PROPOSALPROPOSAL 3:

ADVISORY VOTE ON APPROVAL OF THE SORRENTO THERAPEUTICS, INC. 2020 EMPLOYEE STOCK PURCHASE PLANCOMPENSATION OF THE NAMED EXECUTIVE OFFICERS

On August 15, 2020, onPursuant to the recommendationproxy rules under the Exchange Act and as required by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are presenting to our stockholders with a non-binding, advisory vote to approve the compensation of our named executive officers as described in this proxy statement. This proposal is commonly referred to as a “say-on-pay” proposal.

Although the vote is non-binding, our Compensation Committee and Board value the opinions of the stockholders and will consider the outcome of the vote when making future compensation decisions. As described more fully in the Executive Compensation section of this proxy statement, our executive compensation program is designed to attract, retain and motivate individuals with superior ability, experience and leadership capability to deliver on our annual and long-term business objectives necessary to create stockholder value. Our executive compensation contains elements of cash and equity-based compensation, including performance-based awards. We urge stockholders to read the Executive Compensation section of this proxy statement, which describes in detail how our executive compensation policies and procedures operate and are intended to operate in the future. Our Compensation Committee and Board approvedbelieve that our executive compensation program fulfills these goals and is reasonable, competitive and aligned with our performance and the Sorrento Therapeutics, Inc. 2020 Employee Stock Purchase Plan (the “ESPP”), subject to approval byperformance of our executives.

We are asking our stockholders at the Annual Meeting.

Approval of the ESPP will allow us to provideindicate their support for our employees (which may include employees ofnamed executive officers’ compensation as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our subsidiaries) withstockholders the opportunity to acquire an ownership interest in us throughexpress their participation in the ESPP, thereby encouraging them to remain inviews on our service and more closely aligning their interests with those of our stockholders.

If this Proposal 3 is approved by our stockholders, the total number of shares of our common stock initially reserved and available for issuance under the ESPP will be 7,500,000 shares. We do not maintain any other employee stock purchase plans. As of the Record Date, a total of 255,096,642 shares of our common stock were outstanding. The ESPP share reserve represents approximately 2.94% of the total number of shares of our common stock outstanding as of the Record Date.

If this Proposal 3 is approved by our stockholders, the ESPP will become effective as of the date of the Annual Meeting. In the event that our stockholders do not approve this Proposal 3, the ESPP will not become effective.

Summary of the 2020 Employee Stock Purchase Plan

The material features of the ESPP are described below. The following description of the ESPP is a summary only and is qualified in its entirety by reference to the complete text of the ESPP. Stockholders are urged to read the actual text of the ESPP in its entirety, which is attached hereto as Appendix A.

Purpose. The purpose of the ESPP is to provide our eligible employees with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees’ sense of participation in our affairs, and to provide an incentive for continued employment. We intend for the ESPP to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”).

Administration. The ESPP is administered by the Compensation Committee. The Compensation Committee has the final power to construe and interpret both the ESPP and the rights granted under it. The Compensation Committee has the power, subject to the provisions of the ESPP (i) to designate from time to time which of our subsidiaries are entitled to participate in the ESPP (each, a “Participating Subsidiary”), (ii) to construe and interpret the ESPP and rights granted thereunder, and to establish, amend and revoke rules and regulations for its administration, (iii) to settle all controversies regarding the ESPP and purchase rights granted under the ESPP, (iv) to amend or terminate the ESPP at any time as provided in the ESPP, and (v) to adopt such rules, procedures and sub-plans relating to the operation and administration of the ESPP with respect to participation in the ESPP by employees who are foreign nationals or employed or located outside the United States.

Stock Subject to ESPP. Subject to adjustment for certain changes in our capitalization, the total number of shares of our common stock initially reserved and available for issuance under the ESPP is 7,500,000 shares. If any purchase right granted under the ESPP terminates without having been exercised in full, the shares of common stock not purchased under such purchase right will again become available for issuance under the ESPP.

Offerings. The ESPP will be implemented by offerings of rights to purchase our common stock to all eligible employees. Unless otherwise specified by the Compensation Committee, the offering periods of the ESPP (each, an “Offering Period”) will (a) be of six months’ duration, and (b) commence on November 6^th and end on May 5^th, or commence on May 6^th of each year and end on November 5^th of the following year, asapplicable. Each Offering Period will consist of one six-month purchase period (a “Purchase Period”) during which payroll deductions of the participants are accumulated under the ESPP. The first business day of each Offering Period is referred to as the “Offering Date”. The last business day of each Purchase Period is referred to as the “Purchase Date”.

The Compensation Committee has the authority to alter the Offering Dates, the Purchase Dates and the duration of Offering Periods (however, the duration of an Offering Period may not exceed 27 months from the Offering Date) or Purchase Periods without stockholder approval if such change is announced prior to the relevant Offering Period or prior to such other time period as specified by the Compensation Committee.

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Eligibility—Broad-Based Participation. Any individual who is employed by us or a Participating Subsidiary is eligible to participate in an Offering Period under the ESPP, so long as such individual is employed by us or a Participating Subsidiary prior to the beginning of such Offering Period or, if specified by the Compensation Committee with respect to an Offering Period, the individual has been employed by us or a Participating Subsidiary for a continuous period preceding such start of such Offering Period as the Compensation Committee may require (which in no event will be equal to or greater than two years). In addition, no employee will be eligible to be granted purchase rights under the ESPP unless such employee is customarily employed for more than 20 hours per week and five months per calendar year.

No employee will be eligible to participate in the ESPP if, as a result of being granted an option under the ESPP with respect to an Offering Period, the employee would, directly or indirectly, own common stock or hold options to purchase common stock possessing 5% or more of the total combined voting power or value of all classes of stock of us or any subsidiary of ours. In addition, no employee may purchase more than $25,000 worth of our common stock (determined at the time such rights are granted, and which, with respect to the ESPP, will be determined as of their respective Offering Dates) under all our employee stock purchase plans and any employee stock purchase plans of any subsidiary of ours for each calendar year during which such rights are outstanding at any time.

As of August 17, 2020, the Record Date, we had 242 employees, including two named executive officers, who would have been eligible to participate in the ESPP had an Offering Period commenced as of the Record Date. Non-employee directors and consultants are not eligible to participate in the ESPP.

Participation in the ESPP; Limits on Employee Contributions. An eligible employee may enroll in an Offering Period under the ESPP on the Offering Date by delivering to us, prior to such Offering Date, or such other time period as specified by the Compensation Committee, a subscription agreement authorizing contributions that may not exceed the maximum amount specified by the Compensation Committee, but in any case may not exceed 15% of such employee’s compensation for such Offering Period during the period that begins on the Offering Date and ends on the last day of the Offering Period.

Once an employee becomes a participant in an Offering Period by filing a subscription agreement, such employee will automatically participate in the Offering Period commencing immediately following the last day of the prior Offering Period unless the employee withdraws or is deemed to withdraw from the ESPP or terminates further participation in the Offering Period. Such participant is not required to deliver any additional subscription agreement in order to continue participation in the ESPP.

Purchase Price. The purchase price per share at which shares of our common stock are sold on each purchase date during an Offering Period will be 85% of the lesser of: (a) the fair market value of a share of our common stock on the Offering Date; or (b) the fair market value of a share of our common stock on the Purchase Date. As of the Record Date, the closing price of our common stock as reported on the Nasdaq Capital Market was $12.10 per share.

Payment of Purchase Price; Changes in Payroll Deductions; Issuance of Shares.

The purchase of shares during an Offering Period generally will be funded by a participant’s after-tax payroll deductions accumulated during each Offering Period. The deductions may be made either (a) as an election of a whole dollar amount not less than $10 per payroll period, nor greater than an amount equal to the amount that is 15% of the participant’s compensation, or (b) as a percentage of the participant’s compensation in 1% increments, not less than 1%, nor greater than 15%, or, in each case, such lower limit set by the Compensation Committee. Payroll deductions will commence on the first payday after the beginning of the Offering Period and will continue to the end of the Offering Period unless sooner altered or terminated.   Compensation for purposes of the ESPP means the participant’s base pay, incentive compensation, bonuses and commissions, although with respect to an Offering Period, a participant may elect to have his or her percentage of ESPP payroll deductions calculated with respect to (and solely deducted from) only his or her base pay.

A participant may increase or decrease the rate of payroll deductions during an Offering Period by filing with us a new authorization for payroll deductions, in which case the new rate will become effective for the next payroll period commencing after our receipt of the authorization and will continue for the remainder of the Offering Period unless changed. However, unless otherwise provided by the Compensation Committee with respect to a Purchase Period, only one such change can take effect during any Purchase Period. A participant may also increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing a new authorization for payroll deductions prior to the beginning of such Offering Period, or such other time period as specified by the Compensation Committee. All payroll deductions made for a participant are credited to his or her account under the ESPP and are deposited with our general funds. No interest accrues on the payroll deductions.

On each Purchase Date, for so long as the ESPP remains in effect and so long as the participant has not withdrawn from the Offering Period before that date, we will apply the funds then in the participant’s account to the purchase of whole shares of common stock reserved under the purchase right granted to such participant with respect to the Offering Period to the extent that such purchase right is exercisable on the Purchase Date. As soon as practicable after the Purchase Date, we will issue shares for the participant’s benefit representing the shares purchased upon exercise of his or her purchase right.

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Purchase Limits. Prior to the commencement of any Offering Period or prior to such time period as specified by the Compensation Committee, the Compensation Committee may, in its sole discretion, set a maximum number of shares which may be purchased by any employee at any single Purchase Date (“Maximum Share Amount”) and unless otherwise specified by the Compensation Committee, the Maximum Share Amount will be 20,000 shares. In addition, prior to the commencement of an Offering Period or prior to such time period as may be specified by the Committee, the Committee may, in its sole discretion, set a maximum number of shares which may be purchased by all participants on any single Purchase Date (the “Aggregate Purchase Date Amount”).

If the number of shares to be purchased on a Purchase Date by all employees participating in the ESPP exceeds the number of shares then available for issuance under the ESPP (or, if applicable, the Aggregate Purchase Date Amount), then we will make a pro rata allocation of the remaining shares in as uniform a manner as will be reasonably practicable and as the Compensation Committee will determine to be equitable.

Withdrawal. Participants may withdraw from an Offering Period under the ESPP by signing and delivering a withdrawal form to us and terminating their contributions. Such withdrawal may be elected at any time prior to the end of an Offering Period, or such other time period as specified by the Compensation Committee. Upon such withdrawal, we will distribute to the employee his or her accumulated payroll deductions without interest, and such employee’s interest in the ESPP will terminate. In the event a participant voluntarily elects to withdraw from the ESPP, he or she may not resume his or her participation in the ESPP during the same Offering Period, but such withdrawal does not affect such employee’s eligibility to participate in any subsequent Offering Period under the ESPP.

Termination of Employment. A participant’s rights under any offering under the ESPP will terminate immediately upon termination of such participant’s employment for any reason, including retirement, death or the failure of such participant to remain an eligible employee of us or of a Participating Subsidiary. In such event, we will distribute the payroll deductions credited to the participant’s account to him or her or, in the case of his or her death, to his or her legal representative, without interest. The Compensation Committee will have sole discretion to determine whether a participant has terminated employment and the effective date on which the participant terminated employment.

Restrictions on Transfer. Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under the ESPP may be assigned, transferred, pledged or otherwise disposed of in any way (other than by the laws of descent and distribution or as provided in the ESPP) by the participant.

Changes in Capitalization. In the event of certain changes in our capitalization such as a stock split, stock dividend, or other similar transaction which affects the number of outstanding shares of our common stock and does not involve our receipt of consideration, the Compensation Committee will appropriately adjust: (i) the number and type of shares of common stock covered by each purchase right under the ESPP which has not yet been exercised, the Maximum Share Amount and, if applicable, any Aggregate Purchase Date Amount; (ii) the number and type of shares of common stock which have been authorized for issuance under the ESPP but have not yet been placed under a purchase right; and (iii) the price per share of common stock covered by each purchase right under the ESPP which has not yet been exercised.

Effect of Certain Corporate Transactions. In the event of a corporate transaction (as described below), (i) any surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) may assume or continue outstanding purchase rights granted under the ESPP or may substitute similar rights (including a right to acquire the same consideration paid to the stockholders in the transaction) for outstanding purchase rights, or (ii) if any surviving or acquiring corporation (or its parent company) does not assume or continue such purchase rights or does not substitute similar rights for such purchase rights, then the participants’ accumulated ESPP contributions will be used to purchase shares of our common stock within ten business days (or such other period specified by the Compensation Committee) prior to the transaction and the purchase rights will terminate immediately after such purchase.

For purposes of the ESPP, a corporate transaction generally will be deemed to occur in the event of the consummation of: (a) a merger or consolidation in which we are not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of us in a different jurisdiction, or other transaction in which there is no substantial change in our stockholders or their relative stock holdings and the purchase rights under the ESPP are assumed, converted or replaced by the successor corporation, which assumption will be binding on all participants), (b) a merger in which we are the surviving corporation but after which our stockholders immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with us in such merger) cease to own their shares or other equity interest in us, (c) the sale of all or substantially all of the consolidated assets of us and our subsidiaries, or (d) the acquisition, sale, or transfer of more than 50% of our outstanding shares or similar transaction.

Duration, Amendment and Termination. The Board or the Compensation Committee may amend, terminate or extend the term of the ESPP at any time. However, any such termination cannot affect purchase rights previously granted under the ESPP, nor may any amendment adversely affect a participant’s purchase right without the consent of such participant. In addition, any amendment which would (i) increase the number of shares that may be issued under the ESPP or (ii) change the designation of the employees (or class of employees) eligible to participate in the ESPP must be approved by our stockholders within 12 months of the adoption of the amendment.

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Notwithstanding the foregoing, in the event that the Board or the Compensation Committee determines that the ongoing operation of the ESPP may result in unfavorable financial accounting consequences, the Board (or the Compensation Committee) may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the ESPP to reduce or eliminate such accounting consequence.

