UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSIO
N
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
Filed
by the Registrant [X]
Filed
by a Party other than the Registrant [ ]
Check
the appropriate box:
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Preliminary
Proxy Statement
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[ ]
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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[X]
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to Rule Sec.240.14a-12
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PolarityTE,
Inc.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
[X]
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No
fee required
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[ ]
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Fee
computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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[ ]
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Fee
paid previously with preliminary materials:
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Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
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(1)
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Amount
previously paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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PolarityTE,
Inc.
615
Arapeen Drive, Suite 102
Salt
Lake City, Utah 84108
(385)
237-2279
Dear
Shareholder,
You are cordially invited
to attend the 2017 Annual Meeting (the “Annual Meeting”) of shareholders (“Shareholders”) of PolarityTE,
Inc. to be held at 10:00 a.m. (local time) on Wednesday, October 18, 2017, at 615 Arapeen Drive, Suite 102, Salt Lake
City, Utah 84108. The attached notice of Annual Meeting and proxy statement describe the matters to be presented at the Annual
Meeting and provide information about us that you should consider when you vote your shares.
The
principal business of the meeting will be (i) to elect as Class III directors the nominees named in this proxy statement to serve
until the 2020 Annual Meeting of Shareholders and until their successors are duly elected and qualified, (ii) to ratify the appointment
of two directors as Class I Directors, (iii) to ratify the appointment of EisnerAmper LLP as our independent public accountant
for the fiscal year ending October 31, 2017, (iv) to advise us as to whether you approve the compensation of our named executive
officers (Say-on-Pay), (v) to advise us as to whether you prefer a vote to advise us on the compensation of our named executive
officers every year, every two years or every three years (Say-on-Pay Frequency), (vi) to approve an amendment to the Company’s
2017 Equity Incentive Plan to increase the reservation of common stock for issuance thereunder to 7,300,000 shares from 3,450,000
shares, (vii) to authorize the issuance of securities in one or more non-public offerings where the maximum discount at which
securities will be offered will be equivalent to a discount of 20% below the market price of the common stock, as required by
and in accordance with Nasdaq Marketplace Rule 5635(d) and (viii) to transact such other business as may be properly brought before
the Annual Meeting and any adjournments thereof.
We
hope you will be able to attend the Annual Meeting. Whether you plan to attend the Annual Meeting or not, it is important that
your shares are represented. Therefore, when you have finished reading the proxy statement, you are urged to complete, sign, date
and return the enclosed proxy card promptly in accordance with the instructions set forth on the card. This will ensure your proper
representation at the Annual Meeting, whether or not you can attend.
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Sincerely,
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/s/
Dr. Denver Lough
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Chief
Executive Officer, Chairman
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YOUR
VOTE IS IMPORTANT.
PLEASE
RETURN YOUR PROXY PROMPTLY.
PolarityTE,
Inc.
615
Arapeen Drive, Suite 102
Salt
Lake City, Utah 84108
(385)
237-2279
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held October
18, 2017
To
the Shareholders of PolarityTE, Inc.:
NOTICE
IS HEREBY GIVEN that the 2017 Annual Meeting of Shareholders (the “Annual Meeting”) of PolarityTE, Inc., a Delaware
corporation (the “Company”), will be held at 10:00 a.m. (local time) on Wednesday, October 18, 2017, or such
later date or dates as such Annual Meeting date may be adjourned, at 615 Arapeen Drive, Suite 102, Salt Lake City, Utah 84108,
for the purpose of considering and taking action on the following proposals:
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1.
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Elect
as Class III directors the nominees named in the proxy statement;
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2.
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To
ratify the appointment of two directors as Class I Directors;
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3.
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To
ratify the appointment of EisnerAmper LLP as our independent public accountant for the fiscal year ending October 31, 2017;
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4.
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To
advise us as to whether you approve the compensation of our named executive officers (Say-on-Pay);
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5.
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To
advise us as to whether you prefer a vote to advise us on the compensation of our named executive officers every year, every
two years or every three years (Say-on-Pay Frequency);
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6.
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To
approve an amendment to the Company’s 2017 Equity Incentive Plan to increase the reservation of common stock for issuance
thereunder to 7,300,000 shares from 3,450,000 shares;
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7.
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To
authorize the issuance of securities in one or more non-public offerings where the maximum discount at which securities will
be offered will be equivalent to a discount of 20% below the market price of the common stock, as required by and in accordance
with Nasdaq Marketplace Rule 5635(d); and
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8.
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To
transact such other business as may be properly brought before the Annual Meeting and any adjournments thereof.
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The
foregoing business items are more fully described in the following pages, which are made part of this notice.
The
Board recommends that you vote as follows:
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“
FOR
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the election of the Board nominees as Class III directors;
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“
FOR
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ratification of the appointment of two directors as Class I Directors;
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“
FOR
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ratification of the selection of EisnerAmper LLP as our independent public accountant for our fiscal year ending October 31,
2017;
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“
FOR
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the compensation of our named executive officers as set forth in this proxy statement;
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“
FOR
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a frequency of voting every year on the compensation of our named executive officers;
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“
FOR
”
an amendment to the Company’s 2017 Equity Incentive Plan to increase the reservation of common stock for issuance thereunder
to 7,300,000 shares from 3,450,000 shares; and
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“
FOR
”
the authorization of the issuance of securities in one or more non-public offerings where the maximum discount at which securities
will be offered will be equivalent to a discount of 20% below the market price of the common stock, as required by and in
accordance with Nasdaq Marketplace Rule 5635(d).
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You
may vote if you were the record owner of the Company’s common stock (the “Common Stock”), Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series E Preferred Stock at the close of business on September
12, 2017. The Board of Directors of the Company has fixed the close of business on September 12, 2017 as the record
date (the “Record Date”) for the determination of Shareholders entitled to notice of and to vote at the Annual Meeting
and at any adjournments thereof.
As
of the Record Date, there were 6,233,985 shares of Common Stock outstanding and entitled to vote at the Annual Meeting,
3,146,671 shares of Series A Preferred Stock outstanding, of which 88,971 shares of underlying Common Stock
are entitled to vote at the Annual Meeting, 47,689.08 shares of Series B Preferred Stock outstanding, of which 241,464
shares of underlying Common Stock are entitled to vote at the Annual Meeting, 9,244.50 shares of Series C Preferred
Stock outstanding, of which 155,039 shares of underlying Common Stock are entitled to vote at the Annual Meeting, and
7,050 shares of Series E Preferred Stock outstanding, of which 7,050,000 shares of underlying Common Stock are entitled
to vote at the Annual Meeting. The foregoing shares are referred to herein as the “Shares.” Holders of the Common
Stock are entitled to one vote for each share of Common Stock held. Each holder of Series A Preferred Stock is entitled to the
number of votes equal to the number of shares of Common Stock issuable upon conversion of such holder’s Series A Preferred
Stock, provided that a holder is only entitled to vote shares of Common Stock underlying the Series A Preferred Stock to the extent
such shares do not result in the holder beneficially owning more than 4.99% of the number of shares of Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Series A Preferred Stock and
provided further that in no event shall the holders be entitled to cast votes in excess of the number of votes that holders would
be entitled to cast if the Series A Preferred Stock were converted at $3.54 per share. Each holder of Series B Preferred Stock
is entitled to vote the number of shares of Common Stock issuable upon conversion of such holder’s Series B Preferred Stock
based on a conversion price of $8.40 per share, provided that a holder is only entitled to vote shares of Common Stock underlying
the Series B Preferred Stock to the extent such shares do not result in the holder beneficially owning more than 4.99% of the
number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion
of the Series B Preferred Stock. Each holder of Series C Preferred Stock is entitled to the number of votes equal to the number
of shares of Common Stock issuable upon conversion of such holder’s Series C Preferred Stock, based on a conversion price
of $7.20 per share, provided that a holder is only entitled to vote shares of Common Stock underlying the Series C Preferred Stock
to the extent such shares do not result in the holder beneficially owning more than 4.99% of the number of shares of Common Stock
outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Series C Preferred
Stock. Each holder of Series E Preferred Stock is entitled to the number of votes equal to two votes for every share of Common
Stock into which the Series E Preferred Stock is convertible on any matter submitted for a vote of Shareholders.
A
list of Shareholders of record will be available at the meeting and, during the 10 days prior to the meeting, at the office of
the Secretary of the Company at 615 Arapeen Drive, Suite 102, Salt Lake City, Utah 84108.
All
Shareholders are cordially invited to attend the Annual Meeting. Whether you plan to attend the Annual Meeting or not, you are
requested to complete, sign, date and return the enclosed proxy card as soon as possible in accordance with the instructions on
the proxy card. A pre-addressed, postage prepaid return envelope is enclosed for your convenience.
By
Order of the Board of Directors of PolarityTE, Inc.,
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Sincerely,
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/s/
Dr. Denver Lough
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Chief
Executive Officer, Chairman
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YOUR
VOTE AT THE ANNUAL MEETING IS IMPORTANT
Your
vote is important. Please vote as promptly as possible even if you plan to attend the Annual Meeting.
For
information on how to vote your shares, please see the instruction from your broker or other fiduciary, as applicable, as well
as “Information About the Meeting and Voting” in the proxy statement accompanying this notice.
We
encourage you to vote by completing, signing, and dating the proxy card, and returning it in the enclosed envelope.
If
you have questions about voting your shares, please contact our Corporate Secretary at PolarityTE, Inc., at 615 Arapeen Drive,
Suite 102, Salt Lake City, Utah 84108, telephone number (385) 237-2279.
If
you decide to change your vote, you may revoke your proxy in the manner described in the attached proxy statement/prospectus at
any time before it is voted.
We
urge you to review the accompanying materials carefully and to vote as promptly as possible. Note that we have enclosed with this
notice a proxy statement.
THE
PROXY STATEMENT IS AVAILABLE AT:
http://equitystock.com/issuers/
By
Order of the Board of Directors,
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Sincerely,
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/s/
Dr. Denver Lough
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Chief
Executive Officer, Chairman
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Important
Notice Regarding the Availability of Proxy Materials for the Annual Meeting OF SHAREHOLDERS to Be Held on
OCTOBER
18, 2017
at
10:00
A.M. MDT.
The
Notice of Annual Meeting of Shareholders and our Proxy Statement are available at:
http://equitystock.com/issuers/
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REFERENCES
TO ADDITIONAL INFORMATION
This
proxy statement incorporates important business and financial information about PolarityTE, Inc. that is not included in or delivered
with this document. You may obtain this information without charge through the Securities and Exchange Commission (“SEC”)
website (www.sec.gov) or upon your written or oral request by contacting the Chief Executive Officer of PolarityTE, Inc., at 615
Arapeen Drive, Suite 102, Salt Lake City, Utah 84108, telephone number (385) 237-2279.
To
ensure timely delivery of these documents, any request should be made no later than October 8, 2017 to receive them before the
Annual Meeting.
For
additional details about where you can find information about PolarityTE, Inc., please see the section entitled “Where You
Can Find More Information” in this proxy statement.
Table
of Contents
PolarityTE,
Inc.
615
Arapeen Drive, Suite 102
Salt
Lake City, Utah 84108
(385)
237-2279
2017 ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD ON OCTOBER 18, 2017
GENERAL
INFORMATION ABOUT THE ANNUAL MEETING
This
proxy statement, along with the accompanying notice of the 2017 Annual Meeting of Shareholders, contains information about the
2017 Annual Meeting of Shareholders of PolarityTE, Inc., including any adjournments or postponements thereof (referred to herein
as the “Annual Meeting”). We are holding the Annual Meeting at 10:00 a.m. (local time) on Wednesday, October 18,
2017, at 615 Arapeen Drive, Suite 102, Salt Lake City, Utah 84108, or such later date or dates as such Annual Meeting
date may be adjourned. For directions to the meeting, please call (385) 237-2279.
In
this proxy statement, we refer to PolarityTE, Inc. as “Polarity,” the “Company,” “we,” “us”
or “our.”
Why
Did You Send Me This Proxy Statement?
We
sent you this proxy statement in connection with the solicitation by the Board of Directors of the Company (referred to herein
as the “Board of Directors” or the “Board”) of proxies, in the accompanying form, to be used at the Annual
Meeting to be held at 10:00 a.m. (local time) on Wednesday, October 18, 2017, at 615 Arapeen Drive, Suite 102, Salt
Lake City, Utah 84108 and any adjournments thereof. This proxy statement along with the accompanying Notice of Annual Meeting
of Shareholders summarizes the purposes of the Annual Meeting and the information you need to know to vote at the Annual Meeting.
Important Notice
Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on Wednesday, October 18, 2017: The
proxy statement and annual report to security holders are available at www.polarityte.com.
This
proxy statement, the accompanying proxy and, though not part of this proxy statement, our 2016 Annual Report, which includes our
financial statements for the fiscal year ended October 31, 2016, are being mailed on or about September 18, 2017 to all
Shareholders entitled to notice of and to vote at the meeting. You can also find a copy of our 2016 Annual Report on Form 10-K
on the Internet through the Securities and Exchange Commission’s electronic data system called EDGAR at
www.sec.gov
or through the “Investors” section of our website at
www.polarityte.com.
Who
Can Vote?
Shareholders
who owned Common Stock and Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series E Preferred
Stock at the close of business on September 12, 2017 (the “Record Date”), are entitled to vote at the Annual Meeting.
As of the Record Date, there were 6,233,985 shares of Common Stock outstanding and entitled to vote at the
Annual Meeting, 3,146,671 shares of Series A Preferred Stock outstanding, of which 88,971 shares of underlying
Common Stock are entitled to vote at the Annual Meeting, 47,689.08 shares of Series B Preferred Stock outstanding, of which
214,464 shares of underlying Common Stock are entitled to vote at the Annual Meeting, 9,244.50 shares of Series C Preferred
Stock outstanding, of which 155,039 shares of underlying Common Stock are entitled to vote at the Annual Meeting, and
7,050 shares of Series E Preferred Stock outstanding, of which 7,050,000 shares of underlying Common Stock are entitled
to vote at the Annual Meeting. Each holder of Series E Preferred Stock is entitled to the number of votes equal to two votes for
every share of Common Stock into which the Series E Preferred Stock is convertible on any matter submitted for a vote of Shareholders.
The shares of Common Stock and shares of Common Stock entitled to vote underlying the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series E Preferred Stock are herein referred to as the “Shares.”
You
do not need to attend the Annual Meeting to vote your shares. Shares represented by valid proxies, received in time for the Annual
Meeting and not revoked prior to the Annual Meeting, will be voted at the Annual Meeting. A shareholder may revoke a proxy before
the proxy is voted by delivering to our Secretary a signed statement of revocation or a duly executed proxy card bearing a later
date. Any shareholder who has executed a proxy card but attends the Annual Meeting in person may revoke the proxy and vote at
the Annual Meeting.
How
Many Votes Do I Have?
Each
holder of Common Stock is entitled to one vote per share of Common Stock. Each holder of Series A Preferred Stock is entitled
to the number of votes equal to the number of shares of Common Stock issuable upon conversion of such holder’s Series A
Preferred Stock,
provided
that a holder is only entitled to vote shares of Common Stock underlying the Series A Preferred
Stock to the extent such shares do not result in the holder beneficially owning more than 4.99% of the number of shares of Common
Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Series A Preferred
Stock and
provided further
that in no event shall the holders be entitled to cast votes in excess of the number of votes
that holders would be entitled to cast if the Series A Preferred Stock were converted at $3.54 per share. Each holder of Series
B Preferred Stock is entitled to vote the number of shares of Common Stock issuable upon conversion of such holder’s Series
B Preferred Stock based on a conversion price of $8.40 per share,
provided
that a holder is only entitled to vote shares
of Common Stock underlying the Series B Preferred Stock to the extent such shares do not result in the holder beneficially owning
more than 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock upon conversion of the Series B Preferred Stock. Each holder of Series C Preferred Stock is entitled to the number
of votes equal to the number of shares of Common Stock issuable upon conversion of such holder’s Series C Preferred Stock,
based on a conversion price of $7.20 per share,
provided
that a holder is only entitled to vote shares of Common Stock
underlying the Series C Preferred Stock to the extent such shares do not result in the holder beneficially owning more than 4.99%
of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock
upon conversion of the Series C Preferred Stock. Each holder of Series E Preferred Stock is entitled to the number of votes equal
to two votes for every share of Common Stock into which the Series E Preferred Stock is convertible on any matter submitted for
a vote of Shareholders. As of the Record Date, all shares of Series E Preferred Stock are held by the Company’s Chief Executive
Officer and constitute 67.81% of the Company’s outstanding voting capital as of the Record Date.
How
Do I Vote?
Whether
you plan to attend the Annual Meeting or not, we urge you to vote by proxy. All shares represented by valid proxies that we receive
through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card or as
instructed via Internet or telephone. You may specify whether your shares should be voted for or against each nominee for director,
and whether your shares should be voted for, against or abstain with respect to each of the other proposals. Except as set forth
below, if you properly submit a proxy without giving specific voting instructions, your shares will be voted in accordance with
the Board’s recommendations as noted below. Voting by proxy will not affect your right to attend the Annual Meeting. If
your shares are registered directly in your name through our stock transfer agent, Equity Stock Transfer, or you have stock certificates,
you may vote:
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By
mail.
Complete and mail the enclosed proxy card in the enclosed postage prepaid envelope. Your proxy will be voted in
accordance with your instructions. If you sign the proxy card but do not specify how you want your shares voted, they will
be voted as recommended by the Board.
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In
person at the meeting.
If you attend the meeting, you may deliver your completed proxy card in person or you may vote
by completing a ballot, which will be available at the Annual Meeting.
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If
your shares are held in “street name” (held in the name of a bank, broker or other nominee), you must provide the
bank, broker or other nominee with instructions on how to vote your shares and can do so as follows:
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By
Internet or by telephone.
Follow the instructions you receive from your broker to vote by Internet or telephone.
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By
mail.
You will receive instructions from your broker or other nominee explaining how to vote your shares.
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In
person at the meeting.
Contact the broker or other nominee who holds your shares to obtain a broker’s proxy card
and bring it with you to the meeting. You will not be able to attend the Annual Meeting unless you have a proxy card from
your broker.
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How
Does The Board Recommend That I Vote On The Proposals?
