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Scilex Holding Company (NASDAQ:SCLX, "Scilex" or "Company"))))), an innovative revenue-generating company focused on acquiring, developing and commercializing non-opioid pain management products for the treatment of acute and chronic pain, provides notice to all record holders and beneficial owners of restricted shares of Scilex common stock that were part of the previously announced dividend of Scilex common stock then-held by Sorrento Therapeutics, Inc. (OTC:SRNEQ, "Sorrento"))))) to Sorrento equity holders of record as of January 9, 2023.
NOTICE TO ALL RECORD HOLDERS AND BENEFICIAL OWNERS OF RESTRICTED SHARES OF SCILEX HOLDING COMPANY
On December 30, 2022, Sorrento Therapeutics, Inc. ("Sorrento") announced that its board of directors authorized Sorrento to dividend to Sorrento equity holders of record as of January 9, 2023 an aggregate of 76,000,000 shares of common stock of Scilex Holding Company ("Scilex") that were then-held by Sorrento ("Scilex Dividend Stock"). The Scilex Dividend Stock was distributed on or about January 19, 2023 ("Payment Date") and since such date has been subject to restrictions on transfer which are currently in place through March 31, 2024 ("Lockup"). The Scilex Dividend Stock was primarily received by "record holders," or brokers, dealers, banks and other nominees acting as agents for shareholders who are the true "beneficial owners" of the Scilex Dividend Stock.
On February 13, 2023, Sorrento and certain of its related entities (collectively "Debtors"), which did not include Scilex, commenced voluntary proceedings under Chapter 11 of the United States Code in the United States Bankruptcy Court for the Southern District of Texas ("Bankruptcy Court"). The Chapter 11 proceedings are jointly administered under the caption In re Sorrento Therapeutics, Inc., et al. ("Bankruptcy Proceedings").
According to Sorrento's estimates, approximately 8.4 million or more shares of Scilex common stock were deemed to have been sold "short" as of the Payment Date as a result of the "short" positions of the underlying Sorrento common stock. "Naked short" sales or "naked short" positions in any Scilex common stock may constitute a violation of SEC Regulation SHO.
On June 12, 2023, the Official Committee of Equity Securities Holders of the Debtors ("Equity Committee") commenced an adversary proceeding in the Bankruptcy Proceedings by filing a complaint against certain brokerage firms seeking entry of a temporary restraining order and preliminary injunction related to the defendants' allowance and facilitation of illegal naked short selling of Scilex common stock. On June 14, 2023, the Bankruptcy Court entered a temporary restraining order temporarily suspending all short sales of Scilex Dividend Stock and ordering the defendants to provide an accounting of all profits received from the naked short selling of Scilex Dividend Stock and Scilex common stock, including all interest charged to short sellers, no later than five business days after entry of the order. On July 18, 2023, the Bankruptcy Court then granted the joint emergency motion filed by the Debtors and the Equity Committee for an order (i) approving and authorizing the Debtors to consummate an offering of shares of Scilex common stock held by the Debtors, (ii) authorizing entry into settlement agreements with participating record holders of Scilex common stock who opt into a settlement, and (iii) granting related relief. This emergency motion was very successful, resulting in settlements reached with dozens of short sellers and approximately 800,000 Scilex common stock short positions closed or covered.
While certain parties with short positions in the Scilex Dividend Stock ("Short Sellers") settled with the Debtors in the Bankruptcy Proceedings as described in the paragraph immediately above, a number of Short Sellers who engaged in illegal naked short selling or violated the terms of the transfer restrictions imposed on the Scilex Dividend Stock have not yet elected to opt into a settlement. Before taking any further legal action against such Short Sellers, Scilex provides the following proposal to those Short Sellers who have not yet closed or covered their respective short positions in Scilex common stock ("Proposal"). Scilex believes that since the settlements reached with certain Short Sellers via the emergency motion described above were deemed successful, with no objections from the participating Short Sellers and with widespread support and assistance from such Short Sellers' brokers and/or agents, there should be no further excuses for continuing to hold the short positions in Scilex. Therefore, this Proposal allows those Short Sellers to cover their short positions and avoid any continuing fees, interest, and other expenses associated with any short positions, as well as one last opportunity to accept the terms provided in the Bankruptcy Proceedings in order to obtain a release from Scilex for any claims and causes of action related to naked short selling or other similar market manipulative behavior. Specifically, the Proposal is as follows:
(i) Open Market Purchases. The Short Sellers can purchase shares in the open market, and use those to close out or cover their short positions.
(ii) Procedures. Once the Short Sellers acquire shares of Scilex in the open market:
a. Short Sellers can contact Stephen Ma at Scilex (SMa@scilexholding.com) to obtain a copy of the agreement for execution which will be executed by Scilex and the buyer or record holder of the acquired shares. If a holder of a short-position already holds unrestricted shares of Scilex common stock, such holder may convert such shares into restricted shares subject to the Lockup via the same process outlined herein.
b. Scilex and the buyer will jointly instruct Continental Stock Transfer & Trust Company, Scilex's transfer agent ("Continental"), to impose the Lockup on the shares. The contact information for Continental is:
Continental Stock Transfer & Trust Company
Telephone Number: 800-509-5586
Email Address: cstmail@continentalstock.com
Erika Harris (eharris@continentalstock.com)
Michael Mullings (mmullings@continentalstock.com)
c. If the buyer is using the purchased shares to cover all or a portion of any outstanding short position in Scilex stock, the buyer will instruct Continental to transfer the shares to the lender of the short position.1
i. Buyer, as holder of the shares, may make direct requests to Continental to transfer the shares; Continental will provide the buyer with the necessary documentation.
ii. Because the shares will have a Lockup, Continental will separately contact Scilex for instructions to permit the transfer (such process will apply if the lender is also a borrower of the Scilex shares (i.e., short)) and in turn is returning the lender's borrowed shares to a downstream lender.
iii. Scilex will instruct Continental to waive application of the Lockup solely for the purpose of the buyer conveying shares to the lender. The Lockup will continue to apply to the returned shares in the lender's name. This process will apply if the lender is also a borrower of Scilex shares (i.e., short) and, in turn, is returning the lender's borrowed shares to a downstream lender.
(iii) Deadline to Participate. This Proposal shall commence on October 6, 2023 and continue to and end on October 27, 2023.
(iv) Releases. In exchange for accepting this Proposal and engaging in the transactions described herein, the Short Sellers shall receive releases from Scilex for any claims and causes of action that the Debtors or Scilex may have relating to naked short selling to the extent of the amount of the shares that are purchased by the Short Sellers (but only to the extent of such purchases).