Federal Income Tax Information

The following is a summary of the principal United States federal income taxation consequences to participants and us with respect to participation in the ESPP.officers’ compensation. This summaryvote is not intended to be exhaustive and does not discussaddress any specific item of compensation, but rather the income tax lawsoverall compensation of any local, state or foreign jurisdiction in which a participant may reside. The information is based upon current federal income tax rules and therefore is subject to change when those rules change. Because the tax consequences to any participant may depend on his or her particular situation, each participant should consult the participant’s tax adviser regarding the federal, state, local and other tax consequences of the grant or exercise of a purchase right or the sale or other disposition of common stock acquired under the ESPP.

Rights granted under the ESPP to our U.S. employees are intended to qualify for favorable federal income tax treatment associated with rights granted under an employee stock purchase plan which qualifies under the provisions of Section 423 of the Code.

Participants’ contributions to the ESPP are made on an after-tax basis. Otherwise, no income will be taxable to a participant as a result of the granting or exercise of a purchase right until a sale or other disposition of the acquired shares. The taxation upon such sale or other disposition will depend upon the holding period of the acquired shares.

If the shares are sold or otherwise disposed of more than two years after the beginning of the offering period and more than one year after the shares are transferred to the participant, then the lesser of the following will be treated as ordinary income: (i) the excess of the fair market value of the shares at the time of such sale or other disposition over the purchase price; or (ii) 15% of the fair market value of the shares as of the beginning of the offering period. Any further gain or any loss will be taxed as a long-term capital gain or loss.

If the shares are sold or otherwise disposed of before the expiration of either of the holding periods described above, then the excess of the fair market value of the shares on the purchase date over the purchase price will be treated as ordinary income at the time of such sale or other disposition. The amount of this ordinary income will be added to the participant’s basis in the shares and any resulting gain or loss recognized upon the sale or disposition will be a capital gain or loss.  If the shares were held for more than one year since the date of purchase, the capital gain or loss will be long-term.

There are no federal income tax consequences to us by reason of the grant or exercise of rights under the ESPP. We are entitled to a deduction to the extent amounts are taxed as ordinary income to a participant for shares sold or otherwise disposed of before the expiration of the holding periods described above (subject to the requirement of reasonableness and the satisfaction of tax reporting obligations).

New Plan Benefits

Participation in the ESPP is voluntary and each eligible employee will make his or her own decision regarding whether and to what extent to participate in the ESPP. In addition, the Compensation Committee has not granted any purchase rights under the ESPP that are subject to stockholder approval of this Proposal 3. Accordingly, the benefits or amounts that will be received by or allocated to ournamed executive officers and other employees under the ESPP, as well asphilosophy, policies and practices described in this proxy statement.  If Proposal 4 in this proxy statement is approved in accordance with our Board’s recommendation, the benefits or amounts that would have been received by or allocated to our executive officers and other employees for fiscal year 2019 if the ESPP had beennext say-on-pay vote will occur in effect, are not determinable.2022.

Vote Required; Recommendation of the Board of Directors

The affirmative vote of a majority of votes cast will be required to approve, on an advisory basis, the ESPP.compensation of our named executive officers as disclosed in this proxy statement. Abstentions will be counted towards a quorum, but will not be counted for any purpose in determining whether Proposal 3 has been approved as abstentions are not considered votes cast under Delaware law. Broker non-votes are also not considered under Delaware law to be votes cast at the Annual Meeting, and will also not be counted for any purpose in determining whether Proposal 3 has been approved. Therefore, abstentions and broker non-votes will have no effect on Proposal 3, other than having the practical effect of reducing the number of affirmative votes required to achieve a majority for this proposal by reducing the total number of shares from which the majority is calculated.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE TO APPROVEFOR THE SORRENTO THERAPEUTICS, INC. 2020 EMPLOYEE STOCK PURCHASE PLAN. PROXIES

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SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISEAPPROVAL, ON YOUR PROXY CARD.

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PROPOSAL 4:

APPROVALAN ADVISORY BASIS, OF THE AMENDMENT TO THE SORRENTO THERAPEUTICS, INC. 2019 STOCK INCENTIVE PLAN TO INCREASE THE NUMBERCOMPENSATION OF SHARES AUTHORIZED FOR ISSUANCE THEREUNDER BY 12,500,000 SHARES

We are asking our stockholders to approve an amendment to the Sorrento Therapeutics, Inc. 2019 Stock Incentive Plan (the “2019 Plan”), which increases the maximum number of shares authorized for issuance under the 2019 Plan by 12,500,000 shares from 10,000,000 shares to 22,500,000 shares.

As of June 30, 2020, excluding the requested share reserve increase, 2,170,700 shares remain available for issuance under the 2019 Plan and 7,829,300 shares were subject to outstanding awards under the 2019 Plan.

Our Board approved the 2019 Plan on August 13, 2019 and our stockholders approved the 2019 Plan on September 20, 2019.  10,000,000 shares of common stock were initially authorized for issuance under the 2019 Plan.  

On August 14, 2020, the Compensation Committee approved an amendment to the 2019 Plan to provide for, and submits to our stockholders for approval, an amendment to the 2019 Plan to increase the maximum number of shares authorized for issuance under the 2019 Plan by 12,500,000 shares from 10,000,000 shares to 22,500,000 shares.

Why Our Board Recommends That You Vote in Favor of Proposal 4

Equity Incentive Awards Are Critical to Long-Term Stockholder Value Creation

Our equity incentive plan is critical to our long-term goal of building stockholder value.  As discussed in the “Executive and Director Compensation and Other Information” section of this proxy statement, equity incentive awards are central to our compensation program and constitute a significant portion of our named executive officers’ total direct compensation.  Our Board and its Compensation Committee believe that our ability to grant equity incentive awards to new and existing employees, directors and eligible consultants has helped us attract, retain and motivate professionals with superior ability, experience and leadership capability.  Historically, we have issued stock options and restricted stock under the 2019 Plan.  These forms of equity compensation align the interests of our employees, directors and consultants with the interests of our stockholders, encourage retention and promote actions that result in long-term stockholder value creation.

Our equity incentive program is broad-based.  As of June 30, 2020, approximately 253 of our employees had received grants of equity awards, all seven of our non-employee directors had received grants of equity awards and approximately 8 of our approximately 12 consultants had received grants of equity awards.  As of June 30, 2020, there were approximately 278 employees, seven non-employee directors and approximately 12 consultants eligible to participate in the 2019 Plan.  As of June 30, 2020, there were also approximately 68 non-employees to whom an offer of employment had been extended by the Company or an affiliate.  We believe we must continue to offer a competitive equity compensation plan in order to attract, retain and motivate the industry-leading talent imperative to our continued growth and success.

We Manage Our Equity Incentive Award Use Carefully

We manage our long-term stockholder dilution by limiting the number of equity awards granted annually.  The Compensation Committee carefully monitors our total dilution and equity expense to ensure that we maximize stockholder value by granting only the appropriate number of equity awards necessary to attract, retain and motivate employees.

Based on historical usage and our internal growth plans, we expect that the proposed 12,500,000 share increase in the number of shares available for issuance under the 2019 Plan would be sufficient for approximately 24 months of awards, assuming we continue to grant awards consistent with our historical usage and current practices, as reflected in our recent historical burn rate discussed below, and noting that future circumstances may require us to change our current equity grant practices.  If the proposed increase to the share reserve is approved, the share reserve under the 2019 Plan could last for a longer or shorter period of time, depending upon our future equity grant practices, which we cannot predict with any degree of certainty at this time. As discussed in further detail below, in determining the proposed increase to the 2019 Plan’s share reserve, the Compensation Committee and the Board took into account, among other things, our stock price and volatility, share usage, burn rate and dilution (or “overhang percentage”), and the existing terms of our outstanding awards.

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The following table shows certain key equity metrics over the past three fiscal years:

If the proposed increase to the 2019 Plan’s share reserve is approved, the issuance of the additional shares to be reserved under the 2019 Plan would dilute existing stockholders by an additional 5.39% on a fully diluted basis, based on the number of shares of our common stock outstanding as of June 30, 2020.

As described in the table above, the total aggregate equity value of the additional authorized shares being requested under the 2019 Plan (above the shares currently remaining available for issuance under the 2019 Plan), based on the closing price of our common stock on the Record Date, is $151,250,000.

In light of the factors described above, and the fact that the ability to continue to grant equity compensation is vital to our ability to continue to attract and retain employees in the competitive labor markets in which we compete, the Board has determined that the proposed increased size of the share reserve under the 2019 Plan is reasonable and appropriate at this time.

Each year, the Compensation Committee and our management review our overall compensation strategy.  We are committed to effectively managing our equity compensation and we carefully review our burn rate.  As evident by our historical burn rate, we achieve burn rates within the limits published by independent shareholder advisory groups, such as Institutional Shareholder Services for biotechnology companies.

Key Features of the 2019 Plan

The proposed 2019 Plan, as amended, continues to include provisions designed to protect our stockholders’ interests, including:

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Description of the 2019 Plan

The following is a summary of the material features of the 2019 Plan which does not purport to be complete and is qualified in its entirety by reference to the full text of the 2019 Plan, as amended, a copy of which is included as Appendix B to this proxy statement.

Awards.  The 2019 Plan provides for the grant of the following awards:

Purpose.  The purpose of the 2019 Plan is to provide incentive and awards to certain of our employees, directors, consultants and advisors.

Administration.  The 2019 Plan is administered by the Board or the Compensation Committee, provided that the Board may not act in lieu of the Compensation Committee on certain matters.  In this Proposal 4, the Board and the Compensation Committee are collectively referred to as the “Administrator.” Subject to the terms and conditions of the 2019 Plan, the Administrator is authorized to select participants, determine the type and number of awards to be granted and the number of shares to which awards will relate or the amount of a performance award, specify dates at which awards will be exercisable or settled, including performance conditions that may be required as a condition thereof, set other terms and conditions of such awards, prescribe forms of award agreements, interpret and specify rules and regulations relating to the 2019 Plan, and make all other determinations that may be necessary or advisable for the administration of the 2019 Plan.  Acceptable forms of consideration for the purchase of our common stock issued under the 2019 Plan will be determined by the Administrator and may include cash, surrender of common stock subject to the option being exercised, common stock previously owned by the participant, payment through a cashless exercise program or any combination of the foregoing.  In addition, the Compensation Committee may delegate its authority under the 2019 Plan to the extent permitted by the Delaware General Corporation Law, except delegation is limited where necessary to meet requirements under Rule 16b-3 under the Exchange Act or Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).  Neither we nor the Administrator may reprice any stock option or share appreciation right granted under the 2019 Plan without first obtaining the approval of the Company’s stockholders.  The Administrator may delegate authority to our officers, directors or greater than ten percent stockholders who are required to file reports pursuant to the Section 16 of the Exchange Act (“Reporting Persons”) to grant Awards to non-Reporting Persons.

Share Reserve.  The 2019 Plan authorizes an aggregate of 10,000,000 shares of our common stock, prior to giving effect to the proposed amendment to increase the number of shares issuable thereunder. Shares of our common stock subject to options and other stock awards that have expired, are forfeited, are cancelled, become unexercisable or are settled for cash (in whole or in part) and Shares that are for any other reason not paid or delivered under the 2019 Plan will again become available for grant under the 2019 Plan.  Shares of our common stock issued under the 2019 Plan may include previously unissued shares or reacquired shares bought on the market or otherwise.  If any shares of our common stock subject to a stock award are not delivered to a participant because such shares are withheld for the payment of taxes or the stock award is exercised through a net exercise, then the number of shares that are not delivered to participants shall again become available for grant under the 2019 Plan.  In addition, if the exercise of any stock award is satisfied by tendering shares of our common stock held by the participant, then the number of shares tendered shall become available for grant under the 2019 Plan.

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Limitation on Awards.  The maximum number of shares that may be subject to awards granted under the 2019 Plan to any individual other than a non-employee director in any calendar year may not exceed 4,000,000 shares of our common stock (subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions).  The maximum number of shares that may be subject to awards granted under the 2019 Plan to any non-employee director in any calendar year may not exceed 250,000 shares of our common stock (subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions).  No individual may be granted, during any calendar year, awards initially payable in cash that could result in such individual receiving cash payments exceeding $5,000,000 pursuant to such awards.

Stock Options.  Stock options will be granted pursuant to stock option agreements.  The exercise price for stock options cannot be less than 100% of the fair market value of our common stock on the date of grant.  In general, the term of stock options granted under the 2019 Plan may not exceed ten years.  Unless the terms of a participant’s stock option agreement provide for earlier or later termination, if a participant’s service relationship with us, or any of our affiliates, ceases for any reason other than for cause, disability or death, the participant may exercise any vested options for up to 3 months after the date the service relationship ends, unless the terms of the stock option agreement provide for a longer or shorter period to exercise the option.  If a participant’s service relationship with us, or any of our affiliates, ceases due to disability, the participant may exercise any vested options for up to one year after the date the service relationship ends.  If a participant’s service relationship with us, or any of our affiliates, ceases due to death, or the participant dies within 30 days following the date the service relationship ends other than for cause, the participant’s beneficiary may exercise any vested options for up to one year following the date of death.  If a participant’s relationship with us, or any of our affiliates, ceases due to termination for cause, the option will terminate at the time the participant’s relationship with us, or any of our affiliates, terminates.  In no event may an option be exercised after its expiration date.

Incentive stock options may be granted only to our employees, including executive officers and including employees of our subsidiaries.  The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to ISOs that are exercisable for the first time by a participant during any calendar year under all of our equity plans may not exceed $100,000.  The options or portions of options that exceed this limit are automatically treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock representing more than 10% of the total combined voting power of the Company or any of its affiliates unless the following conditions are satisfied:

Share Appreciation Rights.  Share appreciation rights will be granted through a share appreciation rights agreement.  Each share appreciation right is denominated in common stock equivalents.  The exercise price of each share appreciation right will be determined by the Administrator at the time of grant and will not be less than 100% of the fair market value of our common stock underlying the right.  In general, the term of a share appreciation right may not exceed ten years.  Upon exercise of a share appreciation right, we will pay the participant an amount equal to the excess of (i) the aggregate fair market value of our common stock on the date of exercise, over (ii) the aggregate exercise price determined by the Administrator on the date of grant.  Share appreciation rights will be paid either in cash, in shares of our common stock or partly in cash and partly in shares.  The Administrator may also impose any restrictions or conditions upon the vesting of share appreciation rights that it deems appropriate.  A recipient’s share appreciation rights agreement shall specify the terms upon which the recipient may exercise a share appreciation right in the event the recipient’s relationship with us, or any of our affiliates, ceases for any reason.  Absent this disclosure, a share appreciation right shall be governed by the same post-termination provisions applicable to options granted under the 2019 Plan, as discussed above.  Share appreciation rights carry no voting or dividend rights or other rights associated with stock ownership.

