UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): August 1, 2008
AEOLUS PHARMACEUTICALS,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State or
other jurisdiction of incorporation)
0-50481 56-1953785
(Commission
File
Number) (IRS
Employer Identification No.)
23811
Inverness Place
Laguna
Niguel, California 92677
(Address
of Principal Executive Offices, Including Zip Code)
949-481-9825
(Registrant’s
Telephone Number, Including Area Code)
__________________
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
£ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
£ Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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£
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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£
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01. Entry
into a Material Definitive Agreement.
On August
1, 2008, Aeolus Pharmaceuticals, Inc. (the "Company") entered into a Securities
Purchase Agreement (the “Purchase Agreement”) with three accredited
institutional investors (the “Investors”) pursuant to which the
Company agreed to sell to the Investors (and one or more additional
accredited investors) units comprised of senior unsecured convertible
notes of the Company (the “Notes”), in an aggregate principal amount of up to
$5,000,000, which shall bear interest at a rate of 7% per year and mature on the
30-month anniversary of their date of issuance, and warrants to purchase up to
an aggregate of 10,000,000 additional shares of Common Stock (the “Warrant
Shares”), each with an initial exercise price of $0.50 per share, subject to
adjustment pursuant to the warrants (the “Warrants”). Each unit (collectively,
the "Units") is comprised of $1,000 in Note principal and Warrants to purchase
up to 2,000 shares of the Company's common stock, par value $0.01 per share (the
“Common Stock”), and has a purchase price of $1,000.
On August
1, 2008, the Company sold and issued to the Investors 500 Units comprised of
Notes in the aggregate principal amount of $500,000 and Warrants to purchase up
to 1,000,000 shares of Common Stock for an aggregate purchase price of $500,000
(the "Financing"). The Notes and Warrants were issued pursuant to the
Purchase Agreement. The Investors have also agreed, upon the satisfaction of
certain conditions by the Company pursuant to the Purchase Agreement, to
purchase an additional 125 Units on each of September 2, 2008, October 1, 2008,
November 3, 2008 and December 1, 2008 (the "Subsequent Closings"), in each case
for an aggregate purchase price of $125,000. The Notes issued in the
Financing and at the Subsequent Closings have, or will have, an initial
conversion price of $0.35 per share, subject to adjustment pursuant to the
Notes. In addition, the Investors (and one or more additional
accredited investors) have the option to purchase up to an additional 4,000
Units, in one or more closings (each, an "Election Closing"), and at their sole
option at any time on or before February 1, 2010. The additional Units sold at
an Election Closing would also be sold by the Company at a purchase price of
$1,000 per Unit, except that the initial conversion price of the Notes issued in
an Election Closing will equal the volume weighted average closing sale price
for the Common Stock for the sixty consecutive trading day period ending on the
trading day immediately preceding such Election Closing, provided that such
initial conversion price may not be less than $0.20 per share or greater than
$0.75 per share, in each case subject to adjustment pursuant to the
Note.
The Notes
will be convertible, at the Investors' sole election, into shares of Common
Stock at any time and from time to time. The conversion price of the
Notes (including the $0.20 floor and $0.75 ceiling price with respect to Notes
issued at Election Closings) and the exercise price of the Warrants are subject
to adjustment in the event of a stock dividend or split, reorganization,
recapitalization or similar event. Additionally, the conversion price
of the Notes and the exercise price of the Warrants may be reduced in the event
the Company issues securities at a price per share lower than the then current
conversion price of the Notes.
Interest
on the Notes accrues at the rate of 7.0% per annum from the date of issuance,
and is payable semi-annually, with respect to the Notes issued in the Financing,
on January 31 and July 31of each year, commencing on January 31,
2009. Interest shall be payable, at the Company's sole election, in
cash or shares of Common Stock, to holders of Notes on the record date for such
interest payments, with the record dates for Notes issued in the Financing being
each January 15 and July 15 immediately preceding an interest payment date. If
the Company elects to pay interest in shares of Common Stock, it will have to
notify the noteholders of such election at least three business days prior to
the record date for such interest payment, and the number of shares to be issued
will be determined by dividing the amount of interest to be paid in shares by
the volume weighted average closing price over the 15 consecutive trading days
period ending on the fifth trading day immediately preceding the applicable
interest payment date.
The
Warrants are exercisable for a five year period from the date of issuance and
contain a “cashless exercise” feature that allows the Investors to exercise the
Warrants without a cash payment to the Company under certain circumstances.
The
Purchase Agreement, the form of Note attached as Exhibit A to the Purchase
Agreement, and the form of Warrant attached as Exhibit B to the Purchase
Agreement, are filed as Exhibits 10.1, 10.2 and 10.3, respectively, to this
Current Report on Form 8-K and are incorporated herein by reference. The
foregoing description of the Purchase Agreement, the Notes and the Warrants and
the transactions contemplated thereby does not purport to be complete and is
qualified in its entirety by reference to these exhibits.
The net
proceeds to the Company from the sale of 500 Units in the Financing, after
deducting for expenses, were approximately $400,000. The Company intends to use
the net proceeds from the Financing to finance the development of AEOL 10150 and
to fund ongoing operations of the Company. In the event the Company sells the
additional 500 Units eligible to be sold on or before December 1, 2008 under the
Purchase Agreement, the Company expects the total net proceeds to the Company
from the sale of the combined 1,000 Units issued in the Financing and at the
Subsequent Closings, after deducting for expenses, to be approximately $885,000.
The Company intends to also use the net proceeds from the sale of any additional
Units in Election Closing to finance the development of AEOL 10150 and to fund
ongoing operations of the Company.
The
maturity of the Notes may be accelerated upon the occurrence of an event of
default, which includes, subject to certain grace periods, exceptions and
qualifications as set forth in the Notes, the failure by the Company to maintain
the listing of the Common Stock, the failure of the Company to deliver shares
Common Stock in a timely manner following a conversion, the failure of the
Company to have reserved a sufficient number shares of Common Stock to issue
upon conversion of the Notes, the failure by the Company to make payments on the
Notes in a timely manner, payment defaults by the Company or any of its
significant subsidiaries on debt or other obligations in excess of $100,000, the
occurrence of certain bankruptcy events with respect to the Company or its
significant subsidiaries, judgments rendered against the Company or its
significant subsidiaries in excess of $100,000 and breaches of material
representations, warranties or covenants by the Company under the Purchase
Agreement or the Notes. Upon the occurrence of an event of default related to a
bankruptcy of the Company, the Notes shall immediately become due and
payable. Upon the occurrence of any event default other than a
bankruptcy event of default, the any holder of the Notes, in its sole
discretion, may declare this Note to be immediately due and payable and the
Company shall pay to the holder in cash the sum of all outstanding principal
multiplied by 115%, plus accrued and unpaid interest and late charges
thereon.
In the
event of a change of control of the Company, as set forth in the Notes, the
holders of Notes shall be given senior convertible notes in the successor entity
in a form satisfactory to the Investors and substantially similar to the form
and substance of the Notes.
The Notes
also provide that the Company shall not perform certain activities without the
consent of the holders of Notes representing a majority of the then-outstanding
principal subject to the Notes. A complete list of these and other restrictive
covenants and affirmative covenants of the Company under the Note are included
in the Note, which is attached to this Current Report on Form 8-K as Exhibit
10.2.
The
foregoing description does not purport to be complete and is qualified in its
entirety by reference to the Note, which is filed as Exhibit 10.2 to this
Current Report on Form 8-K and incorporated herein by reference.
Affiliates
of Xmark Opportunity Partners, LLC are the sole investors in the Financing.
Together with its affiliates, Xmark Opportunity Partners, LLC beneficially
owned approximately 50% of the Company's outstanding common stock prior to the
Financing. Xmark Opportunity Partners, LLC is the sole manager of Goodnow
Capital, L.L.C. and possesses sole power to vote and direct the disposition of
all securities of the Company held by Goodnow. Goodnow has the right to
designate up to two directors for election to the Company's Board of Directors
pursuant to the terms of a purchase agreement between Goodnow and the Company.
David C. Cavalier, a current director of the Company, is President of
Goodnow.
Item
2.03. Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet
Arrangement of the Registrant.
The
information set forth in Item 1.01 of this Current Report on Form 8-K is
incorporated into this Item 2.03 by reference.
Item
3.02. Unregistered
Sales of Equity Securities.
The
securities described in Item 1.01 above were offered and sold in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder.
The agreements executed in connection with the Financing contain representations
to support the Company’s reasonable belief that each Investor had access to
information concerning the Company’s operations and financial condition, each
Investor acquired the securities for its own account and not with a view to the
distribution thereof in the absence of an effective registration statement or an
applicable exemption from registration, and that each Investor is sophisticated
within the meaning of Section 4(2) of the Securities Act and an “accredited
investor” (as defined by Rule 501 under the Securities Act). In addition, the
issuances did not involve any public offering; the Company made no solicitation
in connection with the Financing other than communications with the Investors;
the Company obtained representations from each Investor regarding its investment
intent, experience and sophistication; and each Investor either received or had
access to adequate information about the Company in order to make informed
investment decisions.
At the
time of their issuance, the securities were deemed to be restricted securities
for purposes of the Securities Act, and the certificates representing the
securities bear legends to that effect.
The
information set forth in Item 1.01 of this Current Report on Form 8-K is
incorporated into this Item 3.02 by reference.
Item 8.01 Other
Events.
On August
1, 2008, the Company issued a press release announcing the completion of the
Financing. The text of the press release is set forth in Exhibit 99.1 attached
to this Current Report on Form 8-K and incorporated herein by this
reference.
Item
9.01. Financial Statements and Exhibits.
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Exhibit
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Description
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10.1
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Securities
Purchase Agreement dated August 1, 2008 by and among the Company and the
investors whose names appear on the signature pages
thereof.
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10.2
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Form
of Senior Convertible Note issued by the Company dated August 1,
2008
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10.3
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Form
of Warrant to Purchase Common Stock issued by the Company dated August 1,
2008.
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99.1
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Press
Release dated August 1, 2008
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SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned hereunto duly
authorized.
AEOLUS PHARMACEUTICALS,
INC.
Date: August
1, 2008
/s/ Michael P.
McManus___________________
Michael
P. McManus
Chief
Financial Officer, Treasurer and Secretary