| Debt | 7. Debt Convertible Debentures On March 21, 2023, the Company entered into the Yorkville SPA pursuant to which the Company would issue and sell to Yorkville Convertible Debentures in an aggregate principal amount of up to $ 25.0 million. The Yorkville SPA provided that the Convertible Debentures would be issued and sold at a purchase price equal to 96 % of the applicable principal amount in three tranches as follows: (i) $ 10.0 million upon the signing of the Yorkville SPA, which was funded on March 21, 2023, (ii) $ 7.5 million upon the filing of a registration statement on Form S-1 with the SEC to register the resale by Yorkville of any shares of Common Stock issuable upon conversion of the Convertible Debentures under the Securities Act of 1933, as amended (the “Securities Act”), which was funded on April 11, 2023 and (iii) $ 7.5 million at the time such registration statement is declared effective by the SEC, which was funded on April 20, 2023. The Convertible Debentures bore interest at an annual rate of 7.00 % and was initially set to mature on December 21, 2023 . On October 11, 2023, the Company and Yorkville amended the Convertible Debentures. The Default Conversion Price (as defined therein) was originally set not to fall below $ 2.00 per share and such floor price has been amended to mean a price per share of Common Stock equal to 95% of the lowest daily VWAP (as defined therein) during the five consecutive trading days immediately preceding the conversion date, but not lower than $ 0.50 per share. The maturity date of the Convertible Debentures was also extended from December 21, 2023 to March 15, 2024 . The outstanding principal amount was to be repaid in equal installments that are due every 30 days beginning on May 20, 2023, which is 60 days after the date on which the first Convertible Debenture was issued to Yorkville. The Convertible Debentures provided a conversion right, in which any portion of the outstanding and unpaid principal and any accrued but unpaid interest, may be converted into shares of Common Stock, at a conversion price of $ 8.00 per share at the option of the holder of the Convertible Debentures. The Company had the option to repay either (i) in cash, with premium equal to 5 % in respect of the principal amount of such payment, or (ii) by submitting a notice for an advance under the A&R Yorkville Purchase Agreement , or a series of advances thereunder, or any combination of (i) or (ii) as determined by the Company. In the case of (ii), the proceeds from the shares sold to Yorkville are applied against the outstanding amounts. The Company had the right, but not the obligation, in its sole discretion, to redeem, upon five business days’ prior written notice to Yorkville (the “Redemption Notice”), all or any portion of the amounts outstanding under the Convertible Debentures; provided that the trading price of the Common Stock is less than the Conversion Price at the time of the Redemption Notice. The redemption amount shall be equal to the outstanding principal balance being redeemed by the Company, plus the redemption premium of 10 % of the principal amount being redeemed, plus all accrued and unpaid interest in respect of such redeemed principal amount. The Company elected the fair value option for the Convertible Debentures and recorded the changes in fair value within the consolidated statements of operations at the end of each reporting period. Pursuant to the Yorkville SPA, the Company issued additional Convertible Debentures in an aggregate principal amount of $ 15.0 million in April 2023 for $ 14.4 million in net cash proceeds. In April 2023, Yorkville elected to convert $ 5.0 million of the outstanding principal and accrued interest of the first Convertible Debentures issued to Yorkville, resulting in the issuance of 632,431 shares of Common Stock at a conversion price of $ 8.00 per share and reducing the outstanding Convertible Debentures balance by $ 7.7 million . The Company repaid the remaining $ 4.4 million of Convertible Debentures during the first quarter of 2024. Interest expense related to the Convertible Debentures and included in the changes in fair value was nil and $ 35 thousand for the three and nine months ended September 30, 2024, respectively. Interest expense related to the Convertible Debentures and included in the changes in fair value was $252 thousand and $540 thousand for the three and nine months ended September 30, 2023, respectively. The following table provides a summary of the changes in the balance and the estimated fair value of the Convertible Debentures (in thousands):
September 30,
2024
Ending Balance as of December 31, 2023 $ 4,340
Repayment of Convertible Debentures ( 4,375 )
Change in fair value of Convertible Debentures 35