Restricted and Unrestricted Share Awards.  Restricted share awards will be granted pursuant to restricted share award agreements.  A restricted share award may be issued for nominal or no cost.  Participants receiving a restricted share award generally will have all of the rights of a stockholder with respect to such stock, including rights to vote the shares; however, in no event shall Participants holding restricted shares be entitled to receive dividends, payments or other distributions paid with respect to restricted shares prior to the time the restricted shares are vested.  Shares of our common stock acquired under a restricted share award will be subject to forfeiture to us in accordance with vesting conditions based upon a schedule or performance criteria established by the Administrator.  Generally, except as otherwise provided in the applicable restricted share award agreement, restricted share awards that have not vested will be forfeited upon the participant’s termination of continuous service with us or an affiliate of ours for any reason.  We will return the purchase price for a forfeited restricted share award only if set forth in the participant’s restricted share award agreement.

Unrestricted share awards are similar to restricted share awards, provided that shares of our common stock acquired under an unrestricted share award will be fully vested on the date of grant.

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Restricted Share Unit Awards.  Restricted share unit awards will be granted pursuant to restricted share unit award agreements.  Restricted share units are denominated in common stock equivalents.  They are typically awarded to participants without payment of consideration, but are subject to vesting conditions based upon a schedule or performance criteria established by the Administrator.  Unlike restricted stock, the stock underlying restricted share units will not be issued until the stock units have vested.  Prior to settlement, restricted share unit awards carry no voting or dividend rights or other rights associated with stock ownership, unless otherwise provided in a participant’s restricted share unit award agreement; however, in no event shall Participants holding restricted share units be entitled to receive dividends, payments or other distributions paid with respect to shares underlying the restricted share units prior to the time the restricted share units are vested.  Except as otherwise provided in the applicable restricted share unit award agreement, restricted share units that have not vested will be forfeited upon the participant’s termination of continuous service with us or an affiliate of ours for any reason.

Performance Awards.  Performance awards may be granted, vest or be exercised based upon the attainment of certain performance goals during a certain period of time.  Performance awards may be paid in the form of cash or shares of our common stock or a combination of cash and shares.  The value of performance awards may be linked to the satisfaction of performance criteria established by the Administrator.

In granting a performance award, any of the performance criteria may be measured with respect to the Company, or any subsidiary or business unit, either in absolute terms, terms of growth or as compared to any incremental increase or decrease or as compared to results of a peer group(s) or to market performance indicators or indices.  The Compensation Committee will define in an objective fashion the manner of calculating the performance criteria it selects to use for such awards.  With regard to a particular performance period, the Compensation Committee will have the discretion to select the length of the performance period, the type of performance-based awards to be granted, and the performance goals that will be used to measure the performance for the period.

Except as provided by the Compensation Committee at the time of grant, the achievement of each performance goal will be determined in accordance with applicable accounting standards. The Compensation Committee may provide that one or more objectively determinable adjustments will be made for purposes of determining the achievement of one or more of the performance goals established for an award. Any such adjustments may include one or more of the following: items related to a change in accounting principle; items relating to financing activities; expenses for restructuring or productivity initiatives; other non-operating items; items related to acquisitions; items attributable to the business operations of any entity acquired by the Company during the performance period; items related to the disposal of a business or segment of a business; items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards; items attributable to any stock dividend, stock split, combination or exchange of stock occurring during the performance period; any other items of significant income or expense which are determined to be appropriate adjustments; items relating to unusual or extraordinary corporate transactions, events or developments; items related to amortization of acquired intangible assets; items that are outside the scope of the Company’s core, on-going business activities; items related to acquired in-process research and development; items relating to changes in tax laws; items relating to major licensing or partnership arrangements; items relating to asset impairment charges; items relating to gains or losses for litigation, arbitration and contractual settlements; or items relating to any other unusual or nonrecurring events or changes in applicable laws, accounting principles or business conditions.

As described below in “Federal Income Tax Consequences Associated with the 2019 Plan,” the exception from the Section 162(m) $1.0 million deduction limit for qualified “performance-based” compensation paid to certain covered executive officers has been repealed, effective for taxable years beginning after December 31, 2017. Consequently, performance awards granted under the 2019 Plan will be subject to the $1,000,000 limitation on the income tax deductibility of compensation paid to a covered employee imposed by Section 162(m) of the Code.

Transferability of Awards.  Generally, a participant may not transfer an award granted under the 2019 Plan other than by will or the laws of descent and distribution.  However, a participant may transfer an NSO pursuant to a domestic relations order.  In addition, if provided in an award agreement, NSOs, share appreciation rights settled in shares, restricted share awards and performance awards granted under the 2019 Plan may be transferred by instrument to the participant’s immediate family or an inter vivos or testamentary trust or by gift to charitable institutions.

Changes to Capital Structure.  In the event there is a specified type of change in our capital structure not involving the receipt of consideration by us, such as a stock split, stock dividend, combination, recapitalization or reclassification, the number of shares reserved under the 2019 Plan, the maximum number of Shares with respect to one or more stock awards that may be granted to persons during any calendar year and the number of shares and exercise price, if applicable, of all outstanding stock awards will be appropriately adjusted.

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Change in Control.In the event of a change in control of the Company, the Administrator may take one or more of the following actions without the consent of any 2019 Plan participant or stockholder of the Company:

In the event that an award outstanding under the 2019 Plan is not exercised in full prior to consummation of a change in control in which the award is not being assumed, continued or substituted for, the award shall automatically terminate as of immediately prior to the consummation of the transaction.  In addition, the 2019 Plan provides that in the event a participant is involuntarily terminated in connection with, or within 12 months after, a change in control of the Company, each of the participant’s stock awards outstanding under the 2019 Plan that are assumed, continued or substituted for by a surviving entity in connection with the change in control will become fully vested, and any repurchase right with respect to the award will lapse in its entirety unless the applicable award agreement provides for a more restrictive acceleration of the vesting schedule or more restrictive limitations on the lapse of repurchase rights.

Involuntary termination means a participant is terminated under the following circumstances occurring in connection with, or within 12 months following consummation of, a change in control: (i) termination without cause by the Company or an affiliate or successor thereto, as appropriate; or (ii) voluntary termination by the participant within 60 days following (A) a material reduction in the participant’s job responsibilities, provided that neither a mere change in title alone nor reassignment to a substantially similar position shall constitute a material reduction in job responsibilities; (B) an involuntary relocation of the participant’s work site to a facility or location more than 50 miles from the participant’s principal work site as of immediately prior to the change in control; or (C) a material reduction in Participant’s total compensation other than as part of a reduction by the same percentage amount in the compensation of all other similarly-situated employees, directors or consultants.

A change in control generally includes:

Plan Amendments; No Repricing without Stockholder Approval.  The Board will have the authority to amend or terminate the 2019 Plan.  However, no amendment or termination of the 2019 Plan can adversely affect any rights under outstanding awards unless agreed to in writing by the affected participant.  We will obtain stockholder approval of any amendments to the 2019 Plan as required by applicable law.  Neither the Company nor the Administrator shall, without stockholder approval, allow for a repricing of options.  In addition, the 2019 Plan prohibits the cash buyout of underwater options and share appreciation rights without prior stockholder approval.

Term.  The 2019 Plan will terminate on August 13, 2029.

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Federal Income Tax Consequences Associated with the 2019 Plan

The following is a general summary under current law of the material federal income tax consequences to participants in the 2019 Plan.  This summary deals with the general tax principles that apply and is provided only for general information.  Some kinds of taxes, such as state, local and foreign income taxes and federal employment taxes, are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality.  The summary does not discuss all aspects of income taxation that may be relevant in light of a holder’s personal investment circumstances.  This summarized tax information is not tax advice.

Non-Qualified Stock Options.  For federal income tax purposes, if an optionee is granted an NSO under the 2019 Plan, the optionee will not have taxable income on the grant of the option, nor will we be entitled to any deduction.  Generally, upon exercise of NSOs the optionee will recognize ordinary income, and we will be entitled to a deduction, in an amount equal to the excess of the fair market value of a common share over the option exercise price on the date each such option is exercised.  The optionee’s basis for the stock for purposes of determining gain or loss on subsequent disposition of such shares generally will be the fair market value of the common stock on the date the optionee exercises such option.  Any subsequent gain or loss will be generally taxable as capital gains or losses.

Incentive Stock Options.  There is no taxable income to an optionee when an optionee is granted an ISO or when that option is exercised.  However, the amount by which the fair market value of the shares at the time of exercise exceeds the option price will be an “item of adjustment” for the optionee for purposes of the alternative minimum tax.  Gain realized by the optionee on the sale of an ISO is taxable at capital gains rates, and no tax deduction is available to us, unless the optionee disposes of the shares within (a) two years after the date of grant of the option or (b) within one year of the date the shares were transferred to the optionee.  If the common shares are sold or otherwise disposed of before the end of the two-year and one-year periods specified above, the excess of the fair market value of a common share over the option exercise price on the date of the option’s exercise will be taxed at ordinary income rates (or, if less, the gain on the sale), and we will be entitled to a deduction to the extent the optionee must recognize ordinary income.  If such a sale or disposition takes place in the year in which the optionee exercises the option, the income the optionee recognizes upon sale or disposition of the shares will not be considered an item of adjustment for alternative minimum tax purposes.

An ISO exercised more than three months after an optionee terminates employment, for reasons other than death or disability, will be taxed as an NSO, and the optionee will recognize ordinary income on the exercise.  We will be entitled to a tax deduction equal to the ordinary income, if any, realized by the optionee.

Restricted Stock.  An individual to whom restricted stock is issued generally will not recognize taxable income upon such issuance, and we generally will not then be entitled to a deduction, unless an election is made by the participant under Section 83(b) of the Code.  However, when restrictions on shares of restricted stock lapse, such that the shares are no longer subject to a substantial risk of forfeiture, the individual generally will recognize ordinary income, and we generally will be entitled to a deduction for an amount equal to the excess of the fair market value of the shares at the date such restrictions lapse over the purchase price.  If a timely election is made under Section 83(b) with respect to restricted stock, the participant generally will recognize ordinary income on the date of the issuance equal to the excess, if any, of the fair market value of the shares at that date over the purchase price of such shares, and we will be entitled to a deduction for the same amount.

Share appreciation rights.  A participant will not be taxed upon the grant of a share appreciation right.  Upon the exercise of the share appreciation right, the participant will recognize ordinary income equal to the amount of cash or the fair market value of the stock received upon exercise.  At the time of exercise, we will be eligible for a tax deduction as a compensation expense equal to the amount that the participant recognizes as ordinary income.

Other Stock Awards and Performance Awards.  The participant will have ordinary income upon receipt of stock or cash payable under performance awards, dividend equivalents, restricted share units and stock payments.  We will be eligible for a tax deduction as a compensation expense equal to the amount of ordinary income recognized by the participant.

Section 162(m) of the Code.  Prior to 2018, Section 162(m) of the Code generally limited to $1.0 million the amount of non-performance-based remuneration the Company could deduct in any calendar year for certain executive officers. Effective January 1, 2018, the exemption from the Section 162(m) deduction limit for performance-based compensation was repealed, such that compensation paid to our covered officers in excess of $1.0 million will generally not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. For grants under the 2019 Plan, we will not be able to take a deduction for any compensation in excess of $1 million that is paid to a covered officer.

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Internal Revenue Code Section 409A Requirements.  Certain awards under the 2019 Plan may be considered “nonqualified deferred compensation” for purposes of Section 409A of the Code (“Section 409A”), which imposes certain requirements on compensation that is deemed under Section 409A to involve nonqualified deferred compensation.  Among other things, the requirements relate to the timing of elections to defer, the timing of distributions and prohibitions on the acceleration of distributions.  Failure to comply with these requirements (or an exception from such requirements) may result in the immediate taxation of all amounts deferred under the nonqualified deferred compensation plan for the taxable year and all preceding taxable years, by or for any participant with respect to whom the failure relates, the imposition of an additional 20% income tax on the participant for the amounts required to be included in gross income and the possible imposition of penalty interest on the unpaid tax.  Generally, Section 409A does not apply to incentive awards that are paid at the time the award vests.  Likewise, Section 409A typically does not apply to restricted stock.  Section 409A may, however, apply to incentive awards the payment of which is delayed beyond the calendar year in which the award vests.  Treasury regulations generally provide that the type of awards provided under the 2019 Plan will not be considered nonqualified deferred compensation.  However, to the extent that Section 409A applies to an award issued under the 2019 Plan, the 2019 Plan and all such awards will, to the extent practicable, be construed in accordance with Section 409A.  Under the 2019 Plan, the Administrator has the discretion to grant or to unilaterally modify any award issued under the 2019 Plan in a manner that conforms with the requirements of Section 409A with respect to deferred compensation or voids any participant election to the extent it would violate Section 409A.  The Administrator also has sole discretion to interpret the requirements of the Code, including Section 409A, for purposes of the 2019 Plan and all awards issued under the 2019 Plan.

New Plan Benefits

The number of awards that a participant may receive under the 2019 Plan, as amended by the proposed amendment, is in the discretion of the Administrator and therefore cannot be determined in advance.  For illustrative purposes only, the following table sets forth (i) the aggregate number of shares subject to options granted under the 2019 Plan during the last fiscal year to our named executive officers, to all current executive officers, as a group, to all directors who are not executive officers, as a group, and to all employees who are not executive officers, as a group (even if not currently outstanding) and (ii) the weighted-average per share exercise price of such options.

