<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X Quarterly report pursuant toSection 13 or 15(d) of the Securities
----- Exchange Act of 1934 for the quarterly period ended September 30,
1997.
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
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
------- -------
At September 30, 1997, the issuer had outstanding the indicated number of shares
of common stock: 26,573,175
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 1,293,000 $ 1,396,000 $ 3,137,000 $ 3,933,000
Royalties and license fees 150,000 6,000 209,000 64,000
----------- ----------- ----------- -----------
Total revenues 1,443,000 1,402,000 3,346,000 3,997,000
Costs and expenses:
Cost of sales 904,000 967,000 2,148,000 2,544,000
Research and development 1,210,000 1,258,000 3,199,000 3,619,000
Selling, general and administrative 717,000 621,000 2,049,000 2,247,000
----------- ----------- ----------- -----------
Total costs and expenses 2,831,000 2,846,000 7,396,000 8,410,000
----------- ----------- ----------- -----------
Operating loss (1,388,000) (1,444,000) (4,050,000) (4,413,000)
Interest income 30,000 12,000 53,000 33,000
Interest expense (40,000) (7,000) (112,000) (124,000)
----------- ----------- ----------- -----------
Net loss $(1,398,000) $(1,439,000) $(4,109,000) $(4,504,000)
=========== =========== =========== ===========
Net loss per share $(.05) $(.11) $(.20) $(.36)
=========== =========== =========== ===========
Weighted average number of
shares used in computation 26,306,840 13,301,037 20,144,549 12,546,092
=========== =========== =========== ===========
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,752,000 $ 422,000
Accounts receivable 882,000 861,000
Inventories 733,000 591,000
Prepaid and other 373,000 191,000
---------- ----------
Total current assets 4,740,000 2,065,000
Property and equipment, net 1,214,000 1,327,000
Assets under capital leases, net -- 309,000
Technology for developed products
and custom assays, net 3,244,000 3,782,000
Other assets 255,000 514,000
---------- ----------
Total assets $9,453,000 $7,997,000
========== ==========
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,148,000 $ 1,221,000
Accounts payable 1,348,000 1,386,000
Customer deposits 116,000 132,000
Accrued liabilities 579,000 655,000
Current portion of long-term obligations 9,000 76,000
------------ ------------
Total current liabilities 3,200,000 3,470,000
Other liabilities -- 2,000
Shareholders' equity:
Preferred stock - $.01 par value; 15,000,000 shares
authorized:
Series B - 642,583 shares issued and outstanding
(liquidation preference of $1,500,000) 6,000 6,000
Series C - 1,021,697 shares issued and
outstanding at September 30, 1997 10,000 17,000
Series D - 1,150 shares issued and
outstanding at September 30, 1997 -- --
Series E - no shares outstanding
at September 30, 1997 -- --
Common stock - $.50 par value; 50,000,000 shares
authorized; 26,573,175 shares issued and outstanding
at September 30, 1997 13,287,000 6,895,000
Additional paid in capital 30,321,000 30,706,000
Accumulated deficit (37,132,000) (33,023,000)
Accumulated translation adjustments (239,000) (76,000)
------------ ------------
Total shareholders' equity 6,253,000 4,525,000
------------ ------------
Total liabilities and shareholders' equity $ 9,453,000 $ 7,997,000
============ ============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
--------------------------
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,109,000) $(4,504,000)
Adjustments to reconcile net loss to cash provided
by (used for) operating activities:
Depreciation and amortization 949,000 1,013,000
Changes in assets and liabilities:
Accounts receivable (39,000) (216,000)
Inventories (148,000) 348,000
Other current assets (183,000) 56,000
Accounts payable 9,000 430,000
Customer deposits (16,000) 6,000
Accrued liabilities (41,000) (141,000)
----------- -----------
Net cash used for operating activities (3,578,000) (3,008,000)
Cash flows from investing activities:
Purchases of equipment (85,000) (54,000)
Other, net (14,000) 55,000
----------- -----------
Net cash provided by (used for) investing activities (99,000) 1,000
Cash flows from financing activities:
Proceeds from issuance of short-term notes 872,000 65,000
Proceeds from issuance of stock, net of related cost 6,215,000 3,181,000
Repayment of short-term borrowings (946,000) (627,000)
Repayment of long-term debt and capital lease obligations (63,000) (199,000)
----------- -----------
Net cash provided by financing activities 6,078,000 2,420,000
Effect of exchange rate changes on cash (71,000) --
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,330,000 (587,000)
Cash and cash equivalents - beginning of period 422,000 727,000
----------- -----------
Cash and cash equivalents - end of period $ 2,752,000 $ 140,000
=========== ===========
</TABLE>
4
<PAGE>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS AND CONDENSED NOTES
The unaudited consolidated financial statements, which have been prepared in
accordance with the instructions to Form 10-Q, do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. All adjustments considered necessary by
management for a fair presentation have been included. Operating results for
interim periods are not necessarily indicative of the results that may be
expected for the full year.
