Item
1.01. Entry
into a Material Definitive Agreement.
On
October 25, 2006, OXIS International, Inc. (“OXIS”) entered into a Securities
Purchase Agreement (“Purchase Agreement”) with four accredited investors (the
“Purchasers”). In conjunction with the signing of the Securities Purchase
Agreement, OXIS issued Secured Convertible Debentures (“Debentures”) and Series
A, B, C, D, and E Common Stock Warrants (“Warrants”) to the Purchasers, and the
parties also entered into a Registration Rights Agreement and a Security
Agreement (collectively, the “Transaction Documents”).
Pursuant
to the terms of the Purchase Agreement, OXIS issued the Debentures in an
aggregate principal amount of $1,694,250 to the Purchasers. The Debentures
are
subject to an original issue discount of 20.318% resulting in proceeds to
OXIS of $1,350,000 from the transaction. The Debentures mature on October
25,
2008, but may be prepaid by OXIS at any time provided that the common stock
issuable upon conversion and exercise of the Warrants is covered by an effective
registration statement. The Debentures are convertible, at the option of
the
Purchasers, at any time, into shares of common stock at $0.35 per share,
as
adjusted pursuant to a full ratchet anti-dilution provision (the “Conversion
Price”). Beginning on the first of the month following the earlier of the
effective date of the registration statement to be filed pursuant to the
Registration Rights Agreement and February 1, 2007, OXIS shall amortize the
Debenture in equal installments on a monthly basis resulting in a complete
repayment by the maturity date (the “Monthly Redemption Amounts”). The Monthly
Redemption Amounts can be paid in cash or in shares, subject to certain
restrictions. If OXIS chooses to make any Monthly Redemption Amount payment
in
shares of common stock, the price per share is the lesser of the Conversion
Price then in effect and 85% of the weighted average price for the 10 trading
days prior to the due date of the Monthly Redemption Amount.
Pursuant
to the Debenture, OXIS covenants that it will not incur indebtedness for
borrowed money, other than its current Bridge Bank Promissory Note and its
Promissory Note with Steve Guillen. OXIS also covenants that it will not
pledge,
grant or convey any new liens on its assets. The obligation to pay all unpaid
principal will be accelerated upon an event of default, including upon failure
to perform its obligations under the Debenture covenants, failure to make
required payments, default on any of the Transaction Documents or any other
material agreement, lease, document or instrument to which OXIS is obligated,
the bankruptcy of OXIS or related events. The Purchasers have a right of
first
refusal to participate in up to 100% of any future financing undertaken by
OXIS
until the later of the date that the Debentures are no longer outstanding
and
the one year anniversary of the effective date of the registration statement.
OXIS is restricted from issuing shares of common stock or instruments
convertible into common stock for 90 days after the effective date of the
registration statement with certain exceptions. OXIS is also prohibited from
effecting any subsequent financing involving a variable rate transaction.
In
addition, until such time as any Purchaser holds any of the securities issued
in
the Debenture transaction, if OXIS issues or sells any common stock or
instruments convertible into common stock which a Purchaser reasonably believes
is on terms more favorable to such investors than the terms pursuant to the
Transaction Documents, OXIS is obligated to amend the terms of the Transaction
Documents to such Purchaser the benefit of such better terms. OXIS may prepay
the entire outstanding principal amount of the Debentures, plus accrued interest
and other amounts payable, at its option at any time without penalty, provided
that a registration statement is available for the resale of shares underlying
the Debentures and Warrants, as more fully described in the Debenture. The
purpose of this Debenture transaction is to provide the corporation with
intermediate term financing as it seeks longer term financing.
On
October
25, 2006 in conjunction with the signing of the Securities Purchase Agreement,
OXIS issued to the Purchasers five year Series A Common Stock Purchase Warrants
to purchase an aggregate of 2,420,357 shares of common stock at an initial
exercise price of $0.35 per share, one year Series B Common Stock Purchase
Warrants to purchase 2,420,357 shares of common stock at an initial exercise
price of $0.385 per share, and two year Series C Common Stock Purchase Warrants
to purchase an aggregate of 4,840,714 shares of common stock at an initial
exercise price of $0.35 per share. In addition, OXIS issued to the Purchasers
Series D and E Common Stock Purchase Warrants which become exercisable on
a
pro-rata basis only upon the exercise of the Series C warrants. The six year
Series D Common Stock Purchase Warrants to purchase 2,420,357 shares of common
stock have an initial exercise price of $0.35 per share. The six year Series
D
Common Stock Purchase Warrants to purchase 2,420,357 shares of common stock
have
an initial exercise price of $0.385 per share. The initial exercise prices
for
each warrant are adjustable pursuant to a full ratchet anti-dilution provision
and upon the occurrence of a stock split or a related event.
Pursuant
to
the Registration Rights Agreement, OXIS must file a registration statement
covering the public resale of the shares underlying the Series A, B, C, D
and E
Warrants and the Debentures within 45 days of the closing of the transaction
and
cause the registration to be declared effective within 120 days of the closing
date. Cash liquidated damages equal to 2% of the face value of the Debentures
per month are payable to the purchasers for any failure to timely file or
obtain
an effective registration statement.
