CRGE Charge Enterprises Inc (PK)

Item 1.01 Entry into a Material Definitive Agreement.

On February 25, 2022, Charge Enterprises, Inc. (sometimes referred to herein as “we,” “us,” “our” or similar terms) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an investment vehicle managed by an affiliate of Island Capital Group LLC (the “Investor”), pursuant to which we issued 3,856,000 shares of Series C Convertible Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock”).

The securities sold pursuant to the Purchase Agreement are 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. The Investor represented that it is an accredited investor and that it is acquiring the Series C Preferred Stock for investment purposes and not with a view to any distribution of such securities in violation of the United States federal securities laws. Neither this Current Report on Form 8-K, nor any Exhibit attached hereto, is an offer to sell or the solicitation of an offer to buy the securities described herein.

Reference to Transaction Documents

The following descriptions of the Purchase Agreement, the Amended and Restated Certificate of Designation (as defined herein), the Registration Rights Agreement (the “Registration Rights Agreement”) dated February 25, 2022, and the Amendment, Consent and Waiver dated February 25, 2022 (the “Amendment, Consent and Waiver”), and the transactions contemplated thereby, do not purport to be complete and are qualified in their entirety by reference to the Purchase Agreement, the Amended and Restated Certificate of Designation, the Registration Rights Agreement, and the Amendment, Consent and Waiver (collectively, the “Transaction Documents”), copies of which are filed as Exhibits to this Current Report on Form 8-K.

The representations, warranties and covenants contained in the Transaction Documents were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to the Transaction Documents, and may be subject to limitations agreed upon by the contracting parties. Accordingly, the Transaction Documents are incorporated herein by reference only to provide information regarding the terms of the Transaction Documents, 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 (“SEC”).

The Purchase Agreement

On February 25, 2022, we entered into and consummated the Purchase Agreement to raise aggregate gross proceeds of $10,845,000 from the Investor to provide us with additional working capital by the issuance and sale of 3,856,000 shares of Series C Preferred Stock with a stated value of $3.125 per share (the “Stated Value”) for an aggregate Stated Value of $12,050,000.

In addition to representations, warranties and covenants typical for transactions similar to those contemplated by the Purchase Agreement, we have granted to the Investor the right to participate in any offer and sale we conduct until February 25, 2025 of our common stock, par value $0.0001 per share (“Common Stock”), including securities convertible into or exchangeable for Common Stock, or debt securities.  The Investor shall have the right to participate in up to 25% of any such future financing on the same terms, conditions and price provided for in such financing.

The Series C Preferred Stock

A Certificate of Designation of Preferences, Rights and Limitations (the “Certificate of Designation”), designating 2,370,370 shares of our Series C Preferred Stock setting forth the terms of the Series C Preferred Stock created thereby, was filed with the Secretary of State of the State of Delaware on December 20, 2021.

On February 25, 2022, we filed an Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock with the Delaware Secretary of State (the “Amended and Restated Certificate of Designation”), to, among other things, increase the number of authorized shares of Series C Preferred Stock to 6,226,370 shares.  There has been no increase in the authorized shares of our aggregate capital stock effected by the Amended and Restated Certificate of Designation.

The following is a summary of the material terms of the Amended and Restated Certificate of Designation and the Series C Preferred Stock, including the material changes to the Certificate of Designation effected by the Amended and Restated Certificate of Designation:

Liquidation Preference

In the event of any liquidation, dissolution or winding up of our affairs, holders of the Series C Preferred Stock will be entitled to receive a liquidation distribution (the “Liquidation Preference”) per share equal to the Stated Value of $3.125 per share, plus all accrued but unpaid dividends.  The Liquidation Preference is senior in liquidation rights to the holders of our Common Stock.  The Stated Value is subject to adjustment as described in the Amended and Restated Certificate of Designation.

Dividends

Holders of our Series C Preferred Stock will receive a monthly dividend at a fixed annual rate of 6.00% of the Liquidation Preference, or $0.1875 per share of Series C Preferred Stock per year, payable, at our option, in cash or in shares of our Common Stock valued at the conversion price.

