Item 1.01 Entry into a Material Definitive Agreement.
September 2021 Financing Transaction
On September 15, 2021, CalEthos Inc. ("we," "us," or "our company") accepted a
Subscription Agreement (the "Subscription Agreement") from an investor, pursuant
to which we sold to the investor for a purchase price of $3,500,000 an OID
Convertible Promissory Note in the principal amount of $3,850,000 (the "Note")
and Series A stock purchase warrant (the "Series A Warrant") to purchase up to
1,540,000 shares of the our Common Stock, par value $0.001 per share (the
"Common Stock").
The Note was issued with 10% original issue discount ($350,000) but does not
otherwise bear interest, and matures on August 31, 2022. During the first six
(6) months following issuance of the Note (the "Restricted Period"), we are not
permitted to prepay of all or any portion of the Note without the prior written
consent of the investor, which consent may be withheld, conditioned or delayed
in the investor's sole and absolute discretion. Other than as set forth in the
preceding sentence, we may prepay all or any portion of the Note at any time
without penalty.
The outstanding principal amount of the Note may be converted at any time at the
election of the holder into shares of Common Stock at an initial conversion
price equal to $1.25 per share, subject to adjustment for stock splits, stock
combinations and the like, and to an adjustment for future issuances of Common
Stock, warrants or rights to purchase Common Stock or securities convertible
into Common Stock for a consideration per share that is less than the
then-applicable conversion price, subject to certain exceptions (as adjusted
from time to time, the "Conversion Price"). The Note is subject to automatic
conversion (i) on the effective date of registration of five million or more
shares of Common Stock, including the shares of Common Stock underlying the Note
and the Warrant, or (ii) on the date on which the closing price of the Common
Stock on the OTC Markets is at least $3.00 per share for 60 consecutive days
post registration.
In the event that we issue any equity securities at a purchase price less than
the then-current Conversion Price, the Conversion Price shall be reduced to the
price at which the new shares are issued. However, the following issuances shall
not trigger such anti-dilution adjustment: (i) securities issuable upon
conversion of any of the Company's outstanding convertible Notes outstanding
prior to the date of issuance of the Note, (ii) Common Stock issuable upon a
stock split, stock dividend, or any subdivision of the shares of Common Stock,
or (iii) any stock options issued to management or consultants at a market price
that is less than the Conversion Price.
The Series A Warrant is exercisable to purchase up to 1,540,000 shares of Common
Stock for a purchase price of $1.87 per share, subject to adjustment, at any
time on or prior to August 31, 2024. The Series A Warrant may be exercised at
the option of the holder either by the payment of the exercise price in cash or
on a "cashless" basis; provided, however, that if the Series A Warrant is
exercised by the payment of the exercise price in cash, the holder will receive,
in addition to the shares of Common Stock otherwise issuable upon exercise of
the Series A Warrant, a three-year Series B Warrant to purchase a number of
shares of Common Stock equal to the number of shares of Common Stock acquired
upon the exercise in cash of the Series A Warrant at an exercise price equal to
$1.87 per share, subject to certain adjustments.
Pursuant to the Subscription Agreement, we entered into a registration rights
agreement with the investor dated as of September 15, 2021 (the "Registration
Rights Agreement") pursuant to which we have agreed with the investor to file a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), to register the shares of Common Stock issuable upon
conversion of the Note, exercise of the Series A Warrant and, if permitted by
the rules and regulations of the Securities and Exchange Commission, the Series
B Warrant, within 90 days of the date we complete a financing of $10 million or
more, or earlier at our discretion, and to use our best efforts to have such
registration statement declared effective by the Securities and Exchange
Commission as soon as practicable after filing such registration statement. In
addition, in the event we complete any underwritten registered public offering
of the Common Stock, the investor will have unlimited "piggyback" rights,
subject to underwriter cutbacks, with respect to those shares of Common Stock
underlying the Note, the Series A Warrant and the Series B Warrant that are not
then freely transferable pursuant to an effective registration statement under
the Securities Act or may not be resold without restriction pursuant to Rule 144
promulgated under the Securities Act.
In connection with this transaction, we issued to the individual who introduced
us to the investor in this offering a warrant to purchase up to 100,000 shares
of Common Stock at a purchase price of $1.87 per share, subject to investment,
at any time on or prior to September 15, 2026. This warrant may be exercised on
a cash or cashless basis.
Following the receipt of the proceeds of such financing, we believe we are no
longer a "shell company," as defined in Rule 12b-2 of the Securities Exchange
Act of 1934, as amended.
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Consulting Agreements with Management
On August 17, 2021, we entered into consulting agreements with M1 Advisors LLC,
a limited liability company controlled by Michael Campbell, our sole director
and Chief Executive Officer ("M1 Advisors"), and Hyuncheol Kim, pursuant to
which M1 Advisors agreed to continue to provide consulting services to our
company and to cause Mr. Campbell to serve as our Chief Executive Officer, and
Mr. Kim agreed to provide consulting services and to serve as our Chief
Technology Officer. The term of M1 Advisor's agreement shall be for a period of
one year, which shall automatically renew unless either party gives written
notice to the other of termination not less than 30 days prior to the
then-current term. The consulting agreement of Mr. Kim shall continue so long as
we are continuing with our research and development efforts to develop a five
nanometer ASIC chip for bitcoin mining machines and a completed bitcoin mining
system (the "Project"), and thereafter shall continue for a one-year term, which
will automatically renew unless either party gives written notice to the other
of termination not less than 30 days prior to the then-current term. Pursuant to
such agreements, each of M1 Advisors and Mr. Kim will be paid consulting fees at
the rate of $200,000 per annum.
Pursuant to the consulting agreements, M1 Advisors was granted a restricted
stock award of 1,500,000 shares of Common Stock and Mr. Kim was granted a
restricted stock award of 10,000,000 shares of Common Stock. Such restricted
stock awards vest as to 50% of the shares upon the completion of the first two
phases of chip development, which include the "FPGA Simulation" and "Tape Out"
of the planned 5 nanometer ASIC chip, shall vest as to the remaining 50% of the
. . .
Item 3.02 Unregistered Sales of Equity Securities.
The information described in Item 1.01 of this Current Report under the heading
"Consulting Agreements with Management" is hereby incorporated herein by
reference.
In connection with the transactions described in Item 1.01, we agreed to issue
the shares of Common Stock and the Series A Warrant described therein. Such
issuance was made in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, and/or Regulation D
promulgated thereunder, on the basis that the issuance did not involve a public
offering.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
The information described in Item 1.01 of this Current Report under the heading
"September 2021 Financing Transaction" is hereby incorporated herein by
reference.in our filings with the SEC.
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Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The following exhibits are filed with this Current Report on Form 8-K:
Exhibit
Number Description
4.1 Form of OID Promissory Note dated September 15, 2021.
4.2 Form of Series A Warrant dated September 15, 2021.
4.3 Restricted Share Award Agreement dated August 17, 2021 between
CalEthos Inc. and M1 Advisors LLC.
4.4 Restricted Share Award Agreement dated August 17, 2021 between
CalEthos Inc. and Hyuncheol Kim.
4.5 Warrant dated September 15, 2021 of CalEthos, Inc. to Mireya Lange
10.1 Consulting Agreement dated as of August 17, 2021 between CalEthos Inc.
and M1 Advisors LLC
10.2 Consulting Agreement dated as of August 17, 2021 between CalEthos Inc.
and Hyuncheol Kim.
10.3 Registration Rights Agreement dated as of September 15, 2021 between
CalEthos Inc. and Nanosha Investments LLC
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document)
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