8-K: Alpha Modus Secures $1.5 Million Funding Through Convertible Promissory Note with CEO's Family Trust

Alpha Modus Holdings, Inc. has issued a convertible promissory note with an original principal amount of $2.14 million to a trust associated with its CEO, securing $1.5 million in immediate funding.

Summary

• Alpha Modus Holdings, Inc. (AMOD) entered into a material definitive agreement on July 15, 2025, by issuing a Promissory Note to The Alessi 2023 Irrevocable Trust, a family trust of the Company's CEO, William Alessi.
• The Note has an original principal amount of $2,142,857.14, for which the Company received $1,500,000 in funding on or about July 10, 2025, implying an original issue discount of $642,857.14.
• The Note accrues interest at 8% per annum, calculated solely on the original principal amount, and matures on April 30, 2026.
• The holder of the Note has the right to convert all or part of the outstanding principal into shares of Class A common stock at a conversion price of $5.00 per share.
• In case of an Event of Default, the outstanding principal, accrued interest, and other amounts become immediately due and payable at a Mandatory Default Amount, which is 200% of the sum of the then-outstanding principal, accrued unpaid interest, and late fees.
• Overdue principal and interest will incur a late fee at an interest rate of 18% per annum.
• The Company is subject to a 'Most Favored Nation' clause, requiring it to amend the Note to match more favorable terms offered to future third-party investors, with certain exceptions.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the high cost of capital (significant original issue discount), the punitive default terms (200% mandatory default amount, 18% late fee), and the related-party nature of the transaction, which collectively suggest financial distress or a lack of access to more favorable financing.

Positives

• The Company successfully secured $1,500,000 in funding, which provides immediate capital.

Negatives

• The effective cost of capital is high, as the Company received $1,500,000 for a principal obligation of $2,142,857.14, representing an original issue discount of $642,857.14.
• The transaction is a related-party transaction, as the lender is a family trust of the Company's CEO, which can raise corporate governance concerns.
• The conversion price of $5.00 per share could lead to significant dilution for existing shareholders if the Note is converted.
• The default provisions are punitive, requiring the Company to pay 200% of the outstanding principal, accrued interest, and late fees upon an Event of Default.
• A high late fee interest rate of 18% per annum applies to overdue principal and interest.
• The 'Most Favored Nation' clause could force the Company to offer more favorable terms to the current note holder if it secures future financing on better terms, potentially limiting future financing flexibility.

Risks

• Default in payment of principal, interest, liquidated damages, or late fees, which could trigger the punitive Mandatory Default Amount.
• Failure to observe or perform other material covenants in the Note or other Transaction Documents.
• Occurrence of a default or event of default under any other material agreement, lease, or instrument to which the Company or any U.S. Subsidiary is obligated, especially if the obligation exceeds $150,000.
• Any material representation or warranty made in the Note or other Transaction Documents proving untrue or incorrect.
• The Company or any Existing U.S. Subsidiary becoming subject to a Bankruptcy Event.
• A Change of Control Transaction or Fundamental Transaction occurring without the Holder's approval.
• Levy, seizure, attachment, or uninsured loss/damage to Company property exceeding $150,000 not resolved within 30 days.
• Monetary judgments exceeding $150,000 against the Company or its U.S. Subsidiaries remaining unvacated, unbonded, or unstayed for 45 days.
• Any U.S. Subsidiary incurring unpermitted indebtedness or liens without the Holder's written consent.
• Conversion defaults, such as failure to deliver Common Stock within three business days of a conversion notice or failure to accept counsel's opinion for legend removal on shares.

Future Outlook

The document does not provide explicit forward-looking statements or guidance regarding the Company's future financial performance or strategic direction, beyond the maturity date of the note.

Management Comments

• William Alessi, President and Chief Executive Officer, signed the Form 8-K on behalf of Alpha Modus Holdings, Inc.

Industry Context

This debt issuance provides capital to Alpha Modus Holdings, Inc., a company listed on Nasdaq. The terms, particularly the original issue discount and high default penalties, suggest that the company may have faced challenges in securing more favorable financing from traditional lenders, potentially reflecting its stage of development or market conditions for smaller public companies.

Comparison to Industry Standards

• The 8% interest rate on the note is within a typical range for convertible debt, but the significant original issue discount ($642,857.14 on $1,500,000 funding) makes the effective cost of capital very high, potentially indicating a higher risk profile compared to companies securing debt at par value.
• The 200% Mandatory Default Amount is a highly punitive clause, significantly above standard default penalties in typical corporate debt agreements, which usually involve acceleration of principal and accrued interest, sometimes with a small premium (e.g., 10-25%). This suggests a strong negotiating position by the lender.
• The 18% late fee interest rate is also considerably higher than standard commercial late fees, which typically range from prime rate plus a few percentage points to 10-15%.

Corporate Governance

Related Party Transactions

• Alpha Modus Holdings, Inc. issued a Promissory Note to The Alessi 2023 Irrevocable Trust, which is identified as one of the family trusts of the Company's CEO, William Alessi.

Stakeholder Impact

• **Shareholders**: Potential for significant dilution if the Note is converted into Class A common stock at $5.00 per share. The high cost of capital and punitive default terms could negatively impact shareholder value.
• **Creditors**: The new Promissory Note adds to the Company's debt obligations. The cross-default provisions mean a default on this note could trigger defaults on other agreements.
• **Management**: The CEO's family trust is the lender, indicating a direct financial relationship and potential for conflicts of interest, though it also shows management's commitment to providing capital.

Next Steps

• The Company is obligated to make interest payments on the Note and repay the principal by the Maturity Date of April 30, 2026, or earlier if prepaid or accelerated.
• The Company must reserve sufficient shares of Common Stock for potential conversion of the Note by the Holder.
• The Company must comply with all covenants and agreements outlined in the Promissory Note to avoid an Event of Default.

Key Dates

Recommendation

Keywords

Promissory Note, Convertible Debt, Capital Raise, Related Party Transaction, SEC Filing, 8-K, Corporate Finance, Debt Financing, Dilution, Default Provisions, Original Issue Discount, AMOD, Alpha Modus Holdings