EXHIBIT 10(A) EXECUTION COPY -------------- OXIS INTERNATIONAL, INC. ------------------------ SERIES B PREFERRED ------------------ STOCK PURCHASE AGREEMENT ------------------------ THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 18th day of July, 1995 by and between OXIS INTERNATIONAL, INC., a Delaware corporation (the "Company"), and the purchasers listed on the signature pages hereto under the heading "Investors", each of whom is herein referred to as an "Investor". In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereby agree as follows: 1. Purchase and Sale of Series B Preferred Stock. ---------------------------------------------- 1.1 Sale and Issuance of Series B Preferred Stock. ---------------------------------------------- (a) The Board of Directors of the Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing (as defined below) the Certificate of Designation (the "Certificate of Designation") in substantially the form attached hereto as Exhibit A designating --------- 642,583 shares of Preferred Stock as Series B Preferred Stock. (b) Subject to the terms and conditions of this Agreement, the Company shall sell, and the Investors shall purchase, an aggregate of 642,583 shares of Series B Preferred Stock (the "Preferred Shares"). Each Investor agrees severally to purchase, and the Company agrees to sell to each Investor, the number of Preferred Shares as set forth opposite such Investor's name on the Schedule of Investors attached as Exhibit B to this Agreement (the "Schedule of --------- Investors"). The purchase price to be paid by each Investor for such Preferred Shares is $2.33433 per share, as set forth on Exhibit B to this Agreement, and --------- the aggregate purchase price to be paid by all of the Investors shall equal $1,500,000. 28 1.2 Closing. The purchase and sale of the Preferred Shares shall ------- take place at the offices of the Company on July 18, 1995, or at such other time and place as the Company and Investors mutually agree upon (which time and place are designated as the "Closing"). At the Closing, the Company will deliver to the Investors stock certificates representing Preferred Shares to be sold to each Investor against payment of the purchase price therefor by checks payable to the order of the Company or wire transfers of funds. The Investors acknowledge that the Company intends to sell and issue additional Preferred Shares in order to raise additional capital of up to $5,000,000, but no assurance can be given by the Company as to when, or if, such sale and issuance will occur, or at what price per share the additional Preferred Shares may be sold. 2. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to each Investor, except as set forth on the Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to be --------- representations and warranties as if made hereunder as follows: 2.1 Organization and Authority. The Company: (i) is a corporation duly -------------------------- organized, validly existing and in good standing under the laws of the State of Delaware; (ii) has all necessary corporate power to own and lease its properties, to carry on its business as now being conducted and to enter into and perform this Agreement and all agreements to which the Company is or will be a party that are exhibits to this Agreement, and (iii) is qualified to do business in all jurisdictions in which the failure to so qualify would have a material adverse effect on its business or financial condition. The Company has made available to the Investors for inspection complete and correct copies of its certificate of incorporation, as amended, and bylaws as in effect on the date hereof. 2.2 Capitalization. -------------- (a) Immediately prior to the Closing, the authorized capital of the Company consists, or will consist of: (i) Preferred Stock. 5,000,000 shares of Preferred Stock, --------------- 100,000 of which have been designated Series A Preferred Stock, $0.01 par value per share and 642,583 of which have been designated Series B Preferred Stock, $0.01 par value per share. No shares of Series A Preferred Stock or Series 29 B Preferred Stock were issued and outstanding immediately prior to the Closing. The rights, preferences and privileges of the Series B Preferred Stock will be as stated in the Company's Certificate of Designation attached hereto as Exhibit ------- A. - - (ii) Common Stock. 25,000,000 shares of Common Stock, $0.50 ------------ par value per share, 10,683,687 shares of which were issued and outstanding. (b) All such issued and outstanding shares have been duly authorized and validly issued, are fully paid and nonassessable and have been issued in compliance with all applicable state and federal laws concerning the issuance of securities. (c) Agreements for Purchase of Shares. Except for: --------------------------------- (i) the conversion privileges of the Series B Preferred Stock; and (ii) options issued pursuant to the Company's stock option plan and other agreements (as of the Closing, options for 575,500 shares of Common Stock are presently outstanding and an additional 39,200 shares of Common Stock are available for grant under the Company's stock option plan); and (iii) warrants to purchase an aggregate of 1,135,263 shares of Common Stock held by various parties; prior to the Closing there will not be any outstanding options, warrants, rights (including conversion, preemptive rights or rights of first offer) or agreements for the purchase or acquisition from the Company of any shares of its capital stock. 2.3 Investment in Others. Section 2.3 of the Schedule of Exceptions -------------------- attached hereto as Exhibit C contains a list of each corporation, association, --------- partnership, joint venture or other entity in which the Company, directly or indirectly, owns an equity interest and sets forth the Company's percentage interest by voting rights and by profits, in each such entity. Except for the entities identified in such list, the Company does not conduct any part of its business operations through any subsidiaries or through any other entity in which the Company has an equity investment. 30 2.4 Authority Relating to this Agreement; No Violation of Other ----------------------------------------------------------- Instruments. - ----------- (a) The execution and delivery of this Agreement and all agreements to which the Company is or will be a party that are exhibits to this Agreement and the performance hereunder and thereunder by the Company have been duly authorized by all necessary corporate action on the part of the Company, and, assuming execution of this Agreement and such other agreements by each of the other parties thereto, this Agreement and such other agreements will constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject as to enforcement: (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws of general applicability relating to or affecting creditors' rights; and (ii) to general principles of equity, whether such enforcement is considered in a proceeding in equity or at law. (b) Neither the execution of this Agreement or any other agreement to which the Company is or will be a party that is an exhibit to this Agreement (or otherwise executed in connection with this Agreement) nor the performance of any of them by the Company will: (i) conflict with or result in any breach or violation of the terms of any decree, judgment, order, law or regulation of any court or other governmental body now in effect applicable to the Company; (ii) conflict with, or result in, with or without the passage of time or the giving of notice, any breach of any of the terms, conditions and provisions of, or constitute a default under or otherwise give another party the right to terminate, or result in the creation of any lien, charge, or encumbrance upon any of the assets or properties of the Company pursuant to any indenture, mortgage or lease, by which it or any of its assets or properties are bound; (iii) permit the acceleration of the maturity of any material indebtedness of the Company or of any other person secured by the assets or property of the Company; or (iv) violate or conflict with any provision of the