Pursuant
to the Security Agreement, OXIS agreed to grant the purchasers, pari passu,
a
security interest in certain property of OXIS, including cooperating in the
filing of perfected first priority liens in the collateral. OXIS also agreed
to
pledge its respective ownership interests in its wholly-owned subsidiaries,
OXIS
Therapeutics, OXIS Isle of Man, and its partial subsidiary, BioCheck, Inc.
OXIS
Therapeutics and OXIS Isle of Man also provided a subsidiary guarantee to
the
Purchasers in connection with the transaction.
The
foregoing summary of the material terms of the Transaction Documents are
qualified in their entirety by the text of the Transaction Documents attached
as
Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to this Current Report on Form 8-K
and
incorporated herein by reference.
Item
1.02. Termination
of a Material Definitive Agreement.
On
October 25, 2006, OXIS prepaid the principal, accrued interest and legal
fees
due pursuant to the Renewal and Modification Promissory Note dated June 2,
2006
(the “Renewal Note”) with Fagan Capital, Inc. The Renewal Note had a principal
amount of $405,600 and interest accrued at 8% per annum. OXIS was also obligated
to repay Fagan Capital the sum of $7,500 for legal expenses. No payments
of
interest or principal were required prior to the maturity date, June 1, 2007.
In
conjunction with the issuance of the Renewal Note, on July 25, 2006 OXIS
also
issued to Fagan Capital a common stock purchase warrant to purchase 1,158,857
shares of common stock at an initial exercise price of $0.35 per share. The
exercise price under the warrant is adjustable pursuant to certain anti-dilution
provisions and upon the occurrence of a stock split. The common stock purchase
warrant has an expiration date of June 1, 2014. Pursuant to a Note Pay Off
Agreement between OXIS and Fagan Capital, Inc. governing the prepayment of
the
Renewal Note, OXIS entered into a Registration Rights Agreement with Fagan
Capital covering the shares underlying the common stock purchase warrant
on
October 23, 2006.
Item
2.03. Creation
of a Direct Financial Obligation.
Reference
is made to the disclosures under Item 1.01 above.
Item
3.02 Unregistered
Sales of Equity Securities.
On
October 25, 2006, OXIS issued Secured Convertible Debentures in an aggregate
principal amount of $1,694,250 to the Purchasers. The Debentures are subject
to
an original issue discount of 20.318% resulting in proceeds to OXIS of
$1,350,000 from the transaction. Also, in connection with the foregoing,
OXIS
issued Series A, B, C, D and E Warrants for the purchase of an aggregate
of
approximately 14.5 million shares of OXIS common stock, at an initial exercise
price of $0.35 per share, subject to adjustment as provided therein. Reference
is made to the disclosures under Item 1.01 above, and to the attached Exhibits.
These
securities were offered to accredited investors in reliance on an exemption
from
the registration requirements of the Securities Act of 1933 (the “Securities
Act”) under Regulation D. The offering has not been registered under the
Securities Act or any state securities of “blue sky” laws, and the securities
may not be offered or sold absent registration or an applicable exemption
from
the registration requirements of the Securities Act and applicable state
securities laws. Under the terms of the registration rights agreement, and
as
described in Item 1.01 above, OXIS agreed, subject to certain terms and
conditions, to file a registration statement under the Securities Act covering
the resale of the shares issuable upon conversion of the Debentures and exercise
of the Warrants.
Item
8.01 Other
Events.
A
member
of the OXIS board of directors, Steven T. Guillen, who was terminated as
the
President and Chief Executive Officer of OXIS on September 15, 2006, filed
a
lawsuit against OXIS and up to 25 unnamed additional defendants. To the date
of
this Current Report, the complaint has not been served upon OXIS or any other
defendant. The complaint alleges breaches of contract relating to Mr. Guillen’s
employment agreement and a promissory note that is in default, breach of
implied
covenant of good faith and fair dealing, wrongful termination and violation
of
the California Labor Code in relation to the non-payment of back pay. The
Promissory Note issued by OXIS to Steven Guillen on March 10, 2006 in the
principal amount of $200,000 with accrued interest at the maturity date in
the
amount of $7,000 has been in default since September 10, 2006, the maturity
date. OXIS intends to utilize proceeds from the debenture transaction described
in Item 1.01 to repay Mr. Guillen the amounts owed pursuant to the defaulted
Promissory Note as well as the amounts payable pursuant to the terms of Mr.
Guillen’s employment agreement.
Item
9.01. Financial
Statements and Exhibits.
(d)
Exhibits
10.1 Form
of
Securities Purchase Agreement dated October 25, 2006.
10.2 Form
of
Secured Convertible Debenture dated October 25, 2006.
10.3 Form
of
Series A, B, C, D, E Common Stock Purchase Warrant dated October 25,
2006.
10.4 Form
of
Registration Rights Agreement dated October 25, 2006.
10.5 Form
of
Security Agreement dated October 25, 2006.
