Item
1.01 Entry into a Material Definitive Agreement.
On
September 14, 2017 and September 18, 2017, PolarityTE, Inc., a Delaware corporation (the “Company”) entered into separate
subscription agreements (the “Subscription Agreements”) with certain accredited investors (the “Investors”)
pursuant to which it agreed to sell an aggregate of $17,750,002.50 worth of units (the “Units”) of the Company’s
securities at a purchase price of $2,750 per Unit with each Unit consisting of (i) one share of the Company’s Series F Convertible
Preferred Stock, par value $0.001 per share (the “Series F Preferred Stock”), which are convertible into one hundred
(100) shares (the “Conversion Shares”) of common stock, par value $0.001 per share (the “Common Stock”),
and (ii) a two (2) year warrant (the “Warrant”) to purchase shares of Common Stock (the “Warrant Shares”)
equal to fifty (50%) percent of the number of shares of Common Stock underlying such purchased Series F Preferred Stock, at an
exercise price of $30.00 per share (the “Exercise Price”). On September 20, 2017, the Company closed on the sale of
the $17,750,002.50 worth of Units.
The
Units (and the Series F Preferred Stock, Warrants, Conversion Shares and Warrant Shares included therein) were sold solely to
“accredited investors” in reliance on the exemption from registration afforded by Rule 506 of Regulation D and Section
4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The Company also entered into separate registration
rights agreements (the “Registration Rights Agreements”) with each of the Investors, pursuant to which the Company
agreed to undertake to file a registration statement to register the resale of the Conversion Shares and Warrant Shares within
thirty (30) days of the closing of the transaction, to cause such registration statement to be declared effective by the Securities
and Exchange Commission within ninety (90) days following its filing and to maintain the effectiveness of the registration statement
until all of such Conversion Shares and Warrant Shares have been sold or are otherwise able to be sold pursuant to Rule 144 under
the Securities Act, without any restrictions. In the event the Company fails to file, or obtain effectiveness of, such registration
statement with the specified period of time, the Company will be obligated to pay liquidated damages equal to the product of one
1% percent multiplied by the aggregate subscription amount paid by such Investor for every thirty (30) days during which such
filing is not made and/or effectiveness obtained, such fee being subject to certain exceptions, up to a maximum of twelve 12%
percent.
Pursuant
to the Subscription Agreements, for as long as the Lead Investor (as defined in the Subscription Agreements) holds securities
(the “Prohibition Period”), except with respect to Excepted Issuances (as defined in the Series F Certificate of Designation),
the Company shall not incur any senior debt or issue any preferred stock with liquidation rights senior to the securities sold
thereunder. During the Prohibition Period, the Company will not, without the consent of Investors holding a majority of the then
issued and outstanding shares on the date of such consent (including the Lead Investor), enter into any Equity Line of Credit
(as defined in the Subscription Agreements) or similar agreement, nor issue nor agree to issue any Common Stock, Common Stock
Equivalents (as defined in the Subscription Agreements), floating or Variable Priced Equity Linked Instruments (as defined in
the Subscription Agreements) nor any of the foregoing or equity with price reset rights (subject to adjustment for stock splits,
distributions, dividends, recapitalizations and the like).
Pursuant
to the Certificate of Designations, Preferences and Rights of the 6% Series F Convertible Preferred Stock (the “Series F
Certificate of Designation”) filed by the Company, the shares of Series F Preferred Stock are convertible into shares of
Common Stock based on a conversion calculation equal to the stated value of the Series F Preferred Stock, plus all accrued and
unpaid dividends, if any, on such Series F Preferred Stock, as of such date of determination, divided by the conversion price.
The stated value of each share of Series F Preferred Stock is $2,750 and the initial conversion price is $27.50 per share (the
“Conversion Price”), each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations,
subdivisions or other similar events.
For
so long as a holder has Series F Preferred Stock, if the Company sells, or is deemed to have sold, Common Stock, or common equivalent
shares, for consideration per share less than the conversion price in effect immediately prior to the issuance (the “Lower
Issuance Price”), then the conversion price in effect immediately prior to such issuance will be adjusted to the Lower Issuance
Price.
The
holders of Series F Preferred Stock are entitled to receive dividends if and when declared by the Company’s board of directors.
The Series F Preferred Stock will participate on an “as converted” basis, with all dividends declared on the Company’s
Common Stock. Such dividends will be paid by the Company out of funds legally available therefor, payable, subject to the conditions
and other terms hereof, in shares of Common Stock on the stated value of such Series F Preferred Stock at the dividend rate or
six (6%) percent per annum, which shall be cumulative and shall continue to accrue and compound monthly whether or not declared
and whether or not in any fiscal year there shall be net profits or surplus available for the payment of dividends in such fiscal
year. In addition, if the Company grants, issues or sells any rights to purchase securities pro rata to all record holders of
Common Stock, each holder of Series F Preferred Stock will be entitled to acquire such securities applicable to the granted purchase
rights as if the holder had held the number of shares of Common Stock acquirable upon complete conversion of all Series F Preferred
Stock then held.
The
Company is prohibited from effecting a conversion of the Series F Preferred Stock to the extent that, as a result of such conversion,
the holder would beneficially own more than four and ninety-nine one-hundredths (4.99%) percent 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 F Preferred
Stock, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, nine and ninety-nine one-hundredths
(9.99%) percent. Each holder is entitled to vote on all matters submitted to stockholders of the Company, and will have the number
of votes equal to the number of shares of Common Stock issuable upon conversion of such holder’s Series F Preferred Stock,
substituting the consolidated closing bid price of the Common Stock on September 13, 2017 for the then-applicable conversion price,
and not in excess of the beneficial ownership limitations.
On
the two (2) year anniversary of the initial issuance date, any share of Series F Preferred Stock outstanding and not otherwise
already converted pursuant to the Series F Certificate of Designation, shall, at the option of the holder, either (i) automatically
convert into Common Stock at the conversion price then in effect or (ii) be repaid by the Company based on the stated value of
such outstanding shares of Series F Preferred Stock. In addition, in the event that the Company’s Common Stock attains a
consolidated bid price of $45 or greater for any four (4) trading days during any eight (8) trading day period, the Series F Preferred
Stock shall be automatically converted to Common Stock, without any further action by the holder (subject to the conversion limitation
in the event that such conversion would result in such holder holding in excess of four and ninety-nine one-hundredths (4.99%)
percent of the Common Stock of the Company).
The
Warrants are exercisable, at any time on or after the initial issuance date, at a price of $30.00 per share, subject to adjustment,
and expire two years from the date of issuance. The holders of Warrants are able to, subject to certain limitations, exercise
the Warrants on a cashless basis. The Company is prohibited from effecting an exercise of any Warrant to the extent that, as a
result of any such exercise, the holder would beneficially own more than four and ninety-nine one-hundredths (4.99%) percent of
the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon
exercise of such Warrant, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, nine
and ninety-nine one-hundredths (9.99%) percent.
For
so long as any Warrants are outstanding, if the Company sells, or is deemed to have sold, Common Stock, or common equivalent shares,
for consideration per share less than the exercise price in effect immediately prior to the issuance, then the exercise price
for outstanding Warrants will be reduced to one hundred and ten (110%) percent of such other lower price.
The
Series F Certificate of Designation and Warrants contain a blocker that provides that, upon the occurrence of a dilutive issuance
of less than the Conversion Price or the Exercise Price, respectively (both, a “Dilutive Issuance”) (and not before),
unless shareholder approval is obtained, the shares of Series F Preferred Stock are convertible and the Warrants are exercisable
only to the extent that all underlying Conversion Shares and Warrant Shares, when aggregated, do not exceed nineteen and ninety-nine
one-hundredths (19.99%) percent of the issued and outstanding Common Stock on the closing date (the “Exchange Cap”).
Prior to shareholder approval, no Conversion Shares or Warrant Shares may be issued upon conversion of the Series F Preferred
Stock or exercise of the Warrants, respectively, following a Dilutive Issuance, such that would exceed the Exchange Cap.
The
foregoing descriptions of the Series F Preferred Stock, Warrants, Subscription Agreements and the Registration Rights Agreements
are not complete and are qualified in their entireties by reference to the full text of the Form of Series F Certificate of Designations,
Form of Warrant, Form of Subscription Agreement and Form of Registration Rights Agreement, copies of which are filed as Exhibit
3.1, Exhibit 4.1, Exhibit 10.1 and Exhibit 10.2, respectively, to this Report and are incorporated by reference herein.