An annual report (Form 10-K) has been filed with the Securities and Exchange
Commission ("Commission") for the year ended December 31, 1996. That report
contains, among other information, a description of the Company's business,
audited financial statements, notes to the financial statements, the report of
the independent auditors and management's discussion and analysis of results
of operations and financial condition. Readers of this report are presumed to
be familiar with that annual report.
NEW ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT ADOPTED
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. This Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This Statement is effective for fiscal years beginning after
December 15, 1997.
In June 1997, FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for
the way that public enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
Statement is effective for fiscal years beginning after December 15, 1997.
The Company has not completed its analysis of which segments it will report
on.
5
<PAGE>
2. INVENTORIES
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 September 30, 1997 and December 31, 1996,
consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Raw materials $161,000 $148,000
Work in process 440,000 200,000
Finished goods 132,000 243,000
-------- --------
Total $733,000 $591,000
======== ========
</TABLE>
3. NOTES PAYABLE
During March and April 1997 the Company borrowed $808,000 from certain
shareholders pursuant to issuance of short-term unsecured promissory notes
with a 3% origination fee and bearing interest at an annual rate of 8%.
All of the notes were due in May 1997. The majority of the noteholders are
indebted to the Company under the terms of a separate indemnification
agreement. Payment of certain of these notes has been deferred pending the
outcome of ongoing discussions with representatives of the noteholders.
4. SHAREHOLDERS' EQUITY
On May 20, 1997, the Company issued 9,000,000 shares of its common stock
pursuant to an underwriting agreement with certain underwriters in France.
The underwriters purchased the stock at a price of 4.60 French francs per
share (an aggregate of $7,328,000). The newly-issued shares have been
listed on the French stock market, Le Nouveau Marche, and on the NASDAQ
National Market System.
During the first nine months of 1997, 625,460 shares of Series C Preferred
Stock, 500 shares of Series D Preferred Stock and 2,200 shares of Series E
Preferred Stock were converted into an aggregate of 3,712,384 shares of
common stock.
6
<PAGE>
5. STOCK OPTIONS
The Company has a stock incentive plan under which 4,200,000 shares of the
Company's common stock are reserved for issuance. 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. During the nine months ended September 30, 1997,
options to purchase 734,800 shares at an exercise price of $.53125 have
been issued under the plan.
6. PENDING ACQUISITION
In July 1997 the Company entered into a letter of intent to acquire 100% of
the capital stock of Innovative Medical Systems Corporation ("IMS"). IMS,
located near Philadelphia, Pennsylvania, is a privately-held company which
specializes in the development, engineering and manufacture of instruments
for the biomedical industry. The acquisition is subject to negotiating and
entering into a definitive purchase agreement, the approval of the boards
of directors of OXIS and IMS, and the satisfactory completion of OXIS' due
diligence investigation.
7. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." SFAS 128 changes the standards for computing
and presenting earnings per share ("EPS") and supersedes APB Opinion No.
15, "Earnings per Share." SFAS 128 simplifies the standards for computing
earnings per share and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS 128 is effective for financial statements
issued for periods ended after December 15, 1997, including interim
periods; earlier application is not permitted. This Statement requires
restatement of all prior-period EPS data presented. Earnings per share
reported for the nine-month periods ended September 30, 1996 and 1997 are
not affected as a result of adopting SFAS 128 due to the Company's losses.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased during the first nine months of
1997 from a deficit of $1,405,000 at December 31, 1996 to positive working
capital of $1,540,000 at September 30, 1997. This increase in the
Company's working capital resulted primarily from the issuance of common
stock (net proceeds of $6,215,000), offset by the effect of the net loss
for the first nine months of 1997 ($4,109,000 less non-cash charges of
$949,000).