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Equity Compensation Plan Information

The following table sets forth additional information with respect to the shares of common stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements in effect as of December 31, 2019. The information includes the number of shares covered by, and the weighted average exercise price of, outstanding options and the number of shares remaining available for future grant, excluding the shares to be issued upon exercise of outstanding options.

Vote Required; Recommendation of the Board of Directors

The affirmative vote of a majority of votes cast will be required to amend our 2019 Stock Incentive Plan to increase the maximum number of shares authorized for issuance under the 2019 Plan by 12,500,000 shares.  Abstentions will be counted towards a quorum, but will not be counted for any purpose in determining whether Proposal 4 has been approved as abstentions are not considered votes cast under Delaware law. Broker non-votes are also not considered under Delaware law to be votes cast at the Annual Meeting, and will also not be counted for any purpose in determining whether Proposal 4 has been approved. Therefore, abstentions and broker non-votes will have no effect on Proposal 4, other than having the practical effect of reducing the number of affirmative votes required to achieve a majority for this proposal by reducing the total number of shares from which the majority is calculated.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE TO AMEND OUR 2019 STOCK INCENTIVE PLAN TO INCREASE THE MAXIMUM NUMBER OF SHARES AUTHORIZED FOR ISSUANCE UNDER THE 2019 PLAN BY 12,500,000 SHARES.NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE ON YOUR PROXY CARD.

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PROPOSAPROPOSL 5:AL 4:

APPROVALADVISORY VOTE ON FREQUENCY OF THE CEO PERFORMANCE AWARD FOR HENRY JI, PH.D.FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION

AtUnder the Annual Meeting,Dodd-Frank Act, our stockholders will be askedare entitled to vote at the annual meeting regarding whether the stockholder vote to approve the Performance Stock Option Award Agreement to Henry Ji, Ph.D. (the “CEO Performance Award”)compensation of the named executive officers as required by Section 14A(a)(2) of the Exchange Act (and as described in Proposal 3 of this proxy statement), which was approvedshould occur every one, two or three years. Under the rules issued by the SEC, stockholders shall also have the option to abstain from voting on the matter. Pursuant to the Dodd-Frank Act, the stockholder vote on the frequency of the stockholder vote to approve executive compensation is an advisory vote only, and it is not binding on us or our Board. We are required to solicit stockholder votes on the frequency of future say-on-pay proposals at least once every six years, although we may seek stockholder input more frequently.

Although the vote is non-binding, our Compensation Committee on August 7, 2020, subject to stockholder approval atand Board value the Annual Meeting. The full textopinions of our stockholders and will consider the outcome of the CEO Performance Award is attachedvote when determining the frequency of the stockholder vote on executive compensation.

Our Board believes that holding the advisory vote to this proxy statement as Appendix C.

Underapprove named executive officer compensation annually will allow for timely and valuable feedback from stockholders on executive compensation matters. Gaining an understanding of the CEO Performance Award, Dr. Jireasons behind an advisory vote for or against named executive officer compensation in a given year will receive a non-qualifiedrequire engagement with stockholders, and refining compensation programs warrants thoughtful deliberation and analysis. Accordingly, in order to ensure timely and frequent stock option containing ten separate tranchesfeedback, our Board recommends that vest only if certain pre-established market capitalization milestones are achieved, which requires two market capitalization prongs to be met to achieve each milestone: (1) a six calendar month trailing average (based on trading days); and (2) a 30 calendar day trailing average (based on trading days).  For the first tranche to vest, Sorrento’s market capitalization has to increase to $5 billion.  For the next two tranches to vest, Sorrento must increase its market capitalization in additional $2 billion increments, then by increments of $3 billionyou vote for the three tranches after that, then by incrementsoption of $4 billion“1 Year” (annual vote) as the preferred frequency for the next three tranches and a final increment of $5 billion for the final tranche—upfuture advisory votes to a total market capitalization of $35 billion.  For each tranche that is achieved, Dr. Ji will vest and earn the right to exercise the option for that number of shares of Sorrento common stock that corresponds to approximately 1% of Sorrento’s total outstanding shares, calculated as of August 6, 2020. The option, to the extent vested, will be exercisable until August 7, 2030 (ten years from the date of grant).

The exercise price for the CEO Performance Award is $17.30 per share, which represents a 20% premium to the closing sale price of Sorrento’s common stock on August 7, 2020, the grant date of the CEO Performance Award. Our Compensation Committee determined to use a premium to the closing sale price to ensure that Dr. Ji is further incentivized to increase value to stockholders as any options that vest under the CEO Performance Award will only have value to the extent that the Company’s stock price increases above $17.30. Neither the Tesla, Inc. CEO performance award nor the Axon CEO performance award discussed below had an exercise price that was set as a premium to the fair market value of the company’s stock on the date of grant.

Dr. Ji must hold shares that he acquires upon exercise of the CEO Performance Award for five years post-exercise (except for shares used to pay exercise price and tax withholdings, or in certain other limited circumstances described further below). Additionally, Dr. Ji must remain as Sorrento’s CEO or serve as Executive Chairman, in each case with all leadership ultimately reporting to him, at the time each milestone is met in order for the corresponding tranche to vest.  This ensures Dr. Ji’s continued active leadership of Sorrento over the long-term while also providing the flexibility to bring in another CEO who would report to Dr. Ji at some point in the future.  Although there is no current intention for this to happen, it provides flexibility as Sorrento continues to grow to potentially allow Dr. Ji to focus more of his attention on the kinds of key product and strategic matters that most impact Sorrento’s long-term growth and profitability.

Our Compensation Committee’s primary objective in designing the CEO Performance Award is to help Sorrento grow and achieve its  objectives, including developing, advancing and completing clinical trials for, and ultimately obtaining regulatory approvals for, its product candidates, which would facilitate the creation of significant stockholder value.  The Compensation Committee considered a CEO performance award for Dr. Ji from time to time since 2018, and ultimately developed the CEO Performance Award over several months in 2020 with the help of Compensia, the same external compensation consultant that advised Tesla, Inc. in creating its CEO performance awards, to assist in the design of the CEO Performance Award. There are three primary reasons why the Board recommends that stockholders approve the award, as follows:

Summary of the CEO Performance Award

The following description is only a summary of the material provisions of the CEO Performance Award.  It does not purport to summarize all of the terms of, and is qualified in its entirety by, the full text of the CEO Performance Award, which is attached to this proxy statement as Appendix C.

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General Overview

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Material Terms of the CEO Performance Award

CEO Performance Award Value.  The total number of shares of Sorrento common stock underlying the CEO Performance Award will be 24,935,882, divided into nine separate tranches of options to purchase 2,493,588 shares per tranche and one tranche of an option to purchase 2,493,590 shares.  The number of shares underlying the CEO Performance Award in each tranche is equivalent to 1% of the 249,358,822 shares of Sorrento’s common stock outstanding as of August 6, 2020 and, therefore, the total number of shares underlying the CEO Performance Award is equivalent to 10% of the total number of shares of Sorrento’s common stock outstanding as of such date.

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Equity Type.  The CEO Performance Award is comprised of performance-based nonqualified stock options.  Dr. Ji will receive compensation from the CEO Performance Award only to the extent that Sorrento achieves the applicable performance milestones.  The CEO Performance Award will not be made under an individual agreement, and not under any equity incentive plan, such as the 2019 Plan.

Exercise Price.  The exercise price of the shares subject to the CEO Performance Award is $17.30 per share, which is a 20% premium to the closing sales price of Sorrento’s common stock on the Nasdaq Capital Market on August 7, 2020, the date of grant of the CEO Performance Award.

Award Vesting / Milestones.  Each of the ten vesting tranches of the CEO Performance Award will vest upon certification by the Board that the market capitalization milestone for such tranche has been achieved on or before the expiration of the CEO Performance Award on August 7, 2030.  

There are ten market capitalization milestones, each one requiring an incremental increase in Sorrento’s market capitalization, initially to $5 billion and by increments of $2 billion for the next two tranches, then by increments of $3 billion for the three tranches after that, then by increments of $4 billion for the next three tranches, and a final increment of $5 billion for the final tranche (each, a “Market Capitalization Milestone”).

To meet all ten Market Capitalization Milestones, Sorrento will have to add more than $31 billion to its market capitalization measured as of the Record Date.  The Board considers the market capitalization milestones to be challenging hurdles.

Except in a change in control situation, measurement of market capitalization will be based on both (i) a six calendar month trailing average of Sorrento’s stock price as well as (ii) a 30 calendar day trailing average of Sorrento’s stock price, in each case based on trading days only, and will thus require sustained market capitalization appreciation to be met.

Term of CEO Performance Award / Post-Termination of Employment Exercise Period.  The term of the CEO Performance Award is 10 years from the date of the grant, unless Dr. Ji’s employment with Sorrento is terminated prior to such date.  Accordingly, Dr. Ji has until August 7, 2030 to exercise any portion of the CEO Performance Award that has vested on or prior to such date, so long as he remains employed at Sorrento.  Additionally, Dr. Ji has up to three months following the termination of his employment with Sorrento to exercise any portion of the CEO Performance Award that vested prior to such termination, subject to any earlier expiration of the CEO Performance Award on August 7, 2030.  Further, the CEO Performance Award also may terminate earlier in connection with a change in control event of Sorrento, as described further below.

Post-Exercise Holding Period.  Dr. Ji must hold shares that he acquires upon exercise of the CEO Performance Award for five years post-exercise (except for shares used to pay exercise price and tax withholdings, or in certain other limited circumstances described further below).

While based on market practice generally the Compensation Committee believes that post-exercise holding periods for executive equity awards is very atypical of executive equity awards, the nature of this type of CEO compensation arrangement is unique enough that the Tesla, Inc. and Axon Enterprise, Inc. CEO performance awards, both of which have a holding period, are more similar to the CEO Performance Award than a standard executive equity award so the CEO Performance Award should follow their lead.  The Compensation Committee selected a five-year holding period, which is the same period that Tesla, Inc. chose for Mr. Musk, in order to further align Dr. Ji’s interests with Sorrento stockholders’ interests for five years following the exercise of any options under the CEO Performance Award.  Such alignment complements the requirements for sustained increases to Sorrento’s market capitalization levels in order to meet the applicable Market Capitalization Milestone under the CEO Performance Award, and ensures that Dr. Ji will be focused on sustaining Sorrento’s success both before, and even after he achieves, vesting under the CEO Compensation Award.

Moreover, the requirement of a five-year holding period significantly decreases the stock-based compensation expenses that Sorrento will recognize for the CEO Performance Award.

Employment Requirement for Continued Vesting.  Dr. Ji must continue to lead Sorrento’s management at the time each Market Capitalization Milestone is met in order for the corresponding tranche to vest under the CEO Performance Award.  Specifically, he must be serving as either Sorrento’s Chief Executive Officer or, alternatively, as its Executive Chairman.

Termination of Employment.  There will be no acceleration of vesting of the CEO Performance Award if Dr. Ji’s employment is terminated, or if he dies or becomes disabled.  In other words, termination of Dr. Ji’s employment with Sorrento will preclude his ability to earncontact us at any then-unvested portion oftime to express specific views on executive compensation holds us accountable to stockholders and reduces the CEO Performance Award following the date of his termination.  No portion of the CEO Performance Award will vest during any unpaid leave of absence by Dr. Ji.

Change in Control of Sorrento.  If Sorrento experiences a change in control event, such as a merger with or purchase by another company, vesting under the CEO Performance Award will not automatically accelerate.  In a change in control situation,

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the achievement of the milestones will be based on Sorrento’s market capitalization determined by the product of the total number of outstanding shares of Sorrento common stock immediately before the change in control multiplied by the per share price (plus the per shareneed for and value of any other consideration) received by Sorrento’s stockholders in the change in control.  The treatment of the CEO Performance Award upon a change in control is intended to align Dr. Ji’s interests, as a stockholder, with Sorrento’s other stockholders with respect to evaluating potential takeover offers.

Exercise Methods / Requirements.  Dr. Ji may exercise any vested options under the CEO Performance Award in one of two ways: (i) a cashless exercise or (ii) a cash exercise.  A cashless exercise occurs when the stock option is exercised and the shares are simultaneously sold to pay for the exercise price and any required tax withholding.  A cash exercise simply involves paying the Sorrento option exercise price in cash.

Clawback.  The CEO Performance Award will be subject to any current or future Sorrento clawback policy applicable to equity awards, so long as the policy does not discriminate solely against Dr. Ji except as required by applicable law.

Market Capitalization Adjustments.  In the event that Sorrento acquires a business with a purchase price of more than $100,000,000, each then unachieved Market Capitalization Milestone will be increased by the purchase price of such acquisition.  This feature of the CEO Performance Award is intended to prevent achievement of milestones basedfrequent advisory votes on acquisition activity that could be considered material to the achievement of those milestones.

Likewise, in the event that Sorrento enters into a transaction constituting a split-up, spin-off or divestiture that has a value over $100,000,000, each unachieved Market Capitalization Milestone will be decreased by the value of such transaction.

Other Details Regarding CEO Performance Award

Administration.  The CEO Performance Award will be administered by the Compensation Committee, or any committee of Board members or other individuals (excluding Dr. Ji) appointed by the Board and satisfying applicable laws (the “Administrator”). However, Dr. Ji will recuse himself from any approvals relating to the administration of the CEO Performance Award.  The Administrator has the power and authority, in good faith, to interpret the CEO Performance Award and adopt rules for its administration, interpretation and application of the terms of the CEO Performance Award.  All actions taken, and interpretations and determinations made, by the Administrator in good faith with respect to the CEO Performance Award will be final and binding on Dr. Ji and any other interested persons.

Certain Other Market Capitalization Provisions.  For purposes of achieving the Market Capitalization Milestones, Sorrento’s market capitalization shall be based on an average of Sorrento’s market capitalization for all trading days in the applicable trailing six calendar month period or 30 calendar day period.  As of any date of determination, the applicable six month or 30 day period ends with (and is inclusive of) such determination date.  Sorrento’s market capitalization on any particular trading day is equal to the product of the closing sales price of a share of Sorrento’s common stock on the trading day, multiplied by the outstanding shares of Sorrento common stock at the closing of the trading day.

