COMMITMENTS AND CONTINGENCIES

Leases and Sublease Agreements

California Offices

San Diego Office

On September 8, 2014, the Company entered into a lease agreement for its corporate headquarters located in San Diego, California. The Company rents this office space for approximately $540,000 per annum plus escalations. The lease commenced on October 1, 2014 and expires on December 31, 2017.

Carlsbad Office - Vacated

In October 2014, Retrophin ceased use of this facility and all employees moved into the new headquarters facility in San Diego, California. As a result of vacating this location, the Company recorded a loss of $0.2 million in the year ended December 31, 2014. On March 27, 2015 the Company was able to sublease a portion of this facility for the remaining lease term. The Company is in a listing agreement with a broker to market the remaining Carlsbad space for sublease. The Company's leases for the two suites which encompass this facility expire on February 28, 2017 and June 30, 2017.

Massachusetts Office

On July 31, 2014, the Company entered into a sublease agreement for new office space located in Cambridge, Massachusetts. The Company rents this office space for approximately $815,000 per annum. The sublease expires on December 31, 2016.

New York Office

On December 30, 2015, the Company amended the lease agreement for its offices in New York, New York to extend the lease term through November 2018. This Company rents this office space for approximately $550,000 per annum in rent plus escalations.

Research Collaboration and Licensing Agreements

As part of the Company's research and development efforts, the Company enters into research collaboration and licensing agreements with unrelated companies, scientific collaborators, universities, and consultants. These agreements contain varying terms and provisions which include fees and milestones to be paid by the Company, services to be provided, and ownership rights to certain proprietary technology developed under the agreements. Some of these agreements contain provisions which require the Company to pay royalties, in the event the Company sells or licenses any proprietary products developed under the respective agreements.

Contractual Commitments

The following table summarizes our principal contractual commitments, excluding open orders that support normal operations, as of June 30, 2016 (in thousands):



	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating leases	$	2,140	$	1,054	$	1,086	$	—	$	—
Note payable, including contractual interest	52,037		2,070		49,967		—		—
Sales support services	3,262		416		833		2,013		—
Product supply contracts	1,515		1,265		250		—		—
Purchase order commitments	444		219		225		—		—
	$	59,398	$	5,024	$	52,361	$	2,013	$	—

Legal Proceedings

On September 19, 2014, purported shareholders of the Company sued Martin Shkreli, the Company’s former Chief Executive Officer, in federal court in the Southern District of New York (Donoghue v. Retrophin, Inc., Case No. 14-cv-7640). The Company is a nominal defendant in this action. The plaintiffs sought, on behalf of the Company, disgorgement of short-swing profits from Mr. Shkreli under section 16(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78(p)(b)). The Court has approved a settlement between the parties, under which Mr. Shkreli is obligated to pay $2,025,000 to the Company and an additional $625,000 to Plaintiffs to compensate them for their legal fees. Mr. Shkreli defaulted on the judgment and the Company and the Plaintiffs took steps to collect it. The Company did not record anything related to the judgment on its financial statements for 2015. Any related amounts received will be recorded against equity when collected. On February 18, 2016, Mr. Shkreli sought leave from the Court to move for a protective order to block the enforcement of the judgment. The Company and Plaintiffs’ counsel also sought leave to file motions in connection with their enforcement efforts. On March 16, 2016, the Court granted the parties leave to file their respective motions and ordered that all enforcement efforts be stayed for thirty days. On May 24, 2016, Plaintiffs’ counsel informed the Court that the parties had entered into an agreement under which Plaintiffs’ counsel were to be paid in full, and that pursuant to that agreement they had no further stake in the matter and would not participate in future case events. Under that agreement, the Company paid $8,249 to Plaintiffs’ counsel to compensate them for certain disbursements which Plaintiffs’ counsel had made in connection with their efforts to enforce the judgment, and the Company also assumed control over all restraining notices and subpoenas previously served by Plaintiffs’ counsel. At a status conference on June 10, 2016, the Court ordered Mr. Shkreli and the Company to keep the Court updated on the progress of their settlement negotiations. To date, none of the parties have filed any of the motions which they previously sought leave to file. The resolution of this matter is tied to the resolution of the United States Internal Revenue Service (“IRS”) tax levy discussed below.

On October 20, 2014, a purported shareholder of the Company filed a putative class action complaint in federal court in the Southern District of New York against the Company, Mr. Shkreli, Marc Panoff, and Jeffrey Paley (Kazanchyan v. Retrophin, Inc., Case No. 14-cv-8376). On December 16, 2014, a second, related complaint was filed in the Southern District of New York against the same defendants (Sandler v. Retrophin, Inc., Case No. 14-cv-9915). The complaints assert violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in connection with defendants’ public disclosures during the period from November 13, 2013 through September 30, 2014. In December 2014, plaintiff Kazanchyan filed a motion to appoint lead plaintiff, to approve lead counsel, and to consolidate the two related actions. On February 10, 2015, the Court consolidated the two actions, appointed lead plaintiff, and approved lead counsel. Lead plaintiff filed a consolidated amended complaint on March 4, 2015, which again named the Company, Mr. Shkreli, Mr. Panoff, and Mr. Paley as defendants, but which also named Steven Richardson, Stephen Aselage, and Cornelius Golding as additional defendants. On May 26, 2015, with the consent of the lead plaintiff, the court ordered that the claims against Mr. Paley be dismissed. The remaining defendants, including the Company, filed motions to dismiss the consolidated amended complaint, which were fully-briefed as of October 29, 2015. On December 1, 2015, counsel jointly informed the Court that the parties had reached a comprehensive settlement, subject to Court approval. On January 29, 2016, the parties filed motion for preliminary approval of the settlement and supporting papers, including a stipulation of settlement. On February 2, 2016, the Court preliminarily approved the settlement. On June 10, 2016, the Court approved the settlement, directed implementation of the settlement, and ordered the action dismissed with prejudice. The settlement amount has been paid by the Company’s insurer.