Voting

Except as otherwise provided in our Amended and Restated Certificate of Incorporation, the Amended and Restated Certificate of Designation or as otherwise required by law, holders of the Series C Preferred Stock shall have no voting rights, however, we shall not, without the affirmative vote of the holders of all the then outstanding shares of Series C Preferred Stock:

Optional Conversion

Each share of Series C Preferred Stock is convertible, at the option of the holder, into such number of shares of our Common Stock equal to the Stated Value divided by the conversion price of $3.125 per share.  Therefore, each share of Series C Preferred Stock is convertible into one share of Common Stock, subject to adjustment as provided in the Amended and Restated Certificate of Designation.  The holder may convert Series C Preferred Stock at any time after the Common Stock issuable upon conversion are freely transferable under Rule 144 under the Securities Act or other comparable law, including pursuant to a resale Securities Act registration statement.  The holder is prohibited from converting the Series C Preferred Stock into shares of Common Stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of our Common Stock then issued and outstanding (the “Beneficial Ownership Limitation”).  The holder may reset the Beneficial Ownership Limitation to a higher or lower number upon providing written notice to us.  Such notice will be effective 61 days after delivery to us.

Forced Conversion

The Amended and Restated Certificate of Designation modified the Certificate of Designation so that, in the event the closing price of the Common Stock exceeds $6.25, subject to adjustment, for at least five consecutive trading days, we may, within ten trading days’ notice, cause each holder to convert all or part of such holder’s Series C Preferred Stock plus all accrued but unpaid dividends for shares of Common Stock.  However, we may not effect such forced conversion unless there is an effective Securities Act registration statement covering the Common Stock issuable upon conversion or such Common Stock is eligible for resale under Rule 144 under the Securities Act.

Optional Redemption

On ten trading days’ notice to the holders, we may redeem for cash the Series C Preferred Stock in whole or, from time to time, in part at our option, at the sum of $3.125 per share of Series C Preferred Stock, subject to adjustment, plus accrued but unpaid dividends.  Holders may elect to convert the Series C Preferred Stock to Common Stock during such notice period.

Three Year Redemption

The Amended and Restated Certificate of Designation modified the Certificate of Designation so that on the third anniversary of the issuance of Series C Preferred Stock to a holder, we shall, subject to ten days’ prior notice from such holder, convert all of such holder’s Series C Preferred Stock into our Common Stock, or at our option redeem such Series C Preferred Stock for cash, in the aggregate redemption amount of $3.125 per share of Series C Preferred Stock, subject to adjustment, plus accrued but unpaid dividends, plus additional cash consideration in order for the holder to achieve a 20% IRR (as defined in the Amended and Restated Certificate of Designation) (the “Three Year Redemption Amount”).

Furthermore, any such holder who has not so elected to have its Series C Preferred Stock redeemed or converted on such third anniversary may, at any time thereafter, elect to cause us to redeem or convert, at our option, for the Post-Three Year Redemption Amount (as defined in the Amended and Restated Certificate of Designation).

If we elect to convert the Series C Preferred Stock to Common Stock, the conversion price is based on the lower of the conversion price then in effect or the volume weighted average price of our Common Stock for the prior 44-day trading period, provided, however, the maximum number of shares of Common Stock issuable upon such conversion may not exceed $3.125 per share of Series C Preferred Stock then outstanding divided by $1.00. 

The Registration Rights Agreement

The Registration Rights Agreement was executed in connection with the issuance of the Series C Preferred Stock to the Investor requiring us to file no later than August 24, 2022, and cause to be declared effective by the SEC as promptly as possible thereafter, a resale Securities Act registration statement for the offer and resale of the Common Stock underlying the Series C Preferred Stock.  If we fail to have it filed by such date, or if we fail to maintain the effectiveness of the registration statement until all of such shares of Common Stock have been sold or are otherwise able to be sold pursuant to Rule 144 under the Securities Act, without any volume or manner of sale restrictions, then we will be obligated to pay liquidated damages to the holders of such securities of $75,000, in addition to any other rights such holders may have, upon the occurrence of any such event and on each monthly anniversary thereafter until the event is cured. The Registration Rights Agreement also contains mutual indemnifications by us and the holders of registrable securities thereunder, which we believe are customary for transactions of this type.

The Amendment, Consent and Waiver

We are party with various investors in certain investment agreements and instruments pursuant to which such investors are entitled to rights and privileges.  To effect the transactions contemplated by the capital raise described above, we obtained, pursuant to that certain Amendment, Consent and Waiver dated February 25, 2022 (the “Amendment, Consent and Waiver”), certain amendments, consents and waivers, including: