(270	)	$	(659,818	)	$	(45,832	)	$	32,756
Issuance of common stock under equity compensation plans		49		—		—		—			99		—			—			—			99
Issuance of common stock upon exercise of warrants		5,009		1		—		—			13,534		—			—			—			13,535
Issuance of common stock for public placement, net		2,091		1		—		—			7,325		—			—			—			7,326
Stock-based compensation		—		—		—		—			3,682		—			—			—			3,682
Issuance of common stock from Aspire Purchase Agreement		29,619		3		—		—			62,950		—			—			—			62,953
Foreign currency translation adjustment		—		—		—		—			—		55						—			55
Net loss		—		—		—		—			—		—			(65,195	)		(3,985	)		(69,180	)
Balance, March 31, 2020		204,566	$	23		7,568	$	(49,464	)	$	875,712	$	(215	)	$	(725,013	)	$	(49,817	)	$	51,226
Exercise of stock options, net		877		—		—		—			3,797		—			—			—			3,797
Issuance of common stock upon exercise of warrants		8,115		1		—		—			25,326		—			—			—			25,327
Issuance of common stock for equity offerings		18,289		1		—		—			81,532		—			—			—			81,533
Stock-based compensation		—		—		—		—			3,335		—			—			—			3,335
Foreign currency translation adjustment		—		—		—		—			—		(10	)		—			—			(10	)
Net loss		—		—		—		—			—		—			(77,740	)		(7,253	)		(84,993	)
Balance, June 30, 2020		231,847	$	25		7,568	$	(49,464	)	$	989,702	$	(225	)	$	(802,753	)	$	(57,070	)	$	80,215
Exercise of stock options, net		288		—							1,177											1,177
Issuance of common stock upon exercise of warrants		19,957		2		—		—			53,874		—			—			—			53,876
Issuance of common stock for equity offerings		6,817		1		—		—			63,764		—			—			—			63,765
Equity issued for the acquisition of SmartPharm Therapeutics, Inc.		1,832		—		—		—			19,421		—			—			—			19,421
Other acquisitions, license agreements and investments paid in equity		997									6,975											6,975
Stock-based compensation		—		—		—		—			6,295		—			—			—			6,295
Foreign currency translation adjustment		—		—		—		—			—		669						—			669
Net loss		—		—		—		—			—					(84,023	)		(3,086	)		(87,109	)
Balance, September 30, 2020		261,738	$	28		7,568	$	(49,464	)	$	1,141,208	$	444		$	(886,776	)	$	(60,156	)	$	145,284

See accompanying notes to unaudited consolidated financial statements

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SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)


	Nine Months Ended September 30,
Operating activities	2021			2020
Net loss	$	(284,276	)	$	(241,283	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		9,603			8,790
Non-cash operating lease cost		3,057			2,802
Non-cash interest expense and amortization of debt issuance costs		5,899			10,440
Payment on Scilex Notes attributed to accreted interest related to the debt discount		(11,791	)		—
Acquired in-process research and development		23,608			39,765
Stock-based compensation		67,509			13,312
Loss on debt extinguishment, net		6,695			51,939
Gain on derivative liabilities		(100	)		(5,900	)
Gain on marketable investments		(17,047	)		—
Loss on equity method investments		277			5,821
Loss on contingent consideration		100			—
Deferred tax provision		(1,834	)		(1,989	)
Changes in operating assets and liabilities, excluding effect of acquisitions:
Accounts receivable		(697	)		(313	)
Accrued payroll		(4,941	)		2,016
Prepaid expenses, deposits and other assets		(6,058	)		4,588
Accounts payable		(3,549	)		(8,556	)
Accrued expenses and other liabilities		35,589			1,544
Deferred revenue		417			(385	)
Right-of-use assets, operating leases		(32,509	)		—
Other		364			(1,258	)
Net cash used for operating activities		(209,684	)		(118,667	)
Investing activities
Proceeds from sale of marketable investments		124,113			—
Purchases of property and equipment		(6,662	)		(3,840	)
ACEA acquisition consideration paid in cash, net of cash acquired		(754	)		—
Payments related to license agreements		—			(22,325	)
Other acquisitions and investments		(34,645	)		(2,344	)
Net cash used for investing activities		82,052			(28,509	)
Financing activities
Proceeds from equity offerings, net of issuance costs		134,878			213,009
Proceeds from short-term debt, net of issuance costs		35,053			7,815
Proceeds from exercise of stock options and warrants		13,255			97,810
Repayments of debt and other obligations		(72,711	)		(132,819	)
Net cash provided by financing activities		110,475			185,815
Net change in cash, cash equivalents and restricted cash		(17,157	)		38,639
Net effect of exchange rate changes on cash		428			768
Cash, cash equivalents and restricted cash at beginning of period		56,464			80,769
Cash, cash equivalents and restricted cash at end of period	$	39,735		$	120,176
Supplemental disclosures:
Cash paid during the period for:
Interest		86			3,148
Taxes		1,200			—
Supplemental disclosures of non-cash investing and financing activities:
Changes to noncontrolling interests from increased ownership in Scilex Holding		23,963			—
SmartPharm acquisition consideration paid in equity		—			19,421
ACEA acquisition consideration paid in equity		42,168			—
Other acquisitions, license agreements and investments paid in equity		13,689			9,544
Property and equipment costs incurred but not paid		1,162			1,524
Short-term debt		7,304			—
Reconciliation of cash, cash equivalents and restricted cash within the Company’s consolidated balance sheets:
Cash and cash equivalents		39,735			75,176
Restricted cash		—			45,000
Cash, cash equivalents, and restricted cash	$	39,735		$	120,176

See accompanying notes to unaudited consolidated financial statements

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SORRENTO THERAPEUTICS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

1. Description of Business and Basis of Presentation

Description of Business

Sorrento Therapeutics, Inc. (the “Company”) is a clinical stage and commercial, antibody-centric, biopharmaceutical company developing new therapies to treat cancers, pain (non-opioid treatments), autoimmune disease and COVID-19. The Company’s multimodal, multipronged approach to fighting cancer is made possible by its extensive immuno-oncology platforms, including key assets such as clinical stage fully human antibodies (“G-MAB™ library”), clinical stage immuno-cellular therapies (“CAR-T”, “DAR-T™”), clinical stage antibody-drug conjugates (“ADCs”) and oncolytic viruses (Seprehvec™). The Company is also developing potential antiviral therapies and vaccines against coronaviruses, including COVIGUARD™, COVI-AMG™, COVISHIELD™, COVI-MSC™ and COVIDROPS™; and diagnostic test solutions, including COVITRACK™, COVISTIX™ and COVITRACE™.

The Company’s commitment to life-enhancing therapies for patients is also demonstrated by its effort to advance a first-in-class (TRPV1 agonist) non-opioid pain management small molecule, resiniferatoxin (“RTX”), and SP-102 (10 mg, dexamethasone sodium phosphate viscous gel) (SEMDEXA™), a novel, viscous gel formulation of a widely used corticosteroid for epidural injections to treat lumbosacral radicular pain, or sciatica, and through the commercialization of ZTlido® (lidocaine topical system) 1.8% for the treatment of post-herpetic neuralgia.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s subsidiaries. For consolidated entities where the Company owns or is exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. All intercompany balances and transactions have been eliminated in consolidation.

These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Operating results for interim periods are not expected to be indicative of operating results for the Company’s 2021 fiscal year, or any subsequent period. The unaudited interim financial statements included herein reflect all normal and recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented.

Use of Estimates

To prepare consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”), management must make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Significant Accounting Policies

During the nine months ended September 30, 2021, there have been no changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 outside of new accounting pronouncements as described below.

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Revenue Recognition

The following table shows revenue disaggregated by product and service type for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Scilex Pharmaceuticals Inc. product sales	$	7,525	$	7,837	$	22,313	$	18,806
Other product revenue		37		37		126		110
Net product revenue	$	7,562	$	7,874	$	22,439	$	18,916
Concortis Biosystems Corporation	$	3,164	$	2,261	$	12,094	$	5,089
Bioserv Corporation		968		1,498		3,549		4,116
Other service revenue		368		120		1,746		360
Service revenue	$	4,500	$	3,879	$	17,389	$	9,565

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. 2019-12, Income Taxes Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. The amendments in this update are effective for interim and annual periods for the Company beginning after December 15, 2020. The Company adopted the standard on January 1, 2021. The adoption of the standard had no material impact on the Company’s consolidated financial statements.

2. Liquidity and Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has recurring losses from operations, recurring negative cash flows from operations and substantial cumulative net losses to date and anticipates that it will continue to do so for the foreseeable future as it continues to identify and invest in advancing product candidates, as well as expanding corporate infrastructure.

The Company has plans in place to obtain sufficient additional fundraising to fulfill its operating, debt servicing and capital requirements for the next 12 months. The Company’s plans include continuing to fund its operating losses and capital funding needs through public or private equity or debt financings, strategic collaborations, licensing arrangements, asset sales, government grants or other arrangements. Although management believes such plans, if executed, should provide the Company sufficient financing to meet its needs, successful completion of such plans is dependent on factors outside of the Company’s control. As such, management cannot conclude that such plans will be effectively implemented within one year after the date that the financial statements are issued. As a result, management has concluded that the aforementioned conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the financial statements are issued.

If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable, the Company may have to significantly delay, scale back or discontinue the development or commercialization of one or more of its product candidates. The Company may also seek collaborators for one or more of its current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Furthermore, the spread of COVID-19, which has caused a broad impact globally, may materially affect the Company economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could, in the future, negatively affect its liquidity. The consolidated financial statements do not reflect any adjustments that might be necessary if the Company is unable to continue as a going concern.

If the Company raises additional funds by issuing equity securities, substantial dilution to existing stockholders would result. If the Company raises additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict the Company’s ability to operate its business.

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3. Fair Value Measurements

The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):


	Fair Value Measurements at September 30, 2021
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	39,735	$	39,735	$	—	$	—
Marketable investments		122,934		4,198		—		118,736
Total assets	$	162,669	$	43,933	$	—	$	118,736
Liabilities:
Derivative liabilities - non-current	$	35,300	$	—	$	—	$	35,300
Contingent consideration and acquisition consideration payable		65,682		—		—		65,682
Contingent consideration and acquisition consideration payable - non-current		121,504		—		—		121,504
Total liabilities	$	222,486	$	—	$	—	$	222,486


	Fair Value Measurements at December 31, 2020
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	56,464	$	56,464	$	—	$	—
Total assets	$	56,464	$	56,464	$	—	$	—
Liabilities:
Derivative liabilities - non-current	$	35,400	$	—	$	—	$	35,400
Contingent consideration and acquisition consideration payable		398		—		—		398
Contingent consideration and acquisition consideration payable - non-current		549		—		—		549
Total liabilities	$	36,347	$	—	$	—	$	36,347

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Marketable Investments

As disclosed in Note 4, the Company holds shares of Celularity Inc. (“Celularity”) Class A Common Stock of which 19,922,124 shares with a value of approximately $118.7 million as of September 30, 2021 are subject to certain transfer restrictions. The shares held by the Company are measured at fair value at each reporting period based on the closing price of Celularity’s common stock on the last trading day of each reporting period, and the shares subject to transfer restrictions are adjusted for a discount for lack of marketability.

Contingent Consideration and Acquisition Consideration Payable

In connection with the acquisition of ACEA Therapeutics, Inc. (“ACEA”) as disclosed in Note 6, the Company preliminarily recorded estimated contingent consideration of $186.1 million as of the acquisition closing date of June 1, 2021. The Company assesses the fair value of contingent consideration using a discounted cash flow method combined with a Monte Carlo simulation model. Significant Level 3 assumptions used in the measurement include revenue projections, a discount rate of 14.4% and estimated probabilities of successful commercialization. As defined in Note 6, the Indebtedness Shares are subject to a true-up, as set forth in the ACEA Merger Agreement (as defined in Note 6), if the price at which such shares were issued is greater than the closing price of the Company’s common stock on the date that is six months after June 1, 2021 (“Put Option”). The Company assesses the fair value of the Put Option using a Black-Scholes model and Level 3 assumptions. As of June 1, 2021, the Company recorded a total fair value of $8.9 million associated with the Put Option. The Put Option is included within the current portion of the contingent consideration and acquisition consideration payable. During the nine months ended September 30, 2021, the Company recorded a loss of $0.1 million related to the change in fair value of the contingent consideration resulting from the passage of time since June 1, 2021.

Changes in estimated fair value of acquisition consideration payable, including contingent consideration liabilities, since December 31, 2020 are as follows:


(in thousands)	Fair Value
Beginning Balance at December 31, 2020	$	947
Contingent consideration related to the acquisition of ACEA Therapeutics, Inc.		186,139
Change in fair value measurement		100
Ending Balance at September 30, 2021	$	187,186

Derivative liabilities

The Company recorded a loss on derivative liabilities of $1.8 million and a gain of $0.1 million for the three and nine months ended September 30, 2021, respectively, which related to the compound derivative liabilities associated with the Scilex Notes (as defined in Note 7). The fair value of the derivative liabilities associated with the Scilex Notes was estimated using the discounted cash flow method combined with a Monte Carlo simulation model. This involves significant Level 3 inputs and assumptions, including a 6.5% risk adjusted net sales forecast and an effective debt yield of 14.7%.

The following table includes a summary of the derivative liabilities measured at fair value using significant unobservable inputs (Level 3) during the nine months ended September 30, 2021:


(in thousands)	Fair Value
Beginning Balance at December 31, 2020	$	35,400
Re-measurement of Fair Value		(100	)
Ending Balance at September 30, 2021	$	35,300

4. Investments

The Company’s investments include investments accounted for as equity method investments, equity investments without readily determinable fair value and equity investments with readily determinable fair value. As of September 30, 2021, the Company’s equity method investments include an ownership interest in Immunotherapy NANTibody, LLC (“NANTibody”), NantCancerStemCell, LLC (“NantStem”), Deverra Therapeutics, Inc. (“Deverra”), and ImmuneOncia Therapeutics, LLC, among others. The Company’s equity investments without readily determinable fair value include an ownership interest in NantBioScience, Inc. (“NantBioScience”), Aardvark Therapeutics, Inc. (“Aardvark”) and Elsie Biotechnologies, Inc. (“Elsie”), among others. The Company’s equity investments with readily determinable fair value include an ownership interest in Celularity.

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Celularity

On July 16, 2021, Celularity Inc. (“Pre-Merger Celularity”), a company of which the Company held an equity interest, completed its previously announced merger with GX Acquisition Corp. (the “Celularity Merger”). Following the completion of the Celularity Merger, the combined, publicly traded company formerly known as GX Acquisition Corp. was named Celularity Inc. (“Celularity”) and its Class A common stock commenced trading on the Nasdaq Capital Market on July 19, 2021 under the ticker “CELU”. In connection with the Celularity Merger, all outstanding shares of Series A Preferred Stock of Pre-Merger Celularity were converted into shares of Pre-Merger Celularity common stock and then each share of Pre-Merger Celularity common stock was converted into the right to receive shares of Class A common stock of the post-merger company. The Company received 19,922,124 shares of Class A common stock of the post-merger company in the Celularity Merger. The Company also purchased an aggregate of 500,000 shares of Class A common stock of Celularity for an aggregate purchase price of $5,000,000 in a private placement transaction that closed on July 16, 2021 concurrently with the closing of the Celularity Merger (the “Private Placement Shares”). Dr. Henry Ji, the Company’s Chief Executive Officer and Chairperson, and Jaisim Shah, a member of the Company’s Board of Directors, each served on the board of directors of Pre-Merger Celularity from June 2017 until the closing of the Celularity Merger in July 2021. Dr. Robin L. Smith, a member of the Company’s Board of Directors, served on the board of directors of Pre-Merger Celularity from August 2019 until the closing of the Celularity Merger in July 2021 and has served on the board of directors of Celularity since the closing of the Celularity Merger in July 2021.

The Company’s investment in Celularity has historically been included as an equity investment in its consolidated balance sheets and accounted for as an equity security without a readily determinable fair value. As of the trading commencement date, the Company accounts for its investment in Celularity as an equity security with a readily determinable fair value. As of September 30, 2021, the Company owned 20,422,124 shares of Class A common stock of Celularity. 19,922,124 shares of the Class A Common Stock of Celularity held by the Company are subject to transfer restrictions until the earliest to occur of (i) 365 days after July 16, 2021; (ii) the first day after the date on which the closing price of the Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after July 16, 2021; or (iii) the date on which Celularity completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of Celularity’s public shareholders having the right to exchange their Class A Common Stock for cash, securities or other property, subject to certain exceptions (the “Restricted Shares”).

In connection with the change in fair value of the Restricted Shares, the Company recorded an unrealized loss on equity investment of $6.3 million during the three and nine months ended September 30, 2021. The Company has reclassified its investment in Celularity associated with the Restricted Shares to marketable investments under current assets within its consolidated balance sheets. The investment in Celularity associated with the Restricted Shares is classified as a current asset because the investment can be liquidated to finance the Company’s current operations once the transfer restrictions are lifted, which will occur before September 30, 2022. In connection with the change in fair value of the Private Placement Shares, the Company recorded an unrealized loss of $1.5 million on marketable investments during the three and nine months ended September 30, 2021. The Company classifies its investment in Celularity associated with the Private Placement Shares as marketable investments within its consolidated balance sheets. The investment in Celularity associated with the Private Placement Shares is classified as a current asset because the investment can be liquidated to finance the Company’s current operations.

ImmunityBio

On March 9, 2021, NantKwest, Inc. and ImmunityBio (formerly known as NantCell, Inc.) completed their previously announced 100% stock-for-stock merger (the “Merger”). The combined company operates under the name ImmunityBio, Inc. and its shares of common stock commenced trading on the Nasdaq Global Select Market on March 10, 2021 under the new ticker, “IBRX”. The former stockholders of ImmunityBio were entitled to receive 0.8190 shares of common stock of the combined company for each outstanding share of ImmunityBio common stock held immediately prior to the Merger. Prior to the closing of the Merger, the Company owned 10,000,000 shares of common stock of ImmunityBio, and the Company therefore received 8,190,000 shares of common stock of the post-merger company.

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Prior to the Merger, the Company’s investment in ImmunityBio was historically included as an equity investment in its consolidated balance sheets and accounted for as an equity security without a readily determinable fair value. As of the completion of the Merger, the Company accounted for its investment in ImmunityBio as an equity investment with a readily determinable fair value and reclassified its investment in ImmunityBio to marketable investments within its consolidated balance sheets. The investment in ImmunityBio was classified as a current asset because the investment was liquidated to finance the Company’s current operations. In connection with the change in fair value of its investment in ImmunityBio, the Company recorded a realized loss on marketable investments of $6.4 million during the three months ended September 30, 2021 and a realized gain on marketable investments of $24.1 million during the nine months ended September 30, 2021. The Company sold 8,190,000 shares of ImmunityBio common stock during the nine months ended September 30, 2021 for net proceeds to the Company of $124.0 million. The Company had no remaining shares of ImmunityBio common stock as of September 30, 2021.

Aardvark

During the nine months ended September 30, 2021, the Company paid $10.0 million in cash for 7,777,864 shares of Series B Preferred Stock of Aardvark. The Company accounts for its investment in Aardvark as an equity investment without a readily determinable fair value and carries its investment in Aardvark at cost, less impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. Tien Lee, MD, a member of the board of directors of Scilex Holding Company (“Scilex Holding”), a majority owned subsidiary of the Company, is the founder and chief executive officer of Aardvark. Kim D. Janda, Ph.D., a member of the board of directors of the Company, is a member of the advisory board of Aardvark.

Deverra

During the nine months ended September 30, 2021, the Company paid approximately $10.2 million in consideration for 5,622,703 shares of common stock of Deverra, a development-stage, biotechnology company focused on developing cellular immunotherapy programs. The Company’s payment consisted of (i) the cancellation of certain promissory notes issued by Deverra to the Company with an aggregate principal amount of $6.0 million and unpaid accrued interest of approximately $0.1 million and (ii) a cash payment of $4.1 million. The Company has agreed to purchase additional shares of common stock of Deverra for an aggregate price of $10.0 million by January 1, 2022 and $10.0 million by April 1, 2022. The Company`s investment in Deverra’s common stock represents an equity method investment. However, as Deverra is not a business, the Company immediately expensed all costs associated with the investment and the total consideration paid was expensed as acquired in-process research and development during the three and nine months ended September 30, 2021.The Company has a variable interest in Deverra and Deverra is deemed to be a variable interest entity (“VIE”). The Company is not, however, the primary beneficiary of the VIE as it does not have the power to direct the activities of Deverra. In connection with the Company’s purchase of Deverra common stock, Dr. Henry Ji, the Company’s Chief Executive Officer and Chairperson, and Jaisim Shah, a member of the Company’s Board of Directors, were appointed to the board of directors of Deverra.

Elsie

During the nine months ended September 30, 2021, the Company paid $10.0 million in cash for 10,000,000 shares of Series A Preferred Stock of Elsie. The Company accounts for its investment in Elsie as an equity investment without a readily determinable fair value and carries its investment in Elsie at cost, less impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. In connection with the Company's purchase of Elsie Series A Preferred Stock, Dr. Henry Ji was appointed to the board of directors of Elsie.

NANTibody

The Company’s investment in NANTibody is reported in equity method investments on its consolidated balance sheets and its share of NANTibody’s income or loss is recorded in income or loss on equity method investments on its consolidated statement of operations. The Company continues to hold 40% of the outstanding equity of NANTibody and NantCell, Inc. (“NantCell”) holds the remaining 60%. The Company’s investment in NANTibody had a carrying value of zero as of September 30, 2021 due to the Company’s share of cumulative losses. As of December 31, 2020, the carrying value of the Company’s investment in NANTibody was approximately $0.5 million.

NANTibody recorded a net loss of $1.1 million and $1.6 million for the three months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, NANTibody had $3.4 million in current assets, $8.8 million in current liabilities, $0.1 million in noncurrent assets and no noncurrent liabilities.

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The financial statements of NANTibody are not received sufficiently timely for the Company to record its portion of earnings or loss in the current financial statements and therefore the Company reports its portion of earnings or loss on a one quarter lag.

NantStem

The Company’s investment in NantStem is reported in equity method investments on its consolidated balance sheets and its share of NantStem’s income or loss is recorded in income or loss on equity method investments on its consolidated statement of operations. The Company is accounting for its interest in NantStem as an equity method investment, due to the significant influence the Company has over the operations of NantStem through its board representation and 20% voting interest. As of September 30, 2021, the carrying value of the Company’s investment in NantStem was approximately $18.4 million. As of December 31, 2020, the carrying value of the Company`s investment in NantStem was $18.1 million.

NantStem recorded a net income of $0.2 million and $0.9 million for the three months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, NantStem had $82.3 million in current assets, no current liabilities, $0.6 million in noncurrent assets and no noncurrent liabilities.

The financial statements of NantStem are not received sufficiently timely for the Company to record its portion of earnings or loss in the current financial statements and therefore the Company reports its portion of earnings or loss on a one quarter lag.

5. Goodwill and Intangible Assets

The Company had goodwill of $52.9 million as of September 30, 2021, which preliminarily increased by $9.3 million as compared to $43.6 million as of December 31, 2020 due to the Company’s acquisition of ACEA. Goodwill for the Sorrento Therapeutics segment and Scilex segment was $46.2 million and $6.7 million, respectively, as of September 30, 2021.

Intangible assets with indefinite useful lives totaling $278.7 million are included in acquired in-process research and development in the table below. A summary of the Company’s identifiable intangible assets as of September 30, 2021 and December 31, 2020 is as follows (in thousands, except for years):


September 30, 2021	Weighted Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization		Intangibles, Net
Customer relationships		2	$	1,585	$	1,446	$	139
Acquired technology		19		3,410		1,368		2,042
Acquired in-process research and development		—		278,660		—		278,660
Technology placed in service		15		21,940		4,388		17,552
Patent rights		15		32,720		10,738		21,982
Assembled workforce		5		605		313		292
Internally developed software		2		520		217		303
Total intangible assets			$	339,440	$	18,470	$	320,970


December 31, 2020	Weighted Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization		Intangibles, Net
Customer relationships		6	$	1,585	$	1,426	$	159
Acquired technology		19		3,410		1,236		2,174
Acquired in-process research and development		—		28,260		—		28,260
Technology placed in service		15		21,940		3,291		18,649
Patent rights		15		32,720		9,103		23,617
Assembled workforce		5		605		222		383
Internally developed software		1		520		87		433
Total intangible assets			$	89,040	$	15,365	$	73,675

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Aggregate amortization expense was $1.0 million for each of the three months ended September 30, 2021 and 2020. Aggregate amortization expense was $3.1 million and $3.0 million for the nine months ended September 30, 2021 and 2020, respectively. Estimated future amortization expense related to intangible assets, excluding indefinite-lived intangible assets, at September 30, 2021 is as follows (in thousands):


Years Ending December 31,	Amount
2021 (Remaining three months)	$	1,035
2022		4,140
2023		4,048
2024		3,870
2025		3,845
Thereafter		25,372
Total expected future amortization	$	42,310

6. Significant Agreements and Contracts

Acquisition of ACEA Therapeutics, Inc.

On June 1, 2021, the Company completed the acquisition of ACEA pursuant to the terms of the Agreement and Plan of Merger (the “ACEA Merger Agreement”), dated as of April 2, 2021, by and among the Company, AT Merger Sub, Inc., an exempted company incorporated with limited liability in the Cayman Islands and wholly owned subsidiary of the Company, ACEA and Fortis Advisors LLC, as representative of the shareholders of ACEA, whereby ACEA became a wholly owned subsidiary of the Company. With operations in both China and the United States, ACEA is developing multiple clinical and preclinical-stage new chemical entity compounds, including the late clinical drug candidate, Abivertinib.

The total value of the consideration paid by the Company for the acquisition of ACEA was equal to $38.0 million plus approximately $1.9 million (which amount represented the Company’s agreed upon share of certain interest, fees and other expenses) resulting in an aggregate payment of approximately $39.9 million (which amount is subject to further adjustment for indebtedness, transaction expenses and cash, in each case pursuant to the terms of the ACEA Merger Agreement) (the “Closing Consideration”). Pursuant to the terms of the ACEA Merger Agreement, a portion of the Closing Consideration equal to (i) $38,059,326 was used to repay certain existing indebtedness of ACEA, which amount was paid to the holders thereof in the form of shares of common stock of the Company and an aggregate of 5,519,469 shares (“Indebtedness Shares”) of the Company’s common stock were issued in respect thereof based on a price per share equal to $6.8955 (representing the volume weighted average closing price per share of Common Stock, as reported on The Nasdaq Stock Market LLC, for the 10 consecutive trading days ending on the date that was three trading days prior to the Closing Date) and (ii) $100,000 was set aside for expenses incurred by the shareholders’ representative thereunder. The Indebtedness Shares are subject to a true-up, as set forth in the ACEA Merger Agreement, if the price at which such shares were issued is greater than the closing price of the Company’s common stock on the date that is six months after June 1, 2021.

In addition to the Closing Consideration, the Company will pay the ACEA equityholders (i) up to $450.0 million in additional payments, subject to the receipt of certain regulatory approvals and achievement of certain net sales targets with respect to the assets acquired from ACEA and (ii) five to ten percent of the annual net sales on specified royalty-bearing products (the “Earn-Out Consideration”). The fair value of the Earn-Out Consideration on the acquisition date was preliminarily estimated to be $186.1 million. The amount referenced in clause (i) of the preceding sentence includes the amounts that would have otherwise been due to ACEA under that certain License Agreement, dated July 13, 2020, between the Company and ACEA, which agreement was terminated in its entirety upon completion of the acquisition of ACEA.

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The preliminary purchase price allocation was calculated based on an upfront consideration of $44.1 million, which was based on the Company’s closing share price on June 1, 2021. The ACEA Merger Agreement resulted in net identifiable assets of approximately $230.2 million, which includes separate and distinct intangible assets comprised of acquired in-process research and development of $250.4 million, goodwill of $9.3 million, fair value of debt assumed of approximately $32.1 million and other net assets of approximately $2.6 million. The purchase price allocation is preliminary as the Company is still completing the valuation of the intangible assets, contingent consideration, taxes, the fair value of debt assumed and other net assets, changes to which may also increase or decrease the amount of goodwill recognized. Goodwill largely reflects the broad-spectrum and synergistic infrastructures and expertise in pharmaceutical and biological drug discovery, development and manufacturing, and expanded geographic coverage in China and North America. Goodwill is not deductible for tax purposes. Acquisition costs were expensed as incurred. Results of operations since the date of acquisition were not material. Customary tax related matters such as the filing of pre-acquisition tax returns are subject to finalization as of September 30, 2021, and such matters may result in adjustments to the purchase price allocation.

The Company is still in the process of finalizing the working capital adjustments and the purchase price allocation, given the timing of the acquisition and the size and scope of the assets and liabilities subject to valuation. While the Company does not expect material changes in the valuation outcome, certain assumptions and findings that were in place at the date of acquisition could result in changes in the purchase price allocation.

Asset Purchase Agreement with Aardvark Therapeutics, Inc.

In April 2021, the Company entered into an asset purchase agreement (the “Aardvark Asset Purchase Agreement”) with Aardvark to acquire Aardvark’s Delayed Burst Release Low Dose Naltrexone (DBR-LDN), or ARD-301, asset and intellectual property rights, for the treatment of chronic pain, fibromyalgia and chronic post-COVID syndrome. As consideration for the purchase of the assets, the Company paid Aardvark an upfront license fee of $5.0 million comprised of 616,655 shares of the Company’s common stock, and which was expensed as acquired in-process research and development during the nine months ended September 30, 2021. The Company also agreed to pay Aardvark (i) milestone payments upon the receipt of certain regulatory approvals, and (ii) milestone payments upon the Company’s achievement of certain commercial sales milestones. The Company will also pay certain royalties in the mid-single digit to low-double digit percentages of annual net sales by the Company. Tien Lee, MD, a member of the board of directors of Scilex Holding, a majority owned subsidiary of the Company, is the founder and chief executive officer of Aardvark. Kim D. Janda, Ph.D., a member of the board of directors of the Company, is a member of the advisory board of Aardvark. As discussed in Note 4, the Company holds an investment interest in Aardvark.

License Agreement with Icahn School of Medicine at Mount Sinai

In March 2021, the Company entered into an exclusive license agreement (the “Mount Sinai License Agreement”) with Icahn School of Medicine at Mount Sinai (“Mount Sinai”) to acquire a worldwide, exclusive, sublicensable license to certain of Mount Sinai’s patents and monoclonal antibodies as well as technical information to develop, manufacture, commercialize, and exploit related products and services (“Licensed Products”) for all fields, uses, and applications, including for the diagnosis, prevention, treatment and cure of coronavirus.

As consideration for the Mount Sinai License Agreement, the Company paid Mount Sinai an upfront license fee of $7.5 million comprised of 851,305 shares of the Company’s common stock, which was expensed as acquired in-process research and development during the three months ended March 31, 2021. The Company also agreed to pay Mount Sinai (i) certain milestone payments upon the achievement of certain clinical trial and regulatory milestones, and (ii) certain royalties in the low-single digit to mid-single digit percentages of annual net sales of Licensed Products by the Company and a share of any sublicense revenue received by the Company from sublicensees.

Acquisition of SmartPharm Therapeutics, Inc.

On September 1, 2020, the Company completed the acquisition of SmartPharm Therapeutics, Inc. (“SmartPharm”), a gene-encoded protein therapeutics company developing non-viral DNA and RNA gene delivery platforms for COVID-19, influenza and rare diseases with broad potential for application in enhancing antibody-centric therapeutics. The total base consideration paid to the holders of capital stock of SmartPharm in the acquisition was approximately $19.5 million, which was comprised of approximately 1.8 million shares of the Company’s common stock.

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The purchase price allocation resulted in net identifiable assets of $19.5 million, which includes separate and distinct indefinite lived intangible assets comprised of acquired in-process research and development of $13.9 million, goodwill of $5.3 million and other net assets of $0.3 million. Goodwill largely reflects the synergies expected to be achieved with SmartPharm’s gene delivery platforms and the assembled workforce. Goodwill is not deductible for tax purposes. Results of operations since the date of acquisition were not material.

License Agreement with NantCell

In April 2015, the Company and NantCell entered into a license agreement. Under the terms of the agreement, the Company granted an exclusive license to NantCell covering patent rights, know-how and materials related to certain antibodies, ADCs and two CAR-TNK products. NantCell agreed to pay a royalty not to exceed five percent (5%) to the Company on any net sales of products from the assets licensed by the Company to NantCell. In addition to the future royalties payable under this agreement, NantCell paid an upfront payment of $10.0 million to the Company and issued 10 million shares of NantCell common stock to the Company valued at $100.0 million based on an equity sale of NantCell common stock to a third party. The Company terminated the agreement, effective January 29, 2020, due to NantCell’s material breach of the agreement. The termination and remedies related to such termination are currently pending in an arbitration before the American Arbitration Association. On March 9, 2021, NantKwest, Inc. and ImmunityBio (formerly known as NantCell, Inc.) completed their previously announced 100% stock-for-stock merger (See Note 4).

7. Debt

2018 Purchase Agreements and Indenture for Scilex Pharmaceuticals Inc. (“Scilex Pharma”)

On September 7, 2018, Scilex Pharma entered into Purchase Agreements (the “2018 Purchase Agreements”) with certain investors (collectively, the “Scilex Note Purchasers”) and the Company. Pursuant to the 2018 Purchase Agreements, on September 7, 2018, Scilex Pharma issued and sold to the Scilex Note Purchasers senior secured notes due 2026 in an aggregate principal amount of $224.0 million (the “Scilex Notes”) for an aggregate purchase price of $140.0 million (the “Scilex Notes Offering”). In connection with the Scilex Notes Offering, Scilex Pharma also entered into an Indenture (the “Indenture”) governing the Scilex Notes with U.S. Bank National Association, a national banking association, as trustee and collateral agent, and the Company. Pursuant to the Indenture, the Company agreed to irrevocably and unconditionally guarantee, on a senior unsecured basis, the punctual performance and payment when due of all obligations of Scilex Pharma under the Indenture. During the year ended December 31, 2020, Scilex Pharma repurchased an aggregate of $65.0 million in principal amount of the Scilex Notes.

During the nine months ended September 30, 2021, Scilex Pharma repurchased an additional $40.0 million in principal amount of the Scilex Notes. In connection with the repurchases, the Company recorded a loss on partial debt extinguishment of $14.0 million during the nine months ended September 30, 2021.

To estimate the fair value of the Scilex Notes, the Company uses the discounted cash flow method under the income approach, which involves significant Level 3 inputs and assumptions, combined with a Monte Carlo simulation as appropriate. The value of the debt instrument is based on the present value of future principal payments and the discounted rate of return reflective of the Company’s credit risk.

Borrowings of the Scilex Notes consisted of the following (in thousands):


	September 30, 2021			December 31, 2020
Principal	$	107,684		$	151,872
Unamortized debt discount		(32,470	)		(51,022	)
Unamortized debt issuance costs		(2,370	)		(3,698	)
Carrying value	$	72,844		$	97,152
Estimated fair value	$	114,800		$	122,300

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Future minimum payments under the Scilex Notes, based on a percentage of projected net sales of ZTlido, are estimated as follows (in thousands):


Year Ending December 31,
2021 (Remaining three months)		1,686
2022		7,340
2023		9,543
2024		11,677
2025		13,436
Thereafter		64,002
Total future minimum payments		107,684
Unamortized debt discount		(32,470	)
Unamortized capitalized debt issuance costs		(2,370	)
Total Scilex Notes		72,844
Current portion		(6,883	)
Long-term portion of Scilex Notes	$	65,961

The Company made principal payments of $44.2 million and $3.5 million during the nine months ended September 30, 2021 and 2020, respectively. The imputed effective interest rate at September 30, 2021 was 10.4%. The amount of debt discount and debt issuance costs included in interest expense for the three months ended September 30, 2021 and 2020 was approximately $1.9 million and $2.5 million, respectively. During the nine months ended September 30, 2021 and 2020, the amount of debt discount and debt issuance costs included in interest expense was $5.9 million and $8.2 million, respectively.

The Company identified a number of embedded derivatives that require bifurcation from the Scilex Notes and that were separately accounted for in the consolidated financial statements as derivative liabilities. Certain of these embedded features include default interest provisions, contingent rate increases, contingent put options, optional and automatic acceleration provisions and tax indemnification obligations. The fair value of the derivative liabilities associated with the Scilex Notes was estimated using the discounted cash flow method under the income approach combined with a Monte Carlo simulation model. This involves significant Level 3 inputs and assumptions, including a risk adjusted net sales forecast, an effective debt yield, estimated marketing approval probabilities for SP-103 and an estimated probability of an initial public offering by Scilex Holding that satisfies certain valuation thresholds and timing considerations (See Note 3). The Company re-evaluates this assessment each reporting period.

ACEA Significant Debt Arrangements

At the closing of the transactions contemplated by the ACEA Merger Agreement and as a result thereof, on June 1, 2021, the Company, as the indirect parent to Hangzhou ACEA Pharmaceutical Research Co., Ltd. (“ACEA Hangzhou”) and Zhejiang ACEA Pharmaceutical Co., Ltd. (“ACEA Zhejiang”), each of which are indirect subsidiaries of ACEA, succeeded to the financial obligations of ACEA Hangzhou and ACEA Zhejiang, each of whom are parties to agreements with ACEA Bio (Hangzhou) Co., Ltd. (“ACEA Bio”) (an entity unrelated to ACEA Hangzhou and ACEA Zhejiang) as set forth below.

Pursuant to that certain Contract, dated as of August 15, 2018, between ACEA Hangzhou and ACEA Bio, ACEA Hangzhou borrowed an aggregate of approximately $29.1 million (184,600,000 RMB) from ACEA Bio in a series of loans thereunder (the “Contract”). Each loan under the Contract is for a period of 10 years and the maturity dates thereof range from August 15, 2023 to August 15, 2028. Each loan is interest free for the first five years, after which time the interest rate is 5.39% per annum.

Pursuant to that certain Loan Agreement, dated as of January 6, 2018, between ACEA Zhejiang and ACEA Bio, ACEA Zhejiang borrowed approximately $1.3 million (8,000,000 RMB) from ACEA Bio (the “Loan Agreement”). The maturity date under the Loan Agreement is one year from the date when the loan was remitted to ACEA Zhejiang’s bank account and current maturity is January 1, 2022. The interest rate under the Loan Agreement is 4.786% per annum.

The outstanding principal amount under the Contract and Loan Agreement as of September 30, 2021 is $30.4 million. As part of the preliminary purchase price allocation, the Company estimated the fair value of the Contract and Loan Agreement to be approximately $17.1 million.

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8. Stockholders’ Equity

Amended Sales Agreement

On December 4, 2020, the Company entered into Amendment No. 1 to that certain Sales Agreement dated April 27, 2020, with A.G.P./Alliance Global Partners, which provides that the Company may, from time to time, offer and sell securities to A.G.P./Alliance Global Partners in at-the-market transactions (as amended, the “Amended Sales Agreement”). During the nine months ended September 30, 2021, the Company issued and sold an aggregate of 14,844,426 shares of its common stock pursuant to the Amended Sales Agreement for aggregate net proceeds to the Company of approximately $134.9 million. Subsequent to September 30, 2021 and through November 2, 2021, the Company sold an aggregate of 3,863,371 shares of its common stock pursuant to the Amended Sales Agreement for aggregate net proceeds to the Company of approximately $25.2 million.

9. Stock Based Compensation

2019 Stock Incentive Plan (“2019 Plan”)

Total stock-based compensation expense under the 2019 Plan was $6.3 million and $5.0 million for the three months ended September 30, 2021 and 2020, respectively, and $21.7 million and $9.2 million for the nine months ended September 30, 2021 and 2020, respectively. The total unrecognized compensation expense related to unvested stock option grants as of September 30, 2021 was $66.0 million, with a weighted average remaining vesting period of 3.0 years. Total unrecognized compensation expense related to unvested restricted stock unit (“RSU”) grants as of September 30, 2021 was $30.2 million, with a weighted average remaining vesting period of 3.7 years.

A summary of stock option activity under the 2019 Plan for the nine months ended September 30, 2021 is as follows:


	Options Outstanding			Weighted- Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2020		18,762,920		$	4.97	$	—
Options Granted		6,707,485		9.34
Options Cancelled		(1,193,915	)	5.33
Options Exercised		(869,676	)	3.91
Outstanding at September 30, 2021		23,406,814		$	6.24	$	47,535

The estimated fair value of each stock option grant was determined on the grant date using the Black-Scholes valuation model with the following weighted-average assumptions:


	Nine Months Ended September 30,
	2021			2020
Weighted-average grant date fair value	$	7.58		$	4.14
Dividend yield		—	%		—	%
Volatility		110	%		104	%
Risk-free interest rate		0.95	%		0.45	%
Expected life of options (years)	5.7			5.7

A summary of RSU activity under the 2019 Plan for the nine months ended September 30, 2021 is as follows:


	Number of Shares			Weighted- Average Grant Date Fair Value Per Share
Outstanding at December 31, 2020		—		$	—
RSUs Granted		3,829,618			9.68
RSUs Released		(132,540	)		13.96
RSUs Cancelled		(209,208	)		9.96
Outstanding at September 30, 2021		3,487,870		$	9.50

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Scilex Holding Company

Under the Scilex Holding Company 2019 Stock Option Plan, total stock-based compensation expense was $1.5 million and $1.3 million for the three months ended September 30, 2021 and 2020, respectively, and $4.3 million and $4.1 million for the nine months ended September 30, 2021 and 2020, respectively. The total unrecognized compensation expense related to unvested stock option grants as of September 30, 2021 was $16.1 million, with a weighted average vesting period of 2.5 years.

Employee Stock Purchase Plan

Total stock-based compensation recorded as operating expense for the Company’s 2020 Employee Stock Purchase Plan was $0.3 million and $0.9 million for the three and nine months ended September 30, 2021, respectively.

CEO Performance Award

Total stock-based compensation recorded as operating expense for the 10-year CEO performance award that was granted to the Company’s chief executive officer in 2020 and tied solely to the Company achieving market capitalization milestones (the “CEO Performance Award”) was $13.1 million and $38.8 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2021, the Company had approximately $100.7 million of total unrecognized stock-based compensation expense remaining under the CEO Performance Award.

10. Commitments and Contingencies

Litigation

In the normal course of business, the Company may be named as a defendant in one or more lawsuits. Other than as set forth below, the Company is not a party to any outstanding material litigation and management is currently not aware of any legal proceedings that, individually or in the aggregate, are deemed to be material to the Company’s financial condition or results of operations.

