<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X
----- Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1998.
----- 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 March 31, 1998, the issuer had outstanding the indicated number of shares of
common stock: 28,775,324
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------
1998 1997
<S> <C> <C>
Revenues:
Product sales $ 1,296,000 $ 1,127,000
Royalties and license fees 51,000 35,000
----------- -----------
Total revenues 1,347,000 1,162,000
Costs and expenses:
Cost of sales 1,259,000 772,000
Research and development 931,000 1,106,000
Selling, general and administrative 981,000 604,000
----------- -----------
Total costs and expenses 3,171,000 2,482,000
----------- -----------
Operating loss (1,824,000) (1,320,000)
Interest income 11,000 3,000
Interest expense (27,000) (30,000)
----------- -----------
Net loss $(1,840,000) $(1,347,000)
=========== ===========
Net loss per share - basic $ (.06) $ (.10)
=========== ===========
Weighted average number of
shares used in computation - basic 28,673,888 14,108,668
=========== ===========
</TABLE>
1
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 410,000 $ 1,290,000
Accounts receivable 1,051,000 2,011,000
Inventories 1,874,000 1,828,000
Prepaid and other 48,000 79,000
----------- -----------
Total current assets 3,383,000 5,208,000
Property and equipment, net 3,768,000 3,968,000
Technology for developed products
and custom assays, net 2,886,000 3,065,000
Other assets 413,000 334,000
----------- -----------
Total assets $10,450,000 $12,575,000
=========== ===========
</TABLE>
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,403,000 $1,423,000
Accounts payable 1,285,000 1,553,000
Accrued payroll, payroll taxes and other 1,121,000 1,181,000
Current portion of long-term debt 91,000 93,000
----------- ----------
Total current liabilities 3,900,000 4,250,000
Long-term debt due after one year 1,694,000 1,570,000
Shareholders' equity:
Preferred stock - $.01 par value;
15,000,000 shares authorized:
Series B - 642,583 shares issued and
outstanding at March 1998 (liquidation
preference of $1,500,000) 6,000 6,000
Series C - 1,021,697 shares issued and
outstanding at March 31, 1998 11,000 11,000
Series D - 700 shares issued and
outstanding at March 31, 1998 -- --
Common stock - $.50 par value; 50,000,000
shares authorized; 28,775,324 shares issued
and outstanding at March 31, 1998 14,388,000 14,298,000
Additional paid in capital 30,778,000 30,868,000
Accumulated deficit (40,014,000) (38,174,000)
Accumulated translation adjustments (313,000) (254,000)
----------- -----------
Total shareholders' equity 4,856,000 6,755,000
----------- -----------
Total liabilities and shareholders' equity $10,450,000 $12,575,000
=========== ===========
</TABLE>
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,840,000) $(1,347,000)
Adjustments to reconcile net loss to cash
used for operating activities:
Depreciation and amortization 362,000 452,000
Changes in assets and liabilities:
Accounts receivable 784,000 (152,000)
Inventories (47,000) 46,000
Prepaid and other current assets 31,000 110,000
Accounts payable (262,000) 686,000
Customer deposits -- 26,000
Accrued payroll, payroll taxes and other 136,000 95,000
----------- -----------
Net cash used for operating activities (836,000) (84,000)
Cash flows from investing activities:
Purchases of equipment (10,000) (2,000)
Additions to other assets (58,000) (5,000)
Other, net (13,000) (121,000)
----------- -----------
Net cash used for investing activities (81,000) (128,000)
Cash flows from financing activities:
Proceeds from issuance of notes 546,000 213,000
Stock issuance costs (28,000) (99,000)
Repayment of short-term borrowings (424,000) (12,000)
Repayment of long-term debt and capital lease obligations (20,000) (40,000)
----------- -----------
Net cash provided by financing activities 74,000 62,000
Effect of exchange rate changes on cash (37,000) --
----------- -----------
Net decrease in cash and cash equivalents (880,000) (150,000)
Cash and cash equivalents - beginning of period 1,290,000 422,000
----------- -----------
Cash and cash equivalents - end of period $ 410,000 $ 272,000
=========== ===========
</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, 1997. 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.
2. SUBSEQUENT EVENTS - ADDITIONAL FINANCING
Between April 28 and May 8, 1998, the Company completed the first closing of
a private placement of its common stock together with warrants to a series
of institutional investors. The units, consisting of one share of common
stock plus a warrant to purchase one share of common stock, were priced at
the NASDAQ closing price the day prior to the signing of the subscription
agreements. The prices ranged from $.875 to $1.125. In the first closing
6,936,142 common shares and warrants to purchase an equal number of common
shares were issued in exchange for gross proceeds of $5,716,000 in cash and
conversion of $543,000 of short-term notes and accrued interest payable. The
excercise price of each warrant is equal to 125% of the price paid per unit.
The second closing, for which commitments have been received and funds
relating thereto have been placed in escrow is expected to yield gross
proceeds of $2,465,000 in cash and conversion of $234,000 of short-term
notes and accrued interest payable. The release to the Company of the
proceeds from the second closing is subject to approval by the shareholders
of an increase in the number of authorized common shares. This proposal will
be considered by the Shareholders at the Company's annual meeting scheduled
to be held in July 1998.
5
<PAGE>
3. 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 March 31, 1998 and December 31, 1997, consisted of
the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Raw materials $1,253,000 $1,319,000
Work in process 334,000 344,000
Finished goods 287,000 165,000
---------- ----------
Total $1,874,000 $1,828,000
========== ==========
</TABLE>
4. SHAREHOLDERS' EQUITY
During the first quarter of 1998, 50 shares of Series D Preferred Stock were
converted into 179,004 shares of common stock.
The number of common shares which the holder of the Series D Preferred Stock
can acquire by converting its Series D shares is limited, and the holder has
converted all of the Series D shares which can be converted pursuant to the
terms of the Series D Preferred Stock Certificate of Designations. The
Company has received correspondence from a representative of the holder of
the Series D Preferred Stock claiming that the holder is entitled to certain
interest and other payments and other rights with respect to the remaining
Series D Preferred Stock which is not convertible into common stock. The
Company has advised the holder of the Series D Preferred Stock that it does
not agree with the holder's position with respect to the Series D Preferred
Stock. The Company and the holder of the Series D Preferred Stock are
currently in the process of negotiating a settlement of the dispute
concerning the outstanding shares of Series D Preferred Stock.
5. COMPREHENSIVE LOSS
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". The Company's
consolidated comprehensive loss was $1,899,000 and $1,468,000 for the three
months ended March 31, 1998 and 1997, respectively. The differences between
the net loss reported in the consolidated statement of operations and
consolidated comprehensive net loss for the two periods consisted of changes
in foreign currency translation adjustments.
6
<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 decreased during the first quarter of 1998 by
$1,475,000, from $958,000 at December 31, 1997 to a deficit of $517,000 at
March 31, 1998. The reduction in working capital resulted primarily from the
effect of the net loss for the quarter ($1,840,000 less non-cash charges of
$362,000).
Cash and cash equivalents decreased from $1,290,000 at December 31, 1997 to
$410,000 at March 31, 1998.
The Company expects to continue to report losses in 1998 as the level of
expenses is expected to continue to exceed revenues. 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.
Between April 28 and May 8, 1998, the Company completed the first closing of a
private placement of its common stock together with warrants to a series of
institutional investors. The units, consisting of one share of common stock
plus a warrant to purchase one share of common stock, were priced at the
NASDAQ closing price the day prior to the signing of the subscription
agreements. The prices ranged from $.875 to $1.125. In the first closing
6,936,142 common shares and warrants to purchase an equal number of common
shares were issued in exchange for gross proceeds of $5,716,000 in cash and
conversion of $543,000 of short-term notes and accrued interest payable. The
excercise price of each warrant is equal to 125% of the price paid per unit.
The second closing, for which commitments have been received and funds
relating thereto have been placed in escrow is expected to yield gross
proceeds of $2,465,000 in cash and conversion of $234,000 of short-term notes
and accrued interest payable. The release to the Company of the proceeds from
the second closing is subject to approval by the shareholders of an increase
in the number of authorized common shares. This proposal will be considered by
the shareholders at the Company's annual meeting scheduled to be held in July
1998.
7
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998
COMPARED WITH THREE MONTHS ENDED MARCH 31, 1997
REVENUES
The Company's revenues for the quarters ended March 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Instrument sales and development $ 810,000 $ --
Diagnostic and research assays 416,000 548,000
Bovine superoxide dismutase (bSOD)
for research and human use -- 412,000
Palosein/(R)/ (bSOD for veterinary use) 44,000 154,000
Other 26,000 13,000
Royalties and license fees 51,000 35,000
---------- ----------
$1,347,000 $1,162,000
========== ==========
</TABLE>
Instrument sales and development revenues are generated by Innovative Medical
Systems Corp. ("IMS"), acquired by the Company on December 31, 1997. Because
the acquisition of IMS was recorded as a purchase, the revenues and expenses
of IMS are not included in the Company's consolidated results of operations
prior to 1998.
Sales of the Company's diagnostic and research assays decreased from $548,000
in the first quarter of 1997 to $416,000 in the first quarter of 1998. This
decrease of $132,000 was primarily due to unusually large sales to
distributors in the fourth quarter of 1997 resulting in below normal sales
volumes in the first quarter of 1998.
Sales of bulk bSOD have been almost entirely to the Company's Spanish
licensee, and no shipments were made to this customer in the first quarter of
1998. Future sales of bulk bSOD continue to be largely dependent on the needs
of the Company's Spanish licensee. The Company expects its orders for 1998
from the Spanish licensee to be less than those for 1997. The Company's sales
of bulk bSOD beyond 1998 are uncertain and difficult to predict and no
assurances can be given with respect thereto.
Palosein/(R)/ sales in the first quarter of 1997 included a substantial sale
to a distributor in Germany. The Company expects to have a similar order
later in 1998, but has not yet received such an order.
8
<PAGE>
COSTS AND EXPENSES
Including amortization of purchase adjustments, cost of sales was 69% of
product sales for the first quarter 1997 and increased to 97% of product sales
for the first quarter of 1998. This increase in the cost of sales as a
percentage of sales is due primarily to the effect of the fixed manufacturing
costs being spread over manufacturing and sales volume for the first quarter
of 1998 that the Company believes is unusually low. Management expects
manufacturing and sales volumes to increase in the second quarter of 1998,
resulting in a reduction of cost of sales as a percentage of sales; provided,
however, that no assurances can be given that such an increase will take
place. Cost of sales as a percentage of sales was also higher in the first
quarter of 1998 as compared to the first quarter of 1997 due to the reductions
in sales of bSOD and Palosein/(R)/, which contributed approximately $150,000
more in profit margins in the first quarter of 1997 than in 1998.
Cost of sales in the first quarter of 1997 includes approximately $180,000 in
amortization of purchase adjustments relating to 1994 business acquisitions.
Costs of sales in the first quarter of 1998 includes approximately $210,000 in
amortization of purchase adjustments relating to 1994 and 1997 business
acquisitions. Excluding such amortization the cost of product sales for the
first quarter of 1997 was approximately 53% of sales and the cost of sales for
the first quarter of 1998 was approximately 81% of product sales.
Research and development expenses decreased from $1,106,000 in the first
quarter of 1997 to $931,000 in the first quarter of 1998. The decrease in
research and development expenses resulted from cost reductions in the first
quarter of 1998 compared to the first quarter of 1997 of (1) $190,000 for
outside development contracts primarily relating to the development of the
Company's lead molecule, BXT-51072, which is currently in Phase II clinical
trials for ulcerative colitis and (2) $170,000 in research and development
costs of the Company's French subsidiary. During the first quarter of 1998 the
Company's lead molecule was in the early part of a Phase II clinical trial
which did not require as much outside contract support as earlier parts of the
clinical trials. Costs relating to the Phase II trials are expected to
increase during the remainder of 1998 with an increase in patient enrollment
and increasing data analysis needs. These cost reductions were partially
offset by an increase of $185,000 in research and development costs in the
United States other than the costs of clinical trials. This increase consisted
primarily of severance costs relating to a staff reduction during the first
quarter of 1998.
9
<PAGE>
Selling, general and administrative expenses increased from $604,000 in the
first quarter of 1997 to $981,000 in the first quarter of 1998. The increase
is primarily the result of $250,000 of selling, general and administrative
expenses of IMS in the first quarter of 1998. Fees aggregating $51,000 in the
first quarter of 1998 for the ongoing listing of the Company's common stock on
Le Nouveau Marche and increased shares listed on NASDAQ National Market also
contributed to the increase in 1998.
NET LOSS
The Company continued to experience losses in the first quarter of 1998. The
first quarter 1998 loss of $1,840,000 ($.06 per share-basic) was $493,000
more than the $1,347,000 ($.10 per share-basic ) loss for the first quarter of
1997. The increase in the net loss is primarily due to the decline in gross
margin from product sales and increased selling, general and administrative
costs. The net loss per share-basic decreased because of the increase in the
number of common shares outstanding.
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 1998.
-------------------------
Certain of the matters discussed in this Report such as management's future
sales expectations, 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.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company has been notified by the Nasdaq Stock Market, Inc. ("Nasdaq")
that, because the bid price of its common stock has been less than USD $1.00,
its common stock is currently not in compliance with the Nasdaq Marketplace
Rule 4450 (a)(5) relating to the Nasdaq minimum bid price requirements. The
Company has been informed by Nasdaq that it is being provided 90 calendar
days, which expires May 28, 1998, in order to regain compliance with this
standard. The Company may regain compliance if the bid price for its common
stock closes at or above the minimum requirement for at least ten (10)
consecutive trade days. If the security does not regain compliance within the
90 days, Nasdaq will issue a delisting letter which will identify the review
procedures available to the Company. The Company may request a review at or
before that time, which, Nasdaq has stated, will stay delisting until a
hearing occurs. As of the date of this filing the Company has not regained
compliance, and no assurance can be given that such compliance will be
regained.
If the Common Stock of the Company ceases to be listed on the Nasdaq
National Market such failure to be listed could have a material adverse effect
on the transferability of the Company's Common Stock, and may have a material
adverse effect on the value of the Common Stock as well.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - See Exhibit Index on page 12.
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.
May 15, 1998 By /s/ Ray R. Rogers
------------------------------------
Ray R. Rogers
Chairman and Chief Executive Officer
May 15, 1998 By /s/ Jon S. Pitcher
------------------------------------
Jon S. Pitcher
Chief Financial Officer
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description of Document Number
<C> <S> <C>
10(a) Consulting Agreement and Release of Claims 13
27(a) Financial data schedule 20
</TABLE>
12
<PAGE>
EXHIBIT 10(a)
CONSULTING AGREEMENT AND RELEASE OF CLAIMS
------------------------------------------
This Consulting Agreement and Release of Claims (this "Consulting
Agreement") is made by and between OXIS International, Inc., a Delaware
corporation (the "Company"), and Anna D. Barker, Ph.D. ("Employee") as of March
6, 1998. The Company and the Employee may be hereinafter collectively referred
to as the "Parties" and each may be individually referred to as a "Party".
WHEREAS, Employee was employed as President and Chief Executive Officer of
the Company and is a member of the Company's Board of Directors;
WHEREAS, the Company and Employee have previously entered into oral
agreements and other arrangements from time to time relating to the Employee's
employment with the Company (such agreements and arrangements are hereinafter
collectively referred to as the "Employment Agreements");
WHEREAS, the Company and Employee each seek to, and have each agreed to,
modify their relationship such that it will become a consulting relationship
where Employee will be providing consulting services to the Company pursuant to
the terms and conditions set forth in this Consulting Agreement;
WHEREAS, the Company and Employee have previously entered into an Employee
Patent and Confidential Information Agreement dated as of June 1, 1994 (the
"Confidentiality Agreement"); and
WHEREAS, in connection with their agreement to modify the nature of their
relationship, the Company and Employee have mutually agreed to terminate any and
all Employment Agreements and to release each other from any claims arising
therefrom or otherwise related to the employment relationship.
NOW THEREFORE, in consideration of the mutual promises made herein, the
Parties agree as follows:
1. Modification of Employment Relationship.
---------------------------------------
(a) Termination of Employment Agreements. Except as otherwise
------------------------------------
specified herein, Company and Employee agree that any and all
Employment Agreements are terminated (the "Termination") effective as
of the Effective Date (defined in Section 23). As of the Effective
Date, the Employee shall cease to be an employee or officer of the
Company.
(b) Entry into Consulting Arrangements.
----------------------------------
(i) General. From the Effective Date until the nine month
-------
<PAGE>
anniversary thereof (the "Consultation Period"), Employee shall,
upon reasonable notice, perform services as a consultant to the
Company as reasonably requested by the Company (and as
reasonably acceptable to Employee) and make herself available on
an independent contractor basis as a consultant to the Company
on an as-needed basis and in such capacity consult with the
Company with respect to matters which are reasonably within the
realm of her expertise and training (the "Consulting
Arrangement"), provided that Employee shall not be required to
make herself available more than 15 hours per month. In
connection with her consulting activities under this Consulting
Agreement, the Company will provide Employee with limited office
space and secretarial support. Nothing in this Consulting
Agreement shall in any way be construed to constitute Employee
as an agent, employee or representative of the Company during
the Consultation Period, and Employee shall perform all services
hereunder during the Consultation Period as an independent
contractor. Employee acknowledges and agrees that Employee is
obligated to pay all self employment and other taxes relating to
her compensation paid hereunder during the Consultation Period.
The Company and Employee may extend the Consultation Period by
mutual agreement.
(ii) Restricted Activities. During the Consultation Period,
---------------------
Employee agrees that she will not (whether as an employee,
consultant, proprietor, partner, director or otherwise), engage
in or have any ownership interest in, or participate in the
operation, management or control of any person, firm,
corporation or business ("Entity") that competes with the
Company. Employee or Entity shall be deemed to compete with the
Company if she or it is engaged in the research, development,
manufacturing, marketing, distribution and/or selling of
compounds, drugs, pharmaceuticals, nutraceuticals, or
nutritional supplements competitive with products currently
being developed or marketed by the Company. Ownership of 10% or
less of the outstanding stock of an Entity shall not constitute
a violation of this provision. The Company acknowledges that
Employee is free to pursue any activity in the cancer market,
and that such activity shall not be deemed to be competitive
with the Company.
2. Compensation and Benefits.
-------------------------
(a) Employment Related Compensation. On the Effective Date, the
-------------------------------
Company shall pay the Employee all accrued compensation, including
without limitation, accrued salary and vacation due the Employee
through the Effective Date. Employee shall be eligible for COBRA
health insurance coverage at Employee's expense during the period the
Company is required to make such coverage available. The computer and
the other office equipment which the
<PAGE>
Company has provided for Employee's use during the course of her
employment will be transferred to Employee as of the Effective Date.
Employee agrees that the compensation to be paid to her under this
Section 2(a) will constitute all amounts due to her under any and
all Employment Agreements she may have or have had with the Company
through the date hereof.
3. Consulting Related Compensation. So long as Employee has not
-------------------------------
commenced full time employment at another organization, during the
Consultation Period the Company shall pay the Employee the amount of
$15,416.67 per month, payable on the 15th and the last day of each month, or
the preceding business day should such day fall upon a weekend or a nationally
recognized holiday (the "Consulting Compensation"). In the event that Employee
commences full time employment at another organization, the Consulting
Compensation shall be reduced by the monthly amount received as compensation
by Employee from such other organization. Employee shall be deemed to be
engaged in "full time employment" if she provides 25 hours of service per week
to an organization. Cessation of payments under this Section 3 shall terminate
Employee's requirement to provide consulting services hereunder. In the event
Employee shall breach the terms of Section 1(b)(ii) of the this Agreement, or
breaches the Confidentiality Agreement or resigns in her capacity as a
consultant to the Company, the Company's obligation to pay the Employee
pursuant to the terms of this Section 2(b) shall terminate.
4. Stock Options; Vesting; Period for Exercise. The Company affirms the
-------------------------------------------
options granted to Employee under the Employee's Company Stock Option
Agreements, including, without limitation, to those stock options dated June 16,
1994, June 26, 1995, March 28, 1996, October 11, 1996, and September 4, 1997 and
a Stock Option Agreement dated September 7, 1994 (the "Option Agreements").
Notwithstanding any vesting provisions contained in the Option Agreements, the
Employee shall become fully vested with respect to such options upon the
execution of, and Employee's entry into, this Consulting Agreement. The
Employee shall have the right to exercise the option rights granted under the
Option Agreements for the period beginning on the Effective Date and ending two
years after the end of the Consultation Period. In the event of the death of
Employee, Employee's estate shall have the maximum time available under the
Option Agreements to exercise the options and shall be entitled to effect the
exercise of all or a portion of the options by any permissible means under the
terms of the Option Agreements.
5. Confidential Information. Employee shall continue to maintain the
------------------------
confidentiality of all confidential and proprietary information of the Company
and shall continue to comply with the terms and conditions of Paragraph E of the
Confidentiality Agreement. Employee shall return all Company property and
confidential and proprietary information in her possession to the Company no
later than on the Effective Date of this Consulting Agreement.
6. Non-Solicitation of Employees. Employee agrees that for a period of
-----------------------------
nine (9) months from the end of the Effective Date, Employee shall neither
directly nor indirectly solicit, induce, recruit or encourage any of the
employees of the Company to leave their employment, or take away such
employees, or attempt to solicit, induce, recruit, encourage or take away
employees of the Company other than Betty Bogacz, either for the Employee or
for any other
<PAGE>
person or entity.
7. Mutual Release of Claims. Employee and Company agree that this
------------------------
Consulting Agreement and the Option Agreements, which consideration and
agreements have induced each Party to enter into this agreement with the other
Party, represents settlement in full of all outstanding obligations owed to
Employee by the Company and by the Employee to the Company existing on the
date hereof. Employee and the Company, on behalf of themselves, and their
respective heirs, family members, executors, officers, directors, employees,
investors, shareholders, administrators, affiliates, divisions, subsidiaries,
predecessor and successor corporations, and assigns, hereby fully and forever
release each other and their respective heirs, family members, executors,
officers, directors, employees, investors, shareholders, administrators,
affiliates, divisions, subsidiaries, predecessor and successor corporations,
and assigns, from, and agree not to sue concerning, any claim, duty,
obligation or cause of action relating to any matters of any kind, whether
presently known or unknown, suspected or unsuspected that any of them may
possess arising from any omissions, acts or facts that have occurred up until
and including the Effective Date:
(a) relating to or arising from Employee's employment relationship
with the Company, or except as noted below, status as an officer or
director of the Company and the termination of that relationship or
status;
(b) relating to or arising from, Employee's right to purchase, or
actual purchase of shares of stock of the Company, including, without
limitation, any claims for fraud, misrepresentation, breach of fiduciary
duty, breach of duty under applicable state corporate and/or securities
law, and securities fraud under any state or federal law;
(c) relating to claims for wrongful discharge of employment;
termination in violation of public policy; discrimination; breach of
contract, both express and implied; breach of a covenant of good faith
and fair dealing, both express and implied; promissory estoppel;
negligent or intentional infliction of emotional distress; negligent or
intentional misrepresentation; negligent or intentional interference with
contract or prospective economic advantage; unfair business practices;
defamation; libel; slander; negligence; personal injury; assault;
battery; invasion of privacy; false imprisonment; and conversion;
(d) relating to claims for violation of any federal, or municipal
statute, including, but not limited to, Title VII of the Civil Rights Act
of 1964, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act of 1990, the
Fair Labor Standards Act, the Employee Retirement Income Security Act of
1974, the Worker Adjustment and Retraining Notification Act, and the
Older Workers Benefit Protection Act;
(e) relating to claims of violation of the federal, or any state,
constitution;
<PAGE>
(f) relating to claims arising out of any other laws and regulations
relating to employment or employment discrimination; and
(g) relating to claims for attorneys' fees and costs.
In addition to the foregoing, the Company and the Employee fully and
forever release each other from, and agree not to sue concerning, any other
claim, duty, obligation or cause of action relating to any other matter of any
kind, whether presently known or unknown, suspected or unsuspected that any of
them may possess arising from any omissions, acts or facts that have occurred up
until and including the Effective Date (except as provided below). The Company
and Employee agree that the release set forth in this section shall be and
remain in effect in all respects as a complete general release as to the matters
released. This release does not extend to any obligations incurred or arising
out of this Consulting Agreement provided however this release shall not affect
Employee's rights to indemnification by the Company or under a policy of
insurance for claims made against the Employee arising from her having been an
officer, director or employee of the Company.
8. Acknowledgment of Waiver of Claims under ADEA and the Older Workers'
--------------------------------------------------------------------
Benefit Protection Act. Employee acknowledges that she is waiving and releasing
- ----------------------
any rights she may have under the Age Discrimination in Employment Act of 1967
("ADEA") or the Older Workers' Benefit Protection Act (collectively with the
ADEA and any other applicable age discrimination statutes, the "Age
Discrimination Statutes") and that this waiver and release is knowing and
voluntary. Employee and the Company agree that this waiver and release does not
apply to any rights or claims that may arise under the Age Discrimination
Statutes after the Effective Date. Employee acknowledges that the consideration
given for this waiver and release contained in this Consulting Agreement is in
addition to anything of value to which Employee was already entitled. Employee
further acknowledges that she has been advised by this writing that: (a) she
should consult with an attorney prior to executing this Consulting Agreement;
(b) she has had at least twenty one (21) days within which to consider this
Consulting Agreement; (c) she has seven (7) days following the execution of this
Consulting Agreement by the Parties to revoke the Agreement; and (d) this
Consulting Agreement shall not be effective until the revocation period has
expired.
9. No Pending or Future Lawsuits. Employee represents that she has no
-----------------------------
lawsuits, claims, or actions pending in her name, or on behalf of any other
person or entity, against the Company or any other person or entity referred to
herein. Employee also represents that she does not intend to bring any claims
on her own behalf or on behalf of any other person or entity against the Company
or any other person or entity referred to herein.
10. Public Disclosure of Consulting Agreement. Company and Employee agree
------------------------------------------
that, prior to publication or dissemination and subject to the Company's
obligations under federal and state securities laws, they shall discuss and
agree upon any public disclosures relating to the modification of Employee's
employment relationship with the Company and this Consulting Agreement.
11. Non-Disparagement. Each Party agrees to refrain from any defamation,
------------------
libel or
<PAGE>
slander of the other, or tortious interference with the contracts and
relationships of the other.
12. Tax Consequences. The Company makes no representations or warranties
----------------
with respect to the tax consequences of the payment of any sums to Employee
under the terms of this Consulting Agreement. Employee agrees and understands
that she is responsible for payment, if any, of local, state and/or federal
taxes on the sums paid hereunder by the Company and any penalties or
assessments thereon. Employee further agrees to indemnify and hold the Company
harmless from any claims, demands, deficiencies, penalties, assessments,
executions, judgments, or recoveries by any government agency against the
Company for any amounts claimed due on account of Employee's failure to pay
federal or state taxes or damages sustained by the Company by reason of any
such claims, including reasonable attorneys' fees.
13. No Admission of Liability. The Parties understand and acknowledge that
-------------------------
this Consulting Agreement constitutes a compromise and settlement of claims. No
action taken by the Parties hereto or either of them, either previously or in
connection with this Consulting Agreement shall be deemed or construed to be an
acknowledgment or admission by either Party of any fault or liability whatsoever
to the other Party or to any third party.
14. Insurance. So long as Employee shall remain a member of the Board of
---------
Directors of the Company, she shall be covered by the Company's Director's and
Officer's Liability Insurance if any is then in effect.
15. Costs. The Parties shall each bear their own costs, expert fees,
-----
attorneys' fees and other fees incurred in connection with this Consulting
Agreement.
16. Arbitration. The Parties agree that any and all disputes arising out
-----------
of the terms of this Consulting Agreement, their interpretation, and any of the
matters herein released, shall be subject to binding arbitration under the rules
of the American Arbitration Association, with any such arbitration to be held in
Portland, Oregon. The Parties agree that the prevailing party in any
arbitration shall be entitled to injunctive relief in any court of competent
jurisdiction to enforce the arbitration award and to costs and attorneys' fees
incurred in enforcing the Agreement.
17. Authority. The Company represents and warrants that the undersigned
---------
has the authority to act on behalf of the Company and to bind the Company and
all who may claim through it to the terms and conditions of this Consulting
Agreement. Employee represents and warrants that she has the capacity to act
on her own behalf and on behalf of all who might claim through her to bind
them to the terms and conditions of this Consulting Agreement. Each Party
warrants and represents that there are no liens or claims of lien or
assignments in law or equity or otherwise of or against any of the claims or
causes of action released herein.
18. No Representations. Each Party represents that it has had the
------------------
opportunity to consult with an attorney, and has carefully read and
understands the scope and effect of the provisions of this Consulting
Agreement. Neither Party has relied upon any representations or statements
made by the other Party hereto which are not specifically set forth in this
Agreement.
19. Severability. In the event that any provision hereof becomes or is
------------
declared by a
<PAGE>
court of competent jurisdiction to be illegal, unenforceable or void, this
Consulting Agreement shall continue in full force and effect without said
provision.
20. Entire Agreement. This Agreement and the Confidentiality Agreement
----------------
represent the entire agreement and understanding between the Company and
Employee concerning Employee's separation from the Company, and supersedes and
replaces any and all prior oral and written agreements and understandings
concerning Employee's relationship with the Company and her compensation by the
Company, including any and all Employment Agreements.
21. No Oral Modification. This Agreement may only be amended in writing
--------------------
signed by Employee and the Company.
22. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Oregon.
23. Effectiveness. This Agreement will become effective (the "Effective
-------------
Date") seven (7) days after the Agreement is executed by both Parties.
24. Counterparts. This Agreement may be executed in counterparts, and each
------------
counterpart shall have the same force and effect as an original and shall
constitute an effective. binding agreement on the part of each of the
undersigned.
25. Voluntary Execution of Agreement. This Agreement is executed
--------------------------------
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing claims. The Parties
acknowledge that:
(a) They have read this Consulting Agreement;
(b) They have been represented in the preparation, negotiation, and
execution of this Consulting Agreement by legal counsel of their own
choice or that they have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this Consulting
Agreement and of the releases it contains; and
(d) They are fully aware of the legal and binding effect of this
Consulting Agreement.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Consulting Agreement on
the respective dates set forth herein.
OXIS INTERNATIONAL, INC.
Dated: March 6, 1998
By: /s/ Ray R. Rogers
Name: Ray R. Rogers
Title: Chairman of the Board
Dated: March 9, 1998 Anna D. Barker, Ph.D., an individual
/s/ Anna D. Barker
Anna D. Barker
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 410,000 1,290,000
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<PP&E> 3,768,000 3,968,000
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<TOTAL-ASSETS> 10,450,000 12,575,000
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17,000 17,000
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<INTEREST-EXPENSE> 27,000 30,000
<INCOME-PRETAX> (1,840,000) (1,347,000)
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<INCOME-CONTINUING> (1,840,000) (1,347,000)
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