The
Board recommends that you vote as follows:
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“
FOR
”
the election of the Board nominees as Class III directors;
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“
FOR
”
ratification of the appointment of two directors as Class I Directors;
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“
FOR
”
ratification of the selection of EisnerAmper LLP as our independent public accountant for our fiscal year ending October 31,
2017;
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“
FOR
”
the compensation of our named executive officers as set forth in this proxy statement;
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“
FOR
”
a frequency of voting every year on the compensation of our named executive officers;
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“
FOR
”
an amendment to the Company’s 2017 Equity Incentive Plan to increase the reservation of Common Stock for issuance thereunder
to 7,300,000 shares from 3,450,000 shares; and
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“
FOR
”
the authorization of the issuance of securities in one or more non-public offerings where the maximum discount at which securities
will be offered will be equivalent to a discount of 20% below the market price of the Common Stock, as required by and in
accordance with Nasdaq Marketplace Rule 5635(d).
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If
any other matter is presented, the proxy card provides that your shares will be voted by the proxy holder listed on the proxy
card in accordance with his or her best judgment. At the time this proxy statement was printed, we knew of no matters that needed
to be acted on at the Annual Meeting, other than those discussed in this proxy statement.
May
I Change or Revoke My Proxy?
If
you give us your proxy, you may change or revoke it at any time before the Annual Meeting. You may change or revoke your proxy
in any one of the following ways:
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signing
a new proxy card and submitting it as instructed above;
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if
your shares are held in street name, re-voting by Internet or by telephone as instructed above — only your latest Internet
or telephone vote will be counted;
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if
your shares are registered in your name, notifying the Company’s Secretary in writing before the Annual Meeting that
you have revoked your proxy; or
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attending
the Annual Meeting in person and voting in person. Attending the Annual Meeting in person will not in and of itself revoke
a previously submitted proxy unless you specifically request it.
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What
If I Receive More Than One Proxy Card?
You
may receive more than one proxy card or voting instruction form if you hold shares of our Common Stock in more than one account,
which may be in registered form or held in street name. Please vote in the manner described under “How Do I Vote?”
on the proxy card for each account to ensure that all of your shares are voted.
Will
My Shares Be Voted If I Do Not Return My Proxy Card?
If
your shares are registered in your name or if you have stock certificates, they will not be voted if you do not return your proxy
card by mail or vote at the Annual Meeting as described above under “How Do I Vote?” If your broker cannot vote your
shares on a particular matter because it has not received instructions from you and does not have discretionary voting authority
on that matter, or because your broker chooses not to vote on a matter for which it does have discretionary voting authority,
this is referred to as a “broker non-vote.” The New York Stock Exchange (“NYSE”) has rules that govern
brokers who have record ownership of listed company stock (including stock such as ours that is listed on The Nasdaq Capital Market)
held in brokerage accounts for their clients who beneficially own the shares. Under these rules, brokers who do not receive voting
instructions from their clients have the discretion to vote uninstructed shares on certain matters (“routine matters”),
but do not have the discretion to vote uninstructed shares as to certain other matters (“non-routine matters”). Under
NYSE interpretations, Proposal 1 (election of Class III directors), Proposal 2 (ratification of the appointment of two directors
as Class I Directors), Proposal 4 (advisory vote to approve executive compensation), Proposal 5 (advisory vote on frequency to
advise us on the compensation of our named executive officers every year, every two years or every three years), Proposal 6 (approval
of an amendment to the Company’s 2017 Equity Incentive Plan to increase reservation of Common Stock for issuance thereunder
to 7,300,000 shares from 3,450,000 shares) and Proposal 7 (authorization of the issuance of securities in one or more non-public
offerings where the maximum discount at which securities will be offered will be equivalent to a discount of 20% below the market
price of the Common Stock, as required by and in accordance with Nasdaq Marketplace Rule 5635(d)) are considered non-routine matters,
and Proposal 3 (the ratification of our independent public accountant) is considered a routine matter. If your shares are held
in street name and you do not provide voting instructions to the bank, broker or other nominee that holds your shares as described
above under “How Do I Vote?,” the bank, broker or other nominee has the authority, even if it does not receive instructions
from you, to vote your unvoted shares for Proposal 3 (the ratification of our independent public accountant), but does not have
authority to vote your unvoted shares for Proposal 1 (election of Class III directors), Proposal 2 (ratification of the appointment
of two directors as Class I Directors), Proposal 4 (advisory vote to approve executive compensation), Proposal 5 (advisory vote
on frequency to advise us on the compensation of our named executive officers every year, every two years or every three years),
Proposal 6 (approval of an amendment to the Company’s 2017 Equity Incentive Plan to increase reservation of Common Stock
for issuance thereunder to 7,300,000 shares from 3,450,000 shares) and Proposal 7 (authorization of the issuance of securities
in one or more non-public offerings where the maximum discount at which securities will be offered will be equivalent to a discount
of 20% below the market price of the Common Stock, as required by and in accordance with Nasdaq Marketplace Rule 5635(d)). We
encourage you to provide voting instructions. This ensures your shares will be voted at the Annual Meeting in the manner you desire.
What
Vote is Required to Approve Each Proposal and How are Votes Counted?
Proposal
1: Election of Class III Directors
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The
nominees for Class III director who receive the most votes (also known as a plurality) will be elected. You may vote either
FOR all of the nominees, WITHHOLD your vote from all of the nominees or WITHHOLD your vote from any one of the nominees. Votes
that are withheld will not be included in the vote tally for the election of directors. Brokerage firms do not have authority
to vote customers’ unvoted shares held by the firms in street name for the election of directors. As a result, any shares
not voted by a beneficial owner will be treated as a broker non-vote. Such broker non-votes will have no effect on the results
of this vote.
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Proposal
2: Ratification of the Appointment of Two Directors as Class I Directors
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The
affirmative vote of a majority of the votes cast for this proposal is required to ratify the appointment of two directors
as Class I Directors. Brokerage firms do not have authority to vote customers’ unvoted shares held by the firms in street
name for this proposal. As a result, any shares not voted by a beneficial owner will be treated as a broker non-vote. Such
broker non-votes will have no effect on the results of this vote.
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Proposal
3: Ratification of the Appointment of EisnerAmper LLP as Our Independent Public Accountant for the Fiscal Year Ending October
31, 2017
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The
affirmative vote of a majority of the votes cast for this proposal is required to ratify the appointment of the Company’s
independent public accountant. Brokerage firms have authority to vote customers’ unvoted shares held by the firms in
street name on this proposal. If a broker does not exercise this authority, such broker non-votes will have no effect on the
results of this vote. We are not required to obtain the approval of our Shareholders to appoint the Company’s independent
accountant. However, if our Shareholders do not ratify the appointment of EisnerAmper LLP as the Company’s independent
public accountant for the fiscal year ending October 31, 2017, the Audit Committee of the Board may reconsider its appointment.
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Proposal
4: Advisory Vote to Approve the Compensation of Our Named Executive Officers
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The
advisory vote to approve the compensation of our executive officers will be approved if the votes cast in favor of the proposal
exceed the votes cast against the proposal. Abstentions and broker non-votes will not be counted as either votes cast for
or against this proposal. While the results of this advisory vote are non-binding, the Compensation Committee of the Board
and the Board values the opinions of our Shareholders and will consider the outcome of the vote, along with other relevant
factors, in deciding whether any actions are necessary to address the concerns raised by the vote and when making future compensation
decisions for executive officers. Brokerage firms do not have authority to vote customers’ unvoted shares held by the
firms in street name for this proposal. As a result, any shares not voted by a beneficial owner will be treated as a broker
non-vote. Such broker non-votes will have no effect on the results of this vote.
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Proposal
5: Advisory Vote on Frequency of Voting on Compensation of Our Named Executive Officers
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The
frequency (one year, two years or three years) that receives the highest number of votes cast by the Shareholders will be
deemed the frequency for the advisory Say-on-Pay vote preferred by the Shareholders. The proxy card provides Shareholders
with the opportunity to choose among four options (holding the vote every one, two or three years, or abstaining) and, therefore,
Shareholders will not be voting to approve or disapprove the recommendation of the Board. Abstentions and broker non-votes
will have no effect on the results of this vote. While the results of this advisory vote are non-binding, the Board values
the opinions of our Shareholders and will review and consider the outcome of the vote, along with other relevant factors,
in evaluating the frequency of future advisory votes on executive compensation. Brokerage firms do not have authority to vote
customers’ unvoted shares held by the firms in street name for this proposal. As a result, any shares not voted by a
beneficial owner will be treated as a broker non-vote. Such broker non-votes will have no effect on the results of this vote.
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Proposal
6: Approval of an Amendment to the Company’s 2017 Equity Incentive Plan to Increase the Reservation of Common Stock
for Issuance Thereunder to 7,300,000 Shares From 3,450,000 Shares
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The
affirmative vote of a majority of the votes cast for this proposal is required to approve an amendment to the Company’s
2017 Equity Incentive Plan to increase reservation of Common Stock for issuance thereunder to 7,300,000 shares from 3,450,000
shares. Brokerage firms do not have authority to vote customers’ unvoted shares held by the firms in street name for
this proposal. As a result, any shares not voted by a beneficial owner will be treated as a broker non-vote. Such broker non-votes
will have no effect on the results of this vote.
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Proposal
7: Authorization of the Issuance of Securities in One or More Non-Public Offerings Where the Maximum Discount at Which Securities
Will Be Offered Will Be Equivalent to a Discount of 20% Below the Market Price of the Common Stock, as Required By and In
Accordance With Nasdaq Marketplace Rule 5635(d)
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The
affirmative vote of a majority of the votes cast for this proposal is required to approve the authorization of the issuance
of securities in one or more non-public offerings where the maximum discount at which securities will be offered will be equivalent
to a discount of 20% below the market price of the Common Stock, as required by and in accordance with Nasdaq Marketplace
Rule 5635(d). Brokerage firms do not have authority to vote customers’ unvoted shares held by the firms in street name
for this proposal. As a result, any shares not voted by a beneficial owner will be treated as a broker non-vote. Such broker
non-votes will have no effect on the results of this vote.
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What
Constitutes a Quorum for the Annual Meeting?
The
presence, in person or by proxy, of the holders of a majority of the Shares entitled to vote at the Annual Meeting is necessary
to constitute a quorum at the Annual Meeting. Votes of Shareholders of record who are present at the Annual Meeting in person
or by proxy, abstentions, and broker non-votes are counted for purposes of determining whether a quorum exists.
Householding
of Annual Disclosure Documents
The
Securities and Exchange Commission (the “SEC”) previously adopted a rule concerning the delivery of annual disclosure
documents. The rule allows us or brokers holding our shares on your behalf to send a single set of our annual report and proxy
statement to any household at which two or more of our Shareholders reside, if either we or the brokers believe that the Shareholders
are members of the same family. This practice, referred to as “householding,” benefits both Shareholders and us. It
reduces the volume of duplicate information received by you and helps to reduce our expenses. The rule applies to our annual reports,
proxy statements and information statements. Once Shareholders receive notice from their brokers or from us that communications
to their addresses will be “householded,” the practice will continue until Shareholders are otherwise notified or
until they revoke their consent to the practice. Each shareholder will continue to receive a separate proxy card or voting instruction
card.
Those
Shareholders who either (i) do not wish to participate in “householding” and would like to receive their own sets
of our annual disclosure documents in future years or (ii) who share an address with another one of our Shareholders and who would
like to receive only a single set of our annual disclosure documents should follow the instructions described below:
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Shareholders
whose shares are registered in their own name should contact our transfer agent, Equity Stock Transfer, and inform them of
their request by calling them at 212-575-5757 or writing them at 237 W. 37th Street, Suite 601, New York, New York 10018.
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Shareholders
whose shares are held by a broker or other nominee should contact such broker or other nominee directly and inform them of
their request, Shareholders should be sure to include their name, the name of their brokerage firm and their account number.
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Who
is paying for this proxy solicitation?
In
addition to mailed proxy materials, our directors, officers and employees may also solicit proxies in person, by telephone, or
by other means of communication. We will not pay our directors, officers and employees any additional compensation for soliciting
proxies. We may reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.
When
are shareholder proposals due for next year’s annual meeting?
At
our annual meeting each year, our Board of Directors submits to Shareholders its nominees for election as directors. In addition,
the Board of Directors may submit other matters to the Shareholders for action at the annual meeting.
Pursuant
to Rule 14a-8 under the Securities Exchange Act of 1934, Shareholders may present proper proposals for inclusion in the Company’s
proxy statement for consideration at the 2018 annual meeting of Shareholders by submitting their proposals to the Company in a
timely manner. These proposals must meet the Shareholders eligibility and other requirements of the SEC. To be considered for
inclusion in next year’s proxy materials, you must submit your proposal in writing by August 4, 2018 to our Corporate Secretary,
PolarityTE, Inc., 615 Arapeen Drive, Suite 102, Salt Lake City, Utah 84108, telephone number (385) 237-2279.
What
Interest Do Officers and Directors Have in Matters to Be Acted Upon?
Members
of the Board of Directors and executive officers of the Company do not have any interest in any proposal that is not shared by
all other Shareholders of the Company except for Proposal 1 (nominees to our Board of Directors will be elected), Proposal 2 (appointments
to our Board of Directors will be ratified), Proposal 4 (members of our Board of Directors and our executive officers will receive
the approved compensation), Proposal 5 (the vote will determine how often to vote on the approval of executive compensation),
and Proposal 6 (members of our Board of Directors and our executive officers will be eligible for equity incentive awards and
otherwise to participate in our plan).
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets
forth certain information, as of September 12, 2017, with respect to the beneficial ownership of the outstanding Common
Stock by (i) any holder of more than five (5%) percent; (ii) each of the Company’s executive officers and directors; and
(iii) the Company’s directors and executive officers as a group. Applicable percentages are based on 6,233,985 shares
of Common Stock outstanding on the date above, adjusted as required by rules promulgated by the SEC. Except as otherwise indicated,
each of the Shareholders listed below has sole voting and investment power over the shares beneficially owned and addresses are
c/o PolarityTE, Inc., 615 Arapeen Drive, Suite 102, Salt Lake City, Utah 84108.
Common
Stock
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Number
of Shares of Common Stock Beneficially Owned
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Percentage
of Common Stock
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Executive
Officers and Directors:
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Denver
Lough
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7,508,336
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(1)
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54.63
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%(2)
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Edward
Swanson
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389,309
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(3)
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5.88
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%
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Steve
Gorlin
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18,751
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(4)
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*
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Jon
Mogford
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18,751
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(5)
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*
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John
Stetson (6)
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478,811
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(7)
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7.57
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%
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Michael
Beeghley
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79,751
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(8)
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1.28
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%
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Jeff
Dyer
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64,625
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(9)
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*
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Michael
Neumeister
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64,625
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(10)
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*
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Current
Executive Officers and Directors as a Group (8 persons)
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8,622,959
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(1)(3)(4)(5)
(7)(8)(9)(10)
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59.91
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%
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Greater
than 5% Holders:
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Mark
Groussman (11)
5154 La Gorce Drive Miami Beach, FL 33140
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569,930
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(12)
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8.92
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%
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Barry
Honig (13)
555
S. Federal Hwy #450
Boca
Raton, FL 33432
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629,992
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(14)
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9.99
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%
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Michael
Brauser (15)
4400
Biscayne Blvd., Suite 850
Miami,
FL 33137
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630,759
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(16)
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9.99
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%
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Frost
Gamma Investments Trust (17)
4400
Biscayne Blvd. Miami, FL 33137
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640,736
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(18)
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9.87
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%
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*
Less than 1%
(1) Represents (i)
458,336 shares of Common Stock which represents the vested portion (including shares vesting within 60 days) of an option
to purchase 1,000,000 shares of Common Stock under the 2017 Plan which option vests in 24 equal monthly installments and (ii)
7,050,000 shares of Common Stock underlying shares of Series E Convertible Preferred Stock.
(2) Until converted,
each share of Series E Preferred Stock is entitled to two votes for every share of Common Stock into which it is convertible on
any matter submitted for a vote of Shareholders. Dr. Lough beneficially owns approximately 54.63% of the issued and outstanding
Common Stock, but approximately 67.81% of the outstanding voting power.
(3) Represents (i)
370 shares of Common Stock, (ii) 387,750 shares of Common Stock which represents the vested portion (including shares vesting
within 60 days) of an option to purchase 846,000 shares of Common Stock under the 2017 Plan which option vests in 24 equal monthly
installments and (iii) 1,189 shares of Common Stock acquired by Edward Swanson Roth IRA (“Roth IRA”). Edward Swanson
is the Trustee of Roth IRA and in such capacity has voting and dispositive control over the securities held by such entity.
(4) Represents 18,751
shares of Common Stock which represents the vested portion (including shares vesting within 60 days) of an option to purchase
50,000 shares of Common Stock under the 2017 Plan which option vests in 24 equal monthly installments.
(5) Represents 18,751
shares of Common Stock which represents the vested portion (including shares vesting within 60 days) of an option to purchase
50,000 shares of Common Stock under the 2017 Plan which option vests in 24 equal monthly installments.
(6)
John Stetson is the President of Stetson Capital Investments, Inc. (“Stetson Capital”), and the Trustee of Stetson
Capital Investments, Inc. Retirement Plan (“Stetson Retirement Plan”). In these capacities, he has voting and dispositive
control over the securities held by such entities. In addition, John Stetson is the Chief Financial Officer of the Company.
(7)
Represents (i) 332,423 shares of Common Stock held by John Stetson, (ii) 19,444 shares of Common Stock held by Stetson Capital,
(iii) 39,444 shares of Common Stock held by Stetson Retirement Plan and (iv) an option to purchase 87,500 shares of Common Stock
pursuant to the 2016 Plan.
(8)
Represents (i) 28,541 shares of Common Stock, (ii) an option to purchase 1,587 shares of Common Stock, (iii) an option
to purchase 5,208 shares of Common Stock pursuant to the 2016 Plan, (iv) an option to purchase 1,915 shares of Common Stock, and
(v) 42,500 shares of Common Stock held by Applied Economics LLC Profit Sharing Plan (“Applied Economics”).
Mr. Beeghley is the trustee of Applied Economics and in such capacity has voting and dispositive power over the securities held
by such entity.
(9) Represents 64,625
shares of Common Stock which represents the vested portion (including shares vesting within 60 days) of an option to purchase
141,000 shares of Common Stock under the 2017 Plan which option vests in 24 equal monthly installments.
(10) Represents 64,625
shares of Common Stock which represents the vested portion (including shares vesting within 60 days) of an option to purchase
141,000 shares of Common Stock under the 2017 Plan which option vests in 24 equal monthly installments.
(11)
Mark Groussman is the President of Melechdavid, Inc. (“Melechdavid”), and the Trustee of the Melechdavid Inc., Retirement
Plan (“Melechdavid Retirement Plan”). In such capacities, he has voting and dispositive control over the securities
held by such entities.
(12)
Represents (i) 306,100 shares of Common Stock held by Melechdavid, (ii) 108,791 shares of Common Stock held by Melechdavid Retirement
Plan and (iii) 155,039 shares of Common Stock underlying Series C Preferred Stock held by Melechdavid.
