Entry into a Material Definitive



 


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.


 



2


 



 


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 shares upon the completion of the next two phases of the chip development
that include the completion of the Foundry Mask for production in the semiconductor foundry and initial production run of chips and the
completion of a bitcoin mining system ready for sale to customers; provided, however, that if we do not raise sufficient capital to complete
the Foundry Mask, initial production run of chips and completion of a bitcoin mining system ready for sale to customers within six months
of completing the first two phases of development, then all unvested shares shall vest upon the completion of the first two milestones.
Notwithstanding the foregoing, no shares will vest on any vesting date of the consultant is no longer providing services to us as an
employee or consultant.


 


Immediately
following the issuance of the shares of Common Stock pursuant to the restricted stock awards, an aggregate of 25,970,621 shares
of Common Stock was issued and outstanding. At such time, the shares of Common Stock owned by M1 Advisors represented approximately 40.25%
of the issued and outstanding shares of capital stock of the Company on a fully-diluted basis.


 


The
foregoing descriptions of the terms of the Note, the Series A Warrant, the Registration Rights Agreement, the consulting agreements of
M1 Advisors and Mr. Kim and the restricted stock agreements of M1 Advisors and Mr. Kim are qualified in their entirety by reference to
the provisions of such securities and agreements, copies of which are filed as exhibits to this report and are incorporated by reference
herein.


 




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.


 



3


 



 




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)



 



4


 



 


SIGNATURE


 


Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.


 




 


CALETHOS,
INC.



 


 


 



Date:
September 21, 2021


By:


/s/Michael
Campbell



 


 


Michael
Campbell


Chief
Executive Officer



 



5



 






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Other recent filings from the company include the following:

Departure of Directors or Certain - Oct. 8, 2021
Other preliminary information statements - Oct. 5, 2021
Notice of Exempt Offering of Securities, item 06b - Sept. 23, 2021

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