On April 3, 2019, the Company filed two legal actions against, among others, Patrick Soon-Shiong and entities controlled by him, asserting claims for, among other things, fraud and breach of contract, arising out of Dr. Soon-Shiong’s purchase of the drug Cynviloq™ from the Company in May 2015. The actions allege that Dr. Soon-Shiong and the other defendants, among other things, acquired the drug Cynviloq™ for the purpose of halting its progression to the market. Specifically, the Company has filed:



An arbitration demand with the American Arbitration Association in Los Angeles, California against NantPharma, LLC (“NantPharma”) and Chief Executive Officer Patrick Soon-Shiong, related to alleged fraud and breaches of the Stock Sale and Purchase Agreement, dated May 14, 2015, entered into between NantPharma and the Company, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 7, 2015. On May 24, 2019, NantCell, Inc., Dr. Soon-Shiong and Immunotherapy NANTibody LLC (“NANTibody”) General Counsel Charles Kim filed a motion in the Los Angeles Superior Court to stay or dismiss the Company’s arbitration demand. On October 9, 2019, the Los Angeles Superior Court denied the motion to stay or dismiss the arbitration demand, and the arbitration is ongoing against NantPharma. On March 5, 2020, the Company filed a legal action against Dr. Soon-Shiong in Los Angeles Superior Court, asserting claims for fraudulent inducement and common law fraud, arising out of Dr. Soon-Shiong’s purchase of the drug Cynviloq™ from the Company in May 2015. The action alleges that, among other things, Dr. Soon-Shiong acquired the drug Cynviloq™ for the purpose of halting its progression to the market. In connection with filing this civil action in the Los Angeles Superior Court, where the Company will have the right to a jury trial against Dr. Soon-Shiong, the Company has dismissed Dr. Soon-Shiong from the related, ongoing arbitration against NantPharma; and

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

An action in the Los Angeles Superior Court derivatively on behalf of NANTibody against NantCell, Inc., NANTibody Board Member and NantCell, Inc. Chief Executive Officer Patrick Soon-Shiong, and NANTibody officer Charles Kim, related to several breaches of the June 11, 2015 Limited Liability Company Agreement for NANTibody entered into between the Company and NantCell, Inc. The suit also alleges breaches of fiduciary duties and seeks, inter alia, a declaration that the Assignment Agreement entered into on July 2, 2017, between NantPharma and NANTibody is void and an equitable unwinding of the Assignment Agreement. The suit calls for the restoration of $90.05 million to the NANTibody capital account, thereby restoring the Company’s equity method investment in NANTibody to its invested amount as of June 30, 2017 of $40.0 million. On May 24, 2019, NantCell, Inc. and Dr. Soon-Shiong filed a cross-complaint against the Company and Dr. Henry Ji, seeking unspecified damages, as well as additional punitive damages and specific performance, related to alleged fraud, alleged breaches of the Exclusive License Agreement for certain antibodies (dated June 11, 2015 and entered into between NANTibody, LLC and the Company), and alleged tortious interference with contract. On May 24, 2019, NANTibody and NantPharma filed a new complaint in the action against the Company and Dr. Henry Ji, seeking unspecified damages, as well as additional punitive damages and specific performance, related to alleged fraud, alleged breaches of the Stock Sale and Purchase Agreement, alleged breaches of the Exclusive License Agreement for certain antibodies (dated April 21, 2015 and entered into between NantCell, Inc. and the Company), and alleged tortious interference with contract. On July 8, 2019, the Company and Dr. Henry Ji filed motions to compel the cross-complaint and new action to arbitration. On October 9, 2019, the Los Angeles Superior Court granted the motions to compel to arbitration all of the claims brought by NANTibody, NantCell, Inc. and NantPharma, and denied the motions to compel as to the claims brought by Dr. Soon-Shiong. Subsequently, NANTibody, NantCell, Inc., and NantPharma have re-filed their claims in arbitration with the American Arbitration Association. On May 4, 2020, the Company filed counterclaims against NANTibody and NantPharma related to breaches of the April 21, 2015 and June 11, 2015 Exclusive License Agreements. With the counterclaims, the Company is seeking money damages in an amount yet to be determined. The claims against Dr. Soon-Shiong have been stayed pending resolution of the claims filed in arbitration. The original derivative action is no longer stayed, and the parties are currently engaged in discovery in the suit.

On May 26, 2020, Wasa Medical Holdings filed a putative federal securities class action in the U.S. District Court for the Southern District of California, Case No. 3:20-cv-00966-AJB-DEB, against the Company, its President, Chief Executive Officer and Chairman of the Board of Directors, Henry Ji, Ph.D., and its SVP of Regulatory Affairs, Mark R. Brunswick, Ph.D. The action alleges that the Company, Dr. Ji and Dr. Brunswick made materially false and/or misleading statements to the investing public by publicly issuing false and/or misleading statements regarding STI-1499 and its ability to inhibit the SARS-CoV-2 virus infection and that such statements violated Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The suit seeks to recover damages caused by the alleged violations of federal securities laws, along with the plaintiffs’ reasonable costs and expenses incurred in the lawsuit, including counsel fees and expert fees. On June 11, 2020, Jeannette Calvo filed a second putative federal securities class action in the U.S. District Court for the Southern District of California, Case No. 3:20-cv-01066-JAH-WVG, against the same defendants alleging the same claims and seeking the same relief. On February 12, 2021, the U.S. District Court for the Southern District of California issued an order consolidating the cases and appointing a lead plaintiff, Andrew Zenoff (“Plaintiff”), and lead counsel. On April 5, 2021, Plaintiff filed a consolidated amended complaint in accordance with the U.S. District Court for the Southern District of California’s scheduling order. Pursuant to that scheduling order, the defendants filed their motion to dismiss on May 20, 2021 and Plaintiff filed its opposition to the motion on July 2, 2021. The defendants’ reply was filed on August 4, 2021. The U.S. District Court for the Southern District of California has taken the motion under submission without oral argument. The Company is defending these matters vigorously.

On July 26, 2021, Sachin Chaudhari filed a verified stockholder derivative complaint in the U.S. District Court for the Southern District of California, Case No. 0723211, against Dr. Ji, Mr. Brunswick, and the Company’s Board of Directors as defendants, and against the Company as a nominal defendant. The action alleges, among other things, that defendants breached their fiduciary duties, violated Section 20(a) of the Securities Exchange Act of 1934, as amended, engaged in waste and were unjustly enriched in connection with the alleged false and misleading statements referenced above. The suit seeks to recover on behalf of the Company those damages caused by the alleged breaches of duty and related claims, along with the plaintiffs’ reasonable costs and expenses incurred in the lawsuit, including counsel fees and expert fees. On July 27, 2021, Michael Sabatina filed a verified stockholder derivative complaint in the Delaware Chancery Court, Case No. 2021-0654 against Dr. Ji and Mr. Brunswick as defendants and against the Company as a nominal defendant alleging the same general claims and seeking the same general relief. Both of these derivative cases have been stayed by their respective courts pending resolution of the motion to dismiss the federal securities class action described above. The Company is defending these matters vigorously.

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Operating Leases

As of September 30, 2021, the Company’s leases have remaining lease terms of approximately 0.8 to 17.1 years, some of which include options to extend the lease terms for up to five years, and some of which allow for early termination. Short-term operating lease costs were immaterial.

Supplemental quantitative information related to leases includes the following (in thousands, except for years and percentages):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Operating cash flows used for operating leases	$	3,208		$	2,531		$	8,081		$	7,354
Right-of-use assets obtained in exchange for new and amended operating lease liabilities	$	39,967		$	1,083		$	40,141		$	1,878
Operating lease expense	$	3,725		$	2,580		$	8,623		$	7,550
Weighted average remaining lease term in years	15.5			8.6			15.5			8.6
Weighted average discount rate		12.8	%		12.2	%		12.8	%		12.2	%

Maturities of lease liabilities were as follows (in thousands):


Years ending December 31,	Operating leases
2021 (Remaining three months)	$	2,567
2022		10,355
2023		10,534
2024		10,520
2025		34,734
Thereafter		115,831
Total lease payments		184,541
Less imputed interest		(92,967	)
Total lease liabilities as of September 30, 2021	$	91,574

On September 23, 2021, the Company entered into a lease agreement with LLJ Sorrento Industrial LLC (the “9151 Rehco Road Lease”), by which the Company will lease premises located at 9151 Rehco Road, San Diego, California. The 9151 Rehco Road Lease has an initial term of 148-months. The 9151 Rehco Road lease commenced in September 2021.

On August 1, 2021, the Company entered into a lease agreement with HCP Life Science REIT, Inc. (the “Landlord”), by which the Company will lease the premises located at 4921 Directors Place, San Diego, California (the "4921 Directors Place Lease"). The 4921 Directors Place Lease has an initial term of 188-months. The 4921 Directors Place lease commenced in August 2021.

On September 1, 2021, the Company entered into a lease agreement with the Landlord (the “4930 Directors Place Lease”), by which the Company will lease the premises located at 4930 Directors Place, San Diego, California. The 4930 Directors Place Lease has an initial term of 188-months and includes approximately 163,205 rentable square feet. The 4930 Directors Place Lease provides for periodic rent increases, and renewal and termination options. The 4930 Directors Place Lease is expected to commence in 2023.

In connection with entry into the lease agreement for the 4930 Directors Place Lease, the Company`s existing lease agreements with the Landlord for 9380 Judicial Drive, 4921 Directors Place, 4955 Directors Place and 4939 Directors Place (the “Other Leases”) were extended to be coterminous with the term of the 4930 Directors Place Lease and the initial rent for the extension period of each of the Other Leases shall be at then current market rates.

11. Income Taxes

The Company maintains deferred tax assets that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These deferred tax assets include net operating loss carryforwards, research credits and temporary differences. In assessing the Company’s ability to realize deferred tax assets, management considers, on a periodic basis, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As such, management has determined that it is appropriate to maintain a valuation allowance against the Company’s U.S. federal and state deferred tax assets, with the exception of an amount equal to schedulable deferred tax liabilities.

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The Company’s income tax benefit of $0.5 million and $2.1 million reflect effective tax rates of 0.2% and 0.9% for the nine months ended September 30, 2021 and 2020, respectively. The Company’s income tax expense of $0.4 million and $0.1 million reflect effective tax rates of 0.3% and 0.1% for the three months ended September 30, 2021 and 2020, respectively.

The difference between the expected statutory federal tax rate of 21% and the 0.2% effective tax rate for the nine months ended September 30, 2021 was primarily attributable to income tax expense associated with return to provision adjustments and income tax payments, offset by income tax benefits from stock-based compensation windfall, revaluation of deferred taxes for U.S. state blended effective tax rate adjustments, and changes in the valuation allowance.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company’s tax years for 2007 and later are subject to examination by the U.S. and state tax authorities due to the existence of the net operating loss and research credit carryforwards.

12. Loss Per Share

For the three and nine months ended September 30, 2021 and 2020, basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period.

The following table sets forth the reconciliation of basic and diluted loss per share for the three and nine months ended September 30, 2021 and 2020 (in thousands except per share amounts):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Numerator
Net loss attributable to the Company	$	(119,803	)	$	(84,023	)	$	(283,908	)	$	(226,959	)
Net loss attributable to Semnur holders of Scilex Holding	$	—		$	(1,868	)	$	—		$	(8,524	)
Net loss used for diluted earnings per share	$	(119,803	)	$	(85,891	)	$	(283,908	)	$	(235,483	)

Denominator for Basic Loss Per Share		299,276			251,211			290,029			217,050
Potentially dilutive shares of Sorrento common stock issuable upon Semnur Share Exchange		—			6,459			—			6,459
Denominator for Diluted Loss Per Share		299,276			257,670			290,029			223,509
Basic Loss Per Share	$	(0.40	)	$	(0.33	)	$	(0.98	)	$	(1.05	)
Diluted Loss Per Share	$	(0.40	)	$	(0.33	)	$	(0.98	)	$	(1.05	)

The potentially dilutive stock options that were excluded because the effect would have been anti-dilutive for the nine months ended September 30, 2021 and 2020 were 2.9 million and 9.3 million, respectively. The potentially dilutive warrants that were excluded because the effect would have been anti-dilutive for the nine months ended September 30, 2021 and 2020 were 16.0 million and 18.6 million, respectively.

13. Segment Information

The Company operates in two operating and reportable segments, Sorrento Therapeutics and Scilex. With the exception of unrestricted cash balances, the Company’s Chief Operating Decision Maker does not regularly review asset information by reportable segment and, therefore, it does not report asset information by reportable segment. The majority of long-lived assets for both segments are located in the United States.

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The following table presents information about the Company’s reportable segments for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,
	2021									2020
(in thousands)	Sorrento Therapeutics			Scilex			Total			Sorrento Therapeutics			Scilex			Total
External revenues	$	4,537		$	7,525		$	12,062		$	3,927		$	7,826		$	11,753
Operating expenses		97,766			15,683			113,449			82,868			11,989			94,857
Operating loss		(93,229	)		(8,158	)		(101,387	)		(78,941	)		(4,163	)		(83,104	)
Unrestricted cash		35,380			4,355			39,735			71,004			4,172			75,176


	Nine Months Ended September 30,
	2021									2020
(in thousands)	Sorrento Therapeutics			Scilex			Total			Sorrento Therapeutics			Scilex			Total
External revenues	$	17,515		$	22,313		$	39,828		$	9,694		$	18,787		$	28,481
Operating expenses		278,195			48,475			326,670			157,559			44,917		$	202,476
Operating loss		(260,680	)		(26,162	)		(286,842	)		(147,865	)		(26,130	)		(173,995	)
Unrestricted cash		35,380			4,355			39,735			71,004			4,172			75,176

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains “forward-looking statements” about our expectations, beliefs or intentions regarding our potential product offerings, business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made and are often identified by the use of words such as “assumes,” “plans,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” or “will,” and similar expressions or variations. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission (the “SEC”). Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Overview

Sorrento Therapeutics, Inc., together with its subsidiaries (collectively, the “Company”, “we”, “us”, and “our”) is a clinical stage and commercial biopharmaceutical company focused on delivering innovative and clinically meaningful therapies to address unmet medical needs.

At our core, we are antibody-centric and leverage our proprietary G-MAB™ library and targeted delivery modalities to generate the next generation of cancer therapeutics. Our fully human antibodies include PD-1, PD-L1, CD38, CD123, CD47, BCMA, LAG3, CTLA-4, CD137 and SARS-CoV-2 neutralizing antibodies, among others. We also have programs assessing the use of our technologies and products in autoimmune, inflammatory, viral and neurodegenerative diseases.

Our vision is to leverage these antibodies in conjunction with proprietary targeted delivery modalities to generate the next generation of cancer therapeutics. These modalities include proprietary chimeric antigen receptor T-cell therapy (“CAR-T”), dimeric antigen receptor T-cell therapy (“DAR-T™”), antibody drug conjugates (“ADCs”) as well as bispecific antibody approaches. We acquired Sofusa®, a drug delivery technology, in July 2018, which delivers biologics directly into the lymphatic system to potentially achieve improved efficacy and fewer adverse effects than standard parenteral therapy. Additionally, our majority-owned subsidiary, Scilex Holding Company (“Scilex Holding”), acquired the assets of Semnur Pharmaceuticals, Inc. (“Semnur”) in March 2019. Semnur’s SEMDEXATM (“SP-102”) compound has the potential to become the first Food and Drug Administration (“FDA”)-approved epidural steroid product for the treatment of sciatica. In response to the global SARS-CoV-2 (“COVID-19”) pandemic, we are utilizing the Bruton’s tyrosine kinase (“BTK”) inhibitor (Abivertinib, acquired from ACEA Therapeutics, Inc.) in a U.S. Phase II study of cytokine storm associated with a COVID-19 infection and in a Phase II trial in Brazil in mild, moderate and severe COVID-19 patients. We are also internally developing and conducting clinical studies for potential coronavirus antiviral therapies and vaccines, including COVI-MSC™, COVI-AMG™, COVIDROPSTM, COVIGUARDTM and COVISHIELDTM; and diagnostic test solutions, including COVITRACK™, COVISTIX™ and COVITRACE™.

With each of our clinical and preclinical programs, we aim to tailor our therapies to treat specific stages in the evolution of a disease, from elimination, to equilibrium and escape. In addition, our objective in our immuno-oncology programs is to focus on tumors that are resistant to current treatments and where we can design focused trials based on a genetic signature or biomarker to ensure patients have the best chance of a durable and significant response. We have several immuno-oncology programs that are in or near to entering the clinic. These include cellular therapies, oncolytic viruses (SeprehvecTM) and a palliative care program targeted to treat intractable cancer pain (RTX). Our cellular therapy programs focus on CAR-T and DAR-T for adoptive cellular immunotherapy to treat both solid and liquid tumors.

From the start of the COVID-19 pandemic, our mission has been to leverage our deep expertise in developing targeted antibodies for cancer immunotherapy to create best-in-category treatments and diagnostics to ease suffering and assist in the global response to COVID-19. We have leveraged, and continue to leverage, our G-MAB library and antibody development engineering capabilities to advance a number of promising diagnostics and neutralizing antibody candidates to test and treat COVID-19 and the immune reactions associated with SARS-CoV-2 infection.

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Our first generation SARS-CoV-2 neutralizing antibody was STI-1499 (COVIGUARD™), which was engineered to prevent antibody dependent enhancement of disease. This antibody was then optimized to produce the highly potent STI-2020, which is being developed in two outpatient formulations: COVI-AMG (IV-push injection) and COVIDROPS (intranasal). A U.S. Food and Drug Administration (“FDA”)-cleared Phase I study of COVI-AMG has been completed, and the FDA has cleared a Phase II study of COVI-AMG in outpatients with COVID-19 and a Phase II study of COVI-AMG in hospitalized patients with moderate or severe COVID-19. We have also completed an FDA-cleared Phase I study of COVIDROPS of healthy volunteers and are currently enrolling patients with mild COVID-19 in an outpatient study in the UK. We are also developing two promising potential rescue treatments with Abivertinib, an oral next generation dual EGFR/BTK inhibitor, to treat moderate to severe hospitalized COVID-19 patients, and COVI-MSC™, human allogeneic adipose-derived mesenchymal stem cells for patients suffering from COVID-19-induced acute respiratory distress syndrome (ARDS). We have completed enrollment in an FDA-cleared Phase II study for Abivertinib and an FDA-cleared Phase Ib study for COVI-MSC. We are also working with the Brazilian Health Regulatory Agency (ANVISA) to conduct a COVID-19 study with Abivertinib and MSC. The Abivertinib study is fully enrolled and we are awaiting the clinical results, and we also have clearance to begin a Phase II study with COVI-MSC. In other preclinical development, we are rapidly screening new neutralizing antibodies to address the multiple emerging variants of SARS-CoV-2 to potentially combine with STI-2020 (COVI-AMG) in a cocktail therapy (COVISHIELD™). We are also developing a multi-variant mRNA vaccine to potentially provide protection for all of the current variants of concern.

In furtherance of our goal to develop products across the entire continuum of COVID-19 solutions, we are further developing a number of highly sensitive and rapid diagnostic tests. COVISTIX™ is a lateral flow antigen test that uses a proprietary platinum-based colloid and antibody combination, resulting in high sensitivity and accuracy. This is a simple and rapid (15-minute) test with a shallow nasal swab and is designed for point-of-care and at-home use. This product has been approved for use in Mexico as a point-of-care test. COVITRACK™ is a rapid SARS-CoV-2 IgG/IgM antibody test kit intended for use initially in clinical laboratories and in point of care settings to quickly identify individuals with anti-SARS-CoV-2 antibodies post-infection or post-vaccination. COVITRACE™ was licensed from Columbia University as a rapid single step on-site colorimetric detection test for SARS-COV-2 genomic RNA from a saliva sample using targeted nucleic acid amplification for high throughput point-of-care situations.

We have reported early data from Phase I trials of our carcinoembryonic antigen (“CEA”)-directed CAR-T program. We have treated five patients with stage 4, unresectable adenocarcinoma (four with pancreatic and one with colorectal cancer) and CEA-positive liver metastases with anti-CEA CAR-T. We successfully submitted an Investigational New Drug application (“IND”) for anti-CD38 CAR-T for the treatment of refractory or relapsed multiple myeloma (“RRMM”), obtained clearance from the FDA and commenced a human clinical trial for this indication in early 2018. We have dosed eleven patients. We intend to close this study to further enrollment and start up a similar anti-CD38 CAR-T construct without the myc-tag (which cannot be used in Europe), and to continue treating RRMM patients in a Phase Ib/IIa study, which is expected to begin enrollment in the fourth quarter of 2021. We have also received IND clearances from the FDA to start a Phase I trial for our anti-CD47 mAb (STI-6643) in patients with selected relapsed or refractory malignancies, and to start the first Phase I trial for our allogeneic CD38 DAR-T cell therapy in multiple myeloma patients, the first lead clinical candidate from our DAR-T platform.

Broadly speaking, we believe we are one of the world’s leading cell therapy companies today due to our investments in technology and infrastructure, which have enabled significant progress in developing our next-generation non-viral, “off-the-shelf” allogeneic DAR-T solutions. With “off-the-shelf” solutions, DAR-T therapy can truly become a drug product platform rather than a treatment procedure.

With respect to our ADC program, we began enrolling patients in the first quarter of 2021 in a Phase Ib ascending dose study of our CD38 ADC for systemic Amyloid light-chain (AL) amyloidosis and RRMM. An anti-TROP-2 ADC has been approved for clinical trials in China by our partners with a drug payload SN38 (a DNA polymerase inhibitor) (ESG-401) and we have now received FDA authorization to begin clinical trials in the U.S. Additionally, based upon our recently announced exclusive licensing arrangement with Mayo Clinic for its antibody-drug-nanoparticle albumin-bound (ADNAB™) platform, the next generation in ADC technology, we intend to file several INDs to treat various cancer targets.

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Outside of immuno-oncology programs, as part of our global aim to provide a wide range of therapeutic products to meet underserved markets, we have made investments in non-opioid pain management. These include resiniferatoxin (“RTX”), which is a non-opioid-based toxin that specifically targets transient receptor potential vanilloid-1 (“TRPV1”) which, depending on the site of injection, can ablate, or destroy, nerves expressing TRPV1 or temporarily defunctionalize them. TRPV1 is responsible for the noxious chronic and inflammatory pain signaling that occurs post injury or trauma but leaves other nerve functions intact. RTX has been granted orphan drug status for the treatment of intractable pain with end-stage cancer and two Phase Ib trials (intrathecal and epidural routes) have been completed. A Phase Ib trial studying tolerance and efficacy of RTX for the control of moderate to severe osteoarthritis knee pain was initiated in late 2018 and intermediate results have shown efficacy with no dose limiting toxicities. We have received clearances to proceed with Phase II clinical trials of RTX for treating severe cancer pain (epidural) and for treating moderate-to-severe osteoarthritis of the knee pain (intra-articular). Both trials are expected to commence in 2021 and enrollment in both trials is expected to be completed in 2022.

Also, in this area, we have developed in-house and acquired proprietary technologies to responsibly develop next generation, branded pharmaceutical products to better manage patients’ medical conditions, maximize the quality of life of patients and assist healthcare providers. The flagship product of our majority-owned subsidiary, Scilex Pharmaceuticals Inc. (“Scilex Pharma”), ZTlido® (lidocaine topical system 1.8%) (“ZTlido”), is a next-generation lidocaine delivery system, which was approved by the FDA for the treatment of postherpetic neuralgia, a severe neuropathic pain condition in February 2018, and was commercially launched in October 2018. Scilex Pharma has now built a full commercial organization, which includes sales, marketing, market access and medical affairs.

Impact of COVID-19 on Our Business

We are closely monitoring the COVID-19 pandemic and its potential impact on our business. In an effort to protect the health and safety of our employees, we took proactive action from the earliest signs of the outbreak, including implementing social distancing policies at our facilities, facilitating remote working arrangements and imposing employee travel restrictions.

For more information on the risks associated with COVID-19, refer to Part II, Item 1A, “Risk Factors” herein.

Recent Developments

Acquisition of ACEA Therapeutics, Inc.

On June 1, 2021, we completed the acquisition of ACEA Therapeutics, Inc. (“ACEA”) pursuant to the terms of the Agreement and Plan of Merger (the “ACEA Merger Agreement”), dated as of April 2, 2021, by and among us, AT Merger Sub, Inc., an exempted company incorporated with limited liability in the Cayman Islands and our wholly owned subsidiary, ACEA and Fortis Advisors LLC, as representative of the shareholders of ACEA, whereby ACEA became our wholly owned subsidiary. With operations in both China and the United States, ACEA is developing multiple clinical and preclinical-stage new chemical entity compounds, including the late clinical drug candidate, Abivertinib.

The total value of the consideration paid by us for the acquisition of ACEA was equal to $38.0 million plus approximately $1.9 million (which amount represented our agreed upon share of certain interest, fees and other expenses) resulting in an aggregate payment of approximately $39.9 million (which amount is subject to further adjustment for indebtedness, transaction expenses and cash, in each case pursuant to the terms of the ACEA Merger Agreement) (the “Closing Consideration”). Pursuant to the terms of the ACEA Merger Agreement, a portion of the Closing Consideration equal to (i) $38,059,326 was used to repay certain existing indebtedness of ACEA, which amount was paid to the holders thereof in the form of shares of our common stock and an aggregate of 5,519,469 shares (“Indebtedness Shares”) of our common stock were issued in respect thereof based on a price per share equal to $6.8955 (representing the volume weighted average closing price per share of Common Stock, as reported on The Nasdaq Stock Market LLC, for the 10 consecutive trading days ending on the date that was three trading days prior to the Closing Date) and (ii) $100,000 was set aside for expenses incurred by the shareholders’ representative thereunder. The Indebtedness Shares are subject to a true-up, as set forth in the ACEA Merger Agreement, if the price at which such shares were issued is greater than the closing price of our common stock on the date that is six months after June 1, 2021.

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In addition to the Closing Consideration, we will pay the ACEA equityholders (i) up to $450.0 million in additional payments, subject to the receipt of certain regulatory approvals and achievement of certain net sales targets with respect to the assets acquired from ACEA and (ii) five to ten percent of the annual net sales on specified royalty-bearing products (the “Earn-Out Consideration”). The fair value of the Earn-Out Consideration on the acquisition date was preliminarily estimated to be $186.1 million. The amount referenced in clause (i) of the preceding sentence includes the amounts that would have otherwise been due to ACEA under that certain License Agreement, dated July 13, 2020, between us and ACEA, which agreement was terminated in its entirety upon completion of the acquisition of ACEA.

The preliminary purchase price allocation was calculated based on an upfront consideration of $44.1 million, which was based on our closing share price on June 1, 2021. The ACEA Merger Agreement resulted in an upfront consideration of $44.1 million in net identifiable assets of approximately $230.2 million, which includes separate and distinct intangible assets comprised of acquired in-process research and development of $250.4 million, goodwill of $9.3 million, fair value of debt assumed of approximately $32.1 million and other net assets of approximately $2.6 million. The purchase price allocation is preliminary as we are still completing the valuation of the intangible assets, contingent consideration, taxes, the fair value of debt assumed and other net assets, changes to which may also increase or decrease the amount of goodwill recognized. Goodwill largely reflects the broad-spectrum and synergistic infrastructures and expertise in pharmaceutical and biological drug discovery, development and manufacturing, and expanded geographic coverage in China and North America. Goodwill is not deductible for tax purposes. Acquisition costs were recognized as incurred and compensation expense associated with pre-merger option awards was recognized for post-combination services. Results of operations since the date of acquisition were not material. Customary tax related matters such as the filing of pre-acquisition tax returns are subject to finalization as of September 30, 2021, and such matters may result in adjustments to the purchase price allocation.

We are still in the process of finalizing the working capital adjustments and the purchase price allocation, given the timing of the acquisition and the size and scope of the assets and liabilities subject to valuation. While we do not expect material changes in the valuation outcome, certain assumptions and findings that were in place at the date of acquisition could result in changes in the purchase price allocation.

Results of Operations

Comparison of the Three Months Ended September 30, 2021 and 2020

Revenues. Revenues were $12.1 million for the three months ended September 30, 2021, as compared to $11.8 million for the three months ended September 30, 2020.

Revenues in our Sorrento Therapeutics segment increased from $3.9 million to $4.5 million for the three months ended September 30, 2021 compared to the same quarter of the prior year and were primarily attributed to higher contract manufacturing service revenues.

Revenues in our Scilex segment decreased from $7.8 million to $7.5 million for the three months ended September 30, 2021 compared to the same period of the prior year. The decrease is attributed to higher gross-to-net provisions for Medicaid utilization related to sales of ZTlido.

Cost of revenues. Cost of revenues for the three months ended September 30, 2021 and 2020 were $3.4 million and $2.7 million, respectively, and relate to product sales, the sale of customized reagents and providing contract manufacturing services. These costs generally include employee-related expenses, including salary and benefits, direct materials and overhead costs including rent, depreciation, utilities, facility maintenance and insurance.

Cost of revenues for our Sorrento Therapeutics segment increased by $0.1 million and was driven by the increase in revenues.

Cost of revenues for our Scilex segment increased by $0.6 million and was attributed to higher provisions for excess inventories.

Research and Development (“R&D”) Expenses. R&D expenses for the three months ended September 30, 2021 and 2020 were $49.4 million and $32.0 million, respectively. R&D expenses primarily include expenses associated with isolating and advancing human antibody drug candidates derived from our libraries, as well as advancing our RTX, COVID-19, SP-102, oncolytic viruses, ADC and oncology programs. Such expenses consist primarily of salaries and personnel-related expenses, stock-based compensation expense, clinical development expenses, preclinical testing, lab supplies, consulting costs, depreciation and other expenses.

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R&D expenses for our Sorrento Therapeutics segment increased by $18.2 million as compared to the same quarter of the prior year and were driven by higher headcount and increased clinical development costs spent on advancing our various R&D programs.

R&D expenses for our Scilex segment decreased by $0.7 million as compared to the same quarter of the prior year and were driven by lower clinical development costs.

Acquired In-process Research and Development Expenses. Acquired in-process research and development expenses during the three months ended September 30, 2021 totaled $11.1 million, of which $10.2 million related to our investment in Deverra Therapeutics, Inc. during the period as further described in Note 4 of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and $0.9 million related to investments in various licensing arrangements entered during the period.

Acquired in-process research and development expenses during the three months ended September 30, 2020 totaled $34.8 million and related to various licensing arrangements entered into during the period.

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses for the three months ended September 30, 2021 and 2020 were $48.5 million and $24.3 million, respectively, and consisted primarily of salaries and personnel-related expenses, stock-based compensation expense, professional fees, infrastructure expenses, legal and other general corporate expenses.

SG&A expenses for our Sorrento Therapeutics segment increased by approximately $20.4 million and were primarily attributed to higher headcount, professional fees and stock-based compensation expense as compared to the same quarter of the prior year.

SG&A expenses for our Scilex segment increased by approximately $3.8 million and were attributed to higher professional fees.

Loss on Derivative Liabilities. Loss on derivative liabilities for the three months ended September 30, 2021 was $1.8 million compared to a loss of $1.0 million in the same quarter in 2020 and was primarily attributed to revised probabilities and revised sales forecasts as further described in Note 3 of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Loss on Marketable Investments. Loss on marketable investments reflects $6.4 million of realized losses from the sale of our shares of ImmunityBio, Inc. during the period and $7.7 million in unrealized losses related to the change in fair value of our shares of Celularity Inc. We recorded approximately $0.7 million in unrealized gains related to other investments during the period.

Interest Expense, net. Interest expense for the three months ended September 30, 2021 and 2020 was $2.9 million and $2.6 million, respectively. The decrease resulted primarily from a decrease in interest expense associated with the term loans with Oaktree Capital Management L.P. and affiliates (the “Oaktree Term Loans”), which were fully repaid in the year ended December 31, 2020. Interest income was immaterial for both periods.

Income Tax Expense. Income tax expense for the three months ended September 30, 2021 was $0.4 million as compared to $0.1 million for the three months ended September 30, 2020. The increase in income tax expense was primarily attributable to return to provision adjustments and income tax payments, offset by income tax benefits from stock-based compensation windfall, revaluation of deferred taxes for U.S. state blended effective tax rate adjustments, and changes in valuation allowance.

Net Loss. Net loss for the three months ended September 30, 2021 and 2020 was $120.0 million and $87.1 million, respectively.

Comparison of the Nine Months Ended September 30, 2021 and 2020

Revenues. Revenues were $39.8 million for the nine months ended September 30, 2021, as compared to $28.5 million for the nine months ended September 30, 2020.

Revenues in our Sorrento Therapeutics segment increased from $9.7 million to $13.0 million for the nine months ended September 30, 2021, compared to the same period of the prior year and were primarily attributed to higher contract manufacturing service revenues.

Revenues in our Scilex segment increased from $18.8 million to $22.3 million for the nine months ended September 30, 2021 compared to the same period of the prior year and were attributed to increased product sales of ZTlido.

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Cost of revenues. Cost of revenues for the nine months ended September 30, 2021 and 2020 were $9.9 million and $7.4 million, respectively, and relate to product sales, the sale of customized reagents and providing contract manufacturing services. These costs generally include employee-related expenses including salary and benefits, direct materials and overhead costs including rent, depreciation, utilities, facility maintenance and insurance.

Cost of revenues for our Sorrento Therapeutics segment increased by $1.8 million and was driven by the increase in revenues.

Cost of revenues for our Scilex segment increased by $0.8 million and was attributed to higher sales volumes of ZTlido.

R&D Expenses. R&D expenses for the nine months ended September 30, 2021 and 2020 were $147.8 million and $77.3 million, respectively. R&D expenses primarily include expenses associated with isolating and advancing human antibody drug candidates derived from our libraries, as well as advancing our RTX, COVID-19, SP-102, oncolytic viruses, ADC and oncology programs. Such expenses consist primarily of salaries and personnel-related expenses, stock-based compensation expense, clinical development expenses, preclinical testing, lab supplies, consulting costs, depreciation and other expenses.

R&D expenses for our Sorrento Therapeutics segment increased by $71.0 million as compared to the same period of the prior fiscal year and were primarily driven by higher headcount and increased clinical development costs spent on advancing our various R&D programs.

R&D expenses for our Scilex segment decreased by $0.5 million as compared to the same period of the prior fiscal year and were primarily driven by lower clinical development cost.

Acquired In-process Research and Development Expenses. Acquired in-process research and development expenses for the nine months ended September 30, 2021 totaled $23.6 million and related to the Aardvark Asset Purchase Agreement and the entry into the Mount Sinai License Agreement during the period as further described in Note 6 of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Additionally, $10.2 million related to our investment in Deverra Therapeutics, Inc. during the period as further described in Note 4 of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and $0.9 million related to our investments in various licensing arrangements entered into during the period. Acquired in-process research and development expenses for the nine months ended September 30, 2020 totaled $39.7 million and primarily related to various licensing arrangements entered into during the period, as well as other investments in new technologies and preclinical programs.

SG&A Expenses. SG&A expenses for the nine months ended September 30, 2021 and 2020 were $142.3 million and $75.0 million, respectively, and consisted primarily of salaries and personnel-related expenses, stock-based compensation expense, professional fees, infrastructure expenses, legal and other general corporate expenses.

SG&A expenses for our Sorrento Therapeutics segment increased by approximately $63.9 million and were primarily attributed to higher headcount and stock-based compensation expense as compared to the same period of the prior year.

SG&A expenses for our Scilex segment increased by approximately $3.3 million and were primarily attributed to cost savings resulting from a shift to more favorable marketing programs for ZTlido and optimizing the sales force, partially offset by higher selling expenses to support higher sales volumes of ZTlido.

Gain on Derivative Liabilities. Gain on derivative liabilities for the nine months ended September 30, 2021 was $0.1 million compared to a gain of $5.9 million in the same period in 2020 and was primarily attributed to revised probabilities and revised sales forecasts as further described in Note 3 of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Gain on Marketable Investments. Gain on marketable investments reflects $24.1 million of realized gains from the sale of our shares of ImmunityBio, Inc. during the period and $7.7 million in unrealized losses related to the change in fair value of our shares of Celularity Inc. We recorded approximately $0.7 million in unrealized gains related to other investments during the period.

Loss on Debt Extinguishment. Loss on debt extinguishment for the nine months ended September 30, 2021 was $6.7 million and was primarily attributed to the repurchases of the outstanding principal on the Scilex Notes, and was partially offset by short-term debt forgiveness. Loss on debt extinguishment for the nine months ended September 30, 2020 was $51.9 million and was attributed to the repayments of outstanding principal on the Oaktree Term Loans.

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Interest Expense. Interest expense for the nine months ended September 30, 2021 and 2020 was $7.3 million and $17.7 million, respectively. The decrease resulted primarily from a decrease in interest expense associated with the Oaktree Term Loans, which were fully repaid in the year ended December 31, 2020. Interest income was immaterial for both periods.

Income Tax Benefit. Income tax benefit for the nine months ended September 30, 2021 and 2020 was $0.5 million and $2.1 million, respectively. The decrease in income tax benefit was primarily attributable to return to provision adjustments and income tax payments, offset by income tax benefits from stock-based compensation windfall, revaluation of deferred taxes for U.S. state blended effective tax rate adjustments, and changes in valuation allowance.

Net Loss. Net loss for the nine months ended September 30, 2021 and 2020 was $284.3 million and $241.3 million, respectively.

Liquidity and Capital Resources

As of September 30, 2021, we had $39.7 million in cash and cash equivalents attributable in part to the following financing arrangements:

Debt Financings

ACEA Significant Debt Arrangements

At the closing of the transactions contemplated by the ACEA Merger Agreement and as a result thereof, on June 1, 2021, we, as the indirect parent to Hangzhou ACEA Pharmaceutical Research Co., Ltd. (“ACEA Hangzhou”) and Zhejiang ACEA Pharmaceutical Co., Ltd. (“ACEA Zhejiang”), each of which are indirect subsidiaries of ACEA, succeeded to the financial obligations of ACEA Hangzhou and ACEA Zhejiang, each of whom are parties to agreements with ACEA Bio (Hangzhou) Co., Ltd. (“ACEA Bio”) (an entity unrelated to ACEA Hangzhou and ACEA Zhejiang) as set forth below.

The outstanding principal amount under the Contract and Loan Agreement as of September 30, 2021 is $30.4 million. As a part of the preliminary purchase price allocation, we estimated the fair value of the Contract and Loan Agreement to be approximately $17.1 million.

Scilex Notes

In September 2018, Scilex Pharma entered into purchase agreements (the “2018 Purchase Agreements”) with certain investors (collectively, the “Scilex Note Purchasers”) and us. Pursuant to the 2018 Purchase Agreements, on September 7, 2018, Scilex Pharma issued and sold to the Scilex Note Purchasers senior secured notes due 2026 in an aggregate principal amount of $224.0 million (the “Scilex Notes”) for an aggregate purchase price of $140.0 million (the “Scilex Notes Offering”). In connection with the Scilex Notes Offering, Scilex Pharma also entered into an Indenture (the “Indenture”) governing the Scilex Notes with U.S. Bank National Association, a national banking association, as trustee and collateral agent, and us. Pursuant to the Indenture, we agreed to irrevocably and unconditionally guarantee, on a senior unsecured basis, the punctual performance and payment when due of all obligations of Scilex Pharma under the Indenture.

On December 14, 2020, we, Scilex Pharma, U.S. Bank National Association, as trustee and collateral agent, and the beneficial owners of the Scilex Notes and the Scilex Note Purchasers entered into a Consent Under and Amendment No. 3 to Indenture and Letter of Credit (the “Amendment”), which amended: (i) the Indenture, and (ii) the irrevocable standby letter of credit that we issued to Scilex Pharma in connection with the Indenture.

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On December 14, 2020, and in connection with the Amendment, the aggregate $45.0 million in restricted funds held in previously established reserve and collateral accounts were released and Scilex Pharma utilized such funds to repurchase an aggregate of $45.0 million in principal amount of the Scilex Notes. Scilex Pharma also repurchased $20.0 million in principal amount of the Scilex Notes in each of December 2020, February 2021 and April 2021.

Equity Financings

Amended Sales Agreement

On December 4, 2020, we entered into Amendment No. 1 to that certain Sales Agreement, dated April 27, 2020, with A.G.P./Alliance Global Partners, which provides that we may, from time to time, offer and sell securities to A.G.P./Alliance Global Partners in at-the-market transactions (as amended, the “Amended Sales Agreement”). During the nine months ended September 30, 2021, we issued and sold an aggregate of 14,844,426 shares of our common stock pursuant to the Amended Sales Agreement for aggregate net proceeds of approximately $134.9 million. Subsequent to September 30, 2021 and through November 2, 2021, we sold an aggregate of 3,863,371 shares of our common stock pursuant to the Amended Sales Agreement for aggregate net proceeds to us of approximately $25.2 million.

Marketable Investments

On March 9, 2021, NantKwest, Inc. and ImmunityBio completed their previously announced 100% stock-for-stock merger (the “Merger”). The combined company operates under the name ImmunityBio, Inc. and its shares of common stock commenced trading on the Nasdaq Global Select Market on March 10, 2021 under the new ticker, “IBRX”. The former stockholders of ImmunityBio were entitled to receive 0.8190 shares of common stock of the combined company for each outstanding share of ImmunityBio common stock held immediately prior to the Merger. Prior to the closing of the Merger, we owned 10,000,000 shares of common stock of ImmunityBio, and we therefore received 8,190,000 shares of common stock of the post-merger company.

Prior to the Merger, our investment in ImmunityBio was historically included as an equity investment in our consolidated balance sheets and accounted for as an equity security without a readily determinable fair value. As of the completion of the Merger, we accounted for our investment in ImmunityBio as an equity investment with a readily determinable fair value and reclassified our investment in ImmunityBio to marketable investments within our consolidated balance sheets. The investment in ImmunityBio was classified as a current asset because the investment was liquidated to finance our current operations. In connection with the change in fair value of our investment in ImmunityBio, we recorded a realized loss on marketable investments of $6.4 million during the three months ended September 30, 2021 and a realized gain on marketable investments of $24.1 million during the nine months ended September 30, 2021. We sold 8,190,000 shares of ImmunityBio common stock during the nine months ended September 30, 2021 for net proceeds to us of $124.0 million. We had no remaining shares of ImmunityBio common stock as of September 30, 2021.

