Item 1.01 Entry into a Material Definitive Agreement.
Amendment to Merger Agreement and Closing
of Merger
As previously disclosed, on December 21, 2022,
1847 ICU Holdings Inc. (“1847 ICU”) and 1847 ICU Acquisition Sub Inc. (“Merger Sub”), both wholly
owned subsidiaries of 1847 Holdings LLC (the “Company”), entered into an agreement and plan of merger with ICU Eyewear
Holdings Inc. (“ICU Eyewear”) and San Francisco Equity Partners, as the stockholder representative. On February 9,
2023, the parties entered into a first amendment to agreement and plan of merger to amend certain terms of the agreement and plan of merger.
On February 9, 2023, closing of the transactions
contemplated by the agreement and plan of merger, as amended (the “Merger Agreement”), was completed. Pursuant to the
Merger Agreement, Merger Sub merged with and into ICU Eyewear, with ICU Eyewear surviving the merger as a wholly owned subsidiary of 1847
ICU (the “Merger”). The merger consideration paid by 1847 ICU to the stockholders of ICU Eyewear (the “Stockholders”)
consists of (i) $4,000,000 in cash, minus any unpaid debt of ICU Eyewear and certain transaction expenses, and (ii) 6% subordinated promissory
notes in the aggregate principal amount of $500,000 (the “Purchase Price”).
The Merger Agreement contains customary representations,
warranties and covenants. The Merger Agreement also contains a mutual indemnification by 1847 ICU and certain Stockholders (the “Majority
Stockholders”) for breaches of representations or warranties and failure to perform covenants or obligations contained in the
Merger Agreement. In the case of the indemnification provided by the Majority Stockholders with respect to breaches of certain non-fundamental
representations and warranties, the aggregate liability of the Majority Stockholders shall not exceed 10% of the Purchase Price, with
1847 ICU’s sole recourse of recovery with respect to such matters being against any unpaid outstanding principal amount of the Merger
Notes (as defined below), and the Majority Stockholders will only become liable for such indemnified losses if the amount exceeds an aggregate
of $40,000, whereupon the Majority Stockholders will be liable for all losses that exceed the $40,000 threshold. The aggregate liability
of the Majority Stockholders with respect to breaches of certain fundamental representations and warranties or with respect to fraud committed
by ICU Eyewear or a Majority Stockholder shall not exceed the amount of the Purchase Price actually received by the Majority Stockholder.
As noted above, a portion of the Purchase Price
was paid by the issuance of 6% subordinated promissory notes in the aggregate principal amount of $500,000 by 1847 ICU to the Stockholders
(the “Merger Notes”). The Merger Notes shall bear interest at the rate of 6% per annum with all principal and accrued
interest being due and payable in one lump sum on February 9, 2024; provided that upon an event of default (as defined in the Merger Notes),
such interest rate shall increase to 10%. 1847 ICU may prepay all or any portion of the Merger Notes at any time prior to the maturity
date without premium or penalty of any kind. The Merger Notes contain customary events of default, including, without limitation, in the
event of (i) non-payment, (ii) a default by 1847 ICU of any of its covenants in the Merger Notes, the Merger Agreement or any other agreement
entered into in connection with the Merger Agreement, or a breach of any of the representations or warranties under such documents, (iii)
the insolvency or bankruptcy of 1847 ICU or ICU Eyewear or (iv) a change of control (as defined in the Merger Notes) of 1847 ICU or ICU
Eyewear. The Merger Notes are unsecured and subordinated to all senior indebtedness (as defined in the Merger Notes), including to the
Revolving Note (as defined below).
The foregoing description of the Merger Agreement
and the Merger Notes does not purport to be complete and is qualified in its entirety by reference to the full text of those documents
filed as exhibits to this report, which are incorporated herein by reference.
Management Services Agreement
On February 9, 2023, 1847 ICU entered into a management
services agreement (the “Offsetting MSA”) with the Company’s manager, 1847 Partners LLC (the “Manager”).
The MSA is an offsetting management services agreement as defined in that certain management services agreement, dated April 15, 2013,
between the Company and the Manager, as amended (the “MSA”).