Company's certificate of incorporation or bylaws, each as in effect on the date hereof. (c) Except as contemplated in Sections 1.1(a), 4.5, 4.7, and 5.4 of this Agreement, no consent from any third party and no consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority is required to be made or obtained by the Company in order to permit the execution, delivery or performance 31 of this Agreement or any other agreement to which the Company is or will be a party that is an exhibit to this Agreement by the Company, or the consummation of the transactions contemplated by this Agreement and such other agreements (assuming the exemption provided by Section 3(a)(9) of the Securities Act of 1933, as amended (the "Securities Act"), in its current form is available with respect to the conversion of the Preferred Shares into Common Stock and no commission is paid in connection therewith); except for such filings as have been made prior to the Closing, and except for any notices of sale required to be filed with the Securities and Exchange Commission ("SEC") under Regulation D of the Securities Act, or such post-closing filings as may be required under applicable state securities laws, which will be timely filed within the applicable periods therefor. 2.5 Valid Issuance of Preferred Stock. The Preferred Shares, when --------------------------------- issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations of the Investors set forth in Section 3 of this Agreement, will be issued in compliance with all applicable federal and state securities laws free and clear of all restrictions on transfer (other than those arising from application of the securities laws). The Common Stock issuable upon conversion of the Preferred Shares purchased under this Agreement has been duly and validly reserved for issuance. 2.6 Litigation. Neither the Company nor any officer or director of the ---------- Company is a party to any pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation, at law or in equity or otherwise in, for or by any court or any governmental body which could have a material adverse effect on: (i) the condition, financial or otherwise, assets or properties of the Company; or (ii) the transactions contemplated by this Agreement; nor, to the best knowledge of the Company, does any basis exist for any such action, suit, proceeding or investigation. The Company is not, and has not been, subject to any pending or, to the Company's knowledge, threatened product liability claim; nor, to the Company's knowledge, does any basis exist for any such claim. The Company is not subject to any decree, judgment, order, law or regulation of any court or other governmental body which could have a material adverse effect on the condition, financial or otherwise, assets, liabilities, business or results of operations 32 of the Company or which could prevent the transactions contemplated by this Agreement. 2.7 Protection of Intangible Property. To the knowledge of the --------------------------------- Company, each employee and consultant who has worked on or contributed to the development of the Company's technology, trade secrets and other proprietary rights, has executed a proprietary rights and information agreement. The Company has taken reasonable precautions to protect its trade secrets. To the Company's knowledge, the Company's trade secrets have not been used, distributed or otherwise exploited under circumstances which have caused, or with the passage of time could cause, the loss of trade secret status. 2.8 Compliance with Law. The Company holds all material licenses, ------------------- permits and authorizations necessary for the lawful conduct of the Company's business wherever conducted pursuant to all applicable statutes, laws, ordinances, rules and regulations of all governmental bodies, agencies and subdivisions having, asserting or claiming jurisdiction over the Company or over any part of the Company's operations, and the Company knows of no violation thereof. The Company is not in violation of any decree, judgment, order, law or regulation of any court or other governmental body (including without limitation, applicable environmental protection legislation and regulations, equal employment and civil rights regulations, wages and hours regulations, the payment of social security and other employment related taxes and occupational health and safety legislation), which violation could have a material adverse effect on the condition, financial or otherwise, assets, liabilities, business or results of operations of the Company. 2.9 Contracts. Section 2.9 of the Schedule of Exceptions attached as --------- Exhibit C lists all oral or written agreements, notes, instruments, or contracts - --------- to which the Company is a party or by which its assets or properties may be bound which involve the payment or receipt of more than Fifty Thousand Dollars ($50,000.00) (on an annual basis), or which have a term of more than one year, or which involve intellectual property or research and development or clinical testing, or which are employment or consulting agreements (the "Contracts"). The Company is not in default in performance of its obligations under any material provision of such Contracts. The Company has no knowledge of any violation of any Contract by any other party thereto and the Company has no knowledge of any intent by any 33 other party to a Contract not to perform its obligations under such Contract. 2.10 Registration Rights. Except as provided in the Registration ------------------- Rights Agreement in the form appended hereto as Exhibit D, the Company has not --------- granted or agreed to grant any registration rights, including piggy-back rights, to any person or entity. 2.11 Personal Property. The Company has good title, free and clear of ----------------- all title defects, objections and liens, including without limitation, leases, chattel mortgages, conditional sales contracts, collateral security arrangements and other title or interest-retaining arrangements, to all of its machinery, equipment, furniture, inventory and other personal property which it owns. All such personal property as used in the business of the Company is in good operating condition. All of the leases to personal property utilized in the business of the Company are valid and enforceable and are not in default by the Company, or, to the knowledge of the Company, are any of the other parties thereto in default thereof. 2.12 Real Property. The Company does not own any real property. ------------- Section 2.12 of the Schedule of Exceptions attached as Exhibit C contains a --------- list of all leases for real property to which the Company is a party, the square footage leased with respect to each lease and the expiration date of each lease. All such leases are valid and enforceable and are not in default. To the best knowledge of the Company, the improvements located thereon, and the furniture, fixtures and equipment relating thereto (including plumbing, heating, air conditioning and electrical systems), conform to any and all applicable health, fire, safety, zoning, land use and building laws, ordinances and regulations. There are no outstanding contracts made by the Company for any improvements made to the real property owned, leased or occupied by the Company that have not been paid for. 2.13 Patents, Trademarks, Trade Names and Copyrights. All patents, ----------------------------------------------- patent applications, trademarks, trade names, copyrights, processes, designs, formulas, inventions, trade secrets, know-how, technology or other proprietary rights which are necessary to the conduct of the Company's business are owned or are useable by the Company. To the best knowledge of the Company, the conduct of any business conducted by the Company does not infringe any patent, trademark, trade name, copyright, 34 trade secret, or other proprietary right of any other person. No litigation is pending or, to the knowledge of the Company has been threatened against the Company or any officer, director, stockholder, employee or agent of the Company, for the infringement of any patents, trademarks or trade names of any other party or for the misuse or misappropriation of any trade secret, know-how or other proprietary right owned by any other party nor, to the best knowledge of the Company, does any basis exist for such litigation. To the best knowledge of the Company, there has been no infringement or unauthorized use by any other party of any patent, trademark, trade name, copyright, process, design, formula, invention, trade secret, know-how, technology or other proprietary right belonging to the Company. 2.14 Financial Statements. The Company has delivered to each Investor: -------------------- (i) its consolidated audited financial statements (consisting of its consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders' equity and consolidated statements of cash flows) at and for the periods ending December 31, 1993 and December 31, 1994 and (ii) its consolidated unaudited financial statements (consisting of its consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders' equity and consolidated statements of cash flows) at and for the period ending March 31, 1995 (collectively, the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared on a consistent basis throughout the periods indicated in accordance with generally accepted accounting principals. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject to, with respect to the unaudited financial statements, normal year-end audit adjustments. 2.15 Absence of Certain Changes or Events. Since March 31, 1995, the ------------------------------------ date (the "Balance Sheet Date") of the most recent balance sheet delivered by the Company pursuant to Section 2.14 (the "Balance Sheet"), except as contemplated by this Agreement, there have been no material changes in the condition, financial or otherwise, assets, liabilities, business or the results of operations of the Company, other than changes in the ordinary course of business which in the aggregate have not been materially adverse. Without limiting the foregoing, including the materiality standard, since the Balance Sheet Date, except as contemplated by this Agreement: 35 (i) the Company has not entered into any transaction other than in the ordinary course of business; (ii) there have been no material losses or damage to any of the assets or properties of the Company due to fire or other casualty, whether or not insured; (iii) there has been no increase or decrease in the rates of direct compensation payable or to become payable by the Company to any employee, agent or consultant (other than routine increases made in the ordinary course of business), or any bonus, percentage compensation, service award or other like benefit, granted, made or accrued to or to the credit of any such employee, agent or consultant, or any material welfare, pension, retirement or similar payment or arrangement made or agreed to be made by the Company (other than such events occurring pursuant to any previously existing benefit plan); (iv) the Company has not executed, created, amended or terminated any contract except in the ordinary course of business consistent with past practice; (v) the Company has not declared or paid any dividend or made any distribution on its capital stock, nor redeemed, purchased or otherwise acquired any of its capital stock or issued any capital stock, other than under its stock incentive plans, if any, identified herein; (vi) the Company has not received notice that there has been a cancellation of an order for its products or a loss of a customer of the Company, the cancellation or loss of which would materially adversely affect the condition, financial or otherwise, assets, liabilities, business or results of operations of the Company; (vii) there has been no resignation or termination of employment of any officer or key employee of the Company and the Company does not know of the impending resignation or termination of employment of any officer or key employee of the Company; (viii) there has been no material change in the contingent obligations of the Company by way of guaranty, endorsement, indemnity, warranty or otherwise; 36 (ix) there have been no loans made by the Company to its employees, officers or directors, other than travel advances and other advances made in the ordinary course of business consistent with past practice; (x) to the best of the Company's knowledge there has been no waiver or compromise by the Company of a material right or of a material debt owed to it; (xi) the Company has not made or agreed to make any disbursements or payments of any kind to any member or members of its Board of Directors, other than travel advances or reimbursements made in the ordinary course of business or fees or expenses for services rendered; (xii) there have been no capital expenditures by the Company exceeding Fifty Thousand Dollars ($50,000.00) individually; (xiii) there has been no change in accounting methods or practices (including without limitation, any change in depreciation or amortization policies or rates) by the Company; (xiv) there has been no revaluation by the Company of any of the assets or properties of the Company; (xv) there has been no sale or transfer of any of the assets or properties of the Company, except in the ordinary course of business consistent with past practice; (xvi) there has been no loan by the Company to any person or entity; (xvii) there has been no commencement or notice or threat of commencement of any governmental proceeding against or investigation of the Company or its affairs; (xviii) there has been no revocation of license or right to do business granted to the Company; (xix) the Company has not paid any obligation or liability (fixed, contingent or otherwise) or discharged or satisfied any lien, or settled any liability, 37 claim, dispute, proceeding, suit or appeal pending or threatened against it, except for current liabilities incurred in the ordinary course of business; and (xx) there has been no agreement or commitment by the Company to do or perform any of the acts described in this Section 2.15. 2.16 Tax Returns and Payments. All tax returns and reports with ------------------------ respect to the Company required by law to be filed under the laws of any jurisdiction, domestic or foreign, have been duly and timely filed and all taxes, fees or other governmental charges of any nature which were required to have been paid have been paid or provided for, and the Company has no knowledge of any actual or threatened assessment of deficiency or additional tax or other governmental charge or a basis for such a claim against the Company. The Company has no knowledge of any tax audit of the Company by any taxing or other authority in connection with any of its fiscal years. The Company has no knowledge of any such audit currently pending or threatened. There are no tax liens on any of the properties of the Company. 2.17 Personnel. Section 2.17 of the Schedule of Exceptions attached --------- hereto as Exhibit C contains a list of: (i) all employment, bonus, profit --------- sharing, percentage compensation, employee benefit plans, incentive plans, pension or retirement plans, stock purchase and stock option plans, oral or written contracts or agreements with directors, officers, employees or unions, or consulting agreements, to which the Company is a party or is subject as of the date of this Agreement; and (ii) all group insurance programs in effect for employees of the Company. The Company is not in default with respect to any of the obligations so listed. The Company has made available complete and correct copies of all such obligations (to the extent they are in writing or written descriptions to the extent they are oral) to the Investors. The Company does not have and never has had any union contracts or collective bargaining agreements with, or any other obligations to, employee organizations or groups relating to the Company's business. All plans described in Section 2.17 of the Schedule of Exceptions attached hereto as Exhibit C are in full compliance with all --------- applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code") and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and regulations issued under ERISA, and to the knowledge of the Company there are no pending, threatened or 38 anticipated claims (other than routine claims) for benefits by, on behalf of, or against any of such plans. Neither the Company nor any of the plans subject to ERISA, nor any fiduciary thereof has engaged in a transaction subject to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code in connection with which the Company has directly or indirectly incurred or may incur material liability. The Company has never sponsored or contributed to a defined benefit pension plan as defined in Section 414(j) of the Code. 2.18 Certain Payments. To the knowledge of the Company, neither the ---------------- Company, nor any stockholder, director, officer, employee or agent of the Company, has made or caused to be made, directly or indirectly, the payment of any consideration whatsoever to any public official, candidate for public office, political party, or other third person in connection with the business or operations of the Company, or pertaining to the Company's relations with any customer, supplier, or creditor, in contravention of the law of the applicable jurisdiction. 2.19 Brokers and Finders. Neither the Company nor any stockholder, ------------------- director, officer, employee or agent of the Company has retained any broker, finder or investment banker in connection with the transactions contemplated by this Agreement, except as set forth in the Schedule of Exceptions attached hereto as Exhibit C. --------- 2.20 Stockholders and Employees. None of the stockholders, directors -------------------------- or management personnel of the Company is presently a party to any transaction with the Company, including without limitation, any contract, agreement or other arrangement: (i) providing for the furnishing of services to or by (other than as employee); (ii) providing for rental of real or personal property to or from; or (iii) otherwise requiring payments to or from, any stockholder, director or management personnel, or any member of the family of any stockholder, director or management personnel or any corporation, trust or other entity in which any stockholder, director or management personnel has a substantial interest or is an officer, director, investor or partner. 2.21 Absence of Environmental Liabilities. To the knowledge of the ------------------------------------ Company, neither the Company nor the real property owned, leased or occupied by the Company is in violation of any applicable federal, state or local law, ordinance, 39 regulation or order relating to industrial hygiene, worker safety, public health and safety, environmental protection, or Hazardous Material (as defined below) on, under or about such real property, including the soil and ground water underlying such real property. To the knowledge of the Company, no current use of or condition at the real property owned, leased or occupied by the Company constitutes a public or private nuisance. To the knowledge of the Company, any handling, transportation, storage, treatment or use of Hazardous Material (as defined below) by the Company that has occurred on the real property owned, leased or occupied by the Company during the Company's ownership, tenancy or occupancy and prior to the Closing Date has been and will be as of the Closing Date in compliance with all applicable laws, ordinances, regulations and orders relating to Hazardous Material. As used herein, the term "Hazardous Material" means any substance, material or waste which is or becomes regulated as "hazardous" or "toxic" by any local governmental authority or the State of Oregon, the State of California or France, including without limitation, any material or substance which is: (1) petroleum; (2) asbestos; or (3) defined as a "hazardous substance" under Section 101 or Section 102 of the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA"), and any regulations applicable thereunder. To the knowledge of the Company, the real property owned, leased or occupied by the Company, including without limitation, the soil and groundwater on or under such real property, is free of any significant release of any Hazardous Material. No notification of release of Hazardous Material pursuant to CERCLA or the federal Clean Water Act or any state or local environmental law or regulatory requirement has been received by the Company as to any of such real property. To the knowledge of the Company, no hazardous wastes generated by the Company or any of its affiliates in operating the Company's business have ever been sent directly or indirectly to any site listed or formally proposed for listing on the National Priority List promulgated pursuant to CERCLA or to any site listed on any state list of hazardous substances sites requiring investigation or clean-up, nor has the Company arranged for the transportation, treatment or disposal at any site of any Hazardous Material, except in accordance with all applicable laws and regulations. The Company has not received from any governmental authority or third party any requests for information, notices of claim, demand letters, or other notification that, in connection with the conduct of its 40 business, it is or may be potentially responsible with respect to any investigation or clean-up of Hazardous Material at any time. 2.22 Accuracy of Documents and Information. The copies of all ------------------------------------- instruments, agreements, other documents and written information set forth as, or referenced in, Schedules or Exhibits to this Agreement or specifically required to be furnished pursuant to this Agreement by the Company to the Investors, including, without limitation, the Exhibits hereto, are and will be complete and correct in all material respects. All information in the Schedule of Exceptions attached hereto as Exhibit C is accurate as of the date hereof or --------- such earlier date as is specified therein, which in no case is before March 31, 1995, and there have been no material changes in the information set forth therein between the date so specified and the date of this Agreement. No representations or warranties made by the Company in this Agreement, nor any document, written information, statement, financial statement, certificate, Schedule or Exhibit furnished directly to the Investors pursuant to this Agreement or in the Schedule of Exceptions attached hereto as Exhibit C contains --------- any untrue statement of a material fact, or omits to state a material fact necessary to make the statements or facts contained herein and therein taken as a whole not misleading. There is no undisclosed fact which materially and adversely affects the Company. 3. Representations and Warranties of Each Investor. Each Investor ----------------------------------------------- hereby severally and not jointly represents and warrants to the Company as follows: 3.1 Authorization. This Agreement constitutes such Investor's ------------- valid and legally binding obligation, enforceable in accordance with its terms except as affected by (i) bankruptcy or insolvency laws, and (ii) equitable principles. Each Investor who is not a natural person, hereby represents that the person executing this Agreement on its behalf is duly authorized to do so. 3.2 Purchase Entirely for Own Account. This Agreement is made with --------------------------------- each Investor in reliance upon such Investor's representation to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Preferred Shares to be received by such Investor hereunder will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribu- 41 tion of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, each Investor purchasing Preferred Shares hereunder further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Preferred Shares, or any portion thereof (provided however, the parties acknowledge that Brantley Ventures II, L.P. is a venture capital limited partnership which pursuant to the terms of its partnership agreement from time to time transfers securities to its limited partners). Each Investor that is an entity represents that it has full power and authority to enter into this Agreement. 3.3 Disclosure of Information. Each Investor believes it has received ------------------------- all the information it considers necessary or appropriate for deciding whether to purchase the Preferred Shares. Each such Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Preferred Shares. The foregoing does not modify the Company's representations and warranties set forth herein or the Investor's right to rely thereon. 3.4 Investment Experience. Each Investor is an investor in securities --------------------- of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment in the Preferred Shares. If other than an individual, Investor also represents it has not been organized solely for the purpose of acquiring the Preferred Shares. 3.5 Restricted Securities. Each Investor purchasing Preferred Shares --------------------- hereunder understands that the Preferred Shares are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Preferred Shares may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, each Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations 42 imposed thereby and by the Securities Act. Each Investor who is a resident of Pennsylvania agrees not to sell the Preferred Shares within twelve (12) months of the Closing, unless permitted under Section 204.011 of Pennsylvania's Blue Sky Regulations. 3.6 Further Limitations on Disposition. Without in any way limiting ---------------------------------- the representations set forth above, each Investor purchasing Preferred Shares hereunder further agrees not to make any disposition of all or any portion of the Preferred Shares (or the Common Stock issuable upon the conversion of the Preferred Shares) unless and until: (a) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or that any such disposition may be made pursuant to the exemption under SEC Rule 144 and the Investor furnishes to the Company an opinion of counsel (reasonably satisfactory to the Company) to the effect that such exemption is available; or (b) (i) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (ii) if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such Preferred Shares under the Securities Act and (iii) if reasonably requested by the Company, the transferee shall have furnished to the Company its agreement to abide by the restrictions on transfer set forth herein as if it were a purchaser hereunder. 3.7 Accredited Investor. The term "Accredited Investor" as used in ------------------- Sections 3.7 and 3.8 refers to a person or entity who: (a) is a director or executive officer of the Company; or (b) is a natural person whose individual net worth, or joint net worth with his or her spouse, at the time of purchase exceeds $1,000,000, and the total purchase price does not exceed ten percent (10%) of his or her individual net worth, or joint net worth with his or her spouse, at the time of sale; or 43 (c) is a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and reasonably expects to reach the same income level in the current year, and the total purchase price does not exceed ten percent (10%) of his or her individual net worth, or joint net worth with his or her spouse, at the time of sale; or (d) is a private business development company as defined in section 202(a)(22) of the Investment Advisors Act of 1940; or (e) is either (i) a bank as defined in section 3(a)(2) of the Securities Act, or a savings and loan association or other institution as defined in section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; (ii) a broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; (iii) an insurance company as defined in section 2(13) of the Securities Act; (iv) an investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; (v) a Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; or (vi) an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if an employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are Accredited Investors; or (f) is any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Preferred Shares offered, with total assets in excess of $5,000,000; or (g) is any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Preferred Shares offered, whose purchase is directed by a 44 sophisticated person as described in Regulation 230.506(b) (2) (ii) promulgated under the Securities Act; or (h) is an entity in which all of its equity owners meet one or more of the standards set forth in (a) through (g) above. As used in this Section 3.7, the term "net worth" means the excess of total assets over total liabilities, and "income" means actual economic income, which may differ from adjusted gross income for federal income tax purposes. 3.8 Representations and Warranties as to Accredited Investor Status. --------------------------------------------------------------- Each Investor as to itself, severally and not jointly, further represents to the Company that such Investor is an Accredited Investor. 3.9 Legends. To the extent applicable, each certificate or other ------- document evidencing any of the Preferred Shares issued hereunder or any Common Stock issued upon conversion of the Preferred Shares shall be endorsed with the legends set forth below, and such Investor covenants that, except to the extent such restrictions are waived by the Company, such Investor shall not transfer the securities without complying with the restrictions on transfer described in the legends endorsed thereon; (a) The following legend under the Securities Act: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED." (b) If required by the authorities of any state in connection with the issuance or sale of the Preferred Shares, the legend required by such state authority. The Company shall not be required (i) to transfer on its books any Preferred Shares which shall have been transferred in 45 violation of any of the provisions set forth in this Agreement, or (ii) to treat as owner of such Preferred Shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Preferred Shares shall have been so transferred. 3.10 Removal of Legends. ------------------- (a) Any legend endorsed on a certificate pursuant to Section 3.09(a) or (b) hereof shall be removed (i) if Preferred Shares represented by such certificate shall have been effectively registered under the Securities Act or otherwise lawfully sold in a public transaction, (ii) if such Preferred Shares may be transferred in compliance with Rule 144(k) promulgated under the Securities Act, or (iii) if the holder of such Preferred Shares shall have provided the Company with an opinion from counsel, in form and substance acceptable to the Company and from attorneys reasonably acceptable to the Company, stating that a public sale, transfer or assignment of such Preferred Shares may be made without registration. (b) Any legend endorsed on a certificate pursuant to Section 3.9(b) hereof shall be removed if the Company receives an order of the appropriate state authority authorizing such removal or if the holder of the Preferred Shares provides the Company with an opinion of counsel, in form and substance acceptable to the Company and from attorneys reasonably acceptable to the Company, stating that such state legend may be removed. 4. Conditions of Investor's Obligations at Closing. The obligations of ----------------------------------------------- each Investor under subsection 1.1(b) of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: 4.1 Representations and Warranties. The representations and ------------------------------ warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 4.2 Performance. The Company shall have performed and complied with ----------- all agreements, obligations and conditions 46 contained in this Agreement that are required to be performed or complied with by it on or before the Closing. The entering into, delivery and performance of this Agreement by the Company shall have been duly authorized by all necessary corporate action. 4.3 Compliance Certificate. At the Closing, the Chief Executive ---------------------- Officer of the Company shall deliver to the Investors a certificate certifying that the conditions set forth in Sections 4.1 and 4.2 have been fulfilled. 