Certain Other Termination Provisions.  In all cases, in the event that Sorrento stockholders do not approve the CEO Performance Award within 12 months after its grant date or, if at any meeting of Sorrento’s stockholders at which the CEO Performance Award is presented to the Sorrento stockholders for a vote, the Sorrento stockholders do not approve the CEO Performance Award by the requisite vote, the CEO Performance Award will automatically be forfeited and Dr. Ji will have no rights to the CEO Performance Award or the shares underlying it.  Upon a change in control of Sorrento, any vested portion of the CEO Performance Award will be assumed or substituted by the successor and any unvested portion of the CEO Performance Award will automatically terminate at the effective time of the change in control event.  If the CEO Performance Award is not assumed by the successor, the CEO Performance Award will expire as of the effective time of the change in control so long as Dr. Ji has been given at least five days’ prior notice and an opportunity to exercise any vested portion of the CEO Performance Award.  The Administrator may not accelerate the vesting of any portion of the CEO Performance Award in connection with a change in control.  The vested and unexercised portion of the CEO Performance Award will remain exercisable through its expiration date.  If Dr. Ji’s role either as Chief Executive Officer or Executive Chairman terminates while the CEO Performance Award is outstanding, the Administrator will promptly make a final determination as to whether any additional tranches have vested through the date of such termination, and any portion of the CEO Performance Award that has failed to vest based on performance through such date of termination will be automatically forfeited.

Certain Other Adjustments Upon Certain Transactions.  In the event of any dividend or other distribution (whether in the form of cash, shares of Sorrento common stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Sorrento’s securities, or other change in the corporate structure of Sorrento affecting Sorrento’s common stock, then the Administrator, in order to prevent the diminution or enlargement of the benefits or potential benefits intended to be made available under the CEO Performance Award (and in a manner that will not provide any greater benefit or potential benefits than intended to be made available, other than solely to reflect changes resulting from any such triggering event), will adjust the number, class and price of the shares underlying the CEO Performance Award.  In the event of a proposed dissolution or liquidation of Sorrento, the Administrator will notify Dr. Ji

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as soon as practicable before the effective date of the proposed transaction.  To the extent the CEO Performance Award has not been previously exercised, it will terminate immediately before, and contingent upon, the completion of such proposed transaction.

Dr. Ji will have no rights or privileges of a stockholder of Sorrento with respect to the shares underlying the CEO Performance Award unless and until the shares actually are issued, recorded on the records of Sorrento or its transfer agents or registrars, and delivered to Dr. Ji (which may occur through electronic delivery to a brokerage account).  In addition, unless and until Sorrento’s stockholders approve the CEO Performance Award, no portion of the CEO Performance Award may be exercised, regardless of whether any portion of the CEO Performance Award may have vested before such stockholder approval.

Certain Other Securities Information.  Shares issuable under the CEO Performance Award may be authorized, but unissued, or reacquired Sorrento common stock.  As of August 7, 2020, the closing sales price of a share of Sorrento’s common stock was $14.42.

Tax Withholdings.  The Administrator will determine the methods by which tax withholding obligations with respect to the CEO Performance Award will be satisfied by Dr. Ji.  For example, to the extent permissible by applicable law, the Administrator may permit Dr. Ji to satisfy tax withholding obligations relating to the CEO Performance Award by (a) paying cash, or (b) having a sufficient number of shares otherwise deliverable under the CEO Performance Award sold through means determined by Sorrento (whether through a broker or otherwise) equal to the minimum required amount to be withheld (or such greater amount that Dr. Ji elects, if permitted by the Administrator and if withholding a greater amount would not result in adverse financial accounting consequences for Sorrento).

Amendment; No Repricing.  The CEO Performance Award may be amended only by a written agreement executed by us and Dr. Ji. We may not, without the approval of the stockholders (excluding Dr. Ji), reduce, reprice or take any other action relative to the CEO Performance Award that would be treated as a repricing under applicable rules of The Nasdaq Stock Market LLC (or the rules of any other exchange on which the stock is then traded) or extend the exercise period of the CEO Performance Award beyond 10 years from the date of grant.

Restrictive Covenants.  Dr. Ji will continue to be subject to restrictive covenants relating to confidentiality, intellectual property, noncompetition, nonsolicitation and non-disparagement set forth in his current employment agreement with Sorrento.

Non-transferability.  The CEO Performance Award may not be transferred in any manner other than by will or the laws of descent or distribution and may be exercised during Dr. Ji’s lifetime only by him.  Shares issued to Dr. Ji upon exercise of the CEO Performance Award are subject to the holding period described further above, except that Dr. Ji may transfer shares to change the form in which he holds the shares, such as through certain family or estate planning trusts, or as permitted by the Administrator consistent with Sorrento’s internal policies, and Dr. Ji may sell, transfer or dispose of the shares issued to Dr. Ji upon exercise of the CEO Performance Award in connection with a change in control of Sorrento.

Supporting Statement of the Board

We are asking stockholders to vote their shares “FOR” the proposed CEO Performance Award.

Early in 2018, our Compensation Committee began preliminary discussions about a potential performance award grant to Dr. Ji. Upon reviewing the Tesla, Inc. and Axon Enterprise, Inc. CEO performance awards, our Compensation Committee was impressed with the design of these CEO performance awards to maximize alignment with stockholders while accounting for future unforeseen events. The Tesla, Inc. and Axon Enterprise, Inc. CEO performance awards stood out because they represent pay-for-performance, require a long-term commitment by the CEO, and align CEO compensation with value creation for all stakeholders, including employees, customers and stockholders.  Furthermore, they provide substantial challenges required to motivate a typical CEO personality to produce maximum growth. The members of the Compensation Committee considered these factors and contemplated a CEO performance award for Dr. Ji from time to time since 2018, and spent several months in 2020 ultimately designing a compensation award that would both incentivize Dr. Ji while maximizing value for Sorrento stockholders.  As part of this process, the Compensation Committee and the Board sought to balance a variety of important objectives, including:

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The CEO Performance Award is intended to reflect Sorrento’s current long-term goals and helps incentivize their achievement.

The Board recommends that stockholders approve the CEO Performance Award for the following reasons:

The Board believes in rewarding Dr. Ji in a fair way that provides compensation to him if, and only if, all other stockholders realize significant value.

Dr. Ji’s ability to receive any benefit from the CEO Performance Award will be dependent on him leading Sorrento’s achievement of challenging milestones, which, require Sorrento’s current market capitalization to increase to $5 billion, and to then continue increasing in additional $2-5 billion increments thereafter, up to $35 billion.  Under this award, if these ambitious milestones are met, all Sorrento stockholders will benefit, with the value of Sorrento’s equity growing by billions of dollars per milestone.  Moreover, in contrast to Dr. Ji’s rights under the CEO Performance Award, which requires the Market Capitalization Milestones to be met in order for him to receive any vesting of the corresponding tranche, Sorrento’s stockholders will realize the real-time benefit of any increases to its stock price that result even if his performance does not result in the achievement of the Market Capitalization Milestones required by the CEO Performance Award.  Finally, the CEO Performance Award creates even more stockholder alignment by incorporating features such as a 20% premium on the exercise price and a five-year holding period that ensures Dr. Ji’s continuing alignment with Sorrento’s interests for many years even after he exercises his options.

As such, the Board believes this award is a “pay-for-performance” compensation program that directly aligns Dr. Ji’s interests with the interests of stockholders and Sorrento.

The Board believes that having the continuing active and engaged services of Dr. Ji is important to the continued growth and long-term interests of Sorrento. While the Board recognizes that Sorrento has many valuable employees who have been a critical part of Sorrento’s success, the Board believes that Dr. Ji’s leadership has been instrumental in the Company’s development as its founder and in guiding the Company through a number of recent accomplishments, including Sorrento’s pivot to focusing on developing a pipeline of both diagnostic and drug discovery product candidates to address the COVID-19 pandemic and the others discussed below. Under Dr. Ji’s visionary leadership, Sorrento began investigating potential antibody candidates for blocking SARS-CoV-2, the virus that causes COVID-19, at the beginning of 2020, just as the COVID-19 public health crisis loomed on the horizon. Since that time, Sorrento has rapidly identified, and both in-licensed and developed in-house, a pipeline of COVID-19 product candidates that cover the treatment spectrum, from diagnostic testing to preventative measures and vaccines for SARS-CoV-2 and COVID-19. In designing and approving the CEO Performance Award, the Compensation Committee recognized the tireless effort that Dr. Ji has expended in leading the Company’s development of its COVID-19 pipeline since early 2020, including the achievement of the following key milestones:

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In addition to developing the Company’s COVID-19 programs, the Compensation Committee noted that Dr. Ji has demonstrated strong leadership qualities that have been essential in Sorrento achieving other key milestones and successes, including:

In light of these significant developments for Sorrento under Dr. Ji’s leadership, and considering the potential for the Company’s COVID-19 programs to combat the devastating effects that the SARS-CoV-2 and the COVID-19 pandemic has had globally, the Board believes that it is critical to keep Dr. Ji incentivized to continue his efforts and lead Sorrento during this critical point in the Company’s history, and to ensure that Dr. Ji remains motivated to achieve his visionary goal of slowing, or potentially even stopping, the spread of SARS-CoV-2, as well as continuing to develop Sorrento’s core cancer treatment, pain control and autoimmune disease portfolios.

Additionally, in considering the CEO Performance Award, the Compensation Committee took into account Dr. Ji’s understanding and emphasis on the importance of rewarding the Company’s employees by advocating for the grant of options to all employees and rewarding the Company’s key scientists driving the innovation, and the fact that Dr. Ji is historically the last to take bonus payouts, having not received a bonus payment since 2016 (at Dr. Ji’s express request).

Accordingly, our Compensation Committee designed the CEO Performance Award to incentivize and motivate Dr. Ji to continue to not only lead Sorrento over the long-term, but to provide Dr. Ji with the level of challenge that the typical CEO personality requires to remain engaged and perform his or her best work.  In the Compensation Committee’s discussions with Dr. Ji, he indicated that the CEO Performance Award will accomplish that.

Dr. Ji must remain as Sorrento’s CEO or serve as Executive Chairman, in each case with all leadership ultimately reporting to him, at the time each milestone is met in order for the corresponding tranche to vest.  This ensures that he will continue to lead the management of Sorrento over the long-term while also providing the flexibility to bring in another CEO who would report to Dr. Ji at some point in the future. Although there is no current intention for this to happen, the Board believes that having flexibility as Sorrento continues to grow to potentially allow Dr. Ji to focus less of his attention on day-to-day activities and responsibilities at Sorrento and more of his attention on the kinds of key product development and strategic matters that most impact Sorrento’s long-term growth and profitability would benefit stockholders.

The Board believes that the presence of a challenging and rewarding performance reward is instrumental in motivating Dr. Ji to lead Sorrento’s achievement of increasing the Company’s overall market capitalization to $5 billion and potentially to $35 billion over time. In designing the CEO Performance Award, the Compensation Committee considered the fact that, in order to reach the market capitalization thresholds, Dr. Ji and Sorrento will have to continue to develop and advance Sorrento’s current product candidates and obtain regulatory approvals to commence pivotal trials and ultimately bring its product candidates to market. By tying the vesting of the CEO Performance Award to specific increases in the Company’s market capitalization, the Board believes that Dr. Ji’s interests in obtaining key regulatory approvals and bringing products to market are aligned with those of Sorrento’s stockholders because Sorrento stockholders will receive immediate benefits in any increase to the Sorrento stock price that might result from the receipt of regulatory approvals or sales of products.

Potential Value that Could be Realized under the CEO Performance Award

It is not possible to reliably estimate the value that may be realized under the CEO Performance Award because that value depends on the amount of dilution that Sorrento experiences over the course of the 10-year term of the award.  The more dilution, the less value that Dr. Ji will realize.  While Sorrento cannot predict how much dilution it will experience in the future, some amount of future dilution is a certainty, whether due to additional issuances of equity as part of (i) regular and special

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compensation awards to Sorrento employees, which may include Dr. Ji, (ii) capital-raising activities, or (iii) mergers or acquisitions.  Thus, at this time, it is not possible to determine the actual value that Dr. Ji will realize from the CEO Performance Award even if we were to assume that the entire CEO Performance Award vested.

Nevertheless, the table below depicts the maximum theoretical value, both in dollar value and as a percentage of total value created, that could be realized by Dr. Ji and Sorrento stockholders over various vesting scenarios.  This table only takes into account estimated dilution as a result of potential exercises or conversions from the existing employee equity pool and the Company’s outstanding convertible notes and warrants.  It also assumes that Dr. Ji does not exercise any of the stock options in the CEO Performance Award until the very end of the 10-year term, which results in a significantly larger value being attributed to Dr. Ji than would be the case if he were to exercise the CEO Performance Award as each tranche vests.  Importantly, this table does not take into account any other future dilutive events over the next ten years even though such events will occur.  Accordingly, this table should only be used for illustration purposes, recognizing that future dilutive events or earlier exercises would significantly decrease the ultimate value that Dr. Ji would realize from the CEO Performance Award over the various vesting scenarios, both in dollar value and as a percentage of total value created.

Potential Ownership of Securities As a Result of the CEO Performance Award

As of August 6, 2020, Dr. Ji beneficially owned 6,659,750 shares of Sorrento’s common stock, comprised of (i) 2,045,807 shares held directly, (ii) 2,271,693 shares held in family trusts, of which Dr. Ji is a co-trustee with his wife Vivian Q. Zhang, (iii) 40,000 shares held directly by Dr. Ji’s wife, and (iv) 2,302,250 shares issuable pursuant to stock options exercisable within 60 days after August 6, 2020.  Based on 249,358,822 shares of Sorrento’s common stock outstanding at August 6, 2020, and assuming that all shares of common stock subject to options held by Dr. Ji that were exercisable within 60 days of August 6, 2020 were outstanding as of such date, Dr. Ji beneficially owned 2.6% of the outstanding shares of Sorrento common stock as of August 6, 2020.