Cash and cash equivalents increased from $422,000 at December 31, 1996 to
$2,752,000 at September 30, 1997.
The Company expects to continue to report losses in 1997 as the level of
expenses is expected to continue to exceed revenues. To continue
operations in accordance with its current plans, the Company must raise
additional capital before the end of the first quarter of 1998. Although
the Company has continued to raise additional funds through private
placements and a public offering (described below), it cannot predict the
sources, terms, amount, form, and/or availability of additional capital to
fund its operations to the end of the current year. Failure to raise such
additional capital would cause the Company to severely curtail or cease
operations.
The Company can give no assurances as to when and if its revenues will
exceed its expenses. 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. There is no assurance that the Company's effort to develop such
business alliances will be successful.
During March and April 1997, the Company raised $808,000 through the
issuance of short-term notes to certain of its shareholders.
On May 20, 1997, the Company issued 9,000,000 shares of its common stock
pursuant to an underwriting agreement with certain underwriters in France.
The underwriters purchased the stock at a price of 4.60 French francs per
share (an aggregate of $7,328,000). The newly-issued shares have been
listed on the French stock market, Le Nouveau Marche, and on the NASDAQ
National Market System.
8
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH
THREE MONTHS ENDED SEPTEMBER 30, 1996
REVENUES
The Company's product sales for the quarters ended September 30, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Diagnostic and research assays $ 557,000 $ 552,000
Bovine superoxide dismutase (bSOD)
for research and human use 582,000 688,000
Palosein(R) (bSOD for veterinary use) 84,000 156,000
Other 70,000 --
---------- ----------
$1,293,000 $1,396,000
========== ==========
</TABLE>
Sales of bulk bSOD for research and human use decreased by $106,000 in the
third quarter of 1997 as compared to the third quarter of 1996. The
quantity of bSOD sold in the third quarter of 1997 was slightly higher than
in the third quarter of 1996. However, the price in 1997 was five percent
lower and the Dutch guilder (the currency in which the Company makes its
bulk bSOD sales) declined in value compared to the U.S. dollar by
approximately 15%, resulting in a net decrease in bSOD sales in the third
quarter of 1997 as compared to the third quarter of 1996. The Company's
sales of bulk bSOD in 1996 and 1997 have been almost entirely to the
Company's Spanish licensee. Future sales of bulk bSOD continue to be
largely dependent on the needs of the Company's Spanish licensee. The
Company expects its sales for 1997 to the Spanish licensee to be less than
those for 1996. The Company's sales of bulk bSOD beyond 1997 are uncertain
and difficult to predict and no assurances can be given with respect
thereto.
Palosein(R) sales, which are primarily to distributors, declined due to a
temporary stock shortage at the end of the quarter, and to a lesser extent
to the timing of distributors' orders.
The Company realized license fee revenue of $150,000 in the third quarter
of 1997 from an agreement to license its patented polyethylene glycol
technology to Enzon, Inc. on a non-exclusive basis.
9
<PAGE>
COSTS AND EXPENSES
Cost of sales was 69% of product sales for the third quarter of 1996 and
70% for the third quarter of 1997. Cost of sales in both the third quarter
of 1996 and the third quarter of 1997 include approximately $180,000 in
amortization of purchase adjustments relating to 1994 business
acquisitions. Excluding such amortization the cost of sales for the third
quarter of both 1996 and 1997 was approximately 56% of sales.
Research and development expenses decreased from $1,258,000 in the third
quarter of 1996 to $1,210,000 in the third quarter of 1997. The decrease
in research and development expenses resulted from cost reductions in the
third quarter of 1997 compared to the third quarter of 1996 of $220,000 in
research and development costs of the Company's French subsidiary. This
decrease in expenses was partially offset by increases of $90,000 in other
research and development costs in the U.S. and $82,000 in expenses for
outside development contracts primarily related to preclinical development
work and the initiation of clinical trials on the lead molecule from the
Company's glutathione peroxidase mimics program.
Selling, general and administrative expenses increased from $621,000 in the
third quarter of 1996 to $717,000 in the third quarter of 1997. The
increase is primarily due to two factors: (1) an increase in U.S.
personnel costs of $57,000; and (2) salary, benefits and travel expenses of
$48,000 for a sales manager in Europe hired in the fourth quarter of 1996.
INTEREST INCOME AND EXPENSE
Interest income increased by $18,000 in the third quarter of 1997 as
compared with the third quarter of 1996, primarily due to an increase in
funds available for short-term investments following the sale of common
stock in May 1997.
Interest expense increased by $33,000 in the third quarter of 1997 as
compared with the third quarter of 1996, due to an increase in short-term
notes outstanding.
NET LOSS
The Company continued to experience losses in the third quarter of 1997.
The third quarter 1997 loss of $1,398,000 ($.05 per share) was $142,000
less than the $1,439,000 ($.11 per share) loss for the third quarter of
1996. The reduction in the net loss is primarily due to the decreased
research and development expenses and increase in royalties and license
fees, offset by a decline in gross margin from product sales and an
increase in selling, general and administrative expenses. The decrease in
net loss per share is primarily due to the increase in the weighted average
number of shares outstanding.
10
<PAGE>
The Company plans to continue to invest in research and development
activities and incur marketing, sales and administrative expenses in
amounts greater than its anticipated near-term product margins, and, as a
result, expects to incur a substantial net loss for 1997.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1996
REVENUES
The Company's product sales for the nine-month periods ended September 30,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Diagnostic and research assays $1,735,000 $1,714,000
Bovine superoxide dismutase (bSOD)
for research and human use 997,000 1,922,000
Palosein(R) (bSOD for veterinary use) 314,000 297,000
Other 91,000 --
---------- ----------
$3,137,000 $3,933,000
========== ==========
</TABLE>
Sales of bSOD in 1996 and 1997 have been almost entirely to the Company's
Spanish licensee. The reduction in bSOD sales for the first nine months of
1997 compared to 1996 is primarily the result of a reduction in volume of
product delivered to the Spanish licensee. A shipment of bSOD is scheduled
during the fourth quarter of 1997 which is expected to result in total bSOD
sales for 1997 to be approximately 80% of 1996 bSOD sales.
COSTS AND EXPENSES
Cost of sales as a percent of product sales increased from 65% in the first
nine months of 1996 to 68% in the first nine months of 1997. Cost of sales
in both the first nine months of 1996 and 1997 include amortization of
purchase adjustments relating to 1994 business acquisitions. Excluding
such amortization, cost of sales would have been approximately 51% of
product sales for the first half of both 1996 and 1997.
11
<PAGE>
Research and development expenses decreased by $420,000 from $3,619,000 for
the first nine months of 1996 to $3,199,000 for the first nine months of
1997. The decrease in research and development expenses resulted from cost
reductions in the first nine months of 1997 compared to the first nine
months of 1996 of $395,000 in costs of the Company's French subsidiary, and
$152,000 in internal research and development costs in the U.S. Outside
development contract costs, primarily relating to the glutathione
peroxidase mimics development program, increased by $127,000.
Selling, general and administrative expenses decreased from $2,247,000 for
the first nine months of 1996 to $2,049,000 for the first nine months of
1997, a decrease of $198,000. The decrease was primarily due to a
reduction of $275,000 in general and administrative expenses of the
Company's French subsidiary, which was partially offset by salary, benefits
and travel expenses of $139,000 for a sales manager in Europe hired in the
fourth quarter of 1996.
INTEREST INCOME
Interest income increased by $20,000 in the first nine months of 1997 as
compared to the first nine months of 1996, due to an increase in funds
available for investments following the sale of common stock in May 1997.
NET LOSS
The Company's loss for the first nine months of 1997 was $4,109,000 ($.20
per share) compared to a loss of $4,504,000 ($.36 per share) for the first
nine months of 1996. The decrease in the net loss is primarily due to
reductions in research and development expenses ($420,000) and selling
general and administrative expenses ($198,000) and an increase in royalties
and license fees ($145,000), offset by reduced profit margins on product
sales ($400,000). The decrease in net loss per share is primarily due to
the increase in the weighted average number of shares outstanding.
--------------------------
Certain of the matters discussed in this report are forward-looking statements
that involve risks and uncertainties, including the timely development and
market acceptance of new products, the impact of competitive products and
pricing, economic conditions, and other risks. These factors could cause actual
results to differ materially from those described in any forward-looking
statements.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - See Exhibit Index on page 14.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OXIS International, Inc.
November 10, 1997 By s/Anna D. Barker
------------------
Anna D. Barker, Ph.D.
President and Chief Executive Officer
November 10, 1997 By s/Jon S. Pitcher
------------------
Jon S. Pitcher
Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description of Document Number
10(a) Non-Exclusive License Agreement between
OXIS International, Inc. and Enzon, Inc.
dated July 29, 1997
27(a) Financial Data Schedule
14
<PAGE>
Exhibit 10(a)
NON-EXCLUSIVE LICENSE AGREEMENT
THIS AGREEMENT is entered into as of the 29th day of July, 1997 (the "Effective
Date"), by and between OXIS International, Inc., a corporation organized under
the laws of Delaware ("OXIS") and ENZON, Inc., a corporation organized under the
laws of ('Licensee") having an office located at 20 Kingsbridge Road,
Piscataway, New Jersey 08854-3998.
0. BACKGROUND
OXIS is the owner of certain patents as further described herein (the
"OXIS Patents"). Licensee seeks to obtain a non-exclusive license to practice
and use the OXIS Patents, each according to the terms contained herein.
Now, Therefore, in consideration of the foregoing and the covenants
and premises contained in this Agreement, the parties agree as follows:
1. DEFINITIONS
As used herein, capitalized terms will have the meanings set forth
below:
1.1 "AFFILIATE" means any person or entity directly or indirectly
controlling, controlled by or under common control with, either party to this
Agreement. For purposes of the preceding definition, "control" means the direct
or indirect ownership of over fifty percent (50%) of the outstanding voting
securities of a person or entity, or the right to receive over fifty percent
(50%) of the profits or earnings of a person or entity, or the ability to
control decisions of a person or entity.
1.2 "NET SALES" means the amounts actually received for sales of
Licensed Products by or on behalf of Licensee and its Affiliates and
sublicensees of rights with respect to Licensed Products or for otherwise making
such Licensed Products available to others without sale or other disposition,
whether invoiced or not, less (i) any returns and allowances actually granted,
(ii) packing costs, insurance costs and freight out, (iii) taxes (excluding
income taxes) or excise duties imposed on the transaction (if separately
invoiced), and (iv) wholesaler quantity and cash discounts in amounts customary
in the trade. No deductions shall be made for commissions paid to individuals,
whether they be with independent sales agencies or regularly employed, or for
the cost of collections. On sales of such Licensed Products by Licensee to its
Affiliates or on sales
<PAGE>
made in other than an arm's-length transaction, which are not intended for
resale to third parties, the value of the Net Sales attributed to such a
transaction shall be that which would have been received in an arm's-length
transaction, based on sales of like quantity and quality products on or about
the time of such transaction.
1.3 "LICENSED PRODUCT(S)" means any low molecular weight
polyethelyene glycol material used for human therapeutics which, in the course
of manufacture, use, or sale would, in the absence of this license, infringe one
or more Valid Claims of one or more OXIS Patents.
1.4 "OXIS PATENTS" means the U.S. patents listed on Exhibit A
hereto, and any reissues, extensions, substitutions, confirmations, re-
registrations, re-examinations, continuations, divisionals or continuations-in-
part patent applications (but excluding any improvements covered thereby) of the
foregoing patents, as well as all foreign counterparts or equivalents, including
patents and pending applications, of the above and any other patents covered by
the warranty stated in Article 9.2.
1.5 "VALID CLAIMS" means a claim of a duly issued patent which has
not lapsed or become abandoned or been invalidated by a final judgment of a
court of competent jurisdiction from which no further appeal has or can be
taken.
2.0 GRANT
2.1 LICENSE. OXIS grants to Licensee a non-exclusive, royalty-
bearing, world-wide license to make, have made, use and sell up to ten (10)
Licensed Products.
2.1 RIGHT TO SUBLICENSE. Licensee shall have the right to grant a
non-exclusive, royalty-bearing, world-wide license to make, have made, use and
sell Licensed Products, provided that Licensee grants only one sublicense per
Licensed Product and that the sublicense is not one of the parties already in
discussions with OXIS listed in Exhibit B. Upon granting a sublicense
hereunder, Licensee shall promptly provide the name and address of sublicensee
and a description of the Licensed Product.
2
<PAGE>
3.0 COMPENSATION
3.1 LICENSE FEE. In consideration of the rights granted herein,
Licensee shall pay to OXIS upon execution of this Agreement a non-refundable,
license fee of One Hundred and Fifty Thousand Dollars ($150,000). This fee is
creditable against future royalties earned during the term of this Agreement.
3.2 ANNUAL MAINTENANCE FEES. Following the date of this Agreement
and until this Agreement expires or is terminated under Section 6.2, Licensee
shall pay to OXIS a non-refundable annual maintenance fee of Fifty Thousand
Dollars ($50,000) on or before the first day of each calendar year following
execution of this Agreement. Each annual fee is creditable against royalties
earned during the calendar year following payment of such fee.
3.3 EARNED ROYALTIES. Licensee shall pay to OXIS an earned royalty
equal to two percent (2%) of the Net Sales of Licensed Products sold by
Licensee, its Affiliates or its sublicensees.
3.4 SUBLICENSE FEES. Licensee shall pay to OXIS a fee of One Hundred
and Twenty-Five Thousand Dollars ($125,000) for each sublicense of a Licensed
Product granted hereunder. Such payment is due within twenty (20) days after
execution of the sublicense agreement or the sale of a Licensed Product pursuant
to such sublicense, whichever is sooner. Sublicense fees are not creditable
against earned royalties.
4.0 PAYMENT TERMS
4.1 ACCRUAL; REPORTING. Royalty payments due under this Agreement
shall accrue on a calendar quarter basis and Licensee shall pay to OXIS all such
royalty payments due under this Agreement within sixty (60) days of the end of
each calendar quarter. Each payment shall be accompanied by a report summarizing
the relevant sales of the Products and royalty payment due thereon, including a
description of any offsets or credits deducted, in sufficient detail to permit
confirmation of the accuracy of the payment made. In the event that any payment
due hereunder is not made when due, the payment shall accrue interest beginning
on the first day following the due date at the rate of 1.5% per month or, if
less, the maximum rate permissible under Oregon law.
3
<PAGE>
4.2 RECORDS. During the term of this Agreement, Licensee shall keep
full and accurate books and records setting forth, for products on which
payments are due, gross sales, all deductions allowed in arriving at Net Sales
and any other information necessary and in sufficient detail to allow the
calculation of the amounts to be paid hereunder. During the term of this
Agreement and for a period of five (5) years thereafter, Licensee shall permit
OXIS, by independent certified public accountants selected by OXIS, to examine
Licensee's relevant books and records at any reasonable time, within five (5)
years of the payment of such royalties. If it is determined that there was an
underpayment of royalties or other amounts due to OXIS of five percent (5%) or
more, without prejudice to any other rights OXIS may have, Licensee shall
promptly reimburse OXIS for the balance of the royalties or other amounts due
and shall also reimburse OXIS for the cost of such verification examination.
5.0 PATENT MATTERS
5.1 PATENT PROSECUTION AND MAINTENANCE. OXIS shall be solely
responsible for the prosecution and maintenance of the OXIS Patents at its
expense.
5.2 PATENT INFRINGEMENT. If Licensee becomes aware of any actual or
threatened infringement of any OXIS Patent, Licensee will notify OXIS in writing
promptly after learning of such infringement. OXIS shall have the sole right
(but not the obligation) to bring and control, at its own expense, any
infringement action against any person or entity infringing the OXIS Patents.
Licensee will reasonably assist OXIS and cooperate in any litigation at OXIS'
request and expense. This Section 5.2 shall survive the termination of this
Agreement.
6.0 TERM AND TERMINATION.
6.1 TERM. This Agreement will commence as of the Effective Date and,
unless sooner terminated as provided hereunder, will expire on a country-by-
country basis, upon the expiration of the last to expire patent of the OXIS
Patents licensed hereunder in such country.
6.2 TERMINATION.
(a) This Agreement may be terminated by either party upon sixty
(60) days written notice (i) upon the bankruptcy, insolvency, dissolution or
winding up of Licensee (other than dissolution or winding up for the purposes of
reconstruction or amalgamation); or (ii) upon
4
<PAGE>
or after the breach of any material provision of this Agreement by Licensee if
Licensee has not cured such breach within the sixty (60) day period following
written notice of termination by OXIS.
(b) This Agreement may be terminated by Licensee upon ninety (90) days
written notice to OXIS.
(c) Upon termination of the Agreement under this Section 6.2,
royalties due pursuant to Section 3.3 on any sales of Products discovered prior
to the date of such termination or deletion (and the payment terms with respect
thereto under Article 4) will survive the termination of this Agreement.
6.3 OBLIGATIONS UPON TERMINATION. Upon any termination of this
Agreement, all rights granted by OXIS to Licensee hereunder shall terminate and
revert to OXIS. Without limiting any remedies otherwise available to the
terminating party, termination of this Agreement pursuant to this Article 6 will
not relieve Licensee from any amounts owing to OXIS at the time of termination
and will not terminate any rights or obligations arising and existing prior to
or upon termination of this Agreement.
7.0 INDEMNIFICATION
7.1 INDEMNIFICATION. Licensee agrees to indemnify, hold harmless and
defend OXIS, its officers, directors, employees and agents, from and against any
and all claims, suits, losses, damages, costs, fees and expenses (collectively,
"Claims") resulting from or arising out of the development, manufacture,
storage, sale or other distribution or use of Licensed Products, the exercise of
rights granted hereunder, or the negligence or willful misconduct of Licensee in
its performance of its obligations under this Agreement.
7.2 SURVIVAL. This Article 7 shall survive the termination or
expiration of this Agreement .
8.0 LIMITATION OF LIABILITY
8.1 WAIVER OF CONSEQUENTIAL DAMAGES. IN NO EVENT WILL OXIS BE LIABLE
TO LICENSEE OR ITS AFFILIATES OR ANY SUBLICENSEE OF RIGHTS TO ANY
5
<PAGE>
PROFITS, LOST SAVINGS, OR OTHER INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES OR
FOR ANY CLAIM BY ANY OTHER PARTY.
8.2 DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, OXIS MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND. OXIS HEREBY
EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND OR NATURE, WHETHER
EXPRESS OR IMPLIED, RELATING TO THE OXIS PATENTS, INCLUDING ANY EXPRESS OR
IMPLIED WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR
THAT THE PRACTICE OF THE OXIS PATENTS, OR THE MANUFACTURE, USE OR SALE OF A
PRODUCT DISCOVERED OR IDENTIFIED THROUGH THE USE OF THE OXIS PATENTS, WILL NOT
INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OF THIRD PARTIES.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, OXIS EXPRESSLY DOES NOT
WARRANT THE ACCURACY, SAFETY, OR USEFULNESS FOR ANY PURPOSE, OR THE TECHNOLOGY
COVERED UNDER THE OXIS PATENTS. NOTHING CONTAINED IN THIS AGREEMENT SHALL BE
CONSTRUED AS EITHER A WARRANTY OF REPRESENTATION BY OXIS AS TO THE VALIDITY OR
SCOPE OF ANY OXIS PATENTS. OXIS DOES NOT ASSUME ANY LIABILITY IN RESPECT OF ANY
INFRINGEMENT OF ANY PATENT OR OTHER RIGHT OF THIRD PARTIES DUE TO THE ACTIVITIES
OF LICENSEE UNDER THIS AGREEMENT.
8.3 SURVIVAL. This Article 8 shall survive the termination or expiration
of this Agreement.
9.0 REPRESENTATIONS AND WARRANTIES
9.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each party hereby represents
and warrants:
9.1.1 CORPORATE POWER. Such party is duly organized and validly
existing and in good standing under the laws of the state of its
incorporation and has all requisite corporate power and authority to enter
into this Agreement and to carry out the provisions hereof.