4.4 Qualifications. Any applicable United States state securities -------------- regulatory authority shall have issued permits qualifying the offer and sale of the Preferred Shares to the Investors pursuant to this Agreement, or such offer and sale shall be exempt from such qualification under applicable state blue-sky law. 4.5 Certificate of Designation. The Company shall have adopted and -------------------------- filed with the Secretary of State of the State of Delaware on or before the date of the Closing, the Certificate of Designation. 4.6 Legal Investment. At the time of such Closing, the purchase of ---------------- the Preferred Shares by the Investors shall be legally permitted by all laws and regulations to which such Investors and the Company are subject. 4.7 Acquisition of Therox Pharmaceuticals. The consummation of the ------------------------------------- merger of Therox Pharmaceuticals, Inc., a Delaware corporation with and into a wholly-owned subsidiary of the Company ("Acquisition") shall occur at or immediately prior to the Closing. 4.8 Opinion of Counsel. At the Closing, the Investors shall have ------------------ received an opinion of Jackson, Tufts, Cole & Black, counsel for the Company, regarding the matters set forth on Exhibit E hereto. --------- 5. Conditions of the Company's Obligations at Closing. The obligations -------------------------------------------------- of the Company to each Investor purchasing Preferred Shares hereunder are subject to the fulfillment on or before the Closing of each of the following conditions by such Investor: 47 5.1 Representations and Warranties. The representations and ------------------------------ warranties of the Investor contained in Section 3 hereof shall be true on and as of the date of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 5.2 Payment of Purchase Price. Each Investor shall have delivered the ------------------------- purchase price specified in Section 1.1(b) and Exhibit B. --------- 5.3 Blue Sky Qualification. Any applicable United States state ---------------------- regulatory authority shall have issued permits qualifying the offer and sale to the Investors of the Preferred Shares or such offer and sale shall be exempt from such qualification under applicable state blue-sky law. 5.4 Certificate of Designation. The Company shall have adopted and -------------------------- filed with the Secretary of State of the State of Delaware on or before the Closing, the Certificate of Designation. 5.5 Legal Investment. At the time of such Closing, the purchase of ---------------- the Preferred Shares by the Investors shall be legally permitted by all laws and regulations to which the Investors and the Company are subject. 6. Miscellaneous. -------------- 6.1 Survival of Warranties. The warranties, representations and ---------------------- covenants of the Company and the Investors 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 Investors or the Company. 6.2 Successors and Assigns. 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 party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 48 6.3 Governing Law. This Agreement shall be governed by and construed ------------- under the laws of the State of Delaware. 6.4 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 constitute one and the same instrument. 6.5 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. 6.6 Notices. Except as otherwise expressly provided herein, any ------- notice required or permitted hereunder shall be given in writing and it or any certificates or other documents delivered hereunder shall be deemed effectively given or delivered (as the case may be) upon personal delivery (professional courier permissible) or when mailed by receipted United States certified mail delivery, five (5) business days after deposit in the United States mail. Such certificates, documents or notice may be personally delivered or sent to the following address: (a) if to a Investor, to the address set forth with respect to such investor on Exhibit B attached hereto, or to such other address of which --------- such investor shall have given notice pursuant hereto the Company, or (b) if to the Company, to OXIS International, Inc., 6040 N. Cutter Circle, Suite 317, Portland, Oregon 97217-3935, or to such other address of which the Company shall have given notice pursuant hereto. 6.7 Finder's Fee. Each Investor severally agrees to indemnify and ------------ hold harmless the Company from any liability for any commission or compensation in the nature of a broker's, investment banker's or finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which such investor or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finder's, broker's or investment banker's fee (including any fees owed by the Company to Wasserstein Perella & Co., Inc.) (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 49 6.8 Expenses. Each party to this Agreement shall bear its own -------- expenses incurred in connection with the negotiation, preparation, execution and consummation of this Agreement, including the fees, expenses and disbursements of its respective legal counsel incurred in connection herewith. 6.9 Amendments and Waivers. 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), only with the written consent of the Company and the holders of at least 50.1% of shares of the Common Stock issued or issuable upon conversion of the Preferred Shares; provided, however, the conditions to Closing set forth in Section 4 hereof may only be amended by unanimous agreement of the Investors. 6.10 Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 6.11 Aggregation of Stock. All Preferred Shares (or Common Stock -------------------- issued on conversion thereof) held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 6.12 Confidentiality Agreement. Each Investor and any successor or ------------------------- assigns of such Investor who receives from the Company or its agents, directly or indirectly, any information which the Company has not made generally available to the public, pursuant to the preparation and execution of this Agreement or disclosure in connection therewith, acknowledges and agrees that such information is confidential and for its use only in connection with evaluating its investment in the Company, and further agrees that it will not disseminate such information to any person other than its accountant, investment advisor or attorney and that such dissemination shall be only for purposes of evaluating its investment. 6.13 Entire Agreement. This Agreement and the other documents and ---------------- agreements delivered pursuant hereto constitute the full and entire understanding and agreement among the parties 50 with regard to the subjects hereof and thereof and supersedes any prior agreements, memorandum of understanding or letters of intent between the parties regarding the subject matter hereof (including without limitation the letter of intent between the parties dated May 17, 1995, as amended). 6.14 Series B Board Nominee. The parties acknowledge that Timothy G. ---------------------- Biro ("Biro") will be appointed to the Company's Board of Directors upon the consummation of the sale of the Preferred Shares, as the designee of the Preferred Shares. If at any time Biro (or any successor to Biro as the designee of the Preferred Shares) ceases to serve on the Company's Board, the holders of three-fourths (3/4) of the Preferred Shares then outstanding may request that the Board of Directors of the Company shall appoint the designee of the holders of the Preferred Shares to serve as a member of the Board of Directors of Company, and the Board of Directors shall not unreasonably refuse such request. 