Algorhythm Holdings Enters Settlement with Noteholder; Updates CEO/CFO Contracts

What Happened

• Algorhythm Holdings, Inc. announced a settlement with Continuation Capital, Inc. to resolve acquired liabilities totaling $1,928,014. Under the Settlement Agreement dated July 21, 2026, the Company agreed to issue CCI up to 5,000,000 shares of common stock in one or more tranches until CCI has received aggregate proceeds equal to 120% of the claim amount. The Circuit Court of the Twelfth Judicial Circuit (Desoto County, Florida) approved the Settlement Agreement on July 23, 2026 under Section 3(a)(10) of the Securities Act. The issuance is structured as a private placement exempt from registration.
• Separately, on July 22, 2026 the Company entered amended and restated employment agreements with CEO Gary Atkinson and CFO/General Counsel Alex Andre. The new agreements harmonize change-of-control treatment and provide that, each time a Change of Control occurs during their employment, the executive will receive a lump-sum bonus equal to their Base Salary plus their Annual Bonus for that year. The agreements also include provisions to align potential future payments with Sections 280G, 4999 and 409A of the Internal Revenue Code.

Key Details

• Claim amount: $1,928,014; CCI is entitled to aggregate proceeds equal to 120% of that amount (≈ $2,313,616.80).
• Equity consideration: up to 5,000,000 shares may be issued; CCI’s holdings at any time cannot exceed 19.99% of the Company’s outstanding common stock.
• Court approval: Settlement approved July 23, 2026 after a fairness hearing under Section 3(a)(10) (private placement exempt from registration; no underwriting commissions or solicitation).
• Executive agreements: Effective July 22, 2026; change-of-control bonus = Base Salary + Annual Bonus (paid lump sum); includes compliance language for IRC §§280G, 4999, 409A.

Why It Matters

• Potential dilution: Issuing up to 5M shares to satisfy the settlement could increase the share count and put downward pressure on the stock price, although a 19.99% cap limits CCI’s ownership at any given time. Investors should watch filings for the actual number and timing of share issuances.
• Financial impact: The settlement replaces a $1.93M liability with equity issuance tied to 120% recovery for the claimant ($2.31M), which changes the Company’s balance of cash/liabilities vs. equity.
• Executive stability and change-of-control cost: The amended CEO and CFO agreements clarify severance/change-of-control payouts, which provides predictability but could result in significant lump-sum payouts if a qualifying transaction occurs. The tax compliance provisions aim to reduce excise tax and timing risk for those payments.