Pursuant to the Offsetting MSA, 1847 ICU appointed
the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets
(as defined in the MSA) (the “Management Fee”); provided, however, that (i) pro-rated payments shall be made in the
first quarter and the last quarter of the term, (ii) if the aggregate amount of management fees paid or to be paid by 1847 ICU, together
with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager, in each case, with respect
to any fiscal year exceeds, or is expected to exceed, 9.5% of the Company’s gross income with respect to such fiscal year, then
the Management Fee to be paid by 1847 ICU for any remaining fiscal quarters in such fiscal year shall be reduced, on a pro rata basis
determined by reference to the management fees to be paid to the Manager by all of the subsidiaries of the Company, until the aggregate
amount of the Management Fee paid or to be paid by 1847 ICU, together with all other management fees paid or to be paid by all other subsidiaries
of the Company to the Manager, in each case, with respect to such fiscal year, does not exceed 9.5% of the Company’s gross income
with respect to such fiscal year, and (iii) if the aggregate amount the Management Fee paid or to be paid by 1847 ICU, together with all
other management fees paid or to be paid by all other subsidiaries of the Company to the Manager, in each case, with respect to any fiscal
quarter exceeds, or is expected to exceed, the aggregate amount of the management fee (before any adjustment thereto) calculated and payable
under the MSA (the “Parent Management Fee”) with respect to such fiscal quarter, then the Management Fee to be paid
by 1847 ICU for such fiscal quarter shall be reduced, on a pro rata basis, until the aggregate amount of the Management Fee paid or to
be paid by 1847 ICU, together with all other management fees paid or to be paid by all other subsidiaries of the Company to the Manager,
in each case, with respect to such fiscal quarter, does not exceed the Parent Management Fee calculated and payable with respect to such
fiscal quarter. 1847 ICU shall also reimburse the Manager for all costs and expenses of 1847 ICU which are specifically approved by the
board of directors of 1847 ICU, including all out-of-pocket costs and expenses, that are actually incurred by the Manager or its affiliates
on behalf of 1847 ICU in connection with performing services under the Offsetting MSA.
The services provided by the Manager include conducting
general and administrative supervision and oversight of 1847 ICU’s day-to-day business and operations, including, but not limited
to, recruiting and hiring of personnel, administration of personnel and personnel benefits, development of administrative policies and
procedures, establishment and management of banking services, managing and arranging for the maintaining of liability insurance, arranging
for equipment rental, maintenance of all necessary permits and licenses, acquisition of any additional licenses and permits that become
necessary, participation in risk management policies and procedures; and overseeing and consulting with respect to 1847 ICU’s business
and operational strategies, the implementation of such strategies and the evaluation of such strategies, including, but not limited to,
strategies with respect to capital expenditure and expansion programs, acquisitions or dispositions and product or service lines.
The foregoing description of the Offsetting MSA
does not purport to be complete and is qualified in its entirety by reference to the full text of the Offsetting MSA filed as an exhibit
to this report, which is incorporated herein by reference.
Loan and Security Agreement
On February 9, 2023, 1847 ICU, ICU Eyewear and
ICU Eyewear’s wholly owned subsidiary ICU Eyewear, Inc. (collectively, “Borrower”) entered into a loan and security
agreement (the “Loan Agreement”) with Industrial Funding Group, Inc. (the “Initial Lender”) for
a revolving loan of up to $5,000,000, which is evidenced by a secured promissory note in the principal amount of up to $5,000,000
(the “Revolving Note”), which Loan(s) (as defined in the Loan Agreement) may be drawn in advances of not less than
$5,000 (the “Advances”). On February 9, 2023, the Initial Lender made an Advance of $2,063,182.27 to the Borrower under
the Revolving Note, of which $1,963,182.27 was used to repay certain debt of ICU Eyewear in connection with the Merger, with the remaining
$100,000 used to pay Lender fees. On February 11, 2023, the Initial Lender sold and assigned the Loans, the Loan Agreement and the Loan
Documents (as defined in the Loan Agreement) to GemCap Solutions, LLC, as purchaser (the “Lender”).
The Revolving Note matures on February 9, 2025
with all Advances bearing interest at an annual rate equal to the greater of (i) the sum of (a) the “Prime Rate” as reported
in the “Money Rates” column of The Wall Street Journal, adjusted as and when such prime rate changes, plus (b) eight percent
(8.00%), and (ii) fifteen percent (15.00%); provided that following and during the continuation of an event of default (as defined in
the Loan Agreement), interest on the unpaid principal balance of the Advances shall accrue at an annual rate equal to such rate plus three
percent (3.00%). Interest accrued on the Advances shall be payable monthly commencing on March 7, 2023.
The Borrower may voluntarily prepay the entire
unpaid principal amount of the Revolving Note without premium or penalty; provided that in the event that the Borrower makes such prepayment
on or before February 9, 2024, then the Borrower must pay to the Lender an amount equal to the sum of (i) the product of (a) the average
daily principal balance of all Advances through the date of prepayment, multiplied by (b) the daily interest rate in effect multiplied
by (c) three hundred sixty (360) days, minus the amount of interest indefeasibly received by the Lender on account of all Advances through
the date of prepayment, and (ii) twelve (12) months of a monthly loan administration and monitoring fee in the amount of $500 per month.
The Loan Agreement contains customary events of
default, including, among others: (i) for failure to pay principal and interest on the Revolving Note when due, or to pay any fees due
under the Loan Agreement; (ii) for failure to perform any covenant or agreement contained in the Loan Agreement or any document delivered
in connection therewith; (iii) if any statement, representation or warranty in the Loan Agreement or any document delivered in connection
therewith is at any time found to have been false in any material respect at the time such representation or warranty was made; (iv) if
the Borrower defaults under any agreement or contract with a third party which default would result in a liability to the Borrower in
excess of $25,000; (v) for any voluntary or involuntary bankruptcy, insolvency, or dissolution or assignment to creditors; (vi) if any
judgments or attachments aggregating in excess of $10,000 at any given time are obtained against the Borrower which remain unstayed for
a period of ten (10) days or are enforced or if there is an indictment of the Borrower or any responsible officer of the Borrower under
an criminal statute or proceeding pursuant to which remedies sought may include the forfeiture of any property of the Borrower; (vii)
if a material adverse effect or change of control (each as defined in the Loan Agreement) shall have occurred; (viii) for certain environmental
claims; and (ix) for failure to notify the Lender of certain events or failure to deliver certain documentation required by the Loan Agreement.
The Loan Agreement contains customary representations,
warranties and affirmative and negative financial and other covenants for loans of this type. The closing of the Loan Agreement was subject
to customary closing conditions, including delivery of the security documents described below, and closing of the Merger.
As collateral security for the payment and performance
of all Borrower’s obligations under the Loan Agreement and Loan Documents, the Borrower granted to Lender a first priority security
interest in all of the assets of the Borrower. In connection with such grant of security interest, the Borrower also entered into a domain
name, URL and IP address assignment (the “Domain Name Assignment”), pursuant to which the Borrower assigned its domain
names, URLs and IP address to the Lender or its designee upon the occurrence of an event of default, and a trademark security agreement
(the “Trademark Security Agreement”), pursuant to which the Borrower granted a security interest in its trademarks
and assigned such trademarks upon the occurrence of an event of default.
The foregoing description of the Loan Agreement,
the Revolving Note, the Domain Name Assignment and the Trademark Security Agreement does not purport to be complete and is qualified in
its entirety by reference to the full text of those documents filed as exhibits to this report, which are incorporated herein by reference.
Private Placement
On February 9, 2022, the Company entered into
securities purchase agreements (the “Purchase Agreements”) with two accredited investors (the “Purchasers”),
pursuant to which the Company issued to the Purchasers (i) promissory notes in the aggregate principal amount of $2,557,575.26, which
include an original issue discount in the amount of $139,090.86 (the “Notes”) and (ii) five-year warrants for the purchase
of an aggregate of 532,827 common shares of the Company at an exercise price of $4.20 per share (subject to adjustment), which may be
exercised on a cashless basis if the market price of the common shares is greater than the exercise price (the “Base Warrants”).
