<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 for the fiscal year ended December 31, 1995.
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 for the transition period from ______ to _______.
Commission File Number O-8092
OXIS International, Inc.
A Delaware corporation
I.R.S. Employer Identification No. 94-1620407
6040 N. Cutter Circle, Suite 317
Portland, OR 97217
Telephone: (503) 283-3911
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.50 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 18, 1996 (assuming conversion of all outstanding
preferred stock into common stock ) was $17,282,555.
Number of shares outstanding of Registrant's common stock as of March 18, 1996:
12,124,423 shares.
Certain of the information required by Part III of this Form 10-K is
incorporated by reference from a portion of the Company's Proxy Statement for
1996 Annual Meeting of Stockholders.
<PAGE>
CONTENTS
PART I PAGE
Item 1. Business........................................... 1
Item 2. Properties......................................... 12
Item 3. Legal Proceedings.................................. 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters................................ 13
Item 6. Selected Financial Data............................ 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 14
Item 8. Financial Statements and Supplementary Data........ 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............. 40
PART III
Item 10. Directors and Executive Officers of the Registrant. 41
Item 11. Executive Compensation............................. 41
Item 12. Security Ownership of Certain Beneficial Owners
and Management..................................... 41
Item 13. Certain Relationships and Related Transactions..... 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ 42
SIGNATURES....................................................... 43
EXHIBIT INDEX.................................................... 44
<PAGE>
PART I
ITEM 1. BUSINESS.
INTRODUCTION
OXIS International, Inc. ("OXIS" or the "Company"), a Delaware Corporation, is
a leader in the discovery, development and commercialization of therapeutic
and diagnostic products to diagnose, treat and prevent diseases of oxidative
stress. Oxidative stress occurs when the concentration of free radicals and
reactive oxygen species (ROS) - highly reactive molecules produced during
oxidative processes - exceed the body's antioxidant defense mechanisms.
Recent advances in molecular biology and an increased understanding of the
mechanism(s) of action of free radicals, ROS, and antioxidants has led to
increased acceptance of oxidative stress as a basic disease mechanism. The
Company's extensive portfolio of novel antioxidant compounds and assays for
markers of oxidative stress provides multiple opportunities to address several
major disease markets. In July 1995, the Company expanded its portfolio of
synthetic antioxidants through the acquisition of Therox Pharmaceuticals,
Inc., ("Therox"). OXIS has invested significant resources to build an early
and comprehensive patent position on both its antioxidant therapeutic
technologies and selected oxidative stress assays.
OXIS also has technologies and products which currently produce revenue for
the Company. The Company's 32 research and commercial diagnostic assays are
sold through a combination of international distribution and a small in-house
sales staff. OXIS also derives revenues from licensing agreements, and from
sales of both its bulk antioxidants and its veterinary drug, Palosein/(R)/.
The Company's corporate offices are located in a 15,000 sq. ft. facility at
6040 N. Cutter Circle, Suite 317, Portland, OR 97217. Research operations of
OXIS are located at 395 Phoenixville Pike, Malvern, PA 19355; and Z.A. des
Petits Carreaux, 2, av. des Coquelicots, 94385 Bonneuil-Sur-Marne, Cedex,
France (outside of Paris).
ACQUISITIONS/MERGERS
In September 1994, the Company acquired Bioxytech S.A. (now "OXIS S.A."),
based in France, and merged with International BioClinical, Inc. ("IBC"), an
Oregon corporation, and changed its name from DDI Pharmaceuticals, Inc. to
OXIS International, Inc. At the time of the acquisition, OXIS S.A.'s research
and development efforts were focused on the synthesis of novel biomimetic
antioxidant compounds designed to target specific tissues. It also had
1
<PAGE>
developed and was selling six research assays for measuring various aspects
of oxidative stress. IBC was selling thirteen therapeutic drug monitoring
("TDM") assays at the time of its acquisition by the Company. It was
developing one additional TDM assay and a beta-lactamase rapid detection
test, both of which projects were completed during 1995.
In July 1995, OXIS acquired Therox Pharmaceuticals, Inc. ("Therox"), a
Delaware corporation, through an exchange of stock. Therox was merged into
a subsidiary of the Company. Therox was founded in 1994 by S.R. One,
Limited (the venture investment arm of SmithKline Beecham) and Brantley
Venture Partners II, L.P. Therox was focused on the development of
membrane active antioxidants and molecules that combine antioxidant
activity with other key therapeutic effects. The acquisition provided the
Company with complimentary therapeutic technologies, seven patents and
several relationships with university scientists.
Prior to the acquisitions of Bioxytech S.A. and International BioClinical,
Inc. in 1994, substantially all of the Company's research and development
efforts involved SOD and poly(ethylene glycol) (PEG). The 1994 and 1995
acquisitions substantially expanded the Company's research and development
capabilities in the area of synthetic chemistry, as well as in the
development of diagnostic assays in general.
RESEARCH AND DEVELOPMENT
OXIS' research and development programs are focused primarily on the
discovery and development of new therapeutic molecules to combat diseases
related to damage from oxidative stress. The Company has designed and
synthesized several series of novel compounds, including: low-molecular-
weight biomimetic antioxidants and pro-oxidants that are based on unique
selenium and sulfur chemistries, respectively; enzyme inhibitors; and
combination enzyme inhibitors/antioxidants. Lead molecules from the
Company's focus therapeutics programs, the glutathione peroxidase (GPx)
mimics and lipid soluble antioxidant (LSA) programs are moving forward on
regulatory pathways toward initiating first-time-in-man clinical testing
during the next twelve months.
OXIS has also developed six research assay kits for markers of oxidative
stress that are designed to ultimately facilitate diagnosis and optimize
therapy of free radical-associated diseases. These assays also provide
developmental synergy for the pharmaceutical R&D programs. Additional
assays for key markers of oxidative stress will be developed as part of the
Company's ongoing R&D efforts in oxidative stress diagnostics.
OXIS also has extensive experience in developing, manufacturing and
marketing bovine superoxide dismutase (bSOD). Additionally, the Company
has developed a patented, high-molecular weight PEG technology that extends
the half-life of SOD and other therapeutic proteins.
2
<PAGE>
Research and development expenses were $4,299,000, $1,670,000, and $813,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
THERAPEUTICS PROGRAMS - SYNTHETIC ANTIOXIDANTS
OXIS' long term goal is to develop new drugs based on unique, proprietary
know-how in free radical biochemistry. The Company's strengths in the
discovery and development of synthetic antioxidants and free-radical
scavenging enzymes is reflected in its substantial portfolio of potential
therapeutic molecules for treating diseases and conditions of oxidative
stress.
The Company's technical strategy to target specific phases of the free
radical and ROS cycle will provide opportunities to treat several major
acute and chronic diseases. OXIS is developing new synthetic antioxidants
which are intended to protect selected cells and organs from free radical
and peroxide-induced damage. OXIS' synthetic antioxidants exhibit overlap
in synthetic chemistry, disease targets, and preclinical development design
that has allowed the Company to build core and platform technologies. The
Company's antioxidant molecules are designed to be cytoprotective agents,
specifically for endothelial cells, cardiac myocytes and lymphocytes.
The Company's synthetic antioxidant therapeutics portfolio is summarized as
follows:
GLUTATHIONE PEROXIDASE MIMICS based on unique selenium chemistry --
patent applications are pending.
LIPID SOLUBLE ANTIOXIDANTS possessing rapid and high membrane
partitioning for cytoprotection from oxidative stress-induced diseases
including ophthalmic, cardiovascular and cosmetic applications -- two
patents issued and one patent application is pending.
LOW-MOLECULAR-WEIGHT BIFUNCTIONAL ANTIOXIDANTS that include inducers of
glutathione biosynthesis and free radical scavenging activity targeted
as a therapeutic for AIDS -- patent application is in preparation.
SULFUR-CONTAINING MOLECULES that exhibit both lipid and protein
antioxidant properties targeted for cardiac protection -- one patent is
issued and another patent application is pending.
PRO-OXIDANT FREE RADICAL GENERATORS linked to appropriate delivery
molecules for breast and prostate cancer.
DUAL FUNCTIONING INHIBITORS OF CYCLOOXYGENASE (COX) AND REACTIVE OXYGEN
SPECIES which have been shown to participate in various inflammatory
disorders -- one patent is issued.
3
<PAGE>
INJECTABLE FORM OF A XANTHINE OXIDASE INHIBITOR with or without
antioxidant activity for the treatment of remote tissue injury, multiple
organ failure and adult respiratory distress syndrome (ARDS).
MEMBRANE ANCHORS consisting of rigid, structural anchors with dual
affinities for both the hydrophobic and hydrophilic regions of
membranes.
FOCUS - SYNTHETIC THERAPEUTICS PROGRAMS
OXIS does not have sufficient resources to simultaneously develop all of
the major series of novel antioxidant molecules in its pipeline.
Therefore, the Company has focused its investments on two lead therapeutics
programs, the GPx mimics and the lipid soluble antioxidants. The remaining
series of synthetic antioxidants may be developed through partners, sold
or licensed to provide additional revenue to the Company, although no
assurance can be given when, or if, this will occur. The following
represents a brief summary of the status of the Company's two lead
therapeutics research and development programs:
GLUTATHIONE PEROXIDASE (GPx) MIMICS PROGRAM:
GOAL: A well-tolerated, low-molecular-weight, orally active mimic of the
naturally occurring antioxidant enzyme, glutathione peroxidase.
POSSIBLE CLINICAL TARGETS: Inflammatory Bowel Disease; Restenosis;
Arterial Allograft Rejection; Acute Respiratory Distress Syndrome.
RATIONALE: The endothelium has historically been viewed as a passive
vascular lining. However, it has become clear that the endothelium is very
much an active tissue that controls vascular tone, maintains hemostatic
integrity and modulates immune and inflammatory responses. As these
physiological functions have been further defined, functional abnormalities
of the endothelium have been identified in association with diseases such
as hypercholesterolemia, atherosclerosis, hypertension and intravascular
thrombosis. A syndrome of endothelial dysfunction has been described in
the literature in which vasoconstricting, proinflammatory and prothrombotic
events occur in response to physical, chemical and biological injury to
endothelial cells. Glutathione peroxidase is proposed to protect the
endothelium from damage by hydroperoxides generated by the damaged
endothelium, and from activated leukocytes within the microvasculature.
GPx mimics, like the native enzyme, are designed to catalyze the reduction
(inactivation) of toxic hydroperoxides (H\2\O\2\ and lipid peroxides) by
glutathione.
CURRENT STATUS: Of its several series of proprietary organoselenium
molecules (molecular weight less than 300) that possess glutathione
peroxidase activity, the Company has selected a lead compound. The lead
compound was selected for further evaluation based on a favorable
glutathione peroxidase/oxidase activity ratio, its demonstrated profile of
concentration-dependent protection of human umbilical vein endothelial
cells (HUVEC) from damage by
4
<PAGE>
H\2\O\2\, lipid peroxides, activated human neutrophils, TNFalpha and
IL-1alpha, and its toxicity profile observed with sub-chronic oral
administration in rats. Pharmacology studies are in progress in animal
models of restenosis following balloon angioplasty, inflammatory bowel
disease, and acute hepatitis. Other pharmacology studies in animal models
of arterial allograft, post-radiation fibrosis and acute respiratory
distress syndrome may be initiated in 1996. As part of the preclinical
testing program for the GPx mimics, genotoxicity, GLP toxicity and
metabolism studies are in progress. The GPx program is on track to enter
into first-time-in-man clinical testing in mid-1996, with IND and CTX
filings scheduled for submission at the end of third quarter 1996 to obtain
approval to initiate Phase II human clinical trials in first quarter 1997,
provided, however, no assurances can be given that the foregoing timetable
will be met.
PATENTS: A patent application on these compounds was filed in France in
April 1994 and became public in October 1995. A PCT filing was made in
April 1995.
LIPID SOLUBLE ANTIOXIDANT (LSA) PROGRAM:
GOAL: An orally, parenterally and/or topically active ascorbic acid analog
with improved cell membrane-protective properties arising from increased
free radical scavenging activity and extended plasma membrane residency
compared to vitamin C.
POSSIBLE CLINICAL TARGETS: Reperfusion injury; Solar radiation-induced
skin damage; Restenosis.
RATIONALE: Extensive experimental and epidemiological data exists
suggesting that various antioxidants alone or in combination have a
significant beneficial effect in a wide variety of disease including
atherosclerosis, asthma, inflammatory bowel disease and various central
nervous system disorders. Low-molecular-weight antioxidant defense
systems have evolved in order to control the inadvertent release of
reactive oxygen species or mitigate their impact. These systems generally
fall into two distinct classes: water-soluble antioxidants whose radical-
scavenging activity resides primarily in the hydrophilic intra- and extra-
cellular spaces, and lipophilic antioxidants, such as vitamin E, which act
within cell membranes. Ascorbic acid (vitamin C) is believed to be the
most active of the naturally occurring, water-soluble antioxidants.
Although significantly less effective than ascorbic acid, vitamin E is
believed to play a critical role as a cytoprotective agent by minimizing
lipid peroxidation and inactivation of membrane-bound proteins. The
affinity of ascorbic acid for aqueous environments limits its usefulness
for prevention of membrane lipid peroxidation. Development of a membrane-
targeted antioxidant that combines the potency of ascorbic acid with the
membrane protective effects of vitamin E should provide a novel antioxidant
with unique clinical activity.
CURRENT STATUS: Selected lead compounds from this program have
demonstrated 20 to 40 times the antioxidant activity of vitamin E in
various membrane models including sarcolemma membranes isolated from
ventricular myocytes, hepatic microsomal preparations and models of LDL
oxidation. The compounds have been tested in isolated perfused hearts and
endotoxin-induced shock. In vitro studies have shown the LSA molecules to
be effective scavengers of secondary lipid radicals, as well as having the
ability to partially ablate nitric oxide release
5
<PAGE>
secondary to endotoxin administration. Based on results of compound
validation, a lead molecule is moving forward on a regulatory path toward
initiation of human testing within the next twelve months provided,
however, that no assurances can be given that this schedule will be met.
Immediate program activities for the LSA program include initiation of
scale-up synthesis of compound, initiation of pharmacology testing in
animal models for selected diseases and initiation of preclinical testing
(i.e., toxicity, metabolism, genotoxicity).
SOD THERAPEUTICS PROGRAMS
OXIS also has a limited portfolio of free radical scavenging enzymes:
RECOMBINANT HUMAN SUPEROXIDE DISMUTASE (rhSOD) has been coupled to high
molecular weight, activated PEG to produce one of the long-acting forms
of SOD -- PEG-rhSOD. OXIS has patented its long-lasting PEG-rhSOD in the
United States and 24 other countries. A preclinical safety program has
been initiated with PEG-rhSOD to measure the upper limit of doses that
can be safely administered to laboratory animals, to assess the safety
of repeated administration and to identify the manifestations of
toxicity that will require assessment in subsequent human clinical
studies.
Rats and dogs have been injected with a series of increasing doses of
PEG-rhSOD in order to determine the maximum clinically-tolerated dose.
In another study, groups of rats received repeated daily injections of a
constant dose for 28 days. The last study in this series is scheduled
for initiation during 1996. Based on the results of these studies, OXIS
will determine how it will proceed with the PEG-rhSOD technology.
BOVINE SUPEROXIDE DISMUTASE (bSOD) has been previously studied in
numerous clinical trials by OXIS and other companies. OXIS currently
supplies bulk bSOD for human use and sells an injectable dosage form of
the drug for veterinary applications (i.e., Palosein/(R)/).
During 1994, OXIS applied for and received Orphan Drug designation from
the FDA for bSOD as a possible treatment for familial ALS. This
application was based on a limited study of the tolerability and
subjective responses of one familial ALS patient. Due to the expense of
the treatment, difficulties with conducting clinical trials, regulatory
issues, limited market potential and the recent emergence of competing
products, OXIS has decided to not pursue the development of bSOD for
this indication.
HIGH MOLECULAR WEIGHT POLY(ETHYLENE GLYCOL)
These derivatives reduce the immunogenicity of and extend the life of
therapeutic proteins in the body (OXIS' PEG has been shown to extend the life
of its bSOD in vivo by 250 times).
6
<PAGE>
During 1994, the Company received a U.S. patent for its invention of a form
of PEG for making therapeutic proteins immunologically safer and longer
acting. In addition, in 1994, the Company filed an application for a U.S.
patent that would broaden the scope of its intellectual property protection
with respect to both the claimed polymers and the claimed conjugates
including those polymers.
OXIDATIVE STRESS ASSAYS
The Company currently has two new research assays for markers of oxidative
stress in development: a second generation assay for glutathione (GSH-2)
and a second generation lipid peroxidation (LPO-2) kit.
The GSH-2 assay being developed by OXIS is intended to be suitable for
specific measurements of GSH in the low micromolar range. This assay should
be applicable for determining GSH in plasma or circulating lymphocytes.
