Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
On October 7, 2021, in connection with the recent decision of the Board of
Directors of CalEthos, Inc. (the "Company") to establish the Company in the
rapidly-growing bitcoin mining industry and to engage in the business of
high-performance computer manufacturing, the Board of Directors of the Company
appointed Steven M. Shum and Sean Fontenot to the Board of Directors of the
Company to fill existing vacancies on the Board. Each of Mr. Shum and Mr.
Fontenot will serve on the Board until the next annual meeting of stockholders
of the Company at which directors are elected, at which time each is expected to
stand for re-election. Biographical information regarding Messrs. Shum and
Fontenot is set forth below:
Steven M. Shum - Mr. Shum, 51, has been Chief Executive Officer of INVO
Bioscience (NASDAQ: INVO) since October 2019 and a member of the board of
directors of INVO Bioscience since October 2017. Prior to INVO Bioscience, Mr.
Shun served as Chief Financial Officer of Eastside Distilling (NASDAQ: EAST)
from October 2015 to November 2019. Prior to joining Eastside, Mr. Shum was an
employee and a member of the board of directors of XZERES Corp. (OTCQB:XPWR), a
global renewable energy company, from October 2008 until April 2015, where he
served in various officer roles, including Chief Operating Officer from
September 2014 until April 2015, Chief Financial Officer, Principal Accounting
Officer and Secretary from April 2010 until September 2014 (under former name,
Cascade Wind Corp) and Chief Executive Officer and President from October 2008
to August 2010. Mr. Shum also serves as the managing principal of Core Fund
Management, LP and the Fund Manager of Core Fund, LP. He was a founder of Revere
Data LLC (now part of Factset Research Systems, Inc.) and served as its
Executive Vice President for four years, heading up the product development
efforts and contributing to operations, business development, and sales. He
spent six years as an investment research analyst and portfolio manager of
D.N.B. Capital Management, Inc. His previous employers include Red Chip Review
and Laughlin Group of Companies. He earned a B.S. in Finance and a B.S. in
General Management from Portland State University in 1992.
Sean Fontenot - Mr. Fontenot, 39, has spent 20 years as a self-employed IT and
network specialist and in 2017 became an executive producer of independent
films. Mr. Fontenot is a technology enthusiast and film producer that manages a
5013c foundation dedicated to (i) educating the public on the history of video,
arcade, and computer gaming - including the technical aspects and the impact of
games on society; (ii) fostering public interest in software development and
gaming hardware to enable technological growth and inspire the next generation
of developers, and (iii) developing public space for action sports' recreation -
including mentoring youths and building programs designed to help bridge the
gender gap in various action sports categories as well as underserved community
members.
There are no arrangements or understandings between Mr. Shum or Mr. Fontenot and
any other person or persons pursuant to which Mr. Shum or Mr. Fontenot was
selected as a director of the Company. There are no current or proposed
transactions in which Mr. Shum or Mr. Fontenot, or any member of the immediate
family of either of Mr. Shum or Mr. Fontenot, has an interest that is required
to be disclosed under Item 404(a) of Regulation S-K promulgated by the
Securities Exchange Commission (the "SEC"), except as follows.
On September 15, 2021, the Company accepted a Subscription Agreement (the
"Subscription Agreement") from Nanosha Investments LLC, a company controlled by
Mr. Fontenot ("Nanosha Investments"), pursuant to which the Company sold to
Nanosha Investments 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 Company's common stock, par value $0.001 per share (the "Common
Stock").
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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"), the Company
is not permitted to prepay of all or any portion of the Note without the prior
written consent of Nanosha Investments. Otherwise, the Company 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.
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, the Company entered into a registration
rights agreement with Nanosha Investments dated as of September 15, 2021 (the
"Registration Rights Agreement") pursuant to which the Company agreed 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 SEC, the Series B Warrant, within 90 days of
the date the Company completes a financing of $10 million or more, or earlier at
the Company's discretion, and to use its best efforts to have such registration
statement declared effective by the SEC as soon as practicable after filing such
registration statement. In addition, in the event the Company completes any
underwritten registered public offering of the Common Stock, Nanosha Investments
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.
The information provided under this Item 5.02 with respect to the Note, the
Series A Warrant and the Registration Rights Agreement is a summary of certain
portions of those documents and does not purport to be a complete description
of, and is subject to and qualified in its entirety by, (i) the information
provided under the heading "September 2021 Financing Transaction" in Item 1.01
of the Company's Current Report on Form 8-K filed on September 21, 2021 and (ii)
the text of the Note, the Series A Warrant and the Registration Rights
Agreement, copies of which are attached as Exhibits 4.1, 4.2 and 10.3,
respectively, to the Company's Current Report on Form 8-K filed on September 21,
2021 and are incorporated by reference herein.
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