(13)
Barry Honig is the Trustee of GRQ Consultants, Inc. 401K (“401K”) and GRQ Consultants, Inc. Roth 401K FBO Barry Honig
(“Roth 401K”). In such capacities he is deemed to hold voting and dispositive power over the securities held by such
entities.
(14) Represents (i)
366,667 shares of Common Stock held by Barry Honig, (ii) 158,978 shares of Common Stock held by 401K, (iii) 38,411
shares of Common Stock held by Roth 401K and (iv) 65,936 shares of Common Stock underlying Series A Preferred Stock. Excludes
(i) 579,119 shares of Common Stock underlying Series A Preferred Stock held by Mr. Honig, (ii) 35,045 shares
of Common Stock underlying Series A Preferred Stock held by Roth 401K, (iv) 269,608 shares of Common Stock underlying shares
of Series B Preferred Stock held by Mr. Honig, (vi) 187,794.66 shares of Common Stock underlying shares of Series
C Preferred Stock held by 401K and (vii) 55,555 shares of Common Stock underlying shares of Series D Preferred Stock
held by 401K. Each of the forgoing classes of preferred stock contains an ownership limitation such that the holder may not convert
any of such securities to the extent that such conversion would result in the holder’s beneficial ownership being in excess
of 4.99% of the Company’s issued and outstanding Common Stock together with all shares owned by the holder and its affiliates,
which the holder has waived to 9.99%.
(15)
Michael Brauser is Chairman of the Betsy & Michael Brauser Charitable Family Foundation
(“Family Foundation”) and Trustee of Grander Holdings, Inc. 401K (“Grander 401K”). In such capacities
he is deemed to hold voting and dispositive power over the securities held by such entities.
(16)
Represents
(i) 444,684 shares of Common Stock held by Michael Brauser, (ii) 91,630 shares of Common Stock held by Grander 401K,
(iii) 20,833 shares of Common Stock held by Family Foundation, and (iv) 73,612 shares of Common Stock underlying
Series A Preferred Stock. Excludes (i) 126,241 shares of Common Stock underlying Series A Preferred Stock held by
Mr. Brauser, (ii) 259,605 shares of Common Stock underlying Series B Preferred Stock held by Mr. Brauser and (iii) 116,412
shares of Common Stock underlying shares of Series C Preferred Stock held by Grander 401K. Each of the forgoing classes of
preferred stock contains an ownership limitation such that the holder may not convert any of such securities to the extent that
such conversion would result in the holder’s beneficial ownership being in excess of 4.99% of the Company’s issued
and outstanding Common Stock together with all shares owned by the holder and its affiliates, which the holder has waived to 9.99%.
(17)
Dr. Phillip Frost, M.D. is the trustee of Frost Gamma Investments Trust (“FGIT”).
Frost Gamma L.P. is the sole and exclusive beneficiary of FGIT. Dr. Frost is one of two limited partners of Frost Gamma L.P. The
general partner of Frost Gamma L.P. is Frost Gamma, Inc., and the sole shareholder of Frost Gamma, Inc. is Frost-Nevada Corporation.
Dr. Frost is the sole shareholder of Frost-Nevada Corporation. Dr. Frost disclaims beneficial ownership of these securities, except
to the extent of any pecuniary interest therein and this report shall not be deemed an admission that Dr. Frost is the beneficial
owner of these securities for purposes of Section 16 or for any other purpose.
(18)
Represents (i) 381,131 shares of Common Stock held by FGIT and (ii) 259,605 shares underlying Series
B Preferred Stock.
PROPOSAL
NO. 1
ELECTION
OF DIRECTORS
Our
Board currently consists of seven members: Denver Lough, John Stetson, Edward Swanson, Steve Gorlin, Jeff Dyer, Michael Beeghley
and Jon Mogford. The Board is divided into three classifications: Class III directors, whose term expires at this Annual Meeting
(Messrs. Dyer and Beeghley and Dr. Mogford), Class I Directors, whose term expires at the 2018 Annual Meeting of Shareholders
(Messrs. Lough and Swanson), and Class II Directors, whose term expires at the 2019 Annual Meeting of Shareholders (Messrs. Stetson
and Gorlin). The recommended slate of three directors to be elected at this Annual Meeting to serve as Class III directors consists
of Messrs. Lough, Stetson and Swanson. The Nominating and Corporate Governance Committee and Board have unanimously approved the
nomination of Messrs. Lough, Stetson and Swanson as Class III directors, a change from their prior positions as Class I, Class
II and Class I director, respectively. Mr. Dyer and Dr. Mogford have been appointed, pursuant to ratification upon approval of
Proposal 2, as Class I directors to fill the vacancies from Messrs. Lough and Swanson’s nominations as Class III directors.
Mr. Beeghley, a Class III director, will not be standing for reelection at this Annual Meeting.
The
following table shows the Company’s nominees for election to the Board as Class III directors. Each nominee, if elected,
will serve until the 2020 Annual Meeting of Shareholders and until a successor is named and qualified, or until his earlier resignation
or removal. All nominees are members of the present Board of Directors. We have no reason to believe that any of the nominees
is unable or will decline to serve as a director if elected. Unless otherwise indicated by the Shareholder, the accompanying proxy
will be voted for the election of the three persons named under the heading “Nominees for Directors.” Although the
Company knows of no reason why any nominee could not serve as a director, if any nominee shall be unable to serve, the accompanying
proxy will be voted for a substitute nominee.
NOMINEES
FOR DIRECTOR
Name
of Nominee
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Age
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Positions
with the Company
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Director
Since
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Denver
Lough
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35
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Class
III Director
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2016
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John
Stetson
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32
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Class
III Director
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2016
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Edward
Swanson
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32
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Class
III Director
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2016
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The
Nominating and Corporate Governance Committee and the Board seek, and the Board is comprised of, individuals whose characteristics,
skills, expertise, and experience complement those of other Board members. We have set out below biographical and professional
information about each of the nominees, along with a brief discussion of the experience, qualifications, and skills that the Board
considered important in concluding that the individual should serve as a current director and as a nominee for re-election or
election as a member of our Board.
Nominees
Biographies
Dr.
Denver Lough
was appointed our Chairman, Chief Executive Officer and Chief Scientific Officer on December 1, 2016. From
August 2009, Dr. Lough has served as Department of Surgery Faculty and Translational Research Director at Laboratory for Regenerative
Medicine and Applied Sciences, Institute for Plastic Surgery Southern Illinois University School of Medicine, and from June 2013,
he has served as Director of Biomedical Applications for Laboratory for Craniofacial Regenerative Medicine Johns Hopkins Hospital
Department of Plastic and Reconstructive Surgery. In addition, Dr. Lough was a lead research associate in the Vascularized Composite
Allotransplantation Laboratory at the Johns Hopkins Hospital Department of Plastic and Reconstructive Surgery and has been a research
consultant to the Johns Hopkins Hendrix Burn Research Center. Dr. Lough was assembled as a member among other burn experts as
a Taiwanese presidential disaster response team following the largest civilian burn disaster in 2015.
From
2012 until 2016 Dr. Lough has been a Plastic & Reconstructive Surgery House Staff Officer at Johns Hopkins University School
of Medicine, Department of Plastic & Reconstructive Surgery. Dr. Lough also founded PolarityTE, LLC, PolarityTE NV and Lough
& Associates LLC which are engaged in the business of developing intellectual property related to regenerative medicine and
related fields. Dr. Lough has received numerous accolades and awards by national societies related to basic and translational
science applications in tissue engineering, regenerative medicine, and immunology as well as within solid organ and reconstructive
transplantation. We believe that Dr. Lough is qualified to serve as a member of our Board because of his experience in clinical
medicine and surgery as well as the development and innovation of technologies related to regenerative medicine and related patents
and intellectual property which the Company has reviewed for potential development. Dr. Lough holds an M.D. and PhD in Biochemistry,
Molecular and Cell Biology from Georgetown University which he earned in 2012.
John
Stetson
was appointed to our Board of Directors on December 1, 2016 and has served as our Chief Financial Officer, Executive
Vice President and Secretary since September 25, 2015. Mr. Stetson has been the Managing Member of HS Contrarian Investments LLC,
a private investment firm with a focus on early stage companies since 2010. In addition, Mr. Stetson served as Executive Vice
President, Chief Financial Officer, and Director of Marathon Patent Group, Inc. (MARA), a NASDAQ listed patent monetization company
from June 2012 to February 2015. Mr. Stetson was President & Co-Founder of Fidelity Property Group, Inc. from April 2010 to
July 2014, a real estate development group focused on acquisition, rehabilitation, and short-term disposition of single family
homes that completed 190 transactions, and generated over $46 million in sales. Mr. Stetson was an Investment Analyst from 2008
to 2009 for Heritage Investment Group and worked in the division of Corporate Finance of Toll Brothers from 2007 to 2008. Mr.
Stetson received his BA in Economics from the University of Pennsylvania. We believe that Mr. Stetson is qualified to serve as
a member of our Board because of his skills in finance and public company management and administration.
Dr.
Edward Swanson
was appointed as Chief Operating Officer and Director of the Company on December 1, 2016. Following completion
of his undergraduate degree in Applied Sciences in Biomedical Sciences at the School of Engineering and Applied Sciences at the
University of Pennsylvania, Dr. Swanson received his medical degree from Harvard Medical School, where he attended as a student
from August 2008 to May 2012, graduating with honors for his thesis researching surgical outcomes within craniofacial and plastic
surgery. From July 2012 until December 2016, Dr. Edward Swanson was a Surgical Resident in Plastic & Reconstructive Surgery
in the Department of Plastic and Reconstructive Surgery at The Johns Hopkins University School of Medicine. During his time at
Johns Hopkins, he served in a leadership role within the residency, sitting on the Program Evaluation Committee from July 2015
to December 2016 and The Johns Hopkins Hospital Housestaff Patient Safety and Quality Council from July 2014 to June 2015. Dr.
Swanson has extensive experience in basic and translational biomedical research, including as a research associate in Wound Healing
in the Division of Plastic Surgery at the Brigham and Women’s Hospital and Harvard Medical School from May 2004 to August
2004, thesis student in Traumatic Brain Injury at the University of Pennsylvania from August 2006 to May 2007, research fellow
in Pancreatic Cancer Cellular Biology at the Brigham and Women’s Hospital and Harvard Medical School from July 2007 to July
2008, research fellow in Nanomedicine at Harvard Medical School and MIT from May 2008 to August 2008, and research fellow in Vascularized
Composite Allotransplantation at the Massachusetts General Hospital and Harvard Medical School during his final year of medical
school. In addition, Dr. Swanson directed the large animal translational research as a lead research associate in the Vascularized
Composite Allotransplantation Laboratory in the Department of Plastic and Reconstructive Surgery at The Johns Hopkins University
School of Medicine from July 2014 to June 2015, overseeing experimental projects funded by multimillion dollar grants. Furthermore,
Dr. Swanson has demonstrated national and international leadership throughout the field of plastic and reconstructive surgery
at a young age, with greater than 40 peer-reviewed publications, five book chapters, and 30 national/international conference
presentations. We believe that Dr. Swanson is qualified to serve as a member of our Board because of his experience in technology
related to regenerative medicine and related patents and technology and their clinical applications, which the Company has reviewed
for potential development.
Unless
authority to vote for the nominees named above is withheld, the shares represented by the enclosed proxy will be voted FOR the
election of such nominees as directors. In the event that any of the nominees shall become unable or unwilling to serve, the shares
represented by the enclosed proxy will be voted for the election of such other person as the Board may recommend in such nominee’s
place. The Board has no reason to believe that any of the nominees will be unable or unwilling to serve.
Family
Relationships
Dr.
Denver Lough is related by marriage to Director Jeff Dyer. None of our other Directors are related by blood, marriage, or adoption
to any other Director, executive officer, or other key employee.
Involvement
in Certain Legal Proceedings
During
the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has been:
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the
subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that time;
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convicted
in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
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subject
to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction
or any Federal or State authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities;
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found
by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law;
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the
subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law
or regulation; (b) any law or regulation respecting financial institutions or insurance companies including, but not limited
to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent
cease-and-desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail or wire fraud or fraud
in connection with any business entity; or
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the
subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined
in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or
organization that has disciplinary authority over its members or persons associated with a member.
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Vote
Required
The
nominees for Class III director who receive the most votes (also known as a plurality) will be elected. You may vote either FOR
all of the nominees, WITHHOLD your vote from all of the nominees or WITHHOLD your vote from any one of the nominees. Votes that
are withheld will not be included in the vote tally for the election of directors. Brokerage firms do not have authority to vote
customers’ unvoted shares held by the firms in street name for the election of directors. As a result, any shares not voted
by a beneficial owner will be treated as a broker non-vote. Such broker non-votes will have no effect on the results of this vote.
THE
BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES NAMED ABOVE AS CLASS III DIRECTORS, AND PROXIES SOLICITED BY THE BOARD
WILL BE VOTED IN FAVOR THEREOF UNLESS A SHAREHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
Information
about the Board of Directors and Committees
Corporate
Governance
Independence
of Directors
Our
Board is currently comprised of seven members. The Board has reviewed the materiality of any relationship that each of our directors
has with the Company, either directly or indirectly. Based upon this review, the Board has determined that the following members
of the Board are “independent directors” as defined by the rules of The NASDAQ Stock Market: Jeff Dyer, Steve Gorlin,
and Dr. Jon Mogford.
The
definition of “independent director” included in the NASDAQ Stock Market Rules includes a series of objective tests,
such as that the director is not an employee of the Company, has not engaged in various types of specified business dealings with
the Company, and does not have an affiliation with an organization that has had specified business dealings with the Company.
Consistent with the Company’s Corporate Governance Principles, the Board’s determination of independence is made in
accordance with the NASDAQ Stock Market Rules, as the Board has not adopted supplemental independence standards. As required by
the NASDAQ Stock Market Rules, the Board also has made a subjective determination with respect to each director that such director
has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that
has a relationship with the Company), even if the director otherwise satisfies the objective independence tests included in the
definition of an “independent director” included in the NASDAQ Stock Market Rules.
In
determining that each individual who served as a member of the Board is independent, the Board considered that, in the ordinary
course of business, transactions may occur between the Company and entities with which some of our directors are affiliated. The
Board unanimously determined that the relationships discussed below were not material. No unusual discounts or terms were extended.
Board
Leadership Structure
The
Board believes that the Company’s Shareholders are best served if the Board retains the flexibility to adapt its leadership
structure to applicable facts and circumstances, which necessarily change over time. Accordingly, the Company’s Corporate
Governance Principles provide that the Board may combine or separate the roles of the CEO and chairman, as it deems advisable
and in the best interests of the Company and its Shareholders.
The
independent directors have concluded that the most effective leadership structure for the Company at the present time is for Dr.
Lough to serve as both our CEO and Chairman. The Board made this determination in light of Dr. Lough’s experience with the
Company, which allow him to bring to the Board a broad and uniquely well-informed perspective on the Company’s business,
as well as insight into the trends and opportunities that can affect the Company’s future. In adopting the structure, the
Board also concluded that the strong independent membership of the Board and its standing committees ensures robust and effective
communication between the directors and members of management, and that the overall leadership structure is effective in providing
the Board with a well-informed and current view of the Company’s business that enhances its ability to address strategic
considerations, as well as focus on the opportunities and risks that are of greatest importance to the Company and its Shareholders.
The Board believes this structure has served the Company well.
Under
our Corporate Governance Principles, the Board has the flexibility to modify or continue the leadership structure, as it deems
appropriate. As part of its ongoing evaluation of the most effective leadership structure for the Company, the independent directors
decided to appoint a lead director. The independent directors believe that having a lead director enhances the Board’s independent
oversight of management by further providing for strong independent leadership; independent discussion among directors; and independent
evaluation of, and communication with, senior management of the Company. Dr. Mogford currently serves as lead director, and has
since 2017. The independent directors unanimously approved Dr. Mogford to be lead director based on his experience knowledge of
governance practices, strategic considerations, and the Company’s business interests.
Specific
duties of the lead director include:
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presiding
at meetings of the independent directors;
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serving
as a liaison between the chairman and the independent directors;
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consulting
on meeting agendas;
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working
with management to assure that meeting materials are fulfilling the needs of directors;
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consulting
on the meeting calendar and schedules to assure there is sufficient time to discuss all agenda items;
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calling
meetings of the independent directors, including at the request of such directors;
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presiding
at Board meetings when the chairman is not present;
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working
with the independent directors to respond to shareholder inquiries involving the Board; and
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performing
such other duties as the Board may from time to time delegate.
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Director
Attendance at Board, Committee, and Other Meetings
Directors
are expected to attend Board meetings and meetings of the committees on which they serve, with the understanding that on occasion
a director may be unable to attend a meeting. The Board does not have a policy on director attendance at the Company’s annual
meeting.
The
non-management directors (who also constitute all of the independent directors) meet in executive sessions in connection with
regularly scheduled Board meetings and at such other times as the non-management directors deem appropriate.
In
2016, the Board held 4 regular and special meetings, the non-management directors held four regular and special executive sessions,
the Audit Committee held four regular and special meetings, the Compensation Committee held three regular and special meetings,
and the Nominating and Corporate Governance Committee held three regular and special meetings. Each director attended 90% or more
of the regular and special meetings of the Board and of the committees on which he or she served that were held during his or
her term of office. Each of the non-management (and independent) directors attended 90% or more of the regular and special executive
sessions that were held during his or her term of office.
Board
Role in Risk Oversight
The
Company’s Board plays an active role in risk oversight of the Company. The Board does not have a formal risk management
committee, but administers this oversight function through various standing committees of the Board, which are described below.
The Audit Committee periodically reviews overall enterprise risk management, in addition to maintaining responsibility for oversight
of financial reporting-related risks, including those related to the Company’s accounting, auditing and financial reporting
practices. The Audit Committee also reviews reports and considers any material allegations regarding potential violations of the
Company’s Code of Ethics. The Compensation Committee oversees risks arising from the Company’s compensation policies
and programs. This Committee has responsibility for evaluating and approving the executive compensation and benefit plans, policies
and programs of the Company. The Nominating Committee oversees corporate governance risks and oversees and advises the Board with
respect to the Company’s policies and practices regarding significant issues of corporate responsibility.
The
Board of Directors has a process for Shareholders to communicate with directors. Shareholders should write to the President at
the Company’s mailing address and specifically request that a copy of the letter be distributed to a particular Board member
or to all Board members. Where no such specific request is made, the letter will be distributed to Board members if material,
in the judgment of the President, to matters on the Board’s agenda.
