CalEthos Inc (GEDC)

[MegaDeath]

FORM 8-K

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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