425: Insight Acquisition Corp. Secures $2.6 Million Convertible Note to Fund Alpha Modus Business Combination

Insight Acquisition Corp. enters into a securities purchase agreement for a $2.6 million convertible note to support its business combination with Alpha Modus, Corp.

Summary

• Insight Acquisition Corp. has entered into a securities purchase agreement with Streeterville Capital, LLC for a secured convertible promissory note with an original principal amount of $2,890,000.
• The net purchase price is $2,600,000 after deducting an original issue discount of $260,000 and $30,000 for investor expenses.
• The closing is expected to occur upon the completion of Insight's business combination with Alpha Modus, Corp.
• Streeterville Capital has the right to invest up to an additional $5,000,000 with Insight's consent within six months of the note's repayment.
• Streeterville Capital also has the exclusive right to provide an equity line of credit or similar financing arrangement of at least $20,000,000 for one year following the purchase price date.
• Alpha Modus will guarantee Insight's obligations under the note, which will be secured by the assets of both companies, including Alpha Modus' intellectual property.
• The note matures 18 months after the purchase price date and accrues interest at 10% per annum.
• It is prepayable with a 20% premium and convertible into Class A common stock at 90% of the lowest daily volume-weighted average price during the five trading days preceding conversion.
• Insight is obligated to file a registration statement within 30 days of the purchase price date to register shares issuable upon conversion of the note.
• If the registration statement is not effective within 120 days, the outstanding balance increases by 1% every 30 days.
• Insight will seek shareholder approval for the note and the issuance of shares exceeding Nasdaq's Exchange Cap within 120 days of the purchase price date.
• The company will initially reserve 7,500,000 shares for issuance under the note and add more shares in increments of 100,000 if needed.
• A special meeting of stockholders is scheduled for October 29, 2024, and stockholders can exercise redemption rights until October 25, 2024.
• The record date for the special meeting is September 18, 2024.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive as the company secures funding for its business combination, but there are risks associated with the debt and potential dilution.

Positives

• Insight Acquisition Corp. secures necessary funding for its business combination with Alpha Modus, Corp.
• The agreement includes an option for additional investment from Streeterville Capital, LLC, potentially increasing the total funding available.
• The convertible note structure provides flexibility for both Insight Acquisition Corp. and Streeterville Capital, LLC.
• The interest rate is fixed at 10%.

Negatives

• The note carries an original issue discount of $260,000 and requires payment of $30,000 for investor expenses, reducing the net proceeds to $2.6 million.
• Failure to meet registration deadlines results in automatic increases to the outstanding balance.
• The note is secured by all assets of Insight Acquisition Corp. and Alpha Modus, Corp., including intellectual property.
• The note is prepayable at a 20% premium.

Risks

• Failure to complete the business combination with Alpha Modus, Corp. could impact the ability to repay the note.
• Delays in obtaining shareholder approval or SEC effectiveness of the registration statement could increase the outstanding balance.
• Conversion of the note could dilute existing shareholders.
• The security interest granted to Streeterville Capital, LLC could limit Insight Acquisition Corp.'s financial flexibility.
• The company is required to seek shareholder approval for the note and the issuance of Conversion Shares under the Note and the Reinvestment Right in excess of the Exchange Cap (the Approval) within 120 days of the Purchase Price Date.

Future Outlook

The document outlines the terms of a convertible note agreement that is contingent on the closing of a business combination with Alpha Modus, Corp., and includes provisions for additional investments and financing arrangements, suggesting a focus on future growth and capital needs.

Management Comments

• William Alessi, the CEO of Alpha Modus, has advised Company that it is in the best interests of Alpha Modus and the Business Combination for Company to seek financing with Streeterville Capital, LLC, a Utah limited liability company (Investor), and has negotiated financing with Investor in the form of a Secured Convertible Promissory Note (the Financing).
• William Alessi has confirmed to Company in writing that the Financing is in the best interests of Alpha Modus and the Business Combination and has authorized and consented to Companys execution and delivery of the Purchase Agreement to Investor.
• The officers of Company believe that it is in the best interests of Company to approve and enter into the Financing and the Financing Documents with Investor and has recommended such approval to the Board.

Industry Context

SPACs (Special Purpose Acquisition Companies) often use convertible notes to finance acquisitions, especially when facing redemption pressures. This announcement reflects a common strategy to secure funding and complete a business combination.

Comparison to Industry Standards

• The terms of the convertible note, including the interest rate, conversion price, and security arrangements, are generally within the range of similar financing agreements for SPAC transactions.
• Comparable companies that have used similar financing structures include Digital World Acquisition Corp. and CF Acquisition Corp. VI, both of which faced redemption challenges and sought alternative funding.
• The 10% interest rate is comparable to rates seen in other high-yield debt financings, reflecting the risk associated with the transaction.
• The conversion discount of 10% is a standard feature to incentivize conversion into equity.
• The security interest in all assets of both Insight Acquisition Corp. and Alpha Modus Corp. is a common practice to protect the lender's investment.

Stakeholder Impact

• Shareholders may experience dilution upon conversion of the note.
• Employees of Alpha Modus, Corp. may benefit from the completion of the business combination.
• Customers and suppliers of Alpha Modus, Corp. may see changes as a result of the business combination.
• Creditors of Insight Acquisition Corp. and Alpha Modus, Corp. are subject to the terms of the subordination agreement.

Next Steps

• Close the business combination with Alpha Modus, Corp.
• File a registration statement with the SEC for the shares issuable upon conversion of the note.
• Seek shareholder approval for the note and the issuance of shares exceeding Nasdaq's Exchange Cap.
• Comply with the covenants and obligations outlined in the securities purchase agreement and related documents.

Key Dates