Committees
of the Board
Our
Board has three standing committees: Audit, Compensation, and Nominating and Corporate Governance. Each of the committees is solely
comprised of and chaired by independent directors, each of whom the Board has affirmatively determined is independent pursuant
to the NASDAQ Stock Market. Each of the committees operates pursuant to its charter. The Committee Charters are reviewed annually
by the Nominating and Corporate Governance Committee. If appropriate, and in consultation with the chairs of the other committees,
the Nominating and Corporate Governance Committee proposes revisions to the charters. The responsibilities of each committee are
described in more detail below. The charters for the three committees are available on the Company’s website at http//www.polarityte.com/
by following the link to “Investors” and then to “Governance.”
Audit
Committee
The
Audit Committee, among other things, is responsible for:
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Appointing,
approving the compensation of, overseeing the work of, and assessing the independence, qualifications, and performance of
the independent auditor;
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reviewing
the internal audit function, including its independence, plans, and budget;
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approving,
in advance, audit and any permissible non-audit services performed by our independent auditor;
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reviewing
our internal controls with the independent auditor, the internal auditor, and management;
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reviewing
the adequacy of our accounting and financial controls as reported by the independent auditor, the internal auditor, and management;
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overseeing
our financial compliance system; and
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overseeing
our major risk exposures regarding the Company’s accounting and financial reporting policies, the activities of our
internal audit function, and information technology.
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The
Board has affirmatively determined that each member of the Audit Committee meets the additional independence criteria applicable
to audit committee members under SEC rules and the NASDAQ Stock Market. The Board of Directors has adopted a written charter setting
forth the authority and responsibilities of the Audit Committee. The Board has affirmatively determined that each member of the
Audit Committee is financially literate, and that all members meet the qualifications of an Audit Committee financial expert.
The Audit Committee consists of Messrs. Gorlin, Dyer and Beeghley. Mr. Beeghley is not standing for re-election at this Annual
Meeting.
Compensation
Committee
The
Compensation Committee is responsible for establishing and administering our executive compensation policies. The role of the
Compensation Committee is to (i) formulate, evaluate and approve compensation of the Company’s directors, executive officers
and key employees, (ii) oversee all compensation programs involving the use of the Company’s stock, and (iii) produce, if
required under the securities laws, a report on executive compensation for inclusion in the Company’s proxy statement for
its annual meeting of shareholders. The duties and responsibilities of the Compensation Committee under its charter include:
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Annually
reviewing and setting compensation of executive officers;
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Periodically
reviewing and making recommendations to the Board with respect to compensation of non-employee directors;
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Reviewing
and approving corporate goals and objectives relevant to Chief Executive Officer compensation, evaluating the Chief Executive
Officer’s performance in light of those goals and objectives, and setting the Chief Executive Officer’s compensation
levels based on this evaluation;
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Reviewing
competitive practices and trends to determine the adequacy of the executive compensation program;
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Approving
and overseeing incentive compensation and equity-based plans for executive officers that are subject to Board approval;
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Making
recommendations to the Board as to the Company’s compensation philosophy and overseeing the development and implementation
of compensation programs;
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Periodically
reviewing and making recommendations to the Board with respect to compensation of non-employee directors;
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Reviewing
and approving corporate goals and objectives relevant to Chief Executive Officer compensation, evaluating the Chief Executive
Officer’s performance in light of those goals and objectives, and setting the Chief Executive Officer’s compensation
levels based on this evaluation;
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When
appropriate, the Compensation Committee may, in carrying out its responsibilities, form and delegate authority to subcommittees.
The Chief Executive Officer plays a role in determining the compensation of our other executive officers by evaluating the performance
of those executive officers. The Chief Executive Officer’s evaluations are then reviewed by the Compensation Committee.
This process leads to a recommendation for any changes in salary, bonus terms and equity awards, if any, based on performance,
which recommendations are then reviewed and approved by the Compensation Committee.
The
Compensation Committee has the authority, at the Company’s expense, to select, retain, terminate and set the fees and other
terms of the Company’s relationship with any outside advisors who assist it in carrying out its responsibilities, including
compensation consultants or independent legal counsel.
The
Board has adopted a written charter setting forth the authority and responsibilities of the Compensation Committee. The Compensation
Committee consists of Messrs. Gorlin, Dyer and Beeghley. Mr. Beeghley is not standing for re-election at this Annual Meeting.
The Board has affirmatively determined that each member of the Compensation Committee meets the additional independence criteria
applicable to compensation committee members under SEC rules and the NASDAQ Stock Market.
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee, among other things, is responsible for:
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reviewing
and assessing the development of the executive officers, and considering and making recommendations to the Board regarding
promotion and succession issues;
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evaluating
and reporting to the Board on the performance and effectiveness of the directors, committees, and the Board as a whole;
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working
with the Board to determine the appropriate and desirable mix of characteristics, skills, expertise, and experience, including
diversity considerations, for the full Board and each committee;
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annually
presenting to the Board a list of individuals recommended to be nominated for election to the Board;
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reviewing,
evaluating, and recommending changes to the Company’s Corporate Governance Policies and Committee Charters;
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recommending
to the Board individuals to be elected to fill vacancies and newly created directorships;
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overseeing
the Company’s compliance program, including the Code of Conduct; and
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overseeing
and evaluating how the Company’s corporate governance and legal and regulatory compliance policies and practices, including
leadership, structure, and succession planning, may affect the Company’s major risk exposures.
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The
Board of Directors has adopted a written charter setting forth the authority and responsibilities of the Nominating and Corporate
Governance Committee. The Nominating and Corporate Governance Committee consists of Messrs. Gorlin, Dyer and Beeghley. Mr. Beeghley
is not standing for re-election at this Annual Meeting.
Consideration
of Director Nominees
We
seek directors with the highest standards of ethics and integrity, sound business judgment, and the willingness to make a strong
commitment to the Company and its success. The Nominating and Corporate Governance Committee works with the Board on an annual
basis to determine the appropriate and desirable mix of characteristics, skills, expertise, and experience for the full Board
and each committee, taking into account both existing directors and all nominees for election as directors, as well as any diversity
considerations and the membership criteria reflected in the Corporate Governance Principles. The Nominating and Corporate Governance
Committee and the Board, which do not have a formal diversity policy, consider diversity in a broad sense when evaluating board
composition and nominations; and they seek to include directors with a diversity of experience, professions, viewpoints, skills,
and backgrounds that will enable them to make significant contributions to the Board and the Company, both as individuals and
as part of a group of directors. The Board evaluates each individual in the context of the full Board, with the objective of recommending
a group that can best contribute to the success of the business and represent Shareholder interests through the exercise of sound
judgment. In determining whether to recommend a director for re-election, the Nominating and Corporate Governance Committee also
considers the director’s attendance at meetings and participation in and contributions to the activities of the Board and
its committees.
The
Nominating and Corporate Governance Committee will consider director candidates recommended by Shareholders, and its process for
considering such recommendations is no different than its process for screening and evaluating candidates suggested by directors,
management of the Company, or third parties.
Corporate
Governance Matters
We
are committed to maintaining strong corporate governance practices that benefit the long-term interests of our Shareholders by
providing for effective oversight and management of the Company. Our governance policies, including our Corporate Communications
Policy, Insider Trading Policy, Code of Conduct, and Committee Charters can be found on our website at http://www.polarityte.com/
by following the link to “Investors” and then to “Governance.”
The
Nominating and Corporate Governance Committee regularly reviews our corporate governance policies, Code of Conduct, and Committee
Charters to ensure that they take into account developments at the Company, changes in regulations and listing requirements, and
the continuing evolution of best practices in the area of corporate governance.
The
Board conducts an annual self-evaluation in order to assess whether the directors, the committees, and the Board are functioning
effectively.
Code
of Conduct
Our
Code of Conduct (the “Code”), which was amended and restated as of August 11, 2017, applies to the Company’s
employees, directors, officers, contractors, consultants, and persons performing similar functions (“Covered Persons”).
This includes our CEO and Chairman, our chief financial officer (“CFO”), and our Chief Operating Officer (“COO”),
among others. We require that they avoid conflicts of interest, comply with applicable laws, protect Company assets, and conduct
business in an ethical and responsible manner and in accordance with the Code. The Code prohibits employees from taking unfair
advantage of our business partners, competitors, and employees through manipulation, concealment, misuse of confidential or privileged
information, misrepresentation of material facts, or any other practice of unfair dealing or improper use of information. The
Code requires employees to comply with all applicable laws, rules, and regulations wherever in the world we conduct business.
This includes applicable laws on privacy and data protection, anti-corruption and anti-bribery, and trade sanctions. Our Code
was amended and restated in 2017 to better reflect our expanding operations and diverse employee base, enhance its clarity and
general readability, and to make other stylistic changes to more closely align the Code with our overall brand. Our Code is publicly
available and can be found on our website at http://www.polarityte.com/ by following the link to “Investors” and then
to “Governance.”
If
we make substantive amendments to the Code, or grant any waiver, including any implicit waiver, from a provision of the Code to
our CEO and Chairman, CFO, controller/treasurer, and any of our other officers, financial professionals, and persons performing
similar functions, we will disclose the nature of such amendment or waiver on our website or in a report filed with the SEC on
Form 8-K.
Communications
with the Board of Directors
Shareholders
and other parties may communicate directly with the Board of Directors or the relevant board member by addressing communications
to:
PolarityTE,
Inc.
c/o
Corporate Secretary
615
Arapeen Drive, Suite 102
Salt
Lake City, Utah 84108
All
shareholder correspondence will be compiled by our corporate secretary and forwarded as appropriate.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s directors, executive officers, and Shareholders who
own more than 10% of the Company’s stock to file forms with the SEC to report their ownership of the Company’s stock
and any changes in ownership. The Company assists its directors and executives by identifying reportable transactions of which
it is aware and preparing and filing the forms on their behalf. All persons required to file forms with the SEC must also send
copies of the forms to the Company. We have reviewed all forms provided to us. Based on that review and on written information
given to us by our executive officers and directors, we believe that all Section 16(a) filings during the past fiscal year were
filed on a timely basis and that all directors, executive officers and 10% beneficial owners have fully complied with such requirements
during the past fiscal year.
EXECUTIVE
OFFICERS
The
following persons are our executive officers and hold the offices set forth opposite their names.
Name
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Position(s)
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Denver
Lough
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Chief
Executive Officer, Chief Scientific Officer, Chairman and Class I Director
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John
Stetson
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Chief
Financial Officer, Executive Vice President and Class II Director
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Edward
Swanson
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Chief
Operating Officer, Executive Vice President and Class I Director
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Michael
Neumeister
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Chief
Medical Officer
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The
following is a brief summary of the background of each of our executive officers.
Dr.
Denver Lough – Chairman, Chief Executive Officer and Chief Scientific Officer
Biographical
information regarding Dr. Lough is provided above under Board Nominees.
John
Stetson – Chief Financial Officer, Executive Vice President, Secretary and Director
Biographical
information regarding Mr. Stetson is provided above under Board Nominees.
Dr.
Edward Swanson – Chief Operating Officer and Director
Biographical
information regarding Dr. Swanson is provided above under Board Nominees.
Dr.
Michael Neumeister, 55
,
was appointed Chief Medical Officer in December 2016. Dr. Neumeister has been associated
with the Southern Illinois University School of Medicine in various positions since 1997, to wit: Chairman of Department of Surgery
(2012-present); Chairman of the Institute of Plastic Surgery (2006-present); Professor at the Institute of Plastic Surgery (2005-present);
Elvin G. Zook Endowed Chair of the Institute of Plastic Surgery (2008-present); Director-Hand/Micro Surgery Fellowship Program
at Institute of Plastic Surgery (2007-present); Chief, Microsurgery and Research at Institute of Plastic Surgery (1999-present);
Director-Plastic Surgery Residency Program at Institute of Plastic Surgery (1998-2008); Associate Professor at Institute of Plastic
Surgery (2000-2005); and Assistant Professor at Institute of Plastic Surgery (1997-2000). Dr. Neumeister began his residency at
Dalhousie University in Halifax, Nova Scotia in general surgery and went on to complete his plastic surgery residency at the University
of Manitoba. He continued his training as a microsurgery fellow at Harvard University’s Brigham & Women’s Hospital
in Boston and completed a one year hand and microsurgery fellowship at Southern Illinois University School of Medicine. Dr. Neumeister
is board certified in plastic surgery by the Royal College of Surgeons of Canada and the American Board of Plastic Surgery. He
has also received his Certificate in (SOTH) Surgery of The Hand. Dr. Neumeister has received awards for presentations given regionally,
nationally and internationally, has over 150 book chapters and articles, and has multiple research interests in tissue engineering
and regenerative medicine. Dr. Neumeister is the Editor in Chief of the official AAHS journal HAND. He is the past President of
the American Society of Reconstructive Microsurgery, American Association for Hand Surgery, The Plastic Surgery Foundation (The
Research Body of The American Society of Plastic Surgeons), Plastic Surgery Research Council, and the Midwest Association of Plastic
Surgeons. Dr. Neumeister received his Doctor of Medicine from the University of Toronto in 1988 and his Bachelor of Science (Physiology/Pharmacology)
from the University of Western Ontario in 1984.
KEY
PERSONNEL
The
following persons are our key personnel and hold the offices set forth opposite their names.
Name
|
|
Position(s)
|
Stephen
Milner
|
|
Chief
Clinical Officer
|
|
|
|
Cameron
Hoyler
|
|
General
Counsel
|
|
|
|
Jennifer
Burdman
|
|
Chief
Intellectual Property Officer and Deputy General Counsel
|
The
following is a brief summary of the background of each of our key personnel
Dr.
Stephen Milner, 68
, was appointed Chief Clinical Officer in March 2017. Dr. Milner is a former director of the Johns Hopkins
Burn Center and professor of Reconstructive Surgery, Pediatrics, and Public Health at Johns Hopkins. Dr. Milner has also served
as director of the Michael D. Hendrix Burn Research Center, as adjunct professor at the Uniformed Services University of the Health
Sciences and as Honorary Civilian Consultant Advisor to the British Army in Plastic Surgery and Burns. Dr. Milner is a graduate
of Guy’s Hospital Medical and Dental Schools. He trained in general surgery in London and at the Massachusetts General Hospital.
After service as lieutenant colonel in the Royal Army Medical Corps, where he served on active duty in Operation Desert Storm,
he completed a plastic surgery residency through the University of Texas and the Shriner’s Burn Institute in Galveston.
In 2010 he was awarded an Honorary Doctorate of Science from the University of Glamorgan, UK in recognition for his work in burns.
Dr. Milner was awarded the Humanitarian Award from the James R. Jordan Foundation in 2012 and the Sushruta-Guha Lectureship and
medal in Plastic Surgery and Wound Healing from the Royal College of Surgeons of Edinburgh in 2013.
Cameron
Hoyler, 33
, was appointed General Counsel in April 2017. Prior to joining PolarityTE, Mr. Hoyler was an attorney at King
& Spalding LLP, where he practiced in the Life Sciences and Product Liability groups. Mr. Hoyler represented and counseled
clients involved in disputes and transactions in a variety of settings, including product liability, employment, commercial, trademark,
real estate, and insurance coverage. While at King & Spalding, Mr. Hoyler devoted the vast majority of his practice to representing
clients in the pharmaceutical and medical device industries, including Bristol-Myers Squibb Company, AstraZeneca Pharmaceuticals
LP, and McKesson Corporation, in addition to working for clients in other highly-regulated industries, such as Chevron U.S.A.
Inc. and Monsanto Company. He earned his Bachelor of Arts from the University of Pennsylvania, and his Juris Doctor from the University
of San Francisco School of Law.
Jennifer
Burdman, 41
, was appointed Chief Intellectual Property Officer and Deputy General Counsel in August 2017. Ms. Burdman
was a partner at King & Spalding LLP before joining PolarityTE, specializing in intellectual property procurement, protection,
and enforcement. An experienced trial lawyer, she has successfully represented clients at the trial and appellate levels in complex,
high-stakes litigations in patent infringement, trade secret misappropriation, and contractual matters involving IP rights. Noteworthy
wins include a jury verdict of patent infringement resulting in over $34 million in damages, a jury verdict of willful misappropriation
of trade secrets with damages of over $900 million, and the successful defense of a university against a patent licensee seeking
expanded rights relating to its sponsored research and license agreements. Ms. Burdman was named to Benchmark Litigation’s
2016 and 2017 Under 40 Hot Lists and was profiled as a “Law360 Rising Star” in 2016. Ms. Burdman graduated from Dartmouth
College with an A.B. in biochemistry and molecular biology and received her J.D. from Fordham University School of Law and has
been registered to practice before the United States Patent and Trademark Office since 1999.
DIRECTORS
Name
|
|
Age
|
|
Position
|
Denver
Lough
|
|
35
|
|
Chairman,
Chief Executive Officer, Chief Scientific Officer and Class III* Director
|
John
Stetson
|
|
32
|
|
Chief
Financial Officer and Class III** Director
|
Edward
Swanson
|
|
32
|
|
Chief
Operating Officer and Class III* Director
|
Steve
Gorlin
|
|
79
|
|
Class
II Director (1)(2)(3)
|
Jeff
Dyer
|
|
58
|
|
Class
I Director (1)(2)(3)
|
Jon
Mogford
|
|
49
|
|
Class
I Director
|
*Subject
to election pursuant to Proposal 1 (currently a Class I Director)
**
Subject to election pursuant to Proposal 1 (currently a Class II Director)
(1)
Member of our audit committee
(2)
Member of our compensation committee
(3)
Member of our nominating and corporate governance committee
Background
Information
The
following is a brief summary of the background of each of our directors.
Dr.
Denver Lough – Chairman, Chief Executive Officer and Chief Scientific Officer
Biographical
information regarding Dr. Lough is provided above under Board Nominees.
John
Stetson – Chief Financial Officer, Executive Vice President, Secretary and Director
Biographical
information regarding Mr. Stetson is provided above under Board Nominees.
Dr.
Edward Swanson – Chief Operating Officer and Director
Biographical
information regarding Dr. Swanson is provided above under Board Nominees.
Steve
Gorlin – Director
Steve
Gorlin has founded several biotechnology and pharmaceutical companies over the past 40 years, including Hycor Biomedical, Inc.