In January 2015, the Company received a subpoena relating to a criminal investigation by the U.S. Attorney for the Eastern District of New York. The subpoena requested information regarding, among other things, the Company’s relationship with Mr. Shkreli and individuals or entities that had been investors in investment funds previously managed by Mr. Shkreli. The Company has been informed that it is not a target of the U.S. Attorney’s investigation, and is cooperating with the investigation. On December 17, 2015, an indictment against the Company’s former Chief Executive Officer, Martin Shkreli, and its former outside counsel, Evan Greebel, was unsealed in the United States District Court for the Eastern District of New York. A superseding indictment reflecting additional charges was filed on June 3, 2016. The Company has also been cooperating with a parallel investigation by the U.S. Securities and Exchange Commission (the “SEC”). On December 17, 2015, the SEC filed a civil complaint against Mr. Shkreli, Mr. Greebel, MSMB Capital Management LLC, and MSMB Healthcare Management LLC in the United States District Court for the Eastern District of New York. In connection with these proceedings, Mr. Shkreli, as well as a number of other current and former directors, officers and employees, have sought advancement of their legal fees from the Company. Mr. Shkreli, in particular, claims that the Company owes him in excess of $5 million in legal fees that he has incurred defending these actions. The Company disputes its obligation to pay the amount in full and has been negotiating with Mr. Shkreli over the amount to be paid. The resolution of this matter is tied to the resolution of the IRS tax levy discussed below. If the parties cannot agree on a resolution, the amount due will be addressed through litigation.

On August 17, 2015, the Company filed a lawsuit in federal district court for the Southern District of New York against Martin Shkreli, asserting that he breached his fiduciary duty of loyalty during his tenure as the Company’s Chief Executive Officer and a member of its Board of Directors (Retrophin, Inc. v. Shkreli, 15-CV-06451(NRB)). On August 19, 2015, Mr. Shkreli served a demand for JAMS arbitration on Retrophin, claiming that Retrophin had breached his December 2013 employment agreement. In response to Mr. Shkreli’s arbitration demand, the Company has asserted counterclaims in the arbitration that are substantially similar to the claims it previously asserted in the federal lawsuit against Mr. Shkreli. The parties have selected an arbitration panel. On Mr. Shkreli’s application, and with the Company’s consent, the federal Court has granted a stay of the federal lawsuit pending a determination by the arbitration panel whether the Company’s counterclaims will be litigated in the arbitration, as the Company is seeking. On April 22, 2016, the arbitration panel granted the parties’ request for a stay of the proceedings pending settlement discussions. In connection with these proceedings, Mr. Shkreli has sought advancement of his legal fees from the Company relating to his defense of the Company’s claims against him. Mr. Shkreli claims that he has to date incurred in excess of $2.8 million in fees, including fees incurred in negotiating with the Company over advancement. The Company disputes its obligation to pay the amount in full and has been negotiating with Mr. Shkreli over the amount to be paid. The resolution of this matter is tied to the resolution of the IRS tax levy discussed below. If the parties cannot agree on a resolution, the amount due will be addressed through litigation.

In July 2016, the Company received a demand for payment from the IRS regarding a levy issued by the IRS in March 2016 with respect to unpaid federal income taxes personally owed by Mr. Shkreli for the year ended December 31, 2014, for approximately $4.0 million. The levy sought to collect any property or rights to property (such as money, credits and bank deposits) in the Company’s possession that belong to or are owed to Mr. Shkreli. The Company believes that it is uncertain, as a matter of law, whether and how the tax levy applies to the Company’s advancement obligations to Mr. Shkreli. As indicated above, the amounts of the Company’s advancement obligations to Mr. Shkreli are subject to dispute. The Company intends to seek a private letter ruling from the IRS for a formal decision with respect to the applicability of the tax levy.

The Company believes it is probable that it will incur some amount of loss related to Mr. Shkreli’s claims for advancement (as described above), either to the IRS or to Mr. Shkreli. However, there is significant uncertainty as to the outcome of this matter such that the amount of the loss is not estimable at the present time. Prior to its receipt of the IRS tax levy, the Company and Mr. Shkreli had negotiated a potential resolution of this matter. However, the existence of the tax levy has prevented the parties from pursuing that resolution and made uncertain the amount of any obligation that the company may actually incur to the IRS or to Mr. Shkreli, as the case may be. Accordingly, as of June 30, 2016 no accruals for loss contingencies had been recorded.

From time to time the Company is involved in legal proceedings arising in the ordinary course of business. The Company believes there is no litigation pending that could have, individually or in the aggregate, a material adverse effect on its results of operations or financial condition.