8-K: Fold Holdings Secures $46.3 Million Convertible Note Financing with Bitcoin Collateral

Fold Holdings, Inc. has entered into a securities purchase agreement for a $46.3 million convertible note, using 500 bitcoin as collateral and issuing warrants and common stock to SATS Credit Fund LP.

Summary

• Fold Holdings, Inc. has secured a convertible note financing of approximately $46.3 million from SATS Credit Fund LP.
• The financing involves the issuance of a convertible note, warrants, and common stock.
• SATS Credit Fund LP contributed 500 bitcoin to Fold, which will serve as collateral for the note.
• The note accrues interest at a rate of 7.0% per annum, payable quarterly in shares of common stock valued at $12.50 per share.
• Fold also issued a warrant to acquire up to 925,590 shares of common stock at a price of $15.00 per share.
• Additionally, Fold issued 750,000 shares of common stock and 25 bitcoin in lieu of the first twelve months of interest payments.
• The note is convertible into shares of common stock at a conversion price of $12.50 per share.
• Automatic conversion of the note occurs if the share price exceeds certain thresholds, ranging from $15.00 to $40.00.
• The note matures on March 6, 2030, or a later date determined by the terms of the note.
• The Securities Purchase Agreement and related transactions were approved by the audit committee and the board of directors, considering the related party component involving Ten31, LLC, an affiliate of Fold's chairman.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. The company has secured a significant financing deal, but there are potential risks associated with the convertible note and the use of bitcoin as collateral.

Positives

• The financing provides Fold Holdings with a significant capital infusion of $46.3 million.
• Using bitcoin as collateral allows Fold to leverage its cryptocurrency assets.
• Automatic conversion features incentivize higher share prices.
• The Registration Rights Agreement provides liquidity options for the investor.

Negatives

• The convertible note could lead to dilution of existing shareholders if converted.
• The 7.0% interest rate increases Fold's financial obligations.
• The company is restricted from using the bitcoin collateral for operational purposes unless the note is converted.
• Failure to meet share price thresholds could require Fold to repay the note in bitcoin.

Risks

• Failure to maintain the listing of the Common Stock on an Eligible Market could trigger an event of default.
• Insolvency, bankruptcy, or liquidation proceedings could trigger an event of default.
• Failure to pay interest when due under the Note could trigger an event of default.
• The value of bitcoin could fluctuate, affecting the collateral's worth.
• The company's inability to meet the share price thresholds for automatic conversion could result in repayment of the note in bitcoin, potentially impacting its treasury.

Future Outlook

The company aims to utilize the capital for treasury purposes, with potential for early release of the bitcoin collateral upon conversion of the note or achievement of share trading performance milestones.

Industry Context

This announcement reflects a growing trend of integrating cryptocurrency into traditional financing structures, offering companies alternative methods for securing capital and leveraging digital assets.

Comparison to Industry Standards

• Convertible notes are a common financing tool, particularly for growth-stage companies.
• The use of Bitcoin as collateral is a novel approach, reflecting the increasing acceptance of cryptocurrencies in financial transactions.
• Comparable companies in the technology sector often utilize similar financing structures, such as convertible notes and warrants, to raise capital without immediate equity dilution.
• The interest rate and conversion price are within the typical range for convertible notes, but the specific terms depend on the company's financial health and growth prospects.

Related Party Transactions

• The Securities Purchase Agreement and the transactions contemplated thereby was approved by the audit committee and the board of directors of the Company specifically in light of certain related party components thereof, including that the Investor is a private investment fund raised and managed by Ten31, LLC, which is an affiliate of Folds chairman, Jonathan Kirkwood.
• Dr. Kirkwood recused himself from the board of directors approval of the Securities Purchase Agreement and the transactions contemplated thereby.

Stakeholder Impact

• Shareholders may experience dilution if the convertible note is converted into common stock.
• Employees may benefit from the company's increased financial stability.
• Customers may see improved products and services as a result of the financing.
• Suppliers may benefit from increased business with Fold Holdings.
• Creditors are subject to the terms of the note, which is subordinate to the Senior Secured Convertible Note issued by the Company to ATW Growth Opportunities SPV, LLC.

Next Steps

• The company will file a registration statement with the SEC to permit the public resale of the Registrable Securities.
• The company will issue the securities to the investor.
• The company will manage the bitcoin collateral according to the terms of the agreement.

Key Dates