The improved LPO-2 assay is intended to be more sensitive than its current
LPO assay, and capable of being automated for the clinical laboratory.
The Company believes that the number and range of its assay kits for
markers of oxidative stress is a distinct competitive advantage for OXIS in
terms of developing potentially clinically relevant diagnostics for
diseases of oxidative stress and monitoring therapy of these diseases. OXIS
plans to use its oxidative stress assays to support the development of its
new pharmaceutical products by employing them as clinical markers whenever
possible.
BETA-LACTAMASE ASSAY
Under a technology development agreement with the University of Iowa, OXIS
also has rights to any intellectual property and inventions created,
together with any patents relevant to the development of beta-lactam-based
technology for the rapid, sensitive detection of beta-lactamases. Beta-
lactamases are a major mechanism of microbial resistance to certain
antibiotics.
The first assay from this agreement was licensed to Becton, Dickinson and
Company in 1995 for product development. A second cephalosporin-based
chromogenic substance is in the final stages of synthesis and purification.
7
<PAGE>
PRODUCTS
NEW DIAGNOSTIC ASSAYS
In 1995, OXIS completed development of its fourteenth therapeutic drug
monitoring (TDM) assay. The INNOFLUOR Topiramate Assay will be used to
monitor levels of the new anti-convulsant drug, topiramate. The assay was
introduced in November 1995 and is currently being sold in the UK, the first
country to approve the drug for use.
A patent application was filed for the assay in December 1995; and in February
1996, the Company submitted a 510(k) application requesting clearance for
marketing this assay in the United States.
OXIS received FDA clearance for marketing its product, Beta-Lactamase Rapid
Enzyme Detection Discs, in May of 1995. This product detects the production of
the beta lactamase enzyme, indicating potential antibiotic resistance. In
October 1995, the Company concluded an agreement with Becton, Dickinson and
Company granting them exclusive marketing and manufacturing rights to the
technology.
In early 1996, OXIS introduced the PROCLAIM/TM/ line of twelve assays to test
for drugs of abuse. The kits will be sold initially in Italy, Germany, Benelux
and the UK.
Revenues from sales of the Company's assays comprised 44% of 1995 revenues,
and 19% of 1994 revenues.
OXIDATIVE STRESS ASSAYS
The Company has six research assays available for sale which measure key
markers in free radical biochemistry. Specifically, these assays measure
levels of antioxidant protection, oxidative alterations, and pro-oxidant
activation of specific white blood cells. OXIS' research assays include:
SOD-525 (superoxide dismutase)
GSH-400 (reduced glutathione)
pl-GPx-EIA (human plasma-specific glutathione peroxidase)
LPO-586 (lipid peroxidation)
MPO-EIA (human myeloperoxidase)
Lactoferrin-EIA (human lactoferrin).
These assay kits utilize either chemical (colorimetric) or immunoenzymatic
(EIA) reactions that can be read using laboratory spectrophotometers and
microplate readers, respectively. The Company's assays offer advantages over
conventional laboratory methods, including ease of use, speed, specificity and
accuracy.
8
<PAGE>
The assays for markers of oxidative stress are currently being sold to
researchers in Europe, Japan and the United States, primarily through
distributors. The Company estimates that there are more than 3,500 scientists
and clinicians who are working directly in research on free radical
biochemistry, and who are potential customers for these research assays.
The assays for markers of oxidative stress are manufactured at the Company's
facility in France. All of the oxidative stress assays are manufactured in
batches in anticipation of customer orders. Orders are generally filled
within a few days; therefore, the Company does not have any significant
backlog of orders. The Company believes that adequate supplies of raw
materials are either currently on hand, available from commercial suppliers or
available through development on a custom basis by commercial contractors, as
needed.
The Company's assays for markers of oxidative stress are protected by trade
secrets and patents. Seven French patent applications have been filed with
respect to these assays, two of which have resulted in the issuance of
patents. The oxidative stress assays are sold under the registered trademark
"Bioxytech".
Several companies other than OXIS have developed assays for markers of
oxidative stress. One company offers assays for superoxide dismutase and
glutathione peroxidase which compete directly with OXIS' products; and a few
competitive assays for lipid peroxidation are available from selected
companies. The Company believes that the number and range of its assay kits
for markers of oxidative stress is a distinct competitive advantage
THERAPEUTIC DRUG MONITORING (TDM) ASSAYS
The Company sells fourteen TDM assays which are based on FPIA technology.
These products are sold under the trade name INNOFLUOR/TM/. The Company's test
menu encompasses approximately 90% of the TDM tests performed by clinical and
reference laboratories worldwide. These assays are designed for use on the
Abbott Laboratories TDx/(R)/ and TDxFLx/(R)/ analyzers.
The TDM products are sold through a combination of direct customer sales and
distributors in the United States, and through a network of distributors
outside the United States, principally in Europe.
The TDM assays are manufactured at the Company's facility in Portland, Oregon.
All of the TDM assays are manufactured in batches in anticipation of customer
orders. Orders are generally filled within a few days; therefore, the Company
does not have any significant backlog of orders. The Company believes that
adequate supplies of raw materials are either currently on hand, available
from commercial suppliers or available through development on a custom basis
by commercial contractors as needed.
9
<PAGE>
The Company relies primarily on trade secrets, know-how and trademark laws to
protect its TDM assays. The Company's TDM assays have been sold under the
trade name INNOFLUOR/TM/ since the mid-1980s.
Six major diagnostic companies dominate the therapeutic drug monitoring
market. Each of these six companies provides a range of both instrumentation
and assays to clinical laboratories. Of these, Abbott Laboratories holds the
largest market share. OXIS competes most directly with Abbott Laboratories,
because OXIS' assays are designed to be run on Abbott's analyzers. The Company
competes based on high product quality, an aggressive pricing strategy and
technical services. Abbott Laboratories and certain of the Company's other
competitors have substantially greater financial and other resources than the
Company and there can be no assurances that the Company can effectively
compete with Abbott Laboratories and such other competitors.
THERAPEUTIC PRODUCTS
Revenues from sales of bulk bSOD, royalties on bSOD products sold by
licensees, and sales of Palosein/(R)/, the Company's veterinary bSOD product,
comprised approximately 48% of the Company's total revenues in 1995, 76% in
1994 and 97% in 1993.
BOVINE SOD (bSOD) PRODUCTS
Commercial-scale manufacture and quality control of bulk bSOD, as well as
subsequent quality control and processing of bSOD into vials require complex,
multi-step processes, continuously developed and improved by the Company since
1965. The Company's processes refine large masses of United States Department
of Agriculture inspected, edible beef liver into small amounts of highly
purified bulk bSOD. The bulk bSOD is then combined with stabilizing
quantities of sucrose and freeze dried in vials to produce dosage forms. The
sterile dosage form of bSOD in vials is stable at room temperature for four or
more years. Although there are other sources of bSOD and other laboratory and
pilot-scale processes to produce bSOD, the Company believes that it is the
only company manufacturing bSOD on a commercial scale for pharmaceutical uses.
The Company maintains no bSOD production facilities and has an agreement with
Diosynth B.V., a Dutch contract manufacturer of pharmaceutical ingredients, to
manufacture bulk bSOD and supply it to OXIS under the terms of a license based
on the Company's processes. Diosynth B.V. is an affiliate of AKZO-Nobel N.V.,
a large, Dutch multinational chemical and health care company.
The Company believes that its present source of bSOD is adequate for its near-
term foreseeable needs.
Although the Company continues to have unpatented trade secrets and know-how,
substantially all of the Company's important U.S. and foreign patents
regarding SOD inventions (other than its recently developed, long-acting SOD
derivatives) have expired. Expiration of the Company's
10
<PAGE>
patents may enable other companies to benefit from research and development
efforts of the Company, but such other companies would not receive the
benefits of the Company's unpatented trade secrets and know-how or unpublished
preclinical or clinical data. Such other companies would still be required in
some countries to expend considerable resources to conduct preclinical studies
and clinical studies of their own pharmaceutical preparations of SOD and to
seek and secure governmental approval to market such preparations.
The Company does not market dosage forms of bSOD for human use and does not
depend substantially on trademarks. Palosein/(R)/ is OXIS' registered
trademark for its veterinary brand of bSOD.
The Company has licensed three European pharmaceutical companies to market
animal source (including bovine) SOD for human uses. These licensees have
distributed bSOD for a variety of human uses primarily in Germany, Italy and
Spain, with smaller markets elsewhere in Europe, the Middle East and South
America. However, as discussed in Note 12 to the Company's consolidated
financial statements, the European market for the Company's bSOD has been
adversely impacted by regulatory developments in Europe.
The Company's three European licensees have been responsible for a
substantial, though decreasing, portion of the Company's revenues in recent
years. Sales to, and royalties from, Grunenthal GmbH (German licensee),
Tedec-Meiji Farma, S.A. (Spanish licensee), and SmithKline Beecham
Pharmaceutici S.p.A. (Italian licensee) as a percentage of the Company's total
revenues for the past two years, have been as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Grunenthal 2% 9% 23%
Tedec-Meiji 16% 18% 8%
SmithKline Beecham -- 2% 7%
</TABLE>
The Company expects that its revenues from sales to, and royalties from, its
European licensees in the foreseeable future will be substantially less than
historical levels. The Company anticipates significant sales of bSOD products
only to its Spanish licensee in 1996. The amount of sales to the Spanish
licensee for 1996 and beyond cannot be predicted, as such sales will depend on
a Spanish Ministry of Health ruling regarding distribution and the outcome of
current clinical trials.
During recent years, the Company has been selling bulk bSOD to a major
pharmaceutical company (Sanofi Winthrop Inc., formerly Sterling Winthrop Inc.)
for use in its development of a pharmaceutical product for use in humans.
During 1995, Sanofi Winthrop reported on a Phase III clinical trial in which
results did not reach statistical significance. The Company does not expect
that Sanofi Winthrop will buy bulk bSOD product from OXIS in the foreseeable
future.
11
<PAGE>
In the last quarter of 1993, the Company reintroduced its veterinary bSOD
product, Palosein/(R)/, in the United States. Palosein/(R)/ is used
primarily for the treatment of certain musculoskeletal inflammatory
conditions in horses and dogs. Palosein/(R)/ sales in the United States and
Canada exceeded $550,000 during 1995. Palosein/(R)/ is also distributed in
Germany under a license agreement with Grunenthal.
EMPLOYEES
As of December 31, 1995, the Company had 60 employees (35 in the United
States and 25 in France). Employees of the Company's French subsidiary are
covered by a government-sponsored collective bargaining agreement. None of
the United States employees are subject to a collective bargaining
agreement. The Company has never experienced a work interruption.
FOREIGN OPERATIONS AND EXPORT SALES
For information regarding the Company's foreign operations and export
sales, see Note 10 to the consolidated financial statements.
ITEM 2. PROPERTIES.
The Company occupies, pursuant to leases, office and laboratory space in
Portland, Oregon; Malvern, Pennsylvania; and near Paris, France.
The Company's Portland, Oregon lease expires in 1997; the lease of the
Malvern, Pennsylvania facility and the lease of the facility in France
expire in 1998.
Although the premises currently occupied are suitable for the Company's
present requirements, other equally suitable premises are readily
available.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Company is a party or
to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the year ended December 31, 1995.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS.
The Company's common stock is traded on the NASDAQ National Market System
using the symbol OXIS.
Recent quarterly prices of the Company's common stock are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------- --------------------------
4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 2 13/16 3 1/2 4 1/2 2 7/8 3 1/8 3 1/2 4 4 3/8
Low 1 1/8 2 1/4 1 3/4 1 5/8 1 3/8 2 1/2 2 5/8 3 1/8
</TABLE>
The Company has an estimated 7,000 shareholders, including approximately
2,500 shareholders who have shares in the names of their stockbrokers. The
Company utilizes its assets to develop its business and, consequently, has
never paid a dividend and does not expect to pay dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
FOR YEARS ENDED
DECEMBER 31: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Total Revenues/1/ $ 5,136,000 $ 3,470,000 $ 3,044,000 $2,772,000 $2,650,000
Net income (loss) $(8,892,000)/2/ $(5,567,000)/3/ $(1,485,000)/4/ $ (339,000) $ (193,000)
Net income (loss)
per share $(.82)/2/ $(.88)/3/ $ (.30)/4/ $ (.07) $ (.04)
AS OF DECEMBER 31:
Total assets $ 9,870,000 $ 11,194,000 $ 3,124,000 $4,864,000 $4,770,000
Long-term
obligations $ 1,332,000 $ 376,000 -- -- --
Common shares
outstanding 12,124,423 9,322,762 4,982,670 4,982,670 4,982,670
</TABLE>
13
<PAGE>
/1/ Earned interest not included in revenue.
/2/ Includes a charge of $3,329,000 ($.31 per share) for the write off of
certain technology of an acquired company.
/3/ Includes a charge of $3,675,000 ($.58 per share) for the write off of
certain technology of acquired companies.
/4/ Includes a charge of $1,531,000 ($.31 per share) for control contest
expense.
As explained under the caption "ACQUISITIONS" in Management's Discussion and
Analysis of Financial Condition and Results of Operations below, the Company
made significant acquisitions during 1994 and 1995 that affect the
comparability of the amounts reflected in the table above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ACQUISITIONS
In September 1994, the Company significantly increased its scientific and
technical staff, patent application portfolio, current product offerings,
research and development programs, research and manufacturing facilities and
its customer base by acquiring Bioxytech S.A. (now "OXIS S.A.") and
International BioClinical, Inc. ("IBC") (together the "1994 acquired
businesses"). Both acquisitions were completed through the exchange of stock,
and were accounted for as purchases; accordingly, the acquired assets and
liabilities were recorded at their estimated fair values as of the date of
acquisition. IBC was merged into the Company. OXIS S.A. operates as a
subsidiary of the Company.
In July 1995, in a transaction which was also accounted for as a purchase, the
Company acquired Therox Pharmaceuticals, Inc. ("Therox") through an exchange
of stock. Therox was merged into a wholly-owned subsidiary of the Company.
The acquisition of Therox provided the Company with a technology portfolio
complementary to its novel therapeutics for treatment of free radical
associated diseases together with university partnerships and seven patents.
Because the acquisitions have been accounted for as purchases, the Company's
consolidated results of operations include the operating results of the
acquired businesses from the dates of acquisition only. Therefore, the
results of operations of the 1994 acquired businesses are included in the
consolidated statements of operations from September 7, 1994, and the results
of Therox's operations are included in the consolidated statements of
operations from July 19, 1995.
Costs relating to the acquisitions and the Company's more complex corporate
structure and the increased research and development investments have placed
significant demand on the Company's limited financial resources. See
"Financial Condition, Liquidity and Capital Resources" below.
14
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During 1995 the Company's working capital deficit increased from $1,046,000
at December 31, 1994, to $1,469,000 at December 31, 1995. This increase in
the Company's working capital deficit resulted primarily from the effect of
the net loss for 1995 ($8,892,000 less non-cash charges of $4,698,000),
offset by proceeds from issuance of stock ($2,925,000) and long-term debt
($1,255,000). Shareholders who hold $766,000 of notes that are included in
current liabilities at December 31, 1995 have commitments to invest an
amount at least equal to the note balances in equity securities of the
Company. During March 1996 the Company is negotiating with these
shareholders terms for converting these notes to stock of the Company. If
all such notes are converted to Company stock, the Company's working
capital deficit will be reduced by $766,000.
Cash and certificates of deposit declined from $1,432,000 at December 31,
1994, to $727,000 at December 31, 1995.
The Company expects to continue to report losses in the near term as the
level of expenses is expected to continue to exceed revenues. The Company
must raise additional capital during the first half of 1996. Failure to
raise such additional capital would cause the Company to severely curtail
or cease operations. For more information concerning the Company's ability
to continue as a going concern, see Note 1 to the consolidated financial
statements.
While the Company believes that its new products and technologies show
considerable promise, its ability to realize significant revenues therefrom
is dependent upon the Company's success in developing business alliances
with biotechnology and/or pharmaceutical companies that have the required
resources to develop and market certain of these products. These is no
assurance that the Company's effort to develop such business alliances will
be successful. Further, bovine superoxide dismutase sales of recent years
to Sanofi Winthrop Inc. (18% of 1995 revenues) are not expected to
continue. Sanofi Winthrop announced in October 1995 that a second Phase
III trial on its drug, DISMUTEC (a coupled form of OXIS' bovine superoxide
dismutase) to treat head trauma failed to show statistically significant
improvements between the treatment and control groups. Although the
Company is currently seeking additional funds through a private placement
(described below), it cannot predict the source, terms, amount, form,
and/or availability of additional capital to fund its operations to the end
of the current year.