For illustration purposes only, if (i) all 24,935,882 shares of common stock subject to the CEO Performance Award were to become fully vested, outstanding and held by Dr. Ji; (ii) all shares of common stock subject to the other options held by Dr. Ji that are currently vested and exercisable were outstanding, (iii) estimated dilution as a result of potential exercises from the existing employee equity pool and the outstanding warrants were to be considered; and (iv) there were no other dilutive events of any kind, Dr. Ji would beneficially own 10.22% of the outstanding shares of Sorrento common stock, calculated as follows:

(1) Does not give effect to the proposed increase in the number of shares authorized for issuance under the 2019 Plan by 12,500,000 shares as contemplated in Proposal 4.

(2) Does not give effect to any shares that may be issued pursuant to the ESPP contemplated in Proposal 3.

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However, except as indicated above, this calculation does not account for any future dilutive events over the next ten years, such as the issuance of additional equity as compensation to employees, which may include Dr. Ji, as well as to non-employee directors and consultants; the issuance of shares pursuant to the ESPP contemplated in Proposal 3; the proposed increase to the number of shares issuable pursuant to the 2019 Plan as contemplated in Proposal 4 (and any other similar increases or new equity plans that may be adopted); as consideration for mergers and acquisitions; or for capital-raising activities, which would have the effect of diluting Dr. Ji’s ownership of Sorrento common stock, nor does it account for any sales of Sorrento common stock that Dr. Ji will likely have to make in order to pay required taxes upon the exercise of stock options.  Therefore, it is not possible to provide the exact percentage of Dr. Ji’s future total ownership of Sorrento common stock upon the vesting of one or more tranches of the CEO Performance Award.  Given that some amount of dilution and/or stock sales to cover required tax payments will occur, we believe that Dr. Ji’s future potential ownership of Sorrento common stock will be less than 10.22% if  the CEO Performance Award were to become fully vested.

Accounting and Tax Considerations

Accounting Consequences.  We follow Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718, Compensation-Stock Compensation (“ASC Topic 718”) for our stock-based compensation awards.  ASC Topic 718 requires companies to measure the compensation expense for all stock-based compensation awards made to employees and directors based on the grant date “fair value” of these awards.  Pursuant to ASC Topic 718, this calculation cannot be made for the CEO Performance Award prior to the date on which it is approved by our stockholders, which will be the “grant date” for accounting purposes.  ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award.  Accordingly, the CEO Performance Award would result in the recognition of additional stock-based compensation expense over the derived requisite service period pursuant to ASC Topic 718.

For illustrative purposes only, and using the $14.42 closing market price of Sorrento common stock on August 7, 2020, the grant date of the CEO Performance Award, the Company expects that the aggregate grant date fair value of the full CEO Performance Award will be approximately $[●] million across all ten tranches. The Company expects that as of the grant date all of the ten Market Capitalization Milestones will be probable to be achieved, which will trigger commencement of the recognition of all of the tranches. This expense will be recognized ratably over the expected vesting period of each respective tranche, which is a weighted average of approximately [●] years, and the estimated expense to be recognized for fiscal year 2020 is $[●]. The foregoing discussion contains estimates solely for illustrative purposes and, because the grant date of the CEO Performance Award for accounting purposes will be the date of stockholder approval of the CEO Performance Award, the actual grant date fair value of the CEO Performance Award and related compensation expense will not be determined unless and until the CEO Performance Award is approved by our stockholders, and the actual amounts may ultimately differ significantly from the foregoing estimates.

Federal Income Tax Consequences.The following discussion is a brief summary of the principal United States federal income tax consequences of the CEO Performance Award under the Code, as in effect on the date of this proxy statement.  The following summary assumes that Dr. Ji remains a U.S. taxpayer.  The Code and its regulations are subject to change.  This summary is not intended to be exhaustive and does not describe, among other things, state, local or non-U.S. income and other tax consequences.  The specific tax consequences to Dr. Ji will depend upon his future individual circumstances.

Tax Effects for Dr. Ji. Dr. Ji did not have taxable income from the grant of the CEO Performance Award nor will he have taxable income from stockholder approval of the CEO Performance Award, if such approval occurs.  If and when Dr. Ji exercises any portion of the CEO Performance Award, he will recognize ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the shares of Sorrento common stock purchased over the exercise price of the option.  Any taxable income recognized in connection with the exercise of the CEO Performance Award by Dr. Ji will be subject to tax withholding by us. Any additional gain or loss recognized upon any later disposition of the shares of common stock will be capital gain or loss.

Tax Effects for Sorrento. We will not be entitled to a material tax deduction in connection with the CEO Performance Award.  In most cases, companies are entitled to a tax deduction in an amount equal to the ordinary income realized by a participant when the participant exercises a nonstatutory stock option and recognizes such income.  However, Section 162(m) of the Code limits the deductibility of compensation paid to our Chief Executive Officer and other “covered employees” as defined in Section 162(m) of the Code.  No tax deduction is allowed for compensation paid to any covered employee to the extent that the total compensation for that executive exceeds $1,000,000 in any taxable year.  Under Section 162(m) of the Code, as most recently amended in December 2017, we expect that Dr. Ji will always be a covered employee for purposes of Section 162(m) of the Code.  Therefore, in any given year in which Dr. Ji exercises all or part of the CEO Performance Award, we will be able to take a tax deduction of only $1,000,000 or less, regardless of the amount of compensation recognized by Dr. Ji from the exercise of the CEO Performance Award.

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New Plan Benefits

The following table sets forth the aggregate number of shares of Sorrento common stock subject to options granted under the CEO Performance Award to our named executive officers, to all of our current executive officers, as a group, to all directors who are not executive officers, as a group, and to all employees who are not executive officers, as a group.

Registration with the Securities and Exchange Commission

If the CEO Performance Award is approved by our stockholders, we expect to file after the Annual Meeting a Registration Statement on Form S-8 with the SEC to register the shares of common stock subject to the CEO Performance Award.compensation.

Vote Required; Recommendation of the Board of Directors

The voting frequency option that receives the highest number of votes cast by stockholders will be the frequency of future advisory resolutions to approve named executive officer compensation that has been selected by our stockholders. Abstentions and broker non-votes will have no effect on this proposal. Because this vote is advisory, our Board of Directors may decide that it is in the best interests of our stockholders and the Company to hold future advisory resolutions to approve named executive officer compensation more or less frequently than the option approved by our stockholders.  

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE, ON AN ADVISORY BASIS, FOR HOLDING AN ADVISORY VOTE ON EXECUTIVE COMPENSATION EVERY 1 YEAR (ANNUAL VOTE).  PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE ON YOUR PROXY CARD.

PROPOSAL 5:

APPROVAL OF THE COMPENSATION OF DR. HENRY JI AS EXECUTIVE CHAIRPERSON OF SCILEX HOLDING COMPANY

General

At our 2019 Annual Meeting of Stockholders held on September 20, 2019, we sought, and obtained, the approval of our stockholders for the following compensation to be paid by Scilex Holding Company, our majority-owned subsidiary (“Scilex Holding”), to Henry Ji, Ph.D., our President, Chief Executive Officer and Chairman of our Board, in connection with his role as the Executive Chairperson of Scilex Holding: (1) an initial base salary of $139,250, (2) an initial target bonus opportunity of $82,157.50 (59% of the initial base salary), and (3) the grant of a stock option to purchase 3,016,652 shares of common stock of Scilex Holding (“Scilex Common Stock”) with an exercise price equal to $1.16 per share of Scilex Common Stock. On December 21, 2020, the Compensation Committee of the Board of Directors of Scilex Holding, which was comprised solely of an independent director that was and is not on our Board or an officer or employee of our company, approved the following changes to Dr. Ji’s compensation as the Executive Chairperson of Scilex Holding (Items 1 through 3 below are referred to collectively in this proxy statement as the “Executive Chairperson Compensation”):

Dr. Ji has agreed to forego and relinquish his right to receive any of the Executive Chairperson Compensation in the event our stockholders do not approve such compensation at the Annual Meeting.

Our Board is asking our stockholders to approve the Executive Chairperson Compensation.

The primary objective of compensating Dr. Ji for his role as the Executive Chairperson is to facilitate the growth of Scilex Holding, which our Board and the board of directors of Scilex Holding (the “Scilex Holding Board”) believe will create significant value for Scilex Holding stockholders, which will in turn benefit our stockholders as we currently hold approximately 99.9% of the outstanding capital stock of Scilex Holding. While our Board recognizes that Dr. Ji’s employment agreement with us permits us to require Dr. Ji to provide services to our subsidiaries without additional compensation, our Board nonetheless recommends that our stockholders approve the Executive Chairperson Compensation for the following primary reasons:

Roles and Responsibilities of the Scilex Holding Executive Chairperson

In determining the adjustments to the amount and form of compensation to be paid to Dr. Ji for his role as the Executive Chairperson of Scilex Holding, the Scilex Holding Board determined that the principal role of the Executive Chairperson of the Scilex Holding Board is to ensure that the Scilex Holding Board and its various committees operate effectively and efficiently over the next several years. Specifically, the Scilex Holding Board has determined that, as its Executive Chairperson, Dr. Ji shall be specifically responsible for the following:

Board Governance

Strategic Initiatives

Board Governance

Background of and Rationale for Executive Chairperson Compensation

On November 8, 2016, Sorrento entered into a Stock Purchase Agreement with Scilex Pharmaceuticals Inc. (“Scilex Pharma”) and a majority of the stockholders of Scilex Pharma, pursuant to which we acquired approximately 72% of the outstanding capital stock of Scilex Pharma. Prior to the acquisition transaction, Dr. Ji held approximately 6.5% of Scilex Pharma’s total outstanding capital stock. As part of the acquisition transaction, Dr. Ji sold all of his shares of the capital stock of Scilex Pharma to Sorrento on the same terms as the other Scilex Pharma stockholders.

On March 18, 2019, Scilex Holding entered into a Contribution and Loan Agreement with the holders of the outstanding shares of capital stock of Scilex Pharma pursuant to which Scilex Holding acquired 100% of the outstanding shares of capital stock of Scilex Pharma in exchange for shares of Scilex Common Stock. On March 18, 2019, we and Scilex Holding entered into an Agreement and Plan of Merger with Semnur. Following the closing of the merger, Semnur became a wholly owned subsidiary of Scilex Holding and Sorrento owned approximately 58% of Scilex Holding’s issued and outstanding capital stock.

In March 2019, we entered into an Exchange and Registration Rights Agreement (the “Exchange Agreement”) with the holders of Semnur’s capital stock and options to purchase Semnur’s common stock (collectively, the “Semnur Equityholders”). Pursuant to the Exchange Agreement, if within 18 months of the closing of the merger transaction with Semnur, 100% of the outstanding equity of Scilex Holding had not been acquired by a third party or Scilex Holding had not entered into a definitive agreement with respect to, or otherwise consummated, a firmly underwritten offering of Scilex Holding’s capital stock that meets certain requirements and includes the Scilex Common Stock issued to the Semnur Equityholders, then the Semnur Equityholders could collectively elect to exchange such Scilex Common Stock for shares of our common stock. On September 28, 2020, we entered into an amendment to the Exchange Agreement to, among other things, provide that if we received notice from the Semnur Equityholders that they will proceed with the exchange of Scilex Common Stock for our common stock, we could, in our sole discretion, elect, within seven days of receipt of such notice, to exchange all the applicable Scilex Common Stock and the rights to receive cash from Scilex Holding held by the Semnur Equityholders for an amount in cash equal to $55.0 million, in lieu of issuing the shares of our common stock. On September 28, 2020, the Semnur Equityholders delivered the notice under the Exchange Agreement, and on October 5, 2020, we notified the Semnur Equityholders of our election to pay cash, and paid $55.0 million in cash to the Semnur Equityholders in exchange for their shares of Scilex Common Stock on October 9, 2020, after which we held approximately 82.3% of Scilex Holding’s issued and outstanding capital stock.

On January 29, 2021, we entered into certain Stock Purchase Agreements with two remaining stockholders of Scilex Holding pursuant to which we acquired approximately 17.7% of Scilex Holding’s issued and outstanding capital stock in exchange for shares of our common stock. Following the closing of such transactions, we now own approximately 99.9% of Scilex Holding’s issued and outstanding capital stock.

Taking into account the strategic goals of Scilex Holding, the Compensation Committee of the Scilex Holding Board (the “Scilex Compensation Committee”) engaged in extensive discussions regarding the potential increase in compensation for Dr. Ji. Throughout this process, the Scilex Compensation Committee retained the services of Compensia, Inc. (“Compensia”) as its independent compensation consultant. At the direction of the Scilex Compensation Committee, Compensia evaluated Scilex Holding’s executive compensation program against private and public company market data with two primary goals in mind: (i) to assess the current competitiveness of Scilex Holding’s executive compensation program, and (ii) to provide a path for the transition to a market competitive public company executive compensation program.

Compensia also analyzed market data of 18 comparable companies that disclosed compensation arrangements for both a Chief Executive Officer and an Executive Chairperson in the life sciences industry. The analysis of this data found that Executive Chair compensation was generally set at 50% to 75% of the target total direct compensation of the Chief Executive Officer. In addition, the amount of the target annual bonus opportunity depended on the role and responsibilities of the Executive Chairperson and the incumbent’s ability to impact company results. Finally, the size of any additional equity award depended on the length of the transition period for which the incumbent had agreed to serve as Executive Chair.

On December 21, 2020, after considering the significant roles and responsibilities that the Scilex Holding Executive Chairperson would be required to perform as described in “-Roles and Responsibilities of the Scilex Holding Executive Chairperson” above (such role and responsibilities, the “Executive Chairperson Duties”) and the Compensia analysis, the Scilex Holding Compensation Committee approved an increase in Dr. Ji’s Executive Chairperson Compensation with a goal of guiding Scilex Holding to continued growth, sustainability and profitability, and maximizing stockholder value. As described above, the Executive Chairperson Compensation is comprised of three elements: (1) an increase in annual base salary, (2) a bonus of $43,356 for services rendered and achievements in 2019, and (3) the Ji Scilex Option, each of which are described in more detail below.