6
<PAGE>
9.1.2. DUE AUTHORIZATION. Such party is duly authorized to execute
and deliver this Agreement and to perform its obligations hereunder.
9.1.3. BINDING AGREEMENT. This Agreement is a legal and valid
obligation binding upon it and enforceable in accordance with its terms.
The execution, delivery and performance of this Agreement by such party
does not conflict with any agreement, instrument or understanding, oral or
written, to which it is a party or by which is may be bound, not violate
any law or regulation of any court, governmental body or administrative or
other agency having jurisdiction over it.
9.2 OXIS PATENTS. OXIS represents and warrants that the OXIS Patents
listed in Exhibit A are all the U.S. patents OXIS owns or has rights to as of
the Effective Date of this Agreement, that, but for this Agreement would be
infringed by the making, using or selling of Licensed Products. OXIS further
represents and warrants that it will update Exhibit A to include any reissues,
extensions, substitutions, confirmations, re-registrations, re-examinations,
continuations, divisionals or continuations-in-part patent applications of the
foregoing patents which issue during the terms of this Agreement after the
Effective Date.
10. GENERAL PROVISIONS
10.1 RELATIONSHIP OF THE PARTIES. Neither party is, nor will be deemed to
be, an agent or legal representative of the other party for any purpose.
Neither party will be entitled to enter into any contracts, incur any debts or
make any commitments in the name of or on behalf of the other party, and neither
party will be entitled to pledge the credit of the other party in any way or
hold itself out as having authority to do so.
10.2 COMPLIANCE WITH LAWS. Licensee shall use its best efforts to comply
with all applicable laws, rules and regulations pertaining to the development,
testing, manufacture, marketing and import or export of the Licensed Products.
10.3 NON-ASSIGNMENT. Licensee shall not assign this Agreement, in whole or
in part, without the prior written consent of OXIS, except such consent shall
not required in connection with Licensee's sale of the entire business to which
this Agreement pertains.
10.4 DIVISIBILITY. If any provision of this Agreement is found to be
prohibited by law and invalid, or for any other reason if any provision is held
to be unenforceable, in whole or in
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<PAGE>
part, such provision shall be ineffective to the extent of the prohibition or
unenforceability without invalidating or having any other adverse effect upon
any other provision of this Agreement.
10.5 ENTIRE AGREEMENT. This Agreement, including the documents and the
instruments referred to herein, constitutes the entire agreement between the
parties relating to its subject matter and supersedes all prior or
contemporaneous negotiations or agreements, whether oral or written, relating to
the subject matter hereof. No extension, modification or amendment of this
Agreement shall be binding upon a party unless such extension, modification or
amendment is set forth in a written instrument, which is executed and delivered
on behalf of such party.
10.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the substantive law of the State of Oregon, without giving
effect to any conflicts or choice of laws principles which otherwise might be
applicable.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
including the Exhibits attached hereto and incorporated herein by reference, as
of the date first written above.
OXIS INTERNATIONAL, INC. ENZON, INC.
By: ________________________ By: _________________________
Name: ______________________ Name: _______________________
Title: _______________________ Title: ________________________
8
<PAGE>
EXHIBIT A
OXIS PATENTS
. U.S Patent No. 5,468,478, entitled "Conjugates of Superoxide Dismutase
Coupled to High Molecular Weight Polyalkylene Glycols, issued November 21,
1995.
. U.S Patent No. 5,283,317, entitled "Intermediates for Conjugation of
Polypeptides With High Molecular Weight Polyalkylene Glycols, issued February
1, 1994.
. U.S Patent No. 5,080,891, entitled "Conjugates of Superoxide Dismutase
Coupled to High Molecular Weight Polyalkylene Glycols, issued January 14,
1992.
. U.S Patent No. 5,006,333, entitled "Conjugates of Superoxide Dismutase
Coupled to High Molecular Weight Polyalkylene Glycols, issued April 9, 1991.
9
<PAGE>
EXHIBIT B
. Amgen, Inc., Thousand Oaks, California
. Mountain View Pharmaceuticals, Inc., Mountain View, California
. Centorcor, Inc., Malvern, Pennsylvania
10
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