DEF 14A: 1847 Holdings Seeks Shareholder Approval for Director Elections, Auditor Ratification, and Equity Incentive Plan Amendments

1847 Holdings LLC is soliciting proxies for its 2024 Annual Meeting of Shareholders to elect directors, ratify the appointment of its auditor, and approve amendments to its equity incentive plan.

Summary

• 1847 Holdings LLC is holding its 2024 Annual Meeting of Shareholders on June 25, 2024, virtually.
• Shareholders will vote on four proposals: electing seven directors, ratifying the appointment of Sadler, Gibb & Associates, LLC as the independent auditor for the fiscal year ending December 31, 2024, approving an amendment to increase the share reserve in the 2023 Equity Incentive Plan from 20,000 to 500,000 shares, and approving an amendment to add an evergreen provision to the 2023 Equity Incentive Plan.
• The board of directors unanimously recommends voting FOR all proposals.
• The record date for determining shareholders eligible to vote is April 26, 2024.
• The company expects to mail the Notice of Internet Availability of Proxy Materials on or about May 6, 2024.
• A quorum requires one-third of the common shares entitled to vote to be present or represented by proxy; as of April 26, 2024, there were 5,292,851 common shares outstanding and entitled to vote.
• The company's board of directors consists of seven members, all of whom are standing for re-election.
• The company's independent directors receive an annual fee of $35,000, payable monthly, and may be granted $35,000 of restricted shares, restricted share units and/or share options.
• The company's management fee to the Manager amounted to $1,325,000 and $1,100,000 for the years ended December 31, 2023 and 2022, respectively.

Sentiment

Score: 7

Explanation: The document is primarily informational and procedural, with a neutral to slightly positive tone. The board recommends voting for all proposals, suggesting confidence in their benefits. However, the increase in auditor fees and the default on a vesting note introduce some negative elements.

Positives

• The board of directors is actively seeking shareholder input through the proxy voting process.
• The proposed amendments to the equity incentive plan aim to attract, retain, and motivate key employees, directors, and consultants.
• The company has a standing practice of linking employee compensation to corporate performance.
• The board of directors has determined that all directors, other than Mr. Roberts, qualify as independent directors.
• The company has adopted a code of business conduct and ethics that applies to all of its directors, officers and employees.

Negatives

• The company's auditor fees increased significantly from $239,000 in 2022 to $702,549 in 2023.
• The company's management fee to the Manager increased from $1,100,000 in 2022 to $1,325,000 in 2023.
• A vesting note with an outstanding principal balance of $578,290, with an accrued interest balance of $21,528, is currently in default.
• Two Form 4s were filed late by Ellery W. Roberts due to administrative oversight.

Risks

• If the proposed amendments to the equity incentive plan are not approved, the company may be at a disadvantage compared to competitors in attracting and retaining talent.
• Failure to ratify the selection of Sadler, Gibb & Associates, LLC as the independent auditor could require the audit committee to reconsider its selection.
• The company's reliance on the Manager for certain services and intellectual property creates potential conflicts of interest and dependencies.
• The default on the vesting note could lead to legal action or other financial complications.
• The company's management services agreement requires the Company and any businesses that it acquires to cease using the intellectual property described above entirely in their businesses and operations within 180 days of our termination of the management services agreement.

Future Outlook

The company plans to issue awards under the Plan shortly following the approval of Plan Amendment 1 at the Annual Meeting and believes that the use of equity compensation will be a critical and powerful tool to compete for and attract, retain and motivate talented employees.

Management Comments

• The board of directors unanimously recommends that you vote FOR the proposals in the proxy statement.
• It is important that your shares be represented and voted at the Annual Meeting.
• We are confident that our slate of director candidates has the professional achievement, skills, experiences and reputations that qualify each of the Company's candidates to serve as shareholder representatives overseeing the management of the Company.

Industry Context

The use of equity incentive plans is a common practice among publicly traded companies to align the interests of management and shareholders and to attract and retain talent. The proposed amendments to the 1847 Holdings LLC 2023 Equity Incentive Plan are in line with this industry trend.

Comparison to Industry Standards

• Increasing the share reserve in equity incentive plans is a common practice among publicly traded companies.
• Many companies use evergreen provisions to automatically replenish the share reserve in their equity incentive plans.
• The annual fee of $35,000 for independent directors is within the range of compensation paid to independent directors at similar-sized companies.
• Sadler, Gibb & Associates, LLC is a smaller auditor than the Big Four accounting firms (Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers), which are typically used by larger companies.

Related Party Transactions

• Ellery W. Roberts, our Chief Executive Officer, controls the Manager.
• The management fee amounted to $1,325,000 and $1,100,000 for the years ended December 31, 2023 and 2022, respectively.
• As of December 31, 2023 and 2022, the Manager has funded $74,928 in related party advances to the Company.
• On September 1, 2020, our subsidiary Kyles Custom Wood Shop, Inc. (Kyles) entered into an industrial lease agreement with Stephen Mallatt, Jr. and Rita Mallatt, who are officers of Kyles.
• A portion of the purchase price for the acquisition of Kyles on September 30, 2020 was paid by the issuance of a vesting promissory note by our subsidiary 1847 Cabinet Inc. (1847 Cabinet) to Stephen Mallatt, Jr. and Rita Mallatt in the principal amount of $1,260,000.
• From time to time, we have received advances from Mr. Roberts to meet short-term working capital needs.
• As of December 31, 2023 and 2022, a total of $118,834 in advances are outstanding.

Stakeholder Impact

• Approval of the equity incentive plan amendments could positively impact employees, directors, and consultants by providing them with equity-based compensation.
• Shareholders will be impacted by the election of directors and the ratification of the auditor.
• The company's financial performance and corporate governance practices will impact all stakeholders.

Next Steps

• Shareholders should review the proxy materials and vote on the proposals.
• The company will hold the Annual Meeting on June 25, 2024.
• The company will announce the voting results via a Form 8-K filing with the SEC.

Key Dates

Keywords

proxy statement, annual meeting, directors, equity incentive plan, auditor, shareholders, corporate governance, compensation, 1847 Holdings