Item 1.01 Entry into a Material Definitive Agreement.
On February 15, 2022, NovAccess Global Inc. (“NovAccess” or the “company”), entered into a securities purchase agreement (the “SPA”) with AJB Capital Investments, LLC (“AJB”) and issued a promissory note in the principal amount of $250,000 (the “note”) to AJB pursuant to the SPA. The loan closed and was funded on February 16, 2022. NovAccess will use the proceeds of the loan for general working capital purposes.
The note has an original issuance discount of 10% of the principal and bears interest at 10% a year. The note is due on August 15, 2022, but may be extended for six months by NovAccess. NovAccess may prepay the note at any time without penalty. Under the terms of the note, NovAccess may not sell a significant portion of its assets without the approval of AJB, may not issue additional debt that is not subordinate to AJB, must comply with the company’s reporting requirements under the Securities Exchange Act of 1934, and must maintain the listing of the company’s common stock on the OTC Market or other exchange, among other restrictions and requirements. NovAccess’ failure to make required payments under the note or to comply with any of these covenants, among other matters, would constitute an event of default. Upon an event of default under the SPA or note, the note will bear interest at 20%, AJB may immediately accelerate the note due date, AJB may convert the amount outstanding under the note into shares of NovAccess common stock at a discount to the market price of the stock, and AJB will be entitled to its costs of collection, among other penalties and remedies.
NovAccess provided customary representations and covenants to AJB in the SPA. NovAccess’ breach of any representation or failure to comply with the covenants would constitute an event of default. Also pursuant to the SPA, NovAccess paid AJB a commitment fee of 300,000 unregistered shares of the company’s common stock (the “commitment fee shares”). If, after August 15, 2022 and before August 15, 2023, AJB has been unable to sell the commitment fee shares for $150,000, then AJB may require NovAccess to issue additional shares or pay cash in the amount of the shortfall. However, if NovAccess pays the note off before August 15, 2022, then the company may redeem 150,000 of the commitment shares for one dollar. Pursuant to the SPA, NovAccess also issued to AJB a common stock purchase warrant (the “warrant”) to purchase 500,000 shares of the company’s common stock for $1.50 a share. The warrant expires on February 15, 2027. NovAccess agreed to register the shares issuable upon exercise of the warrant no later than February 15, 2023. NovAccess entered into a security agreement with AJB (the “security agreement”) pursuant to which NovAccess granted to AJB a security interest in all of the company’s assets, including the equity of StemVax, LLC, securing NovAccess’ obligations under the SPA, note and warrant.
The SPA, note, warrant and security agreement are filed as exhibits to this Current Report on Form 8-K. The descriptions above are qualified in their entirety by reference to the full text of these documents.