Item 1.01 Entry into a Material Definitive Agreement.
On January 14, 2022, a wholly-owned subsidiary of Charge Enterprises, Inc. (sometimes referred to herein as “we,” “us,” “our” or similar terms), Charge Infrastructure, Inc. (“Buyer”) entered into, and simultaneously closed, an Agreement and Plan of Merger acquiring (the “Merger”) all of the membership interests of EV Group Holdings LLC, a New Jersey limited liability company (“Target”) from Brendan Durkin, James S. Lynch and Patrick Nicholson (the “Members”), through a reverse triangular merger with Mergeco, Inc., a Delaware corporation (“Mergeco”), a newly-formed wholly-owned subsidiary of Buyer. Other than in respect of the Merger, there is no material relationship between Target and Members, on the one hand, and us and our affiliates, officers, directors or any associate of our officers or directors, on the other hand.
The following description of the Merger and the transactions contemplated thereby are qualified in their entirety by reference to the Agreement and Plan of Merger, a copy of which is filed as an Exhibit to this Current Report on Form 8-K (the “Agreement and Plan of Merger”).
EV Group Holdings LLC
Target, headquartered in New Jersey, is a group of companies focused on real estate solutions for commercial and fleet operators requiring parking, maintenance and EV charging depot resources.
Closing and Consideration
On January 14, 2022, we completed the Merger. Pursuant to the Agreement and Plan of Merger, the Merger was structured as a reverse triangular merger of Mergeco with and into Target in a transaction intended to qualify as a tax-free reorganization under Sections 368(a)(l)(A) and 368(a)(2)(E) of the Internal Revenue Code. Under the terms of the Agreement and Plan of Merger, the Members, holders of all of the membership and equity interests in Target, received an aggregate cash amount of $1,250,000 plus 5,201,863 shares of our Common Stock, par value $0.0001 per share, in exchange for all membership and equity of Target. As a result of the Merger, Target has become our indirect wholly-owned subsidiary.
Additional Common Stock Consideration
We may be obligated to issue additional shares of our Common Stock to Members. The value of our Common Stock issued at the closing is $17,530,278, which is 5,201,863 multiplied by $3.37, the closing price of our Common Stock on January 14, 2022.
Pursuant to the Agreement and Plan of Merger, to the extent that the average closing price per share of our Common Stock for the month of December 2022 (“Average Price”) is less than $3.37, we will issue to the Members such number of shares of our Common Stock equal to such decline in value, but in no event more than a 20% decline or $3,506,056, valued at the Average Price.
Holdback Stock
A portion of the consideration, 1,118,012 shares of our Common Stock, was withheld (the “Holdback Stock”), to be held for up to 18 months, to satisfy certain indemnity obligations of the Members. Such Holdback Stock may also satisfy obligations of Members to us, including the following:
Working Capital Adjustment. In the event that Target’s working capital as of January 14, 2022 is less than $109,985, then Members shall be obligated to reimburse us for such difference. Conversely, if Target’s working capital as of January 14, 2022 is more than $109,985, then Members shall be entitled to receive such difference.
Adjustment for Gross Margin Threshold. If Target’s gross margin for the year ending December 31, 2022 is less than $4,436,633, then we shall be entitled to deduct from the Holdback Stock such number of shares equal to such deficit divided by the closing price of our stock price on December 31, 2022, but not more than 20% of the total value of all of the Holdback Stock.
General
The issuance of our common stock issued in the Merger was issued in reliance on an exemption from registration under Section 4(a)(2) the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) of Regulation D promulgated thereunder, and such common stock will be restricted from the offer or resale absent registration or an available exemption under applicable federal and state securities laws. The cash consideration was funded through a recently completed financing with certain funds affiliated with Arena Investors LP, as described in Item 1.01 of that Current Report on Form 8-K filed on December 23, 2021.
The representations, warranties and covenants contained in the Agreement and Plan of Merger were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to the Agreement and Plan of Merger, and may be subject to limitations agreed upon by the contracting parties. Accordingly, the Agreement and Plan of Merger is incorporated herein by reference only to provide information regarding the terms of the Agreement and Plan of Merger, and not to provide any other factual information regarding us or our business, and should be read in conjunction with the disclosures in our periodic reports and other filings with the Securities and Exchange Commission.