Ending Balance as of September 30, 2024 $ — Revolving Facility On June 27, 2023, Scilex Pharma entered into the eCapital Credit Agreement pursuant to which the Lender shall make available loans (the “Revolving Facility”) in an aggregate principal amount of up to $ 30.0 million . The Facility Cap may, at the request of Scilex Pharma and with the consent of the Lender, be increased in increments of $ 250,000 at such time as the outstanding principal balance under the eCapital Credit Agreement equals or exceeds 95 % of the then-existing Facility Cap. The amount available to Scilex Pharma under the Revolving Facility at any one time is the lesser of the Facility Cap and 85 % of the “Net Collectible Value” of “Eligible Receivables” (each as defined therein) minus the amount of any reserves or adjustments against receivables required by the Lender, in its discretion. Under the terms of the eCapital Credit Agreement, interest would accrue daily on the principal amount outstanding at a rate per annum equal to the Wall Street Journal Prime Rate plus 1.5 % , based on a year consisting of 360 days, and which should be payable by Scilex Pharma monthly in arrears, commencing July 1, 2023. The eCapital Credit Agreement provided for an early termination fee of 0.5 % of the Facility Cap if Scilex Pharma voluntarily prepaid and terminated in full the Revolving Facility prior to the first anniversary of the closing of the Revolving Facility. In connection with the eCapital Credit Agreement, Scilex Pharma and the Lender entered into blocked account control agreements with respect to Scilex Pharma’s collections and eCapital Credit Agreement funding accounts, which permitted the Lender to sweep all funds in the collections account to an account of the Lender for application to the outstanding amounts under the Revolving Facility, and to exercise customary secured party remedies with respect to the eCapital Credit Agreement funding account. All indebtedness incurred and outstanding under the eCapital Credit Agreement would be due and payable in full on July 1, 2026, unless the eCapital Credit Agreement was earlier terminated. The eCapital Credit Agreement contained a financial covenant requiring Scilex Pharma to maintain cash on hand of at least $ 1.0 million at all times. Scilex Pharma’s obligations under the eCapital Credit Agreement were secured by a continuing security interest in Scilex Pharma’s accounts receivable, arising from customers in the ordinary course of business. The eCapital Credit Agreement contained customary events of default and also provided that an event of default included a change of control of Scilex Pharma and the failure by the Company to issue at least $ 75.0 million of debt or equity by September 30, 2023, which condition was satisfied by the issuance of the Oramed Note. As of September 30, 2024 and December 31, 2023, Scilex Pharma had an outstanding balance of $ 14.3 million and $ 17.0 million , respectively, under the Revolving Facility, which was classified as a long-term liability in the unaudited condensed consolidated balance sheets. On September 21, 2023, Scilex Pharma signed a subordination agreement (the “Subordination Agreement”) with the Lender and Acquiom Agency Services LLC (the “Agent”). Pursuant to the Subordination Agreement, the rights and interests of the Lender under the eCapital Credit Agreement would be secured by first priority liens on the ABL Priority Collateral (as defined therein). The ABL Priority Collateral consisted of all of the Company’s properties identified in the description of collateral in the UCC-1 Financing Statement filed with the Delaware Secretary of State on June 27, 2023. The Agent’s rights and interests under the Subsidiary Guarantee, dated as of September 21, 2023, entered into by the Company and each of its subsidiaries with Oramed and the Agent (the “Subsidiary Guarantee”), would be secured by first priority liens on certain other collateral and second priority liens on the ABL Priority Collateral. The Subordination Agreement also included other standard interlender terms and requires that the Facility Cap (as defined therein) shall not exceed $ 30.0 million. On October 8, 2024, Scilex Pharma paid off the outstanding amount of all obligations and indebtedness of Scilex Pharma owing to the Lender under the eCapital Credit Agreement. Accordingly, the eCapital Credit Agreement, the related Loan Documents (as defined in the eCapital Credit Agreement) and the Subordination Agreement were terminated, canceled and are of no further force and effect. The Oramed Note On September 21, 2023, the Company entered into a securities purchase agreement with Oramed (the “Scilex-Oramed SPA”), pursuant to which the Company issued the Oramed Note. The Oramed Note, which has a principal amount of $ 101.9 