The Company has engaged an agent to assist on a best-efforts basis to raise
up to $4,000,000 in the first quarter of 1996 through the sale of its
Series C Preferred Stock. On March 4, 1996, the Company announced the
first closing of the offering, with proceeds of $763,000 from the sale of
Series C Preferred Stock. Even if the Company is able to sell the entire
$4,000,000 of Series C Preferred Stock, it expects that additional capital
will be required during 1996 to continue operating in accordance with its
current plans. However, no
15
<PAGE>
assurances can be given that the Company will successfully raise the needed
capital. If the Company is unable to raise additional capital during the
remainder of 1996, it would endeavor to extend its ability to continue in
business through the reduction of personnel and facility costs, by slowing its
research and development efforts, and by reducing other operating costs,
however, no assurances can be given that it will be able to do so.
RESULTS OF OPERATIONS
The Company's sales for the past three years consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Diagnostic and research assays $2,240,000 $ 645,000 $ --
Bovine superoxide dismutase (bSOD)
for research and human use 1,817,000 2,130,000 2,098,000
Palosein/(R)/ (bSOD for veterinary use) 555,000 346,000 123,000
Other 370,000 204,000 94,000
---------- ---------- ----------
Total sales $4,982,000 $3,325,000 $2,315,000
========== ========== ==========
</TABLE>
Diagnostic and research assays are products acquired with the acquisitions
of IBC and OXIS S.A.. Sales of these products for 1994 represent sales
from September 8 through the end of the year. The entire year's sales of
diagnostic and research assays are included in the Company's sales for
1995.
Reductions of bulk bSOD sales to Sanofi Winthrop and to the Company's
German licensee in 1994 were offset by an increase in sales to the
Company's Spanish licensee, resulting in a slight increase in bulk bSOD
sales in 1994. In 1995 bulk bSOD sales to Sanofi Winthrop declined
further, and there were no sales to the Company's German licensee. These
decreases were partially offset by a further increase in sales to the
Spanish licensee.
Since no further sales of bSOD to either Sanofi Winthrop or the Company's
German licensee are anticipated, future sales of bulk bSOD are largely
dependent on the needs of the Company's Spanish licensee. Although the
Spanish licensee has continued to purchase bSOD in the first quarter of
1996, the Company has received no further firm orders for bSOD beyond what
has been shipped in the first quarter of 1996. Thus, the Company's sales
of bulk bSOD for 1996 and beyond are uncertain and difficult to predict and
no assurances can be given with respect thereto.
16
<PAGE>
Sales of Palosein/(R)/, which was reintroduced to the U.S. market in 1993
and is sold primarily to veterinary wholesalers in the United States,
increased from $123,000 in 1993 to $346,000 in 1994 and $555,000 in 1995 as
a result of an active direct mail marketing campaign, which the Company
intends to continue.
Royalty income in 1994 declined to $145,000, from $729,000 in 1993. As
discussed in Note 12 to the consolidated financial statements, the Company
anticipates that royalties from licensees of its bSOD products will be
minimal in the future because of the recent regulatory developments in
Europe. A further decline in royalties in 1995 was offset by a fee
generated from an agreement to license rights to the Company's technology
for the rapid detection of antibiotic resistance.
COSTS AND EXPENSES
Cost of sales as a percent of product sales increased from 57% in 1993 to
62% in 1994. This increase in cost was partially due to the inclusion, in
1994, of sales and cost of products of the businesses acquired in September
1994. The cost of those products includes the amortization of acquired
technology ($239,000 in 1994 and $727,000 in 1995). In addition, the cost
of bulk bSOD sales in 1994 was higher than usual due to a significant sale
at less than the Company's historic profit margin. Cost of sales as a
percent of product sales declined from 62% in 1994 to 59% in 1995. In 1995
the cost of the Company's diagnostic and research assays declined slightly
as a result of increased volumes, and the cost of bulk bSOD sales also
declined from the 1994 level.
Research and development costs increased from $813,000 in 1993 to
$1,670,000 in 1994 and $4,299,000 in 1995. The increases were primarily
due to the cost of the research and development activities associated with
pharmaceutical technologies acquired in the September 1994 and July 1995
business acquisitions.
Sales, general and administrative expenses increased from $1,008,000 in
1993 to $1,652,000 in 1994. This increase was due to the inclusion of
general and administrative costs of the acquired businesses after the
September 1994 acquisitions, other current expenses relating to the
acquisitions, increases in insurance coverage, and increased marketing
costs relating to Palosein/(R)/ and new products from the 1994
acquisitions.
Sales, general and administrative expenses increased further in 1995 to
$3,332,000. The increase in 1995 was due primarily to the inclusion for
the entire year of general and administrative costs of the businesses
acquired in 1994, further increases in sales and marketing costs relating
to Palosein/(R)/ and the new products from the 1994 acquisitions, and
increased legal fees and other expenses relating to the Company's ongoing
need to raise capital and more complex corporate structure.
17
<PAGE>
Expenses included charges of $3,675,000 and $3,329,000 to operations for
1994 and 1995, respectively, reflecting the write-off of purchased in-
process technology, as described in Note 3 to the consolidated financial
statements.
INTEREST INCOME AND EXPENSE
Interest income decreased and interest expense increased in both 1994 and
1995 as the Company liquidated certificates of deposit and borrowed funds
pursuant to short-term and long-term interest bearing obligations to
finance increased research and development efforts.
NET LOSS
The Company incurred net losses in 1993, 1994 and 1995. In 1993 the
Company recorded non-recurring costs and expenses of $1,531,000 ($.31 per
share) relating to a contest for control of the Company. The 1994 loss
includes a $3,675,000 ($.58 per share) charge to operations for the write-
off of purchased in-process technology related to the acquisitions of OXIS
S.A. and IBC. Similarly, the 1995 loss includes a $3,329,000 ($.31 per
share) charge to operations for the write-off of purchased in-process
technology related to the acquisition of Therox. Excluding these unusual
charges, the Company would have incurred a net income of $46,000, or $.01
per share for 1993; a net loss of $1,892,000, or $.30 per share for 1994;
and a net loss of $5,563,000, or $.51 per share for 1995.
Increased research and development expenditures and selling, general and
administrative expenses from the businesses acquired late in the third
quarter of 1994 and increased research and development expenditures
relating to the acquisition of Therox early in the third quarter of 1995
contributed to the increased losses.
The Company expects to incur a substantial net loss for 1996. If
additional capital is raised through further sales of securities (See
Financial Condition, Liquidity and Capital Resources), the Company plans to
continue to invest in research and development activities and incur sales,
general and administrative expenses in amounts greater than its anticipated
near-term product margins. If the Company is unable to raise sufficient
additional capital, it will have to cease, or severely curtail, its
operations. In this event, while expenses will be reduced, expense levels,
and the potential write down of various assets, would still be in amounts
greater than anticipated revenues.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 727,000 $ 936,000
Certificates of deposit -- 496,000
Accounts receivable 823,000 740,000
Inventories 953,000 673,000
Prepaid and other 262,000 228,000
---------- -----------
Total current assets 2,765,000 3,073,000
Property and equipment, net 1,092,000 1,298,000
Assets under capital leases, net 1,198,000 1,340,000
Technology for developed products and
custom assays, net 4,498,000 5,215,000
Other assets 317,000 268,000
---------- -----------
Total assets $9,870,000 $11,194,000
========== ===========
</TABLE>
See accompanying notes.
19
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ -- $ 340,000
Other notes payable 1,616,000 --
Accounts payable 1,182,000 1,562,000
Customer deposits 250,000 1,116,000
Accrued liabilities 903,000 628,000
Current portion of capital lease obligations 283,000 473,000
------------ ------------
Total current liabilities 4,234,000 4,119,000
Capital lease obligations 47,000 297,000
8% convertible subordinated debentures 1,255,000 --
Other liabilities 30,000 79,000
Commitments and contingencies (Notes 1, 3 and 11)
Shareholders' equity:
Preferred stock - $.01 par value; 5,000,000 shares
authorized; 642,583 issued and outstanding
(liquidation preference of $1,500,000) 6,000 --
Common stock - $.50 par value; 25,000,000 shares
authorized; 12,124,423 shares issued and outstanding 6,062,000 4,661,000
Additional paid in capital 25,210,000 20,230,000
Accumulated deficit (27,031,000) (18,139,000)
Accumulated translation adjustments 57,000 (53,000)
------------ ------------
Total shareholders' equity 4,304,000 6,699,000
------------ ------------
Total liabilities and shareholders' equity $ 9,870,000 $ 11,194,000
============ ============
</TABLE>
See accompanying notes.
20
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues:
Sales $ 4,982,000 $ 3,325,000 $ 2,315,000
Royalties and license fees 154,000 145,000 729,000
----------- ----------- -----------
Total revenues 5,136,000 3,470,000 3,044,000
Costs and expenses:
Cost of sales 2,939,000 2,074,000 1,330,000
Research and development 4,299,000 1,670,000 813,000
Sales, general and administrative 3,332,000 1,652,000 1,008,000
Purchased in-process technology (Note 3) 3,329,000 3,675,000 --
Control contest -- -- 1,531,000
----------- ----------- -----------
Total costs and expenses 13,899,000 9,071,000 4,682,000
----------- ----------- -----------
Operating loss (8,763,000) (5,601,000) (1,638,000)
Interest income 42,000 82,000 153,000
Interest expense (171,000) (48,000) --
----------- ----------- -----------
Net loss $(8,892,000) $(5,567,000) $(1,485,000)
=========== =========== ===========
Net loss per share $(0.82) $(0.88) $(0.30)
=========== =========== ===========
Weighted average number of shares
used in computation 10,854,149 6,350,097 4,982,670
=========== =========== ===========
</TABLE>
See accompanying notes.
21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(8,892,000) $(5,567,000) $(1,485,000)
Adjustments to reconcile net loss to cash provided
by (used for) operating activities:
Depreciation and amortization 1,369,000 551,000 53,000
Purchased in-process technology 3,329,000 3,675,000 --
Changes in assets and liabilities:
Accounts receivable (70,000) 258,000 201,000
Inventories (17,000) (186,000) (105,000)
Other current assets 209,000 (19,000) 12,000
Accounts payable (565,000) 562,000 (248,000)
Customer deposits (866,000) 1,116,000 --
Accrued liabilities 251,000 (8,000) (7,000)
----------- ----------- -----------
Net cash provided by (used for)
operating activities (5,252,000) 382,000 (1,579,000)
Cash flows from investing activities:
Redemption of certificates of deposit 496,000 884,000 2,098,000
Purchase of equipment (99,000) (40,000) (69,000)
Acquisition and stock issuance costs (Note 3) -- (1,361,000) --
Cash of businesses acquired (Note 3) 143,000 273,000 --
Other (136,000) 19,000 --
----------- ----------- -----------
Net cash provided by (used for)
investing activities 404,000 (225,000) 2,029,000
Cash flows from financing activities:
Short-term borrowing 1,366,000 296,000 --
Proceeds from issuance of long-term debt 1,255,000 -- --
Costs in connection with isssuance of long-term debt (152,000) -- --
Proceeds from issuance of stock, net of related cost 3,077,000 -- --
Repayment of short-term notes (340,000) -- --
Repayment of capital lease obligations and
other liabilities (573,000) (275,000) --
----------- ----------- -----------
Net cash provided by financing activities 4,633,000 21,000 --
Effect of exchange rate changes on cash 6,000 -- --
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (209,000) 178,000 450,000
Cash and cash equivalents - beginning of year 936,000 758,000 308,000
----------- ----------- -----------
Cash and cash equivalents - end of year $ 727,000 $ 936,000 $ 758,000
----------- ----------- -----------
Supplemental schedule of noncash operating and
financing activities:
Inventory purchase with deferred payment terms $ 250,000 -- --
Common stock issued as incentive to purchase notes $ 156,000 -- --
</TABLE>
See accompanying notes.
22
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Accumulated Total
---------------- ---------------------- paid-in Accumulated translation shareholders'
Shares Amount Shares Amount capital deficit adjustments equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
January 1, 1993 4,982,670 $2,491,000 $12,863,000 $(11,087,000) $ 4,267,000
Net loss (1,485,000) (1,485,000)
--------- ---------- ----------- ------------ -----------
Balances,
December 31, 1993 4,982,670 2,491,000 12,863,000 (12,572,000) 2,782,000
Series A preferred and
common shares issued in
connection with 1994
business combinations
(Note 3) 40,000 $ -- 4,340,092 2,170,000 7,367,000 9,537,000
Accumulated
translation adjustments $(53,000) (53,000)
Net loss (5,567,000) (5,567,000)
------ ------ --------- ---------- ----------- ------------ -------- ----------
Balances,
December 31, 1994 40,000 -- 9,322,762 4,661,000 20,230,000 (18,139,000) (53,000) 6,699,000
Shares issued in
connection with short-
term notes 93,300 47,000 109,000 156,000
Sale of common shares 1,227,625 614,000 1,089,000 1,703,000
Conversion of Series A
preferred shares to
common (40,000) -- 40,000 20,000 (20,000) --
Shares issued in
connection with 1995
business combination
(Note 3) 1,440,736 720,000 2,633,000 3,353,000
Series B preferred shares
issued (Note 3) 642,583 6,000 1,169,000 1,175,000
Accumulated translation
adjustments 110,000 110,000
Net loss (8,892,000) (8,892,000)
------- ------ ---------- ---------- ----------- ------------ -------- -----------
Balances,
December 31, 1995 642,583 $6,000 12,124,423 $6,062,000 $25,210,000 $(27,031,000) $ 57,000 $ 4,304,000
======= ====== ========== ========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
OXIS International, Inc. (the "Company") develops, manufactures and markets
selected therapeutic and diagnostic products. The Company's research and
development efforts are concentrated principally in the development of
products to diagnose, treat and prevent diseases associated with free
radicals and reactive oxygen species. Headquartered in Portland, Oregon,
the Company operates research and development facilities in Malvern,
Pennsylvania, and near Paris, France.
The Company has historically licensed and sold pharmaceutical forms of
superoxide dismutase (SOD) for human and veterinary use. In 1994, with the
acquisitions of businesses as described in Note 3, the Company began
selling therapeutic drug monitoring assays and research assays to measure
markers of oxidative stress, and began performing custom assay development.
Therapeutic drug monitoring assays are manufactured by the Company in the
United States and are sold to hospital clinical laboratories and reference
laboratories by an in-house sales force and a network of distributors both
within and outside the United States. Assays to measure markers of
oxidative stress are manufactured by the Company in France and are sold to
distributors for resale to researchers, primarily in Europe, the United
States and Japan.
These financial statement have been prepared on a going concern basis which
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred losses in each
of the last three years, and at December 31, 1995, the Company's current
liabilities exceeded its current assets by $1,469,000. These factors,
among others, may indicate that the Company may be unable to continue as a
going concern for a reasonable period of time. These financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification
of liabilities that may be necessary should the Company be unable to
continue as a going concern. The Company's continuation as a going concern
is contingent upon its ability to obtain additional financing, and to
generate revenue and cash flow to meet its obligations on a timely basis.
During the first quarter of 1996 the Company is seeking additional capital
through a private placement of up to $4,000,000 of its Series C Preferred
Stock. On March 4, 1996, the Company had closed the sale of 587,053 shares
of Series C Preferred Stock for $763,000. If the Company is able to sell
the entire $4,000,000 of Series C Preferred Stock, it still expects that
additional capital will be required during 1996 to continue operating in
accordance with its current plans. If the Company is unable to raise
additional capital it intends to curtail its operations through the
reduction of personnel and facility costs and by reducing its research
24
<PAGE>
and development efforts. If the Company were to be unable to sufficiently
curtail its costs in such a situation, it might be forced to seek
protection of the courts through reorganization, bankruptcy or insolvency
proceedings.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying balance sheets include the
accounts of the Company as well as its subsidiaries. The results of
operations of the Company's French subsidiary since its purchase by the
Company on September 7, 1994, are included in the accompanying statements
of operations and cash flows. The functional currency of the Company's
French subsidiary is the French franc. The French subsidiary's assets and
liabilities are translated at the exchange rate at the end of the year, and
its statement of operations is translated at the average exchange rates
during the period for which its revenues and expenses are included in the
consolidated statement of operations. Gains or losses resulting from
foreign currency translation are accumulated as a separate component of
shareholders' equity. All significant intercompany balances and
transactions are eliminated in consolidation.
CASH EQUIVALENTS consist of money market accounts with commercial banks.
INVENTORIES are stated at the lower of cost or market. Cost has been
determined by using the first-in, first-out and specific identification
methods. Inventories at December 31, 1995 and 1994, consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Raw materials $173,000 $179,000
Work in process 354,000 357,000
Finished goods 426,000 137,000
-------- --------
Total $953,000 $673,000
======== ========
</TABLE>
PROPERTY AND EQUIPMENT is stated at cost, or, in the case of property and
equipment acquired in transactions accounted for by the purchase method, at
the estimated fair market value at the date of the acquisition (which is
then considered to be the Company's cost). Depreciation of equipment is
computed using the straight-line method over estimated useful lives of
three to ten years. Leasehold improvements are amortized over the shorter
of five years or the remaining lease term. Assets acquired under capital
leases are being amortized over estimated useful lives of four to ten
years.
25
<PAGE>
Property and equipment at December 31, 1995 and 1994, consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Furniture and office equipment $ 346,000 $ 319,000
Laboratory and manufacturing
equipment 707,000 649,000
Automobile 15,000 15,000
Leasehold improvements 806,000 710,000
---------- ----------
Property and equipment, at cost 1,874,000 1,693,000
Accumulated depreciation and
amortization (782,000) (395,000)
---------- ----------
Property and equipment, net $1,092,000 $1,298,000
========== ==========
</TABLE>
TECHNOLOGY - Technology for developed products and custom assays, which was
acquired in the 1994 business combinations described in Note 3, is being
amortized over estimated useful lives of seven to ten years. Accumulated
amortization of technology for developed products and custom assays was
$973,000 as of December 31, 1995 and $239,000 as of December 31, 1994.
The Company periodically reviews net cash flows from sales of products and
projections of net cash flows from sales of products on an undiscounted
basis to assess recovery of intangible assets.
REVENUE RECOGNITION - The Company normally recognizes product sales upon
shipment of the product to the customer. Product sales may be recorded on
the scheduled shipment date if the customer has delayed shipment, but has
agreed to accept title to the product and has paid for the product. Sales
from custom assay development contracts is recognized as the work is
performed. Revenue derived from royalties pursuant to license agreements is
recognized after sales information is reported by licensees.
INCOME TAXES - The Company accounts for income taxes under statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires deferred income taxes be provided to reflect temporary differences
between financial and tax bases of assets and liabilities using presently
enacted tax rates and laws.
NET LOSS PER SHARE - Net loss per share is computed based upon the average
number of common shares outstanding and, if dilutive, the incremental
shares issuable upon the assumed exercise of stock options or warrants and
the assumed conversion of convertible debentures and preferred stock.
26
<PAGE>
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of sales and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount reported in the
balance sheet for cash and cash equivalents, certificates of deposit,
accounts receivable, notes payable, customer deposits and accrued
liabilities approximates fair value due to the short-term nature of the
accounts. The carrying amount reported in the balance sheet for 8%
convertible subordinated debentures approximates fair value because the
terms of the debentures were determined and the debentures were sold
shortly before the end of 1995.
3. BUSINESS COMBINATIONS
On September 7, 1994, the Company acquired Bioxytech S.A., a French
company, and International BioClinical, Inc. ("IBC"), an Oregon
corporation. The name of Bioxytech S.A. was subsequently changed to OXIS
International S.A. ("OXIS S.A.") OXIS S.A. was acquired through an
exchange of shares that resulted in the Company owning in excess of 99% of
the outstanding stock of OXIS S.A., which thus became a subsidiary of the
Company. IBC was acquired through a merger with and into the Company,
which (1) terminated the separate existence of IBC by merging it into the
Company, and (2) resulted in the conversion of the outstanding stock of IBC
into stock of the Company. Two of the Company's directors were also
directors and major shareholders of IBC.
In exchange for the Bioxytech S.A. shares, the Company issued a total of
2,341,599 shares of the Company's common stock and 40,000 shares of the
Company's non-voting preferred stock (which have subsequently been
converted into 40,000 shares of common stock). In addition, the Bioxytech
S.A. shareholders may receive up to 107,670 shares of the Company's capital
stock if they meet certain participation levels in a contemplated private
placement of equity securities of the Company.
The merger of IBC with and into the Company resulted in the conversion of
IBC's common stock into 1,998,493 shares of the Company's common stock.
The acquisitions of OXIS S.A. and IBC have been accounted for as purchases
and, accordingly, the acquired assets and liabilities were recorded at
their estimated fair market values as of the date of acquisition. The
aggregate purchase price of $9,811,000 (4,380,092 shares issued times the
average per share closing price of the Company's common stock for the five
days ended September 8, 1994, discounted 30% for certain trading
restrictions and less costs of $274,000 directly attributable to issuance
of stock in connection with the acquisitions) plus direct costs for the
acquisitions of $881,000 have been allocated to the
27
<PAGE>
assets and liabilities acquired. The Company also issued options to purchase
214,700 shares of the Company's common stock in connection with the
acquisitions. No value was assigned to these options because the exercise
price of the options was in excess of the market value of the common stock.
The total cost of the acquisitions of Bioxytech and IBC has been allocated
to the assets acquired and liabilities assumed as follows:
<TABLE>
<CAPTION>
OXIS S.A. IBC Total
------------ ------------ ------------
<S> <C> <C> <C>
Cash $ 150,000 $ 123,000 $ 273,000
Other assets 369,000 611,000 980,000
Property, equipment and capitalized
leases 2,434,000 294,000 2,728,000
Technology for developed products and
custom assay development
capabilities 1,503,000 3,995,000 5,498,000
Technology for in-process products 3,368,000 307,000 3,675,000
Less liabilities assumed (2,011,000) (451,000) (2,462,000)
----------- ---------- -----------
Total acquisition cost $ 5,813,000 $4,879,000 $10,692,000
=========== ========== ===========
</TABLE>
The Company's consolidated results of operations include the operating
results of the acquired companies since the acquisitions.
Approximately $3,675,000 ($.58 per share) of the total purchase price
represented technology relating to research and development projects that
were in process by the acquired companies that had no alternative future
use other than the completion of these projects. In accordance with
generally accepted accounting principles, these costs have been charged to
operations immediately upon completion of the acquisitions.
The following table summarizes the unaudited pro forma combined results of
operations for the years ended December 31, 1994 and 1993 as if the
acquisitions had occurred at the beginning of the years presented:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Total revenues $ 5,809,000 $ 6,736,000
Net loss $(4,742,000) $(5,207,000)
Net loss per share (based on 9,322,762
shares outstanding) $ (.51) $ (.56)
</TABLE>
28
<PAGE>
The above table includes, on an unaudited pro forma basis, the Company's
financial information for the years ended December 31, 1994 and 1993,
combined with the financial information of OXIS S.A. and IBC for the same
twelve-month periods. The above table excludes the one-time $3,675,000
charge for purchased in-process technology arising from the acquisitions.
Pro forma results for the year ended December 31, 1993 include non-
recurring costs of $1,531,000 in connection with a control contest.
The unaudited pro forma combined results of operations are presented for
illustrative purposes only and are not necessarily indicative of the
operating results that would have occurred had the acquisitions been
consummated at the beginning of the periods presented, nor are they
necessarily indicative of future operating results.
On July 19, 1995, the Company consummated the acquisition of Therox
Pharmaceuticals, Inc. ("Therox") pursuant to a transaction wherein Therox
was merged with and into a wholly-owned subsidiary of the Company. Therox
was a Philadelphia-based start-up company focused on the development of
therapeutics to treat diseases associated with damage from free radicals.
The Company issued 1,440,736 shares of its common stock to Therox
stockholders in exchange for all of the Therox capital stock. In addition,
the acquisition agreement provides for payment of up to $2,000,000 by the
Company to the Therox stockholders based on the successful
commercialization of the Therox technologies.
The acquisition of Therox has been recorded as a purchase and, accordingly,
the acquired assets and liabilities were recorded at their estimated fair
values as of the date of acquisition. The aggregate purchase price of
$3,353,000 (1,440,736 shares issued times the average per share closing
price of the Company's common stock for the five days ended July 20, 1995,
discounted 30% for certain trading restrictions) has been allocated to the
assets and liabilities acquired.
The cost of the acquisition of Therox has been allocated to the assets
acquired and liabilities assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 143,000
Equipment 16,000
Technology for in-process products 3,329,000
Other assets 23,000
Less liabilities assumed (158,000)
----------
Acquisition cost $3,353,000
==========
</TABLE>
The Company's consolidated results of operations include the operating
results of the acquired company since the acquisition.
29
<PAGE>
Approximately $3,329,000 of the purchase price represented technology related
to research and development projects that are in process and that has no
alternative future use other than the completion of these projects.
Accordingly, these costs have been charged to operations immediately upon
completion of the acquisition.
The following table presents the unaudited pro forma combined results of
operations for the years ended December 31, 1995 and 1994 as if the
acquisition had occurred at the beginning of the periods presented:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Total revenues $ 5,136,000 $ 3,470,000
Net loss $(5,990,000) $(6,088,000)
Net loss per share (based
on 12,124,423 shares outstanding) $ (.49) $ (.50)
</TABLE>
The above table includes, on an unaudited pro forma basis, the Company's
financial information for the years ended December 31, 1995 and 1994, combined
with the financial information of Therox for the same periods. The above
table excludes the one-time $3,329,000 charge for purchased in-process
technology arising from the 1995 acquisition, but includes non-recurring costs
of $3,675,000 for purchased in-process technology from the Company's September
1994 business acquisitions.
The unaudited pro forma combined results of operations are presented for
illustrative purposes only and are not necessarily indicative of the operating
results that would have occurred had the acquisition been consummated at the
beginning of the periods presented, nor are they necessarily indicative of
future operating results.
Simultaneously with the Therox acquisition, a Series B Preferred Stock
Purchase Agreement was entered into between the Company and two venture
capital firms (S.R. One, Limited and Brantley Venture Partners II, L.P.) which
were major stockholders of Therox. Pursuant to this agreement, the Company
sold 642,583 shares of its Series B Preferred Stock for an aggregate price of
$1,500,000.
Costs of approximately $325,000 directly attributable to the issuance of the
Series B Preferred Stock and the common stock issued in the Therox acquisition
have been recorded as a reduction in the proceeds from the issuance of the
shares.
30
<PAGE>
4. NOTES PAYABLE
Notes payable at December 31, 1995 consisted of the following:
8% notes payable to certain shareholders who are former
Bioxytech S.A. shareholders, due February 5, 1996,
secured by assets relating to certain of the Company's
diagnostic products $766,000
Note payable to Sanofi S.A., due May 4, 1996, interest
at prime plus 2% (10-1/2% as of December 31, 1995), secured
by all of the Company's assets 600,000
Liability, without interest, under inventory purchase
agreement, due May 1997 or earlier if 75% of the related
inventory is sold 250,000
----------
$1,616,000
==========
The shareholders who hold the 8% notes have commitments to invest an amount
at least equal to the note balances in stock of the Company. During March
1996 the Company is negotiating with these shareholders terms for converting
these notes to stock of the Company.
5. CAPITALIZED LEASES
The Company's French subsidiary leases certain equipment, furniture and
fixtures under capital leases. The future minimum lease payments on these
capital leases as of December 31, 1995, were as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C> <C>
1996 $309,000
1997 47,000
--------
Total minimum capital lease obligations 356,000
Less amounts representing interest 26,000
--------
Present value of net minimum obligation 330,000
Less amount due within one year 283,000
--------
Long term obligation under capital leases $ 47,000
========
</TABLE>
Leased assets, which consist principally of laboratory and office equipment,
are reported in the December 31, 1995, balance sheet at $1,418,000 less
accumulated amortization of $220,000.
31
<PAGE>
6. 8% CONVERTIBLE SUBORDINATED DEBENTURES
In November and December 1995, the Company completed a private placement
pursuant to which $1,255,000 of its 8% Convertible Subordinated Debentures
were issued. The debentures are unsecured and are subordinated to other
obligations of the Company up to an aggregate of $3,000,000. The Debentures
are due December 31, 1997; interest is payable semiannually on June 30 and
December 31.
The debentures are convertible into shares of the Company's common stock at
the option of the holders. Any time after six months following closing of the
private placement, the Company may require conversion of the debentures. The
debentures are convertible at a conversion price of $1.25 per common share.
However, the conversion price shall be reduced to $.65 per share if the
closing price of the Company's common stock is less than $.65 for fifteen
consecutive trading days. In such case, the debentures could be converted
into a maximum of 1,930,769 shares of common stock.
7. SHAREHOLDERS' EQUITY
PREFERRED STOCK - Terms of the preferred stock are to be fixed by the Board
of Directors at such time as the preferred stock is issued. The 40,000 shares
of Series A Preferred Stock issued during 1994 were nonvoting and were
converted to common stock on a one share for one share basis during 1995. The
642,583 shares of Series B Preferred Stock are convertible into common stock
on a one-for-one basis and have the same voting rights as the common stock.
The Series B Preferred Stock has certain preferential rights with respect to
liquidation and dividends.
In February and March 1996, the Company has issued 587,053 shares of Series C
Preferred Stock. Each share of Series C Preferred Stock is initially
convertible into one share of the Company's common stock at the option of the
holder at any time. After six months following the closing of the sales of
Series C preferred Stock, the conversion ratio may be adjusted under certain
circumstances, and after eight months following the closing, the Company may
have the right to automatically convert the Series C Preferred Stock into
common stock under certain circumstances. The Series C Preferred Stock has
the same voting rights as the Company's common stock based on the number of
shares into which the Series C Preferred Stock is convertible, subject to
adjustment in certain circumstances.
STOCK WARRANTS - In prior years, the Company issued warrants to purchase
shares of common stock to certain officers and key employees (none of whom
any longer hold a position with the Company) and to former directors. These
warrants are exercisable at $2.875 per share and expire through 1999. At
December 31, 1995 and 1994, warrants to purchase 1,012,500 shares were
exercisable. No warrants were exercised during the years ended 1993, 1994 or
1995.
32
<PAGE>
In connection with the issuance of common stock in May 1995, the Company
issued to its placement agent a warrant to purchase 122,763 shares of common
stock at $2.89 per share. This warrant was immediately exercisable upon
issuance and remained outstanding at December 31, 1995.
Warrants to purchase 200,800 common shares at $2.00 per share were issued to
purchasers of the Company's 8% Convertible Subordinated Debentures and
remained outstanding at December 31, 1995. The number of common shares which
may be purchased pursuant to these warrants may be increased in the event
that the number of common shares into which the related debentures may be
converted is increased. The maximum number of common shares to which these
warrants might entitle the holders is 386,154.
Also in connection with the issuance of its 8% Convertible Subordinated
Debentures, the Company issued to its placement agent warrants to purchase
100,400 shares of common stock at $1.375 per share. These warrants were
immediately exercisable upon issuance and remained outstanding at December
31, 1995.
STOCK OPTIONS - In September 1994, the Company's shareholders approved the
1994 Stock Incentive Plan and the reservation of 400,000 shares of the
Company's common stock for issuance thereunder. In August 1995, the
shareholders approved an amendment to the plan increasing the shares reserved
for issuance thereunder to 1,200,000. The plan permits granting stock options
to acquire shares of the Company's common stock, awarding stock bonuses of
the Company's common stock, and granting stock appreciation rights. Options
granted and outstanding under the plan are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- -------------------------
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 90,000 $3.13 - $3.50 --
Granted 317,900 $2.25 - $3.50 90,000 $3.13 - $3.50
Forfeitures (25,000) $2.25 --
------- ------
Outstanding at end
of year 382,900 $2.25 - $3.50 90,000 $3.13 - $3.50
======= ======
Exercisable at end
of year 219,294 $2.25 - $3.50 75,000 $3.50
======= ======
</TABLE>
8. INCOME TAXES
INCOME TAX PROVISION - Income tax provisions were not necessary in 1995, 1994
and 1993 due to net losses.
33
<PAGE>
DEFERRED TAXES - Deferred taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating losses and tax credit carryforwards.
The tax effects of significant items comprising the Company's deferred taxes
as of December 31 were as follows:
<TABLE>
<CAPTION>
United States taxes: 1995 1994
<S> <C> <C>
Deferred tax assets:
Federal net operating loss carryforward
and capitalized research and development
expenses $ 4,829,000 $ 2,110,000
Federal R&D tax credit carryforward 495,000 465,000
State net operating loss carryforward and capitalized
research and development expenses 125,000 372,000
Deferred tax liabilities - book basis in excess
of noncurrent assets acquired in the
acquisition of IBC (1,338,000) (1,575,000)
----------- -----------
Net deferred tax assets 4,111,000 1,372,000
Valuation allowance (4,111,000) (1,372,000)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
French taxes: 1995 1994
Deferred tax assets:
Net operating loss carryforward $ 5,721,000 $ 5,286,000
Impact of temporary differences (225,000) 453,000
----------- -----------
Total 5,496,000 5,739,000
Valuation allowance (5,496,000) (5,739,000)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
</TABLE>
Temporary differences for French taxes result primarily from leases treated
as operating leases for French tax reporting and as capital leases in the
consolidated financial statements.
The tax benefits ($5,136,000) of the net operating losses of $15,410,000
which existed at the date of acquisition (September 7, 1994) of the French
subsidiary will be recorded as a reduction of the net unamortized balance of
property, equipment, capitalized lease assets and intangible assets of
$3,147,000 when and if realized, and the remaining benefit will be recorded
as a reduction of income tax expense.