(acquired by Agilent), Theragenics Corporation (NYSE: TGX), CytRx Corporation (NASDAQ: CYTR), Medicis Pharmaceutical Corporation
(acquired by Valeant), EntreMed, Inc. (NASDAQ: ENMD), MRI Interventions, DARA BioSciences, Inc. (NASDAQ: DARA), MiMedx Group,
Inc. (NASDAQ: MDXG), and Medivation, Inc. (NASDAQ: MDVN). Since December 2014, Mr. Gorlin has served as a director of Catasys,
Inc. and Co-Chairman of the board of directors of Medovex, Inc., and since May 2011 he has served on the board of directors of
NTC China, Inc. In addition, since 2011, Mr. Gorlin has served as a member of the board of directors of DemeRX, Inc. (“DemeRX”)
and from 2011 until 2012 he served as Chairman of the board of DemeRX. Since July 2015, he has also served as Vice Chairman of
the board of NantKwest, Inc. and from July 2013 until May 2015 he served on various executive committees and the board of directors
of Conkwest, Inc., a private company, which is now NantKwest, Inc. From November 2006 until June 2013, Mr. Gorlin served as a
member of the board of directors of MiMedx Group, Inc. From 2010 until 2014 Mr. Gorlin served on the Business Advisory Council
to the Johns Hopkins School of Medicine, from 2011 until 2013 he served on The Johns Hopkins BioMedical Engineering Advisory Board
and from 2007 until 2011 he served on the Board of the Andrews Institute. He is presently a member of the Research Institute Advisory
Committee (RIAC) of Massachusetts General Hospital. Mr. Gorlin founded a number of non-medical related companies, including Perma-Fix,
Inc., Pretty Good Privacy, Inc. (sold to Network Associates), Judicial Correction Services, Inc. (sold to Correctional Healthcare)
and NTC China, Inc. He started The Touch Foundation, a nonprofit organization for the blind and was a principal financial contributor
to the founding of Camp Kudzu for diabetic children. Mr. Gorlin is qualified to serve as a member of the Company’s Board
because of his experience in regenerative medicine and pharmaceutical drug and medical device research and development.
Jeff
Dyer – Director
Jeff
Dyer was appointed to our Board of Directors on March 2, 2017. Mr. Dyer has served as the Horace Beesley Professor of Strategy
at Brigham Young University since September 1999. From August 1993 until September 1999 he served as an Assistant Professor at
Wharton School, University of Pennsylvania, and from July 1984 until September 1988 he served as Management Consultant and Manager
of Bain & Company. Mr. Dyer received his Bachelor of Science degree in psychology and MBA from Brigham Young University and
his PhD in management from University of California, Los Angeles. Mr. Dyer is qualified to serve as a member of the Company’s
Board because of his extensive business and management expertise and knowledge of capital markets.
Dr.
Jon Mogford – Director
Dr.
Jon Mogford was appointed to our Board of Directors on February 8, 2017. Dr. Mogford has served in various capacities for the
Texas A&M University System (“Texas A&M”). Since May 2013, Dr. Mogford has served as the Vice Chancellor for
Research, from August 2012 until April 2013 he served as the Chief Research Officer and from November 2011 until August 2012 he
served as Associate Vice Chancellor for Strategic Initiatives at Texas A&M. Prior to joining the Texas A&M in 2011, from
February 2010 until October 2011, Dr. Mogford served as Deputy Director of the Defense Sciences Office (DSO) of the Defense Advanced
Research Projects Agency (DARPA) in the U.S. Department of Defense. From July 2005 until January 2009, Dr. Mogford served as Program
Manager of DSO of DARPA. In addition, since November 2016, Dr. Mogford has served as a member of the board of directors of Medovex
Corp. Dr. Mogford is the recipient of the Secretary of Defense Medal for Outstanding Public Service. Dr. Mogford obtained his
bachelor’s degree in Zoology from Texas A&M University and doctorate in Medical Physiology from the Texas A&M University
Health Science Center, College Station, Texas. His research in vascular physiology continued at the University of Chicago as a
Postdoctoral fellow from 1997 until 1998. Dr. Mogford transitioned his research focus to the field of wound healing at Northwestern
University, both as a Research Associate and also as a Research Assistant Professor from 1998 until 2003. He then served as a
Life Sciences Consultant to DARPA on the Revolutionizing Prosthetics program from December 2003 until June 2005. Dr. Mogford is
qualified to serve as a member of the Company’s Board because of his experience and research in regenerative medicine.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following Summary Compensation Table sets forth summary information as to compensation paid or accrued during the last two fiscal
years ended October 31, 2016 and October 31, 2015. During the last two fiscal years ended October 31, 2016 and October 31, 2015,
none of our other executive officers earned compensation in excess of $100,000.
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
(1)
($)
|
|
|
Option
Awards
(2)
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
(3)($)
|
|
|
All
Other
Compensation
(4)($)
|
|
|
Total
($)
|
|
Barry Honig,
|
|
|
2016
|
|
|
|
55,385
|
|
|
|
-0-
|
|
|
|
451,500
|
(11)
|
|
|
293,125
|
(19)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
800,010
|
|
Chief Executive
Officer and Co-Chairman of the Board(5)
|
|
|
2015
|
|
|
|
8,308
|
|
|
|
-0-
|
|
|
|
496,000
|
(12)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
504,308
|
|
John Stetson
|
|
|
2016
|
|
|
|
151,385
|
|
|
|
-0-
|
|
|
|
451,500
|
(11)
|
|
|
293,125
|
(19)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
896,010
|
|
Chief Financial
Officer(6)
|
|
|
2015
|
|
|
|
8,308
|
|
|
|
-0-
|
|
|
|
372,000
|
(13)
|
|
|
14,684
|
(20)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
394,992
|
|
David Rector
|
|
|
2016
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
42,998
|
(14)
|
|
|
32,782
|
(20)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
75,780
|
|
Former Chief Executive
Officer(7)
|
|
|
2015
|
|
|
|
6,708
|
|
|
|
-0-
|
|
|
|
116,000
|
(15)
|
|
|
6,273
|
(21)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
128,981
|
|
Jesse Sutton
|
|
|
2016
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Former Chief Executive
Officer(8)
|
|
|
2015
|
|
|
|
273,646
|
|
|
|
-0-
|
|
|
|
15,841
|
(16)
|
|
|
30,546
|
(22)
|
|
|
-0-
|
|
|
|
513,859
|
(24)
|
|
|
833,892
|
|
Michael Vessey
|
|
|
2016
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Former Chief Financial
Officer(9)
|
|
|
2015
|
|
|
|
140,770
|
|
|
|
-0-
|
|
|
|
46,560
|
(17)
|
|
|
14,684
|
(23)
|
|
|
-0-
|
|
|
|
305,900
|
(25)
|
|
|
507,914
|
|
Gary Anthony
|
|
|
2016
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Former Chief Financial
Officer(10)
|
|
|
2015
|
|
|
|
89,200
|
|
|
|
30,000
|
|
|
|
28,000
|
(18)
|
|
|
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
147,200
|
|
(1)
Represents the aggregate grant date fair value for restricted stock awards granted during fiscal years 2015 and 2016, respectively,
computed in accordance with FASB ASC Topic 718. See Note 9 to our consolidated financial statements reported in our Annual Report
on Form 10-K for our fiscal year ended October 31, 2016 for details as to the assumptions used to determine the grant date fair
value of the restricted stock awards.
(2)
Represents the aggregate grant date fair value for option awards granted during fiscal years 2015 and 2016, respectively, computed
in accordance with FASB ASC Topic 718. See Note 9 to our consolidated financial statements reported in our Annual Report on Form
10-K for our fiscal year ended October 31, 2016 for details as to the assumptions used to determine the grant date fair value
of the option awards.
(3)
Represents amounts paid to named executive officers in the applicable year pursuant to the Company’s STI Plan.
(4)
Represents health and dental insurance premiums in excess of coverage provided to other employees.
(5)
Appointed on September 25, 2015. Resigned as Chief Executive Officer and Chairman on December 1, 2016.
(6)
Appointed on September 25, 2015.
(7)
Served as Chief Executive Officer from July 27, 2015 until September 25, 2015.
(8)
Resigned on July 27, 2015.
(9)
Resigned on March 17, 2015.
(10)
Served as Chief Accounting Officer from April 1, 2015 to September 25, 2015, prior to this beginning May 2011, he served as the
Company’s Corporate Controller.
(11)
Represents 87,500 shares at a grant date fair value of $5.16 per common share.
(12)
Represents 66,666 shares at a grant date fair value of $7.44 per common share.
(13)
Represents 50,000 shares at a grant date fair value of $7.44 per common share.
(14)
Represents 8,333 shares at a grant date fair value of $5.16 per common share.
(15)
Represents 16,667 shares at a grant date fair value of $6.96 per common share.
(16)
Represents 3,882 shares at a grant date fair date value of $4.08 per common share.
(17)
Represents 2,588 shares at a grant date fair value of $4.08 per common share and 5,000 shares at a grant date fair value of $7.20
per common share.
(18)
Represents 3,333 shares at a grant date fair value of $8.04 per common share.
(19)
Represents stock options to purchase 87,500 common shares at an exercise price of $4.80 per common share.
(20)
Represents stock options to purchase 8,333 common shares at an exercise price of $4.80 per common share and to purchase 1,916
common shares at an exercise price of $5.22 per common share.
(21)
Represents stock options to purchase 1,166 common shares at an exercise price of $8.58 per common share.
(22)
Represents stock options to purchase 11,958 shares of Common Stock at an exercise price of $4.08 per common share.
(23)
Represents stock options to purchase 5,745 common shares at an exercise price of $4.08 per common share.
(24)
Represents $13,859 paid for health and dental insurance premiums in excess of coverage provided to other employees as well as
$500,000 paid in severance payments paid to Zift Interactive, LLC.
(25)
Represents $5,900 paid for health and dental insurance premiums in excess of coverage provided to other employees and $300,000
in severance payments.
Narrative
Disclosure to Summary Compensation Table
Incentive
Bonus Opportunity
The
Compensation Committee has the authority to award incentive bonuses to our executives. The incentive bonus program is based on
the Company’s fiscal year performance.
The
incentive bonus program is an important component of total cash compensation because it rewards our executives for achieving annual
financial and operational goals and emphasizes variable or “at risk” compensation.
On
April 19, 2013, the Compensation Committee approved the adoption of a new annual short-term incentive plan for fiscal year 2013
and subsequent years (the “STI Plan”). In 2013, under the STI Plan, each of the named executive officers was eligible
to receive an incentive bonus based upon a targeted percentage of his base salary, which was 100% for the Chief Executive Officer
and 50% for the Chief Financial Officer. The incentives could be earned based on our performance relative to a mix of strategic
objectives, such as (i) growing cash flow from our console business, (ii) expanding our digital games business, measured in terms
of revenue, infrastructure and talent acquisitions, business acquisitions, and product pipeline, and (iii) managing to adjusted
operating income, cash flow and liquidity goals, eliminating operating losses on certain platforms, and repositioning the Company
to invest in growth areas. In addition, in determining the eligibility for bonuses under the plan, the payout level for the strategic
objectives was based on the Committee’s discretionary assessment of each officer’s performance relative to the overall
mix of objectives. Based on its review of overall performance, the Compensation Committee approved an incentive payout of $150,000
for the Chief Executive Officer and $84,000 for the Chief Financial Officer.
No
incentive plan was offered for fiscal year 2016.
Long-Term
Incentives
We
believe that long-term performance will be enhanced through equity awards that reward our executives and other employees for maximizing
Shareholder value over time and that align the interests of our executives and other employees with those of Shareholders. The
Compensation Committee believes that the use of equity awards offers the best approach to achieving our compensation goals because
equity ownership ties a significant portion of an individual’s compensation to the performance of our stock.
On
March 30, 2015, at our 2015 annual meeting, our Shareholders approved the Company’s 2014 Equity Incentive Plan (the “2014
Plan”) and the reservation of 2,250,000 shares of our Common Stock thereunder. On May 10, 2016, at our 2016 annual meeting,
our Shareholders approved the Company’s 2016 Equity Incentive Plan (the “2016 Plan” and together with the 2014
Plan, the “Plans”) and the reservation of 4,000,000 shares of our Common Stock thereunder. Awards under the Plans
may be granted pursuant to the Plans only to persons who are eligible persons. Under the Plans, “Eligible Person”
means any person who is either: (a) an officer (whether or not a director) or employee of the Company or one of its subsidiaries;
(b) a director of the Company or one of its subsidiaries; or (c) an individual consultant who renders bona fide services (other
than services in connection with the offering or sale of securities of the Company or one of its subsidiaries in a capital-raising
transaction or as a market maker or promoter of securities of the Company or one of its subsidiaries) to the Company or one of
its subsidiaries and who is selected to participate in the Plans by the Plan administrator; provided, however, that an Eligible
Person may only participate in the Plans if such participation would not adversely affect either the Company’s eligibility
to use Form S-8 to register, under the Securities Act, the offering and sale of shares issuable under the Plans by the Company
or the Company’s compliance with any other applicable laws.
On
December 17, 2014, the Company granted restricted stock shares to certain of its executive officers and directors in consideration
for their respective roles in the Company. These restricted stock awards, were granted under the Company’s Amended and Restated
2004 Employee, Director and Consultant Incentive plan and were subject to a trigger event that occurred on September 30, 2015,
which vested the shares in full.
The
shares granted to our officers and directors under these stock awards are as follows:
Name
|
|
Shares
|
|
Jesse Sutton
|
|
|
3,883
|
|
Michael Vesey
|
|
|
2,589
|
|
Laurence Aronson
|
|
|
3,883
|
|
Stephen Wilson
|
|
|
2,589
|
|
Trent Davis
|
|
|
1,079
|
|
Mohit Bhansali
|
|
|
1,079
|
|
Adam Sultan
|
|
|
2,157
|
|
On
December 17, 2014, the Company granted options to purchase Common Stock to certain of its executive officers and directors in
consideration for their respective roles in the Company. The stock options were granted with an exercise price of $4.08 per share
and would fully vest upon a trigger event, which occurred on September 30, 2015, and are exercisable until December 17, 2019.
They were granted under the 2014 Plan.
The
shares granted to our officers and directors under these stock awards are as follows:
Name
|
|
Option
Award
|
|
Jesse Sutton
|
|
|
11,951
|
|
Michael Vesey
|
|
|
5,745
|
|
Laurence Aronson
|
|
|
11,951
|
|
Stephen Wilson
|
|
|
10,745
|
|
Trent Davis
|
|
|
9,339
|
|
Mohit Bhansali
|
|
|
9,339
|
|
Adam Sultan
|
|
|
2,010
|
|
On
April 23, 2015, Laurence Aronson, Mohit Bhansali and Trent Davis were each granted options to purchase 1,191 shares of Common
Stock with an exercise price of $8.40 per share. These awards were granted pursuant to the 2014 Plan. The options fully vested
on October 23, 2015, and they are exercisable until April 23, 2020.
On
June 27, 2015, David Rector was granted 16,667 restricted stock units. The vesting on this grant was accelerated on January 12,
2016. These awards were granted under the 2014 Plan.
On
July 27, 2015, David Rector was granted options to purchase 1,166 shares of Common Stock with an exercise price of $8.58 per share.
These awards were granted under the 2014 Plan.
On
September 30, 2015, we entered into Restricted Stock Agreements with certain of our executive officers and directors. The stock
awards provide for grants of Common Stock to our officers and directors under the 2014 Plan. The stock awards all vested on December
1, 2016.
The
shares of Common Stock granted to our officers and directors under these stock awards are as follows:
Name
|
|
Shares
|
|
Barry Honig
|
|
|
66,666
|
|
John Stetson
|
|
|
50,000
|
|
Michael Brauser
|
|
|
66,666
|
|
Mohit Bhansali
|
|
|
4,166
|
|
Edward Karr
|
|
|
8,333
|
|
Andrew Kaplan
|
|
|
8,333
|
|
On
December 18, 2015, we entered into Restricted Stock Agreements with certain of our executive officers and directors. The stock
awards provide for grants of Common Stock to our officers and directors under the 2014 Plan. The stock awards all vested on December
1, 2016.
The
shares of Common Stock granted to our officers and directors under these stock awards are as follows:
Name
|
|
Shares
|
|
Michael Beeghley
|
|
|
8,333
|
|
Additionally,
on December 18, 2015, Michael Brauser, Andrew Kaplan, Edward Karr, and Michael Beeghley were granted option to purchase 1,587
stock shares of Common Stock with an exercise price of $6.30 per share. These options fully vested six months from the grant date.
On
June 1, 2016, Michael Brauser, Michael Beeghley, Andrew Kaplan, Edward Karr, Mohit Bhansali and David Rector were granted options
to purchase 1,915 shares of Common Stock at an exercise price of $5.22 per share which options vested in full six months from
the date of grant.
On
December 1, 2016, the Company granted options with an exercise price of $3.15 per share to the individuals listed below pursuant
to the 2017 Plan.
Name
and Position
|
|
Number
of
Options
|
|
Denver Lough
Chief
Executive Officer, Chief Scientific Officer and Chairman
|
|
|
1,000,000
|
|
Edward Swanson
Chief Operating
Officer and director
|
|
|
846,000
|
|
On
December 7, 2016, the Company granted options with an exercise price of $3.12 per share to the individuals listed below pursuant
to the 2017 Plan.
Name
and Position
|
|
Number
of
Options
|
|
Michael Neumeister
|
|
|
|
|
Chief Medical Officer
|
|
|
141,000
|
|
Jeff Dyer
Director
|
|
|
141,000
|
|
Matthew Swanson
|
|
|
141,000
|
|
Stephen Milner
|
|
|
50,000
|
|
Anthony Blum
Laboratory Manager
|
|
|
10,000
|
|
Nicholas Baetz
|
|
|
50,000
|
|
Devin Miller
Director of Translational
Medicine and Regulatory Strategy
|
|
|
75,000
|
|
Christine Hashimoto
|
|
|
10,000
|
|
Mary Dyer Lough
Clinical Research
Coordinator
|
|
|
10,000
|
|
On
February 8, 2017, the Company granted options with an exercise price of $4.72 per share to the individuals listed below pursuant
to the 2017 Plan.
Name
and Position
|
|
Number
of
Options
|
|
Steve Gorlin
Director
|
|
|
50,000
|
|
Jon Mogford
Director
|
|
|
50,000
|
|
On
December 1, 2016, the Company granted restricted stock awards to the individuals listed below pursuant to the 2017 Plan.
Name
and Position
|
|
Number
of
Restricted Stock Awards
|
|
Barry Honig
Former
Chief Executive Officer and Chairman
|
|
|
125,000
|
|
John Stetson
Chief Financial Officer
and Director
|
|
|
175,000
|
|
Michael Brauser
Former Director
|
|
|
75,000
|
|
Michael Beeghley
Director
|
|
|
15,000
|
|
Andrew Kaplan
Former Director
|
|
|
15,000
|
|
Edward Karr
Former Director
|
|
|
15,000
|
|
Mohit Bhansali
Former Director
|
|
|
15,000
|
|
David Rector
Former Director
|
|
|
15,000
|
|
Steve Gorlin
Director
|
|
|
50,000
|
|
Jon Mogford
Director
|
|
|
50,000
|
|
Employment
and Separation Agreements
During
2015 and 2016, we had employment agreements with each of the named executive officers.
