Contract
Exhibit 6.4
THIS INSTRUMENT AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
SERIES 1
KISS
| “Purchase Price” | “Date of Issuance” | |
| $35,000 | July 9, 2018 |
For the Purchase Price, the receipt and sufficiency of which is hereby acknowledged, this KISS is issued on the Date of Issuance by Electromedical Technologies, Inc., a Delaware corporation (the “Company”), to Blue Ridge Enterprises, LLC, a California limited liability company (the “Investor”).
1. Definitions.
(a) “Conversion Shares” shall mean:
(i) with respect to a conversion pursuant to Section 2.1, shares of the Company’s Preferred Stock issued in the Next Equity Financing; provided, however, that, at the Company’s election, “Conversion Shares” with respect to a conversion pursuant to Section 2.1 shall mean shares of a Shadow Series;
(ii) with respect to a conversion pursuant to Section 2.2, shares of the Company’s Common Stock; and
(iii) with respect to a conversion pursuant to Section 2.3, (i) shares of a newly created series of the Company’s Series Seed Preferred Stock, upon the terms and provisions set forth in the most recent version of the Series Seed documents posted at xxx.xxxxxxxxxx.xxx (or if not so posted, as reasonably agreed by the Company and the Investor) (if applicable) or (ii) if no Series Seed Preferred Stock has been created shares of Common Stock; provided that, for the avoidance of doubt, the Conversion Price shall be determined pursuant to Section 1(b)(iii).
(b) “Conversion Price” shall equal the lower of the Conversion Price Floor (if applicable) or:
(i) with respect to a conversion pursuant to Section 2.1, the lower of (A) the product of (1) one (1) minus the Discount and (2) the price paid per share for Preferred Stock by the investors in the Next Equity Financing or (B) the quotient resulting from dividing (1) the Valuation Cap by (2) the Fully-Diluted Capitalization immediately prior to the closing of the Next Equity Financing;
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(ii) with respect to a conversion pursuant to Section 2.2, the quotient resulting from dividing (A) the Valuation Cap by (B) the Fully-Diluted Capitalization immediately prior to the closing of the Corporate Transaction; and
(iii) with respect to a conversion pursuant to Section 2.3, the quotient resulting from dividing (A) the Valuation Cap by (B) the Fully-Diluted Capitalization immediately prior to the conversion.
(c) “Conversion Price Floor” shall mean (i) the quotient resulting from dividing (A) 2020 Valuation Cap by (B) the Fully-Diluted Capitalization at June 30, 2020 for conversion that occur on or after July 1, 2020 and prior to June 30, 2022 (the “2020 Conversion Price Floor”) and (ii) the lesser of the 2020 Conversion Price Floor and the quotient resulting from dividing (A) 2022 Valuation Cap by (B) the Fully-Diluted Capitalization at June 30, 2022 for conversion that occur on or after July 1, 2022.
(d) “Corporate Transaction” shall mean (i) the closing of the sale, transfer or other disposition of all or substantially all of the Company’s assets, (ii) the consummation of the merger or consolidation of the Company with or into another entity (except a merger or consolidation in which the holders of capital stock of the Company immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring entity), (iii) the closing of the transfer (whether by merger, consolidation or otherwise), in one transaction or a series of related transactions, to a person or group of affiliated persons (other than an underwriter of the Company’s securities), of the Company’s securities if, after such closing, such person or group of affiliated persons would hold 50% or more of the outstanding voting stock of the Company (or the surviving or acquiring entity), or (iv) the liquidation, dissolution or winding up of the Company; provided, however, that a transaction shall not constitute a Corporate Transaction if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately prior to such transaction. Notwithstanding the prior sentence, the sale of shares of Preferred Stock in a bona fide financing transaction shall not be deemed a “Corporate Transaction.”
(e) “Corporate Transaction Payment” shall mean an amount equal to four times (4X) the Purchase Price.
(f) “Conversion Amount” shall mean any amount up to the Purchase Price that will convert at the option of the Investor.
(g) “Discount” shall mean 50 percent (50%).