On July 16, 2021, Celularity Inc. (“Pre-Merger Celularity”), a company of which we held an equity interest, completed its previously announced merger with GX Acquisition Corp. (the “Celularity Merger”). Following the completion of the Celularity Merger, the combined, publicly traded company formerly known as GX Acquisition Corp. was named Celularity Inc. (“Celularity”) and its Class A common stock commenced trading on the Nasdaq Capital Market on July 19, 2021 under the ticker “CELU”. In connection with the Celularity Merger, all outstanding shares of Series A Preferred Stock of Pre-Merger Celularity were converted into shares of Pre-Merger Celularity common stock and then each share of Pre-Merger Celularity common stock was converted into the right to receive shares of Class A common stock of the post-merger company. We received 19,922,124 shares of Class A common stock of the post-merger company in the Celularity Merger. We also purchased an aggregate of 500,000 shares of Class A common stock of Celularity for an aggregate purchase price of $5,000,000 in a private placement transaction that closed on July 16, 2021 concurrently with the closing of the Celularity Merger. Our investment in Celularity has historically been accounted for as an equity security without a readily determinable fair value. As of the trading commencement date, we account for our investment in Celularity as an equity security with a readily determinable fair value. As of September 30, 2021, we owned 20,422,124 shares of Class A common stock of Celularity. 19,922,124 shares of the Class A Common Stock of Celularity held by us are subject to transfer restrictions until the earliest to occur of (i) 365 days after July 16, 2021; (ii) the first day after the date on which the closing price of the Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after July 16, 2021; or (iii) the date on which Celularity completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of Celularity’s public shareholders having the right to exchange their Class A Common Stock for cash, securities or other property, subject to certain exceptions.

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Contingent Consideration

We have contingent consideration obligations in connection with certain acquisition and licensing transactions that are contingent upon achieving certain specified milestones or the occurrence of certain events, including those described within the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Upon the achievement of such milestones or the occurrence of such events, we will be obligated to make certain cash or stock payments in accordance with the terms of such acquisition and license agreements.

Use of Cash

Cash Flows from Operating Activities. Net cash used for operating activities was $209.7 million for the nine months ended September 30, 2021 as compared to $118.7 million for the nine months ended September 30, 2020. Net cash used reflects the cash spent on our research activities and cash spent to support the commercial launch of our products.

We expect to continue to incur substantial and increasing losses and negative net cash flows from operating activities as we seek to expand and support our clinical and preclinical development and research activities, support the commercial launch of our products and fund our joint ventures, collaborations and other third-party agreements.

Cash Flows from Investing Activities. Net cash used by investing activities was $82.1 million for the nine months ended September 30, 2021, and was attributed to proceeds of $124.1 million from sales of marketable investments, partially offset by $34.6 million related to various investments in new technologies and preclinical programs, $0.8 million in connection with the acquisition of ACEA, net of cash acquired, and approximately $6.7 million primarily attributed to expenditures on laboratory equipment. During the nine months ended September 30, 2020, net cash used by investing activities was $28.5 million, which was comprised of $22.3 million in licensing arrangements, $2.3 million in new technologies and preclinical programs and $3.8 million on equipment and building improvements.

Cash Flows from Financing Activities. Net cash provided by financing activities was $110.5 million for the nine months ended September 30, 2021 as compared to net cash provided by financing of $185.8 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, we received $134.9 million from equity offerings, proceeds from short-term debt of $35.1 million and proceeds of $13.3 million from common stock issuances and warrant exercises. During the nine months ended September 30, 2021, we repaid $44.2 million in principal amount of the Scilex Notes, of which $32.4 million was attributed to principal included within financing activities and $11.8 million was attributed to principal included in operating activities. We also repaid $40.3 million in other short-term debt. During the nine months ended September 30, 2020, we repaid $120.0 million of outstanding principal under the Term Loans, paid $6.3 million of related exit and prepayment fees thereon, made payments of $3.5 million on the Scilex Notes and repaid $3.0 million in short-term debt.

Future Liquidity Needs. We have principally financed our operations through underwritten public offerings and private debt and equity financings, as we have not generated any significant product related revenue from our principal operations to date. We will need to raise additional capital before we exhaust our current cash resources in order to continue to fund our research and development, including our plans for clinical and preclinical trials and new product development, as well as to fund operations generally. We will seek to raise additional funds through various potential sources, such as equity and debt financings or through corporate collaboration, grant agreements and license agreements. We can give no assurances that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs. These conditions, among others, raise substantial doubt about our ability to continue as a going concern.

We cannot be certain that additional funding will be available on acceptable terms, or at all. If we issue additional equity securities to raise funds, the ownership percentage of existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of common stock. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. We may also seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available.

We anticipate that we will continue to incur net losses into the foreseeable future as we: (i) advance our product pipeline and other product candidates into clinical trials, (ii) continue our development of, and seek regulatory approvals for, our product candidates in clinical trials, (iii) expand our corporate infrastructure, and (iv) incur our share of joint venture and collaboration costs for our products and technologies.

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Uses of Cash. We have and plan to expand our business and intellectual property portfolio through the acquisition of new businesses and technologies as well as entering into licensing arrangements.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to debt, derivative liabilities, revenue recognition, leases, contingent liabilities and acquisition consideration payable, income taxes and stock-based compensation. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and there have been no material changes during the three months ended September 30, 2021.

Contractual Obligations and Commitments

As of September 30, 2021, there were no material changes outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Off-Balance Sheet Arrangements

Since our inception through September 30, 2021, other than off-balance sheet arrangements already disclosed, we have not engaged in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

New Accounting Pronouncements

Refer to Note 1, “Significant Accounting Policies” and “Recent Accounting Pronouncements” in the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk. Our exposure to market risk is confined to our cash and cash equivalents and debt. We have cash and cash equivalents and invest primarily in high-quality money market funds, which we believe are subject to limited credit risk. Due to the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. We do not believe that we have any material exposure to interest rate risk arising from our investments and we do not use derivative financial instruments to hedge against interest rate risk.

We are not subject to interest rate risk on the Scilex Notes associated with our 2018 Purchase Agreements as repayment of the Scilex Notes is determined by projected net sales as further discussed in Note 7 of the accompanying notes consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. For the Scilex Notes, changes in interest rates will generally affect the fair value of the debt instrument, but not our earnings or cash flows.

Capital Market Risk. We currently do not have significant revenues from grants or sales and services and we have no product revenues from our planned principal operations and therefore depend on funds raised through other sources. One source of funding is through future debt or equity offerings. Our ability to raise funds in this manner depends upon, among other things, capital market forces affecting our stock price.

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Beginning in 2021, we held investments in equity securities with readily determinable fair values, which are included as current marketable and equity investments within our consolidated balance sheets. Our investment in these publicly traded equity securities are recorded at fair value and are subject to market price volatility. Changes in the fair value of such investments are recorded in our consolidated statement of operations within gain (loss) on marketable investments and gain (loss) on equity investments. A portion of our equity investments is subject to certain transfer restrictions and is adjusted for a discount for lack of marketability as further discussed in Note 3 and in Note 4 of the accompanying notes consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. As of September 30, 2021, a price change of 10 percent would increase or decrease the fair value of our current marketable and equity investments by approximately $12.3 million in the aggregate.

Concentration Risk. During the fiscal years ended December 31, 2020, 2019 and 2018, sales to the sole customer and third-party logistics distribution provider of Scilex Pharma, Cardinal Health, represented 100% of the net revenue of Scilex Pharma. This exposes us to concentration of customer risk. We monitor the financial condition of the sole customer of Scilex Pharma, limit our credit exposure by setting credit limits, and did not experience any credit losses for the years ended December 31, 2020, 2019 and 2018. As we continue to expand the commercialization of ZTlido, we are not limited to the current customer and have the option of expanding our distribution network with additional distributors through establishing our own affiliates, by acquiring existing third-party business or product rights or by partnering with additional third parties.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such terms are defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance. As a result, management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation performed, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we carried out an evaluation of any potential changes in our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report on Form 10-Q. There has been no change to our internal control over financial reporting during our most recent fiscal quarter that our certifying officers concluded materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The information under the caption “Litigation” set forth in Note 10 in the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors.

Our Annual Report on Form 10-K for the year ended December 31, 2020, Part I –Item 1A, Risk Factors, describes important risk factors that could cause our business, financial condition, results of operations and growth prospects to differ materially from those indicated or suggested by forward-looking statements made in this Quarterly Report on Form 10-Q or presented elsewhere by management from time to time. Except as set forth below, there have been no material changes in our risk factors since the filing of our Annual Report on Form 10-K for the year ended December 31, 2020. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business.

Risks Related to Our Financial Position and Capital Requirements

We are a clinical stage company subject to significant risks and uncertainties, including the risk that we or our partners may never develop, obtain regulatory approval or market any of our product candidates or generate product related revenues.

We are primarily a clinical and commercial stage biotechnology company that began operating and commenced research and development activities in 2009. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. There is no assurance that our libraries of fully-human mAbs or any of our other product candidates in development will be suitable for diagnostic or therapeutic use, or that we will be able to identify and isolate therapeutic product candidates, or develop, market and commercialize these candidates. We do not expect any of our product candidates in development, including, but not limited to, our fully-human mAbs, biosimilars/biobetters, fully human anti-PD-L1 checkpoint inhibitors derived from our proprietary G-MAB™ library platform, antibody drug conjugates (“ADCs”), bispecific antibodies (“BsAbs”), as well as Chimeric Antigen Receptor T Cells (“CAR-T”) and Dimeric Antigen Receptor T Cells (“DAR-T”) for adoptive cellular immunotherapy, resiniferatoxin (“RTX”), higher strength lidocaine topical system (SP-103) and non-opioid corticosteroid formulated as a viscous gel injection (SP-102) (“SEMDEXATM”) to be commercially available for a few years, if at all. Additionally, our COVID-19 related product candidates, including STI-1499 (neutralizing antibody; COVIGUARD TM), STI-2020 (affinity matured neutralizing antibody; COVI-AMG TM), STI-2099 (intranasal affinity matured neutralizing antibody; COVIDROPS TM), neutralizing antibody cocktail (COVISHIELD TM), STI-5656 (Abivertinib), STI-8282 (allogeneic adipose-derived mesenchymal stem cells; COVI-MSC TM), serological IgM/IgG antibody diagnostic test (COVITRACKTM), saliva-based antigen diagnostic test for SARS-CoV-2 (COVITRACE TM) and lateral flow viral antigen diagnostic test for SARS-CoV-2 (COVISTIX TM), are subject to uncertainties relating to product development, regulatory approval and commercialization, and further risks based on the constantly evolving situation affecting the United States and the international community. Even if we are able to commercialize our product candidates, there is no assurance that these candidates would generate revenues or that any revenues generated would be sufficient for us to become profitable or thereafter maintain profitability.

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We have incurred significant losses since inception and anticipate that we will incur continued losses for the foreseeable future.

As of September 30, 2021 and December 31, 2020, we had an accumulated deficit of $1,242.2 million and $958.3 million, respectively. We continue to incur significant research and development and other expenses related to our ongoing operations. We have incurred operating losses since our inception, expect to continue to incur significant operating losses for the foreseeable future, and we expect these losses to increase as we: (i) advance RTX, STI-6129 (anti-CD38 ADC), SP-103, SEMDEXATM and our other product candidates, including our COVID-19 related product candidates, STI-2020 (COVI-AMGTM), STI-2099 (COVIDROPSTM), STI-8282 (COVI-MSCTM) and STI-5656 (Abivertinib), into further clinical trials and pursue other development, acquire, develop and manufacture clinical trial materials and increase other regulatory operating activities, (ii) conduct further studies for our preclinical COVID-19 related product candidates, including a neutralizing antibody cocktail (COVISHIELDTM), to advance to clinical trials and seek regulatory approval; (iii) incur incremental expenses associated with our efforts to further advance a number of potential product candidates into preclinical development activities, (iv) continue to identify and advance a number of fully human therapeutic antibody and ADC preclinical product candidates, (v) incur higher salary, lab supply and infrastructure costs incurred in connection with supporting all of our programs, (vi) invest in our joint ventures, collaborations or other third party agreements, (vii) incur expenses in conjunction with defending and enforcing our rights in various litigation matters, (viii) expand our corporate, development and manufacturing infrastructure, and (ix) support our subsidiaries, including Scilex Holding Company, Adnab, Inc., ACEA Therapeutics, Inc. and SmartPharm Therapeutics, Inc., in their clinical trial, development and commercialization efforts. As such, we are subject to all risks incidental to the development of new biopharmaceutical products and related companion diagnostics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We will require substantial additional funding, which may not be available to us on acceptable terms, or at all. If we fail to raise the necessary additional capital, we may be unable to complete the development and commercialization of our product candidates or continue our development programs.

Our operations have consumed substantial amounts of cash since inception. We expect to significantly increase our spending to advance the preclinical and clinical development of our product candidates and launch and commercialize any product candidates for which we receive regulatory approval, including building our own commercial organization to address certain markets. We will require additional capital for the further development and commercialization of our product candidates, as well as to fund our other operating expenses and capital expenditures.

As a result of our recurring losses from operations, recurring negative cash flows from operations and substantial cumulative losses, there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt about our ability to continue as a going concern. If we are unsuccessful in our efforts to raise outside financing, we may be required to significantly reduce or cease operations. The report of our independent registered public accounting firm on our audited financial statements for the year ended December 31, 2020 included a “going concern” explanatory paragraph indicating that our recurring losses from operations, negative working capital, recurring negative cash flows from operations and substantial cumulative net losses raise substantial doubt about our ability to continue as a going concern.

We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. We may also seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Any of these events could significantly harm our business, financial condition and prospects.

Our future capital requirements will depend on many factors, including:

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the progress of the development of our fully-human mAbs, including biosimilars/biobetters, fully human anti-PD-L1 checkpoint inhibitors derived from our proprietary G-MAB™ library platform, ADCs, BsAbs, CAR-T and DAR-T for adoptive cellular immunotherapy, RTX, SP-103 and SEMDEXATM, and our COVID-19 product candidates;

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the number of product candidates we pursue;

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our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical studies;

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the time and costs involved in obtaining regulatory approvals;

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the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims;

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our plans to establish sales, marketing and/or manufacturing capabilities;

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the effect of competing technological and market developments;

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the terms and timing of any collaborative, licensing and other arrangements that we may establish;

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general market conditions for offerings from biopharmaceutical companies;

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our ability to establish, enforce and maintain selected strategic alliances and activities required for product commercialization;

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our obligations under our debt arrangements;

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the time and costs involved in defending and enforcing our rights in various litigation matters;

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our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

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the effect of the COVID-19 pandemic; and

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our revenues, if any, from successful development and commercialization of our product candidates, including ZTlido.

In order to carry out our business plan and implement our strategy, we anticipate that we will need to obtain additional financing from time to time and may choose to raise additional funds through strategic collaborations, licensing arrangements, joint ventures, public or private equity or debt financing, bank lines of credit, asset sales, government grants or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us, or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to certain of our product candidates or marketing territories.

In addition, as discussed in the risk factor under the heading “The terms of our outstanding debt place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business” in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2020, the Scilex Indenture includes negative covenants that place limitations on the following: the incurrence of debt, the payment of dividends by Scilex Pharmaceuticals Inc. (“Scilex Pharma”), the repurchase of shares and, under certain conditions, making certain other restricted payments, the prepayment, redemption or repurchase of subordinated debt, a merger, amalgamation or consolidation involving Scilex Pharma, engaging in certain transactions with affiliates; and the making of investments other than those permitted by the Scilex Indenture.

Our inability to raise capital when needed would harm our business, financial condition and results of operations, and could cause our stock price to decline or require that we wind down our operations altogether.

Our portfolio of marketable securities is subject to market, interest and credit risk that may reduce its value.

We maintain a portfolio of marketable securities. Changes in the value of our portfolio of marketable securities could adversely affect our earnings. In particular, the value of our investments may decline due to increases in interest rates, downgrades of the bonds and other securities included in our portfolio, instability in the global financial markets that reduces the liquidity of securities included in our portfolio, declines in the value of collateral underlying the securities included in our portfolio and other factors. In addition, the COVID-19 pandemic has and may continue to adversely affect the financial markets in some or all countries worldwide. Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than our acquisition cost. Although we attempt to mitigate these risks through diversification of our investments and continuous monitoring of our portfolio’s overall risk profile, the value of our investments may nevertheless decline.

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Risks Related to Our Business and Industry

We face potential business disruptions and related risks resulting from the COVID-19 pandemic, which could have a material adverse effect on our business, financial condition and results of operations.

In December 2019, a novel strain of coronavirus, or SARS-CoV-2, was reported to have surfaced in Wuhan, China. SARS-CoV-2 is the virus that causes COVID-19. The COVID-19 outbreak has grown into a global pandemic that has impacted Asia, the United States, Europe and other countries throughout the world. Financial markets have been experiencing extreme fluctuations that may cause a contraction in available liquidity globally as important segments of the credit markets react to the development. The pandemic may lead to a decline in business and consumer confidence. The global outbreak of COVID-19 continues to rapidly evolve. As a result, businesses have closed and limits have been placed on travel. The extent to which COVID-19 may impact our business, clinical trials and sales of ZTlido will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

We are monitoring the potential impact of the COVID-19 outbreak, and if COVID-19 continues to spread globally, including in the United States, we may experience disruptions that could severely impact the development of our product candidates, including:

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delays or difficulties in enrolling patients in our clinical trials as patients may be reluctant, or unable, to visit clinical sites;

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delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators, clinical site staff and potential closure of clinical facilities;

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decreases in patients seeking treatment for chronic pain;

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delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;

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delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials;

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changes in local regulations as part of a response to the COVID-19 outbreak, which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

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diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

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risk that participants enrolled in our clinical trials will acquire COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events;

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delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and

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interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others.

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Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party suppliers in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain. Any manufacturing supply interruption of materials could adversely affect our ability to conduct ongoing and future research and testing activities. For example, we obtain our commercial supply of ZTlido and our clinical supply of SP-103 exclusively from Oishi and Itochu in Japan. The COVID-19 pandemic may result in delays in the procurement and shipping of ZTlido, which may have an adverse impact on our operating results.

On September 24, 2021, the Safer Federal Workforce Task Force issued written guidance to implement Executive Order 14042 (“Ensuring Adequate COVID Safety Protocols for Federal Contractors”), which was signed by President Biden on September 9, 2021. As a federal contractor, we have mandated that all of our employees and, in addition, contractors that enter our U.S. buildings and certain other locations, be fully vaccinated against COVID-19, subject to disability and religious exemptions, by December 8, 2021. Though it is difficult to predict the impact of this mandate, we may experience workforce constraints due to shortages of vaccinated personnel, strains on the labor market, limitations on hiring new employees and difficulty retaining and securing employees who are vaccinated, all of which could negatively affect our business and operations.

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

In addition, the continued spread of COVID-19 globally could materially and adversely impact our operations, including without limitation, our sales and marketing efforts, sales of ZTlido, travel, employee health and availability, which may have a material and adverse effect on our business, financial condition and results of operations.

Management is actively monitoring the global situation on our financial condition, liquidity, operations, suppliers, industry and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak on our results of operations, financial condition or liquidity for the remainder of fiscal year 2021 or fiscal year 2022.

Drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive and can take many years to complete, and its outcome is risky and uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. It is not uncommon for companies in the pharmaceutical industry to suffer significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Our future clinical trial results may not be successful.

This drug candidate development risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product candidates are developed through preclinical to early and late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for late stage clinical trials, approval and commercialization, such changes do carry the risk that they will not achieve these intended objectives.

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Other than with respect to ZTlido, we have not completed a corporate-sponsored clinical trial. Phase II trials are ongoing for RTX for knee osteoarthritis and COVIDROPS for COVID-19, and Phase I trials are ongoing for RTX for cancer-related pain and anti-CD38 DAR-T for multiple myeloma and a Phase III trial is ongoing for SEMDEXATM for the treatment of lumbosacral radicular pain. Non-clinical studies are ongoing and a Phase II trial is planned to start in the second half of 2021 with higher strength SP-103. We are currently in a Phase II study of Abivertinib for cytokine storm related to COVID-19 infection, a Phase II study of mesenchymal stem cells for the treatment of respiratory distress syndrome associated with COVID-19 infection and a Phase I study of STI-6129 for the treatment of amyloid light chain (AL) amyloidosis. Despite this, we may not have the necessary capabilities, including adequate staffing, to successfully manage the execution and completion of any clinical trials we initiate, including our planned clinical trials of RTX, clinical trials of SP-103, clinical trials of SEMDEXATM, clinical trials of DAR-T, including targeting CD38 using a CAR-T cell therapy, our biosimilar/biobetters antibodies, clinical trials of our COVID-19 related product candidates and other product candidates, in a way that leads to our obtaining marketing approval for our product candidates in a timely manner, or at all.

In the event we are able to conduct a pivotal clinical trial of a product candidate, the results of such trial may not be adequate to support marketing approval. Because our product candidates are intended for use in life-threatening diseases, in some cases we ultimately intend to seek marketing approval for each product candidate based on the results of a single pivotal clinical trial. As a result, these trials may receive enhanced scrutiny from the FDA. For any such pivotal trial, if the FDA disagrees with our choice of primary endpoint or the results for the primary endpoint are not robust or significant relative to control, are subject to confounding factors, or are not adequately supported by other study endpoints, including possibly overall survival or complete response rate, the FDA may refuse to approve a New Drug Application, Biologics License Application or other application for marketing based on such pivotal trial. The FDA may require additional clinical trials as a condition for approving our product candidates.

There can be no assurance that the product candidates we are developing for the detection and treatment of COVID-19 will be granted an Emergency Use Authorization by the FDA. If no Emergency Use Authorization is granted or, once granted, it is terminated, we will be unable to sell our product candidates in the near future and will be required to pursue the drug or device approval process, which is lengthy and expensive.

An Emergency Use Authorization (“EUA”) would allow us to market and sell our COVID-19 product candidates, including COVISTIX, without the need to pursue the lengthy and expensive drug or device approval process. The FDA may issue an EUA during a public health emergency if it determines that the potential benefits of a product outweigh the potential risks and if other regulatory criteria are met. If an EUA is granted for any of our COVID-19 product candidates, we will rely on the FDA policies and guidance in connection with the marketing and sale of such product candidates. If these policies and guidance change unexpectedly and/or materially or if we misinterpret them, potential sales of our COVID-19 product candidates could be adversely impacted. In addition, the FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization. If granted, we cannot predict how long an EUA for our COVID-19 product candidates would remain in place. The termination of an EUA, if granted, could adversely impact our business, financial condition and results of operations.

We may also seek additional EUAs from the FDA for our other product candidates for the detection and/or treatment of COVID-19 and the SARS-CoV-2 virus. If granted, the additional EUAs would allow us to market and sell additional product candidates without the need to pursue the lengthy and expensive drug approval process. There is no guarantee that we will be able to obtain any additional EUAs. Failure to obtain additional EUAs or the termination of such EUAs, if obtained, could adversely impact our business, financial condition and results of operations.

Any disruption in our research and development facilities could adversely affect our business, financial condition and results of operations.

Our principal executive offices, which house our research and development programs, are in San Diego, California. Our facilities may be affected by natural or man-made disasters. Earthquakes are of particular significance since our facilities are located in an earthquake-prone area. We are also vulnerable to damage from other types of disasters, including power loss, attacks from extremist organizations, fires, floods and similar events. If our facilities are affected by a natural or man-made disaster, we may be forced to curtail our operations and/or rely on third-parties to perform some or all of our research and development activities. Although we believe we possess adequate insurance for damage to our property and the disruption of our business from casualties, such insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. In the future, we may choose to expand our operations in either our existing facilities or in new facilities. If we expand our worldwide manufacturing locations, there can be no assurance that this expansion will occur without implementation difficulties, or at all.

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In December 2019, COVID-19 was reported to have surfaced in Wuhan, China, and has since spread to many other countries, including the United States. On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally, prompting many national, regional and local government, including California, to implement preventative and protective measures, such as travel restrictions, business restrictions, closures and quarantine and stay-at-home orders. These orders and others have been modified and may be further modified, amended and new orders may be adopted depending upon the COVID-19 transmission rates in our county and state, as well as other factors. If additional shelter-in-place or similar orders are adopted in the future and the operations in our principal executive offices or other facilities are deemed non-essential, we may not be able to operate for the duration of any shelter-in-place or similar order, which could negatively impact our business, operating results and financial condition.

Our business may be adversely affected if we do not manage our current growth and do not successfully execute our growth initiatives.

We have experienced growth in our headcount and operations, which has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. We anticipate further growing through both internal development projects as well as external opportunities, which include the acquisition, partnering and in-licensing of products, technologies and companies or the entry into strategic alliances and collaborations. The availability of high quality development opportunities is limited and we are not certain that we will be able to identify candidates that we and our shareholders consider suitable or complete transactions on terms that are acceptable to us and our shareholders. In order to pursue such opportunities, we may require significant additional financing, which may not be available to us on favorable terms, if at all. Even if we are able to successfully identify and complete acquisitions and other strategic alliances and collaborations, we may not be able to integrate them or take full advantage of them and therefore may not realize the benefits that we expect.

To effectively manage our current and future potential growth, we will need to continue to enhance our operational, financial and management processes and to effectively expand, train and manage our employee base. Supporting our growth initiatives will require significant capital expenditures and management resources, including investments in research and development, sales and marketing, manufacturing and other areas of our business. If we do not successfully manage our current growth and do not successfully execute our growth initiatives, then our business and financial results may be adversely affected and we may incur asset impairment or restructuring charges.

The growth of our business depends on our ability to attract and retain qualified personnel and to develop and maintain key relationships.

The achievement of our commercial, research and development and external growth objectives depends upon our ability to attract and retain qualified scientific, manufacturing, sales and marketing and executive personnel and to develop and maintain relationships with qualified clinical researchers and key distributors. Competition for these people and relationships is intense and comes from a variety of sources, including pharmaceutical and biotechnology companies, universities and non-profit research organizations.

Risks Related to Acquisitions

We have acquired, and plan to continue to acquire, assets, businesses and technologies and may fail to realize the anticipated benefits of the acquisitions, and acquisitions can be costly and dilutive.

We have expanded, and plan to continue to expand, our assets, business and intellectual property portfolio through the acquisition of new assets, businesses and technologies.

For example, in November 2016, we acquired a majority of the outstanding capital stock of Scilex Pharma, which was contributed to our majority-owned subsidiary Scilex Holding in connection with the corporate reorganization of Scilex Holding and acquisition of Semnur by Scilex Holding in March 2019. These assets, together, constitute our Scilex segment. We also acquired Virttu Biologics Limited in 2017 and Sofusa® assets, a revolutionary drug delivery technology, in July 2018. We also acquired SmartPharm Therapeutics, Inc. in September 2020. In addition, in June 2021, we completed our acquisition of ACEA Therapeutics, Inc.

The success of any acquisition depends on, among other things, our ability to combine our business with the acquired business in a manner that does not materially disrupt existing relationships and that allows us to achieve development and operational synergies. If we are unable to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. In particular, the acquisition may not be accretive to our stock value or development pipeline in the near or long term.

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It is possible that the integration process could result in the loss of key employees; the disruption of our ongoing business or the ongoing business of the acquired companies; or inconsistencies in standards, controls, procedures or policies that could adversely affect our ability to maintain relationships with third parties and employees or to achieve the anticipated benefits of the acquisition. Integration efforts between us and the acquired company will also divert management’s attention from our core business and other opportunities that could have been beneficial to our stockholders. An inability to realize the full extent of, or any of, the anticipated benefits of the acquisition, as well as any delays encountered in the integration process, could have an adverse effect on our business and results of operations, which may affect the value of the shares of our common stock after the completion of the acquisition. If we are unable to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. In particular, the acquisition may not be accretive to our stock value or development pipeline in the near or long term.

We expect to incur additional costs integrating the operations of any companies we acquire, higher development and regulatory costs, and personnel, which cannot be estimated accurately at this time. If the total costs of the integration of our companies and advancement of acquired product candidates and technologies exceed the anticipated benefits of the acquisition, our financial results could be adversely affected.

In addition, we may issue shares of our common stock or other equity-linked securities in connection with future acquisitions of businesses and technologies. Any such issuances of shares of our common stock could result in material dilution to our existing stockholders.

Risks Related to Ownership of Our Common Stock

The market price of our common stock may fluctuate significantly, and investors in our common stock may lose all or a part of their investment.

The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. For example, from October 1, 2020 to September 30, 2021, our closing stock price ranged from $5.76 to $16.51 per share, and from January 4, 2021 to October 29, 2021, our closing stock price ranged from $6.35 to $16.51 per share. The market price of our common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as:

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actual or anticipated adverse results or delays in our clinical trials;

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our failure to commercialize our product candidates, if approved;

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unanticipated serious safety concerns related to the use of any of our product candidates;

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adverse regulatory decisions;

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changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals;

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legal disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our product candidates, government investigations and the results of any proceedings or lawsuits, including, but not limited to, patent or stockholder litigation;

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our decision to initiate a clinical trial, not initiate a clinical trial or to terminate an existing clinical trial;

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our dependence on third parties, including CROs;

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announcements of the introduction of new products by our competitors;

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market conditions in the pharmaceutical and biotechnology sectors;

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announcements concerning product development results or intellectual property rights of others;

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future issuances of common stock or other securities;

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the addition or departure of key personnel;

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failure to meet or exceed any financial guidance or expectations regarding development milestones that we may provide to the public;

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actual or anticipated variations in quarterly operating results;

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our failure to meet or exceed the estimates and projections of the investment community;

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overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies;

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conditions or trends in the biotechnology and biopharmaceutical industries;

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introduction of new products offered by us or our competitors;

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announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;

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issuances of debt or equity securities;

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sales of our common stock by us or our stockholders in the future;

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trading volume of our common stock;

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ineffectiveness of our internal controls;

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publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;

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failure to effectively integrate the acquired companies’ operations;

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general political and economic conditions;

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effects of natural or man-made catastrophic events;

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effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic; and

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other events or factors, many of which are beyond our control.

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Further, the equity markets in general have recently experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. Price volatility of our common stock might worsen if the trading volume of our common stock is low. The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our common stock.

Our investors could experience substantial dilution of their investments as a result of subsequent exercises of our outstanding options, including the CEO Performance Award, or the grant of future equity awards by us.

As of September 30, 2021, 29.5 million shares of our common stock were reserved for issuance under our equity incentive plans, of which 23.1 million shares of our common stock were subject to options outstanding at such date at a weighted-average exercise price of $4.80 per share, 3.5 million shares were subject to restricted stock unit awards, 3.0 million shares of our common stock were reserved for issuance pursuant to our 2019 Stock Incentive Plan and 7.4 million shares of our common stock were reserved for issuance pursuant to our 2020 Employee Stock Purchase Plan. Over the past several months, we have experienced higher rates of stock option exercises compared to many earlier periods, and this trend may continue. In addition, 24,935,882 shares of our common stock are subject to the 10-year CEO performance award granted to Dr. Ji that is tied solely to achieving market capitalization milestones and has an exercise price of $17.30 per share. To the extent outstanding options are exercised, our existing stockholders may incur dilution.

We rely on equity awards to motivate current employees and to attract new employees. The grant of future equity awards by us to our employees and other service providers may further dilute our stockholders.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On July 12, 2021, we entered into a common stock purchase agreement (the “BioMed Stock Purchase Agreement”) with BioMed Protection ND, L.L.C. (“BioMed”), pursuant to which we issued 98,835 shares of our common stock to BioMed as partial consideration for the license BioMed granted to us pursuant to an exclusive license agreement between BioMed and us dated July 1, 2021. The issuance of the shares to BioMed was not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D thereunder. BioMed represented that it was an “accredited investor,” as defined in Regulation D, and was acquiring the shares of common stock for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On September 1, 2021, we entered into a lease agreement (the “Lease Agreement”) with HCP Life Science REIT, Inc. (the “Landlord”) pursuant to which we agreed to lease from the Landlord premises located at 4930 Directors Place, San Diego, California (the “4930 Directors Place Lease”). The 4930 Directors Place Lease has an initial 188-month term and includes approximately 163,205 rentable square feet. The initial rent under the 4930 Directors Place Lease is approximately $5.10 per square foot and is subject to an annual increase. Not less than twelve months prior to the expiration of the then-current term of the 4930 Directors Place Lease, we have an option to extend the 4930 Directors Place Lease term for up to two additional five-year terms at then current market rates. The 4930 Directors Place Lease is expected to commence in 2023.

The foregoing description of the Lease Agreement is qualified in its entirety by reference to the full text of the Lease Agreement, which is filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q and incorporated herein by reference.

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Item 6. Exhibits.

EXHIBIT INDEX


Exhibit No.		Description

3.1		Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2013).

3.2		Certificate of Amendment of the Restated Certificate of Incorporation of Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 1, 2013).

3.3		Amended and Restated Bylaws of Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 15, 2019).

4.1		Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 23, 2009).

4.2		Voting Agreement, dated as of April 29, 2016, by and between Sorrento Therapeutics, Inc. and Yuhan Corporation (incorporated by reference to Exhibit 4.12 to the Registrant’s Registration Statement on Form S-3 filed with the SEC on June 29, 2016).

4.3		Registration Rights Agreement, dated November 8, 2016, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 8, 2016).

4.4		Registration Rights Agreement, dated April 27, 2017, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 28, 2017).

4.5		Form of Common Stock Purchase Warrant issued to investors pursuant to the Securities Purchase Agreement, dated as of December 11, 2017, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 21, 2017).

4.6		Registration Rights Agreement, dated December 21, 2017, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 21, 2017).

4.7		Form of Common Stock Purchase Warrant issued to investors pursuant to the Securities Purchase Agreement, dated as of June 13, 2018, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2018).

4.8		Registration Rights Agreement, dated June 13, 2018, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2018).

4.9		Form of Warrant, dated November 7, 2018, issued by Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).

4.10		Registration Rights Agreement, dated November 7, 2018, by and among Sorrento Therapeutics, Inc. and the parties identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).

4.11		Agreement and Consent, dated November 7, 2018, by and among Sorrento Therapeutics, Inc. and the Warrant Holders party thereto (incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).

4.12		Form of Warrant, dated May 3, 2019, issued by Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 3, 2019).

4.13		Amendment No. 1 to the Registration Rights Agreement, dated as of May 3, 2019, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 3, 2019).

4.14		Form of Series A Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 28, 2019).

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4.15		Form of Series C Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 28, 2019).

4.16		Form of Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 8, 2019).

4.17		Amendment No. 2 to the Registration Rights Agreement, dated as of December 6, 2019, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 9, 2019).

4.18		Registration Rights Agreement, dated as of March 4, 2021, by and between Sorrento Therapeutics, Inc. and the Icahn School of Medicine at Mount Sinai (incorporated by reference to Exhibit 4.19 to the Registrant’s Registration Statement on Form S-3 filed with the SEC on April 9, 2021).

10.1		Sorrento Gateway Lease, dated September 1, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4930 Directors Place).

10.2		First Amendment to Office Lease, dated September 14, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4930 Directors Place).

10.3		Second Amendment to Office Lease, dated September 1, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4955 Directors Place).

10.4		First Amendment to Office Lease, dated October 10, 2020, by and between Sorrento Therapeutics, Inc. and HCP Life Science Estates, Inc. (4939 Directors Place).

10.5		Second Amendment to Office Lease, dated September 1, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4939 Directors Place).

31.1		Certification of Henry Ji, Ph.D., Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.

31.2		Certification of Najjam Asghar, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.

32.1		Certification of Henry Ji, Ph.D., Principal Executive Officer and Najjam Asghar, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL) (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Sorrento Therapeutics, Inc.

Date:	November 5, 2021	By:	/s/ Henry Ji, Ph.D.
			Henry Ji, Ph.D.
			Chairman of the Board of Directors, Chief Executive Officer & President
			(Principal Executive Officer)

Date:	November 5, 2021	By:	/s/ Najjam Asghar
			Najjam Asghar
			Senior Vice President & Chief Financial Officer
			(Principal Financial Officer)

Exhibit 10.1

SORRENTO GATEWAY

LEASE

This Lease (the “Lease”), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the “Summary”), below, is made by and between HCP LIFE SCIENCE REIT, INC., a Maryland corporation (“Landlord”), and SORRENTO THERAPEUTICS, INC., a Delaware corporation (“Tenant”).

SUMMARY OF BASIC LEASE INFORMATION


TERMS OF LEASE		DESCRIPTION
1.	Date:	September 1, 2021
2.	Premises (Article 1).
	2.1 Building:	That certain five (5)-story building to be constructed by Landlord and to be located at 4930 Directors Place, San Diego, California 92121.
	2.2 Premises:	All of the approximately 163,205 rentable square feet of space located in the Building, as further set forth in Exhibit A to the Lease.
3.	Lease Term (Article 2).
	3.1 Length of Term:	One hundred eighty-eight (188) full calendar months.
	3.2 Lease Commencement Date:	The later to occur of (i) the “Substantial Completion” of the “Tenant Improvements” (as those terms are defined in the Tenant Work Letter), and (ii) the occurrence of the “Final Condition Date” (as defined in the “Tenant Work Letter” (as defined in Section 1.1.1 below).
	3.3 Lease Expiration Date:	The last day of the one hundred eighty-eighth (188th) full calendar month of the Lease Term.
4.	Base Rent (Article 3):


		HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]


Lease Months	Annual Base Rent	Monthly Installment of Base Rent*	Approximate Monthly Base Rent per Rentable Square Foot

1-12**	$ 9,988,146.00	$ 832,345.50	$ 5.10
13-24	$ 10,287,790.44	$ 857,315.87	$ 5.25
25-36	$ 10,596,424.08	$ 883,035.34	$ 5.41
37-48	$ 10,914,316.80	$ 909,526.40	$ 5.57
49-60	$ 11,241,746.28	$ 936,812.19	$ 5.74
61-72	$ 11,578,998.72	$ 964,916.56	$ 5.91
73-84	$ 11,926,368.72	$ 993,864.06	$ 6.09
85-96	$ 12,284,159.76	$ 1,023,679.98	$ 6.27
97-108	$ 12,652,684.56	$ 1,054,390.38	$ 6.46
109-120	$ 13,032,265.08	$ 1,086,022.09	$ 6.65
121-132	$ 13,423,233.00	$ 1,118,602.75	$ 6.85
133-144	$ 13,825,929.96	$ 1,152,160.83	$ 7.06
145-156	$ 14,240,707.92	$ 1,186,725.66	$ 7.27
157-168	$ 14,667,929.16	$ 1,222,327.43	$ 7.49
169-180	$ 15,107,967.00	$ 1,258,997.25	$ 7.71
181 - Lease Expiration Date	$ 15,561,206.04	$ 1,296,767.17	$ 7.95

*The calculation of the Monthly Installment of Base Rent reflects an annual increase of 3%, rounded to the nearest cent, after every twelve (12) Lease Month period.

**Tenant’s obligation to pay the Monthly Installment of Base Rent otherwise attributable to the Premises shall be subject to the terms and conditions of Section 3.2 of this Lease.


	-2-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]


5.	Tenant Improvement Allowance (Exhibit B):	An amount equal to $31,008,950.00 (i.e., an amount equal to $190.00 per rentable square feet in the Premises); provided, however, the foregoing amount may be increased by up to an additional $25.00 per rentable square foot of the Premises in accordance with the terms and conditions of Sections 2.1.2, 2.1.3 and 2.1.4of the Tenant Work Letter.
6.	Tenant’s Share (Article 4):	One hundred percent (100%).
7.	Permitted Use (Article 5):	The Premises shall be used only for general office, research and development, manufacturing and/or laboratory and related uses, including, but not limited to, administrative offices and other lawful uses reasonably related to or incidental to such specified uses, all (i) consistent with first class life sciences projects in San Diego, California (“First Class Life Sciences Projects”), and (ii) in compliance with, and subject to, Applicable Laws and the terms of this Lease.
8.	Letter of Credit (Article 21):	$2,335,160.45
9.	Parking (Article 28):	Tenant shall have the exclusive use of all parking areas within the Project allocated to the Building.
10.	Address of Tenant (Section 29.18):	Sorrento Therapeutics, Inc. 4955 Directors Place San Diego, California 92121 Attention: Najjam Asghar, CFO
11.	Address of Landlord (Section 29.18):	See Section 29.18 of the Lease.
12.	Broker(s) (Section 29.24):	Representing Tenant: Kidder Mathews and Representing Landlord: CBRE


	-3-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

1. PREMISES, BUILDING, PROJECT, AND COMMON AREAS

1.1 Premises, Building, Project and Common Areas.

1.1.1 The Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 2.2 of the Summary (the “Premises”). The outline of the Premises is set forth in Exhibit A attached hereto. The outline of the “Building” and the “Project,” as those terms are defined in Section 1.1.2 below, are further depicted on the Site Plan attached hereto as Exhibit A-1. The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of such performance. The parties hereto hereby acknowledge that the purpose of Exhibit A is to show the approximate location of the Premises only, and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the “Common Areas,” as that term is defined in Section 1.1.3, below, or the elements thereof or of the accessways to the Premises or the “Project,” as that term is defined in Section 1.1.2, below. Except as specifically set forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit B (the “Tenant Work Letter”), Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Landlord shall be deemed to have tendered possession of the Premises to Tenant upon the later of the date of Substantial Completion of the Tenant Improvements and the occurrence of the Final Condition Date, as those terms are defined in the Tenant Work Letter, and no action by Tenant shall be required therefor. If for any reason, Landlord is delayed in tendering possession of the Premises to Tenant by any particular date, Landlord shall not be subject to any liability for such failure, and the validity of this Lease shall not be impaired. Notwithstanding the foregoing, if the Substantial Completion of the Tenant Improvements does not occur on or before July 1, 2024, then Tenant shall receive a credit equal to one day of Base Rent for each day that occurs after July 1, 2024 and before the Substantial Completion of the Tenant Improvements, which credit shall be applied immediately following the Base Rent Abatement Period; provided however, that Tenant shall not be entitled to such credit to the extent that such delay was caused by: (a) any Tenant BB Delay, (b) an event of Force Majeure, or (iii) a Tenant Delay. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant’s business, except as specifically set forth in this Lease and the Tenant Work Letter. Subject to the terms and conditions of this Lease and the Tenant Work Letter, the taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the Building were at such time in good and sanitary order, condition and repair. Subject to “Applicable Laws,” as that term is defined in Article 24 of this Lease, and the other provisions of this Lease, and except in the event of an emergency, Tenant shall have access to the Premises twenty-four (24) hours per day, seven (7) days per week, every day of the year.

1.1.2 The Building and The Project. The Premises constitutes the entire building set forth in Section 2.1 of the Summary (the “Building”). The Building is part of a project commonly known as “Sorrento Gateway.” The term “Project,” as used in this Lease, shall mean (i) the Building and the Common Areas, (ii) the land (which shall be improved with landscaping, parking facilities and other improvements) upon which the Building and the Common Areas shall be located, (iii) the other buildings to be located on the land upon which the Building is located and which shall contain a café (the “Café”) and the “Fitness Center,” as that term is defined in Section 5.4, below, and (iv) at Landlord’s discretion, any additional real property, areas, land, buildings or other improvements added thereto outside of the Project.

1.1.3 Common Areas. Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its discretion, are collectively referred to herein as the “Common Areas”). The manner in which the Common Areas are maintained and operated shall be at the sole discretion of Landlord and the use thereof shall be subject to such rules, regulations and restrictions as Landlord may make from time to time. Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Project and the Common Areas. Notwithstanding


	-4-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

the foregoing, Landlord and Tenant acknowledge that there are currently no Common Areas within the Building as Tenant is the only tenant within the Building as of the date of this Lease.