Statement of Financial Accounting Standards No. 109 requires that the tax
benefit of net operating losses, temporary differences and credit
carryforwards be recorded as an asset to the extent that management assesses
that realization is "more likely than not." Realization of
34
<PAGE>
the future tax benefits is dependent on the Company's ability to generate
sufficient taxable income within the carryforward period. Because of the
Company's recent history of operating losses, management has provided a
valuation allowance for its net deferred tax assets.
TAX CARRYFORWARDS - At December 31, 1995, the Company had net operating loss
carryforwards of approximately $5,120,000 to reduce United States federal
taxable income in future years, and research and development tax credit
carryforwards of $495,000 to reduce United States federal taxes in future
years. In addition, the Company's French subsidiary had operating loss
carryforwards of $17,165,000 (84,183,000 French francs) to reduce French
taxable income in future years. These carryforwards expire as follows:
<TABLE>
<CAPTION>
United States R&D tax French
net operating credit operating loss
Year of expiration loss carryforward carryforward carryforward
<S> <C> <C> <C>
1996 $1,219,000 $ 1,655,000
1997 2,670,000 1,270,000
1998 208,000 1,312,000
1999 111,000 233,000
2000 -- -- --
2001-2010 912,000 $495,000 --
No expiration -- -- 12,695,000
---------- -------- -----------
$5,120,000 $495,000 $17,165,000
========== ======== ===========
</TABLE>
Utilization of the United States tax carryforwards is subject to certain
restrictions in the event of a significant change (as defined in Internal
Revenue Service guidelines) in ownership of the Company.
9. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
One domestic customer and three foreign licensees have each accounted for
significant portions of the Company's revenues during the past three years.
The percentages of total revenues derived from sales to, and royalties from,
these major customers are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Domestic customer 18% 35% 50%
Spanish licensee 16% 18% 8%
German licensee 2% 9% 23%
Italian licensee -- 2% 7%
</TABLE>
35
<PAGE>
The Company's domestic customer to whom sales of bovine superoxide dismutase
("bSOD") accounted for 18%, 35% and 50% of the Company's revenues in 1995,
1994 and 1993, respectively, announced in the fourth quarter of 1995 that the
clinical trial in which it was using bSOD purchased from the Company failed
to show the desired results. Therefore, sales of bSOD to this customer are
not expected to continue.
The Company limits its foreign exchange risk by buying and selling bulk bSOD
in a single currency, the Dutch guilder. The Company maintains a bank account
in The Netherlands for receipt and disbursement of Dutch guilders and had the
equivalent of $81,000 and $659,000 in that account at December 31, 1995 and
1994, respectively. Foreign currency transaction gains and losses were not
material.
10. GEOGRAPHIC AREA INFORMATION
The Company operates in a single industry segment: the development,
manufacture and marketing of therapeutic and diagnostic products. The
Company's foreign operations consist of research and development and
manufacturing facilities and certain marketing activities conducted by the
Company's subsidiary in France. Sales and costs associated with bSOD
manufactured in the Netherlands are considered to be United States
operations, since the contract to manufacture bSOD and all related sales
activities are administered in the United States. Similarly, royalties from
foreign customers that relate to bSOD-based products are considered to be
export sales from the United States, since the product was developed in the
United States.
Sales, operating income and identifiable assets, classified by the major
geographic areas in which the Company operates, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States $ 2,686,000 $ 2,053,000 $ 1,887,000
Export sales from the U.S. 1,878,000 1,257,000 1,157,000
France 572,000 160,000 --
----------- ----------- -----------
Total $ 5,136,000 $ 3,470,000 $ 3,044,000
=========== =========== ===========
Operating income (loss):
United States $(5,653,000) $(1,410,000) $(1,638,000)
France (3,110,000) (4,191,000) --
----------- ----------- -----------
Total $(8,763,000) $(5,601,000) $(1,638,000)
=========== =========== ===========
Identifiable assets:
United States $ 7,824,000 $ 9,587,000 $ 3,124,000
France 3,866,000 2,570,000 --
Eliminations (1,820,000) (963,000) --
----------- ----------- -----------
Total $ 9,870,000 $11,194,000 $ 3,124,000
=========== =========== ===========
</TABLE>
36
<PAGE>
11. LEASE COMMITMENTS
The Company leases its facilities in Oregon under an operating lease that
expires in 1997, and leases its facilities in Pennsylvania and France under
operating leases that expire in 1998. Future lease payments are scheduled as
follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $480,000
1997 436,000
1998 245,000
</TABLE>
Rental expense included in the accompanying statements of operations was
$492,000 in 1995, $193,000 in 1994 and $75,000 in 1993.
12. EUROPEAN REGULATORY DEVELOPMENTS
The European market for the Company's bovine bSOD was adversely impacted by a
series of regulatory developments in 1994.
The Italian Health Ministry withdrew the marketing authorization of all
pharmaceutical products composed of orgotein, including Oxinorm (produced
from the Company's product). As indicated in Note 9, the Company's revenues
from its Italian licensee have ceased, and the Company does not anticipate
additional sales or royalties from Oxinorm in Italy. During 1995, SmithKline
Beecham Farmaceutici S.p.A., the Company's licensee in Italy, sold its
remaining bulk Oxinorm inventory to the Company.
During 1994 the Company was also notified that the governments of Austria and
Germany had asked Grunenthal, the Company's licensee for those countries, to
withdraw its Peroxinorm brand of orgotein from the Austrian and German
markets. Grunenthal has also discontinued distributing Peroxinorm in several
other countries where sales were dependent upon the German registration. As a
result, the Company anticipates that royalties from Grunenthal for the
foreseeable future will be substantially less than in previous years.
Because of the action of regulatory authorities in other European countries,
the Company's licensee for Spain has had informal discussions with Spanish
regulatory authorities regarding the Company's bSOD product. Although no
action has been taken by those authorities with regard to the Company's
product, future sales in Spain may be affected by either regulatory action in
Spain, or safety concerns stemming from such actions in other countries.
37
<PAGE>
13. CONTROL CONTEST EXPENSES
In 1993, the Company incurred expenses of $1,531,000 ($.31 per share) in
connection with a contest for management control of the Company. Costs
incurred by current officers and directors were advanced by IBC. The
President and the Chairman of the Company were major shareholders of IBC.
Reimbursement of IBC for such expenses was approved at the Company's 1993
annual shareholders' meeting.
14. 401(K) SAVINGS PLAN
The Company has a 401(k) saving plan (the "Plan") which covers all United
States employees who meet certain minimum age and service requirements. The
Company's matching contribution to the Plan for each year is 100% of the
first $1,000 of each employee's salary deferral and 33-1/3% of the next
$3,000 of salary deferral. The Company's contributions have not been
material.
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
OXIS International, Inc.:
We have audited the accompanying consolidated balance sheets of OXIS
International, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the management of OXIS
International, Inc. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of OXIS International, Inc. and
subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements for the year ended December 31, 1995,
have been prepared assuming that the Company will continue as a going concern.
The Company is engaged in developing, manufacturing and marketing selected
therapeutic and diagnostic products. As discussed in Note 1 to the financial
statements, the Company has incurred losses in each of the last three years,
and at December 31, 1995, the Company's current liabilities exceeded its
current assets by $1,469,000, raising substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
March 7, 1996
Portland, Oregon
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
40
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated herein by reference from
the material contained under the caption "Proposal No. 1-Election of
Directors" in the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
Forms 3 Initial Statement of Beneficial Ownership of Securities were not
timely filed upon the appointment of Mr. Lang and Mr. McCamant to the Board of
Directors in January 1996. Late filings of the Forms 3 have been made.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference
from the material contained under the caption "Compensation of Executive
Officers" in the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item is incorporated herein by reference
from the material contained under the caption "Proposal No. 1-Election of
Directors" in the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated herein by reference
from the material contained under the caption "Proposal No. 1-Election of
Directors" in the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS
See pages 19 to 39.
2. FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not applicable or the
required information is included in the financial statements and
notes thereto.
3. EXHIBITS
See Exhibit Index - page 44.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the fourth
quarter of 1995.
(c) Exhibits specified by item 601 of Regulation S-K.
See Exhibit Index - page 44.
(d) Financial statement schedules required by Regulation S-K are omitted
because they are not applicable or the required information is included in
the financial statements and notes hereto.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 22, 1996
OXIS INTERNATIONAL, INC.
Registrant
By: /s/ Anna D. Barker
-------------------------------------
Anna D. Barker
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jon S. Pitcher
-------------------------------------
Jon S. Pitcher
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following directors on behalf of the
Registrant.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
s/ Anna D. Barker March 22, 1996 s/ Timothy G. Biro March 22, 1996
----------------- -------------- ------------------ ---------------
Anna D. Barker Date Timothy G. Biro Date
s/ Stuart S. Lang March 22, 1996 s/ Gerald D. Mayer March 22, 1996
----------------- -------------- ------------------ --------------
Stuart S. Lang Date Gerald D. Mayer Date
s/ James D. McCamant March 22, 1996 s/ David Needham March 22, 1996
-------------------- -------------- ---------------- --------------
James D. McCamant Date David Needham Date
s/ Ray R. Rogers March 22, 1996 s/ A.R. Sitaraman March 22, 1996
---------------- -------------- ----------------- --------------
Ray R. Rogers Date A.R. Sitaraman Date
</TABLE>
43
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
<S> <C> <C>
2 (a) Agreement and Plan of Reorganization and Merger between
OXIS International, Inc., OXIS Acquisition Corporation
and Therox Pharmaceuticals, Inc. Dated July 18, 1995 (1)
2 (b) Amendment No. 1 to Agreement and Plan for Reorganization
and Merger between OXIS International, Inc., OXIS Acquisition
Corporation and Therox Pharmaceuticals, Inc. 46
3 (a) Restated Certificate of Incorporation as filed February 16, 1995 (2)
3 (b) Certificate of Designations, Preferences, and Rights of Series B
Preferred Stock (3)
3 (c) Certificate of Amendment of Restated Certificate of Incorporation
of OXIS International, Inc. as filed January 29, 1996. 48
3 (d) Bylaws of the Company as amended on June 15, 1994 (4)
4 (a) Subscription and Purchase Agreement 8% Convertible Subordinated
Debentures Due December 31, 1997 50
10 (a) 1987 Stock Purchase Warrants (5)
10 (b) 1988 Stock Purchase Warrants (6)
10 (c) Lease agreement between Bioxytech S.A. and Sofibus (7)
10 (d) Form of 8% Convertible Subordinated Debentures Due December 31,
1997 (8)
10 (e) Form of Warrant to Purchase Common Stock (9)
10 (f) OXIS International, Inc. Series B Preferred Stock
Purchase Agreement dated July 18, 1995 (10)
10 (g) Security Agreement dated February 7, 1995 between Alta-Berkeley
L.P. II and Innolion S.A. and OXIS International, Inc., and five
related promissory notes (11)
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
<S> <C> <C>
10 (h) Term Loan Agreement dated as of May 2, 1995 between
OXIS International, Inc., Bioxytech, S.A. and related
Promissory Note in the principal amount of $600,000 (12)
21 (a) Subsidiaries of OXIS International, Inc. 76
23 (a) Independent Auditors' Consent 77
27 (a) Financial data schedule 78
</TABLE>
(1) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 19, 1995.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for 1994 - Exhibit 3(a).
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
(4) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for 1992 - Exhibit 10(b).
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for 1992 - Exhibit 10(c).
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
for 1994.
(8) Incorporated by reference to the Company's Current Report on Form 8-K
dated January 3, 1996.
(9) Incorporated by reference to the Company's Current Report on Form 8-K
dated January 3, 1996.
(10) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995.
45
<PAGE>
EXHIBIT 2(b)
AMENDMENT NO. 1
TO AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This is an amendment (the "Amendment") to that certain Agreement and Plan
of Reorganization and Merger dated July 18, 1995 (the "Agreement") by and
between OXIS International, Inc., a Delaware corporation (the "Company"), OXIS
Acquisition Corporation, a Delaware corporation ("OXISub"), Therox
Pharmaceuticals, Inc., a Delaware corporation ("Therox") and certain holders of
the capital stock of Therox (the "Therox Holders"). All capitalized terms used
in this Amendment and not otherwise defined shall have the meanings set forth in
the Agreement.
RECITALS
A. Pursuant to the terms of the Agreement, the parties to the Agreement
have consummated the transactions contemplated by the Agreement, including
without limitation the merger of Therox into OXISub such that OXISub is the
surviving corporation and a wholly-owned subsidiary of the Company and each of
the former stockholders of Therox has become a stockholder of the Company.
B. The parties hereto desire to amend certain of the terms of the
Agreement, as more fully set forth hereafter, with respect to the potential
obligation of the Company to make certain payments to the Therox Stockholder
Representative on behalf of the Therox Holders for certain technologies of the
former Therox, to provide that the Company shall make any such payments only in
cash, rather than in shares of the Company's common stock or in cash, at its
election.
Now, therefore, in consideration of the premises and the mutual covenants
and conditions herein contained, the parties hereto hereby agree as follows:
AGREEMENT
1. Section 2.4 to the Agreement is hereby amended by the deletion of the
fourth sentence of such paragraph and the replacement of such sentence by the
following sentence: "All such payments shall be made in cash."
2. Except as specifically amended hereby, the Agreement shall remain
unaltered and in full force and effect.
46
<PAGE>
IN WITNESS WHEREOF, the Company, OXISub (on it own behalf and as successor
in interest of Therox), and the Therox Stockholder Representative (on behalf of
the former Therox Holders) have executed this Amendment as of the date first
above written.
THEROX STOCKHOLDER OXIS INTERNATIONAL, INC.
REPRESENTATIVE
(on behalf of the Therox Holders) By: /s/ Ray R. Rogers
-----------------
By: /s/ Timothy G. Biro Ray R. Rogers
------------------- Chairman of the Board
Timothy G. Biro
OXIS ACQUISITION CORPORATION
(on its own behalf and as
successor in interest of
Therox)
By: /s/ Ray R. Rogers
-----------------
Ray R. Rogers
Chairman of the Board
47
<PAGE>
EXHIBIT 3(c)
CERTIFICATE OF AMENDMENT OF
---------------------------
RESTATED CERTIFICATE OF INCORPORATION
-------------------------------------
OF
--
OXIS INTERNATIONAL, INC.
------------------------
OXIS International, Inc., a Delaware corporation (the "Corporation"), DOES
HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, at a duly called
meeting of the Board of Directors or by a unanimous written consent of the
directors, adopted a resolution proposing and declaring advisable the following
amendment to the Restated Certificate of Incorporation of the Corporation:
"RESOLVED that the Restated Certificate of Incorporation of this
corporation, OXIS International, Inc., a Delaware corporation (the
"Company") be amended as follows:
1. Section B.2(b) of the Certificate of Designations, Preferences and
Rights of Series B Preferred Stock of the Company (the "Series B
Certificate") is hereby amended to read in its entirety as follows:
"(b) The number of directors shall be set as provided in the Bylaws of the
Corporation. So long as any shares of Series B Preferred Stock remain
outstanding, the holders of the Series B Preferred Stock outstanding shall
vote together with the Common Stock as a single class with respect to the
election of directors."
2. Section B.2(c) of the Series B Certificate is hereby deleted in its
entirety."
SECOND: That the foregoing amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware and Section B.5 of the Corporation's Certificate of
Designations, Preferences and Rights of Series B Preferred Stock.
48
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amendment of its
Restated Certificate of Incorporation to be duly executed by its Chairman of the
Board and attested to by its Secretary this ____ day of January, 1996.
OXIS INTERNATIONAL, INC.
By: /s/ Ray R. Rogers
-----------------
Ray R. Rogers
Chairman of the Board
ATTEST:
/s/ Jon S. Pitcher
- ------------------
Jon S. Pitcher
Secretary
15820/014/107077.
49
<PAGE>
EXHIBIT 4(a)
SUBSCRIPTION AND PURCHASE AGREEMENT
UP TO 60 UNITS
8% CONVERTIBLE SUBORDINATED DEBENTURES DUE DECEMBER 31, 1997
WARRANT TO PURCHASE SHARES OF COMMON STOCK
THIS SUBSCRIPTION AND PURCHASE AGREEMENT (the "Agreement") is entered
into as of the ___ day of November, 1995 by and between OXIS INTERNATIONAL,
INC., a Delaware corporation (the "Company"), and ___________________________
(the "Investor").
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the Company and the
Investor mutually agree as follows:
ARTICLE 1
DESCRIPTION OF PROPOSED FINANCING
1.1 Authorization of Sale of Units. The Company has authorized the
offer, issuance and sale (the "Offering") of a maximum of 60 Units, each Unit
consisting of U.S. $50,000 in aggregate principal amount of eight percent (8%)
convertible subordinated debentures (the "Debentures") and a Warrant ("Warrant")
to purchase 8,000 shares of the Company's Common Stock at U.S. $2.00 per share.
The Company, upon its sole discretion, may increase the number of Units sold in
the Offering. The Debentures shall be in substantially the form attached as
Exhibit A hereto. The Warrant shall be in substantially the form attached as
Exhibit B hereto.
1.2 Purchase and Sale of the Units. Subject to the terms and conditions
of this Agreement and in reliance upon the representations and warranties
contained herein, the Company agrees to sell to the Investor and to other
investors which sign similar forms of Subscription and Purchase Agreement the
Units (consisting of Debentures and Warrants) for which each such Investor shall
subscribe. The exact amount of the Investor's subscription is set forth in
Section 13.1 hereof. The purchase price of each Unit is U.S. $50,000.
1.3 Closing. Closing of the purchase and sale of the Units contemplated
by this Agreement (herein the "Closing") shall take place at such time as agreed
between the Company and the Investor. At the Closing, the Company shall deliver
to the Investor one or more Debentures and Warrants to be purchased by it made
payable to the order of such Investor, against delivery to the Company by the
Investor of a certified or cashier's check (or other form of payment acceptable
to the Company) in the amount of the purchase price of the Units.
50
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investors that:
2.1 Disclosure. The Company has provided to the Investor, and Investor
has carefully reviewed, the Company's Confidential Private Placement Memorandum,
dated November 1, 1995 (the "Memorandum"), which includes as exhibits, without
limitation, the Company's Business Plan dated October 1995 and the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and its
quarterly reports on Form 10-Q for the quarterly periods ended March 31, 1995
and June 30, 1995 in addition to certain Risk Factors disclosure (collectively,
the "Offering Documents"). The Company has fully provided the Investor with all
the information which the Investor has requested for deciding whether to
purchase the Units.
2.2 Binding Obligation. This Agreement and each additional agreement
expressly contemplated by this Agreement, constitute a valid and legally binding
obligation of the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
3.1 High Risk Investment. The Investor is aware that investment in the
Units involves a high degree of risk. The Investor represents that it has read
and carefully considered the disclosures set forth in this Agreement, including
the risk factors enumerated herein and in the Offering Documents, and it
understands that an investment in this Offering should be considered only by a
person able to withstand a total loss of its investment.
3.2 Binding Obligations. This Agreement and each additional agreement
expressly contemplated by this Agreement, constitute a valid and legally binding
obligation of the Investor.
3.3 Corporate Investors. If the Investor is a corporation, it hereby
represents and warrants that:
(b) Organization and Standing. The Investor is a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power and
authority to own its properties and to carry on its business as now conducted.
(a) Authorization. All corporate action on the part of the
Investor, its officers and directors necessary for the authorization, execution
and delivery of this Agreement and all additional agreements expressly
contemplated by this Agreement and the performance of all obligations of the
Investor hereunder have been taken or will be taken prior to the Closing.
51
<PAGE>
ARTICLE 4
Federal and Other Securities Laws
4.1 Investment Representations and Warranties. As an inducement to the
Company to sell Units to the Investor, the Investor hereby agrees, represents
and warrants, as of the date of acceptance of the Investor's subscription:
(a) By reason of the Investor's knowledge and experience in
financial and business matters in general, and investments in particular, the
Investor is able to evaluate the merits and risks of an investment in the
Securities. For purposes of this Article 4, the term "Securities" shall mean
each of the Debentures, Warrants and shares ("Shares") of Company Common Stock
into which Debentures may be converted and Warrants may be exercised.
(b) The Investor's income and net worth are such that the
Investor is not now required, and does not contemplate in the future being
required, to dispose of any portion of any investment in the Securities to
satisfy any existing or contemplated undertaking.
(c) In evaluating the merits and risks of an investment in the
Securities, the Investor has relied solely upon the Memorandum and the advice of
his, her, or its legal counsel, tax advisors, and/or investment advisors.
(d) The Investor is able to bear the economic risk of an
investment in the Securities, including without limiting the generality of the
foregoing, the risk of losing part or all of the Investor's investment in the
Securities, and the inability to sell or transfer the Securities for an
indefinite period of time or at a price which would enable the Investor to
recoup his, her, or its investment in the Securities.
(e) The Investor's purchase of the Securities is as principal,
solely for the Investor's own account, for investment, and not with an intent to
sell, or for sale in connection with any distribution of the Securities, and no
other person has any interest in or right with respect to the Securities, nor
has the Investor agreed to give any person any such interest or right in the
future. The Investor is not purchasing the Securities as a result of any
material information about the Company's affairs that has not been publicly
disclosed.
(f) The Investor is an "accredited investor" as that term is
defined in Section 501(a) of Regulation D of the Securities Act of 1933, as
amended (the "Securities Act"). An "accredited investor" includes, among other
persons and entities, (1) a natural person whose net worth, or joint net worth
with that person's spouse, exceeds $1,000,000; (2) a natural person who has had
income in excess of $200,000 in each of the two most recent years, or, with that
person's spouse, in excess of $300,000 in those years, and who expects to have
at least that level of income in the current year; (3) a corporation,
partnership or similar business entity, not formed for the specific purpose of
acquiring the Securities, with total assets in excess of $5,000,000; and (4) any
entity in which all of the equity owners are accredited investors.
52
<PAGE>
(g) If the Investor is a corporation, partnership or trust, the
person executing this Agreement on behalf of such entity has all right, power
and authority to so execute and deliver this Agreement on behalf of such entity
and that the above representations, warranties, agreements, acknowledgments and
understandings shall be deemed to have been made on behalf of the person or
persons for whose benefit such Securities are being acquired.
(h) The Company has afforded the Investor and his, her, or its
advisors full and complete access to all information with respect to the Company
and its business and financial condition (to the extent that such information
was possessed by the Company or could be acquired by the Company without
unreasonable effort or expense) that the Investor and his, her, or its advisors
deemed necessary in order to evaluate the merits and risks of an investment in
the Securities. The Investor further represents and warrants that his, her, or
its advisors have received satisfactory and complete information concerning the
business and financial condition of the Company in response to all inquiries
made by them in respect thereof.
(i) The offer to sell Securities was directly communicated to the
Investor, in such a manner that the Investor was able to ask questions and
receive answers concerning the terms of this transaction and that at no time was
the Investor presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement or any other form of general
advertising, or invited to any promotional meeting, otherwise than in connection
and concurrently with such communicated offer. No oral representations have been
made or oral information furnished to the Investor in connection with the
placement of Securities which were in any way inconsistent with the Memorandum
or its exhibits.
4.2 Further Acknowledgments By Investor. The Investor represents and
warrants that the Investor has been advised that:
(a) The Securities have not been registered under the Securities
Act, or under the securities laws of any state and that the Securities must be
held until the Securities are registered under the Securities Act and applicable
state securities laws or an exemption from such registration is available.
(b) No federal or state agency, including the U.S. Securities and
Exchange Commission (the "Commission"), or the securities commission or
authorities of any state or regulatory jurisdiction has approved or disapproved
the Securities, passed upon or endorsed the merits of the Offering or the
accuracy or adequacy of the Memorandum, or made any finding or determination as
to the fairness of the Securities or an investment in the Securities.
(c) The Securities that the Investor will be acquiring are
"Restricted Securities" as that term is defined in Rule 144 promulgated under
the Securities Act; that the exemption from registration under Rule 144 will not
be available in any event for at least two years from the date of issuance, and
even then will not be available unless (1) a public trading market then exists
for said Securities, (2) adequate information concerning the Company is then
available to the public, and (3) other terms and conditions of Rule 144 are
complied with; and that any sale of the Securities may be made by the Investor
only in accordance with such terms and conditions.
53
<PAGE>
(d) Any and all certificates representing the Securities shall
bear a legend describing the aforementioned restrictions on the transfer of such
Securities which legend will not be removed until the Securities have been
registered under the Securities Act, the Securities are sold in accordance with
any of the provisions of Rule 144 or Rule 144A under the Securities Act, or the
Securities qualify for resale under Rule 144(k) promulgated under the Securities
Act.
(e) By executing this Agreement, the Investor further represents
that it does not have any contract, undertaking, agreement, or arrangement with
any persons in violation of any United States federal or state law to sell,
transfer, or grant participations to such person, or to any third person, with
respect to the Securities. The Securities are being acquired for investment for
the Investor's own account and not with a view to, or for resale in connection
with, any distribution thereof in the United States or to United States person;
the Investor realizes that the Company's ability to offer the Securities to the
Investor without compliance with the registration requirements of the Securities
Act has been predicated, in part, by reliance of the Investor's representations.
THE INVESTOR FURTHER UNDERSTANDS THAT TRANSFER OF THE SECURITIES IN THE UNITED
STATES AND TO UNITED STATES PERSONS IS RESTRICTED UNDER THE SECURITIES ACT AND
UNDER STATE SECURITIES LAWS, NOTWITHSTANDING THAT THE OFFER AND SALE OF THE
SECURITIES HAS BEEN MADE IN RELIANCE ON REGULATIONS PROMULGATED UNDER THE
SECURITIES ACT.
(f) The Investor represents that he is not a "U.S. person." For
purposes of this transaction, a U.S. person includes any of the following:
(1) a natural person (regardless of citizenship) resident
in the United States;
(2) a partnership or corporation organized or incorporated
under United States, state or territorial laws;
(3) an estate of which any executor or administrator is a
U.S. person;
(4) a trust of which any trustee is a U.S. person;
(5) an agency or branch of a foreign entity located in the
United States;
(6) any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary for the benefit or
account of a U.S. person;
(7) any discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary organized,
incorporated or (if an individual) resident in the United States; or
(8) a partnership or corporation if:
54
<PAGE>
(A) organized or incorporated under the laws of any
foreign jurisdiction; and
(B) formed by a U.S. person principally for the
purpose of investing in securities not registered under the Securities Act,
unless it is organized or incorporated and owned by accredited investors (as
defined in Rule 501(a) under the Securities Act) who are not natural persons,
estates or trusts.
IF ANY OF THE FOREGOING STATEMENTS IN THIS PARAGRAPH (F) APPLY TO THE INVESTOR,
THE OFFER AND SALE OF THE SECURITIES CANNOT BE MADE IN RELIANCE UPON REGULATION
S.
(g) The Investor represents that the offer and proposed sale of
the Securities is an "offshore transaction." For purposes of the offer and sale
of the Securities, the transaction is an offshore transaction if:
(1) the offer is not made to a person in the United States;
and
(2) at the time the Investor made the investment decision,
paid the consideration and executed this Agreement, the Investor was outside the
United States;
The Investor hereby represents that the statements set forth in paragraphs g(1)
and (2) are true.
IF THE TRANSACTION DOES NOT MEET THE DEFINITION OF AN OFFSHORE TRANSACTION, AS
DEFINED ABOVE, THE OFFER AND SALE OF THE SECURITIES CANNOT BE MADE IN RELIANCE
UPON REGULATION S.
(h) The Investor is not aware of any activity undertaken for the
purpose of, or that could reasonably be expected to have the effect of,
conditioning the market in the United States for the Securities including,
without limitation, the placement of an advertisement in a publication with a
general circulation in the United States that refers to this Regulation S
offering ("directed selling efforts").
(i) The transfer and/or disposition of the Securities offered
hereby shall be subject to the following:
(1) The Securities have not been registered under the
Securities Act or qualified under the securities laws of any state and the
Securities are being offered pursuant to Regulation S promulgated thereunder;
the Company's reliance on Regulation S is predicated in part on the
representations of the Investor set forth herein. As a result of the foregoing,
the Investor agrees that the Securities may not be sold, transferred, or
otherwise disposed of in the United States or to U.S. persons without
registration under the Securities Act and any other applicable securities laws
or the availability of an exemption therefrom, and in the absence of an
effective registration statement covering the Securities or the availability of
an exemption from registration under the Securities Act and any other applicable
securities laws, it may be necessary
55
<PAGE>
to hold the Securities indefinitely, unless the resale safe harbor of Regulation
S is available with respect to the proposed disposition.
(2) The Investor represents that, in the absence of an
effective registration statement under the Securities Act covering the
Securities, the Investor will only sell, transfer, or otherwise dispose of the
Securities, if selling, transferring or otherwise disposing of the Securities in
the United States or to a U.S. person, pursuant to an applicable exemption from
the registration requirements of the Securities Act and applicable state
securities laws.
(3) The Investor acknowledges that he is familiar with the
provisions of Rule 904 of Regulation S, which permits resales of the Securities
outside the United States under certain circumstances. A transaction is deemed
to occur outside the United States for purposes of Rule 904 if:
(A) it is an offshore transaction (as defined in
paragraph (g) above); and
(B) there are no "directed selling efforts" (as
defined paragraph (h) above) made in the United States by the seller, an
affiliate or any person acting on their behalf.
THIS RESALE SAFE HARBOR DOES NOT PERMIT THE INVESTOR TO RESELL THE SECURITIES IN
THE UNITED STATES OR TO A U.S. PERSON. OFFERS AND SALES MAY BE MADE IN THE
UNITED STATES OR TO U.S. PERSONS ONLY PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS.
(j) Investor understands that in the view of the Commission the
statutory basis for the exemption claimed for the transactions contemplated by
the Agreement would not be present if the offering of Securities, although in
technical compliance with Regulation S, is part of a plan or scheme to evade the
registration provisions of the Securities Act, and Investor confirms that its
purchase is not part of any such plan or scheme. Investor is acquiring the
Securities for investment purposes and has to present intention to sell the
Securities in the United States or to a U.S. person or for the account or
benefit of a U.S. person either now or promptly after the expiration of the
restricted period under Rule 902 of Regulation S.
(k) Investor is not an underwriter of, or dealer in, the
Securities and Investor is not participating, pursuant to a contractual
agreement, in the distribution of the Securities. If Investor is purchasing the
Securities subscribed for hereby in a representative or fiduciary capacity, the
representations and warranties in this Agreement shall be deemed to have been
made on behalf of the person or persons for whom Investor is so purchasing.
(l) The Investor agrees that all certificates evidencing
the Securities shall bear a legend in substantially the following form, and by
which the Investor agrees to be bound:
56
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, OR TO OR
FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS, UNTIL 40 DAYS AFTER
THE LATER OF THE COMMENCEMENT OF THE OFFERING AND THE CLOSING DATE, EXCEPT
IN EITHER CASE IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT.
THE RESALE SAFE HARBOR OF REGULATION S DOES NOT PERMIT THE RESALE OF THE
SECURITIES IN THE UNITED STATES OR TO A U.S. PERSON. OFFERS AND SALES MAY
BE MADE IN THE UNITED STATES OR TO U.S. PERSONS ONLY PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS.
TERMS USED ABOVE HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S.
(m) The Company shall make a notation regarding the restrictions
on transfer of the Securities in its stock books, and the Company shall not be
required to transfer on its books any of such Securities that have been sold or
transferred in violation of any of the provisions of this Agreement or to treat
as the owner of such Securities any transferee to whom such securities have been
so transferred.
4.3 Registration of Shares.
(a) Filing of Registration Statement. The Company shall use its
best efforts to file with the Commission, on or before the date ninety (90) days
following the final Closing of the sale of Securities to any investors
participating in the Offering ("Final Closing"), a registration statement under
the Securities Act covering the resale of the Shares (including shares of Common
Stock issued or issuable as a dividend or other distribution with respect to, or
in exchange for, or in replacement of such Shares) (collectively, the
"Registrable Securities") by the Holders. Notwithstanding the foregoing, the
Company shall not be obligated to take any action to effect any such
registration pursuant to this Section in any particular jurisdiction in which
the Company would be required to execute a general consent to service of process
in effecting such registration, unless the Company is already subject to service
in such jurisdiction and except as may be required by the Securities Act.
(b) Company Obligations Regarding Registration Statement.
The Company shall:
(i) Keep the registration statement with respect to the
Registrable Securities filed pursuant to Section 4.3(a) of this Agreement
("Registration Statement") effective for the period from the date of declaration
of effectiveness of such Registration Statement
57
<PAGE>
through the earlier of: (i) the date 24 months from the Final Closing, or (ii)
the sale of all of the Registrable Securities;
(ii) Prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the period of its
effectiveness; and
(iii) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(c) Investor Cooperation and Indemnification. The Investor agrees
to cooperate fully with the Company in the preparation and filing of the
Registration Statement. The Investor will provide at his, her or its own expense
and in writing to the Company all information and data with respect to himself,
herself, or itself and to his, her, or its plan of distribution as shall be
required by the rules and regulations of the Commission, to be included in any
such Registration Statement. The Investor also agrees to comply fully with
reasonable procedures established by the Company in connection with the
registration. The Investor further agrees to indemnify, defend, and hold
harmless the Company, each of its directors, each of its officers who has signed
such Registration Statement, (or any amendment or supplement thereof) and each
person, if any, who controls the Company, within the meaning of the Securities
Act, against any costs, expenses (including attorneys' fees), losses, damages or
liabilities to which the Company, or any such director, officer or controlling
person of the Company may become subject under the Securities Act or otherwise,
insofar as said costs, expenses, losses, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any violation by a selling
stockholder under this Agreement or any reasonable procedures established by the
Company in connection with the registration, or untrue statement or alleged
untrue statement of material fact contained in the registration statement, (or
any amendment or supplement thereof) or arising out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that such indemnity shall apply only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with information furnished by the
Investor for use in the preparation thereof.
