Gatemore Capital Management LLP - Letter to the Board of Directors of PolarityTE, Inc.

Gatemore Capital Management LLP - Letter to the Board of Directors of PolarityTE, Inc.

PR Newswire

LONDON, Dec. 28, 2020

LONDON, Dec. 28, 2020 /PRNewswire/ --

December 28, 2020

Mr. Peter Cohen
Chairman of the Board
PolarityTE, Inc.
123 North Wright Brothers Drive
Salt Lake City, UT 84116

CC:  Board of Directors of PolarityTE, Inc.

Dear Peter,

As you are aware, Gatemore Capital Management LLP ("Gatemore" or "we") manages the Gatemore Special Opportunities Fund, which today controls 5.3% of the common stock of PolarityTE, Inc. ("Polarity" or the "Company") on a fully diluted basis.

We have been enthusiastic investors in Polarity because we believe its primary product, SkinTE, is well positioned to revolutionize wound treatment.  Indeed, since Gatemore first invested in Polarity in September 2019, we have interacted extensively with management on a range of corporate and strategic matters.

However, a series of highly dilutive financings over the past year demonstrate that the current board and management have little regard for their fiduciary duty towards shareholders and have even cast doubts over whether they are fit to act in shareholders' interests.

Last week, the Board acted in bad faith, pushing through yet another dilutive financing without offering it to existing shareholders first.  In fact, we were wall-crossed to discuss this financing, then never provided any materials or information on the placement, learning about it from the Company's filing with the SEC.  This was despite multiple conversations with the Chairman and CEO this month, during which we were explicitly assured that the Company would exert patience and not seek to raise capital at the current depressed levels.  Making matters worse, these financings have been used to fund a bloated cost structure and failed regulatory strategy that have now resulted in the product being three to five years away from full FDA approval.

On February 12, 2020, the Board announced a highly dilutive public offering of 10.6 million shares and 10.6 million warrants.  The market made its opinion clear as Polarity's share price plummeted 47% in a single day.  Additionally, management conceded in our discussions that the warrants exercise price of $2.80 was creating a "glass ceiling" for the share price.  In an effort to mitigate the damage caused by this short-sighted action (and to ostensibly remove this ceiling and clear out the warrants), on November 19, 2020, the Company announced that it had reduced the exercise price of the warrants from $2.80 to $0.10 – a drastic step once again poorly received by the markets, resulting in a further 31% drop in share price.  

Given the inept handling of the February 2020 warrants, we were truly baffled that only a month later the Company decided to issue a further 10.6 million warrants at a meagre exercise price of $0.62, a decision completely at odds with the November 19 announcement. 

Such repeated incoherent and inconsistent steps over the course of a year, coupled with the flippant manner in which they have been implemented, leave us deeply concerned.  Since November 2020 alone, the Board has increased the fully diluted shares outstanding by c. 80% in return for c. $8.5 million of net proceeds.  This is unconscionable, especially considering the immense potential of SkinTE and the intrinsic value of the Company's intellectual property, and ultimately is a clear indication of the market's view of the current management team and Board.  All the while, the Board has issued additional shares to management, further diluting shareholders and rewarding management for failed strategy and execution.

We are extremely concerned that if we do not act immediately, this type of activity and disregard for shareholder interests will continue to destroy shareholder value.  As such, we demand that the Board immediately take the following actions:

  1. De-Classify Board.  De-classify the Board such that all directors are up for re-election every year.  This is best practice in corporate governance, and there is no reason for the Company not to adhere to this approach. The declassification should be accomplished in a single year rather than wait for a rolling declassification over multiple years as is the practice of boards who truly care about proper governance.
  2. Books and Records.  Grant us access to books and records, pursuant to a demand for such records we intend to submit in short order, so that we can investigate potential breaches of fiduciary duties relating to this financing.  We are prepared to enter into an appropriate non-disclosure agreement to receive these materials since we view transparency around the Board's decision related to the financings as vital to the shareholders' assertion of their rights.
  3. Strategic Alternatives Committee.  Form a strategic alternatives committee on the Board, made up of independent directors, who will evaluate any new financing or other strategic opportunities.

We are confident the actions we are demanding will be welcomed by the majority of shareholders, as they represent ways of safeguarding shareholder value.  Please confirm with us by January 15, 2020 that you have initiated all necessary steps to meet these demands.

Thank you for your attention.


Liad Meidar
Managing Partner

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