million , matures on March 21, 2025 . It is payable in six principal installments, with the first installment of $ 5.0 million payable on December 21, 2023 , the second installment in the principal amount of $ 15.0 million payable on March 21, 2024 , the next three installments each in the principal amount of $ 20.0 million payable on each of June 21, 2024 , September 21, 2024 and December 21, 2024 and the last installment in the entire remaining principal balance of the Oramed Note payable on March 21, 2025 . Interest under the Oramed Note accrues at a fluctuating per annum interest rate equal to the sum of (1) the greater of (x) 4 % and (y) Term SOFR (as defined in the Oramed Note) and (2) 8.5 %, payable in-kind on a monthly basis. Pursuant to the Oramed Note, since the outstanding principal of the Oramed Note was not repaid in full on or prior to March 21, 2024, an exit fee of approximately $ 3.1 million has been earned with respect to the Oramed Note, which shall be due and payable on the date on which the outstanding principal amount of the Oramed Note is paid in full. Upon the occurrence and during the continuance of an event of default under the Oramed Note, holders of more than 50 % of the aggregate unpaid principal amount of the Oramed Notes may elect to accrue interest at a default rate equal to the lesser of (i) Term SOFR plus 15 % or (ii) the maximum rate permitted under applicable law. Voluntary prepayments made before the one-year anniversary of the closing date of the Scilex-Oramed SPA must include a make-whole amount equal to 50 % of the additional interest that would accrue on the principal amount so prepaid from the date of such prepayment through and including the maturity date. If the Oramed Note is accelerated upon an event of default, repayment is required at a mandatory default rate of 125 % of the principal amount (together with 100 % of accrued and unpaid interest thereon and all other amounts due in respect of the Oramed Note). The Oramed Note contains mandatory prepayment provisions requiring use of 70 % of net cash proceeds from any Cash Sweep Financing (as defined in the Oramed Note) or advances under the ELOCs (as defined in the Oramed Note) to prepay the outstanding principal after the earlier of April 1, 2024 or full repayment of Acceptable Indebtedness (as defined in the Oramed No te). Following each of the Registered Direct Offering (as defined below and as described under Note 9) and the receipt of the FSF Deposit (as described below), the Company made a mandatory prepayment of $ 9,578,835 and $ 7,000,000 , respectively, to Oramed, which equals 70% of the net cash proceeds the Company received from the Registered Direct Offering and the FSF Deposit. Giv en such payment was not a voluntary prepayment, such prepayment did not trigger the make-whole amount under the Oramed Note. The Oramed Note contains affirmative and negative covenants binding on the Company and its subsidiaries, which restrict, among other things, the Company and its subsidiaries from incurring indebtedness or liens, amending charter and organizational documents, repaying or repurchasing stock, repaying, repurchasing, or acquiring indebtedness, paying or declaring cash dividends, assigning, selling, transferring or otherwise disposing of assets, making or holding investments, entering into transactions with affiliates, and entering into settlement agreements, in each case as more fully set forth in, and subject to certain qualifications and exceptions set forth in the Oramed Note. In connection with the Oramed Note, the Company and each of its subsidiaries (collectively, the “Guarantors”) entered into a security agreement (the “Security Agreement”) with Oramed (together with its successors and permitted assigns, the “Holder”) and the Agent, which acts as the collateral agent for the holders of the Oramed Note. Under this agreement, the Company and the Guarantors granted to the Agent (on behalf of and for the benefit of the holders of the Oramed Note and any Additional Notes as defined thereunder) a security interest in all or substantially all of the properties of the Company and each of the Guarantors. This was done to ensure the timely payment, performance, and full discharge of all obligations under the Oramed Note. The Security Agreement contains certain customary representations, warranties and covenants regarding the collateral thereunder, all of which are detailed in the Security Agreement. At issuance, the Company concluded that certain features of the Oramed Note would be considered derivatives that would require bifurcation. In lieu of bifurcating such features, the Company has elected the fair value option for this financial instrument and records the changes in the fair value within the consolidated statements of operations at the end of each reporting period. As of September 30, 2024, the fair value of the Oramed Note was $ 69.9 million , which is classified as a current liability in the unaudited condensed consolidated balance sheet. On September 20, 2024, the Company and Oramed entered into a Letter Agreement (the “Oramed Letter Agreement”), pursuant to which the Company agreed to pay to Oramed $ 2,000,000 (the “Specified September Payment”) on September 23, 2024, which payment was applied as follows: (i) $ 1,700,000 was applied to the amortization payment due under the Oramed Note on the March 21, 2025 (the “Maturity Date”) and (y) $ 300,000 to purchase an aggregate of 4,000,000 SPAC Warrants (as defined below) owned by Oramed. The parties further agreed, upon receipt of the Specified September Payment by Oramed, (i) that notwithstanding the minimum Liquidity (as defined therein) requirements set forth in Section 7(b)(x) of the Oramed Note, the Company and its Subsidiaries (as defined therein) shall be required to maintain the following minimum liquidity during the specified time periods instead: from and after September 19, 2024 until the Maturity Date, $ 0 , and (ii) to extend the due date of the $ 20,000,000 amortization payment from September 23, 2024 to September 30, 2024 . Oramed further agreed to extend such due date to October 8, 2024, on which date a consent and amendment letter was signed with Oramed (“Oramed Consent and Amendment ”) under which: (i) the Company made a payment of $ 12,500,000 to Oramed in lieu of the payment due on September 23, 2024 , using the proceeds from the issuance of the Tranche B Notes (as defined and described in Note 13 “ Subsequent Events ” below), and (ii) t he remaining payments under the Oramed Note were amended as follows: installment payment of $ 15,000,000 payable on December 21, 2024, and the remaining principal balance, accrued interest and fees payable on the Maturity Date. The following table provides a summary of the changes in the balance and the estimated fair value of the Oramed Note (in thousands):
September 30,
2024
Ending Balance as of December 31, 2023 $ 104,089
Repayment of Oramed Note $ ( 36,700 )
Change in fair value of Oramed Note – recorded in the unaudited condensed consolidated statements of operations 7,568
Change in fair value of Oramed Note – due to instrument-specific credit risk recorded as a component of other comprehensive income ( 5,011 )
Ending Balance as of September 30, 2024 $ 69,946 Commitment Letter On June 11, 2024, the Company entered into the Commitment Letter with FSF Lender, pursuant to which FSF Lender committed to provide the Company the FSF Loan in the aggregate amount of $ 100.0 million. The Commitment Amount should be payable as follows: (i) $ 85.0 million no later than the Outside Date, which is 70 days following the date on which the Company received the FSF Deposit and (ii) the remaining $ 15.0 million within 60 days following the Initial Closing. Pursuant to the Commitment Letter, FSF Lender provided the Company a non-refundable FSF Deposit in immediately available funds in the aggregate principal amount of $ 10.0 million on the Deposit Date, which amount would be creditable towards the $ 85.0 million required to be funded by FSF Lender at the Initial Closing. The Company received the FSF Deposit on June 18, 2024 and issued to FSF Lender the Deposit Warrant to purchase up to an aggregate of 3,250,000 shares of Common Stock (subject to adjustment for any stock dividend, stock split, reverse stock split or similar transaction), with an exercise price of $ 1.20 per share. The Deposit Warrant was immediately exercisable and would expire five years from the date of issuance. If the Initial Closing did not occur on or prior to the Outside Date, the FSF Deposit should automatically convert into an unsecured loan on the first day after the Outside Date. Within five days after such automatic conversion occurs, the Company should issue a promissory note (the “Unsecured Promissory Note”) to FSF Lender to evidence such unsecured loan, which note should be unsecured, had a maturity date of five years after the date of the Unsecured Promissory Note and was prepayable without premium or penalty. The Unsecured Promissory Note should bear interest, payable quarterly in arrears, in an amount equal to the Unsecured Applicable Interest Amount (as defined in the Commitment Letter) for such period based on the actual number of days elapsed while principal is outstanding. It was contemplated by the Commitment Letter that the Company and FSF Lender would enter into definitive documents with respect to the FSF Loan on terms to be mutually agreed in good faith. If such definitive documents were entered into on or before the Outside Date, the Company agreed to issue to FSF Lender (i) at the Initial Closing, a warrant to purchase up to an aggregate of 24,375,000 shares (subject to adjustment for any stock dividend, stock split, reverse stock split or similar transaction) of Common Stock (the “Initial Closing Warrant”), and (ii) at the Second Closing, a warrant to purchase up to an aggregate of 4,875,000 shares (subject to adjustment for any stock dividend, stock split, reverse stock split or similar transaction) of Common Stock (the “Second Closing Warrant”), each to have an exercise price of $ 1.20 per share. The Initial Closing Warrant and the Second Closing Warrant would expire five years from the date of issuance. To evidence the FSF Loan, the Company agreed to issue to FSF Lender a Senior Secured Promissory Note (the “Secured Promissory Note”), which shall have a maturity date of five years after the date of issuance. The Secured Promissory Note shall bear interest, payable quarterly in arrears, in an amount equal to the Secured Applicable Interest Amount (as defined in the Commitment Letter) for such period, based on the actual number of days elapsed, while principal is outstanding, subject to certain conditions. At issuance, the Company concluded that certain features of the FSF Deposit would be considered derivatives that would require bifurcation. In lieu of bifurcating such features, the Company has elected the fair value option for this financial instrument and records the changes in the fair value within the consolidated statements of operations at the end of each reporting period. The Company also concluded that the Deposit Warrant is not a freestanding instrument under ASC 480 and is embedded in the FSF Deposit and as such is part of the fair value measurement of the FSF Deposit. As of September 30, 2024, the fair value of the FSF Deposit was $ 14.7 million , which is classified as a current liability in the unaudited condensed consolidated balance sheet. Interest expense related to the FSF Deposit and included in the changes in fair value was $ 0.1 million for the three and nine months ended September 30, 2024. In connection with the transactions contemplated by the Commitment Letter, the Company also entered into an agreement with FSF Lender and the FSF Lender’s strategic consultant, IVI 66766 LLC (“IVI”), dated July 16, 2024, pursuant to which the Company agreed to reimburse the actual, reasonable and documented consulting fees incurred by FSF Lender in connection with the preparation, negotiation and execution of the Commitment Letter and the definitive documents with respect to the transactions contemplated thereby, which fees were satisfied in full by the Company issuing to IVI a warrant to purchase up to an aggregate of 250,000 shares of Common Stock (the “Fee Warrant”) on July 16, 2024, with an exercise price of $ 1.20 per share. Subject to certain ownership limitations, the Fee Warrant is immediately exercisable and will expire five years from the date of issuance. The Company accounted for the Fee Warrant as an equity classified instrument and recognized the Fee Warrant in additional paid-in capital in the Company’s consolidated balance sheets. The fair value of the Fee Warrant as of the date of issuance was $ 0.3 million . On September 17, 2024, the Company entered into the Satisfaction Agreement with FSF Lender and Endeavor, pursuant to which the remaining obligations in respect of the FSF Deposit shall be fully satisfied by the Company’s delivery of 28,000 cartons of ZTlido to Endeavor, which delivery shall occur no later than December 31, 2024. Upon satisfaction of such remaining obligations, the Commitment Letter shall be terminated and of no further force or effect and neither FSF Lender nor the Company shall have any further liability or obligations thereunder. In consideration of Endeavor assuming the payment obligation of the Company in respect of the FSF Deposit, Endeavor will not be responsible for making any payment to the Company for (i) the product already delivered as of the date of such agreement in an amount of approximately $ 13.2 million and (ii) the Additional Product. Pursuant to the terms of the Satisfaction Agreement, if the Company fails to fully deliver the Additional Product by December 31, 2024, the Company shall be liable to Endeavor for liquidated damages in the amount of $ 20,000,000 . In November 2024, the Company delivered the Additional Product to Endeavor and fully satisfied the remaining obligations in respect of the FSF Deposit. The following table provides a summary of the changes in the balance and the estimated fair value of the FSF Deposit (in thousands):
September 30,
2024
Beginning Balance as of June 11, 2024 $ 10,000
Change in fair value of FSF Deposit 4,690
Ending Balance as of September 30, 2024 $ 14,690 |