1.1.4 Condition of Building Systems. Notwithstanding anything set forth in Section 1.1.1, above, to the contrary, Landlord shall cause the “Building Systems,” as that term is defined in Section 7, below, which are part of the “Base Building Improvements,” as that term is defined in Section 1 of the Tenant Work Letter, that serve the Premises, and Landlord Initial Compliance Obligations (the “Warrantied Items”) to be in good working condition and repair upon the Lease Commencement Date. The foregoing shall not be deemed to require Landlord to replace any of the Warrantied Items, as opposed to repair any Warrantied Items, unless and to the extent the repair of such Warrantied Items, or portion thereof, would not be commercially reasonable under the circumstances. In addition, Landlord hereby covenants that the Warrantied Items serving the Premises shall remain in good working condition for a period of twelve (12) months following the Lease Commencement Date. Notwithstanding anything in this Lease to the contrary, Landlord shall, at Landlord’s sole cost and expense (which shall not be deemed an “Operating Expense,” as that term is defined in Article 4), repair or replace any portion of the Warrantied Item during such twelve (12) month period which is not in good working condition (“Landlord’s 12 Month Warranty”), provided that (i) the need to repair or replace was not caused (A) by the misuse, misconduct, damage, destruction, omissions, and/or negligence of Tenant, its subtenants and/or assignees, if any, or any company which is acquired, sold or merged with Tenant (collectively, “Tenant Damage”), or (B) by any modifications, Alterations or improvements constructed by or on behalf of Tenant, and (ii) Landlord has reasonably approved Tenant’s Building Systems vendors (“Building Systems Vendors”) and corresponding maintenance operating plans (“Maintenance Plans”) and such Building Systems Vendor conducts quarterly inspections in compliance with the Maintenance Plan. Landlord’s 12 Month Warranty shall not extend to the costs of normal and customary preventive maintenance relating to the Warrantied Item. To the extent repairs which Landlord is required to make pursuant to this Section 1.1.4 are necessitated in part by Tenant Damage, then Tenant shall reimburse Landlord for an equitable proportion of the cost of such repair. If it is determined that the Warrantied Item was not in good working condition and repair as of the Lease Commencement Date, Landlord shall not be liable to Tenant for any damages, but, subject to Section 19.5.2, below, as Tenant’s sole remedy, Landlord, at no cost to Tenant, shall promptly commence such work or take such other action as may be necessary to place the same in good working condition and repair, and shall thereafter diligently pursue the same to completion. The parties hereto acknowledge and agree that the terms of this Section 1.1.4 does not affect Landlord’s obligations to repair and maintain the Building, including without limitation, the “Landlord Repair Obligation”, pursuant to the express terms and conditions of Section 7.4 of this Lease.

1.2 Rentable Square Feet of Premises. The rentable square footage of the Premises is hereby deemed to be as set forth in Section 2.2 of the Summary, and shall not be subject to measurement or adjustment during the Lease Term.

2. LEASE TERM; OPTION TERM

2.1 Lease Term. The terms and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the “Lease Term”) shall be as set forth in Section 3.1 of the Summary, shall commence on the date set forth in Section 3.2 of the Summary (the “Lease Commencement Date”), and shall terminate on the date set forth in Section 3.3 of the Summary (the “Lease Expiration Date”) unless this Lease is sooner terminated as hereinafter provided. For purposes of this Lease, the term “Lease Month” shall mean each monthly period during the Lease Term; provided that the first (1st) Lease Month of the Lease Term shall commence on the Lease Commencement Date and end on the last day of the first (1st) full calendar month of the Lease Term, and the last Lease Month shall end on the Lease Expiration Date; and provided further that, if applicable, the first (1st) Lease Month of the Option Term shall commence on the first (1st) day of the Option Term and end on the last day of the first (1st) full calendar month of the Option Term, and the last Lease Month of the Option Term shall end on the last day of the Option Term. At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit C, attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within five (5) days of receipt thereof.

2.2 Option Term.


	-5-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

2.2.1 Option Right. Landlord hereby grants the originally named Tenant herein (“Original Tenant”), and any assignee of Original Tenant’s entire interest in the Lease pursuant to the terms of Section 14.8, below (a “Permitted Assignee”), , two (2) consecutive options to extend the Lease Term for a period of five (5) years each (the “First Option Term” and the “Second Option Term”, respectively (the foregoing option terms shall be referred to hereinafter, sometimes individually, as an “Option Term”)). Such options to extend shall be exercisable only by written notice delivered by Tenant to Landlord not more than fifteen (15) months nor less than twelve (12) months prior to the expiration of the initial Lease Term or the First Option Term, as the case may be, stating that Tenant is thereby irrevocably exercising its option to lease the Premises during the applicable Option Term. Upon the proper exercise of the applicable option to extend, and provided that, at Landlord’s option, as of the date of delivery of such notice, Tenant is not in default under this Lease and has not previously been in default under this Lease more than twice during the preceding twelve (12) month period, and as of the end of the initial Lease Term or First Option Term, as the case may be, Tenant is not in default under this Lease, the Lease Term shall be extended for a period of five (5) years. The rights contained in this Section 2.2 shall be personal to Original Tenant and any Permitted Assignee (and not any other assignee, sublessee or “Transferee,” as that term is defined in Section 14.1, below, of Tenant’s interest in this Lease).

2.2.2 Option Rent. The annual Rent payable by Tenant during the applicable Option Term (the “Option Rent”) shall be equal to (i) the “Fair Rental Value,” as that term is defined below, for the Premises as of the commencement date of the applicable Option Term for the first year of the applicable Option Term, and (ii) one hundred three percent (103%) of the prior year’s Option Rent for each subsequent year of the Option Term. The “Fair Rental Value,” as used in this Lease, shall be equal to the annual rent per rentable square foot (including additional rent and considering any “base year” or “expense stop” applicable thereto), including all escalations, at which tenants (pursuant to leases consummated within the twelve (12) month period preceding the first day of the applicable Option Term), are leasing non-sublease, non-encumbered, non-equity space which is not significantly greater or smaller in size than the subject space, for a comparable lease term, in an arm’s length transaction, which comparable space is located in the “Comparable Buildings,” as that term is defined in this Section 2.2.2, below (transactions satisfying the foregoing criteria shall be known as the “Comparable Transactions”), taking into consideration the following concessions (the “Concessions”): (a) rental abatement concessions, if any, being granted such tenants in connection with such comparable space; (b) tenant improvements or allowances provided or to be provided for such comparable space, and taking into account the value, if any, of the existing improvements in the subject space, such value to be based upon the age, condition, design, quality of finishes and layout of the improvements; and (c) other reasonable monetary concessions being granted such tenants in connection with such comparable space; provided, however, that in calculating the Fair Rental Value, no consideration shall be given to any period of rental abatement, if any, granted to tenants in comparable transactions in connection with the design, permitting and construction of tenant improvements in such comparable spaces. The Fair Rental Value shall additionally include a determination as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as a letter of credit or guaranty, for Tenant’s Rent obligations in connection with Tenant’s lease of the Premises during the applicable Option Term. Such determination shall be made by reviewing the extent of financial security then generally being imposed in Comparable Transactions from tenants of comparable financial condition and credit history to the then existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and such other tenants). The Concessions (A) shall be reflected in the effective rental rate (which effective rental rate shall take into consideration the total dollar value of such Concessions as amortized on a straight-line basis over the applicable term of the Comparable Transaction (in which case such Concessions evidenced in the effective rental rate shall not be granted to Tenant)) payable by Tenant, or (B) at Landlord’s election, all such Concessions shall be granted to Tenant in kind. The term “Comparable Buildings” shall mean those Class A laboratory and R&D buildings located in the Western Sorrento Mesa Area of San Diego, California that are comparable in age (based on the date of original construction or the latest major renovation) location, quality of construction, services and amenities.

2.2.3 Determination of Option Rent. In the event Tenant timely and appropriately exercises an option to extend the Lease Term, Landlord shall notify Tenant of Landlord’s determination of the Option Rent on or before the expiration of the initial Lease Term or the First Option Term, as the case may be. If Tenant, on or before the date which is thirty (30) days following the date upon which Tenant receives Landlord’s determination of the Option Rent, in good faith objects to Landlord’s determination of the Option Rent, then Landlord and Tenant shall


	-6-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

attempt to agree upon the Option Rent using their best good-faith efforts. If Landlord and Tenant fail to reach agreement within thirty (30) days following Tenant’s objection to the Option Rent (the “Outside Agreement Date”), or if Tenant timely delivers an Irrevocable Exercise Notice to Landlord pursuant to the terms of Section 1.3.2, above, then each party shall make a separate determination of the Option Rent, within five (5) days, and such determinations shall be submitted to arbitration in accordance with Sections 2.2.3.1 through 2.2.3.7, below. If Tenant fails to object to Landlord’s determination of the Option Rent within the time period set forth herein, then Tenant shall be deemed to have accepted Landlord’s determination of Option Rent.

2.2.3.1 Landlord and Tenant shall each appoint one arbitrator who shall be, at the option of the appointing party, a real estate broker, appraiser or attorney who shall have been active over the five (5) year period ending on the date of such appointment in the leasing or appraisal, as the case may be, of commercial office properties in North San Diego, California. The determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Option Rent is the closest to the actual Option Rent, taking into account the requirements of Section 2.2.2 of this Lease, as determined by the arbitrators. Each such arbitrator shall be appointed within fifteen (15) days after the Outside Agreement Date. Landlord and Tenant may consult with their selected arbitrators prior to appointment and may select an arbitrator who is favorable to their respective positions. The arbitrators so selected by Landlord and Tenant shall be deemed “Advocate Arbitrators.”

2.2.3.2 The two (2) Advocate Arbitrators so appointed shall be specifically required pursuant to an engagement letter within ten (10) days of the date of the appointment of the last appointed Advocate Arbitrator to agree upon and appoint a third arbitrator (“Neutral Arbitrator”) who shall be qualified under the same criteria set forth hereinabove for qualification of the two Advocate Arbitrators, except that neither the Landlord or Tenant or either parties’ Advocate Arbitrator may, directly or indirectly, consult with the Neutral Arbitrator prior or subsequent to his or her appearance. The Neutral Arbitrator shall be retained via an engagement letter jointly prepared by Landlord’s counsel and Tenant’s counsel.

2.2.3.3 The three arbitrators shall, within thirty (30) days of the appointment of the Neutral Arbitrator, reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted Option Rent, and shall notify Landlord and Tenant thereof.

2.2.3.4 The decision of the majority of the three arbitrators shall be binding upon Landlord and Tenant.

2.2.3.5 If either Landlord or Tenant fails to appoint an Advocate Arbitrator within fifteen (15) days after the Outside Agreement Date, then either party may petition the presiding judge of the Superior Court of San Diego County to appoint such Advocate Arbitrator subject to the criteria in Section 2.2.3.1 of this Lease, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such Advocate Arbitrator.

2.2.3.6 If the two (2) Advocate Arbitrators fail to agree upon and appoint the Neutral Arbitrator, then either party may petition the presiding judge of the Superior Court of San Diego County to appoint the Neutral Arbitrator, subject to criteria in Section 2.2.3.2 of this Lease, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such arbitrator.

2.2.3.7 The cost of the arbitration shall be paid by Landlord and Tenant equally.

2.2.3.8 In the event that the Option Rent shall not have been determined pursuant to the terms hereof prior to the commencement of the applicable Option Term, Tenant shall be required to pay the Option Rent initially provided by Landlord to Tenant, and upon the final determination of the Option Rent, the payments made by Tenant shall be reconciled with the actual amounts of Option Rent due, and the appropriate party shall make any corresponding payment to the other party.

3. BASE RENT


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3.1 In General. Tenant shall pay, without prior notice or demand, to Landlord or Landlord’s agent at the management office of the Project, or, at Landlord’s option, at such other place as Landlord may from time to time designate in writing, by a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (“Base Rent”) as set forth in Section 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever. The Base Rent and the estimated “Tenant’s Share” of “Direct Expenses,” as those terms are defined in Article 4, below, for the first full month of the Lease Term shall be paid at the time of Tenant’s execution of this Lease. If any Rent payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall accrue on a daily basis for the period from the date such payment is due to the end of such calendar month or to the end of the Lease Term at a rate per day which is equal to 1/365 of the applicable annual Rent. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

3.2 Abated Base Rent. Notwithstanding any provision to the contrary contained in Section 3.1 above, provided that Tenant is not in default under this Lease, Tenant shall be entitled to an abatement (the “Base Rent Abatement”) of one hundred percent (100%) of the Base Rent otherwise due for the Premises during the second (2nd), third (3rd), fourth (4th), fifth (5th), sixth (6th), seventh (7th), eighth (8th) and ninth (9th) full calendar months of the Lease Term (collectively, the “Base Rent Abatement Period”), for a total Base Rent Abatement amount equal to $6,658,764.00 in the aggregate. Tenant acknowledges and agrees that during such Base Rent Abatement Period, such abatement of Base Rent shall have no effect on the calculation of any Direct Expenses payable by Tenant pursuant to the terms of this Lease, which Direct Expenses shall be payable during the Base Rent Abatement Period without regard to the Base Rent Abatement. The Base Rent Abatement right set forth in this Section 3.2 has been granted to Tenant as additional consideration for Tenant’s agreement to enter into this Lease and comply with the terms and conditions otherwise required under this Lease. If Tenant shall be in default under this Lease, or if this Lease is terminated for any reason other than Landlord’s breach of this Lease, then the dollar amount of the unapplied portion of the Base Rent Abatement as of the date of such default or termination, as the case may be, shall be converted to a credit to be applied to the Base Rent applicable at the end of the Lease Term and Tenant shall immediately be obligated to begin paying Base Rent for the Premises in full.

4. ADDITIONAL RENT

4.1 General Terms.

4.1.1 Direct Expenses; Additional Rent. In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay “Tenant’s Share” of the annual “Direct Expenses,” as those terms are defined in Sections 4.2.6 and 4.2.2 of this Lease, respectively. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the “Additional Rent”, and the Base Rent and the Additional Rent are herein collectively referred to as “Rent.” All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

4.1.2 Triple Net Lease. Landlord and Tenant acknowledge that, except as otherwise provided to the contrary in this Lease, it is their intent and agreement that this Lease be a “TRIPLE NET” lease and that as such, the provisions contained in this Lease are intended to pass on to Tenant or reimburse Landlord for the costs and expenses reasonably associated with this Lease, the Building and the Project, and Tenant’s operation therefrom. To the extent such costs and expenses payable by Tenant cannot be charged directly to, and paid by, Tenant, such costs and expenses shall be paid by Landlord but reimbursed by Tenant as Additional Rent.

4.2 Definitions of Key Terms Relating to Additional Rent. As used in this Article 4, the following terms shall have the meanings hereinafter set forth:


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4.2.1 Intentionally Deleted.

4.2.2 “Direct Expenses” shall mean “Operating Expenses” and “Tax Expenses.”

4.2.3 “Expense Year” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change, Tenant’s Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

4.2.4 “Operating Expenses” shall mean all expenses, costs and amounts of every kind and nature which Landlord pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program; (iii) the cost of all insurance carried by Landlord in connection with the Project and Premises as reasonably determined by Landlord; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) the cost of parking area operation, repair, restoration, and maintenance; (vi) fees and other costs, including management and/or incentive fees, consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project; (vii) payments under any equipment rental agreements and the fair rental value of any management office space; (viii) subject to item (f), below, wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons engaged in the operation, maintenance and security of the Project; (ix) costs under any instrument pertaining to the sharing of costs by the Project; (x) operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Project; (xi) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in common areas, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) amortization (including interest on the unamortized cost) over the reasonable useful life of such item as Landlord shall reasonably determine in accordance with sound real estate management and accounting principles, consistently applied, of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof; (xiii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended to effect economies in the operation or maintenance of the Project, or any portion thereof, or to reduce current or future Operating Expenses or to enhance the safety or security of the Project or its occupants, (B) that are required to comply with present or anticipated conservation programs, (C) which are replacements or modifications of nonstructural items located in the Common Areas required to keep the Common Areas in good order or condition, or (D) that are required under any governmental law or regulation; provided, however, that any capital expenditure shall be amortized (including interest on the amortized cost) over its reasonable useful life as Landlord shall reasonably determine in accordance with sound real estate management and accounting principles, consistently applied; and (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute “Tax Expenses” as that term is defined in Section 4.2.5, below, (xv) cost of tenant relation programs reasonably established by Landlord, and (xvi) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building, including, without limitation, any covenants, conditions and restrictions affecting the property, and reciprocal easement agreements affecting the property, any parking licenses, and any agreements with transit agencies affecting the Property (collectively, “Underlying Documents”). Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:

(a) costs, including legal fees, space planners’ fees, advertising and promotional expenses (except as otherwise set forth above), and brokerage fees incurred in connection with the original construction


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or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any common areas of the Project or parking facilities);

(b) except as set forth in items (xii), (xiii), and (xiv) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest;

(c) costs for which the Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant’s carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

(d) any bad debt loss, rent loss, or reserves for bad debts or rent loss;

(e) costs associated with the operation of the business of the partnership or entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project). Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord’s interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants;

(f) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager;

(g) amount paid as ground rental for the Project by the Landlord;

(h) except for a Project management fee to the extent allowed pursuant to item (l) below, overhead and profit increment paid to the Landlord or to subsidiaries or affiliates of the Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(i) any compensation paid to clerks, attendants or other persons in commercial concessions operated by the Landlord, provided that any compensation paid to any concierge at the Project shall be includable as an Operating Expense;

(j) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing engineering, janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project;

(k) all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement;

(l) any costs expressly excluded from Operating Expenses elsewhere in this Lease;


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(m) rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the comparable buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project;

(n) personal injury or property damage costs arising from the negligence or willful misconduct of Landlord in connection with this Lease; and

(o) costs incurred to comply with laws relating to the removal of hazardous material (as defined under applicable law) which was in existence in the Building or on the Project prior to the Lease Commencement Date, and was of such a nature that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto; and costs incurred to remove, remedy, contain, or treat hazardous material, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and is of such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto.

Except for a Project management fee, Landlord shall not (1) make a profit by charging items to Operating Expenses that are otherwise also charged separately (i.e., not as the equivalent to Operating Expenses under this Lease) to tenants (including Tenant) of the Project, and (2) subject to Landlord’s right to adjust the components of Operating Expenses described above in this paragraph, collect Operating Expenses from Tenant and all other tenants in the Project in an amount in excess of what Landlord incurs for the items included in Operating Expenses.

4.2.5 Taxes.

4.2.5.1 “Tax Expenses” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof.

4.2.5.2 Tax Expenses shall include, without limitation: (i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax; (iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises or the improvements thereon.

4.2.5.3 Any costs and expenses (including, without limitation, reasonable attorneys’ and consultants’ fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are incurred. Tax refunds shall be credited against Tax Expenses and


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refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year. If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant’s Share of any such increased Tax Expenses. Notwithstanding anything to the contrary contained in this Section 4.2.5, there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord’s net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease.

4.2.6 “Tenant’s Share” shall mean the percentage set forth in Section 6 of the Summary.

4.3 Allocation of Direct Expenses. The parties acknowledge that the Building is part of a multi-building project and that the costs and expenses incurred in connection with the Project (i.e., the Direct Expenses) should be shared between the Building and the other buildings in the Project. Accordingly, as set forth in Section 4.2 above, Direct Expenses (which consist of Operating Expenses and Tax Expenses) are determined annually for the Project as a whole, and a portion of the Direct Expenses, which portion shall be determined by Landlord on an equitable basis, shall be allocated to the Building (as opposed to other buildings in the Project). Such portion of Direct Expenses allocated to the Building shall include all Direct Expenses attributable solely to the Building and an equitable portion of the Direct Expenses attributable to the Project as a whole, and shall not include Direct Expenses attributable solely to other buildings in the Project. Landlord shall allocate all such expenses in an equitable manner.

4.4 Calculation and Payment of Additional Rent. Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1, below, and as Additional Rent, Tenant’s Share of Direct Expenses for each Expense Year.

4.4.1 Statement of Actual Direct Expenses and Payment by Tenant. Landlord shall use commercially reasonable efforts to give to Tenant within one hundred twenty (120) days following the end of each Expense Year, a statement (the “Statement”) which shall state the Direct Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount of Tenant’s Share of Direct Expenses. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, Tenant shall pay, with its next installment of Base Rent due, the full amount of Tenant’s Share of Direct Expenses for such Expense Year, less the amounts, if any, paid during such Expense Year as “Estimated Direct Expenses,” as that term is defined in Section 4.4.2, below, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant’s Share of Direct Expenses, Tenant shall receive a credit in the amount of Tenant’s overpayment against Rent next due under this Lease. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 4. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Direct Expenses for the Expense Year in which this Lease terminates, Tenant shall immediately pay to Landlord such amount, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant’s Share of Direct Expenses, Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of the overpayment. The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of the Lease Term.

4.4.2 Statement of Estimated Direct Expenses. In addition, Landlord shall use commercially reasonable efforts to give to Tenant within one hundred twenty (120) days following the end of each Expense Year a yearly expense estimate statement (the “Estimate Statement”) which shall set forth Landlord’s reasonable estimate (the “Estimate”) of what the total amount of Direct Expenses for the then-current Expense Year shall be and the estimated Tenant’s Share of Direct Expenses (the “Estimated Direct Expenses”). The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Direct Expenses under this Article 4, nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Direct Expenses theretofore delivered to the extent necessary. Thereafter, Tenant shall pay, with its next installment of Base Rent due, a fraction of the Estimated Direct Expenses for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 4.4.2). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such


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payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Direct Expenses set forth in the previous Estimate Statement delivered by Landlord to Tenant.

4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible. Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against Tenant’s equipment, furniture, fixtures and any other personal property located in or about the Premises. If any such taxes on Tenant’s equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

4.6 Audit of Direct Expenses. Upon Tenant’s written request (an “Audit Request”) given not more than sixty (60) days after Tenant’s receipt of a Statement for a particular Expense Year, and provided that Tenant is not then in default under this Lease, Landlord shall furnish Tenant with such reasonable supporting documentation in connection with said Direct Expenses. Landlord shall provide said information to Tenant within sixty (60) days after Tenant’s written request therefor. Within sixty (60) days after receipt of such information by Tenant (the “Review Period”), if Tenant disputes the amount of Direct Expenses set forth in the Statement, an independent certified public accountant (which accountant (A) is a certified public accountant, (B) is a member of a nationally recognized accounting firm, (C) is not working on a contingency fee basis, and (D) is reasonably acceptable to, and approved by Landlord (which approval shall not be unreasonably withheld or delayed)), designated and paid for by Tenant, may, after reasonable notice to Landlord and at reasonable times, inspect Landlord’s records with respect to the Statement at Landlord’s offices, provided that Tenant is not then in default under this Lease and Tenant has paid all amounts required to be paid under the applicable Estimate Statement and Statement, as the case may be. In connection with such inspection, Tenant and Tenant’s agents must agree in advance to follow Landlord’s reasonable rules and procedures regarding inspections of Landlord’s records, and shall execute a commercially reasonable confidentiality agreement regarding such inspection. Tenant’s failure to dispute the amount of Direct Expenses set forth in any Statement within the Review Period shall be deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives the right or ability to dispute the amounts set forth in such Statement. If after such inspection, Tenant still disputes such Additional Rent, a determination as to the proper amount shall be made, at Tenant’s expense, by an independent certified public accountant (the “Accountant”) selected by Landlord and subject to Tenant’s reasonable approval; provided that if such determination by the Accountant proves that Direct Expenses were overstated by more than five percent (5%), then the cost of the Accountant and the cost of such determination shall be paid for by Landlord with interest at the “Default Rate,” as that term is defined in Article 25, below. If the parties agree or the Accountant determines that Tenant’s payments of Direct Expenses for such calendar year were in excess of the actual Direct Expenses for such calendar year, then Landlord shall, at Landlord’s option, either (a) credit such excess to Tenant’s next succeeding installment(s) of Estimated Direct Expenses until such excess has been exhausted, or (b) deliver a check payable to Tenant in the amount of such excess within thirty (30) days after such agreement or determination. If the parties agree or the Accountant determines that Tenant’s payments of Direct Expenses for such calendar year were less than the actual Direct Expenses, then Tenant shall pay the deficiency to Landlord within thirty (30) days after such agreement or determination. Tenant hereby acknowledges that Tenant’s sole right to inspect Landlord’s books and records and to contest the amount of Direct Expenses payable by Tenant shall be as set forth in this Section 4.6, and Tenant hereby waives any and all other rights pursuant to applicable law to inspect such books and records and/or to contest the amount of Direct Expenses payable by Tenant.

5. USE OF PREMISES

5.1 Permitted Use. Tenant shall use the Premises solely for the Permitted Use set forth in Section 7 of the Summary and Tenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord’s sole discretion.


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5.2 Prohibited Uses. Tenant further covenants and agrees that Tenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project) including, without limitation, any such laws, ordinances, regulations or requirements relating to hazardous materials or substances, as those terms are defined by Applicable Laws now or hereafter in effect, or any Underlying Documents. Landlord shall have the right to impose reasonable and customary rule and regulations (which shall be enforced by Landlord in a non-discriminatory manner) regarding the use of the Project, as reasonably deemed necessary by Landlord with respect to the orderly operation of the Project, and Tenant shall comply with such reasonable rules and regulations. Tenant shall not do or permit anything to be done in or about the Premises which will in any way damage the reputation of the Project or obstruct or interfere with the rights of other tenants or occupants of the Building, or injure or annoy them or use or allow the Premises to be used for any improper, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall comply with, and Tenant’s rights and obligations under the Lease and Tenant’s use of the Premises shall be subject and subordinate to, all recorded easements, covenants, conditions, and restrictions now or hereafter affecting the Project; provided, however, no Underlying Documents or any documents referenced in this sentence recorded or otherwise enacted by Landlord after the date of this Lease will materially increase Tenant’s monetary obligations or decrease Tenant’s rights pursuant to this Lease.

5.3 Hazardous Materials.

5.3.1 Tenant’s Obligations.

5.3.1.1 Prohibitions. As a material inducement to Landlord to enter into this Lease with Tenant, Tenant has fully and accurately completed Landlord’s Pre-Leasing Environmental Exposure Questionnaire (the “Environmental Questionnaire”), which is attached as Exhibit F. Tenant agrees that except for those chemicals or materials, and their respective quantities, specifically listed on the Environmental Questionnaire, neither Tenant nor Tenant’s employees, contractors and subcontractors of any tier, entities with a contractual relationship with Tenant (other than Landlord), or any entity acting as an agent or sub-agent of Tenant (collectively, “Tenant’s Agents”) will produce, use, store or generate any “Hazardous Materials,” as that term is defined below, on, under or about the Premises, nor cause or permit any Hazardous Material to be brought upon, placed, stored, manufactured, generated, blended, handled, recycled, used or “Released,” as that term is defined below, on, in, under or about the Premises. If any information provided to Landlord by Tenant on the Environmental Questionnaire, or otherwise relating to information concerning Hazardous Materials is false, incomplete, or misleading in any material respect, the same shall be deemed a default by Tenant under this Lease. Upon request by Landlord, Tenant shall deliver to Landlord an updated Environmental Questionnaire at least once a year; provided that, regardless of whether such request is made by Landlord, Tenant shall deliver to Landlord an updated Environmental Questionnaire to the extent any information therein needs to be updated in any material respect, provided that “material” shall mean any changes in the Hazardous Materials usage including, but not limited to, in terms of their hazardous character, handling profile, usage and quantity. Landlord’s prior written consent shall be required to any Hazardous Materials use for the Premises not described on the initial Environmental Questionnaire, such consent to be withheld in Landlord’s sole discretion. Tenant shall not install or permit any underground storage tank on the Premises. For purposes of this Lease, “Hazardous Materials” means all flammable explosives, petroleum and petroleum products, waste oil, radon, radioactive materials, toxic pollutants, asbestos, polychlorinated biphenyls (“PCBs”), medical waste, chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, including without limitation any chemical, element, compound, mixture, solution, substance, object, waste or any combination thereof, which is or may be hazardous to human health, safety or to the environment due to its radioactivity, ignitability, corrosiveness, reactivity, explosiveness, toxicity, carcinogenicity, infectiousness or other harmful or potentially harmful properties or effects, or defined as, regulated as or included in, the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” or “toxic substances” under any Environmental Laws. The term “Hazardous Materials” for purposes of this Lease shall also include any mold, fungus or spores, whether or not the same is defined, listed, or otherwise classified as a “hazardous material” under any Environmental Laws, if such mold, fungus or spores may pose a risk to human health or the environment or negatively impact the value of the Premises. For purposes of this Lease, “Release” or “Released” or “Releases” shall mean any release,


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deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing, or other movement of Hazardous Materials into the environment. Landlord represents and warrant to Tenant that, to Landlord’s actual knowledge, without duty of investigation or inquiry, there is no Hazardous Material on, in, or under the Premises as of the Lease Commencement Date in violation of Environmental Laws. For purposes of the foregoing, Landlords “actual knowledge” shall mean the current actual (as opposed to constructive) knowledge of Michael Dorris (“Landlord’s Representative”). No duty of inquiry or investigation on the part of Landlord or Landlord’s Representative will be required or implied by the making of any representation or warranty which is so limited to matters within Landlord’s actual knowledge, and in no event shall Landlord’s Representative have any personal liability therefor.

5.3.1.2 Notices to Landlord. Tenant shall notify Landlord in writing as soon as possible but in no event later than five (5) days after (i) the discovery (or the date Tenant should have discovered had Tenant acted in a reasonable and prudent manner) of any actual, alleged or threatened Release of any Hazardous Material in, on, under, from, about or in the vicinity of the Premises (whether past or present), regardless of the source or quantity of any such Release, or (ii) Tenant becomes aware of any regulatory actions, inquiries, inspections, investigations, directives, or any cleanup, compliance, enforcement or abatement proceedings (including any threatened or contemplated investigations or proceedings) relating to or potentially affecting the Premises, or (iii) Tenant becomes aware of any claims by any person or entity relating to any Hazardous Materials in, on, under, from, about or in the vicinity of the Premises, whether relating to damage, contribution, cost recovery, compensation, loss or injury. Collectively, the matters set forth in clauses (i), (ii) and (iii) above are hereinafter referred to as “Hazardous Materials Claims”. Tenant shall promptly forward to Landlord copies of all orders, notices, permits, applications and other communications and reports in connection with any Hazardous Materials Claims. Additionally, Tenant shall promptly advise Landlord in writing of Tenant’s discovery of any occurrence or condition on, in, under or about the Premises that could subject Tenant or Landlord to any liability, or restrictions on ownership, occupancy, transferability or use of the Premises under any “Environmental Laws,” as that term is defined below. Tenant shall not enter into any legal proceeding or other action, settlement, consent decree or other compromise with respect to any Hazardous Materials Claims without first notifying Landlord of Tenant’s intention to do so and affording Landlord the opportunity to join and participate, at Landlord’s sole cost and expense, as a party if Landlord so elects, in such proceedings and in no event shall Tenant enter into any agreements which are binding on Landlord or the Premises without Landlord’s prior written consent. Landlord shall have the right to appear at and participate in, any and all legal or other administrative proceedings concerning any Hazardous Materials Claim. For purposes of this Lease, “Environmental Laws” means all applicable present and future laws relating to the protection of human health, safety, wildlife or the environment, including, without limitation, (i) all requirements pertaining to reporting, licensing, permitting, investigation and/or remediation of emissions, discharges, Releases, or threatened Releases of Hazardous Materials, whether solid, liquid, or gaseous in nature, into the air, surface water, groundwater, or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials; and (ii) all requirements pertaining to the health and safety of employees or the public. Environmental Laws include, but are not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 USC § 9601, et seq., the Hazardous Materials Transportation Authorization Act of 1994, 49 USC § 5101, et seq., the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, and Hazardous and Solid Waste Amendments of 1984, 42 USC § 6901, et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USC § 1251, et seq., the Clean Air Act of 1966, 42 USC § 7401, et seq., the Toxic Substances Control Act of 1976, 15 USC § 2601, et seq., the Safe Drinking Water Act of 1974, 42 USC §§ 300f through 300j, the Occupational Safety and Health Act of 1970, as amended, 29 USC § 651 et seq., the Oil Pollution Act of 1990, 33 USC § 2701 et seq., the Emergency Planning and Community Right-To-Know Act of 1986, 42 USC § 11001 et seq., the National Environmental Policy Act of 1969, 42 USC § 4321 et seq., the Federal Insecticide, Fungicide and Rodenticide Act of 1947, 7 USC § 136 et seq., California Carpenter-Presley-Tanner Hazardous Substance Account Act, California Health & Safety Code §§ 25300 et seq., Hazardous Materials Release Response Plans and Inventory Act, California Health & Safety Code, §§ 25500 et seq., Underground Storage of Hazardous Substances provisions, California Health & Safety Code, §§ 25280 et seq., California Hazardous Waste Control Law, California Health & Safety Code, §§ 25100 et seq., and any other state or local law counterparts, as amended, as such Applicable Laws, are in effect as of the Lease Commencement Date, or thereafter adopted, published, or promulgated.


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5.3.1.3 Releases of Hazardous Materials. If any Release of any Hazardous Material in, on, under, from or about the Premises shall occur at any time during the Lease Term and/or if any other Hazardous Material condition exists at the Premises that requires response actions of any kind (other than Hazardous Materials brought onto the Premises by Landlord or Landlord’s agents or an Existing Hazardous Materials condition), in addition to notifying Landlord as specified above, Tenant, at its own sole cost and expense, shall (i) timely comply with any and all reporting requirements imposed pursuant to any and all Environmental Laws, (ii) provide a written certification to Landlord indicating that Tenant has complied with all applicable reporting requirements, (iii) take any and all necessary investigation, corrective and remedial action in accordance with any and all applicable Environmental Laws, utilizing an environmental consultant approved by Landlord, all in accordance with the provisions and requirements of this Section 5.3, including, without limitation, Section 5.3.4, and (iv) take any such additional investigative, remedial and corrective actions as necessary such that the Premises are remediated to the condition required by applicable Environmental Laws and which allows the Premises and Project to be used without any use restriction that was not applicable to the Project as of the date of this Lease.

5.3.1.4 Indemnification.

5.3.1.4.1 In General. Without limiting in any way Tenant’s obligations under any other provision of this Lease, Tenant shall be solely responsible for and shall protect, defend, indemnify and hold the Landlord Parties harmless from and against any and all claims, judgments, losses, damages, costs, expenses, penalties, enforcement actions, taxes, fines, remedial actions, liabilities (including, without limitation, actual attorneys’ fees, litigation, arbitration and administrative proceeding costs, expert and consultant fees and laboratory costs) including, without limitation, sums paid in settlement of claims, which arise during or after the Lease Term, whether foreseeable or unforeseeable, arising out of or attributable to the presence, use, generation, manufacture, treatment, handling, refining, production, processing, storage, Release or presence of Hazardous Materials in, on, under or about the Premises by Tenant or Tenant’s Agents. Landlord agrees to indemnify, defend, protect and hold harmless Tenant from and against any liability, obligation, damage or costs, including without limitation, attorneys’ fees and costs, resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials to the extent such liability, obligation, damage or costs was a result of actions caused or knowingly permitted by Landlord or a Landlord Party.

5.3.1.4.2 Limitations. Notwithstanding anything in Section 5.3.1.4, above, to the contrary, Tenant’s indemnity of Landlord as set forth in Section 5.3.1.4, above, shall not be applicable to (a) any claims that directly or indirectly arise from the activities of Landlord, its contractors or agents on or about the Premises after the Lease Commencement Date, and (b) claims based upon Hazardous Materials which may exist in, on or about the Premises as of the date of this Lease (“Existing Hazardous Materials”), except to the extent that Tenant’s construction activities and/or Tenant’s other acts or omissions caused or exacerbated the subject claim and Tenant had been notified in writing by Landlord of the particular Existing Hazardous Materials that is the subject of the claim (a “Tenant Caused Release Of Existing Hazardous Materials”).

5.3.1.5 Compliance with Environmental Laws. Without limiting the generality of Tenant’s obligation to comply with Applicable Laws as otherwise provided in this Lease, Tenant shall, at its sole cost and expense, comply with all Environmental Laws applicable to its use of the Premises; provided however that Tenant shall not be liable for or obligated to remove or remediate any Existing Hazardous Materials (other than a Tenant Caused Release of Existing Hazardous Materials) or Hazardous Materials brought onto the Premises by Landlord or Landlord’s agents. Tenant shall obtain and maintain any and all necessary permits, licenses, certifications and approvals appropriate or required for the use, handling, storage, and disposal of any Hazardous Materials used, stored, generated, transported, handled, blended, or recycled by Tenant on the Premises. Landlord shall have a continuing right, without obligation, to require Tenant to obtain, and to review and inspect any and all such permits, licenses, certifications and approvals, together with copies of any and all Hazardous Materials management plans and programs, any and all Hazardous Materials risk management and pollution prevention programs, and any and all Hazardous Materials emergency response and employee training programs respecting Tenant’s use of Hazardous Materials. Upon request of Landlord, Tenant shall deliver to Landlord a narrative description explaining the nature and scope of Tenant’s activities involving Hazardous Materials and showing to Landlord’s satisfaction compliance with all Environmental Laws and the terms of this Lease.


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5.3.2 Assurance of Performance.

5.3.2.1 Environmental Assessments In General. Landlord may, but shall not be required to, engage from time to time such contractors as Landlord determines to be appropriate to perform environmental assessments of a scope reasonably determined by Landlord (an “Environmental Assessment”) to ensure Tenant’s compliance with the requirements of this Lease with respect to Hazardous Materials. Such Environmental Assessments shall be performed by a competent and experienced environmental engineer.

5.3.2.2 Costs of Environmental Assessments. All costs and expenses incurred by Landlord in connection with any such Environmental Assessment initially shall be paid by Landlord; provided that if any such Environmental Assessment shows that Tenant has failed to comply with the provisions of this Section 5.3, then all of the costs and expenses of such Environmental Assessment shall be reimbursed by Tenant as Additional Rent within ten (10) days after receipt of written demand therefor.

5.3.3 Tenant’s Obligations upon Surrender. At the expiration or earlier termination of the Lease Term, Tenant, at Tenant’s sole cost and expense, shall: (i) cause an Environmental Assessment of the Premises to be conducted in accordance with Section 15.3; (ii) to the extent required by Environmental Laws, cause all Hazardous Materials to be removed from the Premises and disposed of in accordance with all Environmental Laws and as necessary to allow the Premises to be used for any purpose; and (iii) cause to be removed all containers installed or used by Tenant or Tenant’s Agents to store any Hazardous Materials on the Premises, and cause to be repaired any damage to the Premises caused by such removal.

5.3.4 Clean-up.

5.3.4.1 Environmental Reports; Clean-Up. If any written report containing results of any Environmental Assessment (an “Environmental Report”) shall indicate (i) the presence of any Hazardous Materials as to which either Tenant or Landlord has a removal or remediation obligation under this Section 5.3, and (ii) that as a result of same, the investigation, characterization, monitoring, assessment, repair, closure, remediation, removal, or other clean-up (the “Clean-up”) of any Hazardous Materials is required, Tenant shall immediately prepare and submit to Landlord within thirty (30) days after receipt of the Environmental Report a comprehensive plan, subject to Landlord’s reasonable written approval, specifying the actions to be taken by Tenant to perform the Clean-up so that the Premises are restored to the conditions required by this Lease. Upon Landlord’s approval of the Clean-up plan which shall not be unreasonably withheld, delayed or conditioned, Tenant shall, if the Clean-up is necessitated by Tenant’s (or a Tenant Party’s) act or omission, at Tenant’s sole cost and expense, without limitation on any rights and remedies of Landlord under this Lease, immediately implement such plan with a consultant reasonably acceptable to Landlord and proceed to Clean-Up Hazardous Materials in accordance with all Applicable Laws and as required by such plan and this Lease. If the Clean-up is necessitated by Landlord’s act or omission or in connection with Existing Hazardous Materials, the Clean-up shall be completed by Landlord at Landlord’s sole cost and expense. If, within thirty (30) days after receiving a copy of such Environmental Report, Tenant fails either (a) to complete such Clean-up, or (b) with respect to any Clean-up that cannot be completed within such thirty-day period, fails to proceed with diligence to prepare the Clean-up plan and complete the Clean-up as promptly as practicable, then Landlord shall have the right, but not the obligation, and without waiving any other rights under this Lease, to carry out any Clean-up recommended by the Environmental Report or required by any governmental authority having jurisdiction over the Premises, and recover all of the costs and expenses thereof from Tenant as Additional Rent, payable within ten (10) days after receipt of written demand therefor. If an Environmental Report indicates that Clean-up of any Existing Hazardous Materials (other than a Tenant Caused Release of Existing Hazardous Materials) which is required by Environmental Laws, then Landlord, at its sole cost and expense, shall notify Tenant of, and thereafter implement, Landlord’s Clean-up plan, which Clean-up plan, including the scope and timing thereof, shall cause the Premises to be restored substantially in the condition existing prior to commencing Landlord’s Clean-up plan.

5.3.4.2 Rent Abatement. Tenant shall continue to pay all Rent due or accruing under this Lease during any Clean-up of Hazardous Materials as to which Tenant has a removal or remediation obligation under this Section 5.3, and shall not be entitled to any reduction, offset or deferral of any Base Rent or Additional Rent due or accruing under this Lease during any such Clean-up. During the Clean-up of Existing Hazardous Materials


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as to which Landlord has a removal or remediation obligation under this Section 5.3, Landlord may temporarily close all or a portion of the Premises to facilitate the Clean-up, and the provisions regarding Rent abatement set forth in Section 19.5.2 shall apply thereto except that Tenant shall not be required to provide notice to Landlord and the applicable abatement shall commence on the first day that all or a portion of the Premises are closed.

5.3.4.3 Surrender of Premises. Tenant shall complete any Clean-up prior to surrender of the Premises upon the expiration or earlier termination of this Lease. Tenant shall obtain and deliver to Landlord a letter or other written determination from the overseeing governmental authority confirming that the Clean-up has been completed in accordance with all requirements of such governmental authority and that no further response action of any kind is required for the unrestricted use of the Premises (“Closure Letter”). Upon the expiration or earlier termination of this Lease, Tenant shall also be obligated to close all permits obtained in connection with Hazardous Materials in accordance with Applicable Laws.

5.3.4.4 Failure to Timely Clean-Up. Should any Clean-up for which Tenant is responsible not be completed, or should Tenant not receive the Closure Letter and any governmental approvals required under Environmental Laws in conjunction with such Clean-up prior to the expiration or earlier termination of this Lease, then Tenant shall be liable to Landlord as a holdover tenant (as more particularly provided in Article 16) until Tenant has fully complied with its obligations under this Section 5.3.