(h) “Equity Securities” shall mean the Company’s Common Stock or Preferred Stock or any securities conferring the right to purchase the Company’s Common Stock or Preferred Stock or securities convertible into, or exchangeable for (with or without additional consideration), the Company’s Common Stock or Preferred Stock, except any security granted, issued and/or sold by the Company to any director, officer, employee or consultant of the Company in such capacity for the primary purpose of soliciting or retaining their services.
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(i) “Financial Statements” shall mean an income statement, balance sheet, statement of stockholders’ equity, and/or a statement of cash flows, in each case as of the end of (i) each of the first three (3) fiscal quarters and (ii) each fiscal year of the Company.
(j) “Fully-Diluted Capitalization” shall mean the number of shares of outstanding Common Stock of the Company on a fully-diluted basis, including (i) conversion or exercise of all securities convertible into or exercisable for Common Stock, (ii) exercise of all outstanding options and warrants to purchase Common Stock and, in the case of Section 1(b)(i) and 1(b)(iii) only, (iii) the shares reserved or authorized for issuance under the Company’s existing stock option plan or any stock option plan created or increased in connection with such transaction; but excluding, for this purpose, the conversion contemplated by the applicable provision of Section 2.
(k) “KISS” shall mean this KISS issued by the Company to the Investor.
(l) “Maturity Date” shall mean the date that is twelve (12) months following the Date of Issuance.
(m) “Next Equity Financing” shall mean the next sale (or series of related sales) by the Company of its Preferred Stock following the Date of Issuance from which the Company receives gross proceeds of not less than $1,000,000 (excluding the aggregate amount of securities converted into Preferred Stock in connection with such sale (or series of related sales)).
(n) “OTC Markets” shall mean any of the OTCQX Best Market, the OTCQB Venture Market, and the Pink Open Market operated by the OTC Markets Group, Inc.
(o) “Outstanding Purchase Price” shall mean the Purchase Price less any Conversion Amounts.
(p) “Shadow Series” shall mean shares of a series of the Company’s Preferred Stock that is identical in all respects to the shares of Preferred Stock issued in the Next Equity Financing (e.g., if the Company sells Series A Preferred Stock in the Next Equity Financing, the Shadow Series would be Series A-1 Preferred Stock), except that the liquidation preference per share of the Shadow Series shall equal the Conversion Price (as determined pursuant to Section 1(b)(i)), with corresponding adjustments to any price-based antidilution and dividend rights provisions.
(q) “Valuation Cap” shall mean (i) US $82,497 for shares converted prior to July 1, 2020 (the “2020 Valuation Cap”); (ii) US $106,376 for shares converted prior to July 1, 2022 (the “2022 Valuation Cap”) and (iii) US $142,458 for shares converted on or after July 1, 2022.
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Next Equity Financing. Upon the closing of the Next Equity Financing, this KISS at the option of the Investor will be converted (in whole or in part) into that number of Conversion Shares equal to the quotient obtained by dividing the Conversion Amount by the Conversion Price. At least five (5) days prior to the closing of the Next Equity Financing, the Company shall notify the Investor in writing of the terms under which the Preferred Stock of the Company will be sold in such financing. The Investor will notify the Company in writing, no later than 5 business days prior to the closing of the Next Equity Financing, if it intends to convert any portion of the Conversion Amount and the portion of the Conversion Amount that the Investor elects to convert upon the closing of the Next Equity Financing. The issuance of Conversion Shares pursuant to the conversion of this KISS shall be upon and subject to the same terms and conditions applicable to the Preferred Stock sold in the Next Equity Financing (or the Shadow Series, as applicable).
2.6 Conversion of this KISS may be made contingent upon the closing of the Next Equity Financing or Corporate Transaction.
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3. Representations and Warranties of the Company. In connection with the transactions provided for herein, the Company hereby represents and warrants to the Investor that:
3.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.
3.2 Authorization. Except for the authorization and issuance of the Conversion Shares issuable in connection with the Next Equity Financing, a Corporate Transaction or an optional conversion on or after the Maturity Date, all corporate action has been taken on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this KISS. The Company has taken all corporate action required to make all of the obligations of the Company reflected in the provisions of this KISS the valid and enforceable obligations they purport to be, and this KISS, when executed and delivered by the Company, shall constitute the valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms.
3.3 Offering. Subject in part to the truth and accuracy of the Investor’s representations set forth herein, the offer, sale and issuance of this KISS are exempt from the registration requirements of any applicable state and federal securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption.
3.4 Compliance with Other Instruments. The execution, delivery and performance of this KISS, and the consummation of the transactions contemplated hereby, will not constitute or result in a default, violation, conflict or breach in any material respect of any provision of the Company’s current Certificate of Incorporation or bylaws, or in any material respect of any instrument, judgment, order, writ, decree, privacy policy or contract to which it is a party or by which it is bound, or, to its knowledge, of any provision of any federal or state statute, rule or regulation applicable to the Company.
3.5 Valid Issuance of Stock. The Conversion Shares, when issued, sold and delivered upon conversion of this KISS, will be duly authorized and validly issued, fully paid and nonassessable, will be free of restrictions on transfer other than restrictions on transfer set forth herein and pursuant to applicable state and federal securities laws and, based in part upon the representations and warranties of the Investor herein, will be issued in compliance with all applicable federal and state securities laws.
3.6 Intellectual Property. To its knowledge, the Company owns or possesses or believes it can acquire on commercially reasonable terms sufficient legal rights to all patents, patent applications, trademarks, trademark applications, service marks, tradenames, copyrights, trade secrets, licenses, domain names, mask works, information and proprietary rights and processes as are necessary to the conduct of its business as now conducted and as presently proposed to be conducted without any known conflict with, or infringement of, the rights of others. The Company has not received any communications alleging that the Company has violated or, by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets, mask works or other proprietary rights or processes of any other person.
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3.7 Litigation. To the Company’s knowledge, there is no private or governmental action, suit, proceeding, claim, arbitration or investigation pending before any agency, court or tribunal, foreign or domestic, or threatened against the Company or any of its properties or any of its officers or managers (in their capacities as such). There is no judgment, decree or order against the Company, or, to the knowledge of the Company, any of its directors or managers (in their capacities as such), that could prevent, enjoin, or materially alter or delay any of the transactions contemplated by this KISS, or that could reasonably be expected to have a material adverse effect on the Company.
4. Representations and Warranties of the Investor. In connection with the transactions provided for herein, the Investor hereby represents and warrants to the Company that:
4.1 Authorization. This KISS constitutes Investor’s valid and legally binding obligation, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors’ rights and (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
4.2 Purchase Entirely for Own Account. Investor acknowledges that this KISS is issued to Investor in reliance upon Investor’s representation to the Company that the KISS will be acquired for investment for Investor’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same.
4.3 Investment Experience. Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in this KISS. Investor also represents it has not been organized solely for the purpose of acquiring this KISS.
4.4 Accredited Investor. Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D, as presently in effect, as promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Act”).
4.5 Restricted Security. Investor understands that this KISS is characterized as a “restricted security” under the federal securities laws inasmuch as it is being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances.
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5. Miscellaneous.
(c) “Major Investor” Rights. The Company shall ensure that the Investor shall be deemed to be a “Major Investor” (or such similar term) for all purposes, including, without limitation, rights of first offer and information rights, in relevant financing documents related to all subsequent sales of Equity Securities, to the extent such concept exists.
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5.6 Governing Law. This KISS shall be governed by and construed under the laws of the State of Delaware as applied to other instruments made by Delaware residents to be performed entirely within the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law.
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5.14 Priority. This KISS shall rank pari passu in all respects (including right of payment) to all other KISS notes and all convertible indebtedness of the Company, now or hereafter existing.
[Signature Page Follows]
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| Electromedical Technologies, INC. | ||
| By: | /s/ Xxxxxxx Xxxxxxx | |
| Name: | Xxxxxxx Xxxxxxx | |
| Title: | CEO | |
| Address: | ||
| ACKNOWLEDGED AND AGREED: | ||
| Blue Ridge Enterprises, LLC | ||
| By: | /s/ Xxxxxx Xxxxxxxxx | |
| Name: | Xxxxxx Xxxxxxxxx | |
| Title: | Member | |
| Address: | ||
Signature Page to Series 1 KISS