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Item
2.03
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Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
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On
June 24, 2021, Omnia Wellness Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”)
dated as of June 24, 2021 (the “Issuance Date”) and issued and sold to Auctus Fund, LLC (the “Investor”), a Senior
Secured Promissory Note (the “Note”) in the principal amount of $650,000 (the “Capital Raise”). Also pursuant
to the Purchase Agreement, in connection with the issuance of the Note, the Company issued two common stock purchase warrants (separately,
the “First Warrant” and the “Second Warrant” and together, the “Warrants”) to the Investor, each
allowing the Investor to purchase an aggregate of 4,333,333 shares of the Company’s common stock (the “Common Stock”).
The Second Warrant is subject to cancellation pursuant to the terms of the Note, and may not be exercised until the Trigger Date (as
defined in the Second Warrant).
Also
pursuant to the Purchase Agreement, in connection with the issuance of the Note, (a) the Company entered into a Security Agreement (the
“Security Agreement”), pursuant to which payment of the full amount of the Note is secured by Collateral (as defined in the
Security Agreement) and (b) the Company’s subsidiaries jointly and severally agreed to guarantee and act as surety for payment
of the Note, pursuant to a Subsidiary Guarantee (the “Subsidiary Guarantee”).
The
net amount received by the Company was approximately $595,000 after payment of certain fees to the Investor or on behalf of the Investor.
The
Company intends to use the net proceeds from the sale of the Note for business development, repayment of existing indebtedness and general
corporate purposes, subject to the limitations described in the Purchase Agreement.
The
Company granted to the Investor a right of participation and first refusal with respect to future capital raises of the Company during
the terms of the Note, subject to certain exceptions.
Pursuant
to the Purchase Agreement, the Company granted the Investor piggyback registration rights with respect to the shares underlying the Warrants.
In addition, the Company agreed that, while any amount remains unpaid under the Note, it would not sell securities on more materially
favorable terms than those provided to the Investor, without adjusting the Investor’s terms accordingly. Further, among other things,
the Company agreed that, while any amount remains unpaid under the Auctus Note, it would not enter into any variable rate transactions.
The
Note bears interest commencing on the Issuance Date at a fixed rate of 12% per annum on any unpaid principal balance, and will be payable,
along with the principal amount, on June 24, 2021 (the “Maturity Date”). The first 12 months of interest (equal to $78,000)
is guaranteed and earned in full as of the Issuance Date.
Amortization
payments shall be made to the Investor in six installments each in the amount of $121,333.33 commencing January 21, 2022 and continuing
monthly thereafter through June 23, 2022.
Provided
that an Event of Default (as defined in the Note) has not occurred, the Company may prepay in whole or in part the amounts outstanding
under the Note along with a $750.00 administrative fee. Upon certain fundamental transactions specified in the Note, the Company shall
be required to pay to the Investor an amount equal to 125% of the outstanding principal and accrued interest. The Company may also be
required to prepay the Note out of certain proceeds that may be received from time to time by the Company.
The
Note contains customary events of default for a transaction such as the Capital Raise which entitle the Investor, among other things,
to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the Note. Upon an Event of Default,
interest shall accrue at a default interest rate of 125% of the outstanding principal and accrued interest. Any principal or interest
on the Note which is not paid when due shall bear interest at the rate of the lesser of (i) 16% per annum and (ii) the maximum amount
permitted by law from the due date thereof until the same is paid.
The
Warrants each have an exercise price of $0.15 per share, subject to customary adjustments (including anti-dilution adjustments), and
may be exercised at any time until the three year anniversary of the Warrants; provided, however, in the event the Company repays the
Note in its entirety on or prior to the Maturity Date, the Second Warrant shall automatically expire and may only be exercised in the
event it does not so automatically expire. The Warrants include a cashless exercise provision as set forth therein.
The
exercise of the Warrants are subject to a beneficial ownership limitation of 4.99% of the number of shares of Common Stock outstanding
immediately after giving effect to such exercise.
The
foregoing is a brief description of the purchase of the Note and the Warrants, and is qualified in its entirety by reference to the full
text of the Purchase Agreement, the Note, the First Warrant, the Second Warrant, the Security Agreement and the Subsidiary Guarantee,
copies of which are included as Exhibits 10.1, 10.2, 4.1, 4.2, 10.3 and 10.4, respectively, to this Current Report on Form 8-K, each
of which are incorporated herein by reference.
