Item 1.01 Entry into a Material Definitive Agreement.
On May 5, 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 $1.0 million (the “note”) to AJB pursuant to the SPA. The loan closed and was funded on May 9, 2022. NovAccess used $500,000 of the proceeds of the loan to repay AJB’s August 20, 2021 loan and will use the remaining loan proceeds for general working capital purposes.
The note has an original issuance discount of 10% of the principal and bears interest at 12% a year. The note is due on November 5, 2022, but may be extended for six months by NovAccess, at which time the rate will increase to 15%. NovAccess must repay the note with the proceeds of any loan or capital raise exceeding $5.0 million, and may otherwise 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 18%, 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 875,000 unregistered shares of the company’s common stock (the “commitment fee shares”). If, after May 5, 2023 and before May 5, 2025, AJB has been unable to sell the commitment fee shares for $700,000, 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 November 5, 2022, then the company may redeem 437,500 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 1.0 million shares of the company’s common stock for $0.01 a share. The warrant expires on May 5, 2027. NovAccess also 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. In addition, NovAccess entered into a registration rights agreement with AJB (the “registration agreement”) pursuant to which NovAccess agreed to file with the Securities and Exchange Commission a Form S-1 by August 3, 2022 to register for resale the commitment fee shares and the shares issuable upon exercise of the warrant.
The SPA, note, warrant, security agreement and registration 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.