51 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. "Investors" "Company" S.R. ONE, Limited OXIS INTERNATIONAL, INC. a Delaware corporation By: -------------------------- Name: By: ----------------------- -------------------------- Title: Name: ----------------------- ------------------------ Title: ----------------------- BRANTLEY VENTURE PARTNERS II, L.P. By: -------------------------- Name: ----------------------- Title: ----------------------- 52 EXHIBIT A --------- CERTIFICATE OF DESIGNATIONS, PREFERENCES, AND --------------------------------------------- RIGHTS OF SERIES B PREFERRED STOCK ---------------------------------- OXIS International, Inc., a Delaware corporation (the "Corporation"), certifies that pursuant to the authority contained in Article FOURTH of its Restated Certificate of Incorporation, and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, its Board of Directors has adopted the following resolution creating a series of Preferred Stock designated as Series B Preferred Stock. "RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation by the Restated Certificate of Incorporation (the "Certificate of Incorporation"), the Board of Directors does hereby provide for the issue of, and does hereby issue, a series of Preferred Stock, par value $0.01 per share, of the Corporation, to be designated "Series B Preferred Stock," initially consisting of Six Hundred Forty-Two Thousand Five Hundred Eighty-Three (642,583) shares and to the extent that the designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions of the Series B Preferred Stock are not stated and expressed in the Certificate of Incorporation, does hereby fix and herein state and express such designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions thereof, as follows (all terms used herein which are defined in the Certificate of Incorporation shall be deemed to have the meanings provided therein): A. Designation and Amount. The shares of such series shall be designated ---------------------- as "Series B Preferred Stock," par value $0.01 per share, and the number of shares constituting such series shall be 642,583. B. Rights, Preferences and Privileges. The rights, preferences, ---------------------------------- privileges and restrictions granted to or imposed upon the Series B Preferred Stock are as follows: 1. Series B Dividends. ------------------ (a) The holders of outstanding Series B Preferred Stock shall be entitled to receive in any fiscal year, when, as and if declared by the Board of Directors, out of any assets at the time legally available therefor, dividends at the rate of $0.115 per share of Series B Preferred Stock per annum before any dividend or distribution (other than pursuant to Section 4) is paid on Common Stock. Such dividend or distribution may be payable annually or otherwise as the Board of Directors may from time to time determine. Dividends or distributions (other than dividends payable solely in shares of Common Stock or distributions pursuant to Section 4) of up to $0.115 per share may be declared and paid upon shares of Common Stock in any fiscal year of the Corporation only if dividends shall have been paid on and declared and set apart upon all 53 shares of Series B Preferred Stock at such annual rate in such year. After dividends or distributions of $0.115 per share have been declared and paid on the Common Stock in any fiscal year, all further dividends and distributions during such fiscal year shall be distributed among the holders of the Common Stock and the Series B Preferred Stock in proportion to the shares of Common Stock then held by them and the shares of Common Stock which they then have the right to acquire upon conversion of the shares of Series B Preferred Stock then held by them. The right to such dividends on shares of Series B Preferred Stock shall not be cumulative and no right shall accrue to holders of shares of Series B Preferred Stock by reason of the fact that dividends on said shares are not declared in any prior year, nor shall any undeclared or unpaid dividend bear or accrue interest. 2. Series B Voting Rights. ---------------------- (a) Each holder of shares of Series B Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such holder's shares of Series B Preferred Stock could be converted on the record date for the vote or consent of stockholders and, except as otherwise provided herein, shall have voting rights and powers equal to the voting rights and powers of the Common Stock. The holder of each share of Series B Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation and shall vote with holders of the Common Stock upon the election of directors and upon any other matter submitted to a vote of stockholders, except those matters required by law to be submitted to a class or series vote and except as otherwise provided in Sections 2(b) and 2(c) hereof. Fractional votes by the holders of Series B Preferred Stock shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series B Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number. (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, voting together as a class, shall be entitled to elect one (1) director. The holders of Common Stock voting together as a class, shall be entitled to elect the remaining directors to be elected. (c) In the case of any vacancy in the office of a director occurring among the directors elected by the holders of the Series B Preferred Stock or Common Stock pursuant to Section 2(b) hereof, the remaining director or directors so elected by the holders of the Series B Preferred Stock or Common Stock as the case may be, may, by affirmative vote thereof (or the remaining director so elected if there is but one, or if there is no such director remaining, by the vote of the shares of the applicable class) elect a successor or successors to hold the office for the unexpired term of the director or directors whose place or places shall be vacant. Any director who shall have been elected by the holders of the Series B Preferred Stock or Common Stock or any director so elected as provided in the preceding sentence hereof, may be removed during the aforesaid term of office only by the vote of the Series B Preferred Stock or Common Stock as the case may be, provided that the shares voted against removal would not be sufficient to elect the director with cumulative voting. 54 3. Series B Conversion. The holders of Series B Preferred Stock shall ------------------- have conversion rights as follows (the "Conversion Rights"); (a) Right to Convert. Each share of Series B Preferred Stock shall be ---------------- convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $2.33433 by the Series B Conversion Price, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series B Preferred Stock (the "Series B Conversion Price") shall initially be $2.33433 per share of Common Stock. Such initial Series B Conversion Price shall be adjusted as hereinafter provided. (b) Automatic Conversion. Each share of Series B Preferred Stock shall -------------------- automatically be converted into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $2.33433 by the Series B Conversion Price, in effect on the date of the receipt by the Corporation of the written consent to, or request for, such conversion from holders of at least three-fourths (3/4) of the Series B Preferred Stock then outstanding. (c) Mechanics of Conversion. ----------------------- (i) Before any holder of Series B Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office that he elects to convert the same and shall state therein the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series B Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series B Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (ii) If a voluntary conversion is made in connection with an underwritten offering of securities pursuant to a registration statement filed pursuant to the Securities Act of 1933, as amended (the "Securities Act"), the conversion may, at the option of any holder tendering shares of Series B Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Series B Preferred Stock shall not be deemed to have converted such Series B Preferred Stock until immediately prior to the closing of such sale of securities. 