|
Item
1.01
|
Entry
into a Material Definitive Agreement.
|
Amendment
to the Stock Purchase Agreement and Closing
As
previously disclosed, on March 27, 2020, 1847 Asien Inc. (“1847 Asien”), a subsidiary of 1847 Holdings LLC
(the “Company”), entered into a Stock Purchase Agreement (the “Purchase Agreement”) with
the Company, Asien’s Appliance, Inc. (“Asien’s Appliance”) and Joerg Christian Wilhelmsen and Susan
Kay Wilhelmsen, as trustees of the Wilhelmsen Family Trust, U/D/T Dated May 1, 1992 (the “Seller”), pursuant
to which 1847 Asien agreed to acquire all of the issued and outstanding capital stock of Asien’s Appliance (the “Acquisition”).
On
May 28, 2020, 1847 Asien, the Company, Asien’s Appliance and the Seller entered into Amendment No. 1 to the Purchase
Agreement (the “Amendment”) to amend certain terms of the Purchase Agreement. Following entry into the Amendment,
closing of the Acquisition was completed on the same day.
Pursuant to the terms of the Purchase Agreement, as amended by the
Amendment, 1847 Asien agreed to acquire all of the issued and outstanding capital stock of Asien’s Appliance for an aggregate
purchase price of $1,918,000, subject to adjustment as described below. The purchase price consists of (i) $233,000 in cash, (ii)
the Amortizing Note (as defined below) in the aggregate principal amount of $200,000, (iii) the Demand Note (as defined below)
in the aggregate principal amount of $655,000, and (iv) 415,000 common shares of the Company, having a mutually agreed upon value
of $830,000 (the “Buyer Shares”).
The
purchase price is subject to a post-closing working capital adjustment provision. On or before the 75th day following
May 28, 2020 (the “Closing Date”), 1847 Asien shall deliver to the Seller an audited balance sheet as of the
Closing Date (the “Final Balance Sheet”). If the net working capital reflected on the Final Balance Sheet (the
“Final Working Capital”) exceeds the net working capital reflected on the unaudited balance sheet of Asien’s
Appliance delivered to 1847 Asien on the Closing Date (the “Preliminary Working Capital”), 1847 Asien’s
shall, within seven days, pay to the Seller an amount of cash that is equal to such excess. If the Preliminary Working Capital
exceeds the Final Working Capital, the Seller shall, within seven days, pay to 1847 Asien an amount in cash equal to such excess,
provided, however, that the Seller may, at its option, in lieu of paying such excess in cash, deliver and transfer to the Buyer
a number of Buyer Shares that is equal to such excess divided by $2.00.
Pursuant
to the Amendment, upon five calendar days written notice to the Seller and the transfer agent, from time to time during the one
year period following the closing of the Acquisition, the Company shall have the right to repurchase any or all of the Buyer Shares
then held by the Seller from the Seller for a purchase price of $2.50 per share.
Subordinated
Amortizing Promissory Note
As
noted above, a portion of the purchase price under the Purchase Agreement, as amendment by the Amendment, was paid by the issuance
of a subordinated amortizing promissory note (the “Amortizing Note”) in the principal amount of $200,000 by
1847 Asien to the Seller. Interest on the outstanding principal amount will be payable quarterly at the rate of eight percent
(8%) per annum. The outstanding principal amount of the Amortizing Note will amortize on a one-year straight-line basis in accordance
with a specified amortization schedule, with all unpaid principal and accrued, but unpaid interest being fully due and payable
on May 28, 2021.
The
right of the Seller to receive payments under the Amortizing Note is subordinated to all indebtedness of 1847 Asien, whether outstanding
as of the Closing Date or thereafter created, to banks, insurance companies and other financial institutions or funds, and federal
or state taxation authorities.
The
Amortizing Note contains customary events of default, including in the event of (i) non-payment, (ii) a default by 1847 Asien
of any of their covenants under the Purchase Agreement, the Amortizing Note, or any other agreement entered into in connection
with the Purchase Agreement, or a breach of any of their representations or warranties under such documents, or (iii) the bankruptcy
of 1847 Asien.
Demand
Promissory Note
As
noted above, a portion of the purchase price under the Purchase Agreement, as amendment by the Amendment, was paid by the issuance
by 1847 Asien to the Seller of a demand promissory note (the “Demand Note”) in the principal amount of $655,000
at an interest rate of one percent (1%) computed on the basis of a 360 day year. Principal and accrued interest on the Demand
Note shall be payable 24 hours after written demand by the Seller.
The
foregoing summary of the terms and conditions of the Purchase Agreement, the Amendment, the Amortizing Note and the Demand Note
does not purport to be complete and is qualified in its entirety by reference to the full text of the agreements attached hereto
as Exhibits 10.1-10.4, which are incorporated herein by reference.
Management
Services Agreement
On
May 28, 2020, 1847 Asien 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 (the “MSA”).
Pursuant
to the Offsetting MSA, 1847 Asien 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 Asien, 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 Asien 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 Asien, 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 Asien, 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 Asien 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 Asien, 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
Asien shall also reimburse the Manager for all costs and expenses of 1847 Asien which are specifically approved by the board of
directors of 1847 Asien, including all out-of-pocket costs and expenses, that are actually incurred by the Manager or its affiliates
on behalf of 1847 Asien 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 Asien’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 Asien’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 summary of the terms and conditions of the Offsetting MSA does not purport to be complete and is qualified in its entirety
by reference to the full text of the agreement attached hereto as Exhibit 10.5, which is incorporated herein by reference.
Agreement
of Sale of Future Receipts
On
May 28, 2020, 1847 Asien 1847 entered into an Agreement of Sale of Future Receipts (“Receipts Agreement”) with
TVT Direct Funding LLC (“TVT”), pursuant to which, 1847 Asien and Asien’s Appliance agree to sell future
receivables with a value of $685,000 (the “Sold Amount of Future Receipts”) to TVT for a purchase price of
$500,000. 1847 Asien and Asien Appliance agree to deliver to TVT 20%, of its weekly future receipts, or approximately, $23,300,
over the course of an estimated seven-month term, or such date when the Sold Amount of Future Receipts has been delivered to TVT.
Asien Appliance used the proceeds from this sale to finance the Acquisition. In addition to all other sums due to TVT under the
Receipts Agreement, 1847 Asien and Asien’s Appliance shall pay to TVT certain additional fees, including a one-time origination
fees of $25,000.00 as reimbursement of costs incurred by TVT for financial and legal due diligence.
The
TVT Loan Agreement contains customary events of default, including the occurrence of the following: (i) a violation by 1847 Asien
or Asien’s Apliance of any term, condition or covenant in the Receipts Agreement other than as the result of Asien’s
Appliance’s business to ceases its operations, (ii) any representation or warranty made by 1847 Asien or Asien’s Apliance
is proven to have been incorrect, false or misleading in any material respect when made, and (iii) a default by 1847 Asien or
Asien’s Apliance under any of the terms, covenants and conditions of any other agreement with TVT, if any.
The
future payments under the TVT Agreement are secured by a subordinated security interest in all of the tangible and intangible
assets of 1847 Asien and Asien’s Appliance. The TVT Agreement contains customary representations, warranties and covenants
for an agreement of this type.
The
foregoing summary of the terms and conditions of the Receipts Agreement does not purport to be complete and is qualified in its
entirety by reference to the full text of the agreement attached hereto as Exhibit 10.6, which is incorporated herein by reference.