Eightco Holdings Inc. (formerly Cryptyde, Inc.) — Form 8-K Summary
Reporting context: The filing is dated September 27, 2022, but describes events occurring on October 1 and October 4, 2022 and was signed October 4, 2022. The registrant identified in the filing is Cryptyde, Inc.; the requested company name is Eightco Holdings Inc. The filing reports the acquisition of Forever 8 Fund, LLC, executive employment agreements, registration rights, and related transaction obligations.
Business Context and Transaction
- On October 1, 2022, the company completed its acquisition of 100% of Forever 8, an e-commerce inventory financing business focused on purchasing inventory for online retailers.
- Consideration included 7,000,000 non-voting preferred membership units of Forever 8, $27.5 million of convertible promissory notes, potential earnout consideration, and $4.6 million in cash transferred to Forever 8 to fund payment of certain obligations.
- The filing does not provide acquired-business financial statements, historical revenue, profitability, cash flow, or balance-sheet information. The company stated that the required financial statements and pro forma information would be filed by amendment.
Key Financial Terms and Liquidity Obligations
| Item | Terms |
|---|---|
| Seller promissory notes | $27.5 million aggregate principal; interest at 10% for the first 12 months and 12% thereafter. |
| Maturity | The later of 91 days after the maturity date of the senior secured convertible note issued to the investor on May 5, 2022, or three years after the acquisition closing. |
| Required prepayments | Subject to the subordination agreement, at least $11.5 million of aggregate prepayments are required during the first 12 months. Additional prepayments may be required from warrant proceeds and 25% of gross proceeds from debt and equity financings. |
| Conversion | After the 12-month anniversary, shareholder approval, and satisfaction of specified conditions, noteholders may convert at the applicable 10-day VWAP, subject to a $2.00 per-share floor and potential additional notes if the VWAP is below the floor. |
| Preferred-unit protection | If specified share-price or shareholder-approval conditions are not met, the company may face cash redemption obligations instead of issuing common shares. |
Potential Earnouts and Equity Dilution
- The sellers may receive up to 7,000,000 additional preferred units upon achievement of three cumulative collected-revenue targets. The filing does not disclose the revenue thresholds.
- If the company elects equity settlement and the relevant VWAP is below specified thresholds, additional true-up units may be issued, subject to caps of 4.5 million, 4.0 million, and 3.0 million units for the first, second, and third earnouts, respectively.
- Earnout values are stated as $15 million, $12 million, and $10 million for the first, second, and third targets, respectively.
- Preferred members generally may put units for redemption beginning six months after closing and after specified conditions. With shareholder approval, redemption may be settled in one common share per applicable preferred unit; without approval by June 30, 2023, specified cash payments may be required.
- The company unconditionally guaranteed its obligations under the preferred-unit put rights, subject to the transaction documents.
Material Changes Versus Prior Arrangements
- The acquisition changed the company’s business profile by adding Forever 8 and created substantial seller-note, preferred-unit, earnout, redemption, and potential equity-issuance obligations.
- New registration rights require the company to register resale of common shares underlying the seller notes and preferred units, subject to specified timing and shareholder-approval conditions.
- New employment agreements replaced March 2022 agreements. The CEO’s base salary increased from $250,000 to $325,000 and the CFO’s from $250,000 to $292,000.
- Annual immediately vested restricted stock-unit grants increased to 200,000 for the CEO from 150,000 and to 180,000 for the CFO from 135,000, subject to board approval.
- Annual bonus opportunities decreased from a maximum of 150% of base salary to 100% for each executive, while several potential equity-based incentive awards increased.
Management Compensation and Other Terms
- The CEO and CFO agreements run through September 27, 2024, with automatic one-year renewal absent timely notice.
- Each executive is eligible for severance equal to 24 months of base salary upon termination without cause, plus accrued obligations and specified benefits.
- The CEO may receive up to 1.1 million shares for corporate growth achievements, 200,000 shares for positive cash flow, and up to 1.75 million shares tied to market-capitalization milestones, plus further doubling-based awards.
- The CFO may receive up to 990,000 shares for corporate growth achievements, 180,000 shares for positive cash flow, and up to 1.6 million shares tied to market-capitalization milestones, plus further doubling-based awards.
Guidance, Outlook, Risks, and Unusual Items
- No formal revenue, earnings, margin, cash-flow, or other operating guidance is provided.
- The transaction creates significant liquidity risk from required note prepayments, interest expense, potential cash redemption obligations, earnouts, and executive compensation.
- Future common-share issuance could be substantial and depends on shareholder approval, share price, earnout performance, note conversions, and preferred-unit redemptions, creating potential dilution.
- The company stated that financial statements for Forever 8 and pro forma financial information would be filed later; therefore, the filing does not permit evaluation of post-acquisition consolidated performance or margins.
- The filing includes a subordination agreement with an existing investor, which may restrict payment priority and the company’s ability to use cash.
Investor Verification Checklist
- Verify the subsequently filed acquired-business financial statements and pro forma results for Forever 8.
- Confirm the balance, interest accrual, maturity, and required payment schedule of the $27.5 million seller notes and the existing investor note.
- Review shareholder-approval status and the resulting common-share issuance or cash-redemption obligations.
- Identify the three cumulative collected-revenue earnout thresholds and assess the maximum potential earnout and dilution.
- Review registration statements, resale volumes, and the potential market impact of shares underlying the notes and preferred units.
- Reconcile the filing’s reported dates and the requested company name with subsequent SEC filings, because the document references Cryptyde, Inc. and contains events after the stated September 27 report date.