55 (d) Adjustments for Stock Dividends, Subdivisions, or Split-ups of -------------------------------------------------------------- Common Stock. If the number of shares of Common Stock outstanding at any time - ------------ after the filing of this Certificate of Designation is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, effective at the close of business upon the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend, subdivision or split-up, the Conversion Price for the Series B Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series B Preferred Stock shall be increased in proportion to such increase of outstanding shares of Common Stock. (e) Adjustments for Combinations of Common Stock. If the number of -------------------------------------------- shares of Common Stock outstanding at any time after the filing of this Certificate of Designation is decreased by a combination of the outstanding shares of Common Stock, then, effective at the close of business upon the record date of such combination, the Conversion Price for the Series B Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of Series B Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock. (f) Adjustments for Other Distributions. In the event the Corporation ----------------------------------- at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive any distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of Series B Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation which they would have received had their Series B Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 3(f) with respect to the rights of the holders of the Series B Preferred Stock. (g) Adjustments for Reorganizations, Reclassifications, etc. If the ------------------------------------------------------- Common Stock issuable upon conversion of the Series B Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock or other securities or property, whether by reclassification, a merger or consolidation of this Corporation with or into any other corporation or corporations, or a sale of all or substantially all of the assets of this Corporation, or otherwise, the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Series B Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock or securities or other property equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series B Preferred Stock immediately before such event; and, in any such case, appropriate adjustment (as determined by the Board) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of the Series B Preferred 56 Stock, to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be reasonable, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series B Preferred Stock. (h) Certificates as to Adjustments. Upon the occurrence of each ------------------------------ adjustment or readjustment of the Series B Conversion Price pursuant to this Section 3, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series B Preferred Stock a certificate executed by the Corporation's President or Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustments and readjustments, (B) the Conversion Price for such Series B Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series B Preferred Stock. (i) Notices of Record Date. In the event that the Corporation shall ---------------------- propose at any time: (a) to declare any special dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not out of earnings or earned surplus; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (d) to merge or consolidate with or into any other corporation (other than a mere reincorporation transaction), or sell, lease or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; then, in connection with each such event, the Corporation shall send to the holders of Series B Preferred Stock: (i) at least twenty (20) days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; and (ii) in the case of the matters referred to in (c) and (d) above, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). (j) Reservation of Stock Issuable Upon Conversion. The Corporation --------------------------------------------- shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the 57 conversion of all then outstanding shares of the Series B Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in its best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. (k) Fractional Shares. No fractional share shall be issued upon the ----------------- conversion of any share or shares of Series B Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series B Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the board of directors of the Corporation). (l) Notices. Any notice required by the provisions of this Section 3 ------- to be given to the holders of shares of Series B Preferred Stock shall be deemed given on the date of delivery if delivered by hand delivery or by facsimile, or, if deposited in the United States mail (registered or certified), postage prepaid, and addressed to each holder of record at his or its address appearing on the books of the Corporation. 4. Series B Liquidation Preferences. -------------------------------- (a) In the event of any liquidation, dissolution or winding up of the Corporation whether voluntary or involuntary, the holders of the Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Common Stock or any other shares of this corporation other than Series B Preferred Stock by reason of their ownership thereof, the amount of $2.33433 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares), plus all declared or accrued but unpaid, dividends on such share, for each share of Series B Preferred Stock then held by them. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (b) After the payment to the holders of the Series B Preferred Stock of the amounts set forth in Section 4(a) above, the holders of the Common Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the other capital stock of the Company by reason of their ownership 58 thereof, an aggregate distribution equal to the total consideration received by the Corporation for the sale and issuance of all issued and outstanding Series B Preferred Stock, with each holder of Common Stock participating on a pro rata basis based on the number of shares of Common Stock they own. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Common Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then all assets and funds of the Corporation legally available for distribution after the payment to the holders of the Series B Preferred Stock of the amounts set forth in Section 4(a) shall be distributed ratably among the holders of the Common Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (c) After payments to (i) the holders of the Series B Preferred Stock of the amounts set forth in Section 4(a) above, and (ii) the holders of the Common Stock of the amounts set forth in Section 4(b) above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Common Stock and the Series B Preferred Stock in proportion to the shares of Common Stock then held by them and the shares of Common Stock which they then have the right to acquire upon conversion of the shares of Series B Preferred Stock then held by them. 5. Series B Protective Provisions. In addition to any other rights ------------------------------ provided by law, so long as any share of Series B Preferred Stock shall be outstanding, the Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of the majority of the outstanding shares of Series B Preferred Stock voting separately as a separate class, take any action which alters or changes any of the rights, privileges or preferences of the Series B Preferred Stock, including without limitation increasing or decreasing the aggregate number of authorized shares of such series other than an increase incident to a stock split. RESOLVED FURTHER, that the President or any Vice President and the Secretary or any Assistant Secretary of this Corporation be, and they hereby are, authorized and directed to prepare and file a Certificate of Designation in accordance with the foregoing resolution and the provisions of Delaware law and to take such actions as they may deem necessary or appropriate to carry out the intent of the foregoing resolutions." 59 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be duly executed by its Chairman of the Board and attested to by its Secretary this ____ day of July, 1995. OXIS INTERNATIONAL, INC. By: ----------------------- Ray R. Rogers Chairman of the Board ATTEST: - ------------------------- Lawrance A. Brown, Jr. Secretary 60 EXHIBIT B --------- SCHEDULE OF INVESTORS ---------------------