Annual Base Salary

Based on its review of the Compensia analysis and the Executive Chairperson Duties, the Scilex Holding Board set Dr. Ji’s initial annual base salary at $139,250, or 25% of the base salary of Scilex Holding’s Chief Executive Officer, Mr. Shah. The Scilex Compensation Committee subsequently approved an increase in Dr. Ji’s annual base salary to $441,000 (a $301,750 increase). However, if the Executive Chairperson Compensation is not approved by our stockholders at the Annual Meeting, Dr. Ji will not be eligible to receive the $301,750 increase in base salary for his role as the Executive Chairperson of Scilex Holding, and he will be required to forfeit all amounts paid to him in connection therewith. He will, however, be entitled to his initial annual base salary of $139,250 as that was already approved by our stockholders at our 2019 Annual Meeting of Stockholders held on September 20, 2019.

2019 Annual Bonus

Based on its review of the Compensia analysis and the Executive Chairperson Duties, and to align the performance objectives of Dr. Ji with the responsibilities of Mr. Shah, the Scilex Holding Board set the same target annual bonus opportunity for Dr. Ji of 59% of his base salary. Assuming achievement of 100% of the Scilex Holding corporate goals for 2019, Dr. Ji would have been entitled to receive a cash bonus of $82,157.50, resulting in target total cash compensation (base salary and target annual bonus) of $221,407.50. The Scilex Compensation Committee has approved a bonus of $45,536 for Dr. Ji’s services rendered and achievement in 2019, which was approximately 32.7% of Dr. Ji’s annual base salary for 2019, or 26.3% less than his target bonus of 59%. Dr. Ji’s target bonus of 59% of his annual base salary for 2019 was approved by our stockholders at our 2019 Annual Meeting of Stockholders held on September 20, 2019. If the Executive Chairperson Compensation is not approved by our stockholders at the Annual Meeting, Dr. Ji will not be eligible to receive, and he will forfeit the right to receive, this $45,536 bonus amount for his role as the Executive Chairperson of Scilex Holding for 2019.

Ji Scilex Option

Effective December 21, 2020, Scilex Holding granted to Dr. Ji a stock option to purchase 7,844,554 shares of Scilex Common Stock with an exercise price equal to $1.16 per share of Scilex Common Stock, whereby 25% of the shares of Scilex Common Stock subject to the Ji Scilex Option shall vest on December 21, 2021, and 1/48th of the total amount of the shares of Scilex Common Stock subject to the Ji Scilex Option shall vest each month thereafter, subject to Dr. Ji providing Continuous Service (as defined in the Scilex Holding 2019 Stock Option Plan) on each such vesting date, inclusive. In determining the number of shares subject to the Ji Scilex Option, the Scilex Holding Compensation Committee considered Dr. Ji’s instrumental role in expanding Scilex Holding’s non-opioid pain management pipeline with the strategic acquisition of Semnur Pharmaceuticals, working with the Scilex CEO on strategic debt and equity financings, and in furthering the Company’s continuous efforts in pursuing strategic transaction opportunities. The Ji Scilex Option includes a “double trigger” vesting acceleration provision, whereby any unvested portion of the Ji Scilex Option will vest in full if there is a Change in Control (as defined in the Scilex Holding 2019 Stock Option Plan) and Dr. Ji’s Continuous Service terminates due to an involuntary termination of employment without cause or due to a voluntary termination of employment with good reason within 13 months after the effective time of such Change in Control. If the Executive Chairperson Compensation is not approved by our stockholders at the Annual Meeting, the Ji Scilex Option shall automatically terminate in its entirety and be of no further force or effect as of the closing of the Annual Meeting. The foregoing description of the Ji Scilex Option is not complete and is qualified in its entirety by reference to the full text of the option agreement governing the terms of the Ji Scilex Option, a copy of which is included as Appendix A to this proxy statement.

The Scilex Compensation Committee approved the Executive Chairperson Compensation on December 21, 2020; however, if the Executive Chairperson Compensation is not approved by our stockholders, then the Executive Chairperson Compensation shall be deemed terminated and forfeited and of no further force or effect, and Dr. Ji shall continue to receive an annual base salary of $139,250, will not receive the $45,536 bonus for services rendered and achievements in 2019 and the Ji Scilex Option shall automatically terminate in its entirety and be of no further force or effect as of the closing of the Annual Meeting.

We believe that Scilex Holding is in a unique position to transform the landscape of the underserved therapeutic markets. Dr. Ji brings significant leadership skills and extensive knowledge of the industry to guide the development of Scilex Holding. The Executive Chairperson Compensation is based on a vision to help Scilex Holding grow and achieve its potential, which facilitates the creation of significant stockholder value. With that goal and the significant Executive Chairperson Responsibilities in mind, and while mindful of the terms of Dr. Ji’s employment agreement with us and the compensation he is entitled to thereunder, the Board is asking our stockholders to approve the Executive Chairperson Compensation for Dr. Ji.

Vote Required; Recommendation of the Board of Directors

The affirmative vote of: (1)of a majority of the votes cast at the Annual Meeting, and (2) a majority of the votes cast at the Annual Meeting by holders of shares of common stock that are not beneficially owned, directly or indirectly, by Dr. Ji will be required to approve the CEO Performance Award.compensation of Dr. Henry Ji as Executive Chairperson of Scilex Holding Company. Abstentions will be counted towards a quorum, but will not be counted for any purpose in determining whether Proposal 5 has been approved as abstentions are not considered votes cast under Delaware law. Broker non-votes are not considered under Delaware law to be votes cast at the Annual Meeting, and will also not be counted for any purpose in determining whether Proposal 5 has been approved. Therefore, abstentions and broker non-votes will have no effect on Proposal 5, other than having the practical effect of reducing the number of affirmative votes required to achieve a majority for each vote required for this proposal by reducingas brokers or other nominees are not entitled to vote on such proposal in the total numberabsence of sharesvoting instructions from which the majority in each case is calculated.beneficial owner.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE TO APPROVE THE CEO PERFORMANCE AWARD FORCOMPENSATION OF DR. HENRY JI PH.D.AS EXECUTIVE CHAIRPERSON OF SCILEX HOLDING COMPANY. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE ON YOUR PROXY CARD.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIALBENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of July 31, 2020September 15, 2021 with respect to the beneficial ownership of shares of our common stock by:

This table is based upon information supplied by officers, directors and principal stockholders and a review of Schedules 13D and 13G, if any, filed with the SEC. Other than as set forth below, we are not aware of any other beneficial owner of more than five percent of our common stock as of July 31, 2020.September 15, 2021. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.

Applicable percentage ownership is based on 242,026,582301,526,747 shares of common stock outstanding as of July 31, 2020,September 15, 2021, adjusted as required by rules promulgated by the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options that are either immediately exercisable or exercisable on or before September 29, 2020,November 14, 2021, which is 60 days after July 31, 2020.September 15, 2021. These shares are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Sorrento Therapeutics, Inc., 4955 Directors Place, San Diego, California 92121.

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EXECUTIVE COMPENSATIONCOMPENSATION

Our Executive Officers

The names of our executive officers and their ages as of September 1, 2020,October [●], 2021, positions, and biographies are set forth below. Dr. Ji’s background is discussed under the section “Board“Proposal 1: Election of Directors.”Directors” above.

Najjam Asghar. Najjam Asghar has been our Senior Vice President and Chief Financial Officer since August 2020. Prior to serving as our Chief Financial Officer, Mr. Asghar served as our Chief Accounting Officer since June 2019. Prior to joining us, he served NuVasive, Inc. in various capacities from October 2015 to June 2019, including Leader of Accounting & Finance from April 2018 to June 2019, leading its accounting and finance functions of Revenue Recognition, International Accounting, Consolidation, SEC Reporting and Technical Accounting (US GAAP), and Senior Director, Accounting and Director between October 2015 and April 2018. Prior to NuVasive, Inc., Mr. Asghar worked at PricewaterhouseCoopers, LLP. from June 2003 to September 2015 in various roles, from an associate to senior manager, where he served various S&P 100 and S&P 500 clients in North America and Asia in the audit and assurance practice. He holds a Bachelors of Arts degree, majoring in economics, statistics and journalism, from University of the Punjab, Pakistan.

Family Relationships

There are no family relationships between or among any of our executive officers, directors or directors.director nominees.

Code of Ethics

We have adopted the Sorrento Therapeutics, Inc. Code of Business Conduct and Ethics that applies to all of our employees, executive officers and directors. The Code of Business Conduct and Ethics is available to stockholders on our website at http://investors.sorrentotherapeutics.com/corporate-governance/governance-overview.

If we make any substantive amendments to our Code of Business Conduct and Ethics or grant any waiver from a provision of our Code of Business Conduct and Ethics to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website at http://investors.sorrentotherapeutics.com/corporate-governance/governance-overview and/or in our public filings with the SEC.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K of the SEC’s rules and regulations with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.statement.

Compensation Committee

Dr. Yue Alexander Wu

Mr. Dorman Followwill

The foregoing Compensation Committee Report shall not be deemed to be “soliciting material,” deemed “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act. Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act or the Exchange Act that might incorporate by reference future filings, including this proxy statement, in whole or in part, the foregoing Compensation Committee Report shall not be incorporated by reference into any such filings.

Compensation Discussion and Analysis

Compensation Philosophy

The primary goals of our Board with respect to executive compensation are to attract and retain talented and dedicated executives, to tie annual and long-term cash and stock incentives to achievement of specified performance objectives, and to create incentives resulting in increased stockholder value. To achieve these goals, our Compensation Committee recommends to our Board executive compensation packages, generally comprising a mix of salary, discretionary bonus and equity awards. Although we have not adopted any formal guidelines for allocating total compensation between equity compensation and cash compensation, we have implemented and maintain compensation plans that tie a substantial portion of our executives’ overall compensation to achievement of corporate goals.

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Role of Compensation Consultant

The Compensation Committee has the power to engage independent advisors to assist it in carrying out its responsibilities. In 2019,2020, the Compensation Committee engagedre-engaged Compensia, a national compensation consulting firm, to review and advise on our compensation practices. The Compensation Committee assessed the independence of Compensia pursuant to SEC rules and concluded that the work of Compensia has not raised any conflict of interest.

In 2019,2020, Compensia undertook the following projects for the Compensation Committee:

With respect to the equity awardscompensation decisions for our executive officers for 2020, including the option award granted and salary increase to our Chief Executive Officer in June 2020 and the option award granted to our then-current Chief Financial Officer in April 2019,June 2020, the comparable group of life sciences companies consisted of the following companies, which were the same companies included in the comparable group of life sciences companies in our peer group in 2018, determined to: (i) generally have similar revenues as us; (ii) generally have similar market capitalization as us, (iii) generally have similar operating income as us, and (iv) generally have the same number of employees as us:us:

In 2019,2020, Compensia reviewed and advised the Compensation Committee on the matters described above.

In setting 20192020 compensation, thethe Compensation Committee reviewed the competitive market analysesanalysis provided by Compensia in 2019 and 20182020 and compared each named executive officer’s base salary, target annual performance bonus and equity compensation value, separately and in the aggregate, to amounts paid to similarly-situated executives at our peer companies. The Compensation Committee believes that targeting compensation towards similarly situated executives at our peer companies helps achieve the compensation objectives described above. However, compensation for each named executive officer may vary from this range depending on other factors the Compensation Committee considers relevant, such as internal pay equity among our named executive officers or levels of authority, responsibility and experience of our named executive officers that exceed the norms for individuals holding comparably-titled positions at other companies.companies.

With respect to the option awardsaward granted to our Chief Executive Officer and Chief Financial Officer by Scilex Holding Company (“Scilex Holding”) in June 2019,December 2020, the decision to grant such optionsoption was approved by the disinterested members of the Board of Directors of Scilex Holding upon the recommendation of the Compensation Committee, of the Board of Directors of Scilex Holding, which iswas comprised solely of an independent directorsdirector that are alsowas and is not on our Board or officersan officer or employeesemployee of our company. Dr. Ji’s optionJi has agreed to forego and relinquish the Ji Scilex Option to purchase 3,016,6527,844,554 shares of common stock of Scilex Holding wasCommon Stock if it is not approved by our stockholders at our annual meeting of stockholders held on September 20, 2019.the Annual Meeting (see Proposal 5).

Elements of Compensation

We evaluate individual executive performance with a goal of setting compensation at levels our Board or any applicable committee thereof believes are comparable with executives in other companies of similar size and stage of development while taking into account our relative performance and our own strategic goals. The compensation received by our named executive officers consists of the following elements:

Base Salary

Base salaries for our executives are established based on the scope of their responsibilities and individual experience, taking into account competitive market compensation paid by other companies for similar positions within our industry.

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The Compensation Committee considers compensation data from the peer companies to the extent the executive positions at these companies are considered comparable to our positions and informative of the competitive environment. Compensation data for our peer group were collected from available proxy-disclosed data. This information was gathered and analyzed for the 25th, 50th and 75th percentiles for annual base salary, short-term incentive pay elements and long-term incentive pay elements.

The amended and restated employment agreement between us and Dr. Ji, dated May 9, 2017, provides for an annual base salary for Dr. Ji of $600,000, as may be adjusted from time to time. Based on a review of Dr. Ji’s individual performance since joining us in 2006 and the competitive market base pay data for chief executive officers included in our peer group in the May 2018 Report, effective May 29, 2018, the Compensation Committee increased Dr. Ji’s annual base salary from $600,000 to $670,000 with retroactive effect to January 1, 2018. Dr. Ji’s salary was not adjusted, and remained $670,000, during 2019. In June 2020, after considering the competitive market analysis provided by Compensia in 2020, the Compensation Committee increased Dr. Ji’s annual base salary to $700,000, with retroactive effect to January 1, 2020.

The offer letter between us and Mr. Asghar, our Senior Vice President and Chief Financial Officer, dated April 24, 2019, provided for an annual base salary of $300,000, as may be adjusted from time to time. In October 2020, the Compensation Committee considered the competitive market analysis provided by Compensia in 2020 and increased Mr. Asghar’s annual base salary to $400,000, retroactive to August 18, 2020, the effective date of his promotion to the role of Senior Vice President and Chief Financial Officer.

The offer letter between us and Mr. Shao, our former Executive Vice President and Chief Financial Officer, dated March 15, 2018, provided for an annual base salary for Mr. Shao of $450,000, as could be adjusted from time to time. Mr. Shao’s salary was not adjusted, and remained $450,000 during 2019.for all of 2020 through the termination of his employment in August 2020.