5.3.5 Confidentiality. Unless compelled to do so by applicable law, Tenant agrees that Tenant shall not disclose, discuss, disseminate or copy any information, data, findings, communications, conclusions and reports regarding the environmental condition of the Premises to any Person (other than Tenant’s consultants, attorneys, property managers and employees that have a need to know such information), including any governmental authority, without the prior written consent of Landlord. In the event Tenant reasonably believes that disclosure is compelled by applicable law, it shall provide Landlord five (5) days’ advance notice of disclosure of confidential information so that Landlord may, at its own cost, attempt to obtain a protective order. Tenant may additionally release such information to bona fide prospective purchasers or lenders, subject to any such parties’ written agreement to be bound by the terms of this Section 5.3.

5.3.6 Copies of Environmental Reports. Within thirty (30) days of receipt thereof, Tenant shall provide Landlord with a copy of any and all environmental assessments, audits, studies and reports regarding Tenant’s activities with respect to the Premises, or ground water beneath the Land, or the environmental condition or Clean-up thereof. Tenant shall be obligated to provide Landlord with a copy of such materials without regard to whether such materials are generated by Tenant or prepared for Tenant, or how Tenant comes into possession of such materials.

5.3.7 Intentionally Omitted.

5.3.8 Signs, Response Plans, Etc. Tenant shall be responsible for posting on the Premises any signs required under applicable Environmental Laws. Tenant shall also complete and file any business response plans or inventories required by any Applicable Laws. Tenant shall concurrently file a copy of any such business response plan or inventory with Landlord.

5.3.9 Survival. Each covenant, agreement, representation, warranty and indemnification made by each of Tenant and Landlord set forth in this Section 5.3 shall survive the expiration or earlier termination of this Lease and shall remain effective until all of Tenant’s obligations under this Section 5.3 have been completely performed and satisfied.

5.4 Fitness Center. Landlord and Tenant hereby acknowledge that Landlord shall operate a fitness center (the “Fitness Center”) in the Project, and, for so long as Landlord continues to operate the Fitness Center, the use of the Fitness Center shall be limited to Tenant and Tenant’s employees. Landlord reserves the right to control the manner in which the Fitness Center is maintained and operated (including the requirement, if applicable, that Tenant’s employees using the Fitness Center execute Landlord’s standard waiver form), and to make alterations or additions to, to relocate or to entirely eliminate the Fitness Center. In the event that Tenant requests Landlord to provide any


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extra services in connection with Tenant’s use of the Fitness Center Tenant shall pay Landlord’s standard charge for such service(s) requested by Tenant. Tenant shall comply with such reasonable rules and regulations relating to the Fitness Center as Landlord may from time to time promulgate. Tenant’s use of the Fitness Center shall be without direct charge or cost to Tenant; provided, however, Tenant acknowledges and agrees that Landlord shall have the right to include in Direct Expenses all costs incurred in connection with the operation and maintenance of the Fitness Center.

6. SERVICES AND UTILITIES

6.1 In General. Tenant will be responsible, at its sole cost and expense, for the furnishing of all services and utilities to the Premises (provided that Landlord and Tenant shall reasonably cooperate in good faith to cause any such utility provider to provide such utility to the point of entry into the Building; provided further that if any such utility provider is not responsible to make any repairs required to provide such utility to the point of entry into the Building, then Landlord shall use commercially reasonable efforts to repair (or cause to be repaired) such utility in order to provide the same to the point of entry into the Building), including, but not limited to heating, ventilation and air-conditioning, electricity, water, telephone, janitorial and interior Building security services.

6.1.1 All utilities (including without limitation, electricity, gas, sewer and water) to the Building are separately metered at the Premises and shall be paid directly by Tenant to the applicable utility provider.

6.1.2 Landlord shall not provide janitorial services for the Premises. Tenant shall be solely responsible for performing all janitorial services and other cleaning of the Premises, all in compliance with Applicable Laws. The janitorial and cleaning of the Premises shall be adequate to maintain the Premises in a manner consistent with First Class Life Sciences Projects.

Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems. Provided that Landlord agrees to provide and maintain and keep in continuous service utility connections to the Project, including electricity, water and sewage connections, Landlord shall have no obligation to provide any services or utilities to the Building, including, but not limited to heating, ventilation and air-conditioning, electricity, water, telephone, janitorial and interior Building security services.

6.2 Interruption of Use. Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent (except as specifically set forth in Section 19.5.2 of this Lease) or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent (except as specifically set forth in Section 19.5.2 of this Lease) or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6.

6.3 Energy Performance Disclosure Information. Tenant hereby acknowledges that Landlord may be required to disclose certain information concerning the energy performance of the Building pursuant to California Public Resources Code Section 25402.10 and the regulations adopted pursuant thereto (collectively the “Energy Disclosure Requirements”). Tenant hereby acknowledges prior receipt of the Data Verification Checklist, as defined in the Energy Disclosure Requirements (the “Energy Disclosure Information”), and agrees that Landlord has timely complied in full with Landlord’s obligations under the Energy Disclosure Requirements. Tenant acknowledges and agrees that (i) Landlord makes no representation or warranty regarding the energy performance of the Building or the accuracy or completeness of the Energy Disclosure Information, (ii) the Energy Disclosure Information is for the


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current occupancy and use of the Building and that the energy performance of the Building may vary depending on future occupancy and/or use of the Building, and (iii) Landlord shall have no liability to Tenant for any errors or omissions in the Energy Disclosure Information. If and to the extent not prohibited by Applicable Laws, Tenant hereby waives any right Tenant may have to receive the Energy Disclosure Information, including, without limitation, any right Tenant may have to terminate this Lease as a result of Landlord’s failure to disclose such information. Further, Tenant hereby releases Landlord from any and all losses, costs, damages, expenses and/or liabilities relating to, arising out of and/or resulting from the Energy Disclosure Requirements, including, without limitation, any liabilities arising as a result of Landlord’s failure to disclose the Energy Disclosure Information to Tenant prior to the execution of this Lease. Tenant’s acknowledgment of the AS-IS condition of the Premises pursuant to the terms of this Lease shall be deemed to include the energy performance of the Building. Tenant further acknowledges that pursuant to the Energy Disclosure Requirements, Landlord may be required in the future to disclose information concerning Tenant’s energy usage to certain third parties, including, without limitation, prospective purchasers, lenders and tenants of the Building (the “Tenant Energy Use Disclosure”). Tenant hereby (A) consents to all such Tenant Energy Use Disclosures, and (B) acknowledges that Landlord shall not be required to notify Tenant of any Tenant Energy Use Disclosure. Further, Tenant hereby releases Landlord from any and all losses, costs, damages, expenses and liabilities relating to, arising out of and/or resulting from any Tenant Energy Use Disclosure. The terms of this Section 6.3 shall survive the expiration or earlier termination of this Lease.

6.4 Tenant Maintained Security. Tenant hereby acknowledges that Landlord shall have no obligation to provide, or otherwise pay for, any guard service or other security measures for the benefit of the Premises or the Project. Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed. In accordance with, initially, the terms and conditions of the Tenant Work Letter attached hereto as Exhibit B, or thereafter the terms and conditions of Article 8 of this Lease, Tenant shall be allowed, at Tenant’s sole cost and expense, to install its own integrated security systems for the Premises.

7. REPAIRS

7.1 Tenant Repair Obligations. Subject to Landlord’s obligations under Section 1.1.4, above, Tenant shall, throughout the Term, at its sole cost and expense, maintain, repair, replace and improve as required, the non-structural portion of the interior of the Premises and Building and every part thereof in a good standard of maintenance, repair and replacement as required, and in good and sanitary condition, all in accordance with the standards of First Class Life Sciences Projects, except for “Landlord Repair Obligations,” as that term is defined in Section 7.4, below, whether or not such maintenance, repair, replacement or improvement is required in order to comply with applicable Laws (“Tenant’s Repair Obligations”), including, without limitation, the following: (1) glass, windows, window frames, window casements (including the repairing, resealing, cleaning and replacing of both interior and exterior windows) and skylights; (2) interior and exterior doors, door frames and door closers; (3) interior lighting (including, without limitation, light bulbs and ballasts); (4) the plumbing, sewer, drainage, electrical, fire protection, elevator, escalator, life safety and security systems and equipment, existing heating, ventilation and air-conditioning systems, and all other mechanical, electrical and communications systems and equipment (collectively, the “Building Systems”), including without limitation (i) any specialty or supplemental Building Systems installed by or for Tenant and (ii) all electrical facilities and equipment, including lighting fixtures, lamps, fans and any exhaust equipment and systems, electrical motors and all other appliances and equipment of every kind and nature located in, upon or about the Premises; (5) all communications systems serving the Premises; (6) all of Tenant’s security systems in or about or serving the Premises; (7) Tenant’s signage; (8) interior demising walls and partitions (including painting and wall coverings), equipment, floors, and any roll-up doors, ramps and dock equipment within, or a part of, the Premises; and (9) the non-structural portions of the roof of the Building. Tenant’s Repair Obligations also includes the routine maintenance of the load bearing and exterior walls of the Building, including, without limitation, any painting, sealing, patching and waterproofing of such walls. Tenant shall additionally be responsible, at Tenant’s sole cost and expense, to furnish all expendables, including light bulbs, paper goods and soaps, used in the Premises, and, to the extent that Landlord notifies Tenant in writing of its intention to no longer arrange for such monitoring, cause the fire alarm systems serving the Premises to be monitored by a monitoring or protective services firm approved by Landlord in writing.


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7.2 Service Contracts. All Building Systems, including HVAC, elevators, main electrical, plumbing and fire/life-safety systems, shall be maintained, repaired and replaced by Tenant (i) in a commercially reasonable condition consistent with prevalent industry practices, (ii) in accordance with any applicable manufacturer specifications relating to any particular component of such Building Systems, (iii) in accordance with Applicable Laws. Tenant shall contract with a qualified, experienced professional third party service companies (a “Service Contract”). Tenant shall regularly, in accordance with commercially reasonable standards, generate and maintain preventive maintenance records relating to each Building’s mechanical and main electrical systems, including life safety, elevators and the central plant (“Preventative Maintenance Records”). In addition, upon Landlord’s request, Tenant shall deliver a copy of all current Service Contracts to Landlord and/or a copy of the Preventative Maintenance Records.

7.3 Landlord’s Right to Perform Tenant’s Repair Obligations. Tenant shall notify Landlord in writing at least ten (10) days prior to performing any material Tenant’s Repair Obligations, including without limitation, any Tenant’s Repair Obligation which affect the Building Systems or which is reasonably anticipated to cost more than $100,000.00, which notice will provide the reasonably anticipated schedule for completion of such repair. Upon receipt of such notice from Tenant, Landlord shall have the right to either (i) perform such material Tenant’s Repair Obligation materially on the same schedule set by Tenant for such repair by delivering notice of such election to Tenant within ten (10) days following receipt of Tenant’s notice, and Tenant shall pay Landlord the cost thereof (including Landlord’s reasonable supervision fee) within thirty (30) days after receipt of an invoice therefor, or (ii) require Tenant to perform such Tenant’s Repair Obligation at Tenant’s sole cost and expense. If Tenant fails to perform any Tenant’s Repair Obligation within a reasonable time period, as reasonably determined by Landlord, then Landlord may, but need not, following delivery of notice to Tenant of such election, make such Tenant Repair Obligation, and Tenant shall pay Landlord the cost thereof, (including Landlord’s reasonable supervision fee) within thirty (30) days after receipt of an invoice therefor.

7.4 Landlord Repair Obligations. Landlord shall maintain, repair, replace and improve as required, the exterior walls, foundation and roof of the Building, the structural portions of the floors of the Building, except to the extent that such repairs are required due to the negligence or willful misconduct of Tenant (the “Landlord Repair Obligation”); provided, however, that if such repairs are due to the negligence or willful misconduct of Tenant, Landlord shall nevertheless make such repairs at Tenant’s expense, or, if covered by Landlord’s insurance, Tenant shall only be obligated to pay any deductible in connection therewith.

8. ADDITIONS AND ALTERATIONS

8.1 Landlord’s Consent to Alterations. Tenant may not make any improvements, alterations, additions or changes to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the “Alterations”) without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is visible from the exterior of the Building. Notwithstanding the foregoing, Tenant shall be permitted to make Alterations following ten (10) business days’ notice to Landlord, but without Landlord’s prior consent, to the extent that such Alterations (i) do not affect the building systems or equipment, (ii) are not visible from the exterior of the Building, and (iii) cost less than $100,000.00 for a particular job of work. The construction of the initial improvements to the Premises (the “Tenant Improvements”) shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 8.

8.2 Manner of Construction. Landlord may impose, as a condition of its consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that in accordance with the terms of Section 8.5, below, Tenant shall, at Tenant’s expense, remove such Alterations upon the expiration or any early termination of the Lease Term. Tenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, issued by the city in which the Building is located (or other applicable governmental authority).


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Tenant shall use commercially reasonable efforts not TO use contractors, services, workmen or labor that, in Landlord’s reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas and in the event of any actual such labor disharmony, upon notice from Landlord, Tenant shall cease using such contractors, services, workmen or labor. Upon completion of any Alterations (or repairs), Tenant shall deliver to Landlord final lien waivers from all contractors, subcontractors and materialmen who performed such work. In addition to Tenant’s obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of San Diego in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, and Tenant shall deliver to the Project construction manager a reproducible copy of the “as built” drawings of the Alterations as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.

8.3 Payment for Improvements. If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount equal to five percent (5%) of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord’s involvement with such work. If Tenant does not order any work directly from Landlord, Tenant shall reimburse Landlord for Landlord’s reasonable, actual, out-of-pocket costs and expenses actually incurred in connection with Landlord’s review of such work.

8.4 Construction Insurance. In addition to the requirements of Article 10 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with evidence that Tenant carries “Builder’s All Risk” insurance in an amount approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, Tenant’s contractors and subcontractors shall be required to carry (i) Commercial General Liability Insurance in an amount approved by Landlord, with Landlord, and, at Landlord’s option, Landlord’s property manager and project manager, as additional insureds in an amount approved by Landlord, and otherwise in accordance with the requirements of Article 10 of this Lease, and (ii) workers compensation insurance with a waiver of subrogation in favor of Landlord. Landlord may, in its reasonable judgment taking into consideration the anticipated cost of such Alteration and Tenant’s then financial wherewithal, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee. For purposes of determining the cost of an Alteration, work done in phases or stages shall be considered part of the same Alteration, and any Alteration shall be deemed to include all trades and materials involved in accomplishing a particular result.

8.5 Landlord’s Property. All Alterations, improvements, fixtures, equipment and/or appurtenances which may be installed or placed in or about the Premises by or on behalf of Tenant, from time to time, shall be at the sole cost of Tenant and shall be and become the property of Landlord and remain in place at the Premises following the expiration or earlier termination of this Lease. Notwithstanding the foregoing, Landlord may, by written notice to Tenant prior to the end of the Lease Term, or given following any earlier termination of this Lease, require Tenant, at Tenant’s expense, to remove any Alterations and/or improvements and/or systems and equipment within the Premises and to repair any damage to the Premises and Building caused by such removal; provided; however, that notwithstanding the foregoing, upon request by Tenant at the time of Tenant’s request for Landlord’s consent to any Alteration or improvement, Landlord shall notify Tenant whether the applicable Alteration or improvement will be required to be removed pursuant to the terms of this Section 8.5 and whether Tenant will be required to restore any portion of the Premises affected by such removal, and Tenant shall have no removal or restoration obligations for Alterations or improvements identified in such notice as not requiring removal by Landlord. If Tenant fails to complete any required removal and/or to repair any damage caused by the removal of any Alterations and/or improvements and/or systems and equipment in the Premises and return the affected portion of the Premises to a condition required by Landlord (subject to the immediately preceding sentence), Landlord may do so and may charge the cost thereof to Tenant. Tenant hereby protects, defends, indemnifies and holds Landlord harmless from any liability, cost, obligation, expense or claim of lien in any manner relating to the installation, placement, removal or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the Premises, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.


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9. COVENANT AGAINST LIENS Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials furnished or obligations incurred by or on behalf of Tenant, and shall protect, defend, indemnify and hold Landlord harmless from and against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys’ fees and costs) arising out of same or in connection therewith. Tenant shall give Landlord notice at least twenty (20) days prior to the commencement of any such work on the Premises (or such additional time as may be necessary under Applicable Laws) to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility (to the extent applicable pursuant to then Applicable Laws). Tenant shall remove any such lien or encumbrance by bond or otherwise within ten (10) business days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof.

10. INSURANCE

10.1 Indemnification and Waiver. Subject to the waiver of subrogation provisions set forth in Section 10.5, and except to the extent arising from the gross negligence or willful misconduct of Landlord or the “Landlord Parties,” as that term is defined below, or Landlord’s breach of this Lease, Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever and agrees that Landlord, its partners, subpartners and their respective officers, agents, servants, employees, lenders, any property manager and independent contractors (collectively, “Landlord Parties”) shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant. Except to the extent arising from the gross negligence or willful misconduct of Landlord or the Landlord Parties or Landlord’s breach of this Lease, Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all claims, loss, cost, damage, injury, expense and liability (including without limitation court costs and reasonable attorneys’ fees) incurred in connection with or arising from any cause in, on or about the Premises, any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, invitees, guests or licensees of Tenant or any such person, in, on or about the Project or any breach of the terms of this Lease, either prior to, during, or after the expiration of the Lease Term. Landlord shall indemnify, defend, protect, and hold Tenant harmless from any and all loss, cost, damage, expense and liability (including without limitation reasonable attorneys’ fees) to the extent arising from the gross negligence or willful misconduct of Landlord or any Landlord Parties in, on or about the Project, except to the extent caused by the negligence or willful misconduct of the Tenant Parties. Notwithstanding anything to the contrary set forth in this Lease, either party’s agreement to indemnify the other party as set forth in this Section 10.1 shall be ineffective to the extent the matters for which such party agreed to indemnify the other party are covered by insurance required to be carried by the non-indemnifying party pursuant to this Lease. Further, Tenant’s agreement to indemnify Landlord and Landlord’s agreement to indemnify Tenant pursuant to this Section 10.1 are not intended to and shall not relieve any insurance carrier of its obligations under policies required to be carried pursuant to the provisions of this Lease, to the extent such policies cover, or if carried, would have covered the matters, subject to the parties’ respective indemnification obligations; nor shall they supersede any inconsistent agreement of the parties set forth in any other provision of this Lease. Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant’s occupancy of the Premises, Tenant shall pay to Landlord its reasonable costs and expenses incurred in such suit, including without limitation, its actual professional fees such as reasonable appraisers’, accountants’ and attorneys’ fees. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination.

10.2 Tenant’s Compliance With Landlord’s Property Insurance. Landlord shall insure the Building during the Lease Term against loss or damage under a building property and general liability insurance policy. Such coverage shall be in such amounts, from such companies, and on such other terms and conditions, as Landlord may from time to time reasonably determine. Additionally, at the option of Landlord, such insurance coverage may include the risks of earthquakes and/or flood damage and additional hazards, a rental loss endorsement and one or more loss payee endorsements in favor of the holders of any mortgages or deeds of trust encumbering the interest of Landlord in the Building or the ground or underlying lessors of the Building, or any portion thereof. Tenant shall, at Tenant’s expense, comply with all insurance company requirements pertaining to the use of the Premises. If Tenant’s conduct or use of the Premises causes any increase in the premium for such insurance policies then Tenant shall reimburse


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Landlord for any such increase. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

10.3 Tenant’s Insurance. Tenant shall maintain the following coverages in the following amounts.

10.3.1 From and after the earlier of (i) the date Tenant is provided early access to the Premises pursuant to Section 6.1 of the tenant Work Letter, and (ii) the Lease Commencement Date, Commercial General Liability Insurance on an occurrence form covering the insured against claims of bodily injury, personal injury and property damage (including loss of use thereof) arising out of Tenant’s operations, and contractual liabilities including a contractual coverage, and including products and completed operations coverage, for limits of liability on a per location basis of not less than:


Bodily Injury and	$2,000,000 each occurrence
Property Damage Liability	$2,000,000 annual aggregate
Personal Injury Liability	$2,000,000 each occurrence
	$2,000,000 annual aggregate

10.3.2 From and after the Lease Commencement Date, Property Insurance covering (i) all office furniture, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant, (ii) the “Tenant Improvements,” as that term is defined in the Tenant Work Letter, and (iii) all other improvements, alterations and additions to the Premises. Such insurance shall be written on an “all risks” of physical loss or damage basis, for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for damage or other loss caused by fire or other peril including, but not limited to, vandalism and malicious mischief, theft, sprinkler leakage, bursting or stoppage of pipes, and explosion. As used in this Lease, the “Base Building” shall include the structural portions of the Building, and the elevators, exit stairwells and the systems and equipment located in the internal core of the Building.

10.3.3 From and after the Lease Commencement Date, Business Income Interruption for one (1) year plus Extra Expense insurance in such amounts as will reimburse Tenant for actual direct or indirect loss of earnings attributable to the risks outlined in Section 10.3.2 above, up to the Tenant’s blanket coverage limit for business interruption insurance of $8,395,000.

10.3.4 From and after the earlier of (i) the date Tenant is provided early access to the Premises pursuant to Section 6.1 of the tenant Work Letter, and (ii) the Lease Commencement Date, Worker’s Compensation and Employer’s Liability or other similar insurance pursuant to all applicable state and local statutes and regulations. The policy shall include a waiver of subrogation in favor of Landlord, its employees, Lenders and any property manager or partners.

10.4 Form of Policies. The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) name Landlord, its subsidiaries and affiliates, its property manager (if any) and any other party the Landlord so specifies, as an additional insured, including Landlord’s managing agent (but only with regard to commercial liability and general property insurance), if any; (ii) be issued by an insurance company having a rating of not less than A:IX in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance required of Tenant; (v) be in form and content reasonably acceptable to Landlord; and (vi) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Landlord and any mortgagee of Landlord (unless such cancellation is the result of non-payment of premiums). Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Lease Commencement Date and at least ten (10) days before the expiration dates thereof. In the event Tenant shall fail to procure such


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insurance, or to deliver such policies or certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefor.

10.5 Subrogation. Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property or business interruption loss to the extent that such coverage is agreed to be provided hereunder. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right to the insured to recover thereunder. The parties agree that their respective insurance policies do now, or shall, contain the waiver of subrogation.

10.6 Additional Insurance Obligations. Tenant shall carry and maintain from the Lease Commencement Date, at Tenant’s sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant’s operations therein, as may be reasonably requested by Landlord or Landlord’s lender, but in no event in excess of the amounts and types of insurance then being required by landlords of buildings comparable to and in the vicinity of the Building.

11. DAMAGE AND DESTRUCTION

11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty. If the Premises or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11, restore the Base Building and such Common Areas. Such restoration shall be to substantially the same condition of the Base Building and the Common Areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or Project or any other modifications to the Common Areas deemed desirable by Landlord, which are consistent with the character of the Project, provided that access to the Premises shall not be materially impaired. Upon the occurrence of any damage to the Premises, upon notice (the “Landlord Repair Notice”) to Tenant from Landlord, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance required under Section 10.3 of this Lease, and Landlord shall repair any injury or damage to the Tenant Improvements installed in the Premises and shall return such Tenant Improvements to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, as assigned by Tenant, the excess cost of such repairs shall be paid by Tenant to Landlord in accordance with a reasonable progress payment schedule, or, in the event Tenant is not the Original Tenant, then prior to Landlord’s commencement of repair of the damage. In the event that Landlord does not deliver the Landlord Repair Notice within sixty (60) days following the date the casualty becomes known to Landlord, Tenant shall, at its sole cost and expense, repair any injury or damage to the Tenant Improvements installed in the Premises and shall return such Tenant Improvements to their original condition. Whether or not Landlord delivers a Landlord Repair Notice, prior to the commencement of construction, Tenant shall submit to Landlord, for Landlord’s review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant’s occupancy, and the Premises are not occupied by Tenant as a result thereof, then during the time and to the extent the Premises are unfit for occupancy, the Rent shall be abated in proportion to the ratio that the amount of rentable square feet of the Premises which is unfit for occupancy for the purposes permitted under this Lease bears to the total rentable square feet of the Premises. In the event that Landlord shall not deliver the Landlord Repair Notice, Tenant’s right to rent abatement pursuant to the preceding sentence shall terminate as of the date which is reasonably determined by Landlord to be the date Tenant should have completed repairs to the Premises assuming Tenant used reasonable due diligence in connection therewith.

11.2 Landlord’s Option to Repair. Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, Building and/or Project, and instead terminate this Lease, by


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notifying Tenant in writing of such termination within forty-five (45) days after the date of discovery of the damage, such notice to include a termination date giving Tenant sixty (60) days to vacate the Premises, but Landlord may so elect only if the Building or Project shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Landlord’s reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or Project or ground lessor with respect to the Building or Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) the damage is not fully covered by Landlord’s insurance policies, after the payment by Landlord of any deductible under the applicable insurance policy in an amount up to Five Hundred Thousand and 00/100 Dollars ($500,000.00); (iv) Landlord decides to rebuild the Building or Common Areas so that they will be substantially different structurally or architecturally; (v) the damage occurs during the last twelve (12) months of the Lease Term; or (vi) any owner of any other portion of the Project, other than Landlord, does not intend to repair the damage to such portion of the Project; provided, however, that if Landlord does not elect to terminate this Lease pursuant to Landlord’s termination right as provided above, and the repairs cannot, in the reasonable opinion of Landlord, be completed within one hundred eighty (180) days after being commenced, Tenant may elect, no earlier than sixty (60) days after the date of the damage and not later than ninety (90) days after the date of such damage, to terminate this Lease by written notice to Landlord effective as of the date specified in the notice, which date shall not be less than thirty (30) days nor more than sixty (60) days after the date such notice is given by Tenant. Notwithstanding the provisions of this Section 11.2, Tenant shall have the right to terminate this Lease under this Section 11.2 only if each of the following conditions is satisfied: (a) the damage to the Project by fire or other casualty was not caused by the gross negligence or intentional act of Tenant or its partners or subpartners and their respective officers, agents, servants, employees, and independent contractors; (b) as a result of the damage, Tenant cannot reasonably conduct business from the Premises; and () as a result of the damage to the Project, Tenant does not occupy or use the Premises at all.

11.3 Waiver of Statutory Provisions. The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project.

12. NONWAIVER No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed thereby. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the full amount due. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant’s right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

13. CONDEMNATION If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord


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shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant’s personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not materially diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of The California Code of Civil Procedure. Notwithstanding anything to the contrary contained in this Article 13, in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.

14. ASSIGNMENT AND SUBLETTING

14.1 Transfers. Tenant shall not, without the prior written consent of Landlord, which will not be unreasonably withheld, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other than Tenant and its employees and contractors (all of the foregoing are hereinafter sometimes referred to collectively as “Transfers” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “Transferee”). If Tenant desires Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the “Transfer Notice”) shall include (i) the proposed effective date of the Transfer, which shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “Subject Space”), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the “Transfer Premium”, as that term is defined in Section 14.3 below, in connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, and (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information reasonably required by Landlord which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee’s business and proposed use of the Subject Space. Any Transfer made without Landlord’s prior written consent shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option, constitute a default by Tenant under this Lease. Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord’s reasonable review and processing fees, as well as any reasonable professional fees (including, without limitation, attorneys’, accountants’, architects’, engineers’ and consultants’ fees) incurred by Landlord, not to exceed Two Thousand and 00/100 Dollars ($2,000.00) for a Transfer in the ordinary course of business, within thirty (30) days after written request by Landlord.

14.2 Landlord’s Consent. Landlord shall not unreasonably withhold, condition or delay its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply:

14.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project;

14.2.2 The Transferee is either a governmental agency or instrumentality thereof;


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14.2.3 (A) If the Transferee is an assignee, the Transferee, (i) if such Transferee is a public company, has a market capitalization less than Tenant’s market capitalization as of the date of this Lease (which the parties hereby agree is $2,000,000,000.00) (“Tenant’s Market Capitalization”), and (ii) if such Transferee is not a public company, has a tangible net worth (not including goodwill as an asset) computed in accordance with generally accepted accounting principles which is less than the equivalent to Tenant’s Market Capitalization, and (B) if the Transferee is a sublessee, the Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested; or

14.2.4 The proposed Transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease.

If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord’s consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord’s right of recapture, if any, under Section 14.4 of this Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14, their sole remedies shall be a suit for contract damages (other than damages for injury to, or interference with, Tenant’s business including, without limitation, loss of profits, however occurring) or declaratory judgment and an injunction for the relief sought, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all Applicable Laws, on behalf of the proposed Transferee.

14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 14.3, received by Tenant from such Transferee. “Transfer Premium” shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer on a per rentable square foot basis if less than all of the Premises is transferred, and after deduction of (i) any costs of improvements made to the Subject Space in connection with such Transfer, (ii) brokerage commissions and reasonable marketing costs paid in connection with such Transfer, (iii) rent abatement granted to the Transferee, and (iii) reasonable legal fees incurred in connection with such Transfer. “Transfer Premium” shall also include, but not be limited to, key money and bonus money paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer, where the payment in excess of fair market value was made for the purpose of circumventing the obligation of Tenant to pay Landlord any amount due as a Transfer Premium for rental payments related to the Premises . For clarity, the Transfer Premium shall exclude any consideration payable by Transferee (and/or payable to Tenant) generally related to the Transfer itself (e.g. merger consideration, consideration for sale of assets, stock transfer, investments, financings, etc.) and unrelated to the Transferee’s use of the Premises. The determination of the amount of Landlord’s applicable share of the Transfer Premium shall be made on a monthly basis as rent or other consideration is received by Tenant under the Transfer.

14.4 Landlord’s Option as to Subject Space. Notwithstanding anything to the contrary contained in this Article 14, in the event Tenant contemplates a Transfer which, together with all prior Transfers then remaining in effect, would cause fifty percent (50%) or more of the Premises to be Transferred for more than fifty percent (50%) of the then remaining Lease Term (taking into account any extension of the Lease Term which has irrevocably exercised by Tenant), Tenant shall give Landlord notice (the “Intention to Transfer Notice”) of such contemplated Transfer (whether or not the contemplated Transferee or the terms of such contemplated Transfer have been determined). The Intention to Transfer Notice shall specify the portion of and amount of rentable square feet of the Premises which Tenant intends to Transfer (the “Contemplated Transfer Space”), the contemplated date of


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commencement of the Contemplated Transfer (the “Contemplated Effective Date”), and the contemplated length of the term of such contemplated Transfer, and shall specify that such Intention to Transfer Notice is delivered to Landlord pursuant to this Section 14.4 in order to allow Landlord to elect to recapture the Contemplated Transfer Space. Thereafter, Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of any Intention to Transfer Notice, to recapture the Contemplated Transfer Space. Such recapture shall cancel and terminate this Lease with respect to such Contemplated Transfer Space as of the Contemplated Effective Date. In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord declines, or fails to elect in a timely manner, to recapture such Contemplated Transfer Space under this Section 14.4, then, subject to the other terms of this Article 14, for a period of nine (9) months (the “Nine Month Period”) commencing on the last day of such thirty (30) day period, Landlord shall not have any right to recapture the Contemplated Transfer Space with respect to any Transfer made during the Nine Month Period, provided that any such Transfer is substantially on the terms set forth in the Intention to Transfer Notice, and provided further that any such Transfer shall be subject to the remaining terms of this Article 14. If such a Transfer is not so consummated within the Nine Month Period (or if a Transfer is so consummated, then upon the expiration of the term of any Transfer of such Contemplated Transfer Space consummated within such Nine Month Period), Tenant shall again be required to submit a new Intention to Transfer Notice to Landlord with respect any contemplated Transfer, as provided above in this Section 14.4.

14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, (iv) Tenant shall furnish upon Landlord’s request a complete statement, certified by an independent certified public accountant, or Tenant’s chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from any liability under this Lease, including, without limitation, in connection with the Subject Space. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency, and if understated by more than five percent (5%), Tenant shall pay Landlord’s costs of such audit.

14.6 Additional Transfers. For purposes of this Lease, the term “Transfer” shall also include (i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, or transfer of fifty percent (50%) or more of partnership interests, within a twelve (12)-month period, or the dissolution of the partnership without immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant or (B) the sale or other transfer of an aggregate of fifty percent (50%) or more of the voting shares of Tenant (other than to immediate family members by reason of gift or death), within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or pledge of an aggregate of fifty percent (50%) or more of the value of the unencumbered assets of Tenant within a twelve (12)-month period.

14.7 Occurrence of Default. Any Transfer hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any Transfer, Landlord shall have the right to: (i) treat such Transfer as cancelled and repossess the Subject Space by any lawful means, or (ii) require that such Transferee attorn to and recognize Landlord as its landlord under any such Transfer. If Tenant shall be in default under this Lease, Landlord is hereby irrevocably authorized, as Tenant’s agent and attorney-in-fact, to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant’s obligations under this Lease) until such default is cured. Such Transferee shall rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant. Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be


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performed or observed under this Lease. No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing. In no event shall Landlord’s enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord’s right to enforce any term of this Lease against Tenant or any other person. If Tenant’s obligations hereunder have been guaranteed, Landlord’s consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.

14.8 Non-Transfers. Notwithstanding anything to the contrary contained in this Article 14, an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under common control with, Tenant), shall not be deemed a Transfer under this Article 14, provided that Tenant notifies Landlord of any such assignment or sublease and promptly supplies Landlord with any documents or information requested by Landlord regarding such assignment or sublease or such affiliate, and further provided that such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease. “Control,” as used in this Section 14.8, shall mean the ownership, directly or indirectly, of at least fifty-one percent (51%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of at least fifty-one percent (51%) of the voting interest in, any person or entity. No such permitted assignment or subletting shall serve to release Tenant from any of its obligations under this Lease.

15. SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES

15.1 Surrender of Premises. No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.

15.2 Removal of Tenant Property by Tenant. Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, free-standing cabinet work, movable partitions and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal.

15.3 Environmental Assessment. In connection with its surrender of the Premises, Tenant shall submit to Landlord, at least one hundred twenty (120) days prior to the expiration date of this Lease (or in the event of an earlier termination of this Lease, as soon as reasonably possible following such termination), an Environmental Assessment of the Premises by a competent and experienced environmental engineer or engineering firm reasonably satisfactory to Landlord (pursuant to a contract approved by Landlord and providing that Landlord can rely on the Environmental Assessment), which (i) evidences that the Premises are in a clean and safe condition and free and clear of any Hazardous Materials brought onto the Project by Tenant or a Tenant Party; and (ii) includes a review of the Premises by an environmental consultant for asbestos, mold, fungus, spores, and other moisture conditions, on-site chemical use, and lead-based paint. If such Environmental Assessment reveals that remediation or Clean-up is required under any Environmental Laws, Tenant shall submit a remediation plan prepared by a recognized environmental consultant and shall be responsible for all costs of remediation and Clean-up, as more particularly provided in Section 5.3, above.


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15.4 Condition of the Building and Premises Upon Surrender. In addition to the above requirements of this Article 15, upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, surrender the Premises and Building such that the same are in compliance with all Applicable Laws (provided that Tenant will not be required to perform legal compliance upgrades which are subject to so called “grandfathering” provisions or which would not be triggered absent pulling a permit for construction) and with Tenant having complied with all of Tenant’s obligations under this Lease, including those relating to improvement, repair, maintenance, compliance with law, testing and other related obligations of Tenant set forth in Article 7 of this Lease. In the event that the Building and Premises shall be surrendered in a condition which does not comply with the terms of this Section 15.4, because Tenant failed to comply with its obligations set forth in Lease, then following thirty (30) days notice to Tenant, during which thirty (30) day period Tenant shall have the right to cure such noncompliance, Landlord shall be entitled to expend all reasonable costs in order to cause the same to comply with the required condition upon surrender and Tenant shall immediately reimburse Landlord for all such costs upon notice and Tenant shall be deemed during the period that Tenant or Landlord, as the case may be, perform obligations relating to the Surrender Improvements to be in holdover under Article 16 of this Lease.

16. HOLDING OVER If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, with the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term. If Tenant holds over after the expiration of the Lease Term of earlier termination thereof, without the express or implied consent of Landlord, such tenancy shall be deemed to be a tenancy by sufferance only, and shall not constitute a renewal hereof or an extension for any further term. In either case, Rent shall be payable at a monthly rate equal to one hundred fifty percent (150%) of the Rent applicable during the last rental period of the Lease Term under this Lease. Such month-to-month tenancy or tenancy by sufferance, as the case may be, shall be subject to every other applicable term, covenant and agreement contained herein. Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises within thirty (30) days following the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom.

17. ESTOPPEL CERTIFICATES Within ten (10) business days following a request in writing by Landlord (“Initial Estoppel Request Period”), Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit D, attached hereto (or such other form as may be required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord’s mortgagee or prospective mortgagee. Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project. Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes. At any time during the Lease Term, Landlord may require Tenant to provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. If Tenant fails to deliver such estoppel certificate prior to the expiration of the Initial Estoppel Request Period, then Landlord shall provide written notice of the same to Tenant pursuant to Section 19.1.4 or Section 19.1.2, as applicable, below, and Tenant shall thereafter deliver such certificate to Landlord within the time period for cure set forth in such applicable Section. Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception. Notwithstanding the foregoing, in the event that (i) stock in the entity which constitutes Tenant under this Lease (as opposed to an entity that “controls” Tenant or is otherwise an “affiliate” of Tenant, as those terms are defined in Section 14.8 of this Lease) is publicly traded on a national stock exchange, and (ii) Tenant has its own, separate and distinct 10K and 10Q filing requirements (as opposed joint or cumulative filings with an entity that controls Tenant


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or with entities which are otherwise Affiliates of Tenant), then Tenant’s obligation to provide Landlord with a copy of its most recent current financial statement shall be deemed satisfied.

18. SUBORDINATION This Lease shall be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto (collectively, the “Superior Holders”); provided, however, that in consideration of and a condition precedent to Tenant’s agreement to subordinate this Lease to any future mortgage, trust deed or other encumbrances, shall be the receipt by Tenant of a commercially reasonable subordination non-disturbance and attornment agreement from such Superior Holder, which requires such Superior Holder to accept this lease, and not to disturb tenant’s possession, so long as an event of default has not occurred and be continuing (a “SNDAA”) executed by Landlord and the appropriate Superior Holder. Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof (or if any ground lease is terminated), to attorn, without any deductions or set-offs whatsoever, to the lienholder or purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so requested to do so by such purchaser or lienholder or ground lessor, and to recognize such purchaser or lienholder or ground lessor as the lessor under this Lease, provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Tenant’s occupancy, so long as Tenant timely pays the rent and observes and performs the terms, covenants and conditions of this Lease to be observed and performed by Tenant. Landlord’s interest herein may be assigned as security at any time to any lienholder. Tenant shall, within ten (10) days of request by Landlord, execute such further commercially reasonable instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.

19. DEFAULTS; REMEDIES

19.1 Events of Default. The occurrence of any of the following shall constitute a default of this Lease by Tenant:

19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, when due unless such failure is cured within five (5) business days after written notice of such failure; or

19.1.2 Except where a specific time period is otherwise set forth for Tenant’s performance in this Lease, in which event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section 19.1.2, any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default; or

19.1.3 Abandonment or vacation of all or a substantial portion of the Premises by Tenant; or

19.1.4 The failure by Tenant to observe or perform according to the provisions of Articles 5, 14, 17 or 18 of this Lease or the Tenant Work Letter where such failure continues for more than five (5) business days after notice from Landlord (which, as it applies to Article 17, only if Landlord is required to provide the estoppel certificate in order to consummate any sale, financing or third party transaction, and otherwise Section 19.1.2 shall apply).


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19.1.5 The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.

19.2 Remedies Upon Default. Upon the occurrence of any event of default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the following:

(i) The worth at the time of award of the unpaid rent which has been earned at the time of such termination; plus

(ii) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(iii) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom; and

(v) At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

The term “rent” as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 19.2.1(i) and (ii), above, the “worth at the time of award” shall be computed by allowing interest at the rate set forth in Article 25 of this Lease, but in no case greater than the maximum amount of such interest permitted by law. As used in Section 19.2.1(iii) above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Notwithstanding anything to the contrary in this Lease, in no event may Landlord recover, collect, or claim from Tenant any cost, expense, charge, fee, or other amount arising from the cost to construct the Tenant Improvements or the Base Building Improvements, including without limitation any construction, materials, or labor costs associated therewith and the Landlord’s performance thereof; provided, however, although the amount of Base Rent set forth in this Lease (as the same may be increased) was agreed upon by Landlord and Tenant taking into account the cost to construct the Base Building Improvements and the Tenant Improvement Allowance (and other allowances), in no event shall the amount of Base Rent and Additional Rent (including without limitation Direct Expenses) paid (or to be paid) by Tenant during the Lease Term be deemed to be a cost to construct the Tenant Improvements or the Base Building Improvements.

19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.


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19.2.3 Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 19.2.1 and 19.2.2, above, or any law or other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.

19.3 Subleases of Tenant. Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements. In the event of Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

19.4 Efforts to Relet. No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord’s interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant’s right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant. Tenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this Lease.

19.5 Landlord Default.

19.5.1 General. Notwithstanding anything to the contrary set forth in this Lease, Landlord shall not be in default in the performance of any obligation required to be performed by Landlord pursuant to this Lease unless Landlord fails to perform such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord’s failure to perform; provided, however, if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) day period and thereafter diligently pursue the same to completion. Upon any such default by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights provided at law or in equity.

19.5.2 Abatement of Rent. In the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof, as a result of (i) any repair, maintenance or alteration performed by Landlord, or which Landlord failed to perform, after the Lease Commencement Date and required by this Lease, which substantially interferes with Tenant’s use of the Premises, or (ii) any failure to provide services, utilities or access to the Premises as required by this Lease, each as a direct result of Landlord’s negligence or willful misconduct or caused by an event covered by Articles 11 or 13 of this Lease (and except to the extent such failure is caused in whole or in part by the action or inaction of Tenant) (either such set of circumstances as set forth in items (i) or (ii), above, to be known as an “Abatement Event”), then Tenant shall give Landlord notice of such Abatement Event, and if such Abatement Event continues for ten (10) consecutive business days after Landlord’s receipt of any such notice (the “Eligibility Period”) and Landlord does not diligently commence and pursue to completion the remedy of such Abatement Event, then the Base Rent, Tenant’s Share of Direct Expenses, and Tenant’s obligation, if any, to pay for parking (to the extent not utilized by Tenant) shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use for the normal conduct of Tenant’s business, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises; provided, however, in the event that Tenant is prevented from using, and does not use, a portion of the Premises for a period of time in excess of the Eligibility Period and the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not effectively conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the Base Rent and Tenant’s Share of Direct Expenses for the entire Premises and Tenant’s obligation to pay for parking shall be abated for such time as Tenant continues to be so prevented from using, and does not use, the Premises. If, however, Tenant reoccupies any portion of the Premises during such period, the Rent


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allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date Tenant reoccupies such portion of the Premises. To the extent an Abatement Event is caused by an event covered by Articles 5, 11 or 13 of this Lease, then Tenant’s right to abate rent shall be governed by the terms of such Article 5, 11 or 13, as applicable, and the Eligibility Period shall not be applicable thereto. Such right to abate Base Rent and Tenant’s Share of Direct Expenses shall be Tenant’s sole and exclusive remedy for rent abatement at law or in equity for an Abatement Event. Except as expressly provided in this Lease, nothing contained herein shall be interpreted to mean that Tenant is excused from paying Rent due hereunder.