As additional consideration, the Company issued 289,772 common shares (the “Shares”) to one investor and issue to the
other investor a five-year warrant for the purchase of 243,055 common shares at an exercise price of 0.01 per share (subject to adjustment),
which may be exercised on a cashless basis if the market price of the common shares is greater than the exercise price (the “Penny
Warrant,” and together with the Base Warrants, the “Warrants”). The aggregate purchase price was $2,301,817.73.
The net proceeds from this transaction were used to pay a portion of the Purchase Price.
The Notes bear interest at a rate of 12% per annum
and mature on February 9, 2024; provided that any principal amount or interest which is not paid when due shall bear interest at a rate
of the lesser of 16% per annum or the maximum amount permitted by law from the due date thereof until the same is paid. The Notes require
monthly payments of approximately $255,758, plus accrued interest, commencing on May 9, 2023. The Company may voluntarily prepay the outstanding
principal amount and accrued interest of each Note in whole upon payment of a fee of $750. In addition, if at any time the Company receives
cash proceeds from any source or series of related or unrelated sources, including, but not limited to, the issuance of equity or debt,
the exercise of outstanding warrants, the issuance of securities pursuant to an equity line of credit (as defined in the Notes) or the
sale of assets outside of the ordinary course of business, each holder shall have the right in its sole discretion to require the Company
to immediately apply up to 50% of such proceeds to repay all or any portion of the outstanding principal amount and interest then due
under the Notes. The Notes are unsecured and have priority over all other unsecured indebtedness of the Company. The Notes contains customary
affirmative and negative covenants and events of default for a loan of this type.
The Notes are convertible into common shares at
the option of the holders at any time on or following the date that an event of default (as defined in the Notes) occurs under the Notes
at a conversion price equal the lower of (i) $4.20 (subject to adjustments) and (ii) 80% of the lowest volume weighted average price of
the Company’s common shares on any trading day during the five (5) trading days prior to the conversion date; provided that such
conversion price shall not be less than $0.03 (subject to adjustments).
The conversion price of the Notes and the exercise
price of the Warrants are subject to standard adjustments, including a price-based adjustment in the event that the Company issues any
common shares or other securities convertible into or exercisable for common shares at an effective price per share that is lower than
the conversion or exercise price, subject to certain exceptions. In addition, the Notes and the Warrants contain an ownership limitation,
such that the Company shall not effect any conversion or exercise, and the holders shall not have the right to convert or exercise, any
portion of the Notes or the Warrants to the extent that after giving effect to the issuance of common shares upon conversion or exercise,
such holder, together with its affiliates and any other persons acting as a group together with such holder or any of its affiliates,
would beneficially own in excess of 4.99% of the number of common shares outstanding immediately after giving effect to the issuance of
common shares upon conversion or exercise.
Pursuant to the Purchase Agreements, the Company
is required to hold a meeting of shareholders within ninety (90) calendar days for the purpose of obtaining shareholder approval of the
issuance of all common shares underlying the Notes and the Warrants. Prior to such shareholder approval, the maximum number of common
shares that the Company may issue to the Purchasers in connection with the foregoing transactions is 860,464, equal to 19.99% of the Company’s
outstanding common shares prior to the transactions, including the Shares and the common shares underlying Notes and the Warrants.
The Purchase
Agreements contain a participation right, which provides that, subject to certain exceptions, until the Notes are extinguished in their
entirety, if the Company directly or indirectly offers, sells, grants any option to purchase, or otherwise disposes of (or announces any
offer, sale, grant or any option to purchase or other disposition of) any of its debt, equity, or equity equivalent securities, or enters
into any definitive agreement with regard to the foregoing, it must offer to issue and sell to or exchange with the Purchasers the securities
in such transaction. The Purchase Agreements also provide the Purchasers with customary piggy-back registration rights for the Shares
and the common shares underlying the Notes and the Warrants, and contain other customary representations and warranties and covenants
for a transaction of this type.
The foregoing description of the Purchase Agreements,
the Notes and the Warrants does not purport to be complete and is qualified in its entirety by reference to the full text of those documents
filed as exhibits to this report, which are incorporated herein by reference.