Variable Pay

We design our variable pay programs to be both affordable and competitive in relation to the market. We monitor the market and adjust our variable pay programs as needed. Our variable pay programs, such as our bonus program, are designed to motivate employees to achieve overall goals. Our programs are designed to avoid entitlements, to align actual payouts with the actual results achieved and to be easy to understand and administer.

2019 Bonuses

Under the terms of our amended and restated employment agreement with Dr. Ji,For 2020, Dr. Ji’s target annual bonus iswas equal to 55%80% of his annual salary, which was increased to 65%the Compensation Committee set in 2018.June 2020 after considering the competitive market analysis provided by Compensia in 2020. Our offer letter with Mr. ShaoAsghar provided that Mr. Shao’sAsghar’s annual target bonus was equal to 35%30% of his annual salary. Neither Dr. Ji nor Mr. Shao received any annual bonuses for 2018.

As of the date of the filing of this proxy statement,salary, which the Compensation Committee has not yet determinedincreased to 40% in October 2020 after considering the competitive market analysis provided by Compensia in 2020 and Mr. Asghar’s promotion in August 2020.

In August 2021, the Compensation Committee approved the 2020 annual cash bonuses for our executive officers. The 2020 cash bonus amounts, if any, that will be awarded to Dr. Ji for 2019. Mr. Shao will not receive anwas equal to 80% of his annual bonus for 2019 as his employment terminated in August 2020. In the eventsalary, which the Compensation Committee determinesdetermined was appropriate in light of the increase in the scale of our business during 2020 and to award an annual bonus torecognize the tireless effort that Dr. Ji for fiscal 2019, we will,expended during 2020 in accordance with SEC rulesleading the Company’s development of its cancer, pain and regulations, file a Current Report on Form 8-K or otherwise discloseCOVID-19 pipelines, including the 2019development and commercialization of our COVID-19 diagnostic products (COVISTIX, COVITRACE and COVITRACK) and the advancement of multiple therapeutic candidates into the clinic (COVIGUARD, COVI-AMG, COVIDROPS, COVI-MSC and Abivertinib). The 2020 cash bonus awarded to Mr. Asghar was equal to 40% of his annual bonus amount within four business days aftersalary, which the Compensation Committee has assessed 2019determined was appropriate based on our position relative to our peer group and market trends, and in recognition of his outstanding performance and determinedprofessional growth in his initial term as our Chief Financial Officer and his leadership within the 2019 annual bonus awards for Dr. Ji.finance group and the Company as a whole.

Equity-Based Incentives

Salaries and bonuses are intended to compensate our executive officers for short-term performance. We also have adopted an equity incentive program intended to reward longer-term performance and to help align the interests of our named executive officers with those of our stockholders. We believe that long-term performance is achieved through an ownership culture that rewards performance by our named executive officers through the use of equity incentives. Our equity incentive plan has been established to provide our employees, including our named executive officers, with incentives to help align those employees’ interests with the interests of our stockholders.

When making equity-award decisions, the Compensation Committee considers market data, the grant size, the forms of long-term equity compensation available to it under our existing plans and the status of previously granted awards. The amount of equity incentive compensation granted reflects the executives’ expected contributions to our future success. Existing ownership levels are not a factor in award determination, as the Compensation Committee does not want to discourage executives from holding significant amounts of our stock.

Future equity awards that we make to our named executive officers will be driven by our sustained performance over time, our named executive officers’ ability to impact our results that drive stockholder value, their level of responsibility, their potential to fill roles of increasing responsibility, and competitive equity award levels for similar positions in comparable companies. Equity forms a key part of the overall compensation for each executive officer and is evaluated each year as part of the annual performance review process and incentive payout calculation.

The amounts awarded to the named executive officers are based on the Compensation Committee’s subjective determination of what is appropriate to incentivize the executives. Generally, the grants to named executive officers vest over: (i) a four-year period with 25% vesting on each anniversary of the grant date, or (ii) a four-year period with 1/4 of the shares vesting on the first anniversary of the applicable vesting commencement date, and 1/48 of the shares vesting thereafter on a monthly basis. All equity awards to our employees, including named executive officers, and to directors have been granted and reflected in our financial statements, based upon the applicable accounting guidance, with the exercise price equal to the fair market value of one share of common stock on the grant date.

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In April 2019, the Compensation Committee granted to Dr. Ji and Mr. Shao a long-term equity based incentive in the form of options to purchase 1,500,000 and 200,000 shares of our common stock, respectively. The Compensation Committee considered the competitive market analyses provided by Compensia in 2018 and 2019 and other data, including the fact that no annual bonuses were awarded to Dr. Ji or Mr. Shao for 2018, in determining the number of options granted to our named executive officers in April 2019. It is our view that option based awards best align with the interest of our stockholders. In addition, in June 2019, Scilex Holding granted to Dr. Ji and Mr. Shao options to purchase 3,016,652 and 200,000 shares of its common stock, respectively. Dr. Ji’s option to purchase shares of Scilex Holding provided that Dr. Ji would forego and relinquish his right to receive the option if it was not approved by our stockholders. Our stockholders approved the grant of the option at the annual meeting of stockholders held on September 20, 2019. The equity awards granted by us and Scilex Holding to our named executive officers in 2019 are set forth in the 2019 Summary Compensation Table and Grants of Plan-Based Awards During Fiscal Year 2019 table contained herein.

In order to encourage a long-term perspective and to encourage key employees to remain with us, our stock options typically have annual vesting over a four-year period and a term of ten years. Generally, vesting ends upon termination of services and exercise rights of vested options cease three months after termination of services. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents.

In June 2020, the Compensation Committee determined to grant to Dr. Ji and Mr. Shao a long-term equity based incentive in the form of an option to purchase 1,500,000 shares of our common stock and 120,000 shares of our common stock, respectively. The Compensation Committee considered the competitive market analysis provided by Compensia in 2020 and other data, including the fact that no annual bonus had yet been awarded to Dr. Ji or Mr. Shao for 2019, in determining the number of options granted to Dr. Ji and Mr. Shao in June 2020. In November 2020, Mr. Asghar was granted a long-term equity based incentive in the form of option to purchase 120,000 shares of our common stock. This grant was made in connection with Mr. Asghar’s promotion to the role of Senior Vice President and Chief Financial Officer in August 2020 and the Compensation Committee also considered the competitive market analysis provided by Compensia in 2020 in determining the number of options granted to Mr. Asghar. It is our view that option-based awards best align with the interest of our stockholders.

In addition, in December 2020, Scilex Holding Company granted to Dr. Ji and Mr. Asghar an option to purchase 7,844,554 and 750,000 shares of its common stock, respectively. In determining the number of options to grant to Dr. Ji and Mr. Asghar, the Scilex Holding Company board and compensation committee considered recommendations by a third party compensation study. Dr. Ji’s option to purchase shares of Scilex Holding Company provides that Dr. Ji will forego and relinquish his right to receive the option if it is not approved by our stockholders. Our stockholders are considering the Scilex Holding Company option award grant to Dr. Ji at the Annual Meeting (see Proposal 5). The equity awards granted by us and Scilex Holding Company to our named executive officers in 2020 are set forth in the 2020 Summary Compensation Table and Grants of Plan-Based Awards During Fiscal Year 2020 table contained herein.

CEO Performance Award

On August 7, 2020, the Compensation Committee approved a grant to Dr. Ji of a 10-year CEO performance award tied solely to achieving market capitalization milestones (the “CEO Performance Award”) which was approved by our stockholders at the 2020 Annual Meeting of Stockholders held on October 16, 2020. The CEO Performance Award consists of a 10-year option to purchase an aggregate of 24,935,882 shares of our common stock, which was equal to 10% of our outstanding shares of common stock on the day prior to the date of grant, and vests in ten tranches. Each of the ten tranches vests only if a market capitalization milestone is achieved, which requires two market capitalization prongs to be met to achieve each milestone: (1) a six calendar month trailing average (based on trading days); and (2) a 30 calendar day trailing average (based on trading days). To meet the first market capitalization milestone, our current market capitalization must increase to $5.0 billion. For the next two milestones, our market capitalization must continue to increase in additional $2.0 billion increments. For the three milestones thereafter, our market capitalization must increase in additional $3.0 billion increments. For the next three milestones thereafter, our market capitalization must increase in additional $4.0 billion increments. For the final milestone, our market capitalization must increase by an additional $5.0 billion. Thus, for Dr. Ji to fully vest in the award, our market capitalization must increase to $35.0 billion. The exercise price per share subject to the CEO Performance Award is $17.30, which is a 20% premium to the closing sales price of our common stock on August 7, 2020, the date the CEO Performance Award was approved by the Compensation Committee.

Benefits Programs

We design our benefits programs to be both affordable and competitive in relation to the market while conforming with local laws and practices. We monitor the market and local laws and practices and adjust our benefits programs as needed. We design our benefits programs to provide an element of core benefits and, to the extent possible, offer options for additional benefits, be tax-effective for employees in each country and balance costs and cost sharing between us and our employees.

Timing of Equity Awards

Only the Compensation Committee may approve stock option grants to our executive officers. Stock options are generally granted at meetings of the Compensation Committee. On limited occasions, a grant may be madeCommittee or pursuant to a unanimous written consent of the Compensation Committee, which occurs primarily for the purpose of approving a compensation package for a newly hired or promoted executive.Committee. The exercise price of a newly granted option is the closing price of our common stock on the date of grant.

Executive Equity Ownership

We encourage our executives to hold a significant equity interest in our company. However, we do not have specific share retention and ownership guidelines for our executives.

Hedging Policy

Our Insider Trading and Window Period Policy prohibits our directors, officers and employees, and their family members, from engaging in hedging transactions involving our securities.

Consideration of Advisory Votes to Approve the Compensation of our Named Executive Officers

We value the opinions of our stockholders, including as expressed through advisory votes to approve the compensation of our named executive officers (“Say-on-Pay Votes”). In our most recent Say-On-Pay Vote, conducted at our 2018 annual meetingAnnual Meeting of stockholders,Stockholders, held on August 24, 2018, our stockholders approved the compensation of our named executive officers on an advisory basis, with approximately 90% of the votes cast in favor of the fiscal 2017 compensation of our named executive officers. In setting fiscal 2019 compensation, we considered the outcome of the Say-on-Pay Vote during our 2018 annual meetingAnnual Meeting of stockholdersStockholders and will continue to consider the outcome of future Say-on-Pay Votes, as well as stockholder feedback received throughout the year, when making compensation decisions for our executive officers.

Effect of Accounting and Tax Treatment on Compensation Decisions

In the review and establishment of our compensation programs, we consider the anticipated accounting and tax implications to us and our executives.

Generally, Section 162(m) of the Code disallows public companies a tax deduction for federal income tax purposes of compensation in excess of $1 million paid to their chief executive officer and certain other specified officers in any taxable year. For tax years ending prior to December 31, 2017, compensation in excess of $1 million could only be deducted if it was “performance-based compensation” within the meaning of Section 162(m) of the Code or qualified for one of the other exemptions from the deduction limit. The exemption from Section 162(m) of the Code’s deduction limit for performance-based

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compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered officers (which now also includes our Chief Financial Officer) in excess of $1 million will generally not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. We seek to maintain flexibility in compensating our executives in a manner designed to promote our corporate goals and, therefore, while we are mindful of the benefit of the full deductibility of compensation, our Compensation Committee has not adopted a policy requiring that any or all compensation to be deductible. Our Compensation Committee may authorize compensation payments that are not fully tax deductible if we believe that such payments are appropriate to attract and retain executive talent or meet other business objectives.

Role of Executives in Executive Compensation Decisions

The Board and our Compensation Committee generally seek input from our Chief Executive Officer, Dr. Ji, when discussing the performance of, and compensation levels for, executives other than himself. The Compensation Committee also works with Dr. Ji and our Chief Financial Officer to evaluate the financial, accounting, tax and retention implications of our various compensation programs. Neither Dr. Ji nor any of our other executives participate in deliberations relating to his compensation.

Compensation Risk Management

We have considered the risk associated with our compensation policies and practices for all employees, and we believe we have designed our compensation policies and practices in a manner that does not create incentives that could lead to excessive risk taking that would have a material adverse effect on us for the following reasons:

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SUMMARY COMPENSATION TABLE

The following table provides certain summary information concerning compensation awarded to, earned by or paid to each person who served as our principal executive officer at any time during fiscal year 20192020 and each person who served as our principal financial officer at any time during fiscal year 20192020 (collectively, the “named executive officers”). We did not have any other executive officers during fiscal year 2020.

(6)     Mr. Shao’s employment with the Company commenced in March 2018 and terminated in August 2020.

(7)     The option was forfeited in August 2020 upon the termination of Mr. Shao’s employment with the Company as no shares subject to the option had vested as of such date.

Pay Ratio Disclosure 

We are a clinical stage and commercial biopharmaceutical company focused on delivering innovative and clinically meaningful therapies to patients and their families to address unmet medical needs. At our core, we are antibody-centric and leveragesleverage our proprietary G-MAB™ library and targeted delivery modalities to generate the next generation of cancer therapeutics. These modalities include proprietary chimeric antigen receptor T-cell therapy, dimeric antigen receptor T-cell therapy, antibody drug conjugates as well as bispecific antibody approaches. We also have programs assessing the use of our technologies and products in autoimmune, inflammatory, viral and neurodegenerative diseases. Outside of immuno-oncology programs, as part of our global aim to provide a wide range of therapeutic and diagnostic products to meet underserved markets, we have made investments in non-opioid pain management and are currently conducting preclinical and clinical development of multiple therapeutic, vaccine and diagnostic product candidates utilizing itsour in-house, or in-licensed, proprietary platforms for the potential treatment, prevention and detection of COVID-19 and SARS-CoV-2. As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the median of the annual total compensation of all our employees (other than our CEO) and the annual total compensation of Henry Ji, Ph.D., our CEO.Chairman of the Board, Chief Executive Officer and President (our “CEO”). Neither the Compensation Committee nor our management used our CEO pay ratio measure in making compensation decisions.