20. COVENANT OF QUIET ENJOYMENT Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.

21. LETTER OF CREDIT

21.1 Delivery of Letter of Credit. Tenant shall deliver to Landlord on or before September 8, 2021, as protection for the full and faithful performance by Tenant of all of its obligations under this Lease and for all losses and damages Landlord may suffer (or which Landlord reasonably estimates that it may suffer) as a result of any breach or default by Tenant under this Lease, an unconditional, clean, irrevocable negotiable standby letter of credit (the “L-C”) in the amount set forth in Section 8 of the Summary (the “L-C Amount”), in the form attached hereto as Exhibit G, payable in the City of San Diego, California, running in favor of Landlord, drawn on a bank (the “Bank”) reasonably approved by Landlord and which Bank at a minimum must have a rating from Standard and Poors Corporation of A- or better (or any equivalent rating thereto from any successor or substitute rating service selected by Landlord) and a letter of credit issuer rating from Moody’s Investor Service of A3 or better (or any equivalent rating thereto from any successor rating agency thereto) (the “Credit Rating Threshold”), and otherwise conforming in all respects to the requirements of this Article 21, including, without limitation, all of the requirements of Section 21.2 below, all as set forth more particularly hereinbelow. Tenant shall pay all expenses, points and/or fees incurred by Tenant in obtaining and maintaining the L-C. In the event of an assignment by Tenant of its interest in the Lease (and irrespective of whether Landlord’s consent is required for such assignment), the acceptance of any replacement or substitute letter of credit by Landlord from the assignee shall be subject to Landlord’s prior written approval, in Landlord’s reasonable discretion, and the attorney’s fees incurred by Landlord in connection with such determination shall be payable by Tenant to Landlord within ten (10) days of billing.

21.2 In General. The L-C shall be “callable” at sight, permit partial draws and multiple presentations and drawings, and be otherwise subject to the Uniform Customs and Practices for Documentary Credits (1993-Rev), International Chamber of Commerce Publication #500, or the International Standby Practices-ISP 98, International Chamber of Commerce Publication #590. Tenant further covenants and warrants as follows:

21.2.1 Landlord Right to Transfer. The L-C shall provide that Landlord, its successors and assigns, may, at any time and without notice to Tenant and without first obtaining Tenant’s consent thereto, transfer (one or more times) all or any portion of its interest in and to the L-C to another party, person or entity, regardless of whether or not such transfer is separate from or as a part of the assignment by Landlord of its rights and interests in and to this Lease. In the event of a transfer of Landlord’s interest in the Building, Landlord shall transfer the L-C, in whole or in part, to the transferee and thereupon Landlord shall, without any further agreement between the parties, be released by Tenant from all liability therefor, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the whole or any portion of said L-C to a new landlord. In connection with any such transfer of the L-C by Landlord, Tenant shall, at Tenant’s sole cost and expense, execute and submit to the Bank such applications, documents and instruments as may be necessary to effectuate such transfer, and Tenant shall be responsible for paying the Bank’s transfer and processing fees in connection therewith.


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21.2.2 No Assignment by Tenant. Tenant shall neither assign nor encumber the L-C or any part thereof. Neither Landlord nor its successors or assigns will be bound by any assignment, encumbrance, attempted assignment or attempted encumbrance by Tenant in violation of this Section.

21.2.3 Replenishment. If, as a result of any drawing by Landlord on the L-C pursuant to its rights set forth in Section 21.3 below, the amount of the L-C shall be less than the L-C Amount, Tenant shall, within five (5) days thereafter, provide Landlord with (i) an amendment to the L-C restoring such L-C to the L-C Amount or (ii) additional L-Cs in an amount equal to the deficiency, which additional L-Cs shall comply with all of the provisions of this Article 21, and if Tenant fails to comply with the foregoing, notwithstanding anything to the contrary contained in Section 19.1 above, the same shall constitute an incurable default by Tenant under this Lease (without the need for any additional notice and/or cure period).

21.2.4 Renewal; Replacement. If the L-C expires earlier than the date (the “LC Expiration Date”) that is one hundred twenty (120) days after the expiration of the Lease Term, Tenant shall deliver a new L-C or certificate of renewal or extension to Landlord at least sixty (60) days prior to the expiration of the L-C then held by Landlord, without any action whatsoever on the part of Landlord, which new L-C shall be irrevocable and automatically renewable through the LC Expiration Date upon the same terms as the expiring L-C or such other terms as may be acceptable to Landlord in its sole discretion. In furtherance of the foregoing, Landlord and Tenant agree that the L-C shall contain a so-called “evergreen provision,” whereby the L-C will automatically be renewed unless at least sixty (60) days’ prior written notice of non-renewal is provided by the issuer to Landlord; provided, however, that the final expiration date identified in the L-C, beyond which the L-C shall not automatically renew, shall not be earlier than the LC Expiration Date.

21.2.5 Bank’s Financial Condition. If, at any time during the Lease Term, the Bank’s long term credit rating is reduced below the Credit Rating Threshold, or if the financial condition of the Bank changes in any other materially adverse way (either, a “Bank Credit Threat”), then Landlord shall have the right to require that Tenant obtain from a different issuer a substitute L-C that complies in all respects with the requirements of this Article 21, and Tenant’s failure to obtain such substitute L-C within ten (10) days following Landlord’s written demand therefor (with no other notice or cure or grace period being applicable thereto, notwithstanding anything in this Lease to the contrary) shall entitle Landlord, or Landlord’s then managing agent, to immediately draw upon the then existing L-C in whole or in part, without notice to Tenant, as more specifically described in Section 21.3 below. Tenant shall be responsible for the payment of any and all costs incurred with the review of any replacement L-C (including without limitation Landlord’s reasonable attorneys’ fees), which replacement is required pursuant to this Section or is otherwise requested by Tenant.

21.3 Application of Letter of Credit. Tenant hereby acknowledges and agrees that Landlord is entering into this Lease in material reliance upon the ability of Landlord to draw upon the L-C as protection for the full and faithful performance by Tenant of all of its obligations under this Lease and for all losses and damages Landlord may suffer (or which Landlord reasonably estimates that it may suffer) as a result of any breach or default by Tenant under this Lease. Landlord, or its then managing agent, shall have the right to draw down an amount up to the face amount of the L-C (provided that if the amount to be drawn by Landlord is greater than the amount of all losses and damages Landlord may suffer (or which Landlord reasonably estimates that it may suffer) as a result of such breach or default by Tenant, then the amount drawn by Landlord must be reasonable under the then circumstances) if any of the following shall have occurred or be applicable: (A) such amount is due to Landlord under the terms and conditions of this Lease, or (B) Tenant has filed a voluntary petition under the U. S. Bankruptcy Code or any state bankruptcy code (collectively, “Bankruptcy Code”), or (C) an involuntary petition has been filed against Tenant under the Bankruptcy Code, or (D) the Bank has notified Landlord that the L-C will not be renewed or extended through the LC Expiration Date, or (E) a Bank Credit Threat or Receivership (as such term is defined in Section 21.6.1 below) has occurred and Tenant has failed to comply with the requirements of either Section 21.2.5 above or 21.6 below, as applicable. If Tenant shall breach any provision of this Lease or otherwise be in default hereunder or if any of the foregoing events identified in Sections 21.3(B) through (E) shall have occurred, Landlord may, but without obligation to do so, and without notice to Tenant, draw upon the L-C, in part or in whole, and the proceeds may be applied by Landlord (i) to cure any breach or default of Tenant and/or to compensate Landlord for any and all damages of any kind or nature sustained or which Landlord reasonably estimates that it will sustain resulting from Tenant’s breach or default, (ii)


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against any Rent payable by Tenant under this Lease that is not paid when due and/or (iii) to pay for all losses and damages that Landlord has suffered or that Landlord reasonably estimates that it will suffer as a result of any breach or default by Tenant under this Lease. The use, application or retention of the L-C, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by any applicable law, it being intended that Landlord shall not first be required to proceed against the L-C, and shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. Tenant agrees not to interfere in any way with payment to Landlord of the proceeds of the L-C, either prior to or following a “draw” by Landlord of any portion of the L-C, regardless of whether any dispute exists between Tenant and Landlord as to Landlord’s right to draw upon the L-C. No condition or term of this Lease shall be deemed to render the L-C conditional to justify the issuer of the L-C in failing to honor a drawing upon such L-C in a timely manner. Tenant agrees and acknowledges that (a) the L-C constitutes a separate and independent contract between Landlord and the Bank, (b) Tenant is not a third party beneficiary of such contract, (c) Tenant has no property interest whatsoever in the L-C or the proceeds thereof, and (d) in the event Tenant becomes a debtor under any chapter of the Bankruptcy Code, neither Tenant, any trustee, nor Tenant’s bankruptcy estate shall have any right to restrict or limit Landlord’s claim and/or rights to the L-C and/or the proceeds thereof by application of Section 502(b)(6) of the U.S. Bankruptcy Code or otherwise.

21.4 Letter of Credit not a Security Deposit. Landlord and Tenant acknowledge and agree that in no event or circumstance shall the L-C or any renewal thereof or any proceeds thereof be (i) deemed to be or treated as a “security deposit” within the meaning of California Civil Code Section 1950.7, (ii) subject to the terms of such Section 1950.7, or (iii) intended to serve as a “security deposit” within the meaning of such Section 1950.7. The parties hereto (A) recite that the L-C is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context (“Security Deposit Laws”) shall have no applicability or relevancy thereto and (B) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws.

21.5 Proceeds of Draw. In the event Landlord draws down on the L-C pursuant to Section 21.3(D) or (E) above, the proceeds of the L-C may be held by Landlord and applied by Landlord against any Rent payable by Tenant under this Lease that is not paid when due and/or to pay for all losses and damages that Landlord has suffered or that Landlord reasonably estimates that it will suffer as a result of any breach or default by Tenant under this Lease. Any unused proceeds shall constitute the property of Landlord and need not be segregated from Landlord’s other assets. Tenant hereby (i) agrees that (A) Tenant has no property interest whatsoever in the proceeds from any such draw, and (B) such proceeds shall not be deemed to be or treated as a “security deposit” under the Security Deposit Law, and (ii) waives all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws. Landlord agrees that the amount of any proceeds of the L-C received by Landlord, and not (a) applied against any Rent payable by Tenant under this Lease that was not paid when due or (b) used to pay for any losses and/or damages suffered by Landlord (or reasonably estimated by Landlord that it will suffer) as a result of any breach or default by Tenant under this Lease (the “Unused L-C Proceeds”), shall be paid by Landlord to Tenant (x) upon receipt by Landlord of a replacement L-C in the full L-C Amount, which replacement L-C shall comply in all respects with the requirements of this Article 21, or (y) within thirty (30) days after the LC Expiration Date; provided, however, that if prior to the LC Expiration Date a voluntary petition is filed by Tenant, or an involuntary petition is filed against Tenant by any of Tenant’s creditors, under the Bankruptcy Code, then Landlord shall not be obligated to make such payment in the amount of the Unused L-C Proceeds until either all preference issues relating to payments under this Lease have been resolved in such bankruptcy or reorganization case or such bankruptcy or reorganization case has been dismissed.

21.6 Bank Placed Into Receivership.

21.6.1 Bank Placed Into Receivership. In the event the Bank is placed into receivership or conservatorship (any such event, a “Receivership”) by the Federal Deposit Insurance Corporation or any successor or similar entity (the “FDIC”), then, effective as of the date such Receivership occurs, the L-C shall be deemed to not meet the requirements of this Article 21, and, within ten (10) days following Landlord’s notice to Tenant of such Receivership (the “LC Replacement Notice”), Tenant shall replace the L-C with a substitute L-C from a different issuer reasonably acceptable to Landlord and that complies in all respects with the requirements of this Article 21. If Tenant fails to replace such L-C with a substitute L-C from a different issuer pursuant to the terms and conditions of


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this Section 21.6.1, then, notwithstanding anything in this Lease to the contrary, Landlord shall have the right, at Landlord’s option, to either (i) declare Tenant in default of this Lease for which there shall be no notice or grace or cure periods being applicable thereto other than the aforesaid ten (10) day period), in which event, Landlord shall have the right to pursue any and all remedies available to it under this Lease and at law, including, without limitation, treating any Receivership as a Bank Credit Threat and exercising Landlord’s remedies under Section 21.2.5 above, to the extent possible pursuant to then existing FDIC policy; or (ii) elect to increase the Base Rent due and owing under the terms of this Lease pursuant to the terms and conditions of Section 21.6.2, below. Tenant shall be responsible for the payment of any and all costs incurred with the review of any replacement L-C (including without limitation Landlord’s reasonable attorneys’ fees), which replacement is required pursuant to this Section or is otherwise requested by Tenant.

21.6.2 FAILURE TO REPLACE L-C; LIQUIDATED DAMAGES. IN THE EVENT THAT TENANT FAILS TO REPLACE THE L-C PURSUANT TO, AND WITHIN THE TIME PERIODS SET FORTH IN, SECTION 21.6.1 OF THIS LEASE, ABOVE, THEN TENANT’S MONTHLY INSTALLMENT OF BASE RENT SHALL BE INCREASED TO ONE HUNDRED TEN PERCENT (110%) OF ITS THEN EXISTING LEVEL DURING THE PERIOD COMMENCING ON THE DATE THAT OCCURS TEN (10) DAYS FOLLOWING THE DATE TENANT RECEIVES THE LC REPLACEMENT NOTICE AND ENDING ON THE EARLIER TO OCCUR OF (I) THE DATE SUCH REPLACEMENT L-C IS DELIVERED TO LANDLORD PURSUANT TO THE TERMS OF SECTION 21.6.1, OR (II) THE DATE WHICH IS NINETY (90) DAYS AFTER THE DATE OF SUCH LC REPLACEMENT NOTICE. IN THE EVENT THAT TENANT FAILS, DURING SUCH NINETY (90) DAY PERIOD FOLLOWING THE DATE OF THE LC REPLACEMENT NOTICE, TO CAUSE THE REPLACEMENT L-C TO BE DELIVERED TO LANDLORD PURSUANT TO THE TERMS OF SECTION 21.6.1, THEN TENANT’S MONTHLY INSTALLMENT OF BASE RENT SHALL BE INCREASED TO ONE HUNDRED TWENTY-FIVE PERCENT (125%) OF ITS THEN EXISTING LEVEL DURING THE PERIOD COMMENCING ON THE DATE WHICH IS NINETY (90) DAYS AFTER THE DATE OF SUCH LC REPLACEMENT NOTICE AND ENDING ON THE DATE SUCH REPLACEMENT L-C IS DELIVERED TO LANDLORD PURSUANT TO THE TERMS OF SECTION 21.6.1, PROVIDED, HOWEVER, THAT THE TOTAL AGGREGATE AMOUNT OF BASE RENT PAID BY TENANT IN EXCESS OF THE AMOUNT OF BASE RENT THAT TENANT WOULD HAVE PAID HAD SUCH L-C REPLACEMENT FAILURE NEVER OCCURRED SHALL IN NO EVENT EXCEED THE L-C AMOUNT. THE PARTIES AGREE THAT IT WOULD BE IMPRACTICABLE AND EXTREMELY DIFFICULT TO ASCERTAIN THE ACTUAL DAMAGES SUFFERED BY LANDLORD AS A RESULT OF TENANT’S FAILURE TO TIMELY REPLACE THE L-C FOLLOWING THE LC REPLACEMENT NOTICE AS REQUIRED IN SECTION 21.6.1, AND THAT UNDER THE CIRCUMSTANCES EXISTING AS OF THE DATE OF THIS LEASE, THE LIQUIDATED DAMAGES PROVIDED FOR IN THIS SECTION 21.6.2 REPRESENT A REASONABLE ESTIMATE OF THE DAMAGES WHICH LANDLORD WILL INCUR AS A RESULT OF SUCH FAILURE, PROVIDED, HOWEVER, THAT THIS PROVISION SHALL NOT WAIVE OR AFFECT LANDLORD’S RIGHTS AND TENANT’S INDEMNITY OBLIGATIONS UNDER OTHER SECTIONS OF THIS LEASE. THE PARTIES ACKNOWLEDGE THAT THE PAYMENT OF SUCH LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTION 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO LANDLORD PURSUANT TO CALIFORNIA CIVIL CODE SECTION 1671. THE PARTIES HAVE SET FORTH THEIR INITIALS BELOW TO INDICATE THEIR AGREEMENT WITH THE LIQUIDATED DAMAGES PROVISION CONTAINED IN THIS SECTION 21.6.2.


___________________ LANDLORD’S INITIALS	___________________ TENANT’S INITIALS

21.7 Failure to Timely Delivery Letter of Credit; Landlord Remedies. Without limitation of any remedies available to Landlord under this Lease or Applicable Law, in the event that Tenant shall fail to deliver the L-C on or before September 30, 2021, at Landlord’s sole option, Landlord shall have the right, upon notice to Tenant, to terminate this Lease.


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22. COMMUNICATIONS AND COMPUTER LINE Tenant may install, maintain, replace, remove or use any communications or computer wires and cables serving the Premises (collectively, the “Lines”), provided that Tenant shall obtain Landlord’s prior written consent, use an experienced and qualified contractor approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease. Tenant shall pay all costs in connection therewith. Landlord reserves the right, upon notice to Tenant prior to the expiration or earlier termination of this Lease, to require that Tenant, at Tenant’s sole cost and expense, remove any Lines located in or serving the Premises prior to the expiration or earlier termination of this Lease.

23. SIGNS

23.1 Exterior Signage. Subject to Landlord’s prior written approval, which shall not be unreasonably withheld, conditioned or delayed, and provided all signs are in keeping with the quality, design and style of the Building and Project, Tenant, at its sole cost and expense (but without payment of Rent or other fee in lieu of Rent for such signage (other than Direct Expenses to the extent allowed pursuant to the terms of Article 4 of this Lease)), may install identification signage (i) on the interior of the Building (including interior directional, lobby and/or directory signage), (ii) exterior Building top signage, and (iii) one signage strip on the monument sign serving the Building facing Director’s Place (collectively, “Tenant Signage”); provided, however, in no event shall Tenant’s Signage include an “Objectionable Name,” as that term is defined in Section 23.3, of this Lease. All such signage shall be subject to Tenant’s obtaining all required governmental approvals. All permitted signs shall be maintained by Tenant at its expense in a first-class and safe condition and appearance. Upon the expiration or earlier termination of this Lease, Tenant shall remove all of its signs at Tenant’s sole cost and expense. The graphics, materials, color, design, lettering, lighting, size, illumination, specifications and exact location of Tenant’s Signage (collectively, the “Sign Specifications”) shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, and shall be consistent and compatible with the quality and nature of the Project. Tenant hereby acknowledges that, notwithstanding Landlord’s approval of Tenant’s Signage, Landlord has made no representation or warranty to Tenant with respect to the probability of obtaining all necessary governmental approvals and permits for Tenant’s Signage. In the event Tenant does not receive the necessary governmental approvals and permits for Tenant’s Signage, Tenant’s and Landlord’s rights and obligations under the remaining terms and conditions of this Lease shall be unaffected.

23.2 Objectionable Name. Tenant’s Signage shall not include a name or logo which relates to an entity which is of a character or reputation, or is associated with a political faction or orientation, which is inconsistent with the quality of the Project, or which would otherwise reasonably offend a landlord of the Comparable Buildings (an “Objectionable Name”). The parties hereby agree that the following name, or any reasonable derivation thereof, shall be deemed not to constitute an Objectionable Name: “Sorrento Therapeutics.”

23.3 Prohibited Signage and Other Items. Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant. Any signs, window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion.

23.4 Termination of Right to Tenant’s Signage. The rights contained in this Article 23 shall be personal to Original Tenant and its Permitted Assignee, and may only be exercised and maintained by such parties (and not any other assignee, sublessee or other transferee of the Original Tenant’s interest in this Lease) to the extent (x) they are not in default under this Lease (beyond any applicable notice and cure period) and (y) if they occupy the entire Premises.

24. COMPLIANCE WITH LAW Tenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (collectively, “Applicable Laws”). At its sole cost and expense, Tenant shall promptly comply with any Applicable Laws which relate to (i) Tenant’s use of the Premises, (ii) any Alterations made by Tenant to the Premises, and, after their construction, any Tenant Improvements in the Premises, or (iii) the Base Building, but as to the Base Building, only to the extent such


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obligations are triggered by Alterations made by Tenant to the Premises to the extent such Alterations are not normal and customary improvements for the Permitted Use, or triggered by the Tenant Improvements to the extent such Tenant Improvements are not normal and customary improvements for the Permitted Use, or triggered by Tenant’s use of the Premises for non Permitted Use (collectively, “Tenant’s Compliance Obligations”). Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Tenant and Landlord each agree, at each such party’s sole cost and expense, to comply promptly with such standards or regulations applicable to each such party. Tenant shall be responsible, at its sole cost and expense, to make all alterations to the Building and Premises as are required to comply with Tenant’s Compliance Obligations. The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant. Notwithstanding anything to the contrary in this Article 24, Landlord covenants to comply with the “Landlord Initial Compliance Obligations,” as that term is defined in the Tenant Work Letter, as of the Lease Commencement Date, and Landlord shall be responsible to promptly cure, at its sole cost, any noncompliance of the Premises as of the Lease Commencement Date with such foregoing covenant. For purposes of Section 1938 of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Project, Building and Premises have not undergone inspection by a Certified Access Specialist (CASp). As required by Section 1938(e) of the California Civil Code, Landlord hereby states as follows: “A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.” In furtherance of the foregoing, Landlord and Tenant hereby agree as follows: (a) any CASp inspection requested by Tenant shall be conducted, at Tenant’s sole cost and expense, by a CASp approved in advance by Landlord; and (b) pursuant to Article 24 below, Tenant, at its cost, is responsible for making any repairs within the Premises to correct violations of construction-related accessibility standards; and, if anything done by or for Tenant in its use or occupancy of the Premises shall require repairs to the Building (outside the Premises) to correct violations of construction-related accessibility standards, then Tenant shall, at Landlord’s option, either perform such repairs at Tenant’s sole cost and expense or reimburse Landlord upon demand, as Additional Rent, for the cost to Landlord of performing such repairs.

25. LATE CHARGES If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee within five (5) business days after Tenant’s receipt of written notice from Landlord that said amount is due, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount plus any reasonable attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) days after the date they are due shall bear interest from the date when due until paid at a rate per annum equal to the lesser of (i) the annual “Bank Prime Loan” rate cited in the Federal Reserve Statistical Release Publication G.13(415), published on the first Tuesday of each calendar month (or such other comparable index as Landlord and Tenant shall reasonably agree upon if such rate ceases to be published) plus four (4) percentage points, and (ii) the highest rate permitted by applicable law (the “Default Rate”).

26. LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

26.1 Landlord’s Cure. All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein. If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue in excess of the time allowed under Section 19.1.2, above, unless a specific time period is otherwise stated in this Lease, Landlord may, but shall not be obligated to, make any such payment or perform any


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such act on Tenant’s part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder.

26.2 Tenant’s Reimbursement. Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, upon delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant’s defaults pursuant to the provisions of Section 26.1; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all reasonable legal fees and other amounts so expended. Tenant’s obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term.

27. ENTRY BY LANDLORD Landlord reserves the right at all reasonable times and upon reasonable notice to Tenant (which shall not be less than twenty-four (24) hours except in the case of an emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers or, during the last twelve (12) months of the Lease Term, to prospective tenants; (iii) post notices of nonresponsibility (to the extent applicable pursuant to then applicable law); or (iv) alter, improve or repair the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and equipment. Landlord may make any such entries without the abatement of Rent, except as otherwise provided in Section 19.5.2 of this Lease, and may take such reasonable steps as required to accomplish the stated purposes. Landlord shall use commercially reasonable efforts to minimize interference with the conduct of Tenant’s business in connection with such entries into the Premises. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. To the extent reasonably necessary, Landlord may temporarily close all or a portion of the Premises to perform repairs under this Lease and Tenant shall not have any right to terminate this Lease or abate Rent (except as otherwise provided in Section 19.5.2 of this Lease) or assert a claim of partial or constructive eviction because of any such closure (provided that Landlord shall perform any such repairs outside of normal business hours to the extent reasonably possible). Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises.

28. TENANT PARKING Tenant shall have the right to, at no additional rent or cost to Tenant (other than such costs and expenses include in Direct Expenses), use the parking set forth in Section 9 of the Summary, in the Building’s subterranean parking garage and the Project’s surface parking lot with approximately 463 parking spaces, including 26 electric vehicle stalls (the “Parking Facilities”). Tenant shall abide by all reasonable rules and regulations which are prescribed from time to time for the orderly operation and use of the parking facility where the parking passes are located (including any sticker or other identification system established by Landlord and the prohibition of vehicle repair and maintenance activities in the parking facilities), and shall cooperate in seeing that Tenant’s employees and visitors also comply with such rules and regulations. Tenant’s use of the Project parking facility shall be at Tenant’s sole risk and Tenant acknowledges and agrees that Landlord shall have no liability whatsoever for damage to the vehicles of Tenant, its employees and/or visitors, or for other personal injury or property damage or theft relating to or connected with the parking rights granted herein or any of Tenant’s, its employees’ and/or visitors’ use of the parking facilities.

29. MISCELLANEOUS PROVISIONS

29.1 Terms; Captions. The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

29.2 Binding Effect. Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of


	-41-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

Landlord and of Tenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

29.3 No Air Rights. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant’s obligations under this Lease.

29.4 Modification of Lease. Should any current or prospective mortgagee or ground lessor for the Building or Project require a modification of this Lease, which modification will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten (10) business days following a request therefor. At the request of Landlord or any mortgagee or ground lessor, Tenant agrees to execute a short form of Lease and deliver the same to Landlord within ten (10) business days following the request therefor.

29.5 Transfer of Landlord’s Interest. Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord’s obligations hereunder after the date of transfer and such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit (provided Landlord transfers the Security Deposit to such transferee), and Tenant shall attorn to such transferee.

29.6 Prohibition Against Recording. Except as provided in Section 29.4 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant.

29.7 Landlord’s Title. Landlord’s title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

29.8 Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant.

29.9 Application of Payments. Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant’s designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

29.10 Time of Essence. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

29.11 Partial Invalidity. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

29.12 No Warranty. In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the


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same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto.

29.13 Landlord Exculpation. The liability of Landlord or the Landlord Parties to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord’s operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the lesser of (a) the interest of Landlord in the Project or (b) the equity interest Landlord would have in the Project if the Project were encumbered by third-party debt in an amount equal to seventy percent (70%) of the value of the Project, including any net sales or insurance proceeds received by Landlord or the Landlord Parties in connection with the Project, Building or Premises. Neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. The limitations of liability contained in this Section 29.13 shall inure to the benefit of Landlord’s and the Landlord Parties’ present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord’s obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant’s business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring, or loss to inventory, scientific research, scientific experiments, laboratory animals, products, specimens, samples, and/or scientific, business, accounting and other records of every kind and description kept at the premises and any and all income derived or derivable therefrom. . Notwithstanding anything to the contrary set forth in this Lease, in no event shall Tenant be liable to Landlord for any consequential or remote damages, except for (i) consequential damages expressly provided for in Article 16 of the Lease with regard to Tenant’s failure to timely surrender the Premises to Landlord and (ii) damages caused to Landlord as a result of Tenant’s breach of the terms and conditions of Section 5.3 of this Lease, above. In no event shall any damages expressly provided for in Section 19.2.1 above be deemed consequential or remote damages.

29.14 Entire Agreement. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties’ entire agreement with respect to the leasing of the Premises and supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.

29.15 Right to Lease. Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.

29.16 Force Majeure. Notwithstanding anything to the contrary contained in this Lease, any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, acts of war, terrorist acts, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, including without limitation governmental delays in the issuance of contraction permits beyond the reasonably anticipated time period for similar construction projects in the city of San Diego, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease (collectively, a “Force Majeure”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.


	-43-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

29.17 Waiver of Redemption by Tenant. Tenant hereby waives, for Tenant and for all those claiming under Tenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant’s right of occupancy of the Premises after any termination of this Lease.

29.18 Notices. All notices, demands, statements, designations, approvals or other communications (collectively, “Notices”) given or required to be given by either party to the other hereunder or by law shall be in writing, shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested (“Mail”), (B) transmitted by telecopy, if such telecopy is promptly followed by a Notice sent by Mail, (C) delivered by a nationally recognized overnight courier, or (D) delivered personally. Any Notice shall be sent, transmitted, or delivered, as the case may be, to Tenant at the appropriate address set forth in Section 10 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord, or to Landlord at the addresses set forth below, or to such other places as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given (i) three (3) days after the date it is posted if sent by Mail, (ii) the date the telecopy is transmitted, (iii) the date the overnight courier delivery is made, or (iv) the date personal delivery is made. As of the date of this Lease, any Notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

HCP Life Science REIT, Inc.
c/o HCP, Inc.
420 Stevens Avenue, Suite 170
Solana Beach, California 92075
Attention: Mike Dorris

with a copy to:

HCP Life Science REIT, Inc.
c/o HCP, Inc.
1920 Main Street, Suite 1200
Irvine, CA 92614
Attn: Legal Department

and

Allen Matkins Leck Gamble Mallory & Natsis LLP
1901 Avenue of the Stars, Suite 1800
Los Angeles, California 90067
Attention: Anton N. Natsis, Esq.

29.19 Joint and Several. If there is more than one tenant, the obligations imposed upon Tenant under this Lease shall be joint and several.

29.20 Authority. If Tenant is a corporation, trust or partnership, each individual executing this Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in the State of California and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so. In such event, Tenant shall, within ten (10) days after execution of this Lease, deliver to Landlord satisfactory evidence of such authority and, if a corporation, upon demand by Landlord, also deliver to Landlord satisfactory evidence of (i) good standing in Tenant’s state of incorporation and (ii) qualification to do business in the State of California.

29.21 Attorneys’ Fees. In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.


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29.22 Governing Law; JUDICIAL REFERENCE. This Lease shall be construed and enforced in accordance with the laws of the State of California. If the jury waiver provisions of this Section 29.22 are not enforceable under California law, then the following provisions shall apply. It is the desire and intention of the parties to agree upon a mechanism and procedure under which controversies and disputes arising out of this Lease or related to the Premises will be resolved in a prompt and expeditious manner. Accordingly, except with respect to actions for unlawful or forcible detainer or with respect to the prejudgment remedy of attachment, any action, proceeding or counterclaim brought by either party hereto against the other (and/or against its officers, directors, employees, agents or subsidiaries or affiliated entities) on any matters whatsoever arising out of or in any way connected with this Lease, Tenant’s use or occupancy of the Premises and/or any claim of injury or damage, whether sounding in contract, tort, or otherwise, shall be heard and resolved by a referee under the provisions of the California Code of Civil Procedure, Sections 638 — 645.1, inclusive (as same may be amended, or any successor statute(s) thereto) (the “Referee Sections”). Any fee to initiate the judicial reference proceedings and all fees charged and costs incurred by the referee shall be paid by the party initiating such procedure (except that if a reporter is requested by either party, then a reporter shall be present at all proceedings where requested and the fees of such reporter - except for copies ordered by the other parties - shall be borne by the party requesting the reporter); provided however, that allocation of the costs and fees, including any initiation fee, of such proceeding shall be ultimately determined in accordance with Section 29.21 above. The venue of the proceedings shall be in the county in which the Premises are located. Within ten (10) days of receipt by any party of a written request to resolve any dispute or controversy pursuant to this Section 29.22, the parties shall agree upon a single referee who shall try all issues, whether of fact or law, and report a finding and judgment on such issues as required by the referee sections. If the parties are unable to agree upon a referee within such ten (10) day period, then any party may thereafter file a lawsuit in the county in which the Premises are located for the purpose of appointment of a referee under the referee sections. If the referee is appointed by the court, the referee shall be a neutral and impartial retired judge with substantial experience in the relevant matters to be determined, from JAMS, the American Arbitration Association or similar mediation/arbitration entity. The proposed referee may be challenged by any party for any of the grounds listed in the referee sections. The referee shall have the power to decide all issues of fact and law and report his or her decision on such issues, and to issue all recognized remedies available at law or in equity for any cause of action that is before the referee, including an award of attorneys’ fees and costs in accordance with this lease. The referee shall not, however, have the power to award punitive damages, nor any other damages which are prohibited by the express provisions of this Lease, and the parties hereby waive any right to recover any such damages. The parties shall be entitled to conduct all discovery as provided in the California Code of Civil Procedure, and the referee shall oversee discovery and may enforce all discovery orders in the same manner as any trial court judge, with rights to regulate discovery and to issue and enforce subpoenas, protective orders and other limitations on discovery available under California law. The reference proceeding shall be conducted in accordance with California law (including the rules of evidence), and in all regards, the referee shall follow California law applicable at the time of the reference proceeding. The parties shall promptly and diligently cooperate with one another and the referee, and shall perform such acts as may be necessary to obtain a prompt and expeditious resolution of the dispute or controversy in accordance with the terms of this Section 29.22. In this regard, the parties agree that the parties and the referee shall use best efforts to ensure that (a) discovery be conducted for a period no longer than six (6) months from the date the referee is appointed, excluding motions regarding discovery, and (b) a trial date be set within nine (9) months of the date the referee is appointed. In accordance with Section 644 of the California Code of Civil Procedure, the decision of the referee upon the whole issue must stand as the decision of the court, and upon the filing of the statement of decision with the clerk of the court, or with the judge if there is no clerk, judgment may be entered thereon in the same manner as if the action had been tried by the court. Any decision of the referee and/or judgment or other order entered thereon shall be appealable to the same extent and in the same manner that such decision, judgment, or order would be appealable if rendered by a judge of the Superior Court in which venue is proper hereunder. The referee shall in his/her statement of decision set forth his/her findings of fact and conclusions of law. The parties intend this general reference agreement to be specifically enforceable in accordance with the Code of Civil Procedure. Nothing in this Section 29.22 shall prejudice the right of any party to obtain provisional relief or other equitable remedies from a court of competent jurisdiction as shall otherwise be available under the Code of Civil Procedure and/or applicable court rules.

29.23 Submission of Lease. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.


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29.24 Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 12 of the Summary (the “Brokers”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party. The terms of this Section 29.24 shall survive the expiration or earlier termination of the Lease Term. Landlord will pay the Brokers any commission due as a result of this Lease pursuant to a separate agreement.

29.25 Independent Covenants. This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.

29.26 Project or Building Name, Address and Signage. Subject to Tenant’s rights set forth in Section 23.1, above, Landlord shall have the right at any time to change the name and/or address of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord’s sole discretion, desire. Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord.

29.27 Counterparts. This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document. Both counterparts shall be construed together and shall constitute a single lease.

29.28 Confidentiality. Tenant acknowledges that the content of this Lease and any related documents are confidential information. Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenant’s financial, legal, and space planning consultants , potential transferees, purchasers, investors, brokers and as required by applicable law.

29.29 Development of the Project.

29.29.1 Subdivision. Landlord reserves the right to subdivide all or a portion of the buildings and Common Areas. Tenant agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents needed to conform this Lease to the circumstances resulting from a subdivision and any all maps in connection therewith. Notwithstanding anything to the contrary set forth in this Lease, the separate ownership of any buildings and/or Common Areas by an entity other than Landlord shall not affect the calculation of Direct Expenses or Tenant’s payment of Tenant’s Share of Direct Expenses.

29.29.2 Construction of Property and Other Improvements. Tenant acknowledges that portions of the Project may be under construction following Tenant’s occupancy of the Premises, and that such construction may result in levels of noise, dust, obstruction of access, etc. which are in excess of that present in a fully constructed project. Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such construction.

29.30 No Violation. Tenant hereby warrants and represents that neither its execution of nor performance under this Lease shall cause Tenant to be in violation of any agreement, instrument, contract, law, rule or regulation by which Tenant is bound, and Tenant shall protect, defend, indemnify and hold Landlord harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys’ fees and costs, arising from Tenant’s breach of this warranty and representation.


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29.31 Transportation Management. Tenant shall fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Project and/or the Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities. Such programs may include, without limitation: (i) restrictions on the number of peak-hour vehicle trips generated by Tenant; (ii) increased vehicle occupancy; (iii) implementation of an in-house ridesharing program and an employee transportation coordinator; (iv) working with employees and any Project, Building or area-wide ridesharing program manager; (v) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to rideshare; and (vi) utilizing flexible work shifts for employees.

(signature page to follow)


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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

LANDLORD:

HCP LIFE SCIENCE REIT, INC.,
a Maryland corporation

By: /s/ Mike Dorris

Its: Senior Vice President

TENANT:

SORRENTO THERAPEUTICS, INC.,
a Delaware corporation

By: /s/ Henry Ji

Henry Ji
Print Name

Its: ________________________________

By: _______________________________

___________________________________
Print Name

Its: ________________________________


	-48-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

EXHIBIT A

SORRENTO GATEWAY

OUTLINE OF PREMISES

[ATTACHED]


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	-57-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

EXHIBIT A-1

SORRENTO GATEWAY

PROJECT SITE PLAN


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EXHIBIT B

SORRENTO GATEWAY

TENANT WORK LETTER

This Tenant Work Letter shall set forth the terms and conditions relating to the construction of the tenant improvements in the Premises. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises. All references in this Tenant Work Letter to Articles or Sections of “this Lease” shall mean the relevant portion of Articles 1 through 29 of the Lease to which this Tenant Work Letter is attached as Exhibit B and of which this Tenant Work Letter forms a part, and all references in this Tenant Work Letter to Sections of “this Tenant Work Letter” shall mean the relevant portion of Sections 1 through 6 of this Tenant Work Letter.

Section 1

LANDLORD’S INITIAL CONSTRUCTION OF THE BASE BUILDING IMPROVEMENTS

1.1 Construction of Base Building Improvements. Landlord shall construct, at its sole cost and expense, in a good workmanlike manner and without deduction from the Tenant Improvement Allowance, the Base Building improvements (the “Base Building Improvements”), generally as depicted in Schedule 1, attached hereto (the “Base Building Plans”), subject to Landlord Minor Changes, as that term is defined herein below. Landlord hereby reserves the right to modify each Base Building Improvements and the Base Building Plans, provided that such modifications (A) are required to comply with Applicable Laws, (B) will not (i) materially and adversely affect Tenant’s Permitted Use of the Premises and the Project or materially increase the cost of the Tenant Improvements or decrease the functionality of the Tenant Improvements, (ii) result in the use of materials, systems or components which are not of a materially equivalent or better quality than the materials, systems and components set forth in the Base Building Plans, or in the Lease, or (iii) materially modify the layout, features, amenities, or square footage of the Premises, or (C) pertain to portions of the Project located outside of the Buildings (collectively, “Landlord Minor Changes”). All Base Building Improvements, Common Area improvements, and Landlord Minor Changes shall be at Landlord’s expense without reimbursement from Tenant and shall not be charged against the Tenant Improvement Allowance or included in Operating Expenses. The Base Building Improvements, as well as the Common Areas (including the so-called “path of travel”) will be constructed in a good and workmanlike manner, and in compliance with Applicable Laws for unoccupied space as of the date of Substantial Completion of the Base Building Improvements, including without limitation Title 24 and laws enacted under the Americans with Disabilities Act (the “ADA”), to the extent required to allow Tenant, subject to the construction of the Tenant Improvements in accordance with Applicable Laws, to obtain a certificate of occupancy or its legal equivalent allowing the legal occupancy of the Premises for the Permitted Use. The parties acknowledge that the construction of the Base Building Improvements and the Tenant Improvements will be happening concurrently in order to expedite completion of the Premises as required for Tenant’s occupancy. In the event any legal compliance obligation arises during such combined construction period (whether triggered by Landlord’s or Tenant’s work), for purposes of determining whether Landlord or Tenant is responsible for such legal compliance obligation, it will be assumed that the Base Building Improvements were completed prior to the Tenant Improvements and any legal compliance obligation that would have been required in connection with the completion of the Base Building Improvements will be Landlord’s responsibility. In the event the Base Building Improvements or Common Areas do not comply with Applicable Laws, and such failure (a) prevents Tenant from obtaining any “Permits,” as defined in Section 3.4, below, (b) prevents Tenant from obtaining a certificate of occupancy or its legal equivalent allowing the legal occupancy of the Premises for the Permitted Use, subject to the construction of the Tenant Improvements in accordance with Applicable Laws, (c) materially affects the safety of Landlord’s or Tenant’s employees or agents at the Project, or creates a material health hazard for Landlord’s or Tenant’s employees or agents at the Project, (d) materially and adversely affect Tenant’s ability to perform its obligations under this Lease, or (e) materially prevents Landlord from constructing the Tenant Improvements, Landlord shall cause the Base Building Improvements or Common Areas, as applicable, to comply with Applicable Laws, at Landlord’s sole cost (which cost will not be charged against the Tenant Improvement Allowance or included in Operating Expenses).


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1.2 Ready For TI Condition. The “Ready For TI Condition” shall occur at such time as the Premises are in the condition set forth on Schedule 2, attached hereto (“Landlord Initial Compliance Obligations”). The Landlord Initial Compliance Obligations shall be performed at Landlord’s expense without reimbursement from Tenant, and shall not be charged against the Tenant Improvement Allowance. The date the Premises are in the Ready For TI Condition is the “Ready For TI Date,” provided, however, that if a Tenant BB Delay occurs, then the Ready For TI Date shall be deemed to occur on the date the Ready For TI Date would have occurred but for Tenant BB Delays.

1.3 Final Condition. The “Final Condition” of the Building shall mean that the Landlord Initial Compliance Obligations have been completed and the Base Building Improvements have been substantially completed in accordance with the Base Building Plans (as the same may be modified in accordance with the terms and conditions of this Tenant Work Letter), with the exception of any punch list items (the “Base Building Punch List Items”). The date that Landlord causes the Final Condition to occur shall be referred to as the “Final Condition Date;” provided, however, that if a Tenant BB Delay occurs, then the Final Condition Date shall be deemed to occur on the date the Final Condition would have occurred but for Tenant BB Delays.