Denver
Lough’s Employment Agreement
On
December 1, 2016, the Company entered into an employment agreement with Dr. Denver Lough (the “Lough Employment Agreement”).
Pursuant to the terms of the Lough Employment Agreement, Dr. Lough will serve as Chairman of the Board and as Chief Executive
Officer and Chief Scientific Officer of the Company for a term of one year which shall be automatically renewed for successive
one year periods thereafter unless earlier terminated. Pursuant to the Lough Employment Agreement, the Company shall pay Dr. Lough
(i) a one-time signing bonus of $100,000, (ii) an annual base salary of $350,000, (iii) an annual discretionary bonus, as determined
by the Board, in an amount up to 100% of Dr. Lough’s then current base salary and (iv) 10 year options (the “Lough
Options”) to purchase up to 1,000,000 shares of the Company’s Common Stock at an exercise price of $3.15 per share
(equal to 100% of the market price as defined by NASDAQ (“Fair Market Value”)) which Options shall vest in 24 equal
installments commencing on the one month anniversary of the Lough Employment Agreement. The Lough Options were granted pursuant
to the Company’s 2017 Plan.
Edward
Swanson’s Employment Agreement
On
December 1, 2016, the Company entered into an employment agreement with Edward Swanson (the “Swanson Employment Agreement”).
Pursuant to the terms of the Swanson Employment Agreement, Dr. Swanson will serve as Chief Operating Officer of the Company for
a term of one year which shall be automatically renewed for successive one year periods thereafter unless earlier terminated.
Pursuant to the Swanson Agreement, the Company shall pay Dr. Swanson (i) a one-time signing bonus of $100,000, (ii) an annual
base salary of $300,000, (iii) an annual discretionary bonus, as determined by the Board, in an amount up to 100% of Dr. Swanson’s
then current base salary and (iv) 10 year options (the “Swanson Options”) to purchase up to 846,000 shares of the
Company’s Common Stock pursuant to the 2017 Plan at Fair Market Value which Swanson Options shall vest in 24 equal installments
commencing on the one month anniversary of the Swanson Employment Agreement.
Jesse
Sutton’s Employment Agreement and Separation Agreement
Mr.
Sutton’s employment agreement provided for an annual base salary of $363,000 and a discretionary bonus of up to 100% of
his base salary. On July 27, 2015, Mr. Sutton resigned from his position as Chief Executive Officer of the Company and the Company
entered into a separation agreement with Mr. Sutton (the “Sutton Separation Agreement”). Pursuant to the terms of
the Sutton Separation Agreement, for a period of 24 months following Mr. Sutton’s resignation, Mr. Sutton will provide consulting
and support services (the “Services”) to the Company’s Download Business (as defined in the Separation Agreement).
In addition, Mr. Sutton is expected to receive a severance payment, which will include 50% of the Net Monthly Revenues (as defined
in the Sutton Separation Agreement) generated by the Company from the Download Business (as defined in the Sutton Separation Agreement),
but in no event more than $10,000 per month;
provided
that Mr. Sutton is still providing the Services. In addition, the
Company continued its contributions towards Mr. Sutton’s health care benefits until the earlier of (i) 12 months following
Mr. Sutton’s resignation or (ii) until Mr. Sutton becomes covered by an equivalent benefit. Lastly, Mr. Sutton shall has
18 months from his date of resignation to exercise any previously issued stock options, except that the original expiration date
of any such options shall not be extended.
Michael
Vesey’s Employment Agreement and Separation Agreement
Mr.
Vesey’s employment agreement provided for an annual base salary of $300,000 and an annual cash bonus to be determined in
the sole discretion of the Company. On February 17, 2015, Mr. Vesey entered into a separation agreement (the “Vesey Separation
Agreement”) with the Company pursuant to which Mr. Vesey resigned as the Company’s Chief Financial Officer effective
March 17, 2015. Pursuant to the Vesey Separation Agreement, Mr. Vesey provided general business and consulting services to the
Company to assist in transitional needs and activities of the Company for a period of six months following his resignation. In
addition, upon his resignation and in addition to the other benefits as outlined his employment agreement, Mr. Vesey received
a lump sum payment of $200,000 and an additional payment of $100,000 thereafter payable in six equal monthly installments. Moreover,
the Company agreed to vest all of Mr. Vesey’s previously unvested securities, other than securities granted pursuant to
the Company’s 2014 Plan and, in consideration for Mr. Vesey’s consulting services, the Company granted Mr. Vesey 5,000
shares of restricted Common Stock under the 2014 Plan.
Barry
Honig’s Employment Agreement
Mr.
Honig’s employment agreement provides for an annual base salary of $120,000 and a discretionary bonus to be determined by
the Compensation Committee. Pursuant to the terms of the employment agreement, Mr. Honig would be entitled to certain payments
and benefits if the Company terminated the executive’s employment without “cause” or the executive terminated
his employment for “good reason”. Benefits are also provided if the executive is terminated in connection with a change
in control. The benefit levels under the employment agreement generally include continued payment of base salary, a bonus for
the year of termination, accelerated vesting of equity awards and continued welfare benefits, and are described in more detail
under the “Potential Payments Upon Termination or Change-In-Control” below. Mr. Honig resigned as Chief Executive
Officer on December 1, 2016.
John
Stetson’s Employment Agreement
Mr.
Stetson’s employment agreement provides for an annual base salary of $120,000 and a discretionary bonus to be determined
by the Compensation Committee. Pursuant to the terms of the employment agreement, Mr. Stetson would be entitled to certain payments
and benefits if the Company terminated the executive’s employment without “cause” or the executive terminated
his employment for “good reason”. Benefits are also provided if the executive is terminated in connection with a change
in control. The benefit levels under the employment agreements generally include continued payment of base salary, a bonus for
the year of termination, accelerated vesting of equity awards and continued welfare benefits, and are described in more detail
under the “Potential Payments Upon Termination or Change-In-Control” below.
Potential
Payments Upon Termination or Change-In-Control
We
have entered into agreements that require us to make payments and/or provide benefits to certain of our executive officers, including
Mr. Honig and Mr. Stetson, in the event of a termination of employment or a change of control. The following summarizes the potential
payments to each named executive officer for which we have entered into such an agreement assuming that one of the events identified
below occurs.
Dr.
Denver Lough, Chief Executive Officer and Chief Scientific Officer
If
Dr. Lough terminates the Lough Employment Agreement for Good Reason (as defined in the Lough Employment Agreement) or a Change
of Control (as defined in the Lough Employment Agreement) or the Company terminates the Lough Employment Agreement without Cause
(as defined in the Lough Employment Agreement), then Dr. Lough shall be entitled to receive (i) the sum of his then base salary
from the date of termination, (ii) reasonable expenses incurred by Dr. Lough in connection with the performance of his duties,
(iii) accrued but unused vacation time through the date of termination, (iv) the sum of this then annual bonus and (v) all Share
Awards (as defined in the Lough Employment Agreement) earned and vested prior to the date of termination. In addition, Dr. Lough
shall have the right to Participation Payments (as defined in the Lough Employment Agreement) from commercial transactions associated
with the Patents (as defined in the Lough Employment Agreement) and intellectual property rights associated with such Patents.
If the Company terminates the Lough Employment Agreement for Cause, the Company will have no further obligations or liability
to Dr. Lough except for the obligation to (i) pay Dr. Lough his then annual salary through the date of termination, (ii) unpaid
annual bonus pursuant to the terms of the Lough Employment Agreement, (iii) reasonable expenses incurred by Dr. Lough in connection
with the performance of his duties and (v) accrued but unused vacation time through the date of termination.
Dr.
Swanson, Chief Operating Officer
If
Dr. Swanson terminates the Swanson Employment Agreement for Good Reason (as defined in the Swanson Employment Agreement) or a
Change of Control (as defined in the Swanson Employment Agreement) or the Company terminates the Swanson Employment Agreement
without Cause(as defined in the Swanson Employment Agreement), then Dr. Swanson shall be entitled to receive (i) the sum of his
then base salary from the date of termination, (ii) reasonable expenses incurred by Dr. Swanson in connection with the performance
of his duties, (iii) accrued but unused vacation time through the date of termination, (iv) the sum of this then annual bonus
and (v) all Share Awards (as defined in the Swanson Employment Agreement) earned and vested prior to the date of termination.
If the Company terminates the Swanson Employment Agreement for Cause, the Company will have no further obligations or liability
to Dr. Swanson except for the obligation to (i) pay Dr. Swanson his then annual salary through the date of termination, (ii) unpaid
annual bonus pursuant to the terms of the Swanson Employment Agreement, (iii) reasonable expenses incurred by Dr. Swanson in connection
with the performance of his duties and (v) accrued but unused vacation time through the date of termination.
Mr.
John Stetson, Chief Financial Officer
Pursuant
to his employment agreement, if the Company terminates Mr. Stetson’s employment without “cause” (as such term
is defined Mr. Stetson’s employment agreement) or Mr. Stetson resigns for “good reason” or following a “Change
of Control” (as such terms are defined in Mr. Stetson’s employment agreement), he will receive severance benefits
from the Company, including a cash amount equal to 100% of Mr. Stetson’s base salary, annual bonus and share awards during
the preceding year.
Mr.
Barry Honig, Former Chief Executive Officer
Pursuant
to his employment agreement, if the Company terminates Mr. Honig’s employment without “cause” (as such term
is defined in Mr. Honig’s employment agreement) or Mr. Honig resigns for “good reason” or following a “Change
of Control” (as such terms are defined in Mr. Honig’s employment agreement), he will receive severance benefits from
the Company, including a cash amount equal to 100% of Mr. Honig’s base salary, annual bonus and share awards during the
preceding year. Mr. Honig resigned as Chief Executive Officer on December 1, 2016.
Outstanding
Equity Awards at Fiscal Year-End
The
following table shows grants of stock options and grants of unvested stock awards outstanding on the last day of the fiscal year
ended October 31, 2016, to each of the executive officers named in the Summary Compensation Table.
|
|
|
|
|
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
|
|
Option
Exercise Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Number
of
Shares or
Units of
Stock That
Have Not
Vested
(#)
|
|
|
Market
Value of
Shares or
Units
of
Stock
That
Have Not
Vested
($)(1)
|
|
Michael
Brauser
|
|
|
1,587
|
(2)
|
|
|
—
|
|
|
$
|
6.30
|
|
|
|
December
18, 2020
|
|
|
|
66,666
|
(6)
|
|
$
|
238,664
|
|
|
|
|
43,750
|
(3)
|
|
|
43,750
|
(3)
|
|
$
|
4.80
|
|
|
|
April
24, 2026
|
|
|
|
43,750
|
(7)
|
|
$
|
156,625
|
|
|
|
|
—
|
|
|
|
1,916
|
(4)
|
|
$
|
5.22
|
|
|
|
June
1, 2021
|
|
|
|
—
|
|
|
$
|
—
|
|
Barry
Honig
|
|
|
43,750
|
(3)
|
|
|
43,750
|
(3)
|
|
$
|
4.80
|
|
|
|
April
24, 2026
|
|
|
|
66,666
|
(6)
|
|
$
|
238,664
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,750
|
(7)
|
|
$
|
156,625
|
|
John
Stetson
|
|
|
43,750
|
(3)
|
|
|
43,750
|
(3)
|
|
$
|
4.80
|
|
|
|
April
24, 2026
|
|
|
|
50,000
|
(6)
|
|
$
|
179,000
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,750
|
(7)
|
|
$
|
156,625
|
|
David
Rector
|
|
|
1,166
|
(5)
|
|
|
—
|
|
|
$
|
8.58
|
|
|
|
July
27, 2020
|
|
|
|
4,167
|
(7)
|
|
$
|
14,918
|
|
|
|
|
4,167
|
(3)
|
|
|
4,166
|
(3)
|
|
$
|
4.80
|
|
|
|
April
24, 2026
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
1,916
|
(3)
|
|
$
|
5.22
|
|
|
|
June
1, 2021
|
|
|
|
—
|
|
|
$
|
—
|
|
Michael
Beeghley
|
|
|
1,587
|
(5)
|
|
|
—
|
|
|
$
|
6.30
|
|
|
|
December
18, 2020
|
|
|
|
8,333
|
(6)
|
|
$
|
29,832
|
|
|
|
|
2,604
|
(3)
|
|
|
2,604
|
(3)
|
|
$
|
4.80
|
|
|
|
April
24, 2026
|
|
|
|
2,604
|
(7)
|
|
$
|
9,322
|
|
|
|
|
—
|
|
|
|
1,916
|
(4)
|
|
$
|
5.22
|
|
|
|
June
1, 2021
|
|
|
|
—
|
|
|
$
|
—
|
|
Andrew
Kaplan
|
|
|
1,587
|
(5)
|
|
|
—
|
|
|
$
|
6.30
|
|
|
|
December
18, 2020
|
|
|
|
8,333
|
(6)
|
|
$
|
29,832
|
|
|
|
|
3,646
|
(3)
|
|
|
3,646
|
(3)
|
|
$
|
4.80
|
|
|
|
April
24, 2026
|
|
|
|
3,646
|
(7)
|
|
$
|
13,053
|
|
|
|
|
—
|
|
|
|
1,916
|
(4)
|
|
$
|
5.22
|
|
|
|
June
1, 2021
|
|
|
|
—
|
|
|
$
|
—
|
|
Mohit
Bhansali
|
|
|
12,500
|
(3)
|
|
|
12,500
|
(3)
|
|
$
|
4.80
|
|
|
|
April
24, 2026
|
|
|
|
4,166
|
(6)
|
|
$
|
14,914
|
|
|
|
|
—
|
|
|
|
1,916
|
(4)
|
|
$
|
5.22
|
|
|
|
June
1, 2021
|
|
|
|
12,500
|
(7)
|
|
$
|
44,750
|
|
Edward
Karr
|
|
|
1,587
|
(2)
|
|
|
—
|
|
|
$
|
6.30
|
|
|
|
December
18, 2020
|
|
|
|
8,333
|
(6)
|
|
$
|
29,832
|
|
|
|
|
8,334
|
(3)
|
|
|
8,333
|
(3)
|
|
$
|
4.80
|
|
|
|
April
24, 2026
|
|
|
|
8,334
|
(7)
|
|
$
|
29,836
|
|
|
|
|
—
|
|
|
|
1,916
|
(4)
|
|
$
|
5.22
|
|
|
|
June
1, 2021
|
|
|
|
—
|
|
|
$
|
—
|
|
(1)
|
Market
value based on closing stock price of $1.22 on October 31, 2016.
|
|
|
(2)
|
Option
was exercisable 6 months following the grant date of December 18, 2015.
|
(3)
|
Option
was 50% exercisable on May 10, 2016 and 50% exercisable upon the occurrence of a performance condition.
|
|
|
(4)
|
Option
was exercisable on November 30, 2016.
|
|
|
(5)
|
Option
was exercisable on January 27, 2016.
|
|
|
(6)
|
Vests
at the end of each calendar month, at a rate of 1/24 of such shares per month.
|
|
|
(7)
|
Stock
grant was 50% vested on May 10, 2016 and amount represents the 50% vested upon the occurrence of a performance condition.
|
Director
Compensation
The
following table shows the total compensation paid or accrued during the fiscal year ended October 31, 2016 to each of our directors,
current and former.
Name
|
|
Fees
Earned
or Paid in
Cash
($)
|
|
|
Stock
Awards
($) (1)
|
|
Option
Awards
($) (2)
|
|
All
Other Compensation
($)
|
|
|
Total
($)
|
|
Barry
Honig (16)
|
|
$
|
-
|
|
$
|
451,500
|
(3)
|
$
|
293,125
|
(9)
|
$
|
-
|
|
|
$
|
744,625
|
|
Michael
Brauser (17)
|
|
$
|
6,200
|
|
$
|
451,500
|
(3)
|
$
|
297,992
|
(10)
|
$
|
-
|
|
|
$
|
755,692
|
|
Mohit
Bhansali (18)
|
|
$
|
900
|
|
$
|
129,000
|
(4)
|
$
|
172,367
|
(11)
|
$
|
-
|
|
|
$
|
302,267
|
|
Edward
Karr (19)
|
|
$
|
6,500
|
|
$
|
86,002
|
(5)
|
$
|
60,701
|
(12)
|
$
|
-
|
|
|
$
|
153,203
|
|
Andrew
Kaplan (20)
|
|
$
|
6,500
|
|
$
|
37,627
|
(6)
|
$
|
29,295
|
(13)
|
$
|
-
|
|
|
$
|
73,422
|
|
Michael
Beeghley
|
|
$
|
6,500
|
|
$
|
26,873
|
(7)
|
$
|
22,313
|
(14)
|
$
|
-
|
|
|
$
|
55,686
|
|
David
Rector (21)
|
|
$
|
900
|
|
$
|
42,998
|
(9)
|
$
|
32,782
|
(15)
|
$
|
-
|
|
|
$
|
76,680
|
|
(1)
Represents the aggregate grant date fair value for stock awards granted by us in fiscal year 2016 computed in accordance with
FASB ASC Topic 718. See Note 9 to our consolidated financial statements reported in our Annual Report on Form 10-K for fiscal
year ended October 31, 2016 for details as to the assumptions used to determine the fair value of the stock awards.
(2)
Represents the aggregate grant date fair value for options granted by us in fiscal year 2016 computed in accordance with FASB
ASC Topic 718. See Note 9 to our consolidated financial statements reported in our Annual Report on Form 10-K for fiscal year
ended October 31, 2016 for details as to the assumptions used to determine the fair value of the option awards.
(3)
Represents 87,500 shares at a grant date fair value of $5.16 per common share.
(4)
Represents 25,000 shares at a grant date fair value of $5.16 per common share.
(5)
Represents 16,667 shares at a grant date fair value of $5.16 per common share.
(6)
Represents 7,292 shares at a grant date fair value of $5.16 per common share.
(7)
Represents 5,208 shares at a grant date fair value of $5.16 per common share.
(8)
Represents 8,333 shares at a grant date fair value of $5.16 per common share.
(9)
Represents stock options to purchase 87,500 common shares at an exercise price of $4.80 per common share.
(10)
Represents stock options to purchase 87,500 common shares at an exercise price of $4.80 per common share and to purchase 1,916
common shares at an exercise price of $5.22 per common share.
(11)
Represents stock options to purchase 25,000 common shares at an exercise price of $4.80 per common share and to purchase 1,916
common shares at an exercise price of $5.22 per common share.
(12)
Represents stock options to purchase 16,667 common shares at an exercise price of $4.80 per common share and to purchase 1,916
common shares at an exercise price of $5.22 per common share.
(13)
Represents stock options to purchase 7,292 common shares at an exercise price of $4.80 per common share and to purchase 1,916
common shares at an exercise price of $5.22 per common share.
(14)
Represents stock options to purchase 5,208 common shares at an exercise price of $4.80 per common share and to purchase 1,916
common shares at an exercise price of $5.22 per common share.
(15)
Represents stock options to purchase 8,333 common shares at an exercise price of $4.80 per common share and to purchase 1,916
common shares at an exercise price of $5.22 per common share.
(16)
Resigned as Co-Chairman on December 1, 2016 but remained a director of the Company until February 8, 2017.
(17)
Resigned as Co-Chairman on December 1, 2016 but remained a director of the Company until February 8, 2017.
(18)
Resigned on March 2, 2017.
(19)
Resigned on December 1, 2016.
(20)
Resigned on December 1, 2016.
(21)
Resigned on December 1, 2016.
Name
|
|
Number
of
Stock Options
Held at Fiscal
Year-End
|
|
|
Number
of
Shares of
Restricted
Stock Held
at
Fiscal
Year-End
|
|
Michael
Brauser (7)
|
|
|
1,587
|
(1)
|
|
|
66,666
|
(5)
|
|
|
|
87,500
|
(2)
|
|
|
43,750
|
(6)
|
|
|
|
1,916
|
(3)
|
|
|
|
|
Barry
Honig (8)
|
|
|
87,500
|
(2)
|
|
|
66,666
|
(5)
|
|
|
|
|
|
|
|
43,750
|
(6)
|
John
Stetson (9)
|
|
|
87,500
|
(2)
|
|
|
50,000
|
(5)
|
|
|
|
|
|
|
|
43,750
|
(6)
|
David
Rector (10)
|
|
|
1,166
|
(4)
|
|
|
4,167
|
(6)
|
|
|
|
8,333
|
(2)
|
|
|
|
|
|
|
|
1,916
|
(3)
|
|
|
|
|
Michael
Beeghley
|
|
|
1,587
|
(1)
|
|
|
8,333
|
(5)
|
|
|
|
5,208
|
(2)
|
|
|
2,604
|
(6)
|
|
|
|
1,916
|
(3)
|
|
|
|
|
Andrew
Kaplan (11)
|
|
|
1,587
|
(1)
|
|
|
8,333
|
(5)
|
|
|
|
7,292
|
(2)
|
|
|
3,646
|
(6)
|
|
|
|
1,916
|
(3)
|
|
|
|
|
Mohit
Bhansali (12)
|
|
|
25,000
|
(2)
|
|
|
4,166
|
(5)
|
|
|
|
1,916
|
(3)
|
|
|
12,500
|
(6)
|
Edward
Karr (13)
|
|
|
1,587
|
(1)
|
|
|
8,333
|
(5)
|
|
|
|
16,667
|
(2)
|
|
|
8,334
|
(6)
|
|
|
|
1,916
|
(3)
|
|
|
|
|
(1)
|
Option
has an exercise price of $6.30 per share and was exercisable 6 months following the grant date of December 18, 2015.
|
|
|
(2)
|
Option
has an exercise price of $4.80 per share and was 50% exercisable on May 10, 2016 and 50% exercisable upon the occurrence of
a performance condition.
|
|
|
(3)
|
Option
has an exercise price of $5.22 per share and was exercisable on November 30, 2016.
|
|
|
(4)
|
Option
has an exercise price of $8.58 per share and was exercisable on January 27, 2016.
|
|
|
(5)
|
Vests
at the end of each calendar month, at a rate of 1/24 of such shares per month, starting on the grant date of September 30,
2015.
|
|
|
(6)
|
Stock
grant was 50% vested on May 10, 2016 and amount represents the 50% vested upon the occurrence of a performance condition.
|
|
|
(7)
|
Resigned
as Co-Chairman on December 1, 2016 but remained a director of the Company until February 8, 2017
|
|
|
(8)
|
Resigned
as Co-Chairman on December 1, 2016 but remained a director of the Company until February 8, 2017
|
|
|
(9)
|
Appointed
on December 1, 2016.
|
|
|
(10)
|
Resigned
on December 1, 2016.
|
|
|
(11)
|
Resigned
on December 1, 2016.
|
|
|
(12)
|
Resigned
on March 2, 2017.
|
|
|
(13)
|
Resigned
on December 1, 2016.
|
Director
Compensation Policy
During
the fiscal year ended October 31, 2016, our directors were compensated in accordance with the following terms. Each non-employee
director received an annual cash retainer of $5,000, other than the Chair of the Company’s Audit Committee, who received
$6,000. In addition, the Chairman of the Board received an additional annual cash retainer of $10,000.
Each
non-employee director was also entitled to receive 5-year options to purchase shares of the Company’s Common Stock valued
at $10,000, calculated by dividing $10,000 by the closing stock price on the date the award was granted. The options vest in full
six months after the grant date, provided the applicable director is still serving on the Board.
Each
non-employee director was entitled to a fee of $2,500 for each Board meeting at which the director was present in person, and
each member of our Board committees was entitled to a fee of $800 for each committee meeting at which the director was present
in person. Each non-employee director was entitled to a fee of $300 for each teleconference called by either the Chairman of the
Board, the President of the Company or the Chairman of a Board committee.
REPORT
OF AUDIT COMMITTEE
The
current members of the Audit Committee are Messrs. Gorlin, Dyer and Beeghley.
The
Audit Committee of the Board, which consists entirely of directors who meet the required independence and experience requirements
of Rule 10A-3 promulgated under the Securities Exchange Act of 1934 and the rules of the Nasdaq Stock Market, has furnished the
following report:
The
Audit Committee assists the Board in overseeing and monitoring the integrity of the Company’s financial reporting process,
its compliance with legal and regulatory requirements and the quality of its internal and external audit processes. The role and
responsibilities of the Audit Committee are set forth in a written charter adopted by the Board, which is available on our website
at
www.polarityte.com.
The Audit Committee is responsible for selecting, retaining and determining the compensation of
our independent public accountant, approving the services they will perform, and reviewing the performance of the independent
public accountant. The Audit Committee reviews with management and our independent public accountant our annual financial statements
on Form 10-K and our quarterly financial statements on Forms 10-Q. The Audit Committee reviews and reassesses the charter annually
and recommends any changes to the Board for approval. The Audit Committee is responsible for overseeing our overall financial
reporting process. In fulfilling its responsibilities for the financial statements for fiscal year 2016, the Audit Committee took
the following actions:
|
●
|
reviewed
and discussed the audited financial statements for the fiscal year ended October 31, 2016 with management and EisnerAmper
LLP (“EisnerAmper”), our independent public accountant;
|
|
●
|
discussed
with EisnerAmper the matters required to be discussed in accordance with the rules set forth by the Public Company Accounting
Oversight Board (“PCAOB”), relating to the conduct of the audit; and
|
|
●
|
received
written disclosures and the letter from EisnerAmper regarding its independence as required by applicable requirements of the
PCAOB regarding EisnerAmper’s communications with the Audit Committee and the Audit Committee further discussed with
EisnerAmper its independence. The Audit Committee also considered the status of pending litigation, taxation matters and other
areas of oversight relating to the financial reporting and audit process that the Audit Committee determined appropriate.
|
Based
on the Audit Committee’s review of the audited financial statements and discussions with management and EisnerAmper, the
Audit Committee recommended to the Board that the audited financial statements be included in our Annual Report on Form 10-K for
the fiscal year ended October 31, 2016 for filing with the SEC.
|
THE
AUDIT COMMITTEE:
|
|
Jeff
Dyer (Chair)
|
|
Steve
Gorlin
|
|
Michael
Beeghley
|
PROPOSAL
NO. 2
RATIFICATION
OF THE APPOINTMENT OF TWO DIRECTORS AS CLASS I DIRECTORS
Currently,
the Company’s Restated Certificate of Incorporation (the “Charter”) divides Board members into three classes.
One class is elected at each Annual Meeting of Shareholders, to hold office for a term beginning on the date of the election
and ending on the date of the third Annual Meeting of Shareholders following the beginning of the term. The slate of three
Class III director nominees to be elected at this Annual Meeting is provided for in Proposal 1. These nominees are being nominated
as Class III directors after previously serving as Class I or Class II directors.
The
Board recognizes that a classified structure offers several advantages, such as promoting board continuity and stability, encouraging
directors to take a long-term perspective, and ensuring that a majority of the Board will always have prior experience with the
Company, especially in light of an increasingly complex and changing regulatory environment. Additionally, classified boards may
motivate potential acquirers seeking control to initiate arms-length discussions with the Board, rather than engaging in unsolicited
or coercive takeover tactics, since potential acquirers are unable to replace the entire Board in a single election, thereby better
enabling the Board to maximize Shareholder value and to ensure the equal and fair treatment of Shareholders.
Therefore,
after careful consideration, the Board has determined that it would be in the best interests of the Company and the Shareholders
to appoint Jeff Dyer (previously a Class III Director) and Jon Mogford (previously a Class III Director) as Class I Directors
in order to replace those directors now being nominated as Class III directors pursuant to Proposal 1. This will allow the Board
to remain appropriately distributed and classified, with each class of directors serving a term of three years. The term of the
Class I directors to be appointed by the Board, if this Proposal 2 is approved, will expire on the date of the 2018 Annual Meeting
of Shareholders.
The
biographies of Mr. Dyer and Dr. Mogford and the make-up of the Board upon approval of both Proposal 1 and this Proposal 2 can
be found above under the heading “Directors.”
Notwithstanding
the foregoing, in all cases, each director will hold office until his or her successor is duly elected, or until his or her earlier
resignation or removal.
No
Appraisal Rights
Under
the Delaware General Corporation Law, our Shareholders are not entitled to appraisal rights with respect to the approval of the
ratification of the appointment of two directors as Class I Directors, and we will not independently provide our Shareholders
with any such rights.
Vote
Required
The
affirmative vote of a majority of the votes cast for this proposal is required to approve the ratification of the appointment
of two directors as Class I Directors. Abstentions will be counted towards the tabulation of votes cast on this proposal and will
have the same effect as a negative vote. Brokerage firms do not have authority to vote customers’ unvoted shares held by
the firms in street name for this proposal. As a result, any shares not voted by a beneficial owner will be treated as a broker
non-vote. Such broker non-votes will have no effect on the results of this vote.
THE
BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR
the ratification of the appointment of tWO
directors as Class I Directors.
PROPOSAL
NO. 3
RATIFICATION
OF THE APPOINTMENT OF EISNERAMPER LLP AS INDEPENDENT PUBLIC ACCOUNTANT FOR THE FISCAL YEAR ENDING OCTOBER 31, 2017
The
Audit Committee has appointed EisnerAmper LLP (“EisnerAmper”), independent public accountant, to audit our financial
statements for the fiscal year ending October 31, 2017. The Board proposes that the Shareholders ratify this appointment. We expect
that representatives of EisnerAmper will be present at the Annual Meeting, will be able to make a statement if they so desire,
and will be available to respond to appropriate questions.
The
following table sets forth the fees billed by EisnerAmper for each of our last two fiscal years for the categories of services
indicated.
|
|
2016
|
|
|
2015
|
|
Audit Fees
|
|
$
|
157,850
|
|
|
$
|
139,900
|
|
Audit Related Fees
|
|
|
--
|
|
|
|
11,300
|
|
Tax Fees
|
|
|
--
|
|
|
|
--
|
|
Other Fees
|
|
|
--
|
|
|
|
--
|
|
Total Fees
|
|
$
|
157,850
|
|
|
$
|
151,200
|
|
Audit
Fees
Consist
of fees billed for professional services rendered for the audit of our financial statements and review of interim consolidated
financial statements included in quarterly reports and services that are normally provided by the principal accountants in connection
with statutory and regulatory filings or engagements.
Audit
Related Fees
Consist
of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our
consolidated financial statements and are not reported under “Audit Fees.”
Audit
Committee Pre-Approval Policy
The
Audit Committee is required to pre-approve the engagement of EisnerAmper to perform audit and other services for the Company.
Our procedures for the pre-approval by the Audit Committee of all services provided by EisnerAmper comply with SEC regulations
regarding pre-approval of services. Services subject to these SEC requirements include audit services, audit-related services,
tax services and other services. The audit engagement is specifically approved and the auditors are retained by the Audit Committee.
The Audit Committee also has adopted policies and procedures for pre-approving all non-audit work performed by EisnerAmper. The
Audit Committee pre-approved all audit, audit-related, tax and other services provided by EisnerAmper for the two most recently
completed fiscal years.
We
understand the need for EisnerAmper to maintain objectivity and independence in its audit of our financial statements. To minimize
relationships that could appear to impair the objectivity of EisnerAmper, the Audit Committee has restricted the non-audit services
that EisnerAmper may provide to us primarily to tax services.
Representatives
of EisnerAmper are expected to be present at the Annual Meeting either in person or telephonically. They will have the opportunity
to make a statement if they desire to do so, and they are expected to be available to respond to appropriate questions.
No
Appraisal Rights
Under
the Delaware General Corporation Law, our Shareholders are not entitled to appraisal rights with respect to our proposed ratification
of the appointment of EisnerAmper as our independent public accountant, and we will not independently provide our Shareholders
with any such rights.
Vote
Required
The
affirmative vote of a majority of the votes cast for this proposal is required to ratify the appointment of the Company’s
independent public accountant. Abstentions will be counted towards the tabulation of votes cast on this proposal and will have
the same effect as a negative vote. Brokerage firms have authority to vote customers’ unvoted shares held by the firms in
street name on this proposal. If a broker does not exercise this authority, such broker non-votes will have no effect on the results
of this vote. We are not required to obtain the approval of our Shareholders to appoint the Company’s independent accountant.
However, if our Shareholders do not ratify the appointment of EisnerAmper LLP as the Company’s independent public accountant
for the fiscal year ending October 31, 2017, the Audit Committee of the Board may reconsider its appointment.
THE
BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF EISNERAMPER LLP AS INDEPENDENT PUBLIC ACCOUNTANT, AND PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A SHAREHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
PROPOSAL
NO. 4
ADVISORY
VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
The
Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Company’s Shareholders to have the opportunity to
cast a non-binding advisory vote regarding the approval of the compensation disclosed in this Proxy Statement of the Company’s
executive officers who are named in the Summary Compensation Table (the “Named Executive Officers”). The Company has
disclosed the compensation of the Named Executive Officers pursuant to rules adopted by the SEC.
We
believe that our compensation policies for the Named Executive Officers are designed to attract, motivate and retain talented
executive officers and are aligned with the long-term interests of the Company’s Shareholders. This advisory Shareholders
vote, commonly referred to as a “say-on-pay vote,” gives you as a shareholder the opportunity to approve or not approve
the compensation of the Named Executive Officers that is disclosed in this Proxy Statement by voting for or against the following
resolution (or by abstaining with respect to the resolution):
RESOLVED,
that the Shareholders of the Company approve all of the compensation of the Company’s executive officers who are named in
the Summary Compensation Table of the Company’s 2017 Proxy Statement, as such compensation is disclosed in the Company’s
2017 Proxy Statement pursuant to Item 402 of Regulation S-K, which disclosure includes the Proxy Statement’s Summary Compensation
Table and other executive compensation tables and related narrative disclosures.
Because
your vote is advisory, it will not be binding on either the Board of Directors or the Company. However, the Company’s Compensation
Committee will take into account the outcome of the shareholder vote on this proposal at the Annual Meeting when considering future
executive compensation arrangements. In addition, your non-binding advisory votes described in this Proposal 4 will not be construed:
(1) as overruling any decision by the Board of Directors, any board committee or the Company relating to the compensation of the
Named Executive Officers, or (2) as creating or changing any fiduciary duties or other duties on the part of the Board of Directors,
any board committee or the Company.
Vote
Required
The
advisory vote to approve the compensation of our executive officers will be approved if the votes cast in favor of the proposal
exceed the votes cast against the proposal. Abstentions and broker non-votes will not be counted as either votes cast for or against
this proposal. While the results of this advisory vote are non-binding, the Compensation Committee of the Board and the Board
values the opinions of our Shareholders and will consider the outcome of the vote, along with other relevant factors, in deciding
whether any actions are necessary to address the concerns raised by the vote and when making future compensation decisions for
executive officers
THE
BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTED OFFICER, AS
STATED IN THE ABOVE NON-BINDING RESOLUTION, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A SHAREHOLDER
HAS INDICATED OTHERWISE ON THE PROXY.
PROPOSAL
NO. 5
ADVISORY
VOTE ON THE FREQUENCY OF HOLDING FUTURE
ADVISORY
VOTES ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
In
addition to holding a Say-on-Pay advisory vote, we are seeking an advisory, non-binding vote regarding the frequency of future
advisory Say-on-Pay votes in accordance with the SEC’s proxy rules, known as a “Say-on-Pay Frequency” advisory
vote.
Shareholders
will be able to vote that we hold this Say-on-Pay advisory vote every year, two years, or three years, or Shareholders may abstain
from voting on this proposal.
After
due consideration, the Board has decided to recommend that this Say-on-Pay advisory vote on executive compensation occur annually.
While there are valid arguments for biennial and triennial votes, we believe that an annual vote will allow our Shareholders to
provide us with their direct input on our compensation philosophy, policies and practices as disclosed in the proxy statement
every year and will be most useful to the Board. The Board’s decision was based further on the premise that this recommendation
could be modified in future years if it becomes apparent that an annual vote is not meaningful, is burdensome or is more frequent
than that recommended by best corporate governance practices.
The
frequency (one year, two years or three years) that receives the highest number of votes cast by the Shareholders will be deemed
the frequency for the advisory Say-on-Pay vote preferred by the Shareholders. Because your vote is advisory, the results will
not be binding upon the Company. Although not binding, the Board values the opinions of our Shareholders and will review and consider
the outcome of the vote, along with other relevant factors, in evaluating the frequency of future advisory votes on executive
compensation.