(d) Company Indemnification. The Company hereby agrees to
indemnify, defend, and hold harmless the Investor, each of its directors and
officers and each person, if any, who controls the Investor within the meaning
of the Securities Act against any costs, expenses (including attorneys' fees),
losses, damages or liabilities to which the Investor or any such director or
officer or controlling person may become subject under the Securities Act or
otherwise insofar as said costs, expenses, losses, damages or liabilities (or
actions in respect thereof), arise out of or are based upon, any untrue
statement or alleged untrue statement of material fact contained in the
registration statement, (or any amendment or supplement thereof)
58
<PAGE>
or from the omission or the alleged omission therein of a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that such indemnity shall apply only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with information furnished by the
Company or any officer, director or controlling person of the Company (other
than the Investor) for use in the preparation thereof and that the Company shall
be entitled to control the defense and any settlement of any such matter.
ARTICLE 5
CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company under Section 1.2 of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions as to the Investor:
5.1 Representations and Warranties True on the Closing. The
representations and warranties of the Investor contained in Sections 3 and 4
shall be true on and as of the Closing with the same force and effect as if they
had been made at the Closing.
5.2 Payment of Purchase Price. The Investor shall have delivered to
Bailey and Company, Inc., the Company's placement agent, for the account of the
Company, the total consideration for the Debentures which the Investor is
purchasing at the Closing.
ARTICLE 6
DEBENTURES
6.1 Principal and Interest Payments. The Company shall pay interest semi-
annually to the registered holders of the debentures (the "Holders") on the
principal amount of the Debentures on the last business day of each semi-annual
period (the "Interest Payment Dates") of each year i.e., each December 31 and
June 30, commencing in 1996, at the rate of eight percent (8%) per annum,
accruing from the date of initial issuance. Accrued but unpaid interest shall
bear interest at the rate of eight percent (8%) per annum until paid, commencing
with the date on which such interest was due and payable. Unless earlier
converted into Common Stock in accordance with Article 7 hereof, or accelerated
in accordance with Article 9, the entire outstanding amount of the Debentures
and all accrued but unpaid interest shall be due and payable in full on December
31, 1997.
6.2 Reissue of Debentures. No Debenture shall be reissued with respect to
the principal amount of any Debentures which are paid pursuant to this
Agreement, and the Company shall cancel and terminate any Debenture which has
been fully paid or presented to it for exchange pursuant to any of the
provisions of this Agreement.
59
<PAGE>
6.3 Registration and Transfer of Debentures.
(a) The Company shall, at all times while any Debentures are
outstanding, act as the registrar of the Debentures and shall cause to be kept
at its principal office in the City of Portland, Oregon, or in such other place
or places and by such other registrar or registrars, if any, as the Company may
designate, a register in which shall be entered the names and addresses of the
Holders of Debentures and the particulars of the Debentures held by them
respectively and of all transfers of Debentures. The name of the Holder shall be
noted on the Debentures by the Company or other registrar.
(b) No transfer of a Debenture shall be valid unless made by the
Holder or his executors or administrators or other legal representatives or his
or their attorney duly appointed by an instrument in writing in form and
execution satisfactory to the Company, upon compliance with the provisions of
this Agreement and the Debentures such other requirements as the Company and/or
other registrar may reasonably prescribe, and unless such transfer shall have
been duly entered on the appropriate register and/or noted on such Debenture by
the Company or other registrar. The person in whose name a Debenture is
registered shall be deemed to be the owner thereof.
6.4 Exchanges of Debentures. Debentures of any authorized denomination
not less than $1,000 in principal amount may be exchanged for Debentures of any
other authorized denomination or denominations, any such exchange to be for
Debentures of an equivalent aggregate principal amount, as requested by the
Holders and bearing the same interest rate and date of maturity as the original
Debentures. Any exchange of Debentures may be made at the offices of the Company
or at the offices of any registrar where a register is maintained for the
Debentures pursuant to the provisions of Section 6.3. Any Debentures tendered
for exchange together with a sum sufficient to cover any tax or other
governmental charge payable in connection with the transfer shall be surrendered
to the Company or appropriate registrar and shall be canceled.
ARTICLE 7
CONVERSION
7.1 Holder's Right of Conversion. At any time prior to maturity, the
Holders of the Debentures shall have the right from time to time to convert all
or a portion of the principal balance thereof unpaid and outstanding (together
with any accrued and unpaid interest) from time to time into shares of the
Common Stock of the Company; such conversion shall be made at the conversion
price in effect at the time of conversion, determined as hereinafter provided
(the "Conversion Price"). The initial Conversion Price shall be U.S. $1.25 (the
"Initial Conversion Price"). However, if at any time the closing bid price of
the Company's Common Stock as reported on the Nasdaq National Market for fifteen
(15) consecutive trading days is less than $0.65, then the Conversion Price
shall be $0.65 (the "Adjusted Conversion Price"). Such right of conversion is
conditioned upon the Holder's agreement to convert a minimum principal amount of
the Debentures of Twenty-Five Thousand United States Dollars (U.S. $25,000) at
any time such Holder elects to exercise its conversion rights unless, at the
time the Holder elects to
60
<PAGE>
convert its Debenture, it holds less that Twenty-Five Thousand United States
Dollars (U.S. $25,000) in principal amount of the Debentures, in which instance,
the entire amount shall be converted.
7.2 Company's Right to Demand Conversion. The Company shall have the
right to require conversion of the Debentures, in its sole discretion, at any
time after six months following the final Closing of the Offering, unless and
until such Debentures have been repaid in full.
7.3 Exercise of Conversion Right.
(a) In order to exercise the conversion right provided in Section
7.1, a Holder of the Debentures shall surrender the Debentures at the office of
the Company or other registrar appointed by the Company, together with a
conversion notice in the form attached to the Debenture as Exhibit A thereto.
(b) For the purposes of this Article, a Debenture shall be deemed
to be surrendered for conversion in the case of Section 7.1, on the date (herein
called "Date of Conversion") on which it is surrendered by delivery to the
Company at its principal office in Portland, Oregon, or other registrar, if any,
appointed by the Company and of which the Holder of the Debenture is notified in
writing, and, in the case of a Debenture surrendered by post or other means of
transmission, on the date on which it is received by the Company at its
principal office in Portland, Oregon, or other registrar, if any, appointed by
the Company and of which the Holder of the Debenture is notified in writing;
provided that if a Debenture is surrendered for conversion on a day on which the
register of Common Stock is closed, the person or persons entitled to receive
Common Stock shall become the holder or holders of record of such shares or
Common Stock as of the date on which such register is next reopened.
(c) The Holder of any Debenture of which only part is converted
shall, upon the exercise of its right of conversion, surrender the said
Debenture to the Company or other registrar, if any, and the Company or other
registrar, if any, shall cancel the same and shall without charge forthwith
certify and deliver to the Holder a new Debenture or Debentures in an aggregate
principal amount equal to the unconverted part of the principal amount of the
Debenture so surrendered, provided that such new Debenture(s) shall be issued
only in denominations of One Thousand United States Dollars (U.S. $1,000) or
integral multiples thereof.
7.4 Adjustment of Conversion Price. The Conversion Price shall be subject
to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in shares of its
capital stock (other than an issuance of shares of capital stock to holders of
Common Stock who have elected to receive a dividend in shares in lieu of cash),
(ii) subdivide its outstanding shares of Common Stock, (iii) reduce, consolidate
or combine its outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of Common Stock any
shares of the Company, the Conversion Price in effect immediately prior thereto
shall be adjusted
61
<PAGE>
to that amount determined by multiplying the Conversion Price in effect
immediately prior to such date by a fraction, of which the numerator shall be
the number of shares of Common Stock outstanding on such date before giving
effect to such division, subdivision, reduction, combination or consolidation or
stock dividend and of which the denominator shall be the number of shares of
Common Stock outstanding after giving effect thereto. Such adjustments shall be
made successively whenever any such effective date or record date shall occur.
An adjustment made pursuant to this subsection (a) shall become effective
retroactively, immediately after the record date in the case of a dividend and
shall become effective immediately after the effective date in the case of a
subdivision, reduction, consolidation, combination or reclassification.
(b) If the Common Stock issuable upon the conversion of the
Debentures shall be changed into the same or a different number of shares of any
class or classes of stock, whether by capital reorganization, reclassification
or otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation or sale
of assets provided for in this Section 7.4), then, and in each such event, each
Holder of Debentures shall have the right thereafter to convert such Debentures
into the kind and amount of shares of Common Stock and other securities and
property receivable upon such reorganization, reclassification, or other change
by the Holders of the number of shares of Common Stock into which such
Debentures might have been converted, as reasonably determined by the Company's
board of directors, immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
(c) If at any time or from time to time there shall be a capital
reorganization of the Company (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section
7.4) or a merger or consolidation of the Company with or into another
corporation, or the sale of all or substantially all of the Company's properties
and assets to any other person, then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made as reasonably determined by the
Company's board of directors so that the Holders of the Debentures shall
thereafter be entitled to receive upon conversion of such Debentures, the number
of shares of stock or other securities or property of the Company or of the
successor corporation resulting from such merger or consolidation or sale, to
which a Holder of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, merger, consolidation or sale.
(d) The adjustments provided for in this Section 7.4 are
cumulative and shall apply to successive divisions, subdivisions, reductions,
combinations, consolidations, issues, distributions or other events contemplated
herein resulting in any adjustment under the provisions of this Section,
provided that, notwithstanding any other provision of this Section, no
adjustment of the Conversion Price shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Conversion Price then in effect; provided, however, that any adjustments which
by reason of this subsection (d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
62
<PAGE>
(e) Upon each adjustment of the Conversion Price, the Company
shall give prompt written notice thereof addressed to the registered Holders at
the address of such Holders as shown on the records of the Company, which notice
shall state the Conversion Price resulting from such adjustment and the increase
or decrease, if any, in the number of shares issuable upon the conversion of
such Holder's Debentures, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
7.5 Reservation of Shares. The Company agrees that, so long as any
Debenture shall remain outstanding, the Company shall at all times reserve and
keep available, free from preemptive rights, out of its authorized capital stock
for the purpose of issue upon conversion of the Debentures, the full number of
shares of Common Stock then issuable upon exercise of the outstanding
Debentures.
7.6 Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of the Debentures. If,
upon conversion of any Debenture as an entirety, the registered Holder would,
except for the provisions of this Section 7.6, be entitled to receive a
fractional share of Common Stock, then an amount equal to such fractional share
multiplied by the then fair market value of shares of the Company's Common Stock
shall be paid by the Company to such registered Holder.
7.7 Validity of Shares. The Company agrees that all shares of Common
Stock which may be issued upon conversion of the Debentures will, upon issuance,
be legally and validly issued, fully paid and nonassessable.
7.8 Shareholder's Rights. Until conversion, and then only to the extent
that a portion of the principal of the Debentures remains unconverted, the
Holders of Debentures shall have no rights as shareholders of the Company.
7.9 Notice of Certain Events. If at the time:
(a) the Company shall declare any dividend or distribution payable
to the Holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or other
rights;
(c) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation
or business organization; or
(d) there shall be a voluntary dissolution, liquidation or winding
up of the Company;
then, in any one or more of said cases, the Company shall give the registered
Holders of the Debentures written notice, by certified or registered mail, of
the date on which a record shall be
63
<PAGE>
taken for such dividend, distribution or subscription rights or for determining
shareholders entitled to vote upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up and of the
date when any such transaction shall take place, as the case may be. Such notice
shall also specify the date as of which the Holders of Common Stock of record
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding up, as the case may be. Such
written notice shall be given at least thirty (30) days prior to the transaction
in question and not less than twenty (20) days prior to the record date in
respect thereto.
ARTICLE 8
SUBORDINATION
8.1 Bank Indebtedness. For purposes of this Agreement, the term "Bank
Indebtedness" shall be defined as follows:
The principal of, and accrued and unpaid interest on (a) indebtedness of the
Company incurred in the ordinary course of business for money borrowed or in
respect of letters of credit issued for its own account, to (i) any bank or
trust company organized under the laws of the United States or any state or (ii)
any savings and loan association; or (iii) any stockholder, customer, vendor,
business partner or joint venturer of the Company; (b) guarantees entered into
in the ordinary course of business by the Company of indebtedness for money
borrowed; (c) purchase and money obligations entered into in the ordinary course
of business, evidenced by notes, lease-purchase agreements, purchase contracts
or agreements, or similar instruments for the payment of which the Company is
responsible or liable, by guarantees or otherwise; (d) obligations of the
Company incurred in the ordinary course of business under any agreement to
lease, or lease of, any real or personal property which are required to be
capitalized in accordance with generally accepted accounting principles, or any
other agreement to lease, or lease of, any real or personal property for the
benefit of the Company which, by the terms thereof, are expressly designated as
Bank Indebtedness; and (e) any modification, renewal, extension or refunding of
any such indebtedness, guarantee or obligation; in every case, whether such
indebtedness, guarantee or obligation, or such modification, renewal, extension
or refunding thereof, was outstanding on the date of execution of this Agreement
or thereafter created, incurred or assumed; unless, in the instrument creating
or evidencing the same or pursuant to which the same is outstanding, it is
provided that such indebtedness, guarantee or obligation, or such modification,
renewal, extension or refunding thereof, is not superior in right of payment to
the Debentures.
8.2 Agreement of Subordination. The Company agrees, and each Holder of
Debentures issued hereunder by its acceptance thereof likewise agrees, that all
Debentures shall be issued subject to the provisions of this Article 8; each
person holding any Debenture, whether upon original issue or upon transfer or
assignment thereof, accepts and agrees to be bound by such provisions. All
Debentures issued hereunder shall, to the extent and in the manner
64
<PAGE>
hereinafter set forth, be subordinated and subject in right of payment or
satisfaction to the prior payment of Bank Indebtedness up to an aggregate
maximum of U.S. $3,000,000.
8.3 Payments to Debenture Holders. No payment on account of principal of,
or interest on, the Debentures shall be made if any default or event of default
with respect to any Bank Indebtedness which permits the holders thereof (or a
trustee on their behalf) to accelerate the maturity thereof shall have occurred
and be continuing.
Upon any payment by the Company, or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, to creditors
upon any dissolution or winding-up or total or partial liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or to
become due upon Bank Indebtedness up to the amount set forth in Section 8.2
above (depending on the date of such occurrence) shall first be paid in full, or
payment thereof provided for, in money or money's worth in accordance with its
terms, before any payment is made on account of the principal of, or interest on
the Debentures; and upon any such dissolution or winding-up or liquidation or
reorganization, any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Holders of the Debentures would be entitled, except for the provisions
of this Article 8, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution directly to the holders of the Bank Indebtedness or their
representative or representatives or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Bank Indebtedness may
have been issued, as their respective interests may appear, to the extent
necessary to pay Bank Indebtedness up to the amount set forth in Section 8.2
above in money or money's worth, after giving effect to any concurrent payment
or distribution to or for the holders of Bank Indebtedness, before any payment
or distribution is made to the Holders of the Debentures.
In the event that, notwithstanding the preceding paragraphs, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property, or securities, prohibited by the preceding paragraphs shall be
received by the Holders of the Debentures, such payment or distribution shall be
paid over or delivered to the holders of Bank Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Bank Indebtedness may
have been issued, as their respective interests may appear, for application to
the payment of Bank Indebtedness remaining unpaid to the extent necessary to pay
Bank Indebtedness up to the amount set forth in Section 8.2 above in money or
money's worth in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the holders of such Bank
Indebtedness.
8.4 Subrogation of Debentures. Subject to the payment of Bank
Indebtedness as provided above and subject to applicable law, the rights of the
Holders of the Debentures shall be appropriately subrogated to the rights of the
holders of Bank Indebtedness to receive payments or distributions of cash,
property or securities of the Company to the extent applicable to the Bank
Indebtedness until the principal of, and premium, if any, and interest on the
Debentures shall be paid in full; and, for the purposes of such subrogation, no
payments or distributions to the
65
<PAGE>
holders of the Bank Indebtedness of any cash, property or securities to which
the Holders of the Debentures would be entitled except for the provisions of
this Article 8, and no payment over pursuant to the provisions of this Article 8
to the holders of Bank Indebtedness by Holders of the Debentures, as between the
Company, its creditors other than holders of Bank Indebtedness, and the Holders
of the Debentures, be deemed to be a payment by the Company to or on account of
the Bank Indebtedness. It is understood that the provisions of this Article 8
are for the sole purpose of defining the relative rights of the Holders of
Debentures, on the one hand, and the holders of the Bank Indebtedness, on the
other hand.
Nothing contained in this Article 8 or elsewhere in this Agreement or in
the Debentures is intended to or shall impair, as between the Company, its
creditors other than the holders of Bank Indebtedness, and the Holders of the
Debentures, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Debentures the principal of, and interest on, the
Debentures as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders of the Debentures and creditors of the Company other than the holders of
Bank Indebtedness, nor shall anything herein prevent the Holder of any Debenture
from exercising all remedies otherwise permitted by applicable law upon default
under this Agreement, subject to the rights, if any, under this Article 8 of the
holders of Bank Indebtedness in respect of cash, property or securities of the
Company received upon the exercise of any such remedy. Upon any payment or
distribution of assets of the Company referred to in this Article 8, the Holders
of the Debentures shall be entitled to rely upon any order or decree made by any
court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of the
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Holders of the Debentures,
for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Bank Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 8.
The terms "paid in full" and "payment in full" as used in this Article 8
with respect to Bank Indebtedness mean the receipt, in cash or securities (taken
at their market value at the time of the receipt thereof), of the principal
amount of the Bank Indebtedness (and any premium due thereof) and full interest
thereon to the day of such payment of principal and all other amounts due to
holders of Bank Indebtedness pursuant to the provisions of the instruments
providing therefor.
8.5 No Impairment of Subordination. No right of any present or future
holder of any Bank Indebtedness to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms,
provisions and covenants of this Agreement, regardless of any knowledge thereof
which any such holder may have or otherwise be charged with.
66
<PAGE>
ARTICLE 9
REMEDIES
9.1 Events of Default. "Event of Default," wherever used herein, means
any one of the following events (whatever the reason for such Event of Default
and whether it shall be occasioned by the provisions of this Article 9 or be
voluntary or involuntary or be effected by operation of law pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of any interest upon any Debenture when
the same becomes due and payable, and continuance of such default for a period
of thirty (30) days;
(b) default in the payment of the principal of any Debenture when
the same becomes due and payable;
(c) default in the performance, or breach, of any covenant or
warranty of the Company in Article 11 of this Agreement (other than a covenant
or warranty a default in whose performance or whose breach is elsewhere in this
Article specifically dealt with), and continuance of such default or breach for
a period of sixty (60) days after there has been given, by registered or
certified mail, to the Company by the Holders of at least ten percent (10%) in
principal amount of the outstanding Debentures, a written notice specifying such
default or breach and requiring it to be remedied and stating that such notice
is a "Notice of Default" hereunder;
(d) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or for any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs and such decree or order shall have remained in effect for a period
of sixty (60) consecutive days; or
(e) the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case under any such law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator
( or other similar official) of the Company or for any substantial part of its
property, or shall make any general assignment for the benefit of creditors.
9.2 Acceleration of Maturity; Rescission and Annulment. If an Event of
Default occurs and is continuing, then and in every such case the Holders of not
less than twenty-five percent (25%) in principal amount of the Debentures
outstanding may declare the principal of all of the Debentures to be immediately
due and payable, by a notice in writing to the Company and upon any such
declaration such principal shall become immediately due and payable.
67
<PAGE>
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained, the
Holders of a majority in principal amount of Debentures outstanding, by written
notice to the Company, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited into a trust account
a sum sufficient to pay:
(a) all overdue installments of interest on all
Debentures,
(b) the principal of any Debentures which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Debentures, and
(c) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest at the rate borne by the
Debentures.
(2) all events of Default, other than the non-payment of
the principal of Debentures which have become due solely by such acceleration,
have been cured or waived as provided in Section 9.8.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
9.3 Collection of Indebtedness and Suits for Enforcement by Holders. The
Company covenants that if:
(1) default is made in the payment of any installment of interest
on any Debenture when such interest becomes due and payable and such default
continues for a period of thirty (30) days, or
(2) default is made in the payment of the principal of any
Debenture at the maturity thereof,
the Company, will, upon demand of the Holders hereof pursuant to Section 9.2,
pay to such Holders, the whole amount then due and payable on this Debenture for
principal and interest, with interest, upon the overdue principal and, to the
extent that payment of such interest shall be legally enforceable, upon overdue
installments of interest, at the rate borne by the Debenture.
If the Company fails to pay such amounts forthwith upon such demand, the
Holder may institute a judicial proceeding for the collection of the sums so due
and unpaid, and may prosecute such proceeding to judgment or final decree, and
may enforce the same against the Company or any other obligor upon this
Debenture and collect the monies adjudged or decreed to be payable in the manner
provided by law out of the property of the Company or any other obligor upon
this Debenture, wherever situated.
68
<PAGE>
9.4 Unconditional Right of Debenture Holders to Receive Principal and
Interest. Subject to the provisions of this Agreement, the Holder of any
Debenture shall have the right which is absolute and unconditional to receive
payment of the principal of and interest on such Debenture on the respective
dates expressed in such Debenture and to institute suit for the enforcement of
any such payment and such right shall not be impaired without the consent of
such Holder.
9.5 Restoration of Rights and Remedies. If any Debenture Holder has
instituted any proceeding to enforce any right or remedy under this Agreement
and such proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to such Debenture Holder, then and in every such case
the Company and the Debenture Holder shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Debenture Holder shall
continue as though no such proceeding had been instituted.
9.6 Rights and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to the Debenture Holder is intended to be exclusive of any
other right or remedy and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
9.7 Delay or Omission not Waiver. No delay or omission of the Holder of
the Debenture to exercise any right or remedy occurring upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein.
9.8 Waiver of Past Defaults. The Holders of a majority in principal
amount of the outstanding Debentures may on behalf of the Holders of all the
Debentures waive any past default hereunder and its consequences, except a
default in the payment of the principal of or interest on any Debenture. Upon
any such waiver, such default shall cease to exist, and any event of Default
arising therefrom shall be deemed to have been cured, for every purpose of this
Agreement; but no such waiver shall extend to any subsequent or other default or
impair any right consequent thereon.
ARTICLE 10
Supplemental Agreements Regarding Debentures
10.1 Supplemental Agreements with Consent of Debenture Holders. With or
without notice to any Debenture Holder but with the consent of the Holders of
not less than 66-2/3% in principal amount of the outstanding Debentures, the
Company, when authorized by a duly adopted board resolution, and the Debenture
Holders may enter into an agreement or agreements supplemental hereto for the
purpose of adding any provisions to or changing in any manner or modifying in
any manner the rights of the Holders of the Debentures under this Agreement;
provided, however, that no such supplemental agreement as it relates to the
Debentures and the
69
<PAGE>
terms and conditions thereof shall, without the consent of the Holder of
each outstanding Debenture affected thereby:
(1) change the date of maturity of the principal of, or any
installment of interest on, any Debenture, or reduce the principal amount
thereof or the rate of interest thereon, or change the coin or currency in
which, the principal of any Debenture or interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment on or after
the date of maturity thereof;
(2) reduce the percentage in principal amount of the outstanding
Debentures, the consent of whose Holders is required for any such supplemental
agreement or the consent of whose Holders is required for any waiver (or
compliance with certain provisions of this Agreement or certain defaults
hereunder and their consequences) provided for in this Agreement;
(3) modify any of the provisions of this Section or Section 9.8,
except to increase any such percentage or to provide that certain other
provisions of this Agreement cannot be modified or waived without the consent of
the Holder of each Debenture affected thereby; or
(4) adversely affect the right to convert the Debentures as
provided in Article 7 hereof.
It shall not be necessary for any consent or authorization of Debenture
Holders under this Section to approve the particular form of any proposed
supplemental agreement, but it shall be sufficient if such consent or
authorization shall approve the substance thereof.
10.2 Effect of Supplemental Agreements. Upon the execution of any
supplemental agreement under this Article, this Agreement shall be modified in
accordance therewith, and such supplemental agreement shall form a part of this
Agreement for all purposes; and every Holder of Debentures theretofore or
thereafter delivered hereunder shall be bound thereby.
10.3 Reference in Debentures to Supplemental Agreements. Debentures
delivered after the execution of any supplemental agreement pursuant to this
Article may bear a notation as to any matter provided for in such supplemental
agreement. If the Company shall so determine, new Debentures so modified as to
conform, in the opinion of the board of directors, to any such supplemental
agreement may be prepared, executed and delivered by the Company in exchange for
outstanding Debentures.
10.4 Modification of Subordination Provisions. No supplemental agreement
shall directly or indirectly modify any provision of this Agreement so as to
affect adversely the rights of any holder of Bank Indebtedness at the time
outstanding without the written consent of such holder.
70
<PAGE>
ARTICLE 11
Covenants
11.1 Payment of Principal and Interest. The Company will duly and
punctually pay the principal of, and interest on, the Debentures in accordance
with the terms of the Debentures and this Agreement.
11.2 Money for Debenture Payments to be Held in Trust.
(a) Company as Paying Agent. While the Company acts as its own
paying agent, it will, on or before each due date of the principal of, or
interest on, any of the Debentures, segregate and hold in trust for the benefit
of the persons entitled thereto a sum sufficient to pay the principal or
interest so becoming due until such sums shall be paid to such persons or
otherwise dispose of as herein provided.
(b) Outside Paying Agent. Whenever the Company shall have one or
more paying agents, it will, on or prior to each due date of the principal of,
or interest on, any Debentures, deposit with, or make available to, the paying
agent a sum sufficient to pay the principal or interest so becoming due, such
sum to be held in trust for the benefit of the persons entitled to such
principal, premium or interest.
(c) Unclaimed Payments. If any money deposited with any paying
agent, or then held by the Company, in trust, for the payment of the principal
of, or interest on, any Debenture is undeliverable and remains unclaimed for
three years after such principal or interest has become due and payable, such
money shall be paid to the Company on the written request of the Company, or, if
then held by the Company, shall be discharged from such trust; and the Holder of
such Debenture shall thereafter, as an unsecured general creditor, look only to
the Company for payment thereof, and all liability of such paying agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that such paying agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in a newspaper of general circulation in the
county in which the Company then has its principal place of business, notice
that such money remains unclaimed and that, after a date specified therein,
which shall be not less than thirty (30) days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
11.3 Corporate Existence. The Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any right or franchise if the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Debenture Holders.
71
<PAGE>
ARTICLE 12
Miscellaneous
12.1 Survival of Warranties. The warranties, representations and covenants
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing and shall in no way be affected by
any investigation of the subject matter thereof made by or on behalf of the
Company or the Investor, as the case may be.
12.2 Entire Agreement. This Agreement constitutes the entire agreement
between the parties, and neither party shall be liable or bound to the other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
12.3 Governing Law. This Agreement shall be governed and construed under
the laws of the State of Oregon as applied to agreements among Oregon residents
entered into and to be performed entirely within Oregon.
12.4 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
12.5 Notices. Any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given upon personal delivery
or seven (7) business days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, addressed to the Company at OXIS
International, Inc., 6040 North Cutter Circle, Suite 317, Portland, Oregon
97217, and to the Investor at _______________________________________
________________________________ or at such other address as a party may
designate by ten (10) days' advance notice to the other party.
12.6 Expenses. The Company shall pay all costs and expenses that it incurs
with respect of the negotiation, execution, delivery and performance of the
Offering, and each Investor shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement.
12.7 Amendments and Waivers. Subject to the terms and conditions of
Article 10 with respect to supplemental agreements to modify the terms and
conditions of the Debentures, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of a majority of the shares of Common
Stock issuable upon conversion of the Debentures. Any amendment or waiver
effected in accordance with this Section shall be binding upon each holder of
the Debentures purchased under this Agreement at the time outstanding (including
the shares of Common Stock issuable upon conversation of the Debentures), each
future holder of such Debentures and the Company.
72
<PAGE>
12.8 Effect of Amendment or Wavier. The Investor hereby acknowledges that,
by the operation of Article 10 hereof, the holders of a majority in principal
amount of the then outstanding Debentures will have the right and power to
diminish or eliminate all rights of the holder of Debentures under this
Agreement.
12.9 Rights of Investors. Each holder of the Debentures or Warrants shall
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement or any Debenture,
Warrant or share of Common Stock, including without limitation the right to
consent to the waiver of any obligation of the Company under this Agreement and
to enter into an agreement with the Company for the purpose of modifying this
Agreement or any agreement effecting any such modification, and such holder
shall not incur any liability to any other holder or holders of the securities
with respect to exercising or refraining from exercising any such right or
rights.
12.10 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provisions shall be excluded from
this Agreement, and the balance of this Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with its
terms.
12.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constituted on and the same instrument.
12.12 Gender. Words importing the neuter gender shall include the masculine
and feminine gender.
12.13 Definitions. Terms used herein and defined in the Memorandum shall
have the same meanings herein as therein defined.
ARTICLE 13
Subscription
13.1 Subscription Amount. The undersigned hereby subscribes for
______________ Securities and tenders herewith a certified check or bank draft
in full payment for such subscription or shall tender such other evidence of
payment in full for the Securities as shall be acceptable to the Company,
including forgiveness of outstanding indebtedness.
13.2 Resale Compliance. The undersigned agrees to comply with the
Securities Act of 1933, as amended and the rules and regulations promulgated
thereunder, and any other relevant securities legislation and policies governing
the purchase, holding and resale of the securities subscribed for (or those
issuable upon conversion thereof), including, without limitation, applicable
state blue sky laws.
73
<PAGE>
The undersigned acknowledges that this subscription shall not be effective
unless accepted by the Company as indicated below.
CORPORATE OR OTHER ENTITY: INDIVIDUAL INVESTOR(S):
- ------------------------------------
(Printed Name of Entity)
By:
--------------------------------- ----------------------------------------
(Signature) (Signature)
- ------------------------------------ ----------------------------------------
(Name Printed) (Name Printed)
Title:
------------------------------ ----------------------------------------
(Street Address)
- ------------------------------------ ----------------------------------------
(Street Address) (City, State & Zip)
- ------------------------------------ ----------------------------------------
(City, State, Zip) (Telephone Number)
- ------------------------------------ ----------------------------------------
(Telephone Number) (Social Security Number)
- ------------------------------------ FORM OF OWNERSHIP
Federal I.D. No.
[ ] individual [ ] community property
[ ] joint tenants [ ] tenants in common
[ ] other _______________
ACCEPTED:
OXIS INTERNATIONAL, INC., a Delaware corporation
By:
---------------------------------
Name:
Title:
Dated: , 1995
-------------------------
74
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
TO: OXIS INTERNATIONAL, INC.
The undersigned Holder of this Debenture hereby irrevocably elects to convert
this Debenture, or portion hereof (which is at least U.S. $25,000, unless the
undersigned holds Debentures aggregating less than U.S. $25,000, in which event,
the amount converted shall be the entire amount of principal of such Debentures)
below designated, into shares of Common Stock of OXIS International, Inc. in
accordance with the terms of the Subscription and Purchase Agreement dated
November ______, 1995, and directs that the shares issuable and deliverable
upon such conversion, together with any check (or such other form of payment
acceptable to OXIS International, Inc.) in payment for fractional shares and any
Debentures representing any unconverted principal amount hereof, be issued and
delivered to the undersigned unless a different name has been indicated below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes, if any, payable with respect
thereto.
Dated: ______________, 199_
- -------------------------------- ------------------------------
Principal Amount to be Converted Signature of Holder
THE DEBENTURES ARE TRANSFERABLE ONLY AS PROVIDED IN THE PURCHASE AGREEMENT.
Provide the following information if shares of Common Stock and/or Debentures
are to be issued otherwise than to the Holder. Please print name and address
(including zip code) of such other person:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
------------------------------------------
Social Security or Other Taxpayer
Identifying Number
75
<PAGE>
EXHIBIT 21 (A)
SUBSIDIARIES OF OXIS INTERNATIONAL, INC.
As of December 31, 1995, the Company's subsidiaries were as follows:
Name Jurisdiction of incorporation
---- -----------------------------
OXIS International S.A. France
OXIS Acquisition Corporation Delaware
OXIS Isle of Man Limited Isle of Man
76
<PAGE>
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-64451 on Form S-8 and in Registration Statement No. 33-61087 on Form S-3 of
our report dated March 7, 1996 (which expresses an unqualified opinion and
includes an explanatory paragraph relating to the Company's ability to continue
as a going concern) appearing in the Annual Report on Form 10-K of Oxis
International, Inc. for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
March 28, 1996
77
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 727,000
<SECURITIES> 0
<RECEIVABLES> 823,000
<ALLOWANCES> 0
<INVENTORY> 953,000
<CURRENT-ASSETS> 2,765,000
<PP&E> 1,092,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,870,000
<CURRENT-LIABILITIES> 4,234,000
<BONDS> 0
0
6,000
<COMMON> 6,062,000
<OTHER-SE> 57,000
<TOTAL-LIABILITY-AND-EQUITY> 9,870,000
<SALES> 4,982,000
<TOTAL-REVENUES> 5,136,000
<CGS> 2,939,000
<TOTAL-COSTS> 2,939,000
<OTHER-EXPENSES> 4,299,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171,000
<INCOME-PRETAX> (8,892,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,892,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,892,000)
<EPS-PRIMARY> (.82)
<EPS-DILUTED> 0
</TABLE>