1.4 Tenant BB Delay. As used herein, the term “Tenant BB Delay” shall mean actual delays caused by (i) the failure of Tenant to timely approve or disapprove any matter requiring Tenant’s approval relating to the construction of the Base Building Improvements; provided that if there is not a specific timeline for response set forth in this Lease, it shall be timely if Tenant responds within five (5) business days; (ii) unreasonable (when judged in accordance with industry custom and practice) interference by Tenant, its agents or Tenant Parties (except as otherwise allowed by this Tenant Work Letter) with the substantial completion of the Base Building Improvements and which objectively preclude or delay the construction of the Base Building Improvements, after Landlord has provided written notice of such interference, and (iii) any delays caused by Tenant’s physical alteration of the items of the Base Building Improvements on any floor of the Premises (such altered item shall be a “TI Item”), which altered TI Item interferes with Landlord’s ability to cause the substantial completion of the Base Building Improvements, so long as Landlord has provided Tenant with written notice of such interference; provided that to the extent Landlord reasonably determines that the altered or unconstructed TI Item will delay the substantial completion of the Base Building Improvements, Landlord may (in addition to all other rights and remedies under this Lease), upon prior notice to Tenant, modify such altered TI Item, and deduct the cost thereof (as reasonably determined by Landlord) from the Tenant Improvement Allowance, in a manner necessary for Landlord to cause the substantial completion of the Base Building Improvements.

Section 2

TENANT IMPROVEMENT ALLOWANCE; ADDITIONAL TENANT IMPROVEMENT ALLOWANCE

2.1 Tenant Improvement Allowance; Additional Tenant Improvement Allowance.

2.1.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time tenant improvement allowance (the “Tenant Improvement Allowance”) in the amount set forth in Section 5 of the Summary for the costs relating to the initial design and construction of Tenant’s improvements, which are permanently affixed to the Premises (the “Tenant Improvements”), except as otherwise provided herein. Except as set forth herein, in no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant Improvement Allowance. In the event that the Tenant Improvement Allowance is not fully utilized by Tenant on or before the date that occurs twelve (12) months following the Lease Commencement Date, then such unused amounts shall revert to Landlord, and Tenant shall have no further rights with respect thereto. All Tenant Improvements for which the Tenant Improvement Allowance has been made available shall be deemed Landlord’s property under the terms of the Lease and Tenant shall not be required to remove the Tenant Improvements upon the expiration of earlier termination of the Lease Term. “Tenant Improvements” shall not include any Tenant trade fixtures, equipment, or Tenant personal property.

2.1.2 Additional Tenant Improvement Allowance. Subject to the terms and conditions set forth in this Section 2.1.2, and Sections 2.1.3 and 2.1.4, below, as applicable, Tenant shall be entitled to increase the Tenant Improvement Allowance (collectively, the “Additional Tenant Improvement Allowance”) by $25.00 per rentable


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square foot of the Premises (i.e., $4,080,125.00 based upon 163,205 rentable square feet in the Premises), resulting in a total amount of the Tenant Improvement Allowance plus the Additional Tenant Improvement Allowance not to exceed Thirty-Five Million Eighty-Nine Thousand Seventy-Five and 00/100 Dollars ($35,089,075.00), pursuant to a notice delivered to Landlord on or before the Lease Commencement Date. In the event that the Additional Tenant Improvement Allowance is not fully disbursed by Landlord on behalf of Tenant on or before the date that occurs twelve (12) months following the Lease Commencement Date, then Tenant shall have no further rights with respect thereto. In the event Tenant exercises its right to use all or any portion of the Additional Tenant Improvement Allowance, the monthly Base Rent for the Premises shall be increased as follows.

2.1.2.1 Additional Monthly Base Rent. If Tenant exercises its right to use any portion of the Additional Tenant Improvement Allowance, the monthly Base Rent for the Premises shall be increased by an amount equal to the “Additional Monthly Base Rent,” as that term is defined below, in order to repay such Additional Tenant Improvement Allowance to Landlord. The “Additional Monthly Base Rent” shall be determined as the missing component of an annuity, which annuity shall have (w) the amount of the Additional Tenant Improvement Allowance which Tenant actually utilizes as the present value amount, (x) the number of monthly rental payments that Tenant shall be required to make during the then-remaining term of Tenant’s lease of the Premises as the number of payments (excluding the Base Rent Abatement Period), (y) sixty-seven hundredths (.67), which is equal to eight percent (8%) divided by twelve (12) months per year, as the monthly interest factor and (z) the Additional Monthly Base Rent as the missing component of the annuity. Landlord and Tenant acknowledge that the Additional Tenant Improvement Allowance may be requested by Tenant, and paid to Tenant, in multiple disbursements, and the parties shall follow the distribution process set forth in Section 2.1.3 and/or Section 2.1.4, below, as applicable, for each such disbursement.

2.1.3 Distribution of Additional Tenant Improvement Allowance Prior to Substantial Completion of the Premises. If Tenant elects to utilize all or a portion of the Additional Tenant Improvement Allowance prior to the substantial completion of the Tenant Improvements, then (i) all references in this Tenant Work Letter to the “Tenant Improvement Allowance”, shall be deemed to include the Additional Tenant Improvement Allowance which Tenant actually utilizes, (ii) the parties shall promptly execute an amendment (the “Pre-SC Amendment”) to this Lease setting forth the new amount of the Base Rent and Tenant Improvement Allowance computed in accordance with Section 2.1.2 and this Section 2.1.3, (iii) Tenant shall deliver to Landlord, concurrently with Tenant’s execution and delivery of the Pre-SC Amendment to Landlord, a new L-C or an amendment to the existing L-C, in the form attached to this Lease as Exhibit G and subject to the terms and conditions of Article 21 of the Lease, in an amount equal to (or increasing the then existing L-C Amount by) one and one-half times the Additional Monthly Base Rent (as applicable, the “Additional LOC Amount”), and (iv) the additional amount of monthly Base Rent owing in accordance with Section 2.1.2, above, for the first full month of the Lease Term shall be paid by Tenant to Landlord at the time of Tenant’s execution of the Pre-SC Amendment.

2.1.4 Distribution of Additional Tenant Improvement Allowance Following Substantial Completion of the Premises. If Tenant elects to utilize all or a portion of the Additional Tenant Improvement Allowance following the substantial completion of the Tenant Improvements, then (i) all improvements to be constructed with such Additional Tenant Improvement Allowance (the “Additional Improvements”) shall be constructed pursuant to the terms of Article 8 of the Lease, provided that (A) the Additional Tenant Improvement Allowance shall be distributed pursuant to Landlord’s standard disbursement procedures, and (B) Landlord shall receive the PMA Fee with respect to such Additional Improvements, (ii) the parties shall promptly execute an amendment (the “Post-SC Amendment”) to this Lease setting forth the new amount of the Base Rent and Additional Tenant Improvement Allowance, and (iii) Tenant shall deliver to Landlord, concurrently with Tenant’s execution and delivery of the Post-SC Amendment, a L-C or an amendment to the existing L-C, in the form attached to the Lease as Exhibit G and subject to the terms and conditions of Article 21 of the Lease, in the Additional LOC Amount (which Additional LOC Amount shall be subject to reduction under the terms of Article 21 of the Lease), and (iv) the additional amount of monthly Base Rent owing in accordance with Section 2.1.2, above, for the first month following the anticipated date of disbursement shall be paid by Tenant to Landlord at the time of Tenant’s execution of the Post-SC Amendment.


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2.2 Disbursement of the Tenant Improvement Allowance.

2.2.1 Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlord’s disbursement process) only for the following items and costs (collectively, the “Tenant Improvement Allowance Items”):

2.2.1.1 Payment of the fees of the “Architect” and the “Engineers,” as those terms are defined in Section 3.1 of this Tenant Work Letter, which fees shall, notwithstanding anything to the contrary contained in this Tenant Work Letter, not exceed an aggregate amount equal to $20.00 per rentable square foot of the Premises, and payment of the third-party out-of-pocket fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord’s consultants in connection with the preparation and review of the “Construction Drawings,” as that term is defined in Section 3.1 of this Tenant Work Letter;

2.2.1.2 The payment of plan check, permit and license fees relating to construction of the Tenant Improvements;

2.2.1.3 The hard and soft cost of construction of the Tenant Improvements, including, without limitation, testing and inspection costs, hoisting and trash removal costs, and contractors’ fees and general conditions;

2.2.1.4 The cost of any changes in the Base Building Improvements when such changes are required by the Construction Drawings (including if such changes are due to the fact that such work is prepared on an unoccupied basis), such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;

2.2.1.5 The cost of any changes to the Construction Drawings or Tenant Improvements required by all applicable building codes (the “Code”); unless such changes are due to the failure of the Base Building or Landlord Initial Compliance Obligations to comply with the Code upon substantial completion of the Base Building Improvements, in which case Landlord will pay such cost without deduction from the Tenant Improvement Allowance;

2.2.1.6 The cost of Tenant’s Signage;

2.2.1.7 The cost of the “PMA Fee,” as that term is defined in Section 4.3.2 of this Tenant Work Letter;

2.2.1.8 The cost of Tenant’s project manager;

2.2.1.9 Sales and use taxes and Title 24 fees; and

2.2.1.10 The cost of installing Tenant’s telephone and data cabling and other IT expenses in the Premises, not exceed an aggregate amount equal to $5.00 per rentable square foot of the Premises;

2.2.1.11 All other costs to be expended by Landlord in connection with the construction of the Tenant Improvements, provided such costs have been reasonably approved by Tenant in writing in advance.

Tenant will not be charged for freight elevator use, utilities, parking, staging area (if any) use or similar fees in connection with the construction of the Tenant Improvements.


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Section 3

CONSTRUCTION DRAWINGS

3.1 Selection of Architect/Construction Drawings. Landlord shall retain the architect/space planner selected by Tenant and reasonably approved by Landlord (the “Architect”) to prepare the “Construction Drawings,” as that term is defined in this Section 3.1, pursuant to a contract between Landlord and the Architect, which contract shall be subject to Tenant’s approval, which approval shall not be unreasonably withheld, conditioned or delayed. Landlord shall retain (or cause the Architect to retain) engineering consultants (the “Engineers”) mutually and reasonable approved by Landlord and Tenant (and pursuant to a contract between Landlord and the Engineers, which contract shall be subject to Tenant’s approval, which approval shall not be unreasonably withheld, conditioned or delayed) to prepare all plans and engineering working drawings; provided, however, the following engineering consultants are hereby approved by Landlord and Tenant as of the date of this Lease: Creo Engineering for HVAC design; MPE Consulting for electrical design; and Prime Structural Engineers for structural engineering. Plumbing and life safety will be performed on a “Design/Building” basis. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the “Construction Drawings.” Landlord shall cause the Architect and the Engineers to work directly with Tenant in order to develop the Construction Drawings. All Construction Drawings shall comply with the drawing format and specifications as determined by Landlord, and shall be subject to Landlord’s approval. Notwithstanding the fact that Landlord is retaining the Architect and the Engineers, Tenant shall be responsible for ensuring that all elements of the design of the Construction Drawings are suitable for Tenant’s use of the Premises. Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the Base Building Plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord’s review of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlord’s review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s space planner, architect, engineers, and consultants, except to the extent arising from the intentional misconduct of Landlord or Landlord’s space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and Tenant’s waiver and indemnity set forth in this Lease shall specifically apply to the Construction Drawings.

3.2 Space Plan. Tenant and the Architect shall prepare the final space plan for Tenant Improvements in the Premises (collectively, the “Final Space Plan”), which Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein, and shall deliver four (4) copies signed by Tenant of the Final Space Plan to Landlord for Landlord’s approval. Landlord and Tenant each acknowledge and agree that the Final Space Plan shall consist of primarily office and research laboratory uses, configured to maximize the future marketability of the Building, and that manufacturing improvements are not to be a part of the Tenant Improvements. Landlord shall advise Tenant if the Space Plan is approved or disapproved. If disapproved, then after receiving such notice of disapproval, Tenant shall cause the Architect to revise the Space Plan, taking into account the reasons for Tenant’s disapproval, and resubmit the Space Plan to Landlord for its approval. Such procedure shall be repeated as necessary until Landlord has approved the Space Plan.

3.3 Approved Working Drawings. Tenant, the Architect and the Engineers shall complete the architectural and engineering drawings for the Premises, and the final architectural working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “Final Working Drawings”) and shall submit two (2) copies signed by Tenant of the same to Landlord for Landlord’s approval. Landlord shall advise Tenant if the Final Working Drawings are approved or disapproved. If disapproved, then After receiving such notice of disapproval, Tenant shall cause the Architect and/or the Engineers to revise the Final Working Drawings, taking into account the reasons for Landlord’s disapproval, and resubmit the Final Working Drawings to Landlord for its approval. Such procedure shall be repeated as necessary until Landlord has approved the Final Working Drawings.


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3.4 Permits. The Final Working Drawings shall be approved by Landlord (the “Approved Working Drawings”) prior to the commencement of construction of the Premises by Contractor. After approval by Landlord of the Final Working Drawings, Tenant shall promptly submit the same to the appropriate municipal authorities for all applicable building permits necessary to allow “Contractor,” as that term is defined in Section 4.1, below, to commence and fully complete the construction of the Tenant Improvements (the “Permits”) and, in connection therewith, Tenant shall coordinate with Landlord in order to allow Landlord, at its option, to take part in all phases of the permitting process and shall supply Landlord, as soon as possible, with all plan check numbers and dates of submittal and obtain the Permits on or before the Ready For TI Date. Tenant hereby agrees that neither Landlord nor Landlord’s consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenant’s responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations (other than normal and customary field modifications) in the Approved Working Drawings may be made without the prior written consent of Landlord, which consent may not be unreasonably withheld.

3.5 Change Orders.

3.5.1 Government Change Order. If Landlord determines at any time that changes in the Approved Working Drawings relating to any item of Tenant Improvements are required as a result of Applicable Law or governmental requirements, or are required at the insistence of any building inspector or similar authority whose approval is required with respect to the Substantial Completion of the Tenant Improvements (a “Government Change Order”), then Landlord shall promptly (a) advise Tenant of such circumstances and (b) cause the Approved Working Drawings to be modified by Architect accordingly and submitted to Tenant for Tenant’s information. The cost of any Government Change Order shall be added to the Cost Proposal or, if the Cost Proposal Delivery Date has already occurred, the cost shall be handled pursuant to Section 4.3.1, below.

3.5.2 Tenant Change Orders. No material changes or modifications to the Approved Working Drawings shall be made by Tenant except by a written change order signed by Landlord and Tenant. If Tenant desires any material change in the Approved Working Drawings, Tenant shall cause the Architect or the Contractor to prepare and to submit to Landlord a copy of the change order (a “Tenant Change Order”) reflecting the proposed change. Landlord shall not unreasonably withhold or condition its approval of a Tenant Change Order, and shall approve or disapprove of the same within five (5) business days after receipt thereof; provided that Landlord may withhold its consent, in its sole discretion, to any change if such change would directly or indirectly delay the Substantial Completion of the Premises; provided, further, that to the extent Tenant agrees in writing that such delay shall be deemed a Tenant Delay pursuant to Section 5.2.5 of this Tenant Work Letter, then such consent shall not be unreasonably withheld by Landlord. If Landlord disapproves a Tenant Change Order, Landlord shall notify Tenant of the revisions required, if any, that would make the Tenant Change Order acceptable to Landlord. At the time Landlord approves of a Tenant Change Order, Landlord shall provide Tenant with Landlord’s estimate of (i) the increase or decrease in the cost of the Tenant Improvements which would result from such Tenant Change Order, and (ii) the delay, if any, in the commencement or completion of the Tenant Improvements which would result from such Tenant Change Order. Landlord shall exercise reasonable care in preparing the cost and delay estimates, but such estimates will not limit Tenant’s obligation to pay for the actual increase in the cost of the Tenant Improvements resulting from the Tenant Change Order or Tenant’s responsibility for actual delays resulting from the Tenant Change Order. Within two (2) business days after receipt of the cost and delay estimates, Tenant shall notify Landlord in writing whether Tenant approves the Tenant Change Order. If Tenant approves of the Tenant Change Order, then Tenant and Landlord shall execute the Tenant Change Order, and the Approved Working Drawings shall be revised to incorporate the Tenant Change Order. If Tenant fails to approve the Tenant Change Order within such two (2) business days, construction of the Tenant Improvements shall proceed in accordance with the Approved Working Drawings without incorporating the Tenant Change Order.

3.5.3 Landlord Change Orders. No material changes or modifications to the Approved Working Drawings shall be made by Landlord except by a written change order signed by Landlord and Tenant. If Landlord desires any material change in the Approved Working Drawings, Landlord shall cause the Architect or the Contractor to prepare and to submit to Tenant a copy of the change order (a “Landlord Change Order”) reflecting the proposed


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change. Tenant shall not unreasonably withhold or condition its approval of a Landlord Change Order, and shall approve or disapprove of the same within five (5) business days after receipt thereof; provided that Tenant may withhold its consent, in its sole discretion, to any change if such change would directly or indirectly delay the Substantial Completion of the Premises. If Tenant disapproves a Landlord Change Order, Tenant shall notify Landlord of the revisions required, if any, that would make the Landlord Change Order acceptable to Tenant. At the time Tenant approves of a Landlord Change Order, Landlord shall provide Tenant with Landlord’s estimate of (i) the increase or decrease in the cost of the Tenant Improvements which would result from such Landlord Change Order, and (ii) the delay, if any, in the commencement or completion of the Tenant Improvements which would result from such Landlord Change Order. Within two (2) business days after receipt of the cost and delay estimates, Tenant shall notify Landlord in writing whether Tenant approves the Landlord Change Order. If Tenant approves of the Landlord Change Order, then Tenant and Landlord shall execute the Landlord Change Order, and the Approved Working Drawings shall be revised to incorporate the Landlord Change Order. If Tenant fails to approve the Landlord Change Order within such two (2) business days, construction of the Tenant Improvements shall proceed in accordance with the Approved Working Drawings without incorporating the Landlord Change Order. Landlord shall pay for the cost increase, if any, associated with a Landlord Change Order.

3.6 Time Deadlines. Each party shall use its best, good faith, efforts and all due diligence to cooperate with the Architect, the Engineers, and the other party to complete all phases of the Construction Drawings and the permitting process and to receive the Permits, and with Contractor for approval of the “Cost Proposal,” as that term is defined in Section 4.2 of this Tenant Work Letter, as soon as possible after the execution of the Lease, and, in that regard, the parties shall meet with each other on a scheduled basis to be determined by Landlord, to discuss each party’s progress in connection with the same.

3.7 Electronic Approvals. Notwithstanding any provision to the contrary contained in the Lease or this Tenant Work Letter, Landlord may, in Landlord’s sole and absolute discretion, transmit or otherwise deliver any of the approvals required under this Tenant Work Letter via electronic mail to Tenant’s representative identified in Section 6.3 of this Tenant Work Letter, or by any of the other means identified in Section 29.18 of this Lease.

Section 4

CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1 Contractor. Tenant shall select a contractor (“Contractor”) to construct the Tenant Improvements pursuant to the terms of this Section 4.1. Promptly following the full execution and delivery of the Lease, Landlord shall deliver a construction proposal bid package (the “RFP”) to three (3) licensed contractors selected by Tenant and reasonably approved by Landlord, and, in Landlord’s sole discretion, to the contractor that is constructing the Base Building Improvements (each a “Bidding Contractor,” and, collectively, the “Bidding Contractors”) requesting each Bidding Contractor to bid on the construction of the Tenant Improvements. Each of the Bidding Contractors shall be notified in the RFP, which shall be prepared by Landlord in consultation with Tenant, and Tenant may require certain industry standard provisions to be included in the RFP and Contract (as defined in Section 4.3.2, below), of (i) the time schedule for construction of the Tenant Improvements, (ii) the requirement that, unless Landlord otherwise requires, the selected Bidding Contractor shall use the Engineers set forth in Section 3.1, above, and (iii) all major subcontractors must be bid to at least two (2) qualified subcontractors. Tenant shall, within three (3) business days following the date upon which Landlord delivers such bids to Tenant, select the Contractor from among the Bidding Contractors that Landlord determines have (a) submitted qualified bids which were consistent with the bid assumptions and directions, and (b) have committed to Landlord’s time schedule for construction of the Tenant Improvements (each such bid, a “Bid Proposal”); provided, however, Landlord may, in Landlord’s sole discretion, elect to choose one of the other Bidding Contractors (in which case the Bidding Contractor selected by Landlord shall be the Contractor), provided that if the Bid Proposal submitted by the Bidding Contractor selected by Landlord is higher than the Bid Proposal submitted by the Bidding Contractor selected by Tenant, then Landlord shall be responsible for the costs and expenses in excess of the Bid Proposal submitted by the Bidding Contractor selected by Tenant (the “Increased TI Costs”). In no event shall Tenant be responsible for any amounts associated with or arising out of the Increased TI Costs (provided Tenant shall remain responsible for the cost of any Government Change Order or Tenant Change Orders), and Rent shall not be modified based on such Increased TI Costs. The Increased TI Costs


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shall not be considered part of the Additional Tenant Improvement Allowance. In addition, for purposes of comparing the amount of each Bid Proposal submitted by the Bidding Contractors, the date submitted by each Bidding Contractor for the Substantial Completion of the Tenant Improvements shall be considered such that each Bid Proposal (other than the Bid Proposal of the Bidding Contractor that has submitted the earliest date for Substantial Completion of the Tenant Improvements) shall be increased by an amount equal to $27,744.85 for each day scheduled to occur between the date submitted by the Bidding Contractor that has submitted the earliest date for Substantial Completion of the Tenant Improvements and the date submitted by each of the others Bidding Contractors for Substantial Completion of the Tenant Improvements. Tenant hereby acknowledges that the Contractor shall be required to agree in the construction contract to pay Landlord liquidated damages in an amount equal to $7,000.00 for each day that occurs after the date submitted by the Contractor for Substantial Completion of the Tenant Improvements in its Bid Proposal and the actual date of Substantial Completion of the Tenant Improvements. Notwithstanding any provision to the contrary set forth in the Lease or this Tenant Work Letter, in the event the Bid Proposals provided to Tenant are all greater than the Tenant Improvement Allowance (as the same may be increased), Tenant shall have the right, exercisable one (1) or more times, to request a value-engineering Tenant Change Order by the Architect and Engineers, the cost of which shall be included in the Tenant Improvement Allowance (as the same may be increased), by providing Landlord with written notice of Tenant’s intent to exercise said right within five (5) business days following Tenant’s receipt of the Cost Proposals from Landlord (“Value-Engineering Notice”), provided any such changes in the Value-Engineering Notice shall be subject to Landlord’s reasonable approval. Following Landlord’s receipt and approval of a Value-Engineering Notice, Tenant shall cause the Architect and Engineers to revise the Approval Working Drawings and Landlord shall cause the Bidding Contractors to submit revised Bid Proposals based on such revised Approved Working Drawings. Notwithstanding Tenant’s right to value engineer the Cost Proposals pursuant to the terms of this Section 4.2, if Tenant fails to deliver the Permits to Landlord on or before the Ready For TI Date, such failure shall be deemed a Tenant caused delay under Section 5.2.1, below. Once selected, Landlord shall promptly thereafter enter into a contract with the Contractor for the construction of the Tenant Improvements.

4.2 Cost Proposal. After the Contractor has been selected pursuant to Section 4.1, above, Landlord shall provide Tenant with a cost proposal in accordance with the Approved Working Drawings, which cost proposal shall include, as nearly as possible, the cost of all Tenant Improvement Allowance Items to be incurred by Tenant in connection with the design and construction of the Tenant Improvements (the “Cost Proposal”). Tenant shall approve and deliver the Cost Proposal to Landlord within five (5) business days of the receipt of the same, and upon receipt of the same by Landlord, Landlord shall be released by Tenant to purchase the items set forth in the Cost Proposal and to commence the construction relating to such items. The date by which Tenant must approve and deliver the Cost Proposal to Landlord shall be known hereafter as the “Cost Proposal Delivery Date”.

4.3 Construction of Tenant Improvements by Contractor under the Supervision of Landlord.

4.3.1 Over-Allowance Amount. On the Cost Proposal Delivery Date, Tenant shall deliver to Landlord cash in an amount (the “Over-Allowance Amount”) equal to the difference between (i) the amount of the Cost Proposal and (ii) the amount of the Tenant Improvement Allowance (as increased by any Additional Tenant Improvement Allowance which Tenant elects in writing to utilize). The Over-Allowance Amount shall be disbursed by Landlord prior to the disbursement of any then remaining portion of the Tenant Improvement Allowance, and such disbursement shall be pursuant to the same procedure as the Tenant Improvement Allowance. In the event that, after the Cost Proposal Delivery Date, any revisions, changes, or substitutions shall be made to the Construction Drawings or the Tenant Improvements as a result of any Government Change Order or Tenant Change Orders, any additional costs which arise in connection with such revisions, changes or substitutions or any other additional costs shall be paid by Tenant to Landlord immediately upon Landlord’s request as an addition to the Over-Allowance Amount.

4.3.2 Landlord’s Retention of Contractor. Landlord shall independently retain Contractor to construct the Tenant Improvements in accordance with the Approved Working Drawings (subject to the following sentence) and the Cost Proposal and Landlord shall supervise the construction by Contractor, and Tenant shall not be required pay a construction supervision and management fee to Landlord; provided, however, Tenant shall pay Landlord for the construction supervision and management fee (the “PMA Fee”) in an amount equal to the actual out-of-pocket management fee that Landlord pays to its project manager, Project Management Advisors (“PMA”); provided further that the PMA Fee shall not exceed an amount equal to two and 65/100 percent (2.65%) of the total


	-66-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

cost of all Tenant Improvement Allowance Items (based on the Cost Proposal submitted by the Bidding Contractor selected by Tenant, but including the cost of any Government Change Order or Tenant Change Orders). Prior to Landlord’s execution of the construction contract and general conditions with Contractor (the “Contract”), Landlord shall submit the Contract to Tenant for its review and comment, provided Landlord shall not be required to include in the Contract any provision that Landlord in good faith does not believe is commercially reasonable. Notwithstanding anything set forth in this Tenant Work Letter to the contrary, construction of the Tenant Improvements shall not commence until (a) Landlord has a fully executed and delivered contract with Contractor for the construction of the Tenant Improvements, and (b) Tenant has delivered to Landlord the Over-Allowance Amount. The Tenant Improvements will be constructed in a good and workmanlike manner, and in compliance with Applicable Laws as of the date of Substantial Completion of the Tenant Improvements, including without limitation Title 24 and laws enacted under the ADA, to the extent required to allow Tenant to obtain a certificate of occupancy or its legal equivalent allowing the legal occupancy of the Premises for the Permitted Use. Landlord shall ensure that Landlord or Contractor carry Builder’s All Risk insurance covering the Tenant Improvements prior to the Lease Commencement Date and Tenant shall not have any obligation to insure the Tenant Improvements until the Lease Commencement Date. For clarity, and notwithstanding anything in the Lease or this Tenant Work Letter to the contrary, in no event shall Tenant be responsible for removing or restoring any Tenant Improvements or any work associated with the Final Condition of the Building.

4.3.3 Contractor’s Warranties and Guaranties. Landlord hereby agrees to obtain industry standard warranties from the Contractor and all subcontractors and assigns to Tenant all warranties and guaranties by Contractor relating to the Tenant Improvements, and Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the Tenant Improvements. Landlord will assist Tenant in enforcing all warranties against the applicable parties.

4.3.4 Landlord’s Obligations. Landlord shall promptly notify Tenant of any delays or issues arising out of or related to the Tenant Improvements and shall reasonably cooperate with Tenant to minimize any such delays. Notwithstanding anything in this Lease to the contrary, Landlord shall be solely responsible for engaging with, contracting with, supervising, directing, and paying the Contractor and any subcontractors. Tenant shall not have any obligation to pay the Contractor or any subcontractor directly. In connection with its performance of the Tenant Improvements, Landlord shall procure and maintain, and shall require the Contractor to procure and maintain, insurance (including Builder’s All Risk ) in an amount and of a type that a reasonably prudent similarly situated landlord would procure and maintain. Tenant shall not have any obligation to insure the Tenant Improvements (or any work related thereto) until the Lease Commencement Date as may otherwise be required under the Lease.

Section 5

COMPLETION OF THE TENANT IMPROVEMENTS; LEASE COMMENCEMENT DATE

5.1 Substantial Completion of the Tenant Improvements. For purposes of this Lease, “Substantial Completion” of the Tenant Improvements shall occur upon the later to occur of (i) the completion of construction of the Tenant Improvements in the Premises pursuant to the Approved Working Drawings, with the exception of any punch list items and any tenant fixtures, work-stations, built-in furniture, or equipment to be installed by Tenant or under the supervision of Contractor, (ii) substantial completion of the Base Building Improvements and Landlord Initial Compliance Obligations, and (iii) the issuance of a certificate of occupancy or its legal equivalency for the legal occupancy and use of the Premises by Tenant.

5.2 Delay of the Substantial Completion of the Premises. Except as provided in this Section 5.2, the Lease Commencement Date shall occur as set forth in the Lease and Section 5.1, above. If there shall be a delay or there are delays in the Substantial Completion of the Premises as a result of:

5.2.1 Tenant’s failure to deliver the Permits to Landlord on or before the Ready For TI Date;

5.2.2 Tenant’s failure to timely approve any matter requiring Tenant’s approval;


	-67-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

5.2.3 A breach by Tenant of the terms of this Tenant Work Letter or the Lease;

5.2.4 Changes in any of the Construction Drawings after disapproval of the same by Landlord or because the same do not comply with Code or other applicable laws;

5.2.5 a Tenant Change Order;

5.2.6 Tenant’s requirement for materials, components, finishes or improvements which are not available in a commercially reasonable time given the anticipated date of Substantial Completion of the Premises, as set forth in the Lease, provided that, to the extent known by Landlord at the time of Tenant’s request for such materials, components, finishes or improvements, Landlord shall inform Tenant of the delay and Tenant, within two (2) business days, may select alternative materials, components, finishes or improvements that are reasonably available in order to avoid a Tenant Delay;

5.2.7 Changes to the Base Building Improvements required by the Approved Working Drawings; or

5.2.8 Any other acts or omissions of Tenant, or its agents, or employees, including any interference resulting from Tenant’s early entry into the Premises pursuant to Section 6.1, below; (each, a “Tenant Delay”) then, notwithstanding anything to the contrary set forth in the Lease or this Tenant Work Letter and regardless of the actual date of the Substantial Completion of the Premises, the date of the Substantial Completion of the Premises shall be deemed to be the date the Substantial Completion of the Premises would have occurred if no Tenant Delay or delays, as set forth above, had occurred. Notwithstanding the foregoing, no Tenant Delay pursuant to Section 5.2.2 (except as to items for which the time period for Tenant’s approval is expressly set forth herein), 5.2.3 or 5.2.8 above shall be deemed to have occurred unless and until Landlord has provided written notice to Tenant specifying the action or inaction that Landlord contends constitutes a Tenant Delay. If such action or inaction is not cured within one (1) day after receipt of such notice, then a Tenant Delay, as set forth in such notice, shall be deemed to have occurred commencing as of the date such notice is received and continuing for the number of days that Substantial Completion of the Tenant Improvements was in fact delayed as a result of such action or inaction.

Section 6

MISCELLANEOUS

6.1 Tenant’s Entry Into the Premises Prior to Substantial Completion. Provided that Tenant and its agents do not interfere with Contractor’s work in the Building and the Premises, Contractor shall allow Tenant access to the Premises (or certain portions of the Premises) prior to the Substantial Completion of the Premises (without the payment of Rent) for the purpose of Tenant installing equipment, furniture and fixtures (including Tenant’s data and telephone equipment) in the Premises and to conduct other move-in activities. Prior to Tenant’s entry into the Premises as permitted by the terms of this Section 6.1, Tenant shall submit a schedule to Landlord and Contractor, for their approval, which schedule shall detail the timing and purpose of Tenant’s entry. Landlord shall not, and shall require that Contractor not, unreasonably withhold, condition, or delay consent to such schedule. Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Building or Premises and against injury to any persons caused by Tenant’s actions pursuant to this Section 6.1.

6.2 Tenant’s Representative. Tenant has designated Kirt Gilliland of Gilliland Construction Management as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

6.3 Landlord’s Representative. Landlord has designated Jeff Sobczyk of PMA as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter.


	-68-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

6.4 Time of the Essence in This Tenant Work Letter. Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. Time is of the essence with respect to the performance of every provision of this Tenant Work Letter in which time of performance is a factor.

6.5 Tenant’s Agents. All contractors, subcontractors, laborers, materialmen, and suppliers retained directly by Tenant, if any, shall be approved by Landlord, such approval not to be unreasonably withheld.

6.6 Tenant’s Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if an event of default as described in the Lease, or a default by Tenant under this Tenant Work Letter, has occurred at any time on or before the Substantial Completion of the Premises, in each case, beyond any applicable notice and cure period expressly set forth in the Lease or this Tenant Work Letter, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Premises caused by such work stoppage as set forth in Section 5 of this Tenant Work Letter), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease.


	-69-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

SCHEDULE 1 TO EXHIBIT B

BASE BUILDING PLANS

Except as modified by the bullets below, Landlord shall construct the warm shell reflected in the construction documents prepared by Delawie Architecture and submitted to the City of San Diego for permitting, which Landlord has previously made available for Tenant’s review.

 Lobby & Lobby stair with all associated finishes, plumbing fixtures and infrastructure, HVAC, electrical, and fire life safety systems.

 Core Restrooms with all associated finishes, plumbing, HVAC, electrical, and fire life safety systems.

 Training Room/Conference area depicted in the Delawie plans shall be deleted. Tenant may use the Tenant Improvement Allowance to design and construct its own improvements in this area.

 Elevator: (2) traction elevators, both finished for passenger use: (1) elevator is sized for service and (1) sized for passengers.

 Plumbing to include central heating hot water, cold water, and sanitary systems with piping main distribution. Additionally, lab waste lines, vents & sample ports in 4 column stacks Tenant to provide branch connection points for future tenant connections.

 Mechanical/HVAC: Base building rooftop package units shall be installed with ducting systems stubbed to each floor. Capacity sized for office/lab load typical for San Diego life science R&D facilities. All tenant space VAV’s and other TI equipment to be provided by tenant.

 Electrical to include main building Switchgear (4000A 480V) for distribution to all floors and mechanical support. Distribution to have separate house SDGE meter and provisions for multiple SDGE meters for tenant use; Distribution boards shall be located at the main electrical room for the tenant and house system. Provisions for future generator connectivity shall be provided.

 Completion of fitness center and cafeteria buildings.


	-70-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

SCHEDULE 2 TO EXHIBIT B

DELIVERY CONDITION

Landlord Initial Compliance Obligations

1. Building is without water leaks.

2. Access to elevators or temporary freight elevator.

3. Access to temporary power.

4. Access to the Premises.

EXHIBIT C

SORRENTO GATEWAY

NOTICE OF LEASE TERM DATES

To: _________________________
_________________________
_________________________
_________________________

Re: Lease dated _________, 20__ between __________________, a ____________________________ (“Landlord”), and __________________________, a ______________________ (“Tenant”) concerning Suite _____ on floor(s) _____________ of the building located at __________________________, California.

Gentlemen:

In accordance with the Lease (the “Lease”), we wish to advise you and/or confirm as follows:

1. The Lease Term shall commence on or has commenced on _____________ for a term of ________________ ending on _____________.

2. Rent commenced to accrue on ______________, in the amount of ____________.

3. If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter, with the exception of the final billing, shall be for the full amount of the monthly installment as provided for in the Lease.

4. Your rent checks should be made payable to __________at _____________.

5. The exact number of rentable/usable square feet within the Premises is ________ square feet.

6. Tenant’s Share as adjusted based upon the exact number of usable square feet within the Premises is ______________%.


	-71-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

“Landlord”:

______________________________________________,
a _____________________________________________

By: ___________________________________________
Its: _________________________________________

Agreed to and Accepted as
of __________, 201__,

“Tenant”:

______________________________________________,
a _____________________________________________

By: ____________________________________________
Its: __________________________________________


	-72-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

EXHIBIT D

SORRENTO GATEWAY

FORM OF TENANT’S ESTOPPEL CERTIFICATE

The undersigned as Tenant under that certain Lease (the “Lease”) made and entered into as of ____________, 20___ by and between _______________ as Landlord, and the undersigned as Tenant, for Premises consisting of the entire office building located at ____________________________, California, certifies as follows:

1. Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.

2. The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on __________, and the Lease Term expires on ___________, and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project.

3. Base Rent became payable on _____________.

4. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A.

5. Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows:

6. Tenant shall not modify the documents contained in Exhibit A without the prior written consent of Landlord’s mortgagee.

7. All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through ____________. The current monthly installment of Base Rent is $_______________.

8. All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder. In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder. The Lease does not require Landlord to provide any rental concessions or to pay any leasing brokerage commissions.

9. No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease. Neither Landlord, nor its successors or assigns, shall in any event be liable or responsible for, or with respect to, the retention, application and/or return to Tenant of any security deposit paid to any prior landlord of the Premises, whether or not still held by any such prior landlord, unless and until the party from whom the security deposit is being sought, whether it be a lender, or any of its successors or assigns, has actually received for its own account, as landlord, the full amount of such security deposit.

10. As of the date hereof, there are no existing defenses or offsets, or, to the undersigned’s knowledge, claims or any basis for a claim, that the undersigned has against Landlord.

11. If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.


	-73-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

12. There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state.

13. Tenant is in full compliance with all federal, state and local laws, ordinances, rules and regulations affecting its use of the Premises, including, but not limited to, those laws, ordinances, rules or regulations relating to hazardous or toxic materials. Tenant has never permitted or suffered, nor does Tenant have any knowledge of, the generation, manufacture, treatment, use, storage, disposal or discharge of any hazardous, toxic or dangerous waste, substance or material in, on, under or about the Project or the Premises or any adjacent premises or property in violation of any federal, state or local law, ordinance, rule or regulation.

14. To the undersigned’s knowledge, all tenant improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any tenant improvement work have been paid in full. All work (if any) in the common areas required by the Lease to be completed by Landlord has been completed and all parking spaces required by the Lease have been furnished and/or all parking ratios required by the Lease have been met.

The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.

Executed at ___________________ on the ___ day of ___________, 201_.

“Tenant”:

______________________________________________,
a _____________________________________________

By: ___________________________________________
Its: _________________________________________


	-74-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

EXHIBIT E

INTENTIONALLY OMITTED


	-75-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

EXHIBIT F

SORRENTO GATEWAY

ENVIRONMENTAL QUESTIONNAIRE

ENVIRONMENTAL QUESTIONNAIRE
FOR COMMERCIAL AND INDUSTRIAL PROPERTIES

Property Name: ___________________________________________________________________________
Property Address:

__________________

Instructions: The following questionnaire is to be completed by the Lessee representative with knowledge of the planned operations for the specified building/location. Please print clearly and attach additional sheets as necessary.

1.0 PROCESS INFORMATION

Describe planned use, and include brief description of manufacturing processes employed.

_____________________________________________________________________________________________
_____________________________________________________________________________________________
_____________________________________________________________________________________________

2.0 HAZARDOUS MATERIALS

Are hazardous materials used or stored? If so, continue with the next question. If not, go to Section 3.0.

2-1 Are any of the following materials handled on the Property? Yes ☐ No ☐

(A material is handled if it is used, generated, processed, produced, packaged, treated, stored, emitted, discharged, or disposed.) If so, complete this section. If this question is not applicable, skip this section and go on to Section 5.0.


☐ Explosives	☐ Fuels	☐ Oils
☐ Solvents	☐ Oxidizers	☐ Organics/Inorganics
☐ Acids	☐ Bases	☐ Pesticides
☐ Gases	☐ PCBs	☐ Radioactive Materials
☐ Other (please specify)

2-2 If any of the groups of materials checked in Section 2.1, please list the specific material(s), use(s), and quantity of each chemical used or stored on the site in the Table below. If convenient, you may substitute a chemical inventory and list the uses of each of the chemicals in each category separately.


	-76-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]


Material	Physical State (Solid, Liquid, or Gas)	Usage	Container Size	Number of Containers	Total Quantity

2-3 Describe the planned storage area location(s) for these materials. Please include site maps and drawings as appropriate.

3.0 HAZARDOUS WASTES

Are hazardous wastes generated? Yes ☐ No ☐

If yes, continue with the next question. If not, skip this section and go to section 4.0.

3-1 Are any of the following wastes generated, handled, or disposed of (where applicable) on the Property?


☐ Hazardous wastes	☐ Industrial Wastewater
☐ Waste oils	☐ PCBs
☐ Air emissions	☐ Sludges
☐ Regulated Wastes	☐ Other (please specify)

3-2 List and quantify the materials identified in Question 3-1 of this section.


WASTE GENERATED	RCRA listed Waste?	SOURCE	APPROXIMATE MONTHLY QUANTITY	WASTE CHARACTERIZATION	DISPOSITION

3-3 Please include name, location, and permit number (e.g. EPA ID No.) for transporter and disposal facility, if applicable). Attach separate pages as necessary.


	-77-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]


Transporter/Disposal Facility Name	Facility Location	Transporter (T) or Disposal (D) Facility	Permit Number

3-4 Are pollution controls or monitoring employed in the process to prevent or minimize the release of wastes into the environment? Yes ☐ No ☐

3-5 If so, please describe.

4.0 USTS/ASTS

4-1 Are underground storage tanks (USTs), aboveground storage tanks (ASTs), or associated pipelines used for the storage of petroleum products, chemicals, or liquid wastes present on site (lease renewals) or required for planned operations (new tenants)? Yes ____ No ___

If not, continue with section 5.0. If yes, please describe capacity, contents, age, type of the USTs or ASTs, as well any associated leak detection/spill prevention measures. Please attach additional pages if necessary.


Capacity	Contents	Year Installed	Type (Steel, Fiberglass, etc)	Associated Leak Detection / Spill Prevention Measures*

*Note: The following are examples of leak detection / spill prevention measures:


Integrity testing	Inventory reconciliation	Leak detection system
Overfill spill protection	Secondary containment	Cathodic protection

4-2 Please provide copies of written tank integrity test results and/or monitoring documentation, if available.

4-3 Is the UST/AST registered and permitted with the appropriate regulatory agencies? Yes ☐ No ☐

If so, please attach a copy of the required permits.


	-78-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

4-4 If this Questionnaire is being completed for a lease renewal, and if any of the USTs/ASTs have leaked, please state the substance released, the media(s) impacted (e.g., soil, water, asphalt, etc.), the actions taken, and all remedial responses to the incident.

4-5 If this Questionnaire is being completed for a lease renewal, have USTs/ASTs been removed from the Property? Yes ☐ No ☐

If yes, please provide any official closure letters or reports and supporting documentation (e.g., analytical test results, remediation report results, etc.).

4-6 For Lease renewals, are there any above or below ground pipelines on site used to transfer chemicals or wastes? Yes □ No □

For new tenants, are installations of this type required for the planned operations?

Yes ☐ No ☐

If yes to either question, please describe.

5.0 ASBESTOS CONTAINING BUILDING MATERIALS

Please be advised that an asbestos survey may have been performed at the Property. If provided, please review the information that identifies the locations of known asbestos containing material or presumed asbestos containing material. All personnel and appropriate subcontractors should be notified of the presence of these materials, and informed not to disturb these materials. Any activity that involves the disturbance or removal of these materials must be done by an appropriately trained individual/contractor.

6.0 REGULATORY

6-1 Does the operation have or require a National Pollutant Discharge Elimination System (NPDES) or equivalent permit? Yes ☐ No ☐

If so, please attach a copy of this permit.

6-2 Has a Hazardous Materials Business Plan been developed for the site? Yes ☐ No ☐

If so, please attach a copy.

CERTIFICATION

I am familiar with the real property described in this questionnaire. By signing below, I represent and warrant that the answers to the above questions are complete and accurate to the best of my knowledge. I also understand that Lessor will rely on the completeness and accuracy of my answers in assessing any environmental liability risks associated with the property.


	-79-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

Signature: _________________________________________
Name: ____________________________________________
Title: ____________________________________________
Date: ____________________________________________
Telephone: _______________________________________


	-80-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

EXHIBIT G
FORM OF LETTER OF CREDIT

BANK OF AMERICA – CONFIDENTIAL
DATE:
IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER:

APPLICANT

SORRENTO THERAPEUTICS, INC.
4955 DIRECTORS PLACE
SAN DIEGO, CA 92121

BENEFICIARY

HCP LIFE SCIENCE REIT, INC.
C/O HCP, INC.
1920 MAIN STREET, SUITE 1200
IRVINE, CA 92614

ATTENTION: LEGAL DEPARTMENT

ISSUING BANK
BANK OF AMERICA, N.A.
ONE FLEET WAY
PA6-580-02-30
SCRANTON, PA 18507-1999

AMOUNT

NOT EXCEEDING USD ___________________
NOT EXCEEDING _________________________________ US DOLLARS

EXPIRATION

_________________ AT OUR COUNTERS

WE HEREBY ESTABLISH OUR IRREVOCABLE LETTER OF CREDIT AND AUTHORIZE YOU TO DRAW ON US AT SIGHT FOR THE ACCOUNT OF SORRENTO THERAPEUTICS, INC. (“APPLICANT”) , THE AGGREGATE AMOUNT OF ________________________ DOLLARS ($________________).

FUNDS UNDER THIS LETTER OF CREDIT ARE AVAILABLE TO THE BENEFICIARY HEREOF AS FOLLOWS:

ANY OR ALL OF THE SUMS HEREUNDER MAY BE DRAWN DOWN AT ANY TIME AND FROM TIME TO TIME FROM AND AFTER THE DATE HEREOF BY HCP LIFE SCIENCE REIT, INC. (“BENEFICIARY”) WHEN ACCOMPANIED BY THIS LETTER OF CREDIT AND A WRITTEN STATEMENT SIGNED BY A SIGNATORY OF BENEFICIARY, STATING ONE OF THE FOLLOWING:

“(I) CERTIFYING THAT BENEFICIARY IS OTHERWISE ALLOWED TO DRAW DOWN ON THE LETTER OF CREDIT PURSUANT TO THE TERMS OF THAT CERTAIN OFFICE LEASE BY AND BETWEEN BENEFICIARY AND APPLICANT DATED , AS AMENDED (COLLECTIVELY, THE “LEASE”),” OR “(II) CERTIFYING THAT BENEFICIARY IS ENTITLED TO DRAW DOWN THE FULL AMOUNT OF LETTER OF CREDIT NO. ___________ AS THE RESULT OF THE FILING OF A VOLUNTARY PETITION UNDER THE U.S. BANKRUPTCY CODE OR A STATE BANKRUPTCY CODE BY THE TENANT UNDER THE LEASE, WHICH FILING HAS NOT BEEN DISMISSED AT THE TIME OF THIS DRAWING,” OR “(III) CERTIFYING THAT BENEFICIARY IS ENTITLED TO DRAW DOWN THE FULL AMOUNT OF LETTER OF CREDIT NO.”

THIS IS AN INTEGRAL PART OF LETTER OF CREDIT NUMBER:


	-81-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

_______________________ AS THE RESULT OF AN INVOLUNTARY PETITION HAVING BEEN FILED UNDER THE U.S. BANKRUPTCY CODE OR A STATE BANKRUPTCY CODE AGAINST THE TENANT UNDER THE LEASE, WHICH FILINGS HAS NOT BEEN DISMISSED AT THE TIME OF THIS DRAWING,” OR “IV) CERTIFYING THAT BENEFICIARY IS ENTITLED TO DRAW DOWN THE FULL AMOUNT OF LETTER OF CREDIT NO. ______________ AS THE RESULT OF THE REJECTION, OR DEEMED REJECTION, OF THAT CERTAIN OFFICE LEASE DATED (INSERT LEASE DATE), AS THE SAME MAY HAVE BEEN AMENDED, UNDER SECTION 365 OF THE U.S. BANKRUPTCY CODE.”

THIS LETTER OF CREDIT IS TRANSFERABLE IN FULL AND NOT IN PART. ANY TRANSFER MADE HEREUNDER MUST CONFORM STRICTLY TO THE TERMS HEREOF AND TO THE CONDITIONS OF ARTICLE 38 OF THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (2007 REVISION) FIXED BY THE INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 600. SHOULD YOU WISH TO EFFECT A TRANSFER UNDER THIS CREDIT, SUCH TRANSFER WILL BE SUBJECT TO THE RETURN TO US OF THE ORIGINAL CREDIT INSTRUMENT, ACCOMPANIED BY OUR FORM OF TRANSFER, PROPERLY COMPLETED AND SIGNED BY AN AUTHORIZED SIGNATORY OF YOUR FIRM, BEARING YOUR BANKERS STAMP AND SIGNATURE AUTHENTICATION. SUCH TRANSFER FORM IS ATTACHED HERETO AS EXHIBIT A.

PARTIAL DRAWINGS: ALLOWED

THE AMOUNT OF EACH DRAFT MUST BE ENDORSED ON THE REVERSE HEREOF BY THE NEGOTIATING BANK.

WE HEREBY AGREE WITH YOU THAT IF DRAFTS ARE PRESENTED TO THE BANK OF AMERICA N.A. UNDER THIS LETTER OF CREDIT PRIOR TO 10:00 AM EASTERN TIME, ON A BUSINESS DAY, AND PROVIDED THAT SUCH DRAFTS PRESENTED CONFORM TO THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT, PAYMENT SHALL BE INITIATED BY US IN IMMEDIATELY AVAILABLE FUNDS BY OUR CLOSE OF BUSINESS ON THE SUCCEEDING BUSINESS DAY. IF DRAFTS ARE PRESENTED TO BANK OF AMERICA N.A. UNDER THIS LETTER OF CREDIT AFTER 10:00 AM EASTERN TIME, ON A BUSINESS DAY AND PROVIDED THAT SUCH DRAFTS CONFORM WITH THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT, PAYMENT SHALL BE INITIATED BY US IN IMMEDIATELY AVAILABLE FUNDS BY OUR CLOSE OF BUSINESS ON THE SECOND SUCCEEDING BUSINESS DAY. AS USED IN THIS LETTER OF CREDIT, “BUSINESS DAY” SHALL MEAN ANY DAY OTHER THAN A SATURDAY, SUNDAY OR A DAY ON WHICH BANKING INSTITUTIONS IN THE STATE OF PENNSYLVANIA ARE AUTHORIZED OR REQUIRED BY LAW TO CLOSE. IF THE EXPIRATION DATE FOR THIS LETTER OF CREDIT SHALL EVER FALL ON A DAY WHICH IS NOT A BUSINESS DAY THEN SUCH EXPIRATION DATE SHALL AUTOMATICALLY BE EXTENDED TO THE DATE WHICH IS THE NEXT BUSINESS DAY.

WE HEREBY ENGAGE WITH YOU THAT DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT WILL BE DULY HONORED BY US IF PRESENTED AT OUR OFFICE LOCATED AT BANK OF AMERICA, N.A., 1 FLEET WAY, MC: PA6-580-02-30, SCRANTON, PA 18507-1999 , ATTN: GTO - STANDBY DEPT. (OR AT SUCH OTHER OFFICE OF THE BANK AS TO WHICH YOU HAVE RECEIVED WRITTEN NOTICE FROM US BY REGISTERED MAIL, COURIER SERVICE OR HAND DELIVERY, AS BEING THE APPLICABLE SUCH ADDRESS) ON OR BEFORE THE THEN CURRENT EXPIRATION DATE. WE AGREE TO NOTIFY YOU IN WRITING BY REGISTERED MAIL, COURIER SERVICE OR HAND DELIVERY, OF ANY CHANGE IN SUCH ADDRESS.

PRESENTATION OF A DRAWING UNDER THIS LETTER OF CREDIT MAY BE MADE ON OR PRIOR TO THE THEN CURRENT EXPIRATION DATE HEREOF BY HAND DELIVERY,

THIS IS AN INTEGRAL PART OF LETTER OF CREDIT NUMBER:


	-82-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

COURIER SERVICE, OVERNIGHT MAIL OR FACSIMILE. PRESENTATION OF DRAFTS DRAWN HEREUNDER MAY ALSO BE MADE VIA FACSIMILE TO 800-755-8743 (IF PRESENTED BY FAX IT MUST BE FOLLOWED UP BY A PHONE CALL TO US AT 800-370-7519 TO CONFIRM RECEIPT). ANY SUCH FACSIMILE DOCUMENTATION SHALL NOT REQUIRE PRESENTATION OF THE ORIGINAL DOCUMENTATION BY MAIL.

THIS LETTER OF CREDIT SHALL EXPIRE ON _______________________.

NOTWITHSTANDING THE ABOVE EXPIRATION DATE OF THIS LETTER OF CREDIT, THE TERM OF THIS LETTER OF CREDIT SHALL BE AUTOMATICALLY EXTENDED WITHOUT WRITTEN AMENDMENT FOR SUCCESSIVE, ADDITIONAL ONE (1) YEAR PERIODS UNLESS, AT LEAST SIXTY (60) DAYS PRIOR TO ANY SUCH DATE OF EXPIRATION, THE UNDERSIGNED SHALL GIVE WRITTEN NOTICE TO THE BENEFICIARY, BY CERTIFIED MAIL, OR BY OVERNIGHT COURIER SERVICE, RETURN RECEIPT REQUESTED AND AT THE ADDRESS SET FORTH ABOVE OR AT SUCH OTHER ADDRESS AS MAY BE GIVEN TO THE UNDERSIGNED BY BENEFICIARY, THAT THIS LETTER OF CREDIT WILL NOT BE EXTENDED.

ANY SUCH NOTICE SHALL BE EFFECTIVE WHEN SENT BY US AND UPON SUCH NOTICE TO YOU, YOU MAY DRAW AT ANY TIME PRIOR TO THE THEN CURRENT EXPIRATION DATE, UP TO THE FULL AMOUNT THEN AVAILABLE HEREUNDER, AGAINST YOUR DRAFT(S) DRAWN ON US AT SIGHT AND THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENTS THERETO, ACCOMPANIED BY YOUR STATEMENT, SIGNED BY AN AUTHORIZED OFFICER, ON YOUR LETTERHEAD STATING THAT YOU ARE IN RECEIPT OF BANK OF AMERICA N.A.’S NOTICE OF NONRENEWAL UNDER LETTER OF CREDIT NO. ________________ AND THE APPLICANT’S OBLIGATION TO YOU REMAINS.

HOWEVER, IN NO EVENT SHALL THIS LETTER OF CREDIT EXTEND BEYOND THE FINAL EXPIRATION DATE OF ________________.

IN THE EVENT THAT THE ORIGINAL OF THIS STANDBY LETTER OF CREDIT IS LOST, STOLEN, MUTILATED, OR OTHERWISE DESTROYED, WE HEREBY AGREE TO ISSUE A CERTIFIED TRUE COPY HEREOF UPON RECEIPT OF A WRITTEN REQUEST FROM BENEFICIARY AND A CERTIFICATION BY BENEFICIARY, IN A FORM SATISFACTORY TO US (SIGNED BY BENEFICIARY’S AUTHORIZED SIGNATORY) OF THE LOSS, THEFT, MUTILATION, OR OTHER DESTRUCTION OF THE ORIGINAL HEREOF.

THIS LETTER OF CREDIT IS GOVERNED BY THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (2007 REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION 600.

IF YOU REQUIRE ANY ASSISTANCE OR HAVE ANY QUESTIONS REGARDING THIS TRANSACTION, PLEASE CALL 800-370-7519.

IF YOU REQUIRE ANY ASSISTANCE OR HAVE ANY QUESTIONS REGARDING THIS TRANSACTION, PLEASE CALL 800-370-7519

__________________________________
AUTHORIZED SIGNATURE

THIS DOCUMENT CONSISTS OF 3 PAGE(S).

DRAFT COPY

FOR DISCUSSION AND REVIEW PURPOSES


	-83-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

ONLY

PLEASE SIGNIFY YOUR ACCEPTANCE AND APPROVAL
TO ISSUE THIS FORM:

______________________________________________________________
APPLICANT’S AUTHORIZED SIGNATURE(S) (DATE)


	-84-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

EXHIBIT A

TRANSFER


	-85-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

LEASE

SORRENTO GATEWAY

HCP LIFE SCIENCE REIT, INC.,

a Maryland corporation,

as Landlord,

and

SORRENTO THERAPEUTICS, INC.,

a Delaware corporation,

as Tenant.


	-86-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]


1. PREMISES, BUILDING, PROJECT, AND COMMON AREAS	4
2. LEASE TERM; OPTION TERM	5
3. BASE RENT	7
4. ADDITIONAL RENT	8
5. USE OF PREMISES	13
6. SERVICES AND UTILITIES	18
7. REPAIRS	20
8. ADDITIONS AND ALTERATIONS	21
9. COVENANT AGAINST LIENS	22
10. INSURANCE	22
11. DAMAGE AND DESTRUCTION	25
12. NONWAIVER	26
13. CONDEMNATION	26
14. ASSIGNMENT AND SUBLETTING	27
15. SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES	30
16. HOLDING OVER	30
17. ESTOPPEL CERTIFICATES	31
18. SUBORDINATION	31
19. DEFAULTS; REMEDIES	32
20. COVENANT OF QUIET ENJOYMENT	34
21. LETTER OF CREDIT	34
22. COMMUNICATIONS AND COMPUTER LINE	38
23. SIGNS	38
24. COMPLIANCE WITH LAW	39
25. LATE CHARGES	40
26. LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT	40


	-87-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]


27. ENTRY BY LANDLORD	40
28. TENANT PARKING	41
29. MISCELLANEOUS PROVISIONS	41

EXHIBITS

A OUTLINE OF PREMISES

A-1 OUTLINE OF SITE PLAN

B TENANT WORK LETTER

C FORM OF NOTICE OF LEASE TERM DATES

D FORM OF TENANT’S ESTOPPEL CERTIFICATE

E INTENTIONALLY OMITTED

F ENVIRONMENTAL QUESTIONNAIRE

G FORM OF LETTER OF CREDIT


	-88-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

Abatement Event 34

Accountant 13

Advocate Arbitrators 7

Alterations 21

Approved Working Drawings Exhibit B

Base Building 24

Base Building Improvements Exhibit B

Base Building Plans Exhibit B

Base Building Punch List Items Exhibit B

Base Rent 8

Base Rent Abatement 8

Brokers 45

Building 4

Common Areas 4

Comparable Buildings 6

Contemplated Effective Date 28

Contemplated Transfer Space 28

Delivery Condition Exhibit B

Delivery Date Exhibit B

Direct Expenses 9

Eligibility Period 34

Estimate 12

Estimate Statement 12

Estimated Direct Expenses 12

Existing Hazardous Materials 16

Expense Year 9

Final Condition Exhibit B

Final Condition Date Exhibit B

First Option Term 6

Force Majeure 43

Intention to Transfer Notice 28

Landlord 1

Landlord Minor Changes Exhibit B

Landlord Parties 23

Landlord Repair Notice 25

Lease 1

Lease Commencement Date 5

Lease Expiration Date 5

Lease Month 5

Lease Term 5

Lines 38

Mail 43

Neutral Arbitrator 7

Nine Month Period 28

Notices 43

Objectionable Name 39

Operating Expenses 9

Option Rent 6

Option Term 6

Original Tenant 6

Outside Agreement Date 7

Premises 4

Project, 4

Review Period 13


	-89-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

Second Option Term 6

Sign Specifications 38

SNDAA 31

Statement 12

Subject Space 27

Summary 1

Superior Holders 31

Tax Expenses 11

Tenant 1

Tenant BB Delay Exhibit B

Tenant Work Letter 4

Tenant’s Share 12

TI Item Exhibit B

Transfer Notice 27

Transferee 27


	-90-	HCP, INC. [4930 Director’s Place] [Sorrento Therapeutics, Inc.]

Exhibit 10.2

FIRST AMENDMENT TO OFFICE LEASE

This FIRST AMENDMENT TO OFFICE LEASE ("First Amendment") is made and entered into as of September 14, 2021, by and between HCP LIFE SCIENCE REIT, INC., a Maryland corporation ("Landlord"), and SORRENTO THERAPEUTICS, INC., a Delaware corporation ("Tenant").

R E C I T A L S :

Landlord and Tenant are parties to the Lease dated September 1, 2021 (the "Lease"), pursuant to which Tenant leases approximately 163,205 rentable square feet of space, consisting of the entire building (the "Building") located at 4930 Directors Place, San Diego, California 92121.

The parties desire to amend the Lease on the terms and conditions set forth in this First Amendment.

A G R E E M E N T :

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

Terms. All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Lease unless expressly provided otherwise in this First Amendment.

Tenant’s Representative. All references in Section 6.2 of Exhibit B to the Lease to "Kirt Gilliland of Gilliland Construction Management" shall be deleted in their entirety and replaced with "Troy Gardner of Sorrento Therapeutics, Inc."

Landlord’s Representative. All references in Section 6.3 of Exhibit B to the Lease to "Jeff Sobczyk" shall be deleted in their entirety and replaced with "Melissa Plaskonos."

Warranties. Landlord represents and warrants that, to its actual knowledge: (a) it is not in breach of any of its obligations under the Lease, and (b) Tenant is not in breach of any of its obligations under the Lease. Tenant represents and warrants that, to its actual knowledge: (a) it is not in breach of any of its obligations under the Lease, and (b) Landlord is not in breach of any of its obligations under the Lease.

No Further Modification. Except as specifically set forth in this First Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

IN WITNESS WHEREOF, this First Amendment has been executed as of the day and year first above written.


"LANDLORD"	HCP LIFE SCIENCE REIT, INC., a Maryland corporation
	By: /s/ Michael Dorris Michael Dorris Print Name Its: Senior Vice President

"TENANT"	SORRENTO THERAPEUTICS, INC., a Delaware corporation
	By: /s/ Henry Ji Henry Ji, Ph.D. Print Name Its: President & CEO By: ___________________________ Print Name Its:

-2-

Exhibit 10.3

SECOND AMENDMENT TO OFFICE LEASE

This SECOND AMENDMENT TO OFFICE LEASE ("Second Amendment") is made and entered into as of September 1, 2021, by and between HCP LIFE SCIENCE REIT, INC., a Maryland corporation ("Landlord"), and SORRENTO THERAPEUTICS, INC., a Delaware corporation ("Tenant").

R E C I T A L S :

Landlord and Tenant are parties to the Lease dated September 8, 2016 (the "Original Lease"), as amended by that certain First Amendment to Lease dated October 19, 2018 (the "First Amendment", and collectively with the Original Lease, the "Lease"), pursuant to which Tenant leases approximately 76,687 rentable square feet of space, consisting of the entire building (the "Building") located at 4955 Directors Place, San Diego, California 92121.

Concurrently with the execution of this Second Amendment, Landlord and Tenant are also entering into a Lease for premises located at 4930 Directors Place, San Diego, California (the "4930 Lease").

The parties desire to amend the Lease on the terms and conditions set forth in this Second Amendment.

A G R E E M E N T :

Terms. All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Lease unless expressly provided otherwise in this Second Amendment.

Condition of the Premises. Landlord and Tenant acknowledge that Tenant has been occupying the Premises pursuant to the Lease, and therefore, subject to the terms of the Lease, Tenant continues to accept the Premises in its presently existing, "as is" condition. Except as otherwise set forth in the Lease, Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building, or the Project or with respect to the suitability of the same for the conduct of Tenant's business.

Extended Lease Term. Pursuant to the Lease, the Lease Term is scheduled to expire on October 31, 2029. Landlord and Tenant hereby agree to extend the Lease Term for the Lease

to be coterminous with the 4930 Lease (i.e., the Lease Term shall expire on the "Lease Expiration Date," as that term is defined in the 4930 Lease), on the terms and conditions set forth in the Lease, as hereby amended by this Second Amendment, unless sooner terminated as provided in the Lease. The period commencing on November 1, 2029 (the "Second Amendment Extended Term Commencement Date") and ending on the Lease Expiration Date for the 4930 Lease shall be referred to herein as the "Second Amendment Extended Term".

3.1

Option to Extend Lease Term. Landlord and Tenant acknowledge and agree that Tenant shall continue to have one (1) option to extend the Lease Term (as extended by the Second Amendment Extended Term) for a period of five (5) years in accordance with, and pursuant to the terms of, Section 2.2 of the Original Lease; provided, however, all references therein to the "initial Lease Term" shall be deemed to refer to the "Second Amendment Extended Term," and the phrase "(i.e., December 1, 2025 - November 30, 2026)" in Section 2.2.2 of the Original Lease shall be deleted in its entirety.

Rent. The annual Rent payable by Tenant during the Second Amendment Extended Term (the "Second Amendment Extended Rent") shall be equal to the "Fair Rental Value," as that term is defined in Section 2.2.2 of the Original Lease, and shall be determined pursuant to Section 2.2.3 of the Original Lease, provided that all references therein to the "Option Rent" shall be deemed to refer to the "Second Amendment Extended Rent" and all references therein to the "Option Term" shall be deemed to refer to the "Second Amendment Extended Term". For the avoidance of doubt, on each anniversary of the Second Amendment Extended Term Commencement Date, the monthly installments Base Rent payable by Tenant shall increase by three percent (3%) of the monthly installments Base Rent for the preceding twelve (12) month period, as further set forth in Section 2.2.2 of the Original Lease.

Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Second Amendment other than CBRE, Inc. and Kidder Mathews (the "Brokers"), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Second Amendment. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party. The terms of this Section 5 shall survive the expiration or earlier termination of the term of the Lease, as hereby amended.

Governing Law; JUDICIAL REFERENCE. Notwithstanding anything to the contrary in the Lease, the Lease, as amended, shall be construed and enforced in accordance with the laws of the State of California. If the jury waiver provisions of this Section 6 are not enforceable under California law, then the following provisions shall apply. It is the desire and intention of the parties to agree upon a mechanism and procedure under which controversies and disputes arising out of the Lease, as amended, or related to the Premises will be resolved in a


	-2-	HCP, INC. [Second Amendment] [Sorrento Therapeutics, Inc.]

prompt and expeditious manner. Accordingly, except with respect to actions for unlawful or forcible detainer or with respect to the prejudgment remedy of attachment, any action, proceeding or counterclaim brought by either party hereto against the other (and/or against its officers, directors, employees, agents or subsidiaries or affiliated entities) on any matters whatsoever arising out of or in any way connected with the Lease, as amended, Tenant's use or occupancy of the Premises and/or any claim of injury or damage, whether sounding in contract, tort, or otherwise, shall be heard and resolved by a referee under the provisions of the California Code of Civil Procedure, Sections 638 — 645.1, inclusive (as same may be amended, or any successor statute(s) thereto) (the "Referee Sections"). Any fee to initiate the judicial reference proceedings and all fees charged and costs incurred by the referee shall be paid by the party initiating such procedure (except that if a reporter is requested by either party, then a reporter shall be present at all proceedings where requested and the fees of such reporter - except for copies ordered by the other parties - shall be borne by the party requesting the reporter); provided however, that allocation of the costs and fees, including any initiation fee, of such proceeding shall be ultimately determined in accordance with Section 29.21 above. The venue of the proceedings shall be in the county in which the Premises are located. Within ten (10) days of receipt by any party of a written request to resolve any dispute or controversy pursuant to this Section 6, the parties shall agree upon a single referee who shall try all issues, whether of fact or law, and report a finding and judgment on such issues as required by the referee sections. If the parties are unable to agree upon a referee within such ten (10) day period, then any party may thereafter file a lawsuit in the county in which the Premises are located for the purpose of appointment of a referee under the referee sections. If the referee is appointed by the court, the referee shall be a neutral and impartial retired judge with substantial experience in the relevant matters to be determined, from JAMS, the American Arbitration Association or similar mediation/arbitration entity. The proposed referee may be challenged by any party for any of the grounds listed in the referee sections. The referee shall have the power to decide all issues of fact and law and report his or her decision on such issues, and to issue all recognized remedies available at law or in equity for any cause of action that is before the referee, including an award of attorneys' fees and costs in accordance with the Lease, as amended. The referee shall not, however, have the power to award punitive damages, nor any other damages which are prohibited by the express provisions of the Lease, as amended, and the parties hereby waive any right to recover any such damages. The parties shall be entitled to conduct all discovery as provided in the California Code of Civil Procedure, and the referee shall oversee discovery and may enforce all discovery orders in the same manner as any trial court judge, with rights to regulate discovery and to issue and enforce subpoenas, protective orders and other limitations on discovery available under California law. The reference proceeding shall be conducted in accordance with California law (including the rules of evidence), and in all regards, the referee shall follow California law applicable at the time of the reference proceeding. The parties shall promptly and diligently cooperate with one another and the referee, and shall perform such acts as may be necessary to obtain a prompt and expeditious resolution of the dispute or controversy in accordance with the terms of this Section 6. In this regard, the parties agree that the parties and the referee shall use best efforts to ensure that (a) discovery be conducted for a period no longer than six (6) months from the date the referee is appointed, excluding motions regarding discovery, and (b) a trial date be set within nine (9) months of the date the referee is appointed. In accordance with


	-3-	HCP, INC. [Second Amendment] [Sorrento Therapeutics, Inc.]

Section 644 of the California Code of Civil Procedure, the decision of the referee upon the whole issue must stand as the decision of the court, and upon the filing of the statement of decision with the clerk of the court, or with the judge if there is no clerk, judgment may be entered thereon in the same manner as if the action had been tried by the court. Any decision of the referee and/or judgment or other order entered thereon shall be appealable to the same extent and in the same manner that such decision, judgment, or order would be appealable if rendered by a judge of the Superior Court in which venue is proper hereunder. The referee shall in his/her statement of decision set forth his/her findings of fact and conclusions of law. The parties intend this general reference agreement to be specifically enforceable in accordance with the Code of Civil Procedure. Nothing in this Section 6 shall prejudice the right of any party to obtain provisional relief or other equitable remedies from a court of competent jurisdiction as shall otherwise be available under the Code of Civil Procedure and/or applicable court rules.

No Further Modification. Except as specifically set forth in this Second Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

[SIGNATURES FOLLOW ON NEXT PAGE]


	-4-	HCP, INC. [Second Amendment] [Sorrento Therapeutics, Inc.]

IN WITNESS WHEREOF, this Second Amendment has been executed as of the day and year first above written.


"LANDLORD"	HCP LIFE SCIENCE REIT, INC., a Maryland corporation
	By: /s/ Mike Dorris Mike Dorris Print Name Its: Senior Vice President

"TENANT"	SORRENTO THERAPEUTICS, INC., a Delaware corporation
	By: /s/ Henry Ji Henry Ji Print Name Its: CEO By: ___________________________ Print Name Its:


	-5-	HCP, INC. [Second Amendment] [Sorrento Therapeutics, Inc.]

Exhibit 10.4

FIRST AMENDMENT TO OFFICE LEASE

This FIRST AMENDMENT TO OFFICE LEASE ("First Amendment") is made and entered into as of October 10, 2020, by and between HCP LIFE SCIENCE ESTATES, INC., a Delaware corporation ("Landlord"), and SORRENTO THERAPEUTICS, INC., a Delaware corporation ("Tenant").

R E C I T A L S:

Landlord and Tenant are parties to the Lease dated November 13, 2018 (the "Lease"), pursuant to which Tenant leases approximately 61,207 rentable square feet of space (the "Premises") located on that certain two (2)-story building located at 4939 Directors Place, San Diego, California 92121 ("Building").

The parties desire to amend the Lease on the terms and conditions set forth in this First Amendment.

A G R E E M E N T:

Terms. All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Lease unless expressly provided otherwise in this First Amendment.

Condition of the Premises. Except as expressly provided in the Lease or this First Amendment, Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Except as expressly provided in the Lease or this First Amendment, Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building, or the Project or with respect to the suitability of the same for the conduct of Tenant’s business.

Fitness Center. The first sentence of Section 5.4 of the Lease is hereby amended and restated in its entirety as follows:

"Landlord and Tenant hereby acknowledge that Landlord currently operates a fitness center (the "Fitness Center") in Project, and, for so long as Landlord continues to operate the Fitness Center, the use of the Fitness Center shall be limited to (i) Tenant and Tenant’s employees, (ii) the tenants and their employees of the building located at 4921 Directors Place, San Diego, California 92121 (the "4921 Building"), and (iii) the tenants and their employees of the 4955 DP Building and, if constructed, the Landlord Spec Building. For the avoidance of doubt, Tenant and


	-1-	HEALTHPEAK, INC. [4939 Directors Place] [Sorrento Therapeutics, Inc.]

Tenant’s employees shall have exclusive access to the parking area located at the Building and no other tenants of the Project or their employees or visitors shall be permitted to use the Building’s parking area despite being granted access to the Fitness Center; provided, however, Landlord shall have the right to reserve and dedicate up to six (6) parking spaces near the Fitness Center for the exclusive use of the tenant and their employees of the 4921 Building and, if constructed, the tenants and their employees of the Landlord Spec Building."

Tenant Improvement Allowance. The last sentence of Section 2.1.1 of the Tenant Work Letter, attached to the Lease as Exhibit B, is hereby amended and restated in its entirety as follows:

"In the event that the Tenant Improvement Allowance is not fully utilized by Tenant on or before December 31, 2020 (such unused amount to be known as the "Unused TIA"), then Tenant may, by written notice to Landlord on or before December 31, 2020, elect to receive a credit against Base Rent otherwise due and owing under this Lease commencing on January 1, 2021 (provided that Landlord may, upon thirty (30) days’ prior notice to Tenant and at Landlord’s sole option, elect to accelerate the credit against Base Rent and apply the same to an earlier Lease Month(s) as designated by Landlord in such notice), in an amount equal to fifty percent (50%) of the Unused TIA, not to exceed a total of two (2) months of Base Rent (calculated at the Base Rent for January, 2021)."

Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this First Amendment, and that they know of no real estate broker or agent who is entitled to a commission in connection with this First Amendment. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to the owing on account of any dealings with any real estate broker or agent, occurring by, through, or under the indemnifying party. The terms of this Section 5 shall survive the expiration or earlier termination of the term of the Lease, as hereby amended.

Counterparts. This First Amendment may be executed in counterparts with the same effect as if both parties hereto had executed the same document. Both counterparts shall be construed together and shall constitute a single document. Signatures of the parties transmitted by electronic mail PDF format shall be deemed to constitute originals and may be relied upon, for all purposes, as binding the transmitting party hereto. The parties intend to be bound by the signatures transmitted by electronic mail PDF format, are aware that the other party will rely on such signature, and hereby waive any defenses to the enforcement of the terms of this First Amendment based on the form of signature. At the request of either party, an original of any such PDF scanned document transmitted via email is to be sent to such requesting party.


	-2-	HEALTHPEAK, INC. [4939 Directors Place] [Sorrento Therapeutics, Inc.]

No Further Modification; Conflict. Except as specifically set forth in this First Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect. In the event of a conflict between the terms of the Lease and this First Amendment, the terms of this First Amendment shall prevail.

[SIGNATURES FOLLOW ON NEXT PAGE]


	-3-	HEALTHPEAK, INC. [4939 Directors Place] [Sorrento Therapeutics, Inc.]

IN WITNESS WHEREOF, this First Amendment has been executed as of the day and year first above written.


"LANDLORD"	HCP LIFE SCIENCE ESTATES, INC., a Delaware Corporation By: /s/ Michael Dorris Michael Dorris Print Name Its: SVP


"TENANT"	SORRENTO THERAPEUTICS, INC., a Delaware corporation By: /s/ Henry Ji Name: Henry Ji, Ph.D. Title: President & CEO


	-4-	HEALTHPEAK, INC. [4939 Directors Place] [Sorrento Therapeutics, Inc.]

Exhibit 10.5

SECOND AMENDMENT TO OFFICE LEASE

R E C I T A L S :

Landlord (incorrectly listed in the Lease as HCP LIFE SCIENCE ESTATES, INC., a Delaware corporation) and Tenant are parties to the Lease dated November 13, 2018 (the "Original Lease"), as amended by that certain First Amendment to Office Lease dated October 10, 2020 (the "First Amendment", and collectively with the Original Lease, the "Lease"), pursuant to which Tenant leases approximately 61,207 rentable square feet of space, consisting of the entire building (the "Building") located at 4939 Directors Place, San Diego, California 92121.

Concurrently with the execution of this Second Amendment, Landlord and Tenant are also entering into a Lease for premises located at 4930 Directors Place, San Diego, California (the "4930 Lease").

The parties desire to amend the Lease on the terms and conditions set forth in this Second Amendment.

A G R E E M E N T :

Terms. All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Lease unless expressly provided otherwise in this Second Amendment.

Extended Lease Term. Pursuant to the Lease, the Lease Term is scheduled to expire on October 31, 2029. Landlord and Tenant hereby agree to extend the Lease Term for the Lease to be coterminous with the 4930 Lease (i.e., the Lease Term shall expire on the "Lease Expiration Date," as that term is defined in the 4930 Lease), on the terms and conditions set forth in the Lease, as hereby amended by this Second Amendment, unless sooner terminated as provided in the Lease. The period commencing on November 1, 2029 (the "Second Amendment Extended Term Commencement Date") and ending on the Lease Expiration Date for the 4930 Lease shall be referred to herein as the "Second Amendment Extended Term".

3.1

Option to Extend Lease Term. Landlord and Tenant acknowledge and agree that Tenant shall continue to have one (1) option to extend the Lease Term (as extended by the Second Amendment Extended Term) for a period of five (5) years in accordance with, and pursuant to the terms of, Section 2.2 of the Original Lease; provided, however, all references therein to the "initial Lease Term" shall be deemed to refer to the "Second Amendment Extended Term", and the phrase "(i.e., November 1, 2029 - October 31, 2030)" in Section 2.2.2 of the Original Lease shall be deleted in its entirety.


	-2-	HCP, INC. [Second Amendment] [Sorrento Therapeutics, Inc.]

intention of the parties to agree upon a mechanism and procedure under which controversies and disputes arising out of the Lease, as amended, or related to the Premises will be resolved in a prompt and expeditious manner. Accordingly, except with respect to actions for unlawful or forcible detainer or with respect to the prejudgment remedy of attachment, any action, proceeding or counterclaim brought by either party hereto against the other (and/or against its officers, directors, employees, agents or subsidiaries or affiliated entities) on any matters whatsoever arising out of or in any way connected with the Lease, as amended, Tenant's use or occupancy of the Premises and/or any claim of injury or damage, whether sounding in contract, tort, or otherwise, shall be heard and resolved by a referee under the provisions of the California Code of Civil Procedure, Sections 638 — 645.1, inclusive (as same may be amended, or any successor statute(s) thereto) (the "Referee Sections"). Any fee to initiate the judicial reference proceedings and all fees charged and costs incurred by the referee shall be paid by the party initiating such procedure (except that if a reporter is requested by either party, then a reporter shall be present at all proceedings where requested and the fees of such reporter - except for copies ordered by the other parties - shall be borne by the party requesting the reporter); provided however, that allocation of the costs and fees, including any initiation fee, of such proceeding shall be ultimately determined in accordance with Section 29.21 above. The venue of the proceedings shall be in the county in which the Premises are located. Within ten (10) days of receipt by any party of a written request to resolve any dispute or controversy pursuant to this Section 6, the parties shall agree upon a single referee who shall try all issues, whether of fact or law, and report a finding and judgment on such issues as required by the referee sections. If the parties are unable to agree upon a referee within such ten (10) day period, then any party may thereafter file a lawsuit in the county in which the Premises are located for the purpose of appointment of a referee under the referee sections. If the referee is appointed by the court, the referee shall be a neutral and impartial retired judge with substantial experience in the relevant matters to be determined, from JAMS, the American Arbitration Association or similar mediation/arbitration entity. The proposed referee may be challenged by any party for any of the grounds listed in the referee sections. The referee shall have the power to decide all issues of fact and law and report his or her decision on such issues, and to issue all recognized remedies available at law or in equity for any cause of action that is before the referee, including an award of attorneys' fees and costs in accordance with the Lease, as amended. The referee shall not, however, have the power to award punitive damages, nor any other damages which are prohibited by the express provisions of the Lease, as amended, and the parties hereby waive any right to recover any such damages. The parties shall be entitled to conduct all discovery as provided in the California Code of Civil Procedure, and the referee shall oversee discovery and may enforce all discovery orders in the same manner as any trial court judge, with rights to regulate discovery and to issue and enforce subpoenas, protective orders and other limitations on discovery available under California law. The reference proceeding shall be conducted in accordance with California law (including the rules of evidence), and in all regards, the referee shall follow California law applicable at the time of the reference proceeding. The parties shall promptly and diligently cooperate with one another and the referee, and shall perform such acts as may be


	-3-	HCP, INC. [Second Amendment] [Sorrento Therapeutics, Inc.]

necessary to obtain a prompt and expeditious resolution of the dispute or controversy in accordance with the terms of this Section 6. In this regard, the parties agree that the parties and the referee shall use best efforts to ensure that (a) discovery be conducted for a period no longer than six (6) months from the date the referee is appointed, excluding motions regarding discovery, and (b) a trial date be set within nine (9) months of the date the referee is appointed. In accordance with Section 644 of the California Code of Civil Procedure, the decision of the referee upon the whole issue must stand as the decision of the court, and upon the filing of the statement of decision with the clerk of the court, or with the judge if there is no clerk, judgment may be entered thereon in the same manner as if the action had been tried by the court. Any decision of the referee and/or judgment or other order entered thereon shall be appealable to the same extent and in the same manner that such decision, judgment, or order would be appealable if rendered by a judge of the Superior Court in which venue is proper hereunder. The referee shall in his/her statement of decision set forth his/her findings of fact and conclusions of law. The parties intend this general reference agreement to be specifically enforceable in accordance with the Code of Civil Procedure. Nothing in this Section 6 shall prejudice the right of any party to obtain provisional relief or other equitable remedies from a court of competent jurisdiction as shall otherwise be available under the Code of Civil Procedure and/or applicable court rules.

Correction of Landlord Entity. Landlord and Tenant hereby acknowledge and agree that the correct Landlord entity is HCP LIFE SCIENCE REIT, INC., a Maryland corporation, and not HCP LIFE SCIENCE ESTATES, INC., a Delaware corporation, as originally set forth in the Original Lease and First Amendment. Landlord and Tenant each hereby ratify the Lease as if HCP LIFE SCIENCE REIT, INC., a Maryland corporation, was originally set forth therein as the Landlord entity.

Additional Tenant Improvement Allowance. The second to last sentence of Section 2.1.2 of the Tenant Work Letter, attached to the Lease as Exhibit B, is hereby amended and restated in its entirety as follows:

"In the event that the Additional Tenant Improvement Allowance is not fully disbursed by Landlord on behalf of Tenant on or before June 30, 2022, then Tenant shall have no further rights with respect thereto."

10.

Signage. Subject to Landlord's prior written approval, which shall not be unreasonably withheld, conditioned or delayed, Tenant shall have the right, at Tenant’s sole cost and expense (but subject to the terms of that certain Lease between Landlord and Tenant with respect to premises located at 4921 Directors Place, San Diego, California 92121), to center its


	-4-	HCP, INC. [Second Amendment] [Sorrento Therapeutics, Inc.]

signage on that certain freeway facing monument sign that serves the buildings located at 4939 Directors Place, and 4955 Directors Place, San Diego, California 92121. Any such movement of the Tenant’s sign shall be subject to Tenant's obtaining all required governmental approvals.

11.

No Further Modification. Except as specifically set forth in this Second Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

[SIGNATURES FOLLOW ON NEXT PAGE]


	-5-	HCP, INC. [Second Amendment] [Sorrento Therapeutics, Inc.]

IN WITNESS WHEREOF, this Second Amendment has been executed as of the day and year first above written.


"LANDLORD"	HCP LIFE SCIENCE REIT, INC., a Maryland corporation
	By: /s/ Mike Dorris Mike Dorris Print Name Its: Senior Vice President

"TENANT"	SORRENTO THERAPEUTICS, INC., a Delaware corporation
	By: /s/ Henry Ji Henry Ji Print Name Its: CEO By: ___________________________ Print Name Its:


	-6-	HCP, INC. [Second Amendment] [Sorrento Therapeutics, Inc.]

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Pursuant to Rule 13a-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Henry Ji, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Sorrento Therapeutics, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 5, 2021

/s/ Henry Ji, Ph.D.

Henry Ji, Ph.D.

Chairman of the Board of Directors, Chief Executive Officer and President

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Rule 13a-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Najjam Asghar, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Sorrento Therapeutics, Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 5, 2021

/s/ Najjam Asghar

Najjam Asghar

Chief Financial Officer

(Principal Financial Officer)

Exhibit 32.1

CERTIFICATIONS OF

PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Henry Ji, principal executive officer of Sorrento Therapeutics, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to my knowledge:

The Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date:	November 5, 2021	By:	/s/ Henry Ji, Ph.D.
			Henry Ji, Ph.D.
			Chairman of the Board of Directors, Chief Executive Officer and President
			(Principal Executive Officer)

I, Najjam Asghar, principal financial officer of Sorrento Therapeutics, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to my knowledge:

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date:	November 5, 2021	By:	/s/ Najjam Asghar
			Najjam Asghar
			Chief Financial Officer
			(Principal Financial Officer)

A signed original of these certifications has been provided to Sorrento Therapeutics, Inc. and will be retained by Sorrento Therapeutics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of Sorrento Therapeutics, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.