Vote
Required
The
frequency (one year, two years or three years) that receives the highest number of votes cast by the Shareholders will be deemed
the frequency for the advisory Say-on-Pay vote preferred by the Shareholders. Abstentions and broker non-votes will not be counted
as either votes cast for or against this proposal. While the results of this advisory vote are non-binding, the Compensation Committee
of the Board and the Board values the opinions of our Shareholders and will consider the outcome of the vote, along with other
relevant factors, in deciding whether any actions are necessary to address the concerns raised by the vote and when making future
compensation decisions for executive officers
THE
BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE OPTION OF ONE YEAR AS YOUR PREFERENCE FOR THE FREQUENCY OF HOLDING FUTURE ADVISORY
VOTES ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS
A SHAREHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
PROPOSAL
NO. 6
APPROVAL
OF
an
amendment to the Company’s 2017 Equity Incentive Plan to increase THE reservation of Common Stock for issuance thereunder
from to
7,300,000
shares
from 3,450,000 shares
The
Company’s 2017 Equity Incentive Plan (the “EIP”) was approved by our Board and by our Shareholders and went
into effect as of March 10, 2017. On July 27, 2017, the Board approved an amendment (the “Amendment”) to the EIP to
increase the number of shares available for issuance thereunder to 7,300,000 from 3,450,000 in support of the Company’s
growth and desire to attract and retain qualified individuals for management and other positions. The Board is recommending and
submitting the Amendment to our Shareholders for approval.
We
are seeking Shareholder approval of the Amendment to increase the number of shares issuable pursuant to the EIP to 7,300,000 from
3,450,000. In determining the amount of the increase contemplated by the proposed Amendment to the EIP, the Board has taken into
consideration the desire to continue to retain the flexibility to offer incentives to our officers, directors, consultants and
others. Upon Shareholder approval, an additional 3,850,000 shares of Common Stock will be available for issuance under the EIP.
Reasons
for the Proposed Amendment
The
purpose of this increase is to continue to be able to attract, retain and motivate executive officers and other employees, non-employee
directors and certain consultants. Upon Shareholder approval of the Amendment, additional shares of Common Stock will be reserved
for issuance under the EIP, which will enable us to continue to grant equity awards to our officers, employees, consultants and
non-employee directors at levels determined by the Board to be necessary to attract, retain and motivate the individuals who will
be critical to our success in achieving its business objectives and thereby creating greater value for all our Shareholders. Furthermore,
we believe that equity compensation aligns the interests of our management and other employees with the interests of our other
Shareholders. Equity awards are a key component of our incentive compensation program. We believe that option grants have been
critical in attracting and retaining talented employees and officers, aligning their interests with those of Shareholders, and
focusing key employees on our long-term growth. We anticipate that option grants and other forms of equity awards such as restricted
stock awards may become an increasing component in similarly motivating our consultants. Approval of the Amendment will permit
us to continue to use stock-based compensation to align Shareholder and employee interests and to motivate employees and
others providing services to us or any subsidiary.
Description
of Our Equity Incentive Plan
Set
forth below is a summary of the EIP, but this summary is qualified in its entirety by reference to the full text of the EIP, a
copy of which can be found as
Appendix A
to our Definitive Proxy Statement for the Special Meeting of Shareholders held
March 10, 2017, filed with the SEC on February 24, 2017.
Shares
Available
The
EIP currently authorizes the issuance of 3,450,000 shares of Common Stock. As of the Record Date, awards covering an aggregate
of 3,450,000 shares were granted under the EIP and 0 shares were available for future awards under the EIP.
Administration
The
EIP is administered by the Board or by one or more committees of directors appointed by the Board (the “Administrator”).
The Board may delegate different levels of authority to different committees with administrative and grant authority under the
EIP. Any committee delegated administrative authority under the EIP may further delegate its authority under the Plan to another
committee of directors, and any such delegate shall be deemed to be an Administrator of the EIP. The Administrator comprised solely
of directors may also delegate, to the extent permitted by Section 157 of the Delaware General Corporation Law and any other applicable
law, to one or more officers of the Company, its powers under this Plan (a) to designate Eligible Persons who will receive grants
of awards under this Plan, and (b) to determine the number of shares subject to, and the other terms and conditions of, such awards.
It is anticipated that the Administrator (either generally or with respect to specific transactions) will be constituted so as
to comply, as necessary or desirable, with the requirements of Code Section 162(m) and Rule 16b-3 promulgated under the Exchange
Act.
Eligibility
Awards
may be granted pursuant to the EIP only to persons who are eligible persons. Under the EIP, “Eligible Person” means
any person who is either: (a) an officer (whether or not a director) or employee of the Company or one of its subsidiaries; (b)
a director of the Company or one of its subsidiaries; or (c) a consultant who renders bona fide services to the Company or one
of its subsidiaries; provided, however, that ISOs may be granted only to employees.
Awards
The
EIP permits the grant of: (a) stock options, which may be intended as ISOs or as nonqualified stock options (options not meeting
the requirements to qualify as ISOs); (b) stock appreciation rights (“SARs”); (c) restricted stock; (d) restricted
stock units (“RSUs”); (e) cash incentive awards; or (f) other awards, including: (i) stock bonuses, performance stock,
performance units, dividend equivalents, or similar rights to purchase or acquire shares, whether at a fixed or variable price
or ratio related to the Common Stock, upon the passage of time, the occurrence of one or more events, or the satisfaction
of performance criteria or other conditions, or any combination thereof; or (ii) any similar securities with a value derived from
the value of or related to the Common Stock and/or returns thereon.
Consideration
for Awards
The
purchase price for any award granted under the EIP or the Common Stock to be delivered pursuant to any such award, as applicable,
may be paid by means of any lawful consideration as determined by the Administrator, including, without limitation, one or a combination
of the following methods:
|
●
|
services
rendered by the recipient of such award;
|
|
|
|
|
●
|
cash,
check payable to the order of the Company, or electronic funds transfer;
|
|
|
|
|
●
|
notice
and third party payment in such manner as may be authorized by the Administrator;
|
|
|
|
|
●
|
the
delivery of previously owned and fully vested shares of Common Stock;
|
|
|
|
|
●
|
by
a reduction in the number of shares otherwise deliverable pursuant to the award; or
|
|
|
|
|
●
|
subject
to such procedures as the Administrator may adopt, pursuant to a “cashless exercise”
with a third party who provides financing for the purposes of (or who otherwise facilitates)
the purchase or exercise of awards.
|
Certain
Federal Tax Consequences
The
following summary of the federal income tax consequences of the EIP transactions is based upon federal income tax laws in effect
as of August 30, 2017. This summary does not purport to be complete, and does not discuss state, local or non-U.S. tax
consequences.
Nonqualified
Stock Options.
The grant of a nonqualified stock option under the EIP will not result in any federal income tax consequences
to the participant or to the Company. Upon exercise of a nonqualified stock option, the participant will recognize ordinary compensation
income equal to the excess of the fair market value of the shares of Common stock at the time of exercise over the option exercise
price. If the participant is an employee, this income is subject to withholding for federal income and employment tax purposes.
The Company is entitled to an income tax deduction in the amount of the income recognized by the participant, subject to possible
limitations imposed by the Code, including Section 162(m) thereof. Any gain or loss on the participant’s subsequent disposition
of the shares will be treated as long-term or short-term capital gain or loss, depending on the sales proceeds received and whether
the shares are held for more than one year following exercise. The Company does not receive a tax deduction for any subsequent
capital gain.
Incentive
Options.
The grant of an ISO under the EIP will not result in any federal income tax consequences to the participant or
to the Company. A participant recognizes no federal taxable income upon exercising an ISO (subject to the alternative minimum
tax rules discussed below), and the Company receives no deduction at the time of exercise. In the event of a disposition of stock
acquired upon exercise of an ISO, the tax consequences depend upon how long the participant has held the shares. If the participant
does not dispose of the shares within two years after the ISO was granted, nor within one year after the ISO was exercised, the
participant will recognize a long-term capital gain (or loss) equal to the difference between the sale price of the shares and
the exercise price. The Company is not entitled to any deduction under these circumstances.
If
the participant fails to satisfy either of the foregoing holding periods (referred to as a “disqualifying disposition”),
he or she will recognize ordinary compensation income in the year of the disposition. The amount of ordinary compensation income
generally is the lesser of (i) the difference between the amount realized on the disposition and the exercise price or (ii) the
difference between the fair market value of the stock at the time of exercise and the exercise price. Such amount is not subject
to withholding for federal income and employment tax purposes, even if the participant is an employee of the Company. Any gain
in excess of the amount taxed as ordinary income will generally be treated as a short-term capital gain. The Company, in the year
of the disqualifying disposition, is entitled to a deduction equal to the amount of ordinary compensation income recognized by
the participant, subject to possible limitations imposed by the Code, including Section 162(m) thereof.
The
“spread” under an ISO—i.e., the difference between the fair market value of the shares at exercise and the exercise
price—is classified as an item of adjustment in the year of exercise for purposes of the alternative minimum tax. If a participant’s
alternative minimum tax liability exceeds such participant’s regular income tax liability, the participant will owe the
alternative minimum tax liability.
Restricted
Stock.
Restricted stock is generally taxable to the participant as ordinary compensation income on the date that the restrictions
lapse (i.e. the date that the stock vests), in an amount equal to the excess of the fair market value of the shares on such date
over the amount paid for such stock (if any). If the participant is an employee, this income is subject to withholding for federal
income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the ordinary income recognized
by the participant, subject to possible limitations imposed by the Code, including Section 162(m) thereof. Any gain or loss on
the participant’s subsequent disposition of the shares will be treated as long-term or short-term capital gain or loss treatment
depending on the sales price and how long the stock has been held since the restrictions lapsed. The Company does not receive
a tax deduction for any subsequent gain.
Participants
receiving restricted stock awards may make an election under Section 83(b) of the Code (“Section 83(b) Election”)
to recognize as ordinary compensation income in the year that such restricted stock is granted, the amount equal to the excess
of the fair market value on the date of the issuance of the stock over the amount paid for such stock. If such an election is
made, the recipient recognizes no further amounts of compensation income upon the lapse of any restrictions and any gain or loss
on subsequent disposition will be long-term or short-term capital gain or loss to the recipient. The Section 83(b) Election must
be made within 30 days from the time the restricted stock is issued.
Other
Awards.
Other awards (such as restricted stock units) are generally treated as ordinary compensation income as and when
Common Stock or cash are paid to the participant upon vesting or settlement of such awards. If the participant is an employee,
this income is subject to withholding for income and employment tax purposes. The Company is generally entitled to an income tax
deduction equal to the amount of ordinary income recognized by the recipient, subject to possible limitations imposed by the Code,
including Section 162(m) thereof.
Section
162(m) of the Internal Revenue Code.
Under Code Section 162(m), no deduction is allowed in any taxable year of the Company
for compensation in excess of $1 million paid to the Company’s “covered employees.” A “covered employee”
is the Company’s chief executive officer and the next three most highly compensated executive officers of the Company other
than the chief financial officer. An exception to this rule applies to “qualified performance based compensation,”
which generally includes stock options and stock appreciation rights granted under a shareholder approved plan, and other
forms of equity incentives, the vesting or payment of which is contingent upon the satisfaction of certain shareholder
approved performance goals. The Company intends that the EIP allow for the grant of options and stock appreciation rights that
may be treated as “qualified performance based compensation” that is exempt from the limitations of Code Section 162(m),
and for the grant of other performance-based awards that may be treated as “qualified performance based compensation,”
but it makes no assurance that either such type of award will be so treated.
New
Plan Benefits
SEC
rules require us to disclose any amounts that we currently are able to determine will be allocated to our named executive officers,
directors and other employees following approval of the Amendment to the EIP. Set forth below is information on grants under the
3,850,000 shares to be added to the EIP pursuant to the Amendment to the named executive officers, all current executive officers
as a group, all current directors who are not executive officers as a group, and all employees who are not executive officers
as a group. Awards granted under the 2017 Plan will not vest prior to shareholder approval of the Amendment to the EIP.
Name
and Position
|
|
Number
of
Options
|
|
|
Number
of RSUs
|
|
Jennifer
Burdman
Chief Intellectual Property Officer
|
|
|
90,000
|
|
|
|
10,000
|
|
Carrie Harrison
|
|
|
|
|
|
|
|
|
Director of Research
and Development Laboratory Operations
|
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20,000
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Joseph Harrison
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Director of Information
Technology
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20,000
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No
Appraisal Rights
Under
the Delaware General Corporation Law, our Shareholders are not entitled to appraisal rights with respect to the approval of the
amendment to the Company’s 2017 Equity Incentive Plan to increase the reservation of Common Stock for issuance thereunder
to 7,300,000 shares from 3,450,000 shares, and we will not independently provide our Shareholders with any such rights.
Vote
Required
The
affirmative vote of a majority of the votes cast for this proposal is required to approve the amendment to the Company’s
2017 Equity Incentive Plan to increase the reservation of Common Stock for issuance thereunder to 7,300,000 shares from 3,450,000
shares. Abstentions will be counted towards the tabulation of votes cast on this proposal and will have the same effect as a negative
vote. Brokerage firms do not have authority to vote customers’ unvoted shares held by the firms in street name for this
proposal. As a result, any shares not voted by a beneficial owner will be treated as a broker non-vote. Such broker non-votes
will have no effect on the results of this vote.
THE
BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR
an amendment to the Company’s 2017 Equity
Incentive Plan to increase THE reservation of Common Stock for issuance thereunder to
7,300,000
shares
from 3,450,000 shares.
PROPOSAL
NO. 7
Authorization
of the issuance of securities in one or more non-public offerings where the maximum discount at which securities will be offered
will be equivalent to a discount of 20% below the market price of the Common Stock, as required by and in accordance with Nasdaq
Marketplace Rule 5635(d)
Our
Common Stock is listed on The Nasdaq Capital Market under the symbol “COOL.” Nasdaq Marketplace Rule 5635(d) requires
us to obtain Shareholder approval prior to the issuance of our Common Stock in connection with certain non-public offerings involving
the sale, issuance or potential issuance by the Company of Common Stock (and/or securities convertible into or exercisable for
Common Stock) equal to 20% or more of the Common Stock outstanding before the issuance. Shares of our Common Stock issuable upon
the exercise or conversion of warrants, options, debt instruments, preferred stock or other equity securities issued or granted
in such non-public offerings will be considered shares issued in such a transaction in determining whether the 20% limit has been
reached, except in certain circumstances such as issuing warrants that are not exercisable for a minimum of six months and have
an exercise price that exceeds market value.
We
may seek to raise additional capital to implement our business strategy and enhance our overall capitalization. We have not determined
the particular terms for such prospective offerings. Because we may seek additional capital that triggers the requirements of
Nasdaq Marketplace Rule 5635(d), we are seeking Shareholder approval now, so that we will be able to move quickly to take full
advantage of any opportunities that may develop in the equity markets.
We
hereby submit this Proposal 7 to our Shareholders for their approval of the potential issuance of shares of our Common Stock,
or securities convertible into our Common Stock, in one or more non-public capital-raising transactions, or offerings, subject
to the following limitations:
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The
aggregate number of shares issued in the offerings will not exceed 2 million shares of our Common Stock, subject to adjustment
for any reverse stock split effected prior to the offerings (including pursuant to preferred stock, options, warrants, convertible
debt or other securities exercisable for or convertible into Common Stock);
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The
total aggregate consideration will not exceed $100 million;
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The maximum discount at which
securities will be offered (which may consist of a share of Common Stock and a warrant
for the issuance of up to an additional share of Common Stock) will be equivalent to
a discount of 20% below the market price of our Common Stock at the time of issuance
in recognition of the limited public float of our traded Common Stock and historical
volatility making the pricing discount of our stock required by investors at any particular
time difficult, at this time, to predict. For example, the range of high and low closing
prices for our Common Stock, for the period from September 12, 2016 through September
12, 2017 was $31.68 and $2.79, respectively;
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Such offerings will occur,
if at all, on or before October 18, 2018; and
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Such
other terms as the Board of Directors shall deem to be in the best interests of the Company and its Shareholders, not inconsistent
with the foregoing.
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The
issuance of shares of our Common Stock, or other securities convertible into shares of our Common Stock, in accordance with any
offerings would dilute, and thereby reduce, each existing Shareholder’s proportionate ownership in our Common Stock. The
Shareholders do not have preemptive rights to subscribe to additional shares that may be issued by the Company in order to maintain
their proportionate ownership of the Common Stock.
The
issuance of shares of Common Stock in one or more non-public offerings could have an anti-takeover effect. Such issuance could
dilute the voting power of a person seeking control of the Company, thereby deterring or rendering more difficult a merger, tender
offer, proxy contest or an extraordinary corporate transaction opposed by the Company.
The
Board of Directors has not yet determined the terms and conditions of any offerings. As a result, the level of potential dilution
cannot be determined at this time, but as discussed above, we may not issue more than 2 million shares of Common Stock in the
aggregate pursuant to the authority requested from Shareholders under this proposal (subject to adjustment for any reverse stock
split). It is possible that if we conduct a non-public stock offering, some of the shares we sell could be purchased by one or
more investors who could acquire a large block of our Common Stock. This would concentrate voting power in the hands of a few
Shareholders who could exercise greater influence on our operations or the outcome of matters put to a vote of Shareholders in
the future.
We
cannot determine what the actual net proceeds of the offerings will be until they are completed, but as discussed above, the aggregate
dollar amount of the non-public offerings will be no more than $100 million. If all or part of the offerings is completed, the
net proceeds will be used for general corporate purposes. We currently have no arrangements or understandings regarding any specific
transaction with investors, so we cannot predict whether we will be successful should we seek to raise capital through any offerings.
No
Appraisal Rights
Under
the Delaware General Corporation Law, our Shareholders are not entitled to appraisal rights with respect to the approval of the
authorization of the issuance of securities in one or more non-public offerings where the maximum discount at which securities
will be offered will be equivalent to a discount of 20% below the market price of the Common Stock, as required by and in accordance
with Nasdaq Marketplace Rule 5635(d).
Vote
Required
The
affirmative vote of a majority of the votes cast for this proposal is required to approve the authorization of the issuance of
securities in one or more non-public offerings where the maximum discount at which securities will be offered will be equivalent
to a discount of 20% below the market price of the Common Stock, as required by and in accordance with Nasdaq Marketplace Rule
5635(d). Abstentions will be counted towards the tabulation of votes cast on this proposal and will have the same effect as a
negative vote. Brokerage firms do not have authority to vote customers’ unvoted shares held by the firms in street name
for this proposal. As a result, any shares not voted by a beneficial owner will be treated as a broker non-vote. Such broker non-votes
will have no effect on the results of this vote.
THE BOARD RECOMMENDS THAT SHAREHOLDERS
VOTE FOR
the approval of the issuance of securities in one or more non-public offerings
where the maximum discount at which securities will be offered will be equivalent to a discount of 20% below the market price
of our Common Stock, as required by and in accordance with Nasdaq Marketplace Rule 5635(d).
OTHER
MATTERS
As
of the date of this Proxy Statement, the Board knows of no other business that will be presented at the Annual Meeting. If any
other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in
respect thereof in accordance with the best judgment and in the discretion of the persons voting the proxies.
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