Item
1.03 Bankruptcy or Receivership.
Chapter
11 Filing
On
June 6, 2023, PolarityTE, Inc., a Delaware corporation (the “Company”), and its subsidiaries, PolarityTE, Inc., a Nevada
Corporation (“PTE Nevada”), and PolarityTE MD, Inc., a Nevada corporation (“PTE MD” and together with the Company
and PTE Nevada, the “Debtors”), filed voluntary petitions for relief under Chapter 11 of 11 U.S.C. §§ 101 et
seq. of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Utah
(the “Bankruptcy Court”) under the captions In re PolarityTE, Inc., a Delaware corporation (Case No. 23-bk-22358-KRA)
(Bankr. D. Utah), In re PolarityTE, MD Inc., a Nevada corporation (Case No. 23-bk-22360-KRA) (Bankr. D. Utah), and In re PolarityTE,
Inc., a Nevada corporation (Case No. 23-bk-22361-KRA) (Bankr. D. Utah) (collectively, the “Chapter 11 Cases”). The Debtors
have filed a motion with the Bankruptcy Court seeking joint administration under the caption In re PolarityTE, Inc., a Delaware corporation
(Case No. 23-bk-22358-KRA) (Bankr. D. Utah). The Debtors plan to continue to operate their businesses as “debtors-in-possession”
under the jurisdiction of the Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code and orders of the
Bankruptcy Court. To ensure their ability to continue operating in the ordinary course of business, the Debtors have filed various “first
day” motions with the Bankruptcy Court requesting customary relief, including authority to pay employee wages and benefits, employ
bankruptcy professionals, continue to employ ordinary course professionals, maintain their insurance and utility services, and authority
to hold a competitive auction process for substantially all of their assets, which will enable the Debtors to transition into Chapter
11 protection without material disruption to their ordinary course operations.
The
Company cannot give any assurance that holders of the Company’s common stock will receive any payments or other distributions on
account of those shares in the Chapter 11 Cases.
Asset
Purchase Agreement
On
June 6, 2023, prior to the filing of the Chapter 11 Cases, the Company, PTE Nevada, and PTE MD entered into a “stalking
horse” asset purchase agreement (the “Asset Purchase Agreement”) with Grander Acquisition LLC, a Delaware limited
liability company (“Grander Acquisition”), pursuant to which Grander Acquisition agreed to purchase substantially
all of the assets of the Company, PTE Nevada, and PTE MD for approximately $6.5 million, less the amount of debtor-in-possession financing
outstanding at closing, if any, subject to certain exceptions, and plus the assumption of assumed liabilities.
The
transaction contemplated by the Asset Purchase Agreement is part of a sale process under Section 363 of the Bankruptcy Code that will
be subject to approval by the Bankruptcy Court and compliance with agreed upon and Bankruptcy Court-approved bidding procedures allowing
for the submission of higher or otherwise better offers, and other agreed-upon conditions. In accordance with the sale process under
Section 363 of the Bankruptcy Code, notice of the proposed sale to Grander Acquisition will be given to third parties and competing
bids will be solicited. The Company will manage the bidding process and evaluate the bids, in consultation with its advisors and as overseen
by the Bankruptcy Court. The Asset Purchase Agreement also provides Grander Acquisition with an option to provide debtor-in-possession
financing to the Company, if the Company provides notice that its capital resources are not sufficient to continue funding certain clinical
trials and operate its business in the ordinary course.
The
Asset Purchase Agreement contains customary representations and warranties of the parties and is subject to a number of closing conditions,
including, among others, (i) the accuracy of representations and warranties of the parties; (ii) material compliance with the obligations
of the parties set forth in the Asset Purchase Agreement; (iii) the Bankruptcy Court’s entry of a sale order; and (iv) no Material
Adverse Effect (as defined in the Asset Purchase Agreement) having occurred. The representations, warranties and covenants contained
in the Asset Purchase Agreement are made only for purposes of the Asset Purchase Agreement and as of specific dates; are solely for the
benefit of the parties to the Asset Purchase Agreement; and may be subject to limitations agreed upon by the parties, including being
qualified by confidential disclosures made by each contracting party to the other for the purposes of allocating contractual risk between
them that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any
description thereof as characterizations of the actual state of facts or condition of the Company, Grander Acquisition, or any
of their respective subsidiaries, affiliates, businesses or stockholders. Moreover, information concerning the subject matter of the
representations, warranties and covenants may change after the date of the Asset Purchase Agreement, which subsequent information may
or may not be fully reflected in public disclosures of the Company.
The
Asset Purchase Agreement may be terminated, subject to certain exceptions, (i) by the mutual written consent of the parties; (ii)
by any party, if any court of competent jurisdiction or other competent governmental authority issues a final, non-appealable order prohibiting
the transaction; (iii) automatically in the event a party other than Grander Acquisition is determined to be the winning bidder;
(iv) by any party if (x) a sale order had not been entered in favor of Grander Acquisition, (y) more than 60 days have passed
since the date on which the procedures order motion was filed, and (z) the Company has provided notice to Grander Acquisition
that it lacks sufficient capital resources to fund certain clinical trials and operate its business in the ordinary course, unless the
Company has entered into a debtor-in-possession financing agreement with Grander Acquisition approved by the bankruptcy court
and the Company has drawn or used any funds provided by Grander Acquisition pursuant to any such debtor-in-possession financing
agreement; and (v) by either party, for certain material breaches by the other party of its representations and warranties or covenants
that remain uncured.
The
Asset Purchase Agreement provides that, subject to approval of the Bankruptcy Court, the Company will pay a break-up fee to Grander
Acquisition equal to $500,000, plus reimbursement of actual out-of-pocket expenses incurred in the diligence and negotiation of the
Asset Purchase Agreement and in the Chapter 11 Cases, upon termination of the transaction in certain circumstances, including
the entry into or consummation of an alternative transaction for the Purchased Assets (as defined in the Asset Purchase Agreement) with
a party other than Grander Acquisition.
The
foregoing description of the Asset Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to
the Asset Purchase Agreement, a copy of which is filed as Exhibit 10